Canada finally implements bankruptcy protection for produce shippersCanada finally implements bankruptcy protection for produce shippers

After nearly 40 years in play, the Canadian Parliament completed the passage of Bill C-280 on Dec. 12, putting sellers of fruits and vegetables in a priority status in the event of a bankruptcy by a buying organization, such as a supermarket chain or a wholesale operation.

In the late 1980s, an amendment to the U.S. Perishable Agricultural Commodities Act (PACA) was passed by Congress and signed into law in the United States. The PACA Trust, in essence, put produce suppliers in a priority position in the event of a buyer bankruptcy. For years, advocacy groups, including the U.S. Department of Agriculture, lobbied Canada to follow suit.

After years of stalemate, USDA upped the ante

For many years, those efforts resulted in virtually no movement from Canada. Increasing the pressure in 2014, the USDA removed Canada’s preferred access to PACA due to gaps in its bankruptcy protection framework. Canadian suppliers in disputes with U.S. buyers had to post a bond for double the value of the produce in question in order to pursue their case through the PACA resolution process. Few Canadian suppliers were willing or financially able to utilize that provision.

At the time, USDA outlined four elements Canada needed to implement to once again gain preferred treatment under the reciprocity agreement: mandatory licensing for Canadian buyers, a produce industry dispute resolution system, investigative and enforcement authority for the Canadian Food and Inspection Agency and the development of a “deemed trust” (created by statute or legislation) similar to the PACA Trust system.

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Optimism that status will be granted shortly

Canadian Produce Marketing Association President Ron Lemaire said the establishment of the trust means all four conditions for the reciprocity agreement have been met. He told OPN on Friday that his group and others have already begun working with USDA to reinstate Canada’s preferred access to PACA and ensure equal treatment in the produce supply chain in Canada and the United States. He expressed confidence the preferred status would soon be granted, noting that it was taken away virtually overnight by USDA in 2014 and it could be reinstated in a similar fashion.

Lemaire said the establishment of the deemed trust immediately gives U.S. suppliers of produce priority status in the event of a Canadian bankruptcy. He anticipates that Canadian suppliers will soon receive the same treatment for their dealings with U.S. buyers. The deemed trust also finally gives Canadian suppliers some peace of mind as they supply domestic buyers with product.

Slight differences remain

The Canadian trust is a bit different than the U.S. PACA Trust, Lemaire said, as only an official bankruptcy can trigger the provision. With regard to a PACA Trust, missed payment of an invoice beyond the statutory limit is sufficient to allow suppliers to invoke their trust rights. This pre-emptive move can exert pressure on the buyer to pay his produce invoices in a timely manner. Nonetheless, Canada’s deemed trust will help secure payment in the event of buyer bankruptcy, which is expected to provide additional stability to the Canadian food supply.

“The positive impact of Bill C-280 on the highly integrated fresh produce industry cannot be overstated,” said Dispute Resolution Corporation President and CEO Luc Mougeot in a press statement. “The lack of a financial protection mechanism in Canada has been a pain point in our trading relationship with the United States for many years. We look forward to working with our U.S. counterparts to put in place reciprocal protection and provide stability for produce sellers on both sides of the border.”

Move benefits growers on both sides

Canada is a net importer of fresh produce so U.S. suppliers of a broad spectrum of fresh produce, both grown through organic and conventional practices, are a major beneficiary of this new law. CPMA’s Lemaire does not expect that there will be an overnight boost in produce sales between the two countries, but he said the establishment of the deemed trust and the expected returned of preferred access to PACA by Canadian supplier should add long range stability and ongoing benefits to growers on both sides of the border. It’s reasonable to assume that some suppliers avoided doing business with buyers from the other country because of the lack of sufficient safeguards.

Lemaire said the top fresh produce exports from Canada to the United States includes green house product such as tomatoes and cucumbers, leafy greens, apples, potatoes, onions and carrots. He said Canada does have a robust organic food production.

In fact, in its 2024 report, the Canadian Organic Trade Association revealed that organic sales totaled more than $9 billion in 2023, which was an 11% increase from 2020, and represented 3.4% of food sales.