Question Period Note: PERISHABLE AGRICULTURAL COMMODITIES ACT - FINANCIAL PROTECTION FOR CANADIAN FRESH PRODUCE SELLERS

Q1 – Is the Government of Canada planning to implement a regime similar to the USA for Canadian fresh produce sellers?

R.1 - Private Members’ Bill C-280, an Act to amend the Bankruptcy and Insolvency Act and the Companies’ Creditors Arrangement Act would see the establishment of a deemed trust for fresh fruit and vegetable sellers, and is currently before the Standing Senate Committee on Banking, Commerce and the Economy.
Meanwhile, Canadian fresh produce sellers continue to have access to the United States market and to their dispute resolution mechanism, the Perishable Agricultural Commodities Act (PACA).
The Safe Food for Canadians Regulations include a dispute resolution corporation that can levy strict penalties against partial or absence of payment.

What is Private Member’s Bill C-280?

Private Member’s Bill C-280, An Act to amend the Bankruptcy and Insolvency Act and the Companies’ Creditors Arrangement Act (deemed trust — perishable fruits and vegetables), was introduced by the Conservative MP from York-Simcoe on June 8, 2022. Bill C-280 seeks to amend the Bankruptcy and Insolvency Act (BIA) as well as the Companies’ Creditors Arrangement Act (CCAA) to grant fresh produce sellers a level of priority in insolvency proceedings so they would be paid ahead of all other creditors, otherwise known as a deemed trust. The Standing Committee on Agriculture and Agri-Food (AGRI) completed its report on Bill C-280 and presented the bill back to the House of Commons without amendment on September 20, 2023. Bill C-280 was then passed by the House of Commons at third reading on October 25, 2023, and is currently before the Senate. Its second reading was completed on May 9, 2024, where it was referred to the Standing Senate Committee on Banking, Commerce and the Economy.

The fresh produce industry asserts that the perishable nature of their product exposes it to higher risks of payment defaults than other industries as the short time frame for fresh sales limits the potential pool of buyers and reduces their ability to rely on due diligence and standard commercial financial risk mitigation practices.

What is the Perishable Agricultural Commodities Act (PACA)?

The Canadian and American industries want Canada to implement a regime similar to the United States Perishable Agricultural Commodities Act (PACA), a broad regulatory regime for the produce industry that includes licensing, inspection services and dispute mediation for payment issues by solvent buyers. In the case of bankruptcy, PACA also includes a legislated deemed trust, which requires that a buyer’s property be held in trust to secure payment of any amount owed to a seller for fresh produce sales, ahead of all other creditors (including secured creditors such as banks).

In Canada, the Department of Innovation, Science and Economic Development (ISED) has the mandate for bankruptcy and insolvency. ISED undertook a statutory review of the Bankruptcy and Insolvency Act (BIA). This included public consultations on whether to expand protections in the Act that give Canadian farmers a super-priority, whereby debts owed to them from insolvent buyers are paid ahead of all others except secured creditors. Due to potential negative effects on credit cost and availability, stakeholders outside of the fresh produce industry were not supportive of enhanced provisions.

What is done in Canada?

Canada has taken several steps to achieve comparability with outcomes under PACA. For instance, under the Safe Food for Canadians Regulations, which came into force on January 15, 2019, the Fruit and Vegetable Dispute Resolution Corporation (DRC) is permitted to act on behalf of the Minister of Agriculture and Agri-Food as the single dispute resolution body and ensure the adherence of fresh fruit and vegetable buyers to a unified set of trading rules. The DRC also governs against slow, partial or no pay by buyers, with strict penalties for buyer non-payment. The DRC is expected to resolve the majority of non-payment issues in Canada, and will achieve comparable results to that of the U.S. in terms of non-payment from solvent buyers. In 2021, the DRC handled a total of 39 informal complaints (averaging $55K in value) and 16 formal complaints (averaging $200K in value – an increase of more than five times the average value from 2020) on behalf of its 1,768 members. However, insolvency losses within the Canadian fresh produce sector are small, with total losses to all creditors in fresh produce insolvencies making up less than 0.1 percent of total sales in recent years. A total of 12 insolvencies and 2 proposals were filed in 2021 with $7.5M in total net liabilities, lower than the previous 3-year average (2018-2020) of 22 insolvencies annually and $9.4M in total net liabilities.

Both Agriculture and Agri-Food Canada and ISED continue to engage with the Canadian Produce Marketing Association (CPMA), the Fruit and Vegetable Growers of Canada (FVGC) and the DRC on this issue. At a meeting on September 13, 2019, AAFC officials met with the CPMA, FVGC (then known as the Canadian Horticultural Council), DRC and other industry leaders to re-iterate the policy implications the creation of a deemed trust would have on the BIA and ensure that the Canadian fresh produce industry understood that any future policy consideration would require compelling and significant evidence of significant harm. This has not yet been fully demonstrated by the Canadian fresh produce industry.

• The Government is committed to supporting Canada’s fruit and vegetable industry.

• Our system provides for a single dispute resolution body to resolve incidents where fresh produce sellers do not receive payments they are owed.

• We will continue to engage with industry to support the resolution of disputes.