Canadian exporters could soon lose their preferential treatment in the U.S. market if their government fails to establish a suitable payment protection program, and a large number of exporters could potentially go out of business as a result. 

Currently, Canadian exporters who ship produce south of the border are protected through the U.S. Department of Agriculture's Perishable Agricultural Commodities Act (PACA) trust protection if a U.S. buyer refuses or is unable to pay their bills.

However, the protection does not work the other way round, and due to a limited and inadequate protection system in Canada, U.S. suppliers are said to be losing US$10 million annually through Canadian buyer insolvency.

Although Canada did establish a Bankruptcy and Insolvency Act in 1985, it is said to be too complicated for many in the produce industry to access.

Canada-based vegetable producer Red Sun Farms CEO Jim Di Menna said his government had been attempting to establish a protection system similar to PACA for a while now, but progress had been slow.

"We've been working on this project for a number of years and we feel that we're getting there, but I don't know if we're getting there fast enough to stop the U.S. from taking away Canadian producers' access to PACA," Di Menna told www.freshfruitportal.com.

"We've been working on it hard - we've been trying to get our government to react quickly."

"They put a special protection for suppliers of perishable products in the Bankruptcy and Insolvency Act in Canada, but the conditions make it so difficult and complicated to access that it really doesn't fit the need for importers into Canada, as well as producers within the country."

Canadian market impacts

The potential consequences for Canadian companies should they lose their special privileges under PACA - if they continue to trade with the U.S. - are huge, as one bad payment default could see them go out of business.

Canadian Produce Marketing Association (CPMA) president Ron Lemaire explained that whereas now exporters in the country only had to pay US$100 to PACA to file a claim, if they were no longer protected by the payment system they would have to pay a bond of double the value of the claim.

"So let's say, if it was a US$50,000 claim, with the loss of reciprocity they would have to post the bond of US$100,000 plus the US$100 fee to admission," Lemaire said.

"This would mean that producer would be out US$150,000 in tied-up capital while they wait six months for the dispute to work its way through the system. And that would be for one claim – they could have multiple claims."

Lemaire went on to say the big challenge as he saw it was that around 75% of Canadian fruit and vegetable companies made average annual sales of less than CAD$85,000 (US$76,800), and so paying such a large bond may not be possible for them.

"You're going to have many where it's just not viable for them to do it, because they need to pay loans on their farms or whatever costs they have to keep crops in the ground," he said.

"We will see an impact in the Canadian market."

Lack of political will

Lemaire added the special privileges could be removed 'imminently' and easily by the U.S. government, given that reciprocity between the U.S. and Canada was not clearly established in any regulation.

"In the US it's not in any regulation or law that says Canadians have reciprocity – it's not in a trade agreement," he said.

"So basically, all it would take is a letter from the Secretary of Agriculture to the Prime Minister or Minister of Agriculture saying 'we are revoking reciprocity because we do not have equal treatment for our U.S. shippers to Canada'. It can be that simple."

In order for Canadian exporters to not lose their special privileges within the U.S., Lemaire said the Canadian government would have to establish political will to address the issue quickly.

"The frustration on both sides of the border is due to that lack of political will," he said.

"There needs to be a political will to take this issue over the finish line and actually create a tool within our Bankruptcy and Insolvency Act, or a new regulation which could support the creation of a PACA-like trust in Canada.

"It can't be perfectly identical - we have different regulatory models and structures - but the FPA [Fresh Produce Alliance] has provided enough information to the federal government in Canada to demonstrate that there is a viable solution - it just needs the political will to be pushed forward through parliament."

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