Canadian fruit and vegetable producers are alarmed that the Washington authorities have rescinded Canada’s preferred trading status and its access to the United States Perishable Agricultural Commodities Act (PACA), effective on October 1st. Hundreds of millions of dollars are at stake for Canadian exporters.
The decision to revoke Canada’s special status to recover payments of unpaid bills from buyers reflected apparent U.S. impatience over Canadian inability to establish a reciprocal dispute resolution system similar to the one that exists in the United States.
“This matter has been brewing for several decades,” Ron Lemaire, president of the Canadian Produce Marketing Association, told AJOT.
“Withdrawal of reciprocity will mean that Canadian consumers of fresh produce will be paying more for lesser quality products while having a limited range of produce varieties available,“ commented Mike Reed, president of BC Hot House. “This a real threat since global demand for fresh fruit and vegetables is on the rise, with more than half of Canada’s fresh fruit and vegetable imports coming from the United States.”
Ron Lemaire – President, Canadian Produce Marketing Association
PACA permitted Canadian farmers and perishable distributors to file a claim against U.S. buyers to recover unpaid bills for imported commodities. The buyers were obliged to follow trading rules between the two countries – or risk losing their license. “A substantial slice of GDP could slowly erode if there is lack of this big stick,” Lemaire said. “You could file a claim and you got your money. Now Canada will be treated like Mexico or any other foreign producer. “There will be an impact on the transportation community, too, depending how things unravel.
The cost of filing a claim is $100. But henceforth, until further notice, Canadian growers and distributors will face costly bonding requirements to benefit from the mediation process to achieve the same level of protection as in the past.
“They will have to file double the cost of a claim in a surety bond,” Lemaire said, meaning that to file a $100,000 claim a farmer will need to post a $200,000 bond.
He points out that about three quarters of Canada’s 10,000 small farmers selling to the U.S. sell $85,000 or less annually across the border through dealers.
Hit on Cash Flow of Canadian Farmers
“Many cannot afford the big hit on their cash flow and will simply have to walk away, losing what is rightfully owed to them. Situations like this can devastate not only the producer, but all the businesses connected to them and hits rural communities particularly hard.”
Without any regulation in place giving U.S. buyers an incentive to pay outstanding bills, Lemaire fears that losses could escalate into the tens of millions per year.
“It will take legislation in parliament to see that Canada means business before PACA protection can be re-instated,” Lemaire said.
Representatives of Canada’s Fresh Produce Alliance have broached the subject urgently with officials of the federal Conservative government at the Industry Canada department, and have also recently asked the opposition Liberal and New Democratic parties for support.
Whereas the latter have responded positively, the federal authorities have yet to swing fully into action beyond indicating that they are looking at means of minimizing the impact of the PACA withdrawal on farmers.
Last year, once the indirect benefits of payments to suppliers and worker wages are factored in, the fresh fruit and vegetable sector in Canada supported nearly 150,000 jobs and created C$11.4 billion in real GDP. More than 80% of production is centered in Quebec, Ontario and British Columbia.
Two-way trade in vegetables and fresh fruit between Canada and the United States is substantial. Canada sells about 40% of its fruit and vegetable production to the United States – representing approximately $1.5 billion in sales in 2012. In the same year, Canada imported close to $3.5 billion from the United States.
The Fresh Produce Alliance notes: “Canada’s integrated supply chains with the United States are key to ensuring export markets for Canadian producers and a year-round supply of affordable fresh fruit and vegetables for Canadian consumers.”
Solution Available ‘At No Cost’
Anne Fowlie, executive vice-president, Canadian Horticultural Council, deplores the fact that the government has not taken necessary mitigating action, despite warnings that the removal of PACA preferential Canadian access was imminent without confirmation of a Canadian solution. “All this despite the fact that there is a solution available at no cost to either the Government of Canada or Canadian taxpayers.”
Exporting to the U.S. has become much riskier, industry analysts say. Without access to PACA, going after unpaid bills will be much harder for Canadian companies. Knowing that Canadian companies are now at a disadvantage, some may attempt to capitalize on the situation, leading to higher rates of outstanding bills.
