Agricultural Dealer Bonds

Agricultural Dealer Bonds 101

Any businesses that focus on creating, delivering, selling, or distributing food are used to having to meet strict requirements around health and safety—many also need surety bonds to operate properly and to protect their customers and business partners. This is where an agricultural dealer bond comes into play. 

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Also known as an agriculture dealer bond or ag bond, an agricultural dealer bond is required for agriculture dealers (aka businesses that buy, receive, solicit, negotiate, or handle agricultural products from producers or their agents) in order to legally operate their business. 

To better understand why a business may need an agricultural bond and what these bonds accomplish, keep reading. 

What is an Agricultural Dealer Bond?

Agricultural dealers either buy, solicit, negotiate, receive, or handle agricultural products they receive from producers or agents, such as livestock, vegetables, fruit, hay, or grain. In order to conduct this business, an agricultural dealer bond is required. This is because in order to be properly licensed to do business, many governmental jurisdictions require an agricultural dealer bond. 

There are three parties involved in any type of agricultural dealer bond: the surety, the obligee, and the principal. The principal is the party that takes out the bond in order to become licensed. The surety is the company that issues and backs the bond. The obligee is the party that requires the bond—this is usually a government agency such as a state government or a federal government. 

If a claim is filed against an agricultural dealer bond, then the surety will investigate the validity of the claim. If the surety finds that the claim is valid, they will pay out the claim up to the bond amount, but the principal is only off the hook initially. The principal will be required to pay the surety back eventually and may even run into extra fees or interest. 

Why are Agricultural Dealer Bonds Necessary?

Agricultural dealer bonds exist to help protect the producers of the products that the agricultural dealers deal with. This unique type of surety bond helps protect the producers by holding the principal financially accountable if the agricultural dealer does not issue legal and correct accounting for their products or payment from the dealer for their products. Additionally, the suppliers are promised payment and consumers are guaranteed a reasonable supply of goods.

While at first glance it may seem like agricultural dealer bonds benefit everyone but the agricultural dealers themselves, that’s not the case. Not only do agricultural dealer bonds make it possible for the dealers to become properly licensed, but they serve a second purpose. Having the proper bonding lends legitimacy to agricultural dealers by assuring their business partners and customers that they are properly licensed and bonded and therefore the experience of working with them is likely to be compliant with government regulations and they will be responsible and professional business partners. 

An agricultural dealer bond acts as a contract of agreement of sorts between the obligee and the principal. This agreement states that the principal won’t make any fraudulent sales or fraudulent statements about the grade, makings, and quality of the products.

Agricultural Dealer Bond Bonding Requirements

The obligee, aka the state, sets the requirements for agricultural dealer bonds including the bond amounts. Each state has varying requirements and bond amounts, so double check with your state to learn more about this. 

It’s important to pay attention to and follow these requirements. If the agricultural dealer acts against any bonding requirements, then the state can revoke their business license and cancel their agricultural dealer bond. 

How Agricultural Dealer Bond Pricing Works

How much an agricultural dealer bond costs is impacted by each state’s bonding requirements. Typically, the amount someone will pay for an agricultural dealer bond is a percentage of the bond amount. This is known as the bond premium and is something that the surety chooses. The obligee does set the price of certain fees relating to the agricultural dealer bond. 

Let’s look at an example of how agricultural dealer bond pricing can work. In the state of Florida, the bond amount ranges from $5,000 to $100,000. The amount chosen depends on the month with the highest volume of agricultural products that were bought or handled. If the business needs a $100,000 agricultural dealer bond and the applicant has a good personal credit score, they may qualify for a low price of 1% of the bond amount. In this example, they would pay $1,000 to be bonded properly. 

How often a business needs to renew their agricultural dealer bond depends on the state they do business in. That being said, an agricultural dealer bond is usually valid for one year and then the business can choose to renew it for an additional year each time it expires. 

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