Credit Missouri Governor Bob Holden and Director of Agriculture Lowell Mohler with exceptional follow-through. Their One Missouri, One Agriculture plan, enacted in December of last year, promised to consider input from those affected by legislative rules. They've remained true to their word. When an Illinois grain elevator and a Kansas grain cooperative declared bankruptcy, officials in Missouri's Department of Agriculture began an assessment of the state's grain industry. They brought together the state's Grain Regulatory Services, agribusinesses, farm groups and farmers. At this meeting, discussions centered on safe-guarding the state's grain industry. The resulting conversations underscored the soundness of the state's infrastructure and regulatory framework. Still, we must always remain vigilant and be willing to act when and if a need arises.

Many ideas arose from this discussion. But from my perspective, at some point, state officials should consider tightening the net-worth standards required to license and bond grain dealers in the state. As it now stands, grain dealers purchasing less than $400,000 gross of grain must maintain a minimum net worth of $10,000 or 5 percent of grain purchases, whichever is greater. Those purchasing $400,000 or greater must maintain a net worth of $20,000 or 1 percent of grain purchases, whichever is greater. A Class 1 grain dealer like MFA must maintain a net worth equal to the greater of $50,000 or 2 percent of grain purchases. We at MFA buy between 45 million and 55 million bushels of grain and soybeans in any given year.

As you can see, the requirements are minimal. The $25,000 grain bond doesn't go very far in covering a typical farmer's grain business. In view of these standards, when you sell grain to a business, you need to know how much coverage is available, what the company's bond limits are and how fiscally stable the company is. You have the right to inquire into the financial soundness of the business where you sell your grain. It's a fundamental business practice. Many assume a licensed dealer has unlimited coverage. If you've survived in agriculture this far, you know that contracts are only as good as the company offering the contract. The company may be bonded, but that does not mean its net worth can cover its obligations. Just because there is a grain dealer license on the building doesn't mean the business is viable.

In many discussions when I bring up raising the net-worth requirements, someone will inevitably tell me my suggestion is designed to eliminate MFA's competitors. That's nonsense. It will not eliminate any viable competitors. If a grain buyer is eliminated through higher net-worth requirements, that's the very business that should be eliminated. If it doesn't have the net worth and bonding to adequately insure grain purchases, it's an institution just waiting to bankrupt several farmers. There are literally hundreds of reasons businesses fail. Grain businesses add their own set of circumstances: unsound speculation, poor grain management, improper position, lack of industry knowledge, poor fiscal policies, under-capitalization, cash-flow problems, inadequate margins, poor facilities, inaccessible location and insufficient scale of operation.

At about this point in a conversation, someone will mention creation of a grain indemnity fund as a safeguard against these pitfalls. My response is that creating an indemnity fund in lieu of corrective balance-sheet requirements only increases the scope of the problem. Grain indemnity funds actually encourage people to conduct business with financially unstable businesses.

Grain indemnity funds are not new topics. Over the course of my career, I've seen the issue raised at least once every decade in Missouri. But I've never seen a good argument for enacting one. Grain indemnity funds are structured to cover farmer losses experienced as a result of a grain elevator failure. In essence, it's an insurance policy paid for by the state's grain growers in the form of a per-bushel fee. Despite the fact that the indemnity fund sounds beneficial (who can be against farmers being paid for their grain?), it's actually very inefficient, extremely wasteful and quite detrimental to sound agricultural business practices.

Basically, an indemnity fund is a tax on properly run businesses and their customers, which helps promote the grain sales of a poorly run business. Penalizing farmers who choose to do business with a reputable business is no way to run an industry. We're forced to collect the tax and then we force our customers to underwrite the indemnity fund that allows those unstable businesses to compete with us. It makes no sense. The indemnity fund encourages fiscal irresponsibility. Why penalize the farmers who have built a financially sound business so that those who do business with unsound entities are covered?

MFA is vitally interested in the viability of agriculture and more specifically in the viability of farmers. Farmers own us, and our decisions are affected by farmer needs. After all, MFA's mission statement reads in part, "MFA Incorporated will always strive to improve the economic position of the farmer-owner..." But those sentiments and mandates mean we must broaden our perspective to see what is in the best interest of agriculture. Many times the farmers' best interest is served by sound agribusinesses and sound fundamentals in agribusiness practices.

And that includes the grain business.