U.S.: "There will be companies that Canadians don’t sell to," says Lemaire
A business model enjoyed by Canadian produce exporters for decades has been jeopardized by the removal of their preferential status from the U.S. Perishable Agricultural Commodities Act (PACA). Canadian Produce Marketing Association (CPMA) president Ron Lemaire says a 'push down' effect will be felt in rural communities, but the industry is creative and will find a solution. He hopes that won't mean a need to set up U.S.-based offices to ensure payment protection.
With exporters now forced to pay double the cost in a surety bond if they want to make a non-payment claim in the U.S., the sector's outlook is now very different to what it was prior to Oct. 1.
"So if I have US$100,000 owing to me and I would like to formally file, I have to post US$200,000 in a bond to try and recover the US$100,000 and it could take up to a year," he tells www.freshfruitportal.com.
"So under the threat of a Canadian shipper saying to the U.S. buyer, 'I'm going to file a claim with PACA if you don't pay me', the buyer could just say, 'okay, go ahead', knowing that quite likely the Canadian does not have the resources to file."
As a result, Lemaire believes Canadian produce companies will aim to build better relationships to reduce risks.
"They will definitely see a change and potential impact to their business, because if they are not claiming – in the last three years US$7 million approximately in recoverable claims – that money is going to be lost and could increase," he says.
"But it's no matter how good a relationship I've created if my buyer decides that for whatever reason they can't pay me or they're not paying me on time, and I am for whatever case in a very tough position and need that money to pay my farmers.
"There will be companies that Canadians don't sell to. This is the unfortunate circumstance."
He says the new system could lead to Canadian companies relocating a certain portion of their businesses south to register offices in the U.S., potentially in cities like Seattle, Detroit, New Jersey or New York. However, he emphasizes his hope that the situation won't get to that point.
"Those companies may not need the same number of Canadian employees because they now have U.S. operations, so you have that employee base shifting out of the country."
He says 40% of Canada's produce is exported to the U.S., but if companies decide to sell more domestically without PACA protection there could be a "huge shift" in available products for local consumers.
"The supply-demand model changes, the price points begin changing and nobody wins from an industry perspective.
"Margins that are already tight become even tighter and prices are driven down, so in an ideal world we'd like to see our export market continue to grow.
"We'd like to see product that is sold to our major trading partner is protected and the tools we once enjoyed are put back in place. Working with the U.S. PACA team, they've identified that if Canada does demonstrate they are moving forward with a reciprocal model, then they will reinstate."
He said the country was working toward having Dispute Resolution Corporation (DRC) membership as a requirement for trading inter-provincially, which would deal with many of the Slow Pay/No Pay, fair and ethical practices within produce.
"We need provincial and federal support, but we need the federal support first so we're aggressively working with bureaucrats in Industry Canada and Agriculture Canada. Also on the political side making sure that the parties understand what really has happened now with the loss.
"We're trying to ensure they understand this is a significant issue for an CAD$11 billion (US$9.85 billion) industry to our gross domestic product. We employee over 150,000 Canadians, we provide the government with an important tax base that drives the Canadian economy.
"If I'm selling TVs and the buyer I sell to goes bankrupt, I can go and get those TVs. I can't go in and get my strawberries, I can't go and get my blueberries. The perishability puts us in a very unique position as an industry, and currently because of the way the Bankruptcy Act is structured, there is no real protection for Canadian or U.S. shippers under bankruptcy laws in Canada."