UPDATED – to include comments from Purely Canada Foods – April 5, 2023 1605 CST – About a month ago, Purely Canada Foods — a food ingredient company — informed about 26 farmers in Saskatchewan that it was voiding their oat contracts.
The contracts were for gluten-free oat production in 2022, mostly from farmers in northeastern Saskatchewan.
Purely Canada, a division of a Regina firm called Above Food, explained in a letter that it had to dissolve the contracts because a processor it was working with was unable to take the oats.
Read Also
Farming Smarter receives financial boost from Alberta government for potato research
Farming Smarter near Lethbridge got a boost to its research equipment, thanks to the Alberta government’s increase in funding for research associations.
Related story: Firm hopes to honour gluten-free oat contracts
“There were 21,000 tonnes of certified gluten-free oat conversion capacity … contracted for gluten-free processing,” said the letter to affected farmers.
“Unfortunately, the contractor experienced gluten-free and food safety certification delays, a substantial equipment failure … as well as substantial delays caused by start-up and commission issues…. These failures were beyond the buyer’s (Purely Canada) control.”
Some of the gluten-free oat contracts were priced around $8.50 per bushel because the market for oats was much stronger in the winter of 2022.
The oat market has since slumped with prices for conventional oats dropping to around $4-$4.50 per bu. this spring. Gluten-free oats trade at a premium, but the farmers with the voided contracts could be facing significant losses if they sell their oats into the open market.
However, Purely Canada says it’s been in communication with the affected farmers, and on April 4 it sent them a letter saying the company has found a processor that can take some of the gluten-free oats produced in 2022.
“We’ve spoken to almost every one of these producers and said, ‘this isn’t a situation where we’re trying to walk away from the contract, we’re going to stay in the gluten-free oat business. We’re going to take your oats at contract price. We just need some time to figure our next strategy is,’ ” said Tyler West, chief executive officer of Purely Canada.
“(And) we sent a letter out to these oat growers yesterday (April 4), advising we have secured some milling capacity for these growers, starting in September.”
While Purely Canada has been in contact with the 26 producers over the last month, two sources told The Western Producer that the group of farmers, or part of the group, has been pursuing legal action against Above Food/Purely Canada Foods.
On its website, Above Food says it is a “vertically integrated plant-based food company.” It buys oats and other crops from farmers and then processes them into food ingredients.
Above Food also markets a line of branded products, including dairy-free cheese.
Force majeure
In the initial letter to the growers that voided the contract in early March, Purely Canada said it was invoking the force majeure clause.
“The certified gluten-free oat conversion processor had a very unfortunate and disappointing process, equipment and system failure due to no fault of ours,” the letter says.
“The buyer gives you immediate notice that the Gluten-Free supply contract is void in respect to purchase of the oats…. Please consider that the force majeure clause applies … for the buyer and conversely the seller. And you as seller will be released from obligations under the contract.”
Brad Boettger, vice-president of the Prairie Oat Growers Association and a farmer from Beaver County in Alberta, said it’s shocking that Purely Canada used an equipment failure to justify a force majeure and terminate the contracts
“Producers are astonished and bewildered on how equipment challenges equals a force majeure. But something like in 2021, when Western Canada had the worst drought in history, farmers were not able to get out of (production) contracts without penalties.”
West said the letter releases the growers of their obligation.
If a farmer with a voided contract wants to sell their oats now for cash flow reasons, that’s their choice.
But Purely Canada is not walking away from these contracts and is committed to the gluten-free oat business.
“We said we can’t take these oats right now because of force majeure,” he said.
“However, we are committing to staying in it…. In the meantime, this relieves you of your legal obligation to us, if you need to go to market and move some oats.”
He re-iterated that Purely Canada will honour the initial price in the 2022 production contracts.
“Yes, yes,” he said. “We’re not contracting any additional gluten-free oats until we can work through these contracts at the contracted price.”
In addition to the toll processing space for the gluten-free oats in September, Purely Canada is “trying to get increased capacity sooner than that,” West added.
Contact robert.arnason@producer.com
