Grain Insurance Board certifies assets
(First Appeared in the March 16 issue of The Farmer’s Pride)
By Ray Bowman
Each March, the nine-member Kentucky Grain Insurance Corporation board of directors meets to certify the solvency of the Grain Insurance Fund.
The fund exists to protect the Commonwealth’s grain producers from losing money should a grain business becomes financially insolvent after receiving a grower’s product but before issuing payment for it.
“In the event that a facility becomes unable to pay the producers for the grain that they have delivered, the farmers can make a claim to the Kentucky Department of Agriculture,” says John Cook, KDA’s executive director of Consumer and Environmental Protection. “The fund can then pay 80 to 100%, depending on the contractual agreement they had with the facility for the crop they delivered.”
“The sole purpose of this fund is protection of the farmers’ livelihood,” Cook affirms.
The fund was established by state statute in 1984 and is supported by an assessment of one-quarter of 1 percent of the value of grain purchased from producers. The fund must maintain a balance of at least $3 million and the assessment is not collected unless the balance falls below that threshold. The current balance is certified at $4.8 million so the assessment is not currently being collected.
“In the event that the fund drops below $3 million, we will start collecting the assessment again and will build the fund up to $10 million,” Cook said. “We haven’t collected on the fund for so long that the General Assembly and the board decided in 2009 that we would raise that fund up, in the event that we drop below $3 million, to better cover the farmers of Kentucky.”
The fund is invested by the state Office of Financial Management which has administrative responsibility for the investment and debt management functions of the Commonwealth. Returns on the investments are rolled over into the fund.
The fund has not been accessed to pay a claim since October 2000.
Recent events surrounding a canola processor with a new facility in western Kentucky have highlighted the necessity of the fund, even though it appears the situation may be resolved without state investment.
Cook addressed the insurance board and reported that, while Hart AgStrong canola and sunflower processing is being closely monitored, the Bowersville, Georgia company has not been declared a failure.
Nevin “Huck” Smith, an Atlanta-area attorney representing Hart AgStrong, appeared before the board with assurances that a plan is in development to pay a group of Kentucky farmers for their grain. Currently, some $2.2 million is owed to those producers. Smith says some payments are currently being made.
Smith reported that Hart AgStrong is currently in negotiations with unnamed outside firms to arrange either a stock purchase or a short-term loan coupled with an option to buy, which would bring approximately $4 million into the company.
“It has been absolutely clear and the company’s commitment has been that the first dollars in the door go to Kentucky farmers,” Smith told the board.
Smith said plans have been made for a meeting within the month to generate a binding letter of intent to solidify plans for financial arrangements that would pay the producers in full.
“We feel that we will be able to work with them to resolve the issue without having to activate the fund,” Cook said.