Addressing insolvency woes

Unfortunately, there’s no quick-fix to this issue and growers will continue to get burnt

THE grain industry all agrees that the issue of grain trader insolvencies is hurting everyone.

At the crux of the matter is if grain production is seen as too risky, farmers will switch land use to another enterprise and that’s not good for anyone involved in grains.

But what to do about it?

There’s certainly no silver bullet, but it seems a combination of risk management strategies can give growers at least some protection.

Products such as credit insurance, marketing options like online clearing houses and the personal property security register (PPSR) can all play a role in ensuring growers aren’t exposed fully to trader failures.

Other ideas are being pursued, such as the Victorian Farmers Federation’s grain trader licensing scheme, which have some facets that would greatly reduce the risk, but the biggest hurdle this project faces is winning the backing of the trade, who are still very much against any added regulation of the sector.

But there are other elements that should give growers more optimism, with market forces well and truly at play.

At first, grain traders were reluctant to use retention of title clauses in their contracts, but this has changed somewhat, so there are now only two major traders who insist on the deletion of the clause, which can be used to help growers in the event of insolvencies.

A similar thing looks to be happening in the form of payment terms.

For a long time, payment has remained at 28-day terms as an industry standard, a legacy of the days when contracts were paced according to the daily mail run.

However, a number of marketers are now experimenting with quick payment options, perhaps spurred by competition from the online trading houses such as Clear, where farmers get their funds in seven days.

This simple adjustment, which is well within the technological capabilities of most trading organisations these days, is regarded by many as one of the most effective ways of limiting exposure to a failing company.

A tighter payment schedule means much less grain is bought by a beleaguered business, so on a macro level it aids the industry, but for individual growers it means the warning signals regarding non-payment come through much earlier and they can sell other parcels of grain elsewhere.

Unfortunately, there’s no quick fix to this issue and growers will continue to get burnt - often through no fault of their own - but the dialogue on this shows there are workable ways of reducing counterparty risk.

StockLand
Gregor Heard

Gregor Heard

is the national grains writer for Fairfax Agricultural Media
A matter of opinionA selection of editorials from around the Fairfax Agricultural Media group covering the issues of the week.

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