Canadian fresh produce suppliers haven’t filed any formal Perishable Agricultural Commodities Act complaints since they lost their waiver to non-resident bond requirements, but statistics suggest they may soon will feel the effect.
In the last five years, Canadian-connected businesses filed 42 formal reparation complaints with PACA valued at $2.9 million, according to U.S. Department of Agriculture statistics. Under rules in place since Oct. 1, those Canadian firms would have had to post bonds at double the amount of their reparation claim, or about $5.8 million.
Until Oct. 1, Canada was the only country with the preferred status, which meant Canadian produce sellers did not have to post surety bonds to pursue payment from delinquent U.S. buyers.
For more than a decade, both U.S. and Canadian produce marketers have been impatient for Canada to create a PACA-like trust protection for produce sellers. With the PACA trust in place in the U.S. for 30 years, the failure of the Canada-U.S. Regulatory Cooperation Council to put forward a solution for payment protection in Canada led to the USDA withdrawal of Canada’s preferred status.
The PACA trust provisions gave sellers of fresh and frozen fruits and vegetables a priority status in the event buyers become insolvent or file for bankruptcy protection.
Totaling $2.9 million over the past five years, Canada firms filed more formal PACA reparation complaints by far than all other countries. In that time period, all non-Canadian companies filed formal PACA complaints valued at $522,667, according to USDA statistics..
“Now the Canadian (companies) are treated just as other non-resident companies. They would need to post the bond at double the amount,” said Karla Whalen. director of the U.S. Department of Agriculture’s PACA Division.
Whalen said there are three different types of PACA complaints or claims.
An informal complaint can be filed by any produce supplier, domestic or foreign, to use the PACA dispute resolution service. There is no requirement to post bond at this stage, Whalen said.
“The informal complaint level is not affected by denial of the waiver of the bond,” she said.
The second level is the formal complaint level, where a party can file with the PACA division to handle a reparation complaint after the informal complaint process has already been attempted. Canadian suppliers until Oct. 1 were exempt to the bonding requirement. Now, Whalen said they are now required to post a bond equal to twice the requested reparation damages sought.
A third type of filing, not done through the PACA division but through civil court, is a PACA trust claim. Any produce supplier can make that claim, and that PACA trust claim is not affected by the Oct. 1 rule relating to the bond waiver, Whalen said.
Whalen said there has been some confusion about that point.
“To make it clear, (the change in the bond waiver) does not affect entities making a PACA trust claim in civil courts,” she said.
Whalen said about 90% of all PACA disputes a are settled at the informal complaint level. She said that Canadian entities filed 138 informal complaints involving $7.2 million in claims over the past five years. Of that number, about 42 complaints advanced to the formal PACA complaint level, involving $2.9 million in claims during those years.
“A lot of cases get resolved before the formal (complaint) stage,” she said.
For all other countries beside Canada, informal complaint stage claims totaled $10.4 million over the past five years, with just over $522,000 in claims moving to the formal complaint stage.
There does not appear to be any immediate breakthrough expected that would restore Canada’s preferential treatment relating to the bonding requirement.
Fred Webber, president and chief executive officer of the Ottawa-based Dispute Resolution Corporation, said a recent report from Industry Canada on the country’s bankruptcy laws, called “Fresh Start: A Review of Canada’s Insolvency Laws,” acknowledges the industry’s desire for payment protection but does not offer any immediate solution to the issue.
“They clearly heard what we said, but it is not a direction,” Webber said.
The report appears to put the responsibility on elected officials in Canada to determine next steps, he said.