Mr. Fred Webber (President and Chief Executive Officer, Fruit and Vegetable Dispute Resolution Corporation) at the Agriculture and Agri-Food Committee
3:55 p.m.
Fred Webber, President and Chief Executive Officer, Fruit and Vegetable Dispute Resolution Corporation spoke at the Agriculture and Agri-Food Committee in May and this is what he had to say:
Thank you.
Mr. Chairman and members of the committee, thank you for this opportunity to speak to you regarding the Perishable Agricultural Commodities Act, or the PACA, as it is more commonly known.
My name is Fred Webber. I am the president and CEO of the Fruit and Vegetable Dispute Resolution Corporation. Before moving to Canada, I was formerly a United States Department of Agriculture civil servant working in the PACA branch regarding the trust and dispute resolution under PACA. I am a dual citizen. I have been a proud Canadian citizen for 10 years.
I’m here to talk to you about, one, the framework of the PACA and our loss of reciprocity; and two, why the U.S. deemed trust provisions have been so successful and how that model could be recreated here in Canada.
First, PACA comprises two distinct components: an administrative division responsible for licensing, bonding, and dispute resolution, which is similar to the functions of the organization I represent, the DRC; and a deemed trust. For over 50 years, reciprocity of access to dispute resolution services existed between Canada and the U.S. Canadians had access to PACA dispute resolution and Americans had equally unencumbered access to Canada’s Board of Arbitration.
Unfortunately, two events occurred that challenged this unique relationship. The first was that in the seventies, the Supreme Court of Canada ruled that the Board of Arbitration did not have the authority to rule on matters of contract law, disabling dispute resolution services we had up until that point. The second was that in the eighties, the USDA amended the PACA to include a deemed trust.
Although Canadian legislation has since remedied the dispute resolution component, the DRC, we are still missing a deemed trust provision, which is ultimately why the USDA removed Canada’s preferred access to their dispute resolution services. I repeat, it was the lack of a deemed trust that caused them to remove the preferred access to the dispute resolution piece. That is a very confusing piece that has confused people for a couple of years.
This brings me to my second point, a deemed trust. The trust is a tool used by sellers of produce to recover the moneys made from the sale of their produce. Simply put, the farmer and other sellers retain an ownership interest in the product until they are paid.
The product, the account receivable pending from the resale of their product, or the cash on hand from selling that product remain the property of the seller. It is restricted to those assets. The produce seller’s claim does not extend to other assets, and if these specific assets do not satisfy the seller’s claim, the seller will receive only a partial payment. The trade understands this and is okay with it. They are not looking for 100% guarantee. A 100% guarantee encourages moral hazard. Why would you be careful who you sell to if you’re going to have a guarantee? One thing the trust does very well is encourage people to do their due diligence and sell to people with a track record or else know that they’re selling to a new person and do it carefully.
Contrary to what some may think, the trust does not cost the government any money. There is no pot to pay into. There is no pool of money. There is no cost to taxpayers. This system is doable in Canada, and in fact Professor Ron Cuming has drafted suggested legislation wording on how a deemed trust could be implemented in Canada.
Professor Cuming is a well-known law professor at the University of Saskatchewan, respected for his expertise in the relationship of provincial and federal laws related to bankruptcy. You have a short version of his biography, and I apologize for the shortness; we didn’t have time to have it translated. If you look him up on the Internet or at the law school, you will see a very long list of the bankruptcy files he has worked on. He is definitely what I would call one of the smartest people in the room on this particular issue. Furthermore, Professor Cuming has advised numerous provincial governments on drafting of their respective bankruptcy and insolvency legislation.
We believe this document, which has been circulated to you, represents the foundation for the preferred solution of the industry. First and foremost, it protects Canadian farmers, packers, shippers, and others in the produce industry in the Canadian marketplace, and it will restore the preferred rights under PACA that were lost in October of 2014.
I’m looking forward to taking your questions, but before I do, I would like to make three specific clarifications on issues raised at last Monday’s meeting. You may recall that several of the presenters deferred questions to me; that is only because I was the one who worked directly with Professor Cuming on some of these other files.
First, on the federal-provincial division of power, this issue has been unclear.
In the last couple of years in particular, working with government officials, both elected and in the public service, we worked through a lot of that. It is unfortunate that several years ago industry and the government could not have communicated better to understand exactly what was in the Canadian Constitution that was stopping a harder look at the PACA trust. Industry simply did not understand the insolvency-solvency piece. The federal government, we now all understand, cannot step in until the buyer is insolvent.
The United States is able to use the PACA trust before there is bankruptcy. We are not asking for that. The dispute portion of this has been resolved. That is why the DRC was created. A buyer has to have a DRC membership or a CFIA licence. Assuming that the amendments to the Safe Food for Canadians Act go through as intended, a DRC membership will be a condition of doing business. The part about the industry’s need for getting paid by a solvent firm has been addressed. We would argue that Professor Cuming’s most recent draft removes any ambiguities and clearly focuses on the buyers after they are insolvent, which we believe places the issue solely within federal jurisdiction.
Second, the concern was brought forward that banks would be reluctant to extend credit to those in the produce industry as a result of any trust. In my experience working for the USDA, produce buyers were no less likely to be extended credit. Furthermore, I respectfully tabled to the committee an opinion letter written by Rachel Spiegel, an attorney and economist. Based on Ms. Spiegel’s interview with banks in the U.S., she claims banks see the trust as a net gain for agricultural lenders lending to agricultural clients. She further reports there’s been no decrease in loans following the implementation of the trust in the U.S.
I would also add that the main banks here in Canada are also operating in the U.S. and are already subject to the PACA trust. I have heard nothing from any bank specifically referencing losses because of the PACA trust. The trust is not new to them. They’ve been operating in the U.S. marketplace subject to the PACA trust.
If you look at Ms. Spiegel’s bio when that report comes around, you will see her law firm represents food and banks in both countries. I would highly encourage you to look at it.
Finally, the statistics presented to you last Monday suggest the problem is small. I respectfully disagree. Unfortunately, numbers quoted were understated. Instead, I would refer you to the Conference Board report discussed on Monday. The results of the Regulatory Cooperation Council stakeholder meetings and the Aon report all state the losses in the produce industry from insolvency average between $18 million and $25 million per year. I would be happy to provide those reports to you.
Thank you. I would be pleased to field your questions.
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