Farmers who sell grain to an elevator on credit need some insurance coverage in case it runs into financial problems, says a lawmaker who saw his home Barnes County elevator go broke.

"We would like to see that not happen in another community," said Rep. Phillip Mueller, D-Wimbledon.

Mueller is supporting legislation, sponsored by Rep. Chet Pollert, R-Carrington, that would create a special insurance fund for farmers who sell grain on credit.

The program would be financed by farmers, who would pay 0.02 percent of their grain's value into the fund until it reached $10 million in assets.

Mueller said more than 100 farmers in his community were stuck with more than $1 million in unpaid bills when the Wimbledon Grain Co., which operated elevators in Wimbledon and Leal in Barnes County, went broke a year ago.

"This continues to be a tough situation for us," Mueller said.

Pollert said the legislation offers up to $250,000 in coverage for each farmer at a single elevator. If a farmer sold grain on credit to an elevator that failed, he would be eligible to recoup 80 percent of his costs, up to the $250,000 maximum.

The fund would not cover cash grain sales, which are already protected by insurance that elevators are required to carry. The insurance now does not cover credit sales, in which a farmer agrees to delay taking payment for more than 30 days.

Rep. Earl Rennerfeldt, R-Williston, called the legislation "very unfair," and said the payment caps would hurt credit-sale customers if they lose a substantial amount of money.

"This bill will hurt those farmers most that have worked to be fiscally responsible, and it has the potential to hurt more customers than it would help," Rennerfeldt said.

The Senate Agriculture Committee held a hearing on the bill Friday. The committee will later recommend whether the full Senate should approve the measure.

The Public Service Commission, which licenses grain elevators, would oversee the proposed indemnity fund. Jon Mielke, the commission's executive secretary, said the legislation would provide some protection to an increasing number of farmers who sell grain on credit.

Twenty years ago, less than 10 percent of grain was sold on credit, Mielke said. Now credit sales account for about 50 percent of all contracts, he said.

"We have consistently told folks that they need to decide if they want protection for these transactions," Mielke said. "If they do, they need to decide how they want to pay for it."

Twelve states use similar funds to protect farmers in insolvency cases, Mielke said.

Spokesmen for the North Dakota Farmers Union and the North Dakota Farm Bureau supported the bill. "Some farmers don't realize they are not covered through a bond," said Mark Sitz, a Farmers Union spokesman.

Pollert expects the assessment to raise about $1.5 million annually until it reaches $10 million. The charge would then be removed, and would not be assessed again until the fund's balance fell below $5 million

Mielke said the program would cost $79,000 per biennium, and its expenses would be paid out of the fund.

The bill is HB1197.