Normally, marketing grain is a complex business requiring decisions on when to sell, what type of contract to use, how to store the grain, and many other factors. Although selling directly means the business may not be selling on the volatile open market that most grain growers are accustom to, many of these decisions are still pertinent to the business. There are additional considerations that normally would apply, such as whether and where to have the grain milled and how and where to store the grain.
Although there are extensive resources for assisting conventional farmers in marketing their grain, there is limited information available for direct-to-consumer marketers. Most producers who are not selling through the traditional commodities markets have made their business planning choices using their personal judgment and experience, and little else. Some are willing to talk about their businesses, but for the most part a producer may need to forge paths for others to follow. An important resource to keep in mind is MarketMaker, which allows producers to list their business in a searchable database as well as search for processors and potential institutional customers. Another excellent resource on processing and marketing grains is the National Sustainable Agriculture Information Service’s Grain Processing: Adding Value to Farm Products. The guide gives examples of farmers who have successfully established processing and distribution infrastructure to direct market their grains. Another potentially useful resource is the Illinois Department of Agriculture’s (IDOA) website that allows you to list your hay and straw for livestock raisers and horsemen, available here. Finally, although oriented at organic, the Rodale Institute has a variety of educational resources on alternative crop marketing, their website is available.
Grain Standards
The Federal Grain Standards Act (7 U.S.C. § 71 et seq.) authorizes the Department of Agriculture to establish standards and procedures for the inspection of grain shipped in interstate commerce and out of the country (7 U.S.C. §§ 76, 77). The Grain Inspection Act is administered by USDA’s Grain Inspection, Packers & Stockyards Administration (GIPSA). Inspection of grain shipped domestically (within the United States) is voluntary, and performed upon request by GIPSA-authorized state agencies and private firms (7 U.S.C. § 79(b)). The regulations concerning inspection procedures and establishing standards are in 7 C.F.R. Parts 800, 801, 802 and 810. Very generally, inspectors rate grains on their moisture content, levels of contaminants such as insects or gravel, toxins caused by mildews or pesticide residues, and amount of crushed or broken grains. A list of official service providers to inspect or weigh grain is available here. More information on grain inspection is available here.
Licensing of Warehouses
The United States Warehouse Act (USWA) (7 U.S.C. §§ 241-273) authorizes the USDA to license warehouse operators that meet the standards established by the USWA and its regulations (7 U.S.C. § 242(j), 7 C.F.R. Part 735). Being federally licensed is voluntary, but licensees must post bonds (or other financial assurance) (7 U.S.C. § 245) and comply with record keeping, contracting, and inspection requirements (7 U.S.C. §§ 246, 7 C.F.R. Part 735).
The Illinois Grain Code (240 ILCS 40) and implementing regulations (8 IAC Part 281) is the primary Illinois law relating to the marketing and storage of grain. The law, which the Illinois Department of Agriculture administers, requires grain dealers and warehouses to be licensed by IDOA or by the USDA under the USWA (240 ILCS 40/5-5) and establishes the Illinois Grain Insurance Fund to protect producers in the event of the failure of a licensed dealer or warehouseman.
The federal and state licensing programs both serve the same purpose: protect producers by requiring warehouses and dealers to have enough financial security to pay the producers and authorize inspections to ensure bad management practices do not damage products. To this end, IDOA licensees must maintain sufficient insurance to cover losses (240 ILCS 40/10-4(a)) and enough capital to pay producers on demand (240 ILCS 40/10-5(c)). Persons purchasing grain for their own use as seed or feed (i.e. not for resale) or for resale as only seed are exempt from the licensing requirement (240 ILCS 40/5-5(e)).
Generally, IDOA licensed warehouses must accept grain tendered to them (240 ILCS 40/10-20(a)). However, they may refuse to accept grain if the producer requires separation for preservation of the grain’s identity (240 ILCS 40/10-20(g)). Since a key element of selling directly to consumers is preserving the grain’s identity, many warehouses may be unwilling to accept the grain. If they do accept grain, the evidence of storage must state on its face that the grain is stored with its identity preserved and the location of that grain (id.). USWA does not contain a similar requirement. For a DFB, this may mean that IDOA licensed warehouses are preferable because they are subject to regulations for keeping the DFB’s grain distinct.
The Illinois Grain Code also establishes a Grain Insurance Fund. Licensed dealers and warehouses must pay yearly contributions to the fund (240 ILCS 40/30-10) according to the provisions set out in Section 5-30 of the act. The Grain Insurance Fund reimburses producers if, despite all the requirements of the code, a warehouse or dealer becomes defunct and cannot pay the producer. The Code requires Illinois licensees to pay into the fund, and allows Federal licensees to pay into the fund (id.). The fund will only pay a producer if the warehouse where they stored their grain was contributing to the fund (240 ILCS 40/30-5(b)(8)). For this reason, a DFB may wish to seek out a warehouse that is participating in the Illinois Grain Insurance Fund. More information on the grain insurance fund is available at IDOA’s website. Don Uchtmann and Bryan Endres have also written a useful summary of how the Grain Insurance Fund works, which is available here.
If you are storing your own grain, the Grain Storage Warning Act (240 ILCS 20) requires warning signs on structures that can store 1,000 bushels or more of grain. The signs must be affixed to or printed on the structure near the door or loading area and shall be substantially as follows:
"DANGER
Inspect storage area for unauthorized persons before removing grain."
The act does not apply to structures used exclusively for ear corn (240 ILCS 20/3). Failure to comply with the act is a petty offense and the fine can be $50 (240 ILCS 20/2).
Selling
Unprocessed grains, nuts and seeds sold in the same condition as harvested do not need to come from an IDPH inspected and licensed facility. However, if the producer processes the grain by bagging, packaging or grinding, they must do so in an approved facility (77 IAC § 760.100, 750.100). Processing also includes blending, roasted, sprouting, grinding, or any other process that changes the condition of the grain.
Other rules to be aware of are the federal standards of identity for grains and grain products (21 CFR Part 137), which the IL FDCA incorporates for goods sold in intrastate commerce (410 ILCS 620/9). Grains labeled as a food that has a standard of identification must comply with the standard’s content and production requirements, otherwise they are misbranded (410 ILCS 620/11). FDA Defect Action Levels, which are maximum allowable levels of natural or unavoidable defects in foods for human use that present no health hazard (21 C.F.R. 110.110), are another important area the producer must monitor. Common defects with specific action levels include molds, insect parts, and excrements. More guidance on the action levels is available here.
Another step in the processing of grains for sale may be to produce baked goods. IDPH requires bakers to use commercialy approved kitchens (77 IAC §§ 760.100, 750.100) and package the baked goods to protect them from contamination (77 IAC §§ 730.7080, 760.120). Prepackaged foods must, at minimum, identify the common name of the product, the name address and zip code of the packer, processor, or manufacturer, the net contents, a list of ingredients in descending order of predominance by weight, and a list of any artificial color, artificial flavor or preservatives used (410 ILCS 620/11(e)). At farmers markets, the information may be on a label on the package or container or on a sign or placard or as a recipe available to the consumer. The Hearth Baked Breads Act (410 ILCS 640) is an exception to packaging requirements. The act allows the sale of “foreign-type, hearth baked breads” in open ended packages. These are the breads that are often thought of as having hard crusts, such as Italian and French breads, whose crusts would soften if placed in a sealed package (IDPH TIB # 24). However, the package must still protect the loaf from contamination by extending beyond the end of the bread (id.).
Have you?
- Come up with a marketing and business plan? What type of growth do you envision and when? Given the rarity of direct marketing grain, this may be a particularly difficult step that is especially important for establishing a successful business.
- Do you want to have your grain inspected and graded?
- Will you need to use a warehouse, or do you have storage capacity on the farm? If so, have you identified a warehouse that will take your grain?
- Will you be processing your grain, or selling it in its natural, post-harvest state? If you are processing, do you have the necessary facilities and permits, or do you need to access a commercial, certified kitchen?
Continue to Honey 