Agriculture Committee on June 19th, 2023

[Ron Lemaire]

I'm going to go back a few years. There was a resolution in support from the Chamber of Commerce that was put forward from the Leamington office to the Ontario chamber and brought forward to the Canadian chamber. That resolution has since lapsed over time.

We as an organization as well others across the country have been supportive and pushing this agenda forward, specifically around the entire supply chain approach. When we look at not only the support moving through the system.... I think the key thing we have to look at here is perceived risk, and it is perceived risk at this point in time. Based on what we've seen in the U.S., based on experience from other companies that have borrowed in the U.S., and based on conversations with some retired financial executives, everyone is saying the same thing. There's not a clear understanding from the ag lending portfolio, and the voice from the ag lenders isn't strong within the banking framework.

[Pam Damoff, Liberal, Oakville North—Burlington, ON]

If Brad's concerns are valid, my concern is making sure that we're dealing with that.

As you know, EarthFresh is a member of your association. I think this is the only processor that we've actually had come to the committee on this bill. I want to make sure that we're not doing something good but at the same time harming a company like EarthFresh because we haven't received all the information that we need.

[Ron Lemaire]

I totally agree. We've been studying this for many years. I started in the produce industry with the association in 1998. I was involved when we launched the Dispute Resolution Corporation. We weren't able to put the bankruptcy protection in place at that point in time under Minister Vanclief and the Liberal government. We've been pushing very hard for many years as an entire supply chain. That includes retail and wholesale and/or packer-shippers.

There's a diversity of businesses across our industry. That's our biggest challenge at CPMA in working with an entire supply chain. Every business operates differently. Every lending model is slightly different. Relationships with banks are different. What we've been told through our survey work is that the lending relationship is first and foremost. The stability of the company on how they borrow and the experience for those who also, similar to EarthFresh who have operations in the U.S., is they have had the challenge of priority payable struck from the borrowing arrangement because the banks recognized that the PACA-like trust is a stability tool that enables the flow of dollars through the system to reduce the potential bankruptcy.

We also have to remember—

[The Vice-Chair, Conservative, John Barlow]

Thanks.

Sorry, Mr. Lemaire. I gave as much time to answer the question as I could there.

Mr. Perron, you have the floor for six minutes.

[Yves Perron, Bloc, Berthier—Maskinongé, QC]

Thank you very much, Mr. Chair.

I would like to thank the witnesses for joining us today. We are grateful to them for sharing their time with us.

Mr. Wiseman, I want to make sure I understand your concerns.

You say that we don't know how the banks will react. This isn't the first time we've heard that the banks were somewhat worried about having to ultimately move down a notch in the priority of claims, to put it simply.

But since this is not a problem in the United States, why would it be a problem in Canada? What's the difference?

[Brad Wiseman]

It is an issue in the United States. From the financing models that they have in place, they will deduct the priority payables. It does relate to growers. Within the U.S. they will then look at what is the risk amount that they can take into consideration.

While you can work it out if you have an exclusion, if the risk is low and the payable is low, we would be in a situation that if all of your payables for the most part are growers, your risk level goes up. The question is going to be how the Canadian banking institutions will interpret this if that risk level goes up based on the security that they have in place. We do not know. That's why we need to do further investigation with direct conversations with the banking institutions.

[Yves Perron, Bloc, Berthier—Maskinongé, QC]

I understand your point of view. However, insofar as vegetable growers have a greater probability of being paid because they have been given this protection, do you really consider that they represent a greater risk? Or do they represent a lower risk, given their ability to repay?

[Brad Wiseman]

I absolutely agree with that comment.

The risk would be lower because you're making a stronger business model for the entire industry. That's what's great about Bill C-280. The challenge is that the banks are losing the security because the growers are going ahead of the banks. That is the challenge. That is the uncertainty.

We have a great opportunity to get it right and we still need to do further investigations with the banking institutions.

[Yves Perron, Bloc, Berthier—Maskinongé, QC]

That's fine. Thank you very much.

Mr. Lemaire, you sent us a letter in which you insist on defining the term "supplier". It's important to talk about this, because we may be proposing amendments to the bill. You say that it is essential to keep the current text. Could you quickly explain why?

[Ron Lemaire]

We need to leave the text as is for the primary purpose to ensure reciprocity is reinstated. We have exporters, and that is not only growers. We have repackers and wholesalers who trade with the U.S. who don't own a U.S. business that can leverage the dispute resolution mechanism in the U.S. That is what we lost in 2014 because we did not have a Bankruptcy and Insolvency Act that protected the fruit and vegetable supply chain in the same way PACA does.

We have companies selling and in the event of a dispute they must post double the value of a bond to be able to lay a claim. No one has access to that form of cash. This was laid out by one of the previous witnesses.

[Yves Perron, Bloc, Berthier—Maskinongé, QC]

So you think we absolutely need to have the same text, don't you?

In fact, we know that. We were given four points, that is, four things to do. We absolutely must have the same text for it to be recognized.

Did I understand you correctly?

[Ron Lemaire]

Yes.

[Yves Perron, Bloc, Berthier—Maskinongé, QC]

In your opinion, would it be useful to clarify other points?

Other witnesses have told us that they were particularly concerned about the fact that, if a wholesaler benefited from trust protection to recover the monies, it could decide, depending on its financial situation and the extent of the bankruptcy and the monies reserved, not to pay the monies to upstream vegetable growers.

Do you think it would be a good idea to clarify this obligation?

[Ron Lemaire]

We do have the benefit of the Fruit and Vegetable Dispute Resolution Corporation, and these are all of the tools within the DRC. What would happen if there was a bankruptcy with Bill C-280 protecting the supply chain? Let's say a packer was then able to generate some funds out of the bankruptcy. If they did not pay their grower, the grower could then leverage the Dispute Resolution Corporation to bring them to a dispute to access the monies owed. That's what the DRC is there for. What the DRC does not do is provide the protection of bankruptcy.

[Yves Perron, Bloc, Berthier—Maskinongé, QC]

This demonstrates the importance of clarifying this obligation in the bill.

[Ron Lemaire]

Yes.

We need each piece.

[Yves Perron, Bloc, Berthier—Maskinongé, QC]

Okay.

I don't know if you can enlighten us on the subject of areas of jurisdiction. A few people have told us that the line is thin and that there seems to be an overlap of provincial jurisdictions.

I think the bill is well drafted, but could you reassure us on that point? You have about 15 seconds to do that.

[Ron Lemaire]

In 15 seconds I will not have time to answer that clearly.

Jurisdictional challenges are a key factor we need to look at. The federal approach is essential.

[The Vice-Chair, Conservative, John Barlow]

Thank you, Mr. Lemaire.

We'll now go to Mr. MacGregor for six minutes, please.

[Alistair MacGregor, NDP, Cowichan—Malahat—Langford, BC]

Thank you very much, Mr. Chair.

Mr. Wiseman and Mr. Lemaire, thank you both for being here and helping guide our committee through its study of Bill C-280.

I also have some questions on the credit issue. It's not the first time I've heard this brought up. I think it's the first time it's come up from a witness, Mr. Wiseman.

I've heard from the government, through conversations we've had in advance of this bill, that there were some concerns about that. I've also had conversations with the staff of the CPMA. I believe in one of those conversations there was a lot of talk about the United States and how, in fact, having this trust actually adds more stability, which might encourage lenders to look more favourably on the person who's needing access to that credit.

I think there was reference to industry having provided a white paper by a lawyer or an economist whose firm had worked with banks on both sides of the border in support of this.

Mr. Lemaire, are you aware of that? Is that document something that could be produced and tabled with this committee so that all members could have access to it?

[Ron Lemaire]

I'd be happy to share that.

As I mentioned, we've been doing this work for some time. That document is one of the earlier ones that we use to counter some of the discussions that we are having with ISED and Agriculture Canada, where they were looking at a similar approach on the risk of access to capital. I'm going to use the term “risk”, because I think that's exactly where we're looking. What is the risk?

As we look at what's happening in the U.S. and at what we've seen through our survey work and in conversations with industry, we see that the risk is minimized back to the stability model that's created through the trust. If the trust were on its own, without the Fruit and Vegetable Dispute Resolution Corporation, it would be a different discussion, but we have all the pieces of the puzzle.

[Alistair MacGregor, NDP, Cowichan—Malahat—Langford, BC]

Mr. Wiseman, I don't think you necessarily disagree with that. Your key point before our committee is that you want to have a little more time to study or understand the unintended consequences.

Am I understanding you correctly?

[Brad Wiseman]

I do understand the memorandum on the summary of the U.S. reactions to PACA. The issue is we have to get a clear guidance from the banking industry on how they will interpret Bill C-280. That's what we need to do.

The memo and the analysis did not take into consideration the priority payables, and it's going ahead of the bank when you had secure facilities for working capital purposes. We need full clarity, and we don't want to do it after the fact. Now's the time to get it right, to have clear interaction, in present day, with the banking institutions.

[Alistair MacGregor, NDP, Cowichan—Malahat—Langford, BC]

Thank you for that.

I'll move on to another point that's been raised, Mr. Lemaire, with regard to this bill, that there's been insufficient evidence that it is in fact even necessary. We heard at our June 12 meeting that there's a dearth of reliable statistical information out there. For a lot of people, when an insolvency happens somewhere along the chain, the grower may just walk away from that and not talk about it.

Can you comment a little bit about that? Perhaps you could talk in a bit more detail about the journey that the payment has to take in reverse, all the way down the supply chain. In some cases, it can be quite some time since the grower released the product.

[Ron Lemaire]

Yes. It's the complexity of it. It could be a dealer model or a packer model. It could be coming from the retailer. Backing up from the retailer, if the retailer buys it from a dealer, that dealer then is paying back their growers. There could be three and sometimes even four steps, depending on whether it's major retail or independent retail or the location in the country. The complexity and flow of product is not a straight line. It's more like a web.

I think the bigger piece that comes into play here is your comment on how we'll actually address and solve what we heard at the beginning from the government and where we go forward. I think a big part, and Mr. Wiseman brings up a very good point, is that there is an education process. The challenge we have, though, is time. If we lag on delivery of the bill, we will not be able to experience access to a reciprocal nature of PACA going back into the U.S. That's detrimental to many exporters.

In an ideal world, in any bill moving forward, there is a one- to two-year window before anything happens. We have a runway to work with and an appropriate timeline to work with the banks to ensure that they understand what it is and what it isn't and to be able to position and move it forward in order to protect the industry and the entire supply chain.