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.
ATCP 99 – Grain
As of April 30, 2018, the Fund balance attributable to grain dealers is approximately $6,758,000, which exceeded the previous maximum threshold by $758,000. The Fund balance attributable to grain warehouse keepers is approximately $256,000, which is just above the previous minimum. The combined balance of approximately $7,014,000 is over the new statutory maximum of $7 million and almost entirely a result of the grain dealer portion of the Fund.
Pre-Act 155 Balances
| Minimum Statutory Balance | Actual Balance as of 3/31/18 201820187 | Maximum Statutory Balance |
Grain Dealers | $ 1,000,000 | $ 6,788,914.73 | $ 6,000,000 |
Grain Warehouse Keepers | $ 200,000 | $ 283,878.32 | $ 1,000,000 |
Milk Contractors | $ 3,000,000 | $ 6,579,940.89 | $ 12,000,000 |
Vegetable Contractors | $ 800,000 | ($ 4,296,714.61) | $ 3,000,000 |
Entire Fund | $ 5,000,000 | $ 9,356,019.33 | $ 22,000,000 |
Act 155 Implementation Balances
| Minimum Statutory Balance | Actual Balance as of 3/31/18 | Maximum Statutory Balance |
Grain Dealers and Warehousehouse Keepers | $ 1,200,000 | $ 7,072,793.05 | $ 7,000,000 |
Milk Contractors | $ 3,000,000 | $ 6,579,940.89 | $ 12,000,000 |
Vegetable Contractors | $ 800,000 | ($ 4,296,714.61) | $ 3,000,000 |
Entire Fund | $ 5,000,000 | $ 9,356,019.33 | $ 22,000,000 |
By the time Act 155 became law, the grain dealer portion of the Fund had already exceeded its individual statutory maximum of $6 million. As a result, DATCP enacted an emergency rule and a proposed permanent rule to lower assessments until that portion of the fund fell back below $6 million.
The Fund balance attributable to grain warehouse keepers is approximately $256,000 and is expected to grow by approximately $50,000 each year, and therefore, is not projected to reach the proposed assessment exemption threshold of $500,000 for about another five years and would not reach the proposed automatic assessment reduction threshold of $1 million for about another 15 years. To ensure that the grain warehouse keeper program assessments are equitable and proportionate to their respective exposure, this rule proposes that a reduction in assessments will not be implemented for grain warehouse keepers until the Fund balance attributable to grain warehouse keepers exceeds $1 million.
ATCP 100 – Milk
Act 155 allows a portion of producers’ milk checks to be deferred beyond the current statutory requirement. Previously, milk contractors were required to pay producers by the 4th and 19th of each month for the prior month’s milk. The Act requires DATCP to establish a milk contractor deferred payment assessment rate to be applied to deferred payment contracts to cover the additional risk they pose to producers and the Fund. Similar provisions are already in place for the grain industry and were considered while developing the milk deferred payment assessment rate.
Like the new deferred payment contract provisions for milk contractors, the grain dealer program permits grain dealers to enter in to contracts with grain producers to defer payments for up to 120 days. The deferred payment assessment rate applied to these contracts in the grain program is 0.0035. Deferred payments in the milk program pose a similar risk; therefore, DATCP proposes to use the same deferred payment assessment rate of 0.0035 for milk contractors. That is to say, $100,000 of deferred milk payments would equal a $350 deferred payment assessment.
The amount of increased revenue is unknown and will depend on the amount of milk paid for under deferred payment contracts.
Analysis and Supporting Documents used to Determine Effect on Small Business
Members of the Agricultural Producer Security Council, an advisory council as defined in Wis. Stat. § 15.137 (1), worked with the Department to craft Act 155 and the proposed changes to Wisconsin Administrative Code. Members represent the following: 15.137(1)(a)1.the Farmers' Educational and Cooperative Union of America, Wisconsin Division;15.137(1)(a)2. the Midwest Food Processors Association, Inc.; 15.137(1)(a)3.the National Farmers' Organization, Inc.; 15.137(1)(a)4.the Wisconsin Agri-Business Association, Inc.;15.137(1)(a)5. the Wisconsin Cheese Makers Association;15.137(1)(a)6. the Wisconsin Corn Growers Association, Inc., the Wisconsin Soybean Association, Inc.;15.137(1)(a)7. the Wisconsin Dairy Products Association, Inc.;15.137(1)(a)8. the Wisconsin Farm Bureau Federation;15.137(1)(a)9. Cooperative Network; and 15.137(1)(a)10.the Wisconsin Potato and Vegetable Growers Association, Inc. Effect on Small Business
