Canadian fruit and vegetable growers shipping produce to the U.S. have just lost a key piece of insurance against U.S. buyers who skip out on their bills.
The Fresh Produce Alliance (FPA), representing the Canadian Produce Marketing Association (CPMA), Canadian Horticultural Council (CHC) and Fruit and Vegetable Dispute Resolution Corporation (DRC), announced Friday that Washington has cut off Canadian exporters’ access to reparations under the U.S. Perishable Agricultural Commodities Act (PACA), effective Oct. 1.
The FPA had warned the Canadian government as recently as last week [Related story] that U.S. officials could cut off Canadian access to PACA unless Ottawa comes up with an equally effective dispute resolution process for defaults on perishable commodities.
The letter to Agriculture and Agri-Food Canada from Charles Parrott, deputy administrator of the fruit and vegetable program for the U.S. Department of Agriculture’s (USDA) Agricultural Marketing Service (AMS) said as much in announcing Canada was cut off from PACA.
“We have determined that Canada does not have a dispute resolution system that is comparable to the U.S. system” under PACA, Parrott wrote, thus Canadian complainants now “must be treated the same as other foreign complainants utilizing PACA’s reparation services.”
As of Oct. 1, he wrote, Canadian exporters must now post a surety bond before they can file a formal complaint against a U.S. buyer for PACA adjudication.
“Cannot afford this”
PACA until now has afforded Canadian suppliers the same rights as U.S. suppliers to recover payments “easily and quickly” through a U.S. federal trust, if a U.S. buyer won’t pay or goes bankrupt without paying.
Recognizing that perishables can’t just be repossessed like other goods, PACA gives suppliers of perishable produce “super priority,” even over secured creditors, to lay claim to a debtor’s assets directly related to sales of produce.
But without access to the PACA trust funds available to U.S. suppliers, “Canadian companies trying to recover unpaid bills will have to post double the value of what they are trying to recover as bond to make a claim,” CPMA president Ron Lemaire said Friday.
“For example, a small producer owed $50,000 would have to post $100,000 cash to make a claim, effectively removing $150,000 from their cash flow/operating line (of credit) for up to one year. Many cannot afford this will simply have to walk away, losing what is rightfully owed to them.”
The FPA has “repeatedly briefed and met with” Canadian cabinet ministers and MPs on the issue, “yet the government has not taken necessary mitigating action, despite warnings that the removal of PACA preferential Canadian access was imminent without confirmation of a Canadian solution,” CHC executive vice-president Anne Fowlie said Friday.
Losing PACA access makes exporting to the U.S. “much riskier” for Canadian suppliers, the FPA said Friday. “Less scrupulous U.S. buyers, knowing that Canadian companies are now at a disadvantage, will attempt to benefit, leading to higher rates of outstanding bills.”
Canada has some rules under the federal Bankruptcy and Insolvency Act meant to protect suppliers of perishables — but in practice, the FPA said last week, the conditions are “complicated and limiting” enough that few Canadian or U.S. produce suppliers can actually get at the security for which the Act provides.
The Canadian law, the FPA said, applies only to produce marketed directly by farmers, not on shipments of perishables from more than one grower that are aggregated for export via packers, dealers or wholesalers.
Also, unlike PACA, the Canadian law allows farmers the right of repossession only on unsold inventory not claimed by other suppliers — not on cash or accounts receivable related to the produce sale.
Parrott’s letter to AAFC urged the agriculture department to “notify the appropriate Canadian entities about this issue.”
If Canada should ever set up, administer and enforce a PACA-type dispute resolution system, Parrott added, the new surety bond requirement for stiffed Canadian exporters “may be revisited.”
AAFC on Friday referred questions about the USDA/AMS decision to Industry Canada. A response from the office of federal Industry Minister James Moore wasn’t immediately available Friday.
Solutions are available for a similar Canadian system “at no cost to either the government of Canada or Canadian taxpayers,” Fowlie said Friday.
For example, Parrott told the CPMA back in April that Canadian bankruptcy law could be amended to set up “clear criteria” segregating assets of a produce debtor, possibly a pro-rata share, for produce creditors only.
Other amendments, Parrott said, could help ensure a debtor’s “produce-related” assets don’t end up in that debtor’s general bankruptcy estate.
As the Canadian system now stands, the DRC has estimated U.S. fruit and vegetable suppliers are losing $10 million a year through Canadian buyer insolvency — about the same amount Canadian suppliers have been recovering from U.S. buyers’ bad debts each year through the PACA trust.
The lack of a PACA-type system in Canada also costs Canadian consumers in the produce aisles, the FPA warned, citing a licensee survey by USDA showing U.S. shippers already tack premiums of five to 15 per cent on fresh fruit and vegetables bound for Canada “to compensate for the riskier environment.”
— Dave Bedard is the daily news editor for the AGCanada.com Network in Winnipeg.