Earlier this year, the Ontario Produce Marketing Association provided a summary of an industry proposal for a deemed trust. The notice, published online, highlighted three points:
The Canadian produce industry wants government to provide greater payment protection for fresh fruit and vegetable sales.
The call comes after Canada lost preferential access to the U.S. Perishable Agricultural Commodities Act, which affects the way Canadian exporters pursue unpaid bills in the United States.
As well, privileges were lost because of unharmonized bankruptcy rules.
The American legislation gives priority to suppliers of perishable products over other creditors.
Canadian regulations offer less protection, but Canadian produce companies selling into the U.S. had previously received the same protections as their American counterparts.
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“If I sold to the U.S., all I had to do was post a $100 admin fee if someone was not paying their bills on time … and a claim could be started to try and recover what was owed,” Ron Lemaire of the Canadian Produce Marketing Association told the Senate’s agriculture committee Feb. 19.
“What we did not have was the bankruptcy piece. The U.S. introduced it under PACA. Canada does not have that in a similar model. For years, we’ve tried to find a solution.”
The new rules require Canadian companies recovering unpaid bills in the U.S. to post a bond double the cost of their claim. The produce marketing association said that could require a company to take $100,000 out of its cash flow for as much as a year over a $50,000 dispute.
“This will have significant consequences for the fresh produce industry in Canada, and unpaid bills will increase for Canadian companies exporting to the U.S.,” said Lemaire.
The extra costs are too great for small operations, he added.
“In the past, just the threat of action under PACA was enough to settle most disputes and ensure bills were paid.”
Industry officials say Canada’s preferential access could be restored with new regulations. The produce marketing association and other organizations, including the Canadian Horticultural Council, are supporting the creation of a “deemed trust” similar to the U.S. model.
The issue was raised in the House of Commons in November, and the government said it was consulting on bankruptcy and insolvency laws.
“The Canadian industry is requesting the creation of a limited statutory deemed trust that provides financial protection for produce sellers in Canada in the event of bankruptcies,” Lemaire told senators.
dan.yates@producer.com
- Sellers maintain an ownership interest in their products until paid. A deemed trust is established at the time of sale.
- The deemed trust comprises the product, plus any cash or accounts receivable stemming from the sale of that product.
- The funds contained in the trust are applied to unpaid produce sellers where the buyer is insolvent or bankrupt.
