Archived - Producer payment security

Alternatives previously considered

• The 2004 Compas Inc. report recommended an investigation of agricultural clearinghouse models. A clearinghouse requires both the buyer and the producer (the seller) to pay for transactional security up front by charging transaction fees and requiring both parties to post margins. A margin is a part-payment of collateral to cover contractual obligations and protect against potential loss. A clearinghouse guarantees each transaction, so in the event of a default by one of the parties, the counterparty would still receive the full amount they were owed.

  Extensive analysis revealed such models to be too complex and require significant capital, administration and oversight.

• Changes to the Canada Grain Act in 2012 gave the Canadian Grain Commission more flexibility to administer producer payment protection programming. The Canadian Grain Commission undertook a project to implement an insurance-based security model. This model considered the combined exposure of all licensees covered by 1 or more insurers underwriting the aggregate exposure.

  After extensive work, the Canadian Grain Commission determined that the product(s) offered were not acceptable in terms of adequate coverage for all licensees and cost savings. As a result, the legislative insurance-based producer payment protection provisions introduced in the Canada Grain Act were not brought into force. At that time, the Canadian Grain Commission began to re-visit the possibility of a compensation fund.

• In 2014, Bill C-48 proposed changes to the Canada Grain Act that would have authorized the Canadian Grain Commission to administer a compensation fund. Establishing this fund would have improved producer payment protection by pooling the risk of failure to pay across all licensees so that the entire value of the fund would be available to make timely payments to producers on a claimed loss of what they were owed. The fund included a transparent risk model, reduced security costs, reduced claim processing times for producers and less reporting requirements for licensees. The fund amendment would also have provided a mechanism that could have be used in conjunction with an insurance model.

  These changes were not passed by Parliament as Bill C-48 died on the Order Paper with the dissolution of Parliament in 2015.