Stocks in Store Policy for Licensed Primary Elevators

Policy elements:

1. Stocks in store is defined as grains held in inventory on-site at licensed primary elevators.
2. Under the Canada Grain Act, licensed primary elevator operators must have stocks in store to satisfy outstanding primary elevator receipts (PERs) for producers who have not yet received payment for their grain deliveries.
3. Licensed primary elevators must report outstanding PERs issued to producers for grain received into the primary elevator as liabilities^{Footnote 1}. Licensees may then report the lesser of the following to offset the total amount of tendered security required to cover reported liabilities:
   • value of grain on outstanding PERs
   • value of physical stocks for grain of the same kind, grade and quantity in store
4. Licensed primary elevators are allowed to offset up to 100% of their outstanding PERs with stocks in store held in inventory in determining security requirements.
5. There is no stocks in store offset allowance for grain stored in alternative forms unless exemption has been received from the Commission and the alternative storage meets the following definition of bunker storage:
   • be fully enclosed
   • have a concrete, asphalt, or other prepared base
   • have rigid, self-supporting sidewalls
   • have doors and a cover
6. The Safeguards for Grain Farmers Program may, at its discretion, disallow the use of the stocks in store offset by a licensed primary elevator based on, but not limited to, one or more of the following factors:
   • The licensee pledges inventory as collateral.
     • Subsection 41(b) of the Canada Grain Regulations indicates that the licensee cannot assign, mortgage, pledge or hypothecate any grain stored in the elevator for which a PER remains outstanding. In addition, section 112 of the Canada Grain Act prohibits pledging of inventory referred to in a PER.
   • The licensee includes a waiver on its PER.
     • This applies regardless of whether a producer has signed on the signature line waiving the right to demand the delivery from the elevator of the grain referred to in the PER.
   • The licensee takes title transfer of grain prior to payment for grain deliveries.
     • Subsection 67(1) of the Canada Grain Act specifies that licensees have an obligation to deliver grain of the same kind, grade and quantity on request of a holder of a PER, unless the producer chooses under subsection 66(1) of the Canada Grain Act to waive the right to demand delivery of the grain from the operator of the primary elevator (waiver must be signed). These requirements apply regardless of whether contract wording for PER transactions states that title transfers from the seller to the buyer on delivery of the grain.
   • The licensee’s financials signal cash flow, liquidity or solvency concerns.
   • The licensee has breached its debt covenants.
   • The Canadian Grain Commission has received slow payment complaints from producers about the licensee.
   • The licensee has reported one or more security shortfalls to the Canadian Grain Commission.
   • The licensee lacks internal controls over inventory reporting and does not perform routine inventory counts or keep monthly records to support the amount of stocks in store on hand able to be used as an offset.
7. From time-to-time, Liability Reports and use of stocks in store to offset the total amount of tendered security required, are subject to audit. Stocks in store will only be reviewed if reported as an offset by the licensee. As part of the audit, the Compliance Auditor will confirm with the licensee the rationale for not using the offset (for example, it was pledged as collateral, title transfer on delivery). However, stocks in store analysis will not be performed to support the use of the offset as part of the audit findings.
8. In order to ensure compliance with this Policy, the Canadian Grain Commission will:
   • enforce the obligations under the Canada Grain Act for licensed primary elevators to issue proper and timely PERs.
   • review, as part of audits or ongoing monitoring, stocks in store reporting to ensure that licensed primary elevators are not overstating stocks in store and are reporting the lesser value of grain on PERs or physical stocks for similar grain and grade in store.
   • require the licensee to provide additional security to the Canadian Grain Commission if overstated stocks in store result in a security shortfall.
   • conduct interim monitoring of the licensee’s Liability Reports for an undetermined period of time to obtain assurance that the licensee is able to operate within current security without the need for a security increase.
   • enforce the following compliance and enforcement measures as necessary, in the event of non-payment to producers:
     • order a cessation of grain movement in or out of a licensed primary elevator to facilitate a weigh-over of grain in the elevator.
     • issue an order for supervision of the disposition of grain on suspension or revocation of a primary elevator operator’s licence.
     • educate, in a timely manner, the receiver or trustee in the bankruptcy or receivership of a licensed primary elevator as to the potential entitlement of holders of PERs, and support consideration of the issue by the bankruptcy or receivership court.

Related Links

• Storage of grain on the ground, in bunker storage, or other storage alternatives