FSA's delay was precipitated, in part, by serious concerns over the planned changes expressed by the NGFA and the California rice industry. The NGFA's Country Elevator Committee reviewed and thoroughly discussed USDA's planned changes during its June 8-9 meeting in Washington.
In a subsequent June 14 letter to FSA Administrator Jonathan Coppess, the NGFA registered alarm that the streamlined UGRSA contract -- by broadening UGRSA eligibility to non-traditional entities that would be subject to the new, minimal standards -- would risk "adversely affect(ing) the grain warehouse industry's reputation for integrity" and "undermining producer protection in several significant states." The NGFA also faulted FSA for developing the changes without providing opportunity for input from the NGFA or other organizations whose members operate facilities covered by the UGRSA, as well as for not adequately analyzing the potential impact on federal and state warehouse programs.
Under USDA's planned changes, a UGRSA contract no longer would be required for warehouses that are federal- or state-licensed as a precondition for offering warehouse-stored marketing assistance loans to producers, although those facilities' existing UGRSA warehouse codes would be retained. Meanwhile, warehouses operating in states without a warehouse-licensing program that are not federally licensed under the U.S. Warehouse Act would be required to obtain the new, streamlined UGRSA if they wished to offer marketing assistance warehouse-stored loans to producer-customers or before being eligible to accept delivery of CCC-owned grain.
As reported in the May 20 edition of the NGFA Newsletter, FSA's new version of the UGRSA contract consists of only two pages and contains only two sections. One section would address storage and handling rates applicable to warehouse-stored Commodity Credit Corp. (CCC)-owned commodities for which CCC transfers title in-store. The second section would address the warehouse operator’s obligations for determining quantity and quality of deposited grain. That second section also would address the farm law's requirement that non-federally licensed warehouses that do not offer official inspection services (even if state-licensed) enter into a "storage contract" with CCC before being eligible to make quality-loss adjustments to producers under the federal crop insurance program.
The new contract eliminates, among other things, all warehouse financial standards and requirements, recordkeeping requirements, rules governing temporary and emergency storage, and provisions governing appropriate warehouse practices.
FSA counters that UGRSA warehouses would be covered by grain warehouse licensing and regulatory programs operated in 27 states, including many of the major grain- producing and storage areas. Further, FSA believes that in most of the remaining 23 states that do not have warehouse licensing programs, companies operating grain storage facilities voluntarily have chosen to become federally licensed. But in five other states -- including California, North Carolina, Oregon and Texas (the latter, in the case of rice) -- nearly 70 warehouses have not become federally licensed.
In its letter to FSA, the NGFA said elimination of virtually all substantive provisions of the UGRSA contract could have several major adverse consequences, including:
- Opening the door to virtually any entity to obtain a UGRSA contract, including those types of businesses that are not regulated under many state grain warehouse laws that previously have been banned from obtaining a contract and offering marketing assistance loan services to producers, including dairies, feedlots, ethanol plants, feed mills, feed and grain banks, and other facilities. "It appears that trucks, barges, railcars and farm storage structures also would qualify for UGRSA contracts," the NGFA wrote. "Conceivably, operators of caves, vacant parking lots or any other structure or space where grain or rice could be stored could obtain a UGRSA so long as the operator can issue warehouse receipts."
- Creating an incentive for warehouses to drop their federal grain warehouse licenses in the 23 states without state grain warehouse licensing programs to reduce their regulatory and other business costs associated with the federal warehouse program to better compete with new entrants not subject to financial or other standards.
- Eliminating virtually all regulatory oversight of warehouse functions in states like California, North Carolina, Oregon and Texas (for rice) that do not have state warehouse licensing or examination programs, and where facilities do not voluntarily choose to be federally licensed.
- Eliminating any basis for USDA sharing examination resources or results with states, since there would be no standards under the new UGRSA against which USDA examiners could inspect. The NGFA also noted that having sufficient financial and other standards as part of the UGRSA contract provides protection to producers in states whose existing licensing and examination programs are under financial strain because of budget shortfalls.
"The NGFA believes there are outdated provisions that exist in the current UGRSA contract that merit deletion, as well as other improvements that should be considered," the NGFA's letter concluded. "But rather than acting unilaterally, we believe FSA needs to engage in a deliberative, transparent process that involves the NGFA and other interested stakeholders…before making momentous decisions on a significant contract that has served the industry and its farmer-customers well for decades."