General Accounting Office Review of the Department of Agriculture's Grain Warehouse Examination Programs

Comments were presented on the results of a review of the Department of Agriculture's (USDA) grain warehouse examination programs. Grain warehouse bankruptcies over the past few years and the publicity given a few recent cases have heightened concern about Federal and State warehouse licensing and examination programs. USDA and at least 29 grain-producing States administer programs to ensure that producers and the Federal Government have safe storage for their agricultural commodities. 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 and 1979. Most of the reported bankruptcies for which information was available were warehouses in business less than 5 years which had a capacity of less that 300,000 bushels. Certain weaknesses in Federal warehouse programs made it difficult to ensure that warehouses had a sufficient quantity and quality of grain to cover their storage obligations, the basic purpose of the programs as now structured. USDA agreed to require that warehouse receipts in warehouses under uniform grain storage agreements will be reconciled and that all financial statements will have to be prepared in accordance with generally accepted accounting principles. GAO believes the grain elevator bankruptcy problem warrants further careful study and evaluation before major program and legislative changes are made. One overriding issue that GAO believes USDA should resolve before specific changes are decided on is whether the potential for future bankruptcies warrants significant expansion of Federal efforts. The answer to this question is currently unknown. Obtaining a reliable answer will require development of a sound predictive formula tailored to the grain warehouse industry. The technology needed to do so currently exists, and research in this area is underway. To ensure against unnecessary additional Federal costs and regulations, GAO believes the need for any major expansion of the current Federal effort needs to be justified on the basis of reliable evidence that a significant number of bankruptcies are likely to occur in the future.