Agriculture Committee on May 9th, 2016

[The Chair, Liberal, Pat Finnigan]

Mr. Shipley, you have six minutes.

[Bev Shipley, Conservative, Lambton—Kent—Middlesex, ON]

Thank you, Mr. Chair.

I want to thank the witnesses for coming out today.

I want to follow up on one of the questions asked by my colleague regarding the concern. We heard that one effect of the PACA cancellation, I think it was in October 2014, is that while some of the issues become the lenders', creditors', those people who.... Once you start to tinker with some of their abilities to reclaim, what happens is then the funding is not available to the farmers in terms of the funds needed for their production, for their sales, and for their operations.

Has there been any discussion, though, with these organizations, and with the lenders particularly? It always seems that while the banks get in first and they get their cut out of it, the other creditors get left behind. They get to split up the very large sums that are sometimes left. By the time they are done, they basically get nothing, or very little.

Have you had any discussion with the round table of people involved? That would be the financial, the processors, and the sellers. Is there a balance that can be reached with the understanding, as mentioned before, that we don't have a product that you can take a lien on. The lien has gone away because of the perishability of the product. Have any of those discussions happened that you're aware of through the organization, through the horticulture group, or through the government agency?

[Mark Schaan]

In 2014 the then Department of Industry Canada, now the Department of Innovation, Science and Economic Development, led public consultations on the bankruptcy and insolvency regime. That public consultation put a number of key questions to folks, both on the general functioning of our statute but also the specific questions that we thought would be of interest. One of those related to deemed trust provisions related to fresh produce.

We received submissions from a whole host of folks on those particular provisions, including the Canadian Bankers Association, the Canadian Bar Association, the insolvency professionals. There has been some consultation with them about this issue.

We have not yet convened a table that brought them and fresh produce together to talk about whether or not they could work out some sort of balance. That's not a traditional policy role for the department. That may be something that the industry association or the respective associations could have a dialogue about, but we have put the question to a broad range of folks in aiming to facilitate broader dialogue on the issue.

[Bev Shipley, Conservative, Lambton—Kent—Middlesex, ON]

I know those discussions have happened. A report or a recommendation was coming, likely in September 2015. Obviously the election got in the way. Later on when we're talking with the produce groups maybe they can help us understand where that was going.

You raised a very interesting point, and I'll maybe talk with the commodity organizations also. The trade of fresh produce between Canada and the United States has risen over the last four years: 55% in fruit and vegetables and 26% in fresh vegetables. That's to the United States. Obviously, we recognize the issue in terms of perishable products.

I'm not sure what has driven that large increase. That's a significant increase in exports when we're talking about producers concerned with not having PACA protection in terms of the deemed trusts. Do you know what is driving those increases?

[Fred Gorrell]

I don't have a detailed analysis. I think the Canadian dollar has had an impact on our overall exports. At the same time, we grow very good produce. As I indicated, with our fruit and vegetables we've exported, we do have a comparative advantage and sometimes there are supply issues in the United States.

Our agricultural exports overall have increased worldwide. I think it is part of the trend and given the fact that the United States is our largest market, it's not a surprise to us.

I do not in any way see them related to the PACA situation. It did start four years ago, so it was well before any of these discussions. I think it's just strong demand for fruit and vegetables by health-conscious people and an increase in per capita consumption. That would be my assessment without really looking into it in detail at this time, sir.

[Bev Shipley, Conservative, Lambton—Kent—Middlesex, ON]

Yes, and a credit to our producers.

[The Chair, Liberal, Pat Finnigan]

This will be a quick one of two or three seconds, Mr. Shipley. Go ahead.

[Bev Shipley, Conservative, Lambton—Kent—Middlesex, ON]

Okay. I'll finish up with a comment. I never thought I would see Ontario tomatoes on a Florida shelf. The quality of food we produce has a lot to do with that, along with the dollar, I'm sure.

Thank you, Mr. Chair.

[The Chair, Liberal, Pat Finnigan]

Thank you, Mr. Shipley and Mr. Gorrell.

Mr. Longfield, you have six minutes.

[Lloyd Longfield, Liberal, Guelph, ON]

Thank you, Mr. Chair.

Thanks for the presentations.

I didn't think I could get into this topic as deeply as you've drawn me in, so congratulations on that as well.

Looking at the numbers from October 2014 to November 2015, the total amount of non-payment claims by Canadians went from 13 claims to 10 claims and the total dollars involved were $479,000, which is 0.03% of the shipments of those goods. It seems to me that's a very small number.

I come from international business where I did a lot of exporting. I always had an allowance for doubtful accounts. That allowance varied according to whether I'd been in the country before and whether I'd dealt with that client before. Do you have any sense, either from Industry Canada or Ag Canada, whether this number is unusual? Is it low? Is it normal against other markets, against other types of business going on internationally?

[Fred Gorrell]

I'll give you just notional ideas. Intuitively we all thought the number might be different because of what's happened since losing access to the free formal complaint process. The numbers themselves don't mean that there are not problems in the industry.

One of the things we've learned and we are talking about is that they have to register their informal complaint for it to actually show up on the grid. Many people will deal with exporters and importers amongst themselves. They may have trouble with late or no pay, but they've had long relationships and they're not reporting it. It may be part of what Madam Brosseau said as well regarding some of the complaints. I think everybody, I must say, expected to see the number perhaps going in a different direction, but intuitively it's showing that the health of the industry, given the number of exports we've had with the United States and the due diligence that people are taking with their partners, is good. I do want to repeat—and I think the industry will provide you with some information—that this is only for the complaints that have been filed with PACA.

[Lloyd Longfield, Liberal, Guelph, ON]

Sure. Thank you.

[Mark Schaan]

I would just say that for the number of years we've been studying insolvency, and fresh produce claims are a function of insolvency, these numbers have been relatively consistent. It remains a very small proportion of the overall total amount of sales, and vis-à-vis other aspects such as fraudulent claim payment, or late payment, or non-payment, those have always been much bigger issues than insolvency payments have been.

[Lloyd Longfield, Liberal, Guelph, ON]

Thank you.

I want to stretch this towards a study we're going to do to look at the comprehensive agriculture policy going forward. Once Growing Forward 2 is finished, we'll have a new policy. You mentioned that the industry has received $37 million from the department towards innovation and marketing activities, and that the centre also has access to the other agri-risk initiatives. You talked about whether this topic we're talking about today might be part of the overall comprehensive strategy going forward in terms of allowing for risk management concerning which clients you are going to be selling to and how you are going to manage the finances through normal institutional work, or even on your balance sheet differently than you might do in dealing with Canadians to Canadians.

[Fred Gorrell]

We're starting the consultations now for the next policy framework with the provinces. This is a good time for issues to be identified. Obviously the current policy framework will be completed in 2018. So these are the types of things we are looking at with the provinces as well as the areas we want to study, and that was something we would support as well.

[Lloyd Longfield, Liberal, Guelph, ON]

Rather than hitting it with the big hammer, it might be something that could be dealt with through policy. Otherwise, as you said, it could be very costly to handle it separately the way that is being suggested through PACA.

Thank you.

[The Chair, Liberal, Pat Finnigan]

This will complete this round.

If you would permit me, I will just say that the signing of CETA is imminent, as is, hopefully, the case for other agreements. I'm just curious as to whether there's any mechanism in those agreements regarding the sale of produce to our new trading partners, which should increase in the future.

[Fred Gorrell]

Actually there isn't. You need good business processes regarding who you're partnering with, and you need to do your due diligence and understand things. The United States is unique in having the PACA in its laws for bankruptcy, insolvency, and protection. I'll have to defer to my colleagues, but I do not believe there is anything in the CETA that would specifically deal with guaranteeing payment for fruits and vegetables.

[The Chair, Liberal, Pat Finnigan]

I want to thank the panel for their very informative answers to our questions. I'm sure there will be more questions as we move forward. Again thank you very much for appearing in front of the committee. Hopefully you have answered a lot of our questions.

Thank you very much.

We'll take time to switch panels and we'll be back with the second portion of our question period.

[The Chair, Liberal, Pat Finnigan]

We'll get the second portion of our two-hour committee going.

I would like to welcome the industry side of the Perishable Agricultural Commodities Act. Today with us from the Ontario Greenhouse Vegetable Growers, is Mr. George Gilvesy, chair. We also have Ms. Anne Fowlie, Canadian Horticultural Council, and Mr. Ron Lemaire, president, Canadian Produce Marketing Association.

I'll give you an opening statement if you wish.

[Ron Lemaire, President, Canadian Produce Marketing Association]

Good afternoon, Mr. Chair and members of the committee.

Each organization has a short statement that we would like to provide. We are a unified team in the produce industry. I would like to start things off. Thank you for the opportunity to speak today.

CPMA is a not-for-profit organization, based here in Ottawa, that is made up of every segment of the produce industry supply chain, representing over 90% of the fresh fruit and vegetables sold in Canada. We are very fortunate to represent a sector that both is a significant economic driver for communities and improves the health and productivity of Canadians.

In 2013, the fresh produce sector supported over 147,000 jobs and created $11.4 billion in real GDP. CPMA, together with our partners in the Canadian fruit and vegetable industry, has been working for many years toward establishing a tool to protect fruit and vegetable growers and sellers in Canada during bankruptcy. In the United States, as you heard, if a produce buyer goes bankrupt, growers and sellers can rely on a trust provision under the Perishable Agricultural Commodities Act, PACA, to receive payment. In Canada, our growers and sellers have no such protection, and this lack of payment protection during bankruptcy in Canada results in disproportionate financial risk for our growers and sellers.

Fresh produce is not like other products, such as televisions and cars. Its highly perishable nature means that shipments cannot be reclaimed. This is key in this issue. Current rules managed by the federal government severely limit the ability of growers and sellers to collect payments for their products in the event their buyer declares bankruptcy. In practice, fresh produce suppliers have no protection.

Currently, Canadian and U.S. firms operating in Canada lose an average of $19 million per year through Canadian buyer insolvency. This data was collected through a report that was conducted under the regulatory co-operation council a few years ago. Seventy-five per cent of Canada's 10,000 fruit and vegetable producers are small businesses with average sales of less than $85,000 per year. One bankruptcy can have devastating ripple effects throughout the supply chain and the often small communities where farms and other parts of the supply chain are located. Canada's failure to provide protection has also created a trade irritant with our largest market and put our exporters at even further risk.

PACA protections are not limited to cases of bankruptcy. On October 1, 2014, the United States withdrew Canada's preferential access to the act's dispute resolution mechanism. Viewing the dispute and bankruptcy mechanisms as part of the same system, the U.S. made a decision that was a direct result of Canada's failure to provide a reciprocal and comparable system of insolvency protection. The U.S. dispute resolution mechanism offered critical protection for the 1.9 billion dollars' worth of produce that we send to the U.S. every year.

Payment disputes are a common occurrence in the complex world of fresh fruit and vegetables. Before October 2014, with a $100 informal complaint under PACA, or a $500 formal complaint, Canadian companies could threaten the licence to operate of any buyer who was delinquent with their bills, a big stick that often led to a quick resolution and payment. Now, Canadians must post a bond that is double the value of the outstanding bill to file a complaint or, more likely, walk away from their claim and take a fraction of what they are owed.

The real-life example of the B.C. farmer was noted in the previous testimony. I won't go into further detail, as the information was provided correctly, but in short, this B.C. blueberry grower had to walk away from a $128,000 sale and accept only $60,000. Cases like that of the B.C. grower are why the produce industry is united in its request for the creation of a limited statutory deemed trust, which provides a no-cost solution and the most effective means to ensure fair protection for growers and sellers. It must be noted that a trust would cover only accounts receivable, cash, and inventory of the buyer stemming from the sale of produce on short-term transactions with payment terms not exceeding 30 days.

Dr. R.C.C. Cuming of the University of Saskatchewan is an expert in Canada's bankruptcy laws, and has drafted turnkey legislation that is ready to go. This turnkey tool addresses federal-provincial jurisdictional discussions by coming into effect only when there is an insolvency.

Creation of a deemed trust would also meet U.S. requirements for a comparable Canadian system that would restore Canada's preferential access to PACA programs, including the dispute resolution tool under PACA as well.

The need for a PACA-like trust in Canada for the fruit and vegetable sector has broad-based support, not only within our industry but also outside of it. In October 2015 the Canadian Chamber of Commerce passed a resolution calling for the creation and implementation of a limited statutory deemed trust that provides financial protection for produce sellers in Canada in the event of bankruptcy in the first legislative session after the 2015 election. The industry position has also been endorsed by the Canadian Federation of Agriculture, the Canadian Federation of Independent Business, the Association of Municipalities of Ontario, and the Food Processors of Canada.

Resolving this particular trade dispute would not be difficult. While the U.S. Department of Agriculture understandably felt it was no longer tenable to continue offering to Canadians benefits that were not extended to any other country and not reciprocated for U.S. growers in Canada, they have made it clear that they are ready and willing to reinstate Canada's privileges as soon as Canada develops a comparable mechanism. A PACA-like statutory deemed trust would be a solution of no cost to the government or to industry. Implementation of a trust will significantly reduce supply chain disruptions and the vulnerability of small businesses and rural communities, and it will improve trade relations with our largest and most important trading partner.

The research and due diligence has been done. The options have been studied. The fruit and vegetable sector hopes we can count on this committee to support the creation of a limited statutory deemed trust to protect our growers.

I'd like to thank you for allowing me the time to present and to provide our insights from the Canadian Produce Marketing Association.

[The Chair, Liberal, Pat Finnigan]

Thank you very much, Mr. Lemaire.

Ms. Fowlie.

[Anne Fowlie, Executive Vice-President, Canadian Horticultural Council]

Mr. Chairman and committee members, thank you for the opportunity to appear before you to speak within the context of your study of Canada's preferential status under the United States Perishable Agricultural Commodities Act.

The Canadian Horticultural Council is no stranger to this committee. As always, we appreciate the chance to come before you to raise matters of concern to our sector and, equally important, to thank you where and when thanks are due.

In the past we've presented to you on a wide range of issues, including research and innovation and the importance of the AAFC agri-innovation program, which enables the science clusters of which we have been a beneficiary, and Bill C-18, the Agricultural Growth Act, specifically the provisions representing plant breeders' rights. We thank you for those.

We represent growers, shippers, and packers from across Canada primarily involved in the production and packaging of more than 100 fruit and vegetable crops. Our active mission statement focuses on four keywords: innovative, profitable, sustainable, and generations. It's all about having our eye on that sightline for the future.

With primary production value of more than $5 billion and after-packing or processing value of $10 billion, horticulture is one of Canada's largest and certainly most diverse agricultural production sectors. Horticulture has been an economic engine and growth machine and can be a foundation for continuing job growth. An overall objective for the sector is to ensure further growth of a $5-billion sector that has already doubled since 2000. I draw your attention to the previously referenced Conference Board of Canada report. There's a lot of good data there.

Managing and mitigating risk is critical, and the objective of today's discussion is to address the lack of payment protection for produce sellers during bankruptcies in Canada, which often result in disproportionate financial risk to growers, shippers, and produce companies.

It's important to recognize and acknowledge that first and and foremost the issue and its resolution are about and for Canadian farmers, packers, shippers, and sellers. The unique characteristics of our crops and the fact that they are highly perishable warrant innovative, creative, and perhaps non-traditional risk management tools. Repossession is not an option for us.

You heard Mr. Lemaire say that we are an industry united, and that's very true. It's a united industry, and one that has not been without vision. The subject at hand today is certainly a good example. Through the mid-1990s this industry formalized a long-term vision for the sector that included multiple and complementing pieces to achieve an end goal related to financial payment protection. Those included the dispute resolution corporation, destination inspection, single-entity licensing, and finally, the development and implementation of a payment protection mechanism to provide comparable protections and outcomes to those found within the federal United States Perishable Agricultural Commodities Act.

As we embarked on that journey, there were a number of opportunities. The first one was under article 707 of NAFTA relative to dispute resolution, and that gave rise to the establishment of the Fruit and Vegetable Dispute Resolution Corporation. The Government of Canada provided leadership and in so doing contributed to a success for which we remain grateful.

Next, industry-CFIA collaboration and strategic planning resulted in the destination inspection service.

A single licensing entity is well on its way through the Safe Food for Canadians Act, as we've heard.

That's three of four.

The remaining component of the vision and industry need is the development of a payment protection mechanism. The lack of a comparable system in Canada has been a trade irritant to our U.S. colleagues and competitors.

Canadians engaging in fruit and vegetable commerce in the U.S. were deemed to have a comparable system to the U.S. and as such were provided full access to the provisions of the Perishable Agricultural Commodities Act. As you've heard, we do not in fact have the comparable system, and a trade irritant aspect of this gave rise to the issue's being included among the action items of the regulatory co-operation council. It's very much a trade issue and a priority for the produce industry in both Canada and the United States. The lack of reciprocity has cost Canadian companies selling in the United States our long-standing preferential access.

Over time many studies have been undertaken. Not only would the implementation and development of a limited statutory deemed trust bring resolution to Canadian farmers, but it would also lead to re-establishing Canada's preferential access to PACA. Any other options would result in high costs to both sellers and government, while still providing ineffective protection.

I must again stress that the issue and resolution begin at home, and the proposed industry solution is also a non-traditional, innovative, and viable risk management tool that would provide the sector with a fair risk management tool that fits our sector's unique needs, similar to other sectors that also have their own fit-to-purpose tools. I think this is an excellent candidate for consideration in Growing Forward 3.

We do enjoy broad and unanimous value chain support that begins with the producer community and extends far beyond. Mr. Lemaire referred to the Canadian Chamber of Commerce resolution supporting the position and the solution of the industry. The Canadian Federation of Independent Business has also publicly stated a similar position related to payment protection for small and medium-sized enterprises and the particular case of fruit and vegetable producers. We've heard that small and medium-sized enterprises are particularly needful of a solution. These are significant endorsements and are well thought out.

In closing, the horticulture sector is looking for support to be enabled rather than for a financial commitment. There's much to learn from the U.S. PACA and its solid history, which can contribute to establishing a model made in and for Canada.

I'd like to call your attention to a few other successes that in some ways parallel or mirror what we're looking for today.

When the Agriculture and Agri-Food Canada Pest Management Centre was created, it was in large part due to industry's need to replicate and implement in Canada an infrastructure similar to that of U.S. interregional project number 4, or IR-4. Today, thanks to support and collaboration, the Pest Management Centre is the envy of our competitors in many countries. The Pest Management Centre and the dispute resolution corporation are two highly successful legacies of leadership and collaboration.

In April 2016, the USDA press release noted that in the past three years, through the provisions of the Perishable Agricultural Commodities Act, approximately 3,700 PACA claims involving more than $66 million have been resolved. Assistance was also provided to more than 7,100 callers with issues valued at approximately $100 million.

I recognize that these are U.S. figures, and we've heard of data concerns here today, but we don't have tools here in Canada so it's very difficult to make comparisons. What I would suggest is that the industries themselves are quite similar, and that if we were to take those numbers and pro-rate them against the size of our own industry, perhaps there are some conclusions that could reasonably be drawn from those numbers.

Thank you. As always, we appreciate the opportunity. We look forward to working with you. I assure you of our full and complete support in finding a way forward for this issue.

[The Chair, Liberal, Pat Finnigan]

Thank you very much, Ms. Fowlie.

Now, for the Ontario Greenhouse Vegetable Growers, we have Mr. George Gilvesy.

[George Gilvesy, Chair, Ontario Greenhouse Vegetable Growers]

Thank you, Mr. Chair.

Good afternoon, members of the committee.

It's my pleasure to present to you our views on this subject today. The Ontario greenhouse vegetable sector is a significant part of the rural economy, accounting for over 12,000 jobs annually. The Ontario Greenhouse Vegetable Growers are headquartered in Leamington, Ontario, and is the grower organization for all tomato, pepper, and cucumber greenhouse farmers in Ontario. Our mandate is to provide market access for producers and ensure opportunity for economic success. We account for 65% of the $1.3 billion in farm cash receipts attributed to the Canadian greenhouse vegetable sector. Ontario possesses the largest concentration of hydroponic greenhouses in North America with over 200 farmers and over 2,700 acres in production.

Greenhouse vegetables are also produced on a significant scale in British Columbia, Alberta, Quebec, and the Maritimes. Our sector is one of the fastest-growing sectors in Canadian agriculture. In terms of farm gate sales our compound annualized growth rate over the past 15 years is 6.8%. Our growing area has expanded 5.5% year over year for at least the past decade and current projections do not see this expansion slowing.

Few people outside the fresh produce industry recognize Ontario's market dominant position across North America. This dominance extends from eastern Canada down through the southern U.S.A., principally east of the Mississippi, but Ontario greenhouse vegetable products can be found in all the lower 48 states. In 2015 our greenhouse vegetable farmers grew the equivalent of 500 million long English cucumbers, 920 million tomatoes—Mr. Shipley definitely found some in Florida—and 550 million bell peppers. These numbers are quite staggering.

Our American exports have been growing at a remarkable rate. In 2009 we exported 163 million kilograms of greenhouse vegetables totalling $400 million. In 2015 we exported 247 million kilograms totalling $652 million, a 63% increase in value. A big part of this increase took place in the U.S. with the protection of the PACA rules in that marketplace. By the way, that additional $250 million in exports resulted in significant economic activity, primarily in one of the more economically depressed regions in Canada, which is the Windsor-Essex marketplace. We are a big exporter and we are a big part of domestic supply of Canadian-produced vegetables.

Regarding the need for financial protection, in Canada domestic sales remain completely vulnerable to non-payment by produce buyers. Our belief is that the fundamental principle of commerce is that the seller receive payment from the buyer for the product or service that has been sold. I think it's appropriate to be in this room. I see the two pictures on the wall, one representing agriculture and the other representing commerce. These are some pretty principal things I'm talking about, those principles about being paid for what you do.

The nature of produce marketing limited legislative support, and the perishable nature of vegetables has left farmers with no mechanism for recovery in the event of bankruptcy or refusal to pay. Previously the situation in the United States was much more favourable to produce sellers than in Canada where Canadian sellers received preferential access to the Perishable Agricultural Commodities Act, otherwise known as PACA. However as of October 1, 2014, Canada's failure to provide a reciprocal program resulted in the American government withdrawing that preferential access and, principally, that preferential access to our members.

Fresh retail vegetables are extremely perishable and their quality can change from perfect to unsellable in a very short period of time. PACA had also offered preferential access at minimal cost to dispute resolution provisions in the event of slow or no-pay transactions, a process that threatened the operating licence of a delinquent buyer and often led to quick resolutions of dispute. Fresh vegetable farmers and sellers are integral elements of the rural Canadian economy, and the impact of financial interruption is felt far beyond the industry itself.

American legislators have long recognized the unique nature of produce sales and provided legislative and financial protection to buyers, sellers, and ultimately the local rural economy. I would say that was probably done in the same framework or the same environment of which we've talked about, in terms of bankers and their perception of this thing as we see it today in Canada as well. I don't think the banks liked it when the PACA went in. At the end of the day they did go along with it. They've been the beneficiary of that added economic activity in the United States.

The greatest benefit will be a reduction in risk and improvement in market efficiency in our own Canadian marketplace. A secondary benefit, but also of vital importance to greenhouse farmers, is the reinstatement of PACA reciprocity in the U.S. market. This will allow for our growth patterns to continue in the greenhouse vegetable sector to assure that you're going to get paid for what you grow.

When buyers know that sellers have full recourse against them and regulatory authorities are monitoring them, buyers act ethically and in good faith. Enacting such protections would encourage orderly markets and minimize significant and damaging disruptions due to the bankruptcies and refusals to pay.

The retail industry is now highly consolidated, and it's operating under the tightest margins in history. It's not just a matter of if, but when those competitive pressures result in a significant Canadian retail or wholesale bankruptcy.

Ontario greenhouse vegetable farmers are totally reliant on access to American markets and strongly urge the Canadian government to fix this trade irritant once and for all.

On behalf of our members, we are asking for enabling legislation to allow our farmers to be paid for the produce they grow, both in our American export markets and right here at home.

Thank you, Mr. Chairman, for the opportunity to present our views.