Financial Protection for Fresh Fruit and Vegetable Farmers Bill
Bill to Amend--Sixteenth Report of Banking, Commerce and the Economy Committee--Debate
December 3, 2024
Honourable Senators, I rise today at report stage to share my views on Bill C-280, which seeks to provide our fruit and vegetable growers additional protections under the Bankruptcy and Insolvency Act.
Today, I am speaking in favour of our Banking Committee’s report on Bill C-280. As you know, the bill was amended in committee thanks to two amendments by Senator Varone, which passed by a vote of 7 to 4.
Honourable colleagues, let me first set the record straight. Despite what was said in this chamber, the Banking Committee did not try:
. . . a second time to pass the same amendments that already failed by the same people whom we now want to send the bill to. . . .
These amendments were not formally introduced in the other place. I understand, as Senator MacDonald pointed out, that the House examined the definition of “supplier” and the scope of applicability and ultimately opted not to propose amendments.
To suggest senators on the Banking Committee adopted amendments that failed in the other place is not correct. We did no such thing.
The sponsor of the bill explained the following regarding Bill C-280 when appearing before our Banking Committee:
This bill seeks to establish a financial protection mechanism, a limited deemed trust to ensure that fresh fruits and vegetables producers are paid in the event of a purchaser bankruptcy.
In committee, support for this bill was made abundantly clear in our committee chair’s remarks when she spoke to our report on November 19. I noted four references that underscored support for the bill in its original form. Meanwhile, there was no mention of opposing views, which is why I felt compelled to say a few words as the deputy chair.
I also believe that senators may have been misled a bit when our chair introduced new evidence as she was reporting on the bill. Indeed, our committee did receive a letter from the Chair of the House of Commons Standing Committee on Agriculture and Agri-Food, which the senator referred to in her speech. It’s worth pointing out that we had clause by clause on October 31. The letter from the House committee asking us to adopt the bill unamended is dated November 5.
I bring this up simply to shed some light on our committee’s deliberations. This letter was not factored in because it was not part of our evidence. It probably would not have changed the outcome of the vote anyway. I find it a little awkward for our chair to present information that was received after the fact. Many have also asked themselves this question: Is it acceptable?
Despite what’s been said, an abundance of opposition to this bill does exist. Critics and certain expert witnesses we heard in our committee argued that implementing a deemed trust could disrupt the established order of creditor claims, potentially disadvantaging other creditors in bankruptcy proceedings. A new deemed trust could have ripple effects throughout the insolvency system. Additionally, there are concerns about the administrative complexities and costs associated with enforcing such a trust.
I would now like to address two additional points.
First, and most important, is the issue of reciprocity with the United States. This is a major concern, as various witnesses expressed in committee.
Second, based on the operational impact and unintentional consequences of Bill C-280, various witnesses expressed concerns. There was correspondence received from Innovation, Science and Economic Development Canada that said:
More specifically, super-priorities and deemed trusts change the rules of creditor markets and cause increased losses to all other creditors.
I will not repeat what Senator Varone and others said in their remarks last week, but I want to say a few words on reciprocity.
We know that the industry has been calling for reciprocity since 2014, when Canada was excluded from the Perishable Agricultural Commodities Act, or PACA, because, as one witness told us, access to Canadians growers was “. . . rescinded due to the absence of a similar payment protection program here in Canada. . . .”
This same witness, from the Ontario Greenhouse Vegetable Growers, added:
The passage of Bill C-280 as presented would restore reciprocity to Canadians, providing them protection and competitiveness and avoiding any negative downward impacts on the supply chain.
However, as far as I know, I have yet to be presented concrete evidence or formal assurances that reciprocity will be reinstated with Bill C-280.
On October 23, a government official told us the following regarding the United States:
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.
A week later, when we proceeded to clause by clause, Senator Martin asked Tom Rosser, Assistant Deputy Minister at Agriculture and Agri-Food Canada, if the bill would restore the PACA dispute resolution equivalency to Canadian growers.
Mr. Rosser said:
. . . it remains to be seen whether the original bill would be recognized as equivalent by U.S. authorities. We have not officially sought their opinion on that.
In reaction to the proposed amendment by Senator Varone, Mr. Rosser went on to say that, in his judgment, “. . . the probability of that happening might be diminished. . . .” He added:
It’s a question of probabilities. There’s no certainty that would happen irrespective of whether the bill is amended or not.
I think this statement is quite relevant to our debate.
More recently, we received a letter from Bruce Summers, the administrator for the USDA’s Agricultural Marketing Service, who raised some concerns about the amendments to Bill C-280. He argues that the amendments “. . . appear to limit the scope of protections under Bill C-280 by revising the definition of a person . . .” which is inconsistent with the definitions in PACA.
I appreciate Mr. Summers’s views, which we only received through Senator C. Deacon on November 18. His letter is dated November 7 — one week after we did clause by clause.
This is the same Mr. Summers who was invited to appear before our committee and declined, citing concerns around interference with a foreign parliament.
Anecdotally, we also heard last week that some senior agricultural administrators welcome the prospect of Bill C-280 with enthusiasm, yet we were told that there were no guarantees provided regarding reciprocity. It is likely but not guaranteed if the bill receives Royal Assent.
Colleagues, the issue of reciprocity is an important one. We have received no formal assurances that the bill — in its original form or amended — will achieve this goal. Considering this bill was introduced in June 2022, I wonder why we have yet to seek or receive any confirmation from our American counterparts on reciprocity.
The second issue I want to raise is the operational impact and the unintended consequences that this bill could result in. My concerns are twofold.
First, I want to address the challenges associated with giving farmers priority over other creditors. While this protects growers, it could raise concerns among all other creditors, who would now face a higher risk of not recovering their funds.
The House of Commons Agriculture and Agri-Food Committee produced a report in 2020 entitled Facing the Unexpected: Enhancing Business Risk Management Programs for Agriculture and Agri-Food Businesses.
Among its 15 recommendations, the committee called on the government to:
. . . implement a statutory deemed trust to provide financial protection for produce farmers and sellers in the event of buyer insolvency or bankruptcies.
In its formal response to the report, dated March 2021, the federal government wrote:
With a deemed trust, an unpaid fresh produce seller would have very significant advantages over most other creditors of an insolvent fresh produce buyer. In addition to fresh produce sellers being paid ahead of secured creditors, the proposed deemed trust would also subordinate super-priorities that were put in place for compelling public interests, including deemed trusts for employee withholdings and limited super-priorities for unpaid wages and unpaid regular pension contributions.
In its submission to our committee, the Canadian Association of Insolvency and Restructuring Professionals summarized its view as follows:
. . . the proposed measure to protect suppliers of perishable fruits and vegetables would conflict, displace and possibly frustrate the protection mechanisms that have been put in place to date by the legislator to protect vulnerable creditors or advance social policy concerns.
With Bill C-280, producers would now have super priority over other creditors. This has been confirmed by recent court cases, unlike what we heard last week in this chamber.
This would have the perverse effect of prioritizing payments to growers ahead of the Government of Canada, deemed trust for employee withholdings, super priorities for unpaid wages and super priority for unfunded pension liabilities — something we recently endorsed with the passage of Bill C-228 in April 2023.
I am also concerned about setting a precedent. I appreciate there are unique circumstances for perishable fruit and vegetable growers, but I fear other sectors will seek the same protections, citing similar risks in product loss due to non-payment. This could lead to broader pressures to reform creditor hierarchies, potentially complicating Canada’s bankruptcy framework and further altering lender risk assessments.
This leads to my second point: There are risks associated with access to capital if we give super-priority status to growers.
In the government response to the House committee report, it said:
A deemed trust would have significant impacts on credit markets and the recovery of third-party creditors. The proposed deemed trust would reduce lender collateral in favour of fresh produce sellers, which would generally result in reduced credit availability and/or higher credit cost for the fresh produce sector. Lenders of fresh produce sellers would likely reduce the amount of credit available to satisfy other creditor claims and would also likely result in more onerous business terms and conditions from lenders and suppliers on future transactions with the fresh produce sector.
This was the government talking.
The government’s view was shared by other witnesses who appeared before our committee, including the Office of the Superintendent of Bankruptcy, whose representative said:
Policies, like Bill C-280’s deemed trust, which would result in some creditors being paid more, by definition, cause other creditors to lose more. This can impact credit as lenders take insolvency repayment expectations into account when deciding whether and on what terms to extend credit.
To one of my questions, Deputy Superintendent Miranda Killam said:
The measures proposed in the bill increase the risk for lenders because there’s the possibility of having another creditor with a deemed trust of an unknown amount that will be paid first. . . .
I agree with Ms. Killam’s assessment. This is a reality, and the testimony we heard in committee confirms it.
In the case of a mortgage or other immovable asset — even a sailboat — it is correct that he who registers first has first dibs. But prior claims do exist and must be paid in the event of loans with working capital as security, commonly known as “floating charges,” like receivables and inventory such as fruits and vegetables, as well as receivables on those fruits and vegetables. This has also been recently confirmed by the courts: Deemed trusts will come before secured creditors.
Colleagues, as I conclude, allow me to summarize and reiterate three points:
First, Bill C-280 does not guarantee reciprocity with PACA.
Second, Bill C-280 is creating a new precedent by setting a priority status that is arguably unfair and is superseding other claimants, like employee wages. Workers are important, superseding other claimants.
Third, let me quote from Innovation, Science and Economic Development Canada:
Bill C-280 proposes exceptional treatment for a specific industry group without evidence of exceptional harm from insolvency losses compared to similarly situated creditors. The losses are nominal in the industry. This undermines core insolvency principles, including equitable treatment of similarly situated creditors and the recognition of creditor rights in the same priority as they would exist outside the insolvency situations.
Honourable senators, I hope you will take into consideration what I have outlined as you consider the adoption of the Banking Committee’s sixteenth report, which deals with Bill C-280.
Thank you, meegwetch.
Senator Loffreda, in your speech you said that we received no reassurances that we will receive reciprocity because of Bill C-280, and you said it again at the end of your speech. Yet, we clearly did receive assurances that we will not receive reciprocity if this amendment is adopted. That assurance we received. Does that matter to you, Senator Loffreda, or do you only care about winning the argument rather than seeing farmers win?
Thank you for the question, Senator Plett. We all want farmers to win, but we want a bill that is going to meet the goal it is intended to meet and the objective it has to meet.
Unfortunately, we have not heard that reciprocity will be obtained, not with the original bill and not with the amended bill. But the amended bill is a much better —
Senator Loffreda, I know there are two other senators who want to ask a question. Are you asking for more time?
I could be here all day, all night, no problem.
Is leave granted, senators?
I hear a “no.”
Honourable senators, I rise today to speak to the Standing Senate Committee on Banking, Commerce and the Economy report on Bill C-280, amended by the members of the committee.
Essentially, Bill C-280 is trying to fit a square peg in a round hole. In my intervention today, I will attempt to clarify this for you because we are talking about two completely different systems between Canada and the U.S.
Early in our Banking Committee meetings on Bill C-280, most members were ready to recommend that this bill not be adopted by the Senate. The bill pretends to create reciprocity for U.S. fruit and vegetable growers. It is not a mirror but a heavily smoked mirror that fogs the central issue.
This bill’s intention is to provide, in the case of bankruptcy, priority status for fresh and frozen fruit and vegetables and all the entities in that chain. At the outset, one must realize that we are talking about much more than the farmers whom this bill seeks to protect.
However, I’m tipping my hat to Senator Varone, who has put forward two amendments to, first, define who is a supplier; and, second, to elevate the position of farmers within the bankruptcy protection hierarchy.
At the outset, the Canadian Bankruptcy and Insolvency Act, which I will refer to as the BIA, has two components in cases of insolvency. The first one is the fair and equitable distribution of resources among the stakeholders in case of bankruptcy. The second one is the promotion of restructuring so that companies can try to continue operating.
Bill C-280 does not include any provision in case of restructuring. This is the first flaw in a series that I will indicate today.
Currently, the BIA provides claims for all farmers, fishermen and aquaculturists. These claims are granted priority status through a statutory security because the claimants are considered more vulnerable than other categories of suppliers. Notice that in that group, there are fishers. Bill C-280 elevates the status only for perishable fruits and vegetables. It does not recognize the perishable nature of fish in that grouping.
This particularly negatively affects fishing products from Atlantic Canada, Quebec and B.C., as it automatically lowers them in the chain of claims. This is another flaw of Bill C-280 in the Canadian context of the BIA.
I could go on and on. Fifteen minutes is not a lot.
Pretending that Bill C-280 will create reciprocity for fruit and vegetable farmers is, as I said earlier, trying to fit a square peg into a round hole, since comparing the Perishable Agricultural Commodities Act — PACA for short — of the U.S. Department of Agriculture, or USDA, to the provision of Bill C-280 is, in reality, comparing apples and oranges.
Bill C-280 tries to rewrite legislation to protect American farmers and write American legislation to protect Canadian farmers, notwithstanding the fact that it would provide better protection in the BIA for over $6 billion worth of American products coming into Canada against all other claims related to only the $1.5 billion worth of fresh fruits and vegetables that Canadians export to the U.S.
The USDA PACA system of deemed trust is a real trust. It requires funding to be allocated at the outset. Those funds are then used in the dispute resolution process. It is not only strictly an issue of having funds available if there is an insolvency. That is one component which occurs.
If you have funds specifically allocated in a separate trust account, that ensures payment in the case of insolvency. The PACA process also provides for a dispute resolution process if, for instance, there is a question regarding the quality of the product that was sent. If the grading was incorrect or is disputed, then there’s the process to determine exactly what the claim against the true trust is and to resolve it.
PACA protection is a true trust. It creates an obligation for produce buyers to hold the proceeds of the sale in a trust account. It is this account that is distributed. I hope you understand the fundamental difference.
Bill C-280 does not contain a similar process. It does not even have a peg. Studies of this issue in Canada indicate most payment issues in the fresh fruit and vegetable sector are due to slow payment, partial payment or non-payment among buyers. PACA also requires a licensing system for all involved in the chain, except the producer. The chain relates to interstate trade and export only. It is not applied within a state jurisdiction.
The licence is also conditional on invoicing being paid within 10 to 12 days, period. Otherwise, there are penalties. If a licensee receives a few penalties, then PACA removes their licence. The purpose is to remove the undesirable entities from the trust system. It is a completely different concept than what we have. We have no licensing system in Canada to remove the undesired entities from the system. These undesirables would now become part of an elevated BIA status.
Currently, our BIA has no private commercial claim as a statutory deemed trust. Our BIA deemed trust is for the Crown, for employee payroll deduction, such as income tax, Employment Insurance premiums and CPP. Priority is also given for employee pension plans. We, in this chamber, unanimously approved this particular provision not so long ago. Are we now supposed to renounce that commitment to Canadian workers? What a slap in the face we would be giving to all of them.
Honourable senators, when Canadian food processors export their products, it is accompanied by a certificate by our Canadian Food Inspection Agency. It is not the only system. It is the only system that we have.
Over the weekend, I had conversations with potato producers in my area who export to the U.S. They use a U.S. broker who assumes the responsibility for customs, delivery to the end buyer and payment within 20-60 days. They also mentioned that the Canadian fruit producers only require payment within 120 days, increasing their risk.
The fee charged is called the bond and is based on per 100 weight. As an example, for a tractor trailer worth of potatoes, the bond fee would range between US$50 and US$100. The value of the shipment ranges, depending on the season and the availability, between US$18,000 and US$20,000. So, at the most, the bond would be a US$1 fee for a value of shipment of US$100; it is 1% of the value of the shipment.
The exporting potato farmers in my area have absolutely no issues with paying this 1% for the slate of services they get from the broker.
Honourable senators, it has been mentioned a few times that this so-called reciprocity has been promised since the first Canada-U.S. trade deal in 1986. We had renewed agreements since then. In all fairness, the Office of the Superintendent of Bankruptcy testified in our committee meetings that in many reviews of the BIA since that first trade agreement, the issue of reciprocity was undertaken by the experts reviewing the parties.
At the end, the Canadian experts in the review process established that using the BIA to try to create a reciprocity process was just not possible. In fact, during the clause-by-clause consideration of Bill C-280, Mr. Tom Rosser, Assistant Deputy Minister, Market and Industry Services Branch, Agriculture and Agri-Food Canada said the following:
. . . it remains to be seen whether the original bill would be recognized as equivalent by U.S. authorities. We have not officially sought their opinion on that.
Colleagues, if Bill C-280 were the solution, I strongly believe that since its introduction in the other place in June 2022 — over two years ago — our Canadian authorities would have sought the U.S. Department of Agriculture, or USDA, opinion on its said reciprocity.
I am convinced that it’s not the case. I am convinced that Bill C-280 is not the solution. There is certainly a solution out there, but Bill C-280 is not it.
At best, the amendment tries to better protect farmers of fruits and vegetables. Therefore, I will support the report.
Will you take a question, Senator Ringuette?
Yes.
Honourable senators, I’m struggling like many of you. Like many of you and my colleagues on the other side, 18 months ago, we passed Bill C-228, the Pension Protection Act. This was to remedy decades of injustices toward workers when their companies went bankrupt and the pension funds were not fully funded. We talked about Nortel and Sears Canada. I could list a lot of other companies.
This was truly a remarkable achievement, not only in this house but also in the other house. Finally, to come to the conclusion —
Senator Ringuette, your time is up. Are you asking for more time?
I can answer that question.
Honourable senators, is leave granted to answer that question?
I think we — in this house and in the other house — sent a message to workers and their families that, finally, we will provide a remedy and a solution by passing a piece of legislation that will give them super priority. That now means they will go ahead of the bank. We believe that people who spend a lifetime working should not be cheated out of something to which they have contributed over an entire lifetime of work.
How do we reconcile that with Bill C-280 which will now take away the super priority that was given to workers and their pensions, if we pass this bill?
This is the simple way of putting it: Can we give the same thing twice to two different groups of people in one piece of legislation? I am struggling with this because I went back and read Bill C-228, and I am reading Bill C-280. These two bills are doing exactly the opposite of what we agreed to in this house and in the other place when we said we were going to rectify something that was historically wrong.
For my colleagues on the other side, it was a bill brought forward by one of their members. I applaud that member for her efforts. I worked collectively for all of us to pass that bill, which we did in this place. I am struggling to understand because people are now asking me, “Does this bill now take away from what this house did in a historical context 18 months ago?”
Thank you for the question. Senator Yussuff, you are right; I briefly went through it in my speech because there was so much to say in regard to our study and my personal study on this issue.
Yes, the fresh fruit and vegetable market in Canada is worth about $7.6 billion. We consume $7.6 billion of fresh fruits and vegetables. Of that, over $6 billion comes from the U.S. What we are doing here, in reality, is sidestepping the commitment we made in regard to pension plans in Bill C-228, and we are providing guarantees to the Americans. Our producers, who shipped $1.1 billion worth of products to the U.S., can proceed like my potato farmers and pay 1% and get a broker who will do the customs work, deliver the product and receive the payment for 1% of the value of that shipment. I believe that this bill is completely wrong. Thank you.
Honourable senators, I will be brief. I had intended to ask a question, but I will just make a few comments.
First of all, like you, Senator Yussuff, I’m trying to understand. There are some things that don’t line up for me that are worth mentioning. Number one is Senator Ringuette’s math regarding $7.5 billion of fresh fruits and vegetables, with $6 billion coming from Americans and $1.5 billion going to Canada. If you add that up, there is one group that is missing. That would assume that every single vegetable produced by farmers leaves the country, but it doesn’t. There’s a much larger amount than what you just said.
Number two is with respect to the protection for workers and their pensions and wages. Particularly for pensions, we did pass that bill; that’s right. But under this law, this money doesn’t belong to the company. It’s supposed to be in a trust. It’s deemed to be in a trust because we don’t want everybody setting up little tiny trust accounts. The fact of the matter is that the organization received the goods and has never paid for the goods yet. It’s up to the company to make sure they set that money aside.
It’s up to their bankers to make sure that they either set that money aside or they provide a surety of some kind, or they should be cutting their operating lines by an equivalent amount and setting it aside for them for that eventuality. But this is not taking something away from workers. It is just protecting money that is owed and doesn’t belong to the workers or the company. It belongs to those who sold them those precious goods.
Finally, I know we are here for sober second thought, but there has been a lot of discussion about not knowing whether the Americans will accept this bill as reciprocity. The only thing we do know is there is a letter somewhere — I saw it at one point — that said they for sure will not accept this bill with these amendments for reciprocity.
In this case, I want to put my faith in three people who ought to know, who have the entire resources of the government behind them and who are specifically, in one way, shape or form, responsible for this file: the Minister of Agriculture and Agri-Food, the Minister of International Trade and the Prime Minister of Canada. All three voted for this bill without our help. Thank you.
Honourable senators, it is now seven o’clock. Pursuant to rule 3-3(1), I am obliged to leave the chair until eight o’clock, when we will resume, unless it is your wish, honourable senators, to not see the clock.
Is it agreed to not see the clock?
Some Hon. Senators: Agreed.
Some Hon. Senators: No.
The Hon. the Speaker: I hear a “no.”
Honourable senators, leave was not granted. The sitting is, therefore, suspended, and I will leave the chair until eight o’clock.
