Date: Nov 01, 2014
Magazine:
November 2014: Drought Diagnosis--Difficult Year Ahead

For about 80 years, Canadian produce shippers have received preferential treatment as they filed Perishable Agricultural Commodities Act (PACA) claims against U.S. buyers.  For almost 30 years, they also have been able to take advantage of the PACA Trust amendment and received priority status, along with all other produce shippers, when a U.S. bankruptcy occurred that involved any fresh produce.

For that time period, U.S. shippers have not received equal treatment when dealing with Canadian buyers.  In fact, for many years the Canadian dispute resolution system was severely lacking.  While the establishment of the multi-national and Canada-based Dispute Resolution Corporation has helped in that regard, the country’s bankruptcy laws grant no priority status to produce creditors.

Though produce industry representatives on both sides of the border have argued for some type of system that would grant that priority status since the United States passed its law 30 years ago, movement on the issue has been virtually nonexistent.  That seemed to be changing after a bilateral Regulatory Cooperative Council (RCC) was established by the United States and Canada in the fall of 2011.  The council was charged with identifying areas of regulatory incompatibility, if you will, that might be hampering trade between these two countries.  The inequitable bankruptcy protection situation for produce shippers was quickly identified as one of the 29 areas of concern.  Within a year, produce industry representatives had developed a framework by which this issue could be addressed by the RCC.  But as time wore on, nothing was done.  And then earlier this summer, the RCC announced this issue was no longer on the table.  Representatives from Canada indicated that an unrelated issue involving unification for the licensing of Canadian produce companies had solved the problem.

Not so, yelled produce officials from both sides of the border…and retaliation has been swift.

On October 1, 2014, the USDA’s Fruit and Vegetable Division revoked Canada’s specialized treatment under PACA.

In a letter dated Oct. 1, 2014, Charles W. Parrott, deputy administrator of the USDA Fruit and Vegetable Program, informed Canadian officials that because the country does not have a “dispute resolution system comparable to the U.S. system,” as of that date, Canadian shippers are now treated like every other foreign shipper utilizing the PACA’s reparation services.

Though the action was taken with regard to PACA’s dispute resolution system, there is no doubt it was designed to express frustration over Canada’s inability to form a trust protection program similar to the one that exists in the United States.  Prior to that action, several produce organizations on both sides of the border warned Canadian officials that this action was imminent because of the failure to address the trust protection issue.  Industry leaders from Western Growers, Florida Fruit & Vegetable Association, the Produce Marketing Association, United Fresh Produce Association, Florida Tomato Exchange, the Northwest Horticultural Council and the Texas International Produce Association expressed frustration at a lack of progress toward reciprocity with a joint press release in late September.

Matt McInerney, executive vice president of Western Growers, emphasized the importance of a payment priority program for U.S. shippers.  “Protections afforded under PACA may seem less than sexy and may appear insignificant — until you don’t get paid.  Then they become one of the most valuable protections afforded to a family farmer.”

Equally perplexed was the Canadian-based Fresh Produce Alliance, which warned this action would occur if Canada didn’t address the trust protection issues.  “According to data collected by the Fresh Produce Alliance, American suppliers are losing at minimum $10 million annually through Canadian buyer insolvency,” said Anne Fowlie, executive vice president of Canadian Horticultural Council, which along with Canadian Produce Marketing Association and the Fruit & Vegetable Dispute Resolution Corp, makes up the Fresh Produce Alliance.  “This is, coincidentally, about the same amount that Canadian suppliers are recovering each year through the U.S. Perishable Agricultural Commodities Act Trust.  Hundreds more Canadian suppliers depend on the security PACA offers for ease of mind in their trade relationships.”

Revoking Canada’s preferential treatment status will have repercussions, said McInerney.  He explained that under PACA rules, Canadian shippers have been treated just as U.S. licensees for decades.  That has allowed Canadian shippers to pursue a formal complaint without posting a bond worth twice the amount of the damage they are claiming.  Under this new protocol outlined by Deputy Administrator Parrott, disputes originated by a Canadian shipper moving to a formal hearing stage will need to be accompanied by the bond, just as disputes are treated by shippers from any other country.

In his letter to Susie Miller, director general of Agriculture and Agri-Food Canada, Parrott said that in the future if Canada does implement a dispute resolution system similar to the U.S. PACA, the need for a bond would be revisited.

The Fresh Produce Alliance was quick to react aiming its displeasure at Canadian officials rather than the U.S. action.

“Without PACA access, 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,” stated Ron Lemaire, president, CPMA. “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 for up to one year.  Many cannot afford this (and) will simply have to walk away, losing what is rightfully owed to them.”

Situations like this can devastate not only the producer, but all the businesses connected to it and hits rural communities particularly hard, said the press release.

“The Fresh Produce Alliance has repeatedly briefed and met with various ministers and MPs (members of parliament) to raise the importance of the issue,” added Fowlie, “yet the government has not taken necessary mitigating action, despite warnings that the removal of PACA access was imminent without confirmation of a Canadian solution.”

McInerney expressed “cautious optimism” that the USDA revocation of preferred treatment for Canadian shippers coupled with vocal complaints from that group could finally generate some action.  He said the effort before RCC is dead, but that was just an advisory group in any event.  The WG executive said Canadian officials have been examining the country’s bankruptcy protection laws with an eye toward updating them in recent months.  He said it is possible that enough noise could be generated to have the produce industry priority status concept be considered.

“Anecdotally I have heard that produce industry representatives in Canada have heard from members of Parliament this week,” McInerney said in early October.  “They are wondering why this important issue has not been resolved.”

He said it is possible those queries would lead to action.  However, McInerney, who has been involved in Canadian produce issues for most of the past four decades, was not holding his breath.  But he did observe that the USDA action has real monetary consequences and would behoove the Canadian produce industry to lobby for action.

He said Western Growers is continuing to engage in the situation and will weigh in on behalf of its members as required.

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