THE STANDING SENATE COMMITTEE ON BANKING, COMMERCE AND THE ECONOMY
EVIDENCE
OTTAWA, Wednesday, October 23, 2024
The Standing Senate Committee on Banking, Commerce and the Economy met with videoconference this day at 4:15 p.m. [ET] to study Bill C-280, An Act to amend the Bankruptcy and Insolvency Act and the Companies’ Creditors Arrangement Act (deemed trust — perishable fruits and vegetables); and, in camera, for the consideration of a draft agenda (future business).
Senator Pamela Wallin (Chair) in the chair.
[English]
The Chair: Welcome to this meeting of the Standing Senate Committee on Banking, Commerce and the Economy. My name is Pamela Wallin. I serve as the chair of this committee.
I would like to introduce other members of the committee: Senator Boudreau; Senator Deacon, Nova Scotia; Senator Fridhandler; Senator Loffreda, our deputy chair; Senator Martin; Senator Massicotte; Senator Ringuette; Senator Varone; Senator Yussuff; and also joining us today, Senator Robinson. Thank you very much. We have a pretty full house.
I would like to welcome Senator Fridhandler from the Progressive Senate Group as the new member of our committee, so thanks for joining us today.
Today, we will continue our examination of Bill C-280, An Act to amend the Bankruptcy and Insolvency Act and the Companies’ Creditors Arrangement Act (deemed trust – perishable fruits and vegetables).
Today, we have two panels, and then we are also arranging time for an in camera session at the end, so again, I’m going to ask everybody to be disciplined in both questions and answers in terms of time.
For our first panel, we have the pleasure of welcoming in person from Agriculture and Agri-Food Canada, Tom Rosser, Assistant Deputy Minister, Market and Industry Services Branch and Nicole Howe, Executive Director, Market and Industry Services Branch. From Innovation, Science and Economic Development Canada, we welcome Samir Chhabra, Director General, Marketplace Framework Policy Branch Innovation; Martin Simard, Senior Director, Corporate, Insolvency and Competition Directorate; and Paul Morrison, Senior Policy Analyst, Corporate, Insolvency and Competition Directorate.
I understand that both departments have opening remarks, so we’ll begin with Agriculture and Agri-Food Canada. Mr. Rosser, the floor is yours.
Tom Rosser, Assistant Deputy Minister, Market and Industry Services Branch, Agriculture and Agri-Food Canada: Thank you, Madam Chair. Good afternoon, honourable senators. We appreciate the invitation to appear before the Standing Senate Committee on Banking, Commerce and the Economy in the context your study on Bill C-280. I’m pleased to be joined by my colleague Nicole Howe, executive director of the crops and horticulture division at the department.
Agriculture and Agri-Food Canada, or AAFC, continues to recognize the important contribution the fresh produce sector makes to the Canadian economy as well as, of course, to Canadian food security and healthy diets.
AAFC supports the agricultural sector, including the fresh produce sector, in a number of ways including through investments, research and innovation. This support includes funding through previous and current iterations of the Sustainable Canadian Agricultural Partnership as well as through programs that focus on economic stability through our business risk management programs and the advance payments program among others.
Based on the perishable nature of the product, the Canadian fresh produce industry has identified the lack of financial protection, particularly in the case of buyer insolvency as one of their top priorities. The issue of financial protection for growers and sellers has been the subject of many studies over the past decade or two.
[Translation]
That being said, I would also like to highlight some of the existing financial protections currently available to fresh produce sellers. These include the Bankruptcy and Insolvency Act; Safe Food for Canadians Regulations; continued access to the U.S. Perishable Agricultural Commodities Act; and private producer insurance, such as trade credit insurance.
Beyond these existing protections, the fresh produce industry has indicated that a deemed trust for sellers would help ensure the sustainability and profitability of the sector. Agriculture and Agrifood Canada (AAFC) has worked with the fresh produce industry and colleagues at Innovation, Science and Economic Development Canada (ISED) to understand the potential consequences with the establishment of a deemed trust.
In conclusion, supporting the fresh produce sector is an important priority for AAFC and we stand ready more than ever to support the Senate’s study of Bill C-280. Thank you once again, Madam Chair. I am pleased to answer your questions.
[English]
The Chair: Thanks very much, Mr. Rosser. We will go to Mr. Chhabra and hear your opening remarks.
Samir Chhabra, Director General, Marketplace Framework Policy Branch, Innovation, Science and Economic Development Canada: I’m Samir Chhabra. I’m the director general responsible for marketplace framework policy at Innovation, Science and Economic Development Canada. I’m pleased to be joined by my colleague Martin Simard, senior director for corporate, insolvency and competition policy, as well as Paul Morrison, our expert adviser on insolvency policy.
In our role, we have the responsibility for the development and advice to the government on insolvency laws, regulations and policies, including amendments to the Bankruptcy and Insolvency Act and the Companies’ Creditors Arrangement Act. We are here today to assist the committee in your study of Bill C-280, which would amend both acts to give fresh produce suppliers a deemed trust for unpaid perishable fruits and vegetables invoices in insolvency proceedings. The deemed trust would give farmers, growers and all commercial and retail sellers of fresh produce a property interest in the fresh produce or their proceeds of sale until the invoice is paid in full. The deemed trust would only be enforceable in a formal bankruptcy, receivership or restructuring under one of the acts and would be payable ahead of the claims of all other creditors.
Canada’s insolvency laws aim to provide market certainty, promote economic growth, maximize asset value and, of course, mitigate the impact of a debtor’s default on all stakeholders. Proceedings under both acts are designed to provide for the equitable distribution of debtor assets, with clear rules to rank creditor claims or the restructuring of distressed but viable businesses wherever possible.
Proponents of Bill C-280 state that structural constraints in the fresh produce industry and the perishable nature of the product create a unique payment risk that can only be remedied with the Bankruptcy and Insolvency Act or Companies’ Creditors Arrangement Act amendments by creating a deemed trust for those fresh produce suppliers. Other stakeholders have raised concerns about the impact of the deemed trust on the returns of the creditors, and both credit costs and credit availability in the industry.
Thank you very much. I look forward to your questions.
The Chair: Thank you both, gentlemen, for your opening remarks. We will open the floor to questions now. Just remind members to keep our questions focused and concise if we can. Please, if you can direct your questions, that would be helpful, seeing as we have so many people at the front of the room here. We’ll begin with our deputy chair, Senator Loffreda.
Senator Loffreda: Thank you to our panellists for being here today. I have two questions, one is for Agriculture and Agri‑Food Canada.
What is your assessment of how Bill C-280 could affect lending practices to farmers and agricultural businesses, particularly in light of concerns from the banking sector of increased risks, difficulties and costs of lending? Are there any mechanisms being considered to offset the potential cost increases that financial institutions may pass on to farmers and consumers due to the heightened risk environment introduced by the bill?
To Innovation, Science and Economic Development Canada: Given the concerns from the banking sector, do you foresee any broader economic impacts if the increased costs of lending are passed on to the consumers? How might this affect consumer prices for agricultural products?
Mr. Rosser: I thank the deputy chair for the question. In terms of the credit risk and availability for agriculture or economy generally, I would defer to my colleagues from Innovation, Science and Economic Development Canada. I would say that having worked with representatives from the fresh produce value chain for many years on this issue, the vast majority are supportive of this bill and are not unduly concerned about what its passage might mean for the availability of credit.
The Chair: Thank you.
Mr. Chhabra: Based on our discussions with stakeholders and feedback received by various committees that have studied this issue over time, there is certainly a risk that different treatment of creditor claims in insolvency would distort the efficiency of credit markets. The 2009 fresh produce working group found that a deemed trust could have a negative impact on the availability of credit within the fresh produce industry. I understand both the Canadian Bankers Association and Farm Credit Canada have advised that borrowers who are subject to a deemed trust or a super priority could and usually do suffer a reduction in available credit regardless of credit history as the deemed trust will reduce the amount of collateral available to use as security. As such, from that perspective, it is reasonable to question, in our view, whether the establishment of a deemed trust could raise credit costs.
Senator Loffreda: I have a quick follow-up. You do agree there will be a negative impact, and you do agree that it could increase the costs to consumers.
Mr. Chhabra: It’s somewhat of a speculative question. What we have is an established history of proceedings in these markets where creditors who are active in these spaces have indicated that it’s a normal state of affairs that when a deemed trust or super priority is established, it can be expected that credit costs would go up. To speak about the specifics in this instance is a little more difficult, but using the past history of these types of issues, I think it’s a reasonable assumption, or at least a reasonable concern, to question whether that could occur in this issue as well.
Senator Loffreda: That affirms my concerns. Thank you.
Senator C. Deacon: Thank you, witnesses, for being with us. I’ll direct this to Mr. Chhabra and Mr. Rosser, if I could.
This government has done a good job of managing changes to our Competition Act that start to address Canada’s major competition or monopoly problem that we have had. That’s true in agriculture, as well. Ten per cent of farms produce about two thirds of farm-gate sales, so the smaller farms are less able to find, especially in the fruit and vegetables area, a diversity of buyers or sell directly to retailers to get the best price. They need to go through an intermediary. They are also vulnerable to a lot more non-payment risks. They don’t have the elasticity in their working capital.
Can you speak to the importance of our maintaining and supporting small- and medium-sized farms, especially in the fruit and vegetable area, to ensure that the industry remains competitive and innovative?
Mr. Rosser: I’ll respond briefly and perhaps invite my colleague Nicole Howe to add what she will to my response.
Yes, the senator is absolutely correct that, over time, farms have been growing larger on average. Even the larger farms, overwhelmingly in Canada, are family farms, but it is an important focus for us to maintain the viability of smaller and medium-sized operations and to ensure that our programs and policies take due account of their circumstances.
Nicole Howe, Executive Director, Market and Industry Services Branch, Agriculture and Agri-Food Canada: I will just add in a few statistics in terms of who we’re talking about with fresh fruit and vegetable farms in Canada. From the 2021 census, we see there are 14,000 of these farms in Canada, but 70% of them are actually small businesses with annual sales below $250,000. In terms of the demographic of this sector, I think that’s important to share.
Mr. Chhabra: I appreciate the question. I think our colleagues from AAFC are much better positioned to speak about the industry given their expertise in the agriculture space.
Senator C. Deacon: Then I will refine it a bit, if I could, for you, Mr. Chhabra. Your part of ISED has put a lot of work into the competition framework changes, and I think the objective of that was to make sure that we see a broadening out of competition across every sector in the country. Would that be fair?
Mr. Chhabra: That’s a fair statement.
Senator C. Deacon: Thank you very much.
Senator Ringuette: This is puzzling to me because supposedly the intent is to create reciprocity. I look at the U.S. Department of Agriculture, the Perishable Agricultural Commodities Act, or PACA, and it requires small fruit and vegetable sellers to be licensed. Do we have a licensing system in your department, Mr. Rosser?
Mr. Rosser: Perhaps I’ll turn to Ms. Howe, but there is a licensee system through the Canadian Food Inspection Agency for the fruit and vegetable sector.
Senator Ringuette: Here it’s within the federal U.S. Department of Agriculture. My question is very specific: Is it within your department? Do you have licensing for small fruit and vegetable perishables? Do you have a licensing system for them?
Mr. Rosser: To clarify that within the federal system, the Canadian Food Inspection Agency performs many of the functions that would, in the U.S. system, reside under the U.S. Department of Agriculture. They are legislatively independent of us, but in practice, we work very carefully with them. They are the ones that license food vendors and others in the federal framework.
Senator Ringuette: It’s very important because this licensing system is an obligation tied to another obligation, which is the prompt payment definition in the PACA. That definition ranges from payment must be done between 10 days or 5 days in order to comply and fit into the trust. We don’t see that in this legislation.
I guess my next question is: We’re at 30 years of trade agreements with the U.S., and I’m supposing that our Canadian negotiator has a relationship with you. I say you, but I mean the department. The department would know if there is any issue in regard to reciprocity in fruit and vegetable trade. Would you know of that? Would you have been informed of an issue?
Mr. Rosser: Madam Chair, I would say as a department and in conjunction with the Canadian Food Inspection Agency, we maintain a very robust relationship with our American counterparts at all levels from the secretary and minister on down. We deal with them daily on a whole variety of market access issues.
With respect to reciprocity and the bill before this committee, there has been dialogue with the United States about what might or might not be deemed reciprocal. Ms. Howe can correct me if I misspeak, but I believe we were recognized as having a reciprocal system until 2014. There have been informal discussions about this bill and whether it might be deemed reciprocal with PACA, but I know no formal assurances have been sought in that regard to this point.
Senator Ringuette: What you’re saying is that the Americans have not directly asked that Canada provide this reciprocity that we have in front of us?
Mr. Rosser: They have not asked to us provide the bill. Although they told us at the time they terminated the recognition of our reciprocity, they would reconsider that if we were to put in a system equivalent to theirs.
The Chair: Thank you. Yes, we heard that from other witnesses as well.
Senator Varone: I’m going to try to get through this quickly. I just want to build on what Senator Ringuette was saying about reciprocity in terms of what it means. Canadian fruits and vegetable farmers produce $3 billion a year of product. Given the time frame under which they produce it, $1.5 billion is consumed by Canadians. The other $1.5 billion is sold to the U.S. Conversely, $6 billion of fruits and vegetables are imported primarily from the U.S. to Canada.
When you talk about reciprocity, the equation is $1.5 billion of Canadian sales versus $6 billion of imported sales. The bill, in terms of what you’re asking for, is conferring equality amongst the two nations. But here is my point. This is for Mr. Chhabra. I’ve read this bill probably a thousand times, and I am confused, as you are, in terms of where this bill lands because you have said that it lands under a deemed trust, but the bill actually is worded that the proceeds of the sale are deemed to be held in trust and the words “deemed trust” are missing.
Then when I went to the U.S. bankruptcy hierarchy of creditors, there is no deemed trust equivalent in the U.S. bankruptcy form. They have secure-tied trusts, but under secured creditors, preferred creditors, equity holders and even the unsecured creditors all have trusts.
Part of my problem in understanding this bill in context is: Where does it fit?
Mr. Chhabra: Thank you very much for the question. I’ll ask my colleague Mr. Morrison to chip in on some of the details.
I think it’s an important question. I would start out by saying that we’re frequently faced — as this committee is as well — with issues where international competitors are somewhat challenging to nail down because of the differences between different legislative regimes, different constitutional structures, and, at times, there are different words on the page in a piece of legislation or a piece of policy that gives intended effect in different jurisdictions.
I’ll ask Mr. Morrison to speak more about the details of the deemed trust in this case.
Paul Morrison, Senior Policy Analyst, Corporate, Insolvency and Competition Directorate, Innovation, Science and Economic Development Canada: Thank you, senator. You’re correct that the United States bankruptcy code does not mention the PACA deemed trust. PACA creates the deemed trust. It is enforced under the bankruptcy code as not being property of the bankrupt. Therefore, it’s recognized. PACA also creates a deemed trust outside of bankruptcy as well. This particular bill will only apply in insolvency proceedings. It will not create a deemed trust outside of bankruptcy.
Senator Varone: My follow-up then is: Why are you securitizing or using the deemed trust category in Canada through the words of this bill? Because it’s not clear to me that’s the intent of the bill is. It says “deemed to be a trust.”
Mr. Morrison: Yes, there are words of art, senator, that accomplish the same thing. There are deemed trusts that have similar wording under Canadian legislation, for example, under income tax legislation and so forth where it says “They are deemed to be held in trust.” It doesn’t use the phrase “deemed trust” per se. Operatively, it’s the same.
The Chair: Thank you.
Senator Massicotte: Thank you for being with us. It’s much appreciated. Two quick questions.
Mr. Chhabra, I was listening very carefully to your presentation, but I missed part of it. Are you for the bill or are you against the bill?
Mr. Chhabra: Thank you very much for the question, Madam Chair.
This is a private member’s bill, and we understand it’s a private member’s bill that was voted for by a significant majority of parliamentarians, almost unanimous as we understand it. This is not a piece of government legislation that we have here. We’re here essentially to provide support to the committee’s deliberations around the bill.
Senator Massicotte: Are you for the bill or against it?
Senator Ringuette: He’s not going to say.
Senator Massicotte: He is an intelligent man.
Mr. Chhabra: Indeed, I would say I’m here really to support the consideration of this committee of the bill.
Senator Massicotte: The consideration. Okay.
Mr. Rosser, maybe I don’t understand things properly, but I’m having difficulty where we’re proposing a system whereby we take some of their money that we should have under bankruptcy, in other words, we’re probably losing money already, but we’re going to make them lose more money to basically benefit a certain select factor. How do you deal with this equity issue? It’s just not fair whereby there’s a bankruptcy law where everybody gets a per-added treated treatment. Right now, we say we love these friends of ours. We will help them out, and they will lose less money, but too bad for all the other guys. How do you deal with that?
Mr. Rosser: I thank the senator for his question. In terms of analysis that we have done around this issue as a department, I’m not sure that we have done anything that would get to the question of — I mean, I think the committee has heard testimony previously about the zero-sum nature of bankruptcy proceedings in terms of who would win and who would lose if this bill were to become law. I do know that from the perspective of those who have accounts receivable in fresh fruits and vegetables, this would provide them with an important measure of security of payment in the event of the bankruptcy of a buyer of their product. It has been on that basis that they have been seeking a bill like this one for decades now.
Senator Massicotte: Don’t you agree that what you’re doing is you’re taking a sum of money from a group of creditors to give to another group of creditors? Do you agree with that? Or does money disappears some place?
Mr. Rosser: Although, I don’t profess to have expertise in bankruptcy. Just logically, it is a zero-sum game. If you provide greater security to somebody, inevitably, somebody gets a little bit less.
Senator Massicotte: Thank you.
Senator Robinson: We talked about how this could affect lending costs and raise the costs of food to consumers because of lending costs increases. I’m wondering if you could speak to what happens to the cost of food when producers go unpaid?
Mr. Rosser: I thank the senator for her question. I’m mindful in replying of her deep knowledge of the agricultural sector.
To my earlier intervention in terms of greater security for producers, as the senator would know, all farmers, particularly those in this sector, face a number of risks. Certainly, the risk of insolvency, of not being paid for products it delivers is one that preoccupies them. It would be one less that they would need to be preoccupied with, should this bill become law. Those active in the fruit and vegetable value chain will tell you that having something roughly equivalent to what is available in the United States would help the competitiveness and growth. Presumably, help to make them more cost competitive.
Senator Robinson: Could Mr. Chhabra answer the question? You had spoken about what would happen if lending costs go up and that, in your opinion, that would impact the cost of food to consumers. I am wondering if you could speak to what happens in the situation where producers go bankrupt or have to absorb the costs of crops that they grew, packed and shipped to market and did not get paid for. Where does that cost get passed on within the value chain?
Mr. Chhabra: Thank you for the question. What I mentioned earlier was that we think it is a reasonable assessment to believe that certain input costs could go up for the industry on the basis of credit. What Mr. Rosser is alluding to is that there is also the potential that there are costs and risks being borne today that could be better mitigated through this approach that is being proposed and that what the ultimate output is in terms of a price at the retail supermarket is a factor of many inputs. Cost of credit is one of those, and credit risk is one of those that needs to get factored in. Of course, this potential for an insolvency to negatively impact a creditor for that to create a chain of events, for that to create risk along the supply chain and actually take out different suppliers and participants in that supply chain are, of course, real risks as well.
To arrive at a final analysis that says a potential cost of credit change is going to have x or y impact on the store shelf versus whether or not a deemed trust could create more protection or, as Senator Deacon offered earlier, more competition. These are challenging variables to equate off of one another and to suggest that there is an ultimate answer. But you are quite right, these are all factors that the committee needs to take into consideration.
The Chair: So if there is less product available or if they cannot produce because they have not been paid, then presumably price goes up.
Mr. Chhabra: Yes.
The Chair: Thank you.
Senator Yussuff: Thank you, witnesses, for being here. I have a couple of questions. Let me return to the first question that my colleague raised.
We have a problem we are trying to solve. Of course, it is not apples and oranges. The U.S. market to Canada is about $6 billion, and our market to the U.S. is $1.6 billion. In the context of reciprocity, we’re certainly going to be giving the U.S. a far greater protection than we will get from them in the context of this bill becoming law.
My second point is: As deemed trust will get super priority, they would also, in the current structure of Canadian bankruptcy law, knock somebody out of the equation. Somebody will go lower. The Government of Canada, in regard to remittances, taxes, Employment Insurance and Canada Pension Plan premiums, gets knocked off of that list because this becomes a priority over them as a claimant in the legal process in bankruptcy law.
This is very specific given that this problem did not arise yesterday; it has been with us for quite some time. Has the department looked at any other measures other than the bankruptcy amendment to this legislation as to how we could accomplish giving farmers the protection they are seeking, recognizing that we have been told that the challenge is small, less than 1% — 1% of 1% — that we are really talking about that we are dealing with on a regular basis when farmers do not get paid because of bankruptcy. Have you looked at other measures and how we can help solve this problem versus what we are doing here?
My point is that I recognize the farmer’s dilemma, but aren’t we using a sledgehammer to address what seems to be a small problem? Recognizing that it is an important problem, has there been any consideration within the department on how to solve this and all of the other questions, equally, can you answer?
Mr. Rosser: I will take a stab at some of the points that he raises and see if Mr. Chhabra or others have something to add.
The senator is absolutely correct that Canada has long had a trade deficit when it comes to fresh fruits and vegetables. Given the nature of our climate it is perhaps not surprising, but we are an important and a growing exporter — from inside and outside of the greenhouse sector — of fruits and vegetables.
It is important when interpreting the trade statistics to realize the integrated nature of the food and vegetable production in Canada. Many of the larger Canadian companies in the value chain will be Canadian-based, Canadian-owned and Canadian‑founded, but will have growing, packing and other operations in the United States and Mexico to help ensure year-round supply of the product in question. There are Canadian linkages to some of those products that would show up in the trade statistics as imports.
I would also note that you are correct in the analysis that we have done. Those participants in the value chain would readily concede that bankruptcy, insolvency, on the part of buyers of fruits and vegetables is not a common occurrence. It is a relatively small portion of the overall transactions in the industry. I do not know if Mr. Chhabra or Ms. Howe have anything to add.
Ms. Howe: I would add that there has been work done with the sector to look to alternatives that could help them manage this risk, like private insurance, insurance funds and security‑based protection. The conclusions have been that a lot of these require high premiums, and the cost becomes prohibitive to the sector. The sector has also placed a lot of priority in terms of having reciprocal access to PACA, which is one of the other reasons why they have placed a priority on looking at this type of deemed trust.
Martin Simard, Senior Director, Corporate, Insolvency and Competition Directorate, Innovation, Science and Economic Development Canada: To add to what Ms. Howe has said, studies have shown that non-payment outside bankruptcy has been a key issue, and I understand that our colleagues in the AAFC have moved on that, and there have been new regulations to help with the non-payment issues. It has been a long time that this issue has been discussed, but things have been done, maybe on a specific point but also on other related issues.
Senator Martin: Thank you. In listening to the questions and answers, I feel like some of my questions have been answered.
It sounds as though you have, as you said, been working with this sector for a long time, and here we are. It did receive majority support, and so we were looking at it in this committee. It is so important to remember that Bill C-280 aims to protect the fresh produce supply chain, which includes quite a few other growers, packers, wholesalers and distributors. Mr. Rosser, you talked about the unique payment risk of this particular sector and the importance of this bill.
It has been noted that Canadian producers often choose to sell their products in the U.S. due to stronger insolvency protections. I know that you cited numbers of the import and export totals. This would leave Canadian consumers with less access to domestic produce. How does your department view the economic consequences of this trend for both Canadian farmers and consumers? How would Bill C-280 help reverse or address this?
Mr. Rosser: Thank you. I would note, as I believe I mentioned earlier in the session, we have seen substantial growth in Canadian fruit and vegetable exports, primarily to the United States. I interpret that largely as a market phenomenon where prices are most attractive. To what extent the availability of PACA contributes to that, I do not think that it is a question we can answer based upon research or analysis that we have done to date. I have noted how representatives of the fruit and vegetable value chain talk in terms of competitiveness in the United States, competitive advantage in relation to other countries that export to the United States, and that having something here equivalent to PACA would be important to the continued growth of the sector here in Canada.
Senator Fridhandler: Yes. This may be an unfair question or something that needs to be asked of a U.S. expert, but are you aware of equivalent provisions to PACA for perishable products other than fruit and vegetables? I am very concerned about the inequity that I see in the Canadian system and why we seem to be specifically tailoring this piece of legislation to a certain small sector of perishable producers, and I see it as only protecting them relative to their cross-border business.
If we are doing it to protect Canadian producers, then why aren’t we more broadly dealing with perishables of all sorts of food products? Is there other U.S. stuff, in short, and what is your perception? Is this a PACA piece of legislation or is this a Canadian producers’ legislation?
Mr. Rosser: This is a longstanding demand of the Canadian produce value chain of the federal government. I am not aware of any — the U.S. act in question, I believe, has been in existence since the 1980s, for 40-odd years. I am not aware of equivalent protection being sought or given to other producers of perishable goods, but I do not profess to be an expert in U.S. policy, either.
Senator Fridhandler: To follow up, you say that this is something that the fruit and vegetable producers have been advocating. I do not know if it has been specifically for the changes to bankruptcy and the Companies’ Creditors Arrangement Act. Have any other perishable producers advocated for a similar protection domestically?
Mr. Rosser: Not to my knowledge.
Mr. Simard: No, but I think it is fair to say, generally, that there are always groups who want a higher ranking in the bankruptcy proceedings. Not in the agriculture industry, but it is true that we have heard from tax authorities, from the construction sector, consumer groups and family law. This is a frequent occurrence in our office because it is always unfortunate when there is an insolvency zero-sum game and some people are losing. It is not unusual to get requests for changing the order of priorities more generally.
The Chair: We will try to get through part of our second round before the clock restrains us.
Senator C. Deacon: There has been a lot of talk about the value chain. This is about U.S. farmers having protection that Canadian farmers do not have. Protection in the United States — and Canadian farmers do not have that protection in Canada either. It is about that, and it is about the value chain.
It concerns me that a lot of smaller farms have to work with others and through aggregators to sell to large retailers because they do not have enough volume themselves without working with others. That puts us in a position where a failure to pay — a company that has purchased from a lot of farms and is selling to a retailer — if they are failing to pay that aggregator, it means that the farmers do not get paid.
Can you speak about the fairness within the Canadian system? This is a perishable product. This is not a product that you can store long-term, but a perishable product, and the ability for them to have comfort that they will be paid whether they sell through someone else or directly themselves. I want to confirm again that this is about Canadians getting protection in Canada as well as in the United States, where they could not afford that in the United States without this.
Mr. Rosser: I confirm that this is certainly my understanding. This is about providing equivalent protection to Canadian producers to that which has long been available to U.S. producers on the U.S. side of the border. There is a second issue of the equivalency of this provision being recognized by the United States and allowing for some reciprocity.
Certainly, my understanding of the structure of the industry is that, yes, larger operations are more likely to be vertically integrated in dealing with retailers and other major buyers, whereas smaller producers, as Ms. Howe noted, represent the majority of establishments in Canada and are more likely to deal with large retailers and other big buyers through intermediaries.
The Chair: Thank you.
Senator Varone: Thank you. Returning to a theme that was started, do we have an epidemic of insolvencies in fruits and vegetables in Canada?
The statistics that I have heard are that it is point-one per cent of 1%. If that is $1.5 billion, that is a $15 million issue annually. It seems that the upheaval to the deemed trust, especially when we are talking about workers’ wages that we are trying to protect, are we using a nuclear weapon to bat a fly?
Mr. Rosser: The analysis that we have done suggests that bankruptcies as a percentage of the industry are a very small proportion. The analysis we have done is a few years old. In a higher interest rate environment, to what extent that might have changed, I don’t think we have any recent analysis to speak to that. Certainly, we have no reason to believe that insolvencies represent a large percentage of sales in the sector.
Senator Varone: Is there the ability to create a trust in other levels of the hierarchy under Canadian bankruptcy law?
Mr. Chhabra: Thank you for the question. There are a few zones that you could consider. There is a deemed trust space, there are super priorities, there are secured or proffered creditors. Certainly, there are different ways. There are also unsecured creditors. What the bill does, in effect, is move what is currently considered an unsecured creditor to the very top of the list as a priority by creating a deemed trust ahead of all other creditors.
Senator Loffreda: Mr. Chhabra, I have done a lot of reading on this, and I have always said that leadership is not about being nice, it is about being strong and fair. We all have empathy and compassion for our farmers, but would you suggest — talking about fairness — that this is a fair statement: Bill C-280 suggests preferential treatment for a particular industry group without demonstrating that insolvency losses for this group are more severe than those experienced by comparable creditors. This challenges fundamental insolvency principles such as the fair treatment of creditors in similar circumstances and the acknowledgment of creditor rights, including secured loans, which should maintain the same priority as they would in non-insolvency contexts? Is that a fair statement?
Mr. Simard: It is because it is familiar. This text is familiar to us, I think, it comes from a previous government statement. I can confirm that this statement comes from the Canadian government of a previous year. As my colleague said, this is a private member bill. Parliamentarians are in charge of law‑making in this country, and there has been unanimous consent. I recognize this is a past statement from the government.
It is also true that when we think about insolvency principles, a key principle is equal treatment for creditors who are in a similar situation, or a similarly situated creditor. This is an exception to the rule that is being solved by this. For reasons that the industry has put forward, they are saying that their industry is structured differently with the wholesale consolidation and the perishability nature of their product. They are asking for exceptional treatment based on the different characteristic of their industry, but it goes against the general rule. It is true that the government in the past has made statements to effect that it would breach the rule.
Senator Robinson: Thank you. It is my understanding that PACA would actually cost our government nothing to implement. I wish to ask a question — perhaps of Mr. Morrison — I understand PACA is considered a success in the U.S., and it is a much-needed protection for Canadian farmers. It was highly valued when we were able to access it. Obviously, reciprocity was retracted. I understand that retraction happened at an administrative level. If Canada adopts Bill C-280, it would be a stroke of the pen, and we would have reciprocity almost immediately.
I am wondering, would this not be an act of reciprocity with the U.S., which I see would only result in lower prices to consumers because the U.S. would be a less reluctant exporter into Canada? We have heard from the U.S. that there is hesitation to come into the Canadian market because they do not have protection, so our Canadian consumers are seeing less access to nutritious, affordable food. I would like to ask that question of Mr. Morrison as he spoke to PACA.
Mr. Morrison: Thank you for the question. PACA is a broad‑based regulation of the entire U.S. fresh produce marketplace. It provides for licensing, inspection, dispute resolution. It provides payment protection inside and outside of bankruptcy. For the Government of Canada, I wouldn’t want to speak to whether that’s a success or not. That’s something that I think the American market would be best placed to discuss.
In terms of would there be a benefit to apply that in Canada? Again, that’s a policy decision that was determined by parliamentarians and the determination was to provide a deemed trust to address what were perceived as inequities in the fresh produce marketplace that were not addressed by existing insolvency law.
The Chair: Okay, we are over time. I’m going to just take some time out of our next session. But I will give one minute for question and answer.
Senator Ringuette: First of all, it’s puzzling because we can talk about the cost of food, but if workers do not get the benefit of their work because they are being pushed further down the road into bankruptcy, then they don’t have the money to buy the food anyway.
But what I would like to have an answer to is you indicated that you looked at some kind of insurance but that the premiums were high.
The Chair: 30 seconds.
Senator Ringuette: We heard that it’s 0.1 of 1% of export, the risk. So premiums are always based on risk.
The Chair: We have about 15 seconds for the answer.
Senator Ringuette: What would have been the premiums? This doesn’t make sense at all to me.
The Chair: Okay. Ms. Howe?
Ms. Howe: From the work that was done previously, the industry indicated that whatever price that was being applied to secure private insurance was deemed unaffordable to them.
Senator Ringuette: It’s not a study done by your department?
Ms. Howe: No.
The Chair: Thank you. Senator Yussuff, same rules here, 30 second question and answer.
Senator Yussuff: In the interest of time given we’re over, I will forego.
The Chair: Senator Massicotte, final word.
Senator Massicotte: We’re in a market economy. Every time we try to manipulate the rules of the market economy, you want to achieve a certain result, it becomes totally uneconomic, inefficient and the GDP and the wealth of our nation is affected negatively. Is that accurate? Thirty seconds.
Mr. Rosser: Madam Chair, I would more often than not, but our society is complex. There are lots of examples where the government doesn’t follow textbook economics.
The Chair: Thank you all very much. I appreciate your cooperation with a busy day here. Thank you all for being with us today and answering our questions.
We have the pleasure of welcoming in person for our second panel, Tony Bonen, Executive Director, Economic Research, The Conference Board of Canada. Mr. Bonen, I understand that you will have some opening remarks for us. Please go ahead.
Tony Bonen, Executive Director, Economic Research, The Conference Board of Canada: Thank you very much, chair. Thank you to the committee for having me here today.
My name is Tony Bonen. I’m pleased to join you today in my role as Executive Director of Economic Research at The Conference Board of Canada.
The Conference Board is a leading independent, not-for-profit research organization. For 70 years, we have endeavoured to get our research into the hands of decision makers, be they in government, business or civil society, so that they can act on the best evidence and research in Canada.
Through the strength of our analysis and the clarity of our recommendations, we seek to change the world for the better. So it is with great pleasure that I am able to join the Standing Committee on Banking, Commerce and the Economy to discuss our research.
Last year, in collaboration with the Canadian Produce Marketing Association, or CPMA, we prepared the Economic Footprint of Canada’s Fresh Produce Sector. This report leveraged our economic impact assessment model to estimate the overall contributions of fresh vegetable and fruit producers in Canada. Our analysis found that in 2022, the fresh produce sector’s total contribution to GDP was nearly $15 billion in 2019 dollars, of which about $7.4 billion was in direct GDP contributions of the sector.
This economic activity supported over 185,000 jobs across sectors and regions, contributing $10 billion in labour income to workers.
The economic benefits of the fresh produce sector are largest in the largest provinces, as you would expect, Ontario, Quebec, British Columbia, and it is significant in Atlantic Canada, particularly in Prince Edward Island.
Beyond the farming sector, or officially the crop and animal production sector, the fresh produce sector contributes to economic activity and employment in retail and wholesale trade and financial services sectors and a whole number of other connected suppliers in the value chain.
We also estimated that total government revenues — federal, provincial and municipal — generated in 2022 are estimated to be over $4 billion from this entire sector.
The direct impacts, meaning the economic activity and employment stemming from firms directly involved in the fresh produce supply chain, is about half of the total I was describing. The other half of the impacts are the indirect and induced impacts, other ancillary firms in the value chain, and then the induced impacts coming from people having more wages and profits as a result of that economic activity and then spending it in the broader economy.
Overall, the fresh fruit and vegetable sector continues to be an important contributor to economic activity and employment in Canada.
I’m happy to speak about our research on the subject. Thank you very much.
The Chair: Thank you for those remarks. We’ll begin our formal questioning with Senator Loffreda, our deputy chair.
Senator Loffreda: Thank you for being here, Mr. Bonen.
If you heard our previous panel, you’re aware of the concerns we have had. I did want to put the government’s previous report on the record, in which they agreed with the same concerns we are having.
The question for you is: What are the potential macroeconomic implications of Bill C-280 on the cost of borrowing within the agricultural sector?
How do you anticipate these will affect consumers if financial institutions pass these costs down to the supply chain? As we say, there is increased risk. They can manage risk, obviously. Lending will still happen, occur and be there, I’m certain. No doubt on that. But increased risk, increased return. Have you made any forecasts based on that concern and risk?
Mr. Bonen: Thank you for the question.
The analysis we did didn’t touch on the specifics of the risks of bankruptcy or an insolvency. I want to preface that I am no expert in insolvency law. I’m an economist by training. That is what I do in my day-to-day work.
Yes, I did have the opportunity to hear some of the discussion of the previous panel. At the end of the day, when insolvency or bankruptcy happens, it is going to be a zero-sum game. The risk involved needs to be allocated somewhere in the system. Whoever bears that risk is going to be pricing in that risk somehow.
If you shift risk from one sector to another, that’s where the premiums for covering that risk and that potential for bankruptcy will be found most directly.
Senator Loffreda: Do you feel there should be preferential treatment for this industry? Do you see any facts or figures that would justify such preferential treatment? Where do we stop if we do set this precedent? Who is next?
Mr. Bonen: It’s a good question, and a challenging one, to balance the overall fairness of an equitable treatment under bankruptcy rules, which is what you want for a clear and simple system — a set of rules — against the particularities of any one sector.
We have not done any particular research on this sector. I understand the unique nature of the perishable goods being produced by fresh produce, putting it in something of a unique situation versus other sectors.
How you balance that carve out, that special treatment for this one group versus others, I’m not in a position to say, unfortunately. It would require additional research specific to the bill which we have not undertaken.
Senator C. Deacon: Thanks for being with us, Mr. Bonen.
The Barton report, about six or seven years ago, suggested a doubling of our agriculture exports in Canada, a real focus on that.
To build off of Senator Loffreda’s point, the big difference here is the United States producers who we are competing against have this protection, our producers do not. That puts us at a disadvantage. Those producers are not complaining about the cost of borrowing as being an issue here. The protection is what they value.
Forty per cent of our produce is exported to the United States. If our producers to want post a bond, it’s a 200% bond that they have to put in place to protect that receivable.
From the perspective of the objective of increasing our exports, creating fairness in an area where there is a specific benefit to a foreign competitor who we are competing against, do you not see the benefit of where this is heading in that regard?
We’re not doing it randomly to any old sector. We’re doing it because there is a trade issue. We have said we want to have an increase in trade in this particular sector. Without this, our exporters are at a great disadvantage. Is that a fair summary?
Mr. Bonen: Thank you, Senator Deacon, for the question.
Yes, that’s a fair summary. Clearly, if you’re able to lower the cost of exporting by reducing the bonds you have to pay to insure your exports, certainly, that is going to help you export more and be more competitive in that foreign market, particularly the U.S., which is where the vast majority of our fresh produce is being exported to.
I would add that needs to be balanced against other considerations and, again, that trade-off.
Senator C. Deacon: Absolutely. Our small- and medium-sized farmers, which are the bulk of our farmers, are at an even greater disadvantage relative to anybody because of the fact that they are having to aggregate. One buyer defaulting could put them under; whereas, a larger group selling to many different buyers could have a more diversified risk. Is that fair as well?
Mr. Bonen: Yes. Let me back up and say, for the food-producing sector generally, there are broader arguments and supports for making sure that sector doesn’t go under and suddenly fall out of production because of the importance of food security broadly within —
Senator C. Deacon: We like to eat.
Mr. Bonen: I’m a fan. That is something unique, not just fruits and vegetables per se, but the broader food production sector.
Senator C. Deacon: Thank you.
Senator Varone: Thank you for being here, Mr. Bonen.
Your report, Economic Footprint of Canada’s Fresh Produce Sector, I read it several times. You define farm gate sales as the value received by producers at the point of the first transition. I get that. Like any other industry, that is like FOB on the truck.
I’m going to borrow the term from Senator Deacon in terms of the aggregator, the aggregator who is not understood by the Library of Parliament, nor the legal beagles in the Senate legal department. They had no definition for what an aggregator was.
I looked at your report. How big is that market? If I know the farmers produce $1.5 billion of Canadian produce, what is that next transition level? You have no findings in your findings report, but do you know what that number is?
Mr. Bonen: Thank you for the question. Unfortunately, I don’t know.
What we did in our analysis was very much a consumer-focused analysis to look at the entire value chain, looking at the set of fruits and vegetables bought by the average Canadian. We have a model that represents the overall Canadian economy in each of the provinces and territories. We let the expenditures flow through that into the various sectors.
That specific carve out of the aggregator would be contained within one of those sectors, and wasn’t a separate piece of the analysis that we did.
Senator Varone: Are you able to find a number?
Mr. Bonen: Potentially. Not within the modelling framework we used for this report.
Senator Massicotte: Thank you for being with us today.
You have an economics background, I presume?
Mr. Bonen: Yes.
Senator Massicotte: Do you agree with me that, in Canada, we decided upon a market economy. As a market economy, the more you finagle with the rules and give exceptions to your friends, the more it becomes uneconomic or inefficient? Is that an accurate scenario?
Mr. Bonen: In broad strokes, yes, I would say that’s accurate.
Senator Massicotte: If you are going to start changing priorities, it is a zero-sum game; the least you should do is do it as they did 10 years ago, do it in conjunction with a consideration of all the priorities.
If you’re going to start giving a better shake to a certain group, you’d better know why. When the people see that, and they see it being unfair, I am sure productivity goes down. Would you agree with that?
Mr. Bonen: I’m not sure necessarily that productivity goes down. It would depend on the particular changes to the rules and laws that are being implemented. In this case, we have been talking a lot about exports and increases there that could potentially be beneficial to productivity.
Certainly, in economics we say there is the law of unintended consequences. You make this change here; you’re not thinking about knock-ons in other sectors, the financing of others in the agricultural sector more broadly. Those are things it would behoove us to study in-depth. There is always that risk, certainly, whenever you’re changing the rules.
Senator Massicotte: Thank you.
Senator Yussuff: In regard to your study, what we’re trying to determine — obviously, we know there was a problem, and how do you go about solving it — is we are trying to tinker with something that we think is problematic, at least from the general consensus, hearing the witness and trying to understand this.
The exports could go up, obviously. That’s the intent. That’s what we want to protect. Farmers are harmed whenever they don’t get paid.
In terms of the exports, your data said it was about $1.5 billion or $1.6 billion. Would you say that’s a fair assessment based on when you did your analysis and your report?
Mr. Bonen: I don’t have the export figures in front of me. That sounds roughly reasonable. I would have to double-check that.
About half of the overall production in the sector has been exported, the majority of that to the U.S. That sounds reasonable.
Senator Yussuff: Obviously, this is an important sector. There are many small farmers who are impacted by this challenge when they don’t get paid. The bankruptcy legislation is one way to go about doing it.
We’re struggling with the challenge we see in tinkering with the legislation to solve a problem that might be better solved some place else. Is there any thinking that’s been given to this?
Maybe, I’m asking a question completely out of your wheelhouse. I don’t want to put you in a spot you shouldn’t be in. Feel free to tell me to mind my own business. I just want to indulge you in any thoughts you may have.
Mr. Bonen: Again, senator, I think it’s a very good question. It certainly is outside my wheelhouse in terms of the rights and regulations to have this sort of protection. Having heard some of the discussion from the previous panel, I do understand the risk of this being a hammer, a strong change in what is a broad piece of regulation in terms of bankruptcy protections. There are other ways around it, but given the desire to have alignment with the U.S. structure of their bankruptcy regulations, I can understand the rationale for making the change in this part of the bankruptcy domain as opposed to others. Again, I can’t speak to the alternative solutions but I’m sure there are others out there.
Senator Yussuff: Thank you.
Senator Fridhandler: I remain concerned about the equity to the broader food production sector. Having just joined the committee, I didn’t actually get through all the material, so I might be ignorant on some of the framing of the reports that you provided. But you did speak about food producers generally and food security. Was your study framed as a response to the legislation? Because you talked about it being vegetable and fruit producers, so why wouldn’t you have looked at perishables more broadly? Having not done that — so I believe from the report — can you comment about the perishable sector in Canada more broadly and the inequity that we’re creating or the values that we’re missing out here?
Mr. Bonen: Thank you very much for the question, senator. The report that we did was framed around the fruits and vegetables producers only because it was in collaboration with them. It was sponsored by the CPMA. It’s an analysis we have done maybe three or four times over the course of many years to get an assessment of the impact of the sector and the influence it has on the overall economy. It’s not something that fits neatly into available statistics and data, so you have to do this analysis, as I mentioned before, from the consumer perspective, and how spending on fruits and vegetables flows to the rest of the economy. So the focus on the fruit and vegetable sector was because of the Canadian Produce Marketing Association’s framing and the focus that they have on that sector.
The impacts, or the economic footprint as we call it, of the broader food-producing sector could similarly be analyzed in this way. It wouldn’t be too hard to undertake. If you add a larger sector or increase the scale that you’re looking at, the impacts would be larger as well. Again, I can’t speak to the specifics around the inequity other than to say, yes, you would be carving out some separate rules for one sector, and whether or not that is valid enough to balance the trade-off of equity across the entire sector is something, unfortunately, outside of what I can evaluate.
Senator Fridhandler: I have a brief follow-up. If I’m hearing you correctly, someone would need to find a sponsor to frame a new study to actually understand the perishable food sector space in Canada?
Mr. Bonen: Yes, so the Conference Board of Canada is an independent non-profit. The research we undertake sometimes is driven by our own internal interests collaboratively with partners. Some of the work that we do is commissioned by external partners as well. We work with them to help model the analysis and so on. This falls into the latter camp.
Senator Fridhandler: Do you have any concerns about the framing of the study and any assumptions that say this represents a clear, objective analysis of the narrower sector that you have studied?
Mr. Bonen: I have no concerns about the framing of the study or the analysis. There is this existing organization focused on fruits and vegetable producers who want to understand the impact they have and the spaces they occupy within the broader economy, so it’s framed around that. It’s a fairly typical kind of analysis that one does for sectors that don’t fit neatly into available statistics and data.
The Chair: Before we carry on here, we keep coming back to this core issue which is: Is there some food that is more vulnerable than others or more perishable in this case than others? So where have you drawn the line? This is not wood that can be stacked in the backyard. This is not canned soup. These are fruits and vegetables that might have a very short shelf life. Can you give us some idea of the parameters?
Mr. Bonen: Absolutely. It’s a very good question. Specifically, we define the sector we’re looking at here as fresh potatoes, fresh fruits and nuts and fresh vegetables. Those are the specific categories for which we have available data that we can set up and establish the model and the amount of spending that is happening by those categories.
You could also look at beef, chicken and other areas, but that was outside of the framing. There is nothing incorrect with that. It’s just how you decide the particular sector and pieces you want to look at.
The Chair: Even within that category then, you have got nuts versus raspberries.
Mr. Bonen: Yes.
The Chair: How do you make those distinctions?
Mr. Bonen: In this case, because we are working with the CPMA, they had a view of what was contained in their sector and what was not. On the specific question of fruits versus raspberries, there is nothing that granular that we can split that out by.
Senator Robinson: Senator Wallin, you stole some of my thunder. I wanted to follow up a little bit on that.
In your opinion, are there perishable foods that are outside of what you have looked at? I know there is some question about whether potatoes are perishable. I think it’s important to understand the quality of the product we’re looking to get to market requires a certain controlled atmosphere for storage. We can all keep our potatoes in the bucket under the sink for a few months and still eat them, but they will probably be rubbery, and they might be sprouted. They are not going to be what you get served when you go to The Keg. Are there foods that you think should be considered perishable that might be looking for this kind of protection?
Mr. Bonen: There are certainly other perishable foods and perishable products out there. I have seen potatoes perish, so that is certainly the case. Any meats or dairy products, anything like that, are certainly going to be perishable.
Senator Robinson: We don’t export much dairy. We know that. And meat is typically not perishable. It’s sold, slaughtered and held in a controlled environment, but once potatoes are shipped, they get to market and the load will get kicked, and there you are as a producer in Prince Edward Island trying to figure out how to get the tractor trailer somewhere that someone can use the product and pay you for it. I don’t think that beef falls within that.
I did have a different question. When we look at exports, we have heard this concept bandied about that we are definitely in a deficit situation when we look at trade with the U.S. I’m wondering if you might comment. Would you feel that the producers of perishable commodities in Canada would be asking for reciprocity for us to adopt Bill C-280 if they had concerns that it would — the reciprocity of PACA — if that resulted in a lot of product coming from the U.S.? Would you not think if they were concerned about that, they wouldn’t ask for us to be adopting Bill C-280?
Mr. Bonen: It stands to reason the way you framed the question. It would be odd for firms and sectors that wish to export more to push for legislation that would make it more difficult to sell domestically, even if they can export a little bit more. I’m not sure exactly what they are expecting the results of reciprocity to be.
Senator Robinson: Thank you.
Senator Varone: My question is in regard to bankruptcy. We have heard testimony that it’s 0.1% of the fall ratio. How does that strike up across Canada sector by sector by sector? Is it within the normal range? Does it exceed the normal range? As an economist, where do you peg the fresh fruits and vegetable bankruptcy rate across the board?
Mr. Bonen: Just to clarify, the bankruptcy rate — because I don’t know it off the top of my head — is 0.1%?
Senator Varone: Yes.
Mr. Bonen: That is lower than the average bankruptcy rate across the country. I don’t know what that is off the top of my head. I think it’s closer to half a per cent or 1%. It’s something I should look up and verify. But that sounds —
Senator Varone: Could you send that right to the committee?
Mr. Bonen: I’ll do that. Yes.
Senator Ringuette: Thank you. There are a few puzzles that need to be understood here. I was born, raised and am still living in the middle of New Brunswick potato country. I know how long a fresh potato lasts. Now you can refrigerate a fresh potato in October and, because of the system that they have, it still looks fresh next June. How can you put fresh potatoes and nuts in the same basket as raspberries, which are highly perishable?
The other thing is that the PACA, the entire system in the U.S., in their fresh, perishable definition in that legislation, it also includes frozen vegetables and fruits. The word “fresh” seems to be so elastic that it could start here and probably end up in Toronto. This goes back to what you took as the slate of products.
As a consumer, fresh is really fresh. The perishability should be the factor.
Mr. Bonen: The study that we undertook was not about perishable items. It was about the fruit and vegetable sector as defined by the Canadian Produce Marketing Association, our partners in the work. At the time we were not concerned about is this perishable or is it not. I take your point. I think it is a good one, nuts are not perishable in the same way.
Senator Ringuette: Again, it is not considering the same apples in Canada and the apples in the U.S.
I have another question; it goes back to the aggregate question or the chain of transactions that starts at the producer in Canada. Then you might have three, maybe five other entities in Canada. Then it crosses the border into the U.S. Then it might have another three or four before it gets to the retail store for the consumer.
We are looking at providing bankruptcy protection for on average ten different entities because of the chain. We are not only looking at bankruptcy protection for the fresh product. Did you look at that in your analysis?
Mr. Bonen: No, we did not look at that.
Senator C. Deacon: It is important to know how many groups are in the value chain. I doubt that it is ten if something perishable is going to make its way to the consumer.
One thing I have heard is that there is a concern that there is an imbalance of trade with the United States.
When you go back to the fact that Canadian exporters do not have any protection where their U.S. counterparts do, and they are exporting into that market; the buyers probably know that, in that regard.
The fact that there are higher risks is, perhaps, part of why we have lower exports. If we had equity in protections between producers on either side of the border and those who are selling on behalf of producers, we may see an increase because of the greater security. Would that be fair? It is unfortunate we are blaming the lack of exports. One of the reasons not to support this bill is because we have lower exports. But we have lower exports because there are lower protections.
Mr. Bonen: Again, I think that stands to reason. The higher premiums paid for export protection makes sense. In terms of the imbalance, I’m not sure that I could say what the right balance is in terms of the level of exports or imports between any two countries. The U.S. is always going to be importing more because of their southern climate and during the winter they can import more to Canada than vice versa.
Senator C. Deacon: But this would make an equitable solution for our exporters where they are selling into a market that potentially gives them a premium if they can feel comfortable in managing the risk, which gets at a very key objective in our agriculture and food strategy. Thank you.
Senator Loffreda: You stated it on your website which I read:
We are the foremost independent, applied research organization in Canada. We deliver unique insights into Canada’s toughest problems.
Well said.
Here we have preferential treatment to a specific industry with low credit losses, from what I gather. You have heard the government statement which was made awhile back, which I put onto the record, which is public.
We have a possibility of increased lending costs because of increased risk. What unique perspective can you bring in today and share with us for the necessities of this bill?
Mr. Bonen: As I am learning more about the bill, one of the interesting things is that it certainly creates a special carve out for the fresh food and vegetable producers within Canada within the bankruptcy framework. That is the main issue.
The irony is, by doing that, you create equity with the U.S. market and producers there given the protections that they have there, and that is balancing the concern here where you are looking for equity in the main export market by creating inequity within our domestic bankruptcy framework.
The balance of risk and trade-off there, again, is very hard to pin down. Indeed, you are just shifting that risk between different sectors. Somebody is going to have to cover the premiums involved with the bankruptcy risk.
Senator Loffreda: A brief follow-up: We are saying there are low exports. To follow up on the question from Senator Deacon, there isn’t a huge need by our main export market, which is the U.S. — 45%, or close to it, of our GDP is exports, three quarters to the U.S. The need, because of their climate, is not there. Would such a bill increase exports?
Mr. Bonen: It stands to reason that this bill would increase exports, all else equal. However, whether exports are too low now, I would not know in reference to what the right level of exports is that we are trying to achieve, but it would increase exports is my understanding of what would happen in the market.
Senator Loffreda: Thank you.
The Chair: On the flipside of that, in terms of imports, because they do not see the protections here as consumers, you get less choice in this country.
Thank you, everyone, for the questions. Thank you, Mr. Bonen, for your participation today. You have agreed to answer a question for Senator Varone. You can send that through the clerk if that is helpful to you. We will end this portion of the meeting.
We will have a brief in camera.
(The committee continued in camera.)