Protecting Canadians' Access to Fresh Fruits and Vegetables

  • National Newswatch

Whether it's Canadian grown tomatoes in the summer or California strawberries in January, Canadians enjoy a diverse, affordable selection of fresh fruits and vegetables all year long. In 2013, Canadians are estimated to have consumed $10.1 billion in fruits and vegetables, supporting the economy and their own health at the same time.Over 70% of fruits and vegetables consumed in Canada are either Canadian grown or imported from the United States. Yet a trade irritant simmering under the surface for many years is bubbling up, threatening the financial health of Canadian producers as well as the reliable supply of imported US products.Due to the unique nature of fresh produce, if a buyer becomes insolvent, a farmer cannot repossess a truckload of fresh tomatoes and resell it. Recognizing this, the Government of Canada included special protection for suppliers of perishable products in the Bankruptcy and Insolvency Act more than two decades ago. Unfortunately, the conditions required are so complicated and limiting that few produce suppliers can actually access the security provided by the law. In practice, fresh produce suppliers have no protection in Canada when buyers declare bankruptcy.Yet this is not the case in the United States, where the Perishable Agricultural Commodities Act (PACA) requires a deemed trust to protect the funds owing to produce suppliers. Simply put, buyers are required by law to segregate the funds owing to fruit and vegetable suppliers. In the event of bankruptcy, these funds go directly to the produce supplier and are not tied up in a general pool of assets to be divvied up among other creditors. Canada is the only country whose produce suppliers receive the same protection under PACA as US domestic sellers.While protection from potential bankruptcies may appear on the surface like a narrow, technical issue, it has big implications for trade and in economic impacts on rural communities. In order to address the gap, the Regulatory Cooperation Council (RCC) mandate agreed to by President Obama and Prime Minister Harper in 2011 included commitments to develop effective financial risk mitigation tools to protect Canadian and American fruit and vegetable suppliers doing business in Canada from buyers that default on their payment obligations. The commitment requires comparable outcomes to PACA and the United States Department of Agriculture has outlined specific criteria they believe a Canadian system should meet.Slow progress under the RCC on the issue of bankruptcies and the continued lack of reciprocity has caused frustration in the US, resulting in growing discussions amongst the US industry and the politicians that support it on removing Canadians' special access to PACA.The loss of those privileges could be devastating for Canadian fresh fruit and vegetable growers. Approximately 40% of the produce grown in Canada is exported to the United States. In some sub-sectors it can go even higher, such as for Ontario greenhouse vegetable growers, who export around 70% of the vegetables they produce, at a value of over $500 million. Given the small margins that many fruit and vegetable growers operate under, added costs and complexity of exporting to the US due to the loss of special access to PACA could have serious impacts throughout the industry.Furthermore, US suppliers selling into Canada have signaled their intention to reduce their Canadian shipments. Due to the perishability of the product, distance and added costs would mean that replacing these lost shipments would not be feasible in many cases. Such a move could seriously impact the supply and cost of fruits and vegetables available to Canadian consumers.The rates of bankruptcies in the fresh produce sector are much lower than for sectors such as construction and manufacturing but what makes these potential losses so important is the domino effect that the bankruptcy of a produce buyer can have in rural communities. If a large buyer goes down, not only does the farmer lose out but so do the retailers and service companies that depend on their products.Produce sector bankruptcies have a disproportionate effect on small and medium enterprises. Of Canada's 10,000 fruit and vegetable suppliers, around three-quarters are small businesses. They operate with low profit margins, short production seasons, and must provide quick turnaround times for order and delivery. Under these conditions, it is not always possible to run a complete credit history on their buyers. Thus, the fresh produce industry is more vulnerable to bad debts than other types of businesses.We must find a way to ensure that growers can get paid for their produce. A deemed trust for Canadian and US suppliers is the least costly option and lessons learned from PACA in the United States have proven that it works. It does not require government funds and every supplier is covered.Recently, Industry Canada called for input on proposed reforms to the Bankruptcy and Insolvency Act. It is essential for Canadian producers and consumers that produce sector reforms are included in this process. The consultation document released by Industry Canada includes specific questions on provisions for fruit and vegetable suppliers and changes to the existing Act in light of the RCC commitments. However, the proposal outlined does not meet the needs of industry or ensure comparable outcomes to the US. The Canadian Produce Marketing Association, along with our partners at the Canadian Horticultural Council and the Fruit and Vegetable Dispute Resolution Corporation, will continue to advocate for the industry's preferred solution – a deemed trust.Ultimately, this issue is about protecting the abundant, diverse supply of fresh fruits and vegetables that Canadians expect to find on their grocers' shelves. One simple change with no cost to government or taxpayers can increase the financial viability of Canadian growers as well as make Canada a more secure market for our largest trading partner. Lower prices and better quality product would result, making it a win-win for both the Canadian produce industry and Canadian consumers.Ron Lemaire is President of the Canadian Produce Marketing Association, not-for-profit association with over 800 Canadian and international members representing the entire produce supply chain, from farm gate to dinner plate, including grower-shippers, packers, food retailers, foodservice operators and all other businesses which engage in or support the produce sector.