February 25, 2002
Dear Senator:
The National Association of State Departments of Agriculture strongly urges you to consider legislative language that supports a plan of insurance which includes quality loss adjustment coverage. This language will come up for discussion during the Farm Bill Conference and we urge you to adopt the following language.
Authorization to Sample and Analyze Federally Insured Crops - If a policy or plan of insurance offered under this title includes quality loss adjustment coverage, the Corporation shall allow samples to be taken and analyzed by a grain grader licensed or operating under the authority of the United States Grain Standards Act, the United States Warehouse Act, or the Uniform Grain and Rice Storage Agreement with regard to deficiencies in quality, or by a laboratory approved by the Corporation with regard to substances or conditions injurious to human or animal health. This section shall take effect upon enactment.
Current regulations and policies issued by the U.S. Department of Agriculture's Risk Management Agency (USDA/RMA) do not accept the results of sampling and grading of grain by state-licensed warehouses for purposes of making quality-loss adjustments to producers under the Federal Crop Insurance Program.
Traditionally, when a producer delivered grain that was eligible for crop insurance because of low quality to a state-licensed warehouse, the warehouseman would sample the grain and either submit the samples to a Federal Grain Inspection Service (FGIS) lab for official sample grading or if the warehouseman had a state-licensed grader on staff, the warehouseman would grade the grain on-site. Because of some instances of insurance fraud that were perpetrated by state-licensed warehousemen and producers, USDA's Risk Management no longer accepts the grading of low quality grain by state-licensed grain graders. Nor does USDA any longer endorse state-licensed warehousemen to sample grain as an independent third party for the purpose of submitting the samples for official grade samples. At the same time Risk Management not only allows federally licensed grain graders to sample the grain, but also accepts the results of their grades. The requirements to be a federally licensed grain grader consists of little more than being employed at a federally licensed warehouse and submitting a form attesting to the individual's ability to grade grain. There are no educational requirements or testing of skill involved. A producer delivering low quality grain to a state-licensed warehouse is at a severe disadvantage to the producer delivering grain to a federally licensed warehouse. The producer must suspend delivery of low quality grain to the state-licensed warehouse until the insurance carrier supplies an independent, disinterested third party or deliver to a federally licensed warehouse. In the heat of harvest, the producer is almost compelled to deliver to the federally licensed warehouse even though it may be less convenient and more costly. (The nearest federally licensed warehouse could be significantly further away.)
To defend against his inability to service all of his producers, the state-licensed warehouseman's logical course of action is to surrender his state license and become a federally licensed warehouse. Over the last year this has occurred in several states in which low quality grain was an issue. The solution of abandoning a warehousemen's state license for a federal license is being advocated by both Under Secretary Penn in a letter dated December 17, 2001 to Commissioner Howard of Oklahoma and by Risk Management Agency Acting Administrator Phyllis W. Honor in a letter dated January 7, 2002 to Senator Chuck Hagel of Nebraska.
For well over 50 years the regulatory scheme in which a warehouseman has had the choice to license as either a federal or state warehouse has served the grain industry and producers well. While there have certainly been areas of disagreement between the federal and state regulatory authorities over the years, the relationship has endured because of the mutual dependence between the regulatory bodies. The balances that have allowed this relationship to prosper over the years are now endangered by the actions of USDA's Risk Management. Because of events in the past and the economic downturn, many of the state programs are struggling to meet budgets. A significant loss of state licensed warehouses to the federal programs may lead to the abandonment of some state programs. The loss of any state program effects the federal program as the federal license is voluntary, while the state programs require that a warehouseman licenses under either the state or federal program. Without the mandatory licensing under the state statutes it is highly improbable that warehousemen will voluntarily submit to federal regulation. The abandonment of any state program leads to defacto deregulation of the grain warehouse industry in that state.
Again, thank you for your consideration in this matter. If you have any questions or concerns, please contact Patrick Atagi, Legislative & Regulatory Affairs 202-296-9680 ext. 210.
Sincerely,
<signed>
Billy Ray Smith
President, NASDA
Commissioner Kentucy Department of Agriculture