DATCP Docket No.
16
-R-01
WISCONSIN
DEPARTMENT OF AGRICULTURE,
TRADE
AND CONSUMER PROTECTION
EMERGENCY RULE
The Wisconsin department of agriculture, trade and consumer protection
hereby adopts the following
emergency rule
to
amend
s
.
ATCP
100.135 (10) (c
)
relating to
milk contractor
agricultural producer security fund
assessments
.
_____________________________________________________________________________
Analysis Prepared by the Department
of Agriculture, Trade and Consumer Protection
This emergency rule
amends one of
three
fund assessment exemption requirements for milk contractors, reducing the overall fund minimum balance
requirement
from $11 million to $5 million
.
The Wisconsin Department of Agriculture, Trade and Consumer P
rotection (
“Department”
)
is adopting this temporary emergency rule
. At this time, the Department
has not yet determined if it will adopt a
permanent rule
on the same subject
. This emergency rule will take effect
May 1, 201
6
, and will remain in effect for 150 days. The
l
egislature’s
j
oint
c
ommittee for
r
eview of
a
dministrative
r
ules may extend the emergency rule for up to 120 additional days.
Statut
es Interpreted
Statutes Interpreted:
s.
126.46
, Stats.
Statutory Authority
Explanation of Statutory Authority
The Department
has broad general authority, under
s.
93.07
(1)
,
Stats.,
to interpret laws under its jurisdiction.
The Department
has specific authority under
s.
126.81
(1)
(a)
,
Stats.,
to interpret and implement Ch
.
126
, Stats
.
The Department
also
has
specific authority
under
s.
126.88
(1
)
, Stats.,
to
modify agricultural producer security assessments prescribed under Ch
.
126
, Stats
.
The Department
is required under
s.
126.81
(2m) (b)
, Stats.,
to promulgate rules which specify fund assessments under
s.
126.46 (1)
, Stats
.
The Department
is adopting this temporary emergency rule under authority of
s.
227.24
, Stats
.
Related Statutes and Rules
The Agricultural Producer Security Program is governed under Ch
.
126
, Stats.
More specifically, assessments into the producer security fund are
calculated pursuant to
s.
126.46
, Stats.,
for
milk contractors
.
Chapter
ATCP 100
of the
Wisconsin Administrative C
ode interprets and implements Ch
.
126
, Stats.,
as it relates to
milk contractors
. The Department
has explicit authority to implement administrative rules modifying the
milk contractor
keeper assessments prescribed in the statutes.
Plain Language Analysis
Background
The Agricultural Producer Security Fund (APSF) is a public trust administered by
the Department
. Milk contractors, grain dealers, grain warehouse keepers and vegetable contractors (collectively known as contractors) must purchase a license to obtain milk, grain and vegetables, respectively, from producers, and are required to contribute to the APSF annually. Funds are used to settle claims by producers in the event that a contractor defaults on payment
or fails to return grain held in storage
. Funds from each industry are accounted for separately and deposited into the overall fund. Ch.
126
, Stats., establishes detailed fund assessment requirements
, except that it requires the Department
to establish milk contractor fund assessments by rule. Ch.
126
, Stats., sets minimum fund balances for each industry, as well as a minimum balance requirement for the overall fund.
Section
ATCP 100.135 (10
)
of the Wisconsin Administrative Code,
establishes a fund assessment exemption for milk contractors. To be eligible, a licensee must have been a contributing milk contractor in each of the preceding
five
license years. The exemption does not apply if the fund balance attributable to milk contractors was less than $6 million on February 28 of the preceding license year. The exemption also does not apply if the overall fund balance (which includes contributions from milk, grain and vegetable contractors) was less than $11 million on February 28 of the preceding license year.
Section
126.88
, Stats.,
sets the overall fund minimum balance at $5 million.
In 2014
and 2015
,
default
s in the vegetable and milk industries
totaled $
7.2
million, causing the overall fund balance to drop
substantially
. With the overall fund balance well below the $11 million minimum currently set in administrative code, the milk contractor industry will not be eligible for fund assessment exemptions for an estimated
5
-
6
years.
The Department
and the Agricultur
al
Producer Security
Council
(APS Council)
identified the need to
evaluate
the entire agricultural producer security program, so that changes can be made to mitigate the impact of large defaults in the future.
In December 2015, the Department
received
a
n
actuarial study
of the APSF
and
began
work
ing
with the APS Council to develop
recommendations for permanent changes to the
APSF
.
The proposed emergency rule would alleviate a financial burden otherwise placed upon licensed milk contractors. Without this
emergency rule
,
licensed
milk contractors would not be eligible for fund assessment exemption for
the 2016 license year
and would
take on the burden of repaying a large
portion of the
APSF overall
fund balance.
Rule Content
Under this rule
, the annual fund assessment exemption requirement regarding the overall fund balance minimum would decrease from $11 million to $5 million.
Summary of, and Comparison with Existing or Proposed Federal Statutes and Regulations
Federal Programs
No federal programs currently exist offering milk producer security from contractor payment defaults.
Surrounding State Programs
Minnesota requires any wholesale dealer or food processor who contracts with other Minnesota dealers or farmers of milk, cream, or products made from milk or cream, to be licensed as a Wholesale Produce Dealer. Dealers are required to obtain a surety bond
and required to maintain trust assets so that assets are freely available to satisfy outstanding obligations. There is no exemption to this requirement.
Michigan requires producer security for all manufacturing and Grade A dairy plants that are a first receiving point for raw milk that will be processed at that faci
lity. Security can be in one or
more of several forms including bond, letter of credit, certificate of deposit or pre-payment. There is no exemption to this requirement.
Illinois, Indiana and Iowa do not require dairy producer security.
Summary of Factual Data and Analytical Methodologies
The Department
analyzed the APSF fiscal year 2015 reports to estimate the projected overall fund balance expected on February 28, 2016
. The Department
reviewed 2015 financial statements filed by contractors to determine a range of dairy contractor fund assessments due for the license year beginning May 1, 2016.
Analysis and Supporting Documents used to Determine Effect on Small Business
Much of the data analyzed by
the Department
was generated by small businesses. This includes the
APSF fiscal year 2015 reports
and the
2015 financial statements filed by contractors
.
Effect on Small Business
This rule will have a positive impact on
small
milk contractor business
es
by allowing those that meet fund assessment exemption requirements under ss.
ATCP 100.135 (10) (a)
and
(b)
of the Wisconsin Administrative Code, to not pay fund assessments if the producer security overall fund balance is at least $5 million on February 28 of the preceding license year. The milk contractor industry would otherwise be required to pay an additional $590,000 - $1,190,000 annually until the overall fund balance reaches a minimum of $11 million.
This rule will slow the growth of the overall fund balance; therefore, it could have a negative effect on small milk, grain and vegetable producer businesses in the event of future large defaults.
DATCP Contact
Questions and comments
(including hearing comments)
related to this rule may be directed to:
David A. Woldseth
Department of Agriculture, Trade and Consumer Protection
P.O. Box 8911
Madison, WI 53708-8911
Telephone (608) 224-
5164
______________________________________________________________________________
F
inding of emergency
(1)
In Wisconsin,
milk contractors (persons w
ho purchase milk from producers
or producer agents
)
must
obtain a license to
purchase milk from producers
or producer agents
,
and are collectively referred to as “contractors”. Most contractors are “contributing contractors,
”
which means they must
pay annual assessments into
the Wisconsin Agricultural Producer Security Fund
(A
PS
F)
. This fund is designed to help partially reimburse producers in the event that
a contractor
default
s
on payment to producers
and producer agents
.
The annual assessments
are calculated based on
the
total dollar value of commodities purchased,
the length of time that the
contractor
has participated in the fund,
and certain financial ratios from the contractor’s balance sheet.
(2)
The
milk contractor
license year begin
s
on
May
1 of each year. At that point,
the Department
calculates the assessment for the new license year that will be due
for each contractor
, and determines if a
given
contractor meets exemption requirements established under
Wis. Admin. Code §
ATCP 100.135 (10
)
for that license year.
Current exemption requirements are: the milk contractor was classified as a contributing milk contractor in each of the
five
license years immediately preceding that license year; the fund balance attributable to milk contractors was at least $6 mil
lion on February 28 of the
preceding license year; and, the overall fund balance was at least $11 mil
lion on February 28 of the
preceding license year.
(3
)
The overall fund balance
was just over
$
7
million on the assessment date of February 28, 201
6
, due to
default payments
to vegetable and milk producers
in 2014
and 2015
respectively
. This decrease in the overall fund balance would eliminate eligibility for fund assessment exemption for every milk contractor over the next
5
-
6
years, costing the industry $
5
9
0,000 - $
1,
19
0,000 annually.
An
emergency
rule
is
necessary
to
ensure
the
continuation
of
the
fund
assessment
exemption
for
milk
contractors.
(4)
The Department
and the Agricultural Producer Security
(APS)
Council identified the need to evaluate the entire agricultural producer security program, so that changes can be made to
ensure fund stability and
mitigate the impact of large defaults in the future.
In December 2015, the Department
received an actuarial study of the APSF and began working with the APS Council to develop recommendations for permanent changes to the agricultural producer security program.
The Department
recommends
maintaining
the
status quo
during
this
transitional
period.
Without
this emergency
rule,
licensed
milk
contractors
would not be eligible for fund assessment exemption for the 2016 license year and will take on the burden of repaying a large portion of the APSF overall fund balance.
An
emergency
rule
effective
date
of
May
1
is
necessary,
as
the
next
license
year
(assessment
period)
for
milk
contractors
begins on
May
1,
2016.
(
5
)
This temporary emergency rule is necessary to protect the welfare
of the
over one
hundred
milk
contractors
who do business
in Wisconsin
, and to
help
prevent undue financial burdens upon the milk contractor industry
.
E
mergency rule
Section
1.
ATCP
100
.1
35
(1
0
)
(c)
i
s
amended
to read:
ATCP
100
.
135
(1
0
)
(c)
The overall fund balance was at least
$11
$5
million on February 28 of the last preceding license year
Section 2
.
Effective Date:
This emergency rule takes effect
on
M
ay
1
,
2016
,
and remains in effect for 150 days.
T
he department may seek to extend this emergency rule as provided in s.
227.24
, Stats.
