Wis. Stat. § 25.463 creates the Wisconsin Agricultural Producer Security Trust Fund. Wis. Stat. § 93.07 (1) directs the Department to make such regulations as are necessary for the discharge of all the powers and duties of the Department. Wis. Stat. § 126.46 (1) directs the Department to specify by rule annual fund assessments for milk contractors, including an assessment for deferred payment contracts under Wis. Stat. § 126.485. Wis. Stat. § 126.81 (1) (a) allows the Department to promulgate rules to interpret and implement Wis. Stat. ch. 126. Wis. Stat. § 126.88 (1) allows the Department to promulgate rules modifying assessments provided under Wis. Stat. § 126.30 (1). Wis. Stat. § 126.88 (1) (b) directs the Department to promulgate a rule modifying assessments to maintain a combined Fund balance attributable to grain dealers and grain warehouse keepers of at least $1,200,000, but not more than $7,000,000. Related Statutes and Rules
Wis. Stat. § 15.137 (1) defines the membership of the Agricultural Producer Security Council (Council), which advises the Department on the Fund and other producer security matters. Plain Language Analysis
Background
ATCP 99
The Agricultural Producer Security Fund (Fund) is a public trust administered by the Wisconsin Department of Agriculture, Trade and Consumer Protection (DATCP). Milk contractors, grain dealers, grain warehouse keepers, and vegetable contractors (collectively known as contractors) must purchase a license to obtain milk, grain, or vegetables from producers, and most contractors are required to contribute to the Fund annually. The Fund is used to settle claims by producers in the event that a contractor defaults on payment. Assessment contributions from each industry are accounted for separately and deposited into the overall Fund. Wis. Stat. ch. 126, establishes detailed assessment requirements, except that it requires DATCP to establish milk contractor assessments by rule. Wis. Stat. ch. 126, sets minimum and maximum Fund balances for each industry, as well as a minimum and maximum balance requirement for the overall Fund. In March 2018, the Governor signed Act 155. This Act combined individual minimum and maximum Fund balance requirements for grain dealers and grain warehouse keepers. Prior to Act 155, individual minimums for grain dealers and grain warehouse keepers were set at $1 million and $200,000, respectively, and maximums were set at $6 million and $1 million, respectively. These balances were combined specifically to increase the overall stability of the Fund and guard against a modest grain warehouse keeper default having a catastrophic effect on that portion of the Fund. The new combined minimum is $1.2 million and the new combined maximum is $7 million. Current law requires DATCP to adjust assessment rates by rule to maintain Fund balances between the statutory thresholds.
A 2008 drafting error set the assessment exemption threshold at $3 million for both grain dealers and warehouse keepers. Notes from the rulemaking docket indicate that the warehouse keeper threshold should have been set at $500,000. Since the previous warehouse keeper Fund balance maximum was $1 million, an assessment exemption threshold of $3 million would never be realized.
ATCP 100 – Milk
Act 155 permits milk contractors and producers to enter into contracts to defer payments for up to 120 days. Act 155 further requires DATCP to promulgate rules, including emergency rules, to establish a deferred payment Fund assessment rate for these types of transactions.
Prior to Act 155, milk producers were required to be paid on the 4th and the 19th of every month. Allowing producer payments to be deferred for up to 120 days exposes the Fund to larger default payouts in the event a contractor fails to pay the producer. The deferred payment assessment is intended to cover this additional risk.
Proposed policies.
DATCP proposes to make modifications to ATCP 99 that are necessary to align administrative code with Act 155 grain dealer and warehouse keeper thresholds, and to ensure that assessments continue to be equitable between both grain dealers and warehouse keepers. DATCP will also take the opportunity to address the drafting error relating to the assessment exemption for grain warehouse keepers. This rule will not result in a change to assessment amounts currently being paid by either grain dealers or warehouse keepers.
Act 155 combined Fund balance minimum and maximum thresholds in the grain dealer and grain warehouse keeper programs. Prior to Act 155, the statute specified separate limits for grain dealers and warehouse keepers. Under Wis. Stat. § 126.88, DATCP is required to modify assessments to maintain Fund balances within statutory thresholds. When combined, the two exceeded the new statutory maximum of $7 million, and it required DATCP to modify assessments to bring that portion of the Fund back below the statutory maximum. DATCP took action addressing grain dealer assessments specifically in a current emergency rule (EmR 1803) and a proposed permanent rule (CR 17-047). This rule updates the current emergency rule and proposed permanent rule to include grain warehouse keepers. As required by Act 155, DATCP proposes to establish a Fund assessment rate in ATCP 100 for contributing milk contractors that procure milk under a deferred payment contract. The law now allows milk producer payments to be deferred for up to 120 days, which exposes the Fund to potentially larger default payouts in the event a contractor fails to pay the producer. The deferred payment assessment is intended to cover this additional risk.
Policy Alternatives.
DATCP is required by Wis. Stat. § 126.88 (1) to modify assessments to maintain Fund balances between statutory thresholds. If DATCP does nothing, ATCP 99 will not comply with statute. DATCP is also required by a newly amended statutory provision under Wis. Stat. § 126.46 (1) to specify a deferred payment assessment rate by rule. If DATCP does not set a rate, it will not comply with statute. Rule Content
This proposed rule does all of the following:
- Reduces Fund assessments paid by all grain warehouse keepers to the minimum amounts of either $100 or $250 when the grain warehouse keeper portion of the Fund exceeds $1 million.
- Corrects the drafting error, changing the grain warehouse keeper assessment exemption from $3 million to $500,000.
- Establishes the milk contractor deferred payment assessment rate of 0.0035.
Summary of, and Comparison with, Existing or Proposed Federal Statutes and Regulations
ATCP 99 - Grain
The United States Warehouse Act is a voluntary regulatory program administered by Farm Service Agency (FSA), a unit within USDA. Under this act, warehouse keepers who obtain a warehouse license must comply with several FSA regulations. Generally, the warehouse keeper must maintain enough grain in inventory to cover 100% of depositor obligations at all times. Further, FSA licensed warehouse keepers must submit financial statements, submit to inspections by USDA auditors, and post surety bonds. In the event a warehouse defaults, FSA can convert the bonds to cash and disperse the proceeds to depositors. The federal grain warehouse license is officially a voluntary program; in practice, it is not completely voluntary. Every state that has significant grain production (including Wisconsin) has some type of state grain warehousing law. These laws require grain warehouse keepers to obtain a license but allow them to choose either a state license or a federal license. Those that choose a federal license are exempt from the state licensing program.
ATCP 100 - Milk
No federal programs currently exist that offer security to milk producers in the event of payment defaults.
Comparison with Rules in Adjacent States
ATCP 99 - Grain
Like all states with a significant grain industry, Minnesota, Michigan, Illinois, Indiana, and Iowa require persons who buy grain from producers to obtain a grain dealer license, and all persons who store grain for others are required to obtain either a state or federal grain warehouse license. Licensees must file financial statements with the state, and the warehouses must maintain 100% of depositor-owned grain in inventory at all times.
Minnesota requires grain dealers and grain warehouse keepers to post bonds with the state. Indiana, Illinois, and Iowa all have a state indemnity fund that is made up of grain dealer and warehouse assessments. Michigan (like Wisconsin) employs a combination of bonds and indemnity fund contributions.
ATCP 100 - Milk
Minnesota requires any wholesale dealer or food processor who contracts with other Minnesota dealers or farmers of milk, cream, or products made from milk or cream, to be licensed as a Wholesale Produce Dealer. Dealers are required to obtain a surety bond and required to maintain trust assets so that assets are freely available to satisfy outstanding obligations. There are no exceptions to this requirement. Dealers are not prohibited from entering into contracts with milk producers that have extended payment terms.
Michigan requires producer security for all manufacturing and Grade A dairy plants that are a first receiving point for raw milk that will be processed at that facility. Security can be in one or more of several forms including bond, letter of credit, certificate of deposit, or pre-payment. There are no exceptions to this requirement. Dairy plants are not prohibited from entering into contracts with milk producers that have extended payment terms.
Illinois, Indiana, and Iowa do not require dairy producer security.
Summary of Factual Data and Analytical Methodologies
The proposed rule changes, along with statutory changes reflected in Act 155, were prompted by recommendations made by the Agricultural Producer Security Council. DATCP consulted with the Council during the development of this proposed rule. The Council approved the content of the rule at its June 25, 2018 meeting.
