bank you have to comply to certain rules and regulations. The way I understand it now, I could go down the street, put up a sign that I'm in the grain business.

And, should the insurance come into effect, I would not be for a sound elevator subsidizing an inefficient unlicensed elevator. And, I hope out of all this that you may already have it in your bill, is that in order to be a public facility, it must be strict rules and regulations followed.

And, if—as he mentioned in a case of those that are federally licensed there's not been a failure.

Senator PRYOR. You know we're seeing some of that same discussion right now in some of the money market funds of banks and S&L's or credit unions have to go through all sort of regulation, chartering, and all like this. Many of the other funds are not being regulated nor insured. So we're seeing a great deal of that discussion come forward there.

I think there was someone else that may have wanted-yes, sir, come forward.

Mr. LEWIS. My name is Larry Lewis, Senator. As a farmer and as a member of the American Agriculture Movement, we appreciate your listening and what you're doing for us. Due to recent bad publicity I would like the record to state that members, farmers here that are members of the American Agriculture Movement conducted themself in an attentive, undisturbing manner.

And, the presentation by Mr. McKnight, who is national vicechairman, was in no way radical or undisturbing to our wants and needs. Thank you.

Senator PRYOR. Well, thank you. Thank you very much.

Mr. LEWIS. And, a little bit of addition. We know that you are listening to us now. We're not radical any more, and the more members we have the better you'll listen, right?

Senator PRYOR. Well, listen, I'm not saying that you ever were radical, but I'll just say this. I've always listened to you. I haven't done everything maybe that you wanted, but I've always listened to you.

Mr. LEWIS. Contrary to popular belief then. Thank you.

Senator PRYOR. Well, thank you so very much. Thank you for that statement.

Any other comments or statements?

VOICE. I've got a question Senator.

Senator PRYOR. Yes, sir.

VOICE. I don't want to come up there, but all due respect to Mr. Burton, who was he speaking for? Was it the Arkansas Farm Bureau, or his chapter or-—

Senator PRYOR. Well, now that gentleman was-Mr. Burton was with the Jackson County Farm Bureau, and I don't know—— Mr. BURTON. Arkansas Farm and American Farm Bureau. VOICE. Are you speaking for the State?

Mr. BURTON. And, American. American policy is what I quoted. VOICE. I'm a member. I just wanted to know where we stood. Senator PRYOR. Well, I'll tell you, that's what's good about this country. You know you don't have to agree all the time with each other and it's good to have meetings like this where you can come and discusss some of these differences in a legitimate fashion.

If there are no other comments I, at this time-is there any other thought that I might have? If there are any of you on the panels who would like to supply any information or facts and figures about more specific numbers that we requested, we'll leave this hearing record open for about 2 weeks.

We'll make certain that those written statements will be incorporated into the final hearing transcript. This has been a very, very fine hearing this morning and we're-yes, sir

Mr. BERNARD. What would be the procedure if someone wanted to respond to what you've just mentioned? Say if we have a specific case that someone would like to get into the record or tell you about-should they write you or they should leave it with me?

Senator PRYOR. If they would write me a letter, what I will do is just include that letter into the official transcript. It probably should be requested that it be included in the transcript, and we'll certainly do that. That's a great idea, Steve, should they-the Government printing costs are not going to be all that high on this one. This is a short hearing.

Thank you very much for coming each and every one of you.

Whereupon, at 10:52 a.m., the committee adjourned, subject to call of the Chair.]

ADDITIONAL MATERIAL

[The following material was furnished by Senator Pryor:]

[Floor speech of Senator Pryor concerning S. 550]

FEDERAL GRAIN STORAGE INSURANCE ACT OF 1983

Mr. PRYOR. Mr. President, I want to take this opportunity to address the Senate on an issue that has, unfortunately become a factor in the lives of American farmers. This subject has captured regional and national headlines and has generated discussion at all levels of Government and within the agricultural community. Farmers, already plagued by high interest rates, high fuel costs, and high seed and fertilizer costs, have now been hit by still another problem-bankruptcies and failure of grain elevators.

More than 110 elevators have failed in the United States in recent years, leaving in the lurch at least 3,200 farmers with over $25 million in grain. While the number of occurrences of grain elevators is relatively small compared to business failures in general, few other types of bankruptcies can have such a devastating effect on farmers who, in effect, are innocent bystanders. We have heard far too many stories of financial failure.

On April 7, 1982, the 20-year old Coast Trading Co. filed to reorganize under chapter 11 of the Federal Bankruptcy Law. Coast had a six-State chain of 22 grain elevators, feed mills, barge facilities, and other related services. The debt includes $14 million to secured creditors and $20 million to an estimated 200 unsecured creditors-mostly farmers and local elevators that sold Coast Trading.

In Stockport, Iowa, an elevator collapsed 2 year ago where too much grain was delivered without receiving a check, too little warehoused grain was secured by a warehouse receipt, and too much grain was delivered to be paid for later. This is really a farmer's unsecured loan to the elevator-and then the sudden, unexpected bankruptcy.

In Montana, North Dakota, Kentucky, Louisiana, Missouri, and Arkansas, similar stories have unfolded.

While it is understood that farmers themselves need to become alert to such danger signals as an elevator that offers a higher price if the farmer agrees to wait a few days, or offers to store grain at a cheaper rate, or even fails to give proper warehouse receipts, the time has come for the Congress to offer the farming community some statutory protection.

More and more State legislatures are recognizing their role and responsibility in developing sound criteria upon which to audit and regulate grain elevators. Additionally, as Paul Hughes, a constituent of mine, said recently in the Delta Farm Press, "As long as you make it possible for someone to succeed, then it also will be possible for them to fail." However, State and Federal Governments must not ignore this critical situation and it is important for the Congress and the State legislatures to take seriously the duties of Government in these situations.

Legislative reforms are under consideration that would change bankruptcy laws, increase oversight of warehouse operations by the Federal Government, and insure farmers against losses.

For farmers and other individuals and businesses caught with assets in a bankrupt elevator, the issue can be extremely frustrating. Those with warehouse receipts or, in some cases, scale tickets marked for storage, will be among a preferred group of creditors and generally have a good chance of recovering a large percentage of the loss. But farmers who have sold grain to a failing elevator under a deferred payment arrangement fall into a nonpreferred class of general creditors and may recover little of their loss. And, in either case, the claims process can take months or possible years to complete.

(31)

I have supported attempts to amend Federal bankruptcy laws to accomplish the following: First, establish a time limit on the disposition of elevator assets; second, establish a priority disposition system; and third, allow a farmer to impose a statutory line in a deferred payment arrangement. It has been noted that these changes are far-reaching and could have secondary effects, one of which might be that the statutory lien could jeopardize the financing of elevator operations. Additionally, this proposed change might cause bankers and lenders to face new risks since the lien provisions affect clear title to commodities used as collateral. Also, some commentators have said that these amendments interfere with priorities set by States in bankruptcy proceedings. According to a statement by Brian Crowley, U.S. General Accounting Office.

"The best overall and latest available data on past bankruptcies indicate that about 2 percent of the approximately 10,000 grain warehouses nationwide have gone bankrupt between 1974-1979. To estimate how many warehouses might be in financial trouble, we applied certain financial ratios and self-developed criteria to data reported to USDA by a random sample of 400 grain warehouses under Federal jurisdiction. We found that 19, or 4.75 percent, of the sample warehouses met our criteria for being in financial trouble. Based on these results, we estimate that about 300 warehouses may be financially unsound. At the 95 percent confidence level, this number could range from 173 to 427 warehouses."

Mr. Crowley further added "that the Federal programs, no matter how effective, do not provide protection for all grain depositors." About 36 percent of grain warehouses are subject only to State requirements, which range from nonexistent to very stringent.

Therefore, it is my belief that a program is needed that will apply to situations throughout the country and that will offer protection to farmers. Finally, it will help restore the needed confidence between farmer and elevator.

To accomplish these goals, I am introducing legislation to establish a Federal Grain Storage Insurance Corporation. The program would be financed and governed by farmers through a corporate board and be established within the U.S. Department of Agriculture. This plan will give the farmers of this country the opportunity to voice their approval or disapproval of the insurance concept by voting in a referendum. The referendum will allow them to express support for a program under which a portion of their grain is assessed in return for the protection offered by the Corporation. By this method, just as farmers now support checkoffs for research and promotion, they could support a similar checkoff to insure their season's labor.

While some States, like Oklahoma and South Carolina, have already set up statewide insurance programs and many other States are showing interest, it seems logical that a national program that offers the advantages of a broad financial base and uniformity across State lines would be attractive to producers.

In the same vein, this program should not circumvent efforts that are now occurring to tighten the fiscal management of grain elevators. This program should further this cause. Farmers may even be wary of any warehouse that fails to meet requirements for qualification, just as depositors may be wary of a bank or savings and loan association that does not qualify for FDIC or FSLIC protection.

This bill also changes the criminal penalties for persons selling grain without proper title.

It is also hoped that by giving broad authorities to the Board of the Corporation, the Board can adequately address such legitimate concerns such as these: First, how to deal with variations in business risks; second, how much responsibility the producer should assume; third, how much protection should be offered and whether the assessment should vary between commodities, and fourth, whether a uniform warehouse receipt or scale ticket should be used by participants to increase uniformity. One change which has been made from the previous legislation is that insurance benefits under this bill be paid based on the average market price for the commodity for the 90 days preceding the date of insolvency. The earlier version of this bill insured the grain based on the market value on the date of insolvency. An average is better so that any fluctuations in the market are evened out.

I urge the consideration and support of my colleagues for this measure. We need to work together to try to alleviate a problem we find in our agricultural communities. I believe this is a step in the right direction.

I ask unanimous consent that the text of the bill, a summary and highlights of the bill, be printed following my remarks.

There being no objection, the material was ordered to be printed in the Record.

[Floor speech of Senator Pryor concerning S. 596]

GRAIN STORAGE COMPENSATION ACT OF 1983

Mr. PRYOR. Mr. President, every Member of the Senate has heard horror stories about farmers who have worked many hours planting and harvesting a crop only to see it go down the drain when a grain elevator becomes insolvent or bankrupt. This has become a very serious problem the last few years. I have seen figures which show that over the last few years there have been almost 125 elevator bankruptcies. This has cost over 3,500 farmers more than $25 billion and has resulted in a great deal of human suffering.

There have been many changes proposed at both the State and Federal levels to deal with this situation. I have supported amendments to the Bankruptcy Act, initiated by the Senator from Kansas, Mr. Dole, which would set up expedited procedures for farm crops and would also clarify title to the grain. In addition, I have introduced legislation designed to protect against future losses by setting up an insurance fund, funded by farmers, that would compensate them for losses resulting from the insolvency or bankruptcy of a grain elevator. Both this legislation, and the Bankruptcy Act amendments would deal with insolvencies that might occur in the future. I am convinced, however, that we can do something to help farmers who have suffered losses the past couple of years due to the insolvency or bankruptcy of a grain elevator.

Mr. President, today I am introducing the Grain Storage Compensation Act of 1983. This bill will expand the PIK program to allow farmers who have suffered a loss due to the insolvency or bankruptcy of a grain elevator to receive PIK commodities. With an enormous surplus, and many communities economically wrecked due to the collapse of a local grain elevator, it seems to me that we should provide this assistance. Our farmers are the envy of the entire world, yet many of them are on the edge of an economic cliff, largely through no fault of their own.

Several features of this bill are important, and I would like to point them out. First, it only applies to insolvencies or bankruptcies occurring on or after the Soviet grain embargo and the date of enactment of this bill. Since it is narrowly defined period, it is not open ended. The elevator insurance legislation I have proposed will deal with prospective insolvencies. Second, the first date involved-the grain embargo—is important because it has such a profound effect upon the commodity markets and international trade. Third, the program will be conducted by the ASCS and will require no additional personnel. A farmer who has suffered a loss will have to establish this fact by competent evidence before he can receive PIK commodities.

Mr. President, the farmers of this country have been devastated the last few years by declining prices and rising production costs. Net farm income has fallen, and exports have declined for the first time in over a decade. These problems are serious enough, but imagine the frustration and pain a farm family feels when an entire year's work is lost. Many of them can never recover. Therefore, Mr. President, I submit that we expand the PIK program in a way which is reasonable and equitable and will literally bring back many small towns in this country. I urge my colleagues to join me in this effort and ask unanimous consent that the text of the bill be included in the Record.

[S. 550, 98th Cong., 1st sess.]

A BILL To establish a Federal Grain Storage Insurance Corporation to protect farmers who store grain in certain warehouses against losses caused by the insolvency of such warehouses, and for other purposes.

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, That this Áct may be cited as the "Federal Grain Storage Insurance Act of 1983".

DEFINITIONS

SEC. 2. As used in this Act, unless the context clearly requires otherwise(1) the term "Board" means the Board of Directors of the Corporation;

(2) the term "certified warehouse" means a warehouse which is certified pursuant to section 10;

(3) the term "Corporation" means the Federal Grain Storage Insurance Corporation established pursuant to section 3;

(4) the term "Department" means the Department of Agriculture;

(5) the term "depositor" means the owner or holder of a scale ticket, a warehouse receipt, or other original source document issued by a certified warehouse