Fruit, veg exporters fear loss of U.S. payment default coverage

(Peggy Greb photo courtesy ARS/USDA)

The U.S. could potentially yank the payment default protection it grants to Canadian exporters of fresh fruit and vegetables if Canada doesn’t extend the same courtesy southward, produce growers warn.

Under the U.S. Perishable Agricultural Commodities Act (PACA), Canadian produce suppliers exporting into the U.S. have had the same rights as U.S. suppliers to recover payments “easily and quickly” through a federal trust, if a buyer won’t pay or goes bankrupt without paying, according to a Canadian coalition of produce marketers.

Recognizing that perishables can’t just be repossessed like other goods, the U.S. law 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.

The Canadian coalition, dubbed the Fresh Produce Alliance, warned on Tuesday that “Canada’s special status may soon be revoked if the Canadian government does not implement a reciprocal payment protection program in Canada.”

A pledge was made to close that gap in 2011 as part of the Canada-U.S. Regulatory Co-operation Council mandate, as agreed upon by Prime Minister Stephen Harper and U.S. President Barack Obama.

The Canadian government has some rules under the Bankruptcy and Insolvency Act meant to protect suppliers of perishables — but in practice, the alliance said, the conditions are “complicated and limiting” enough that few produce suppliers, Canadian or American, can actually get at the security for which the Act provides.

The Canadian law, the alliance 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 the U.S. 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.

“PACA Canada”

The alliance quoted Matt McInerney, executive vice-president of a major U.S. produce trade group, Western Growers, as saying in April that U.S. growers would press Washington to withdraw Canadian suppliers’ “preferential access” to the PACA trust, if Ottawa doesn’t move to set up what he described as “PACA Canada” in return.

The alliance, representing the Canadian Produce Marketing Association (CPMA), Canadian Horticultural Council and Fruit and Vegetable Dispute Resolution Corporation (DRC), also quoted DRC president Fred Webber as estimating U.S. suppliers today “are losing at minimum $10 million annually through Canadian buyer insolvency.

“This is, coincidentally, about the same amount as Canadian suppliers are recovering each year through the PACA trust.”

Furthermore, the alliance said, a licensee survey by the U.S. Department of Agriculture shows 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.”

Lack of meaningful default protection in Canada also means Canadian producers “routinely bypass” their own domestic market to take advantage of “superior protections” offered on exports to the U.S., the alliance added.

The alliance quoted Charles Parrott, deputy administrator of the U.S. Department of Agriculture’s fruit and vegetable program, as recommending changes to Canadian officials to produce outcomes “comparable” to PACA.

Canadian bankruptcy law, Parrott told the CPMA in Vancouver in April, could be amended setting up “clear criteria” segregating assets of a produce debtor, possibly a pro-rata share, for produce creditors only.

Other amendments, he said, could help ensure a debtor’s “produce-related” assets don’t end up in that debtor’s general bankruptcy estate. — Network


About the author



Stories from our other publications