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May 18, 2001

'Dead' ag lien
legislation gains new life

By Lana Robinson
Field Editor

Imagine how you would feel if you had been contracted to grow seed corn or seed milo for a company, invested all the time and money to grow it, delivered it and then learned that the purchaser had filed for bankruptcy. That would be bad enough. But under current Texas law, a producer in such circumstances is considered an "unsecured creditor," which means you may get nothing at all.

That's exactly what happened in West Texas in the fall of 1999 when 28 farmers delivered $2.2 million worth of seed to AgriBio Tech just prior to its bankruptcy and witnessed the liquidation of their commodity to pay off "secured creditors," including farmers from other states.

While nothing can be done to remedy this unfortunate turn of events for these 28 Texas producers, the enactment of CSSB 779, a committee substitute version of H.B. 1829 by State Rep. Gary Walker of Plains and S.B. 779 by Sen. Robert Duncan of Lubbock, would help prevent future disasters by creating a lien on crops grown under a "contract to grow" agreement between a producer and a contract purchaser.

"The idea that we need to protect the producer, I think we all would agree with. CSSB 779 would allow that producer at least a seat at the table. It allows him to have an ag lien. It probably would not allow him to collect 100 percent of his product at the end of the road, but at least would allow him to collect more than he would today under our present laws," said Rep. Walker.

The bill provides for this lien to be for the amount owed under the contract, or for the reasonable value of the crop when delivered. The lien would attach to the commodity inventory of the contract purchaser. The lien attaches when the crop is delivered to the purchaser and expires after one year. CSSB 779 does not provide any extraordinary treatment for producers. Instead, the producers are required to follow all of the rules already in place to perfect a lien. The lien priority is also established under the current guidelines of first-to-file.

"California, Iowa, Idaho, Oregon, Wyoming—16 states have passed a similar law," said Texas Farm Bureau Associate Legislative Director Ken Hodges, who has closely followed the Farm Bureau-backed legislation this session. "While getting caught up in a bankruptcy is never a good thing, this bill would provide an agricultural lien to improve the producer's position by considering him a secured creditor."

Terry County Farm Bureau President Brent Hogue, along with Val Brown, a Terry County Farm Bureau board member, Lubbock County FB President Eugene Bednarz, and Scott Hicks, a Farm Bureau member and contract grower in Bailey County, were among the 28 producers suffering losses. According to Hodges, these men, together with Moore County FB Director David Block, a contract grower who was not directly involved in the bankruptcy but has taken up the cause, got the ball rolling on the proposed law.

"This legislation has been pronounced dead many times, but having county leaders involved has helped keep it going. These farmers suffered tremendous losses in the bankruptcy. The thing is, farmers have been encouraged to go out and market their own products and to be competitive. They took the initiative to do that. It's wrong they got hurt," said Hodges.

And the impact is far-reaching, as exemplified by Brent Hogue in his testimony before the Senate Natural Resources Committee earlier this spring: "Not only do they (contract-to-grow producers) receive no compensation for their efforts, but they still have outstanding obligations for the costs of the inputs used to produce the crop. These obligations are to local businesses including their banks, parts and supplies dealers, agriculture service providers, and many others in the local community."

Hicks, a 29-year-old farmer and father of three, can relate to that. The Lazbuddie-area producer was the biggest loser in the AgriBio Tech bankruptcy. He had contracted with the company for several years to grow seed milo and seed sunflowers without a problem, but the final go-round cost him some $150,000.

"I've got a friend who farmed on a much smaller scale and didn't lose as much, but still had to quit farming because of it. It's really legalized theft," said Hicks, who testified before the House Agriculture and Livestock Committee. "In hindsight, I'm sure I would have done something differently. The deal is, after getting burned, you do a lot more homework on who you contract with and where it's going, and we shouldn't have to do that stuff. A contract should be worth something. I don't understand why we don't have laws already in place. The cotton industry has gone through similar hits.

"Texas is behind the times with this law," Hicks continued. "In this bankruptcy, farmers from other states are getting 50 to 55 percent where I'm getting less than 10 percent. We've got to have some secured footing. Other states are going to get 40 percent more in the payout. Texas producers are at the bottom of the totem pole, along with the guys washing the windows. We are completely unsecured."

Hicks skipped the 2000 crop year, but resumed growing seed maize this year for a regionally-owned company with a location in Tulia. Until the legislation is signed into law, he is still vulnerable.

"It's only a small number of producers who are likely to be affected by this, but I predict that the year that this is enacted in Texas, there will be somebody that needs it. It may be just 10 farmers, but we can't afford to lose them," Hicks observed.

On May 10, TFB's Ken Hodges reported the House Ag Committee amended, approved and placed the legislation on the House Calendar. "If everything goes as planned, the Senate will agree to the House amendments and the bill would be sent to the Governor for his signature," said Hodges. "At this time the outlook for the bill is positive."

Rep. Gary Walker agreed, stating, "In this particular instance, to have FB behind this issue is a strong, strong statement on the House Floor of the Texas legislature."