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. It was studied and amended by the Standing Senate Committee on Banking, Commerce and the Economy (BANC) and is currently before the Senate for debate.

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 enable the Fruit & Vegetable Dispute Resolution Corporation to levy strict penalties against partial or absence of payment.

What is Private Member’s Bill C-280?

The fresh produce industry asserts that the perishable nature of their product exposes it to higher risks of payment defaults than other industries.

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 (Financial Protection for Fresh Fruit and Vegetable Farmers Act) 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. On October 31, 2024, following the Standing Senate Committee on Banking, Commerce and the Economy’s (BANC) study of the bill, senators adopted the two amendments which would limit the scope of Bill C-280’s protections to farmers and to those sellers who buy produce directly from the farmers in order to resell them, rather than to all sellers within the value chain. Should Bill C-280 (as amended) pass Third Reading in the Senate, it will return to the House of Commons for consideration.

On June 19, 2024, as part of its study on issues facing the horticultural sector, AGRI presented a report, entitled ‘Improving the Resilience of Canada’s Horticultural Sector’, which recommended that “the Government of Canada establish critical support for Canada’s fresh fruit and vegetable sector by encouraging the Senate’s speedy adoption of Bill C-280 [in its original form].”

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 protections currently exist 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 DRC members, all along the supply chain, adhere to a unified set of trading rules. The DRC also governs against slow, partial or no pay by buyers, with strict penalties for non-payment. The DRC is expected to resolve most 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 2023, the DRC handled a total of 37 informal complaints (averaging $62K in value) and 15 formal complaints (averaging $74K in value) on behalf of its 1,716 members. However, insolvency losses within the Canadian fresh produce sector are small, with total losses to all creditors in fresh produce insolvencies averaging less than 0.3 percent of total sales over the last five years. A total of 58 insolvencies and 15 proposals were filed in 2023 with $51.8 million in total net liabilities among produce wholesalers, supermarkets and produce markets. However, most of these insolvencies fall under supermarkets which have many non-produce creditors, with produce sellers comprising only a share of the value.

Both Agriculture and Agri-Food Canada and ISED had significant engagement 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.