Council proposes deferred milk contracts

posted Nov. 21, 2016 9:08 a.m. (CDT)
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by / Jim Massey, Editor |

MADISON — Milk contractors would be allowed to use deferred payment contracts — at milk producers’ requests — if recommendations of Wisconsin’s Agricultural Producer Security Council are approved by the state Legislature sometime next year.

Jeremy McPherson, director of the Wisconsin Department of Agriculture, Trade and Consumer Protection’s Bureau of Business Trade Practices, said the Producer Security Council has been considering broad policy initiatives since the conclusion of an actuarial study of the Agricultural Producer Security Fund last year. The actuarial study was conducted after a 2014 default by a vegetable contractor drained about half of the money from the security fund.

The Agricultural Producer Security Fund is a trust fund administered by the DATCP. Milk contractors, grain dealers, grain warehouse keepers and vegetable contractors must purchase a license to obtain milk, grain or vegetables from producers, and most contractors are required to annually contribute to the security fund. Funds are used to settle claims by producers in the event that a contractor defaults on a payment.

The advisory council that oversees the fund considered a proposal to create specific producer-assessment programs instead of having a combined fund for milk, grain and vegetable contractors, but did not come to a consensus on a recommendation to create separate funds.

Instead, the council suggested combining the grain dealer and warehouse keeper fund-balance portion of the program, creating an exemption from licensing for very small vegetable contractors and allowing milk contractors to use deferred payment contracts.

Milk contractors are currently required to pay dairy farmers the 4th and 19th of the month, and are not allowed to defer a portion of a payment until later in the year or until the next year when a producer wants to do so for tax-planning purposes.

“The industry felt strongly that deferred contracts should be permitted,” McPherson said. “(Milk contractors) would have to meet additional security and financial standards. The current program is not set up to handle that increased risk, so it would take statutory changes and probably rulemaking to address the change.”

Wisconsin Agriculture Secretary Ben Brancel said the payment deferral “would have to be producer initiated,” and that DATCP officials don’t want co-ops or proprietary plants deferring payments “as their own management scheme.”

“We want it to be for tax planning purposes for the farmer,” he said.

The council is also seeking statutory changes to put the security fund, on behalf of farmers, in a better position to file a default claim if a contractor bankruptcy occurs. The Producer Security  Fund is currently considered an “unsecured creditor,” so a law change would be necessary to put the fund in a better position to recover money from a bankrupt contractor.

The council will meet again on Dec. 6, and McPherson said a list of recommendations could be presented to the DATCP Board in the form of proposed rule changes early next year.

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