The Fruit & Vegetable Dispute Resolution Corporation (DRC) was founded in Ottawa, Ontario in 2000 as a private, nonprofit membership organization with a goal of facilitating trade in the fresh produce industry throughout North America.
Following the implementation of the North American Free Trade Agreement in 1994, fresh produce was flowing freely between Canada, the United States, and Mexico. An unfortunate yet inevitable byproduct of the increased trade was a growing number of disputes, including condition complaints and rejected shipments, slow-pay and no-pay situations, and myriad other issues.
At this time, the produce industries in the United States and Canada had already been in discussions to more closely align their respective produce regulations and practices, according to Fred Webber, the DRC’s president and chief executive officer. Mexico was also starting to expand its presence across North America. “This was an opportunity to open the door with Mexico to build a tri-national model,” Webber says.
The situation was further complicated by the 1974 case of Steve Dart Co. vs. Canada (Board of Arbitration), which had limited Agriculture Canada’s ability to resolve disputes, and since then there had been no dispute resolution mechanism in place in Canada. Andrea Bernier, DRC’s manager of communications and membership, says the case “created a dramatic increase in no-pay and slow-pay situations.” In turn, this affected both the domestic produce industry as well as companies from the United States and Mexico shipping into Canada.
Birth of the DRC
The formation of the DRC in 2000 was the result of a four-year, industry-led process involving the produce industry in all of Canada’s provinces, as well as the United States and Mexico. The three governments supported and facilitated the initiative, with Canada and the United States contributing finances, technical assistance, and personnel to the effort. The goal was to create a Canada-based dispute resolution mechanism that would serve the needs of produce suppliers in all three North American countries.
After an analysis of the best of all three countries’ systems, it was decided to use the U.S. Department of Agriculture’s dispute resolution system, in place under the Perishable Agricultural Commodities Act (PACA) and overseen by the Agricultural Marketing Service, as a template.
Similar to PACA’s system, the DRC works to resolve disputes among its members quickly and cost effectively through consultation, mediation, and arbitration. It also strives to prevent disputes in the first place by educating and updating its members on best practices and harmonizing standards from country to country.
In addition, the DRC advises the industry and governments on legislation and inspections.
The DRC Today
“Since its inception in 2000, the Fruit & Vegetable Dispute Resolution Corporation has provided the produce industry doing business in Canada with the necessary tools to facilitate a fair and ethical trading environment for all members,” says Ron Lemaire, president of the Canadian Produce Marketing Association, headquartered in Ottawa, Ontario.
“It’s important to have a competent and knowledgeable independent third party to deal with disputes,” adds Murray Driediger, president and CEO at BC Fresh in Delta, British Columbia. “It reduces negative impacts on supply partner relationships and brings disputes to a resolution in a timely fashion. The DRC brings a lot of expertise to the table,” he says, noting the organization’s mere presence often “reduces potential disputes and brings fair resolution to others.”
Peter Brackenridge is a consultant and arbitrator for DRC who was with the Canadian Food Inspection Agency (CFIA), which he helped establish, when the DRC was formed. He notes that the process of dispute resolution is much faster now than when the government was in charge.
As a private, nonfederal entity, the DRC oversees its own staffing, has a range of dispute resolution options (from informal to formal), a wider set of criteria for its due diligence, and is focused solely on trade.
“It’s [not limited] by the uncertainty of government support levels,” Brackenridge says, explaining that dispute resolution in a government setting must compete with other priorities, especially during budget crunches. “Safety always trumps trade, and everything else.”
Factors for Success
The number of formal disputes has declined dramatically since the DRC opened its doors in 2000, according to Bernier. There are currently less than 100 informal/formal disputes brought annually, compared to 1,000 per year in the organization’s early days. She believes the drop in disputes is due to several factors over the last decade and a half, including the DRC’s proactive and ongoing educational efforts.
“The DRC provides valuable education to all parts of the supply chain,” confirms Lemaire, “and further development of these educational offerings with its partners is very important as the DRC matures as an organization.”
An example of the group’s expanding educational mission is the Help Desk, where members can turn for questions and answers about all facets of the produce industry in Canada—such as import permits, bills of lading, or customs brokers—even if the topics are not part of DRC’s mandate.
Another factor in the DRC’s ongoing success is its informal resolution process, which ameliorates problems before they become formal disputes (which end up in arbitration, with a court-enforceable, binding award).
The formation of the Destination Inspection Service, launched in 2007, has played a role in the dispute resolution process. The Fresh Produce Alliance, consisting of the Canadian Produce Marketing Association, the Canadian Horticultural Council (CHC), and the DRC, drove the implementation of this dedicated government inspection service. “Inspection is a key component of what we do,” Bernier states, and having accurate, trusted reports can be critical in determinations of fault.
“Launching the Destination Inspection Service has made quite a difference,” agrees Brackenridge, noting that there was no legitimate and cost-effective government system in place for inspecting produce before the service was launched.
Last, but certainly not least in the DRC’s accomplishments, is the trust of its members in settling disputes. This is backed up the group’s annual membership numbers, boasting a 96% retention rate in 2015.
Membership Benefits
As a Canadian business, membership is dominated by companies located throughout the provinces, with far fewer U.S. and Mexican trading firms. Accord-ing to Bernier, in the first quarter of 2016 there were 1,079 Canadian members, versus 358 from the United States, 28 from Mexico, and 58 from other regions.
Canadian produce companies are required to either have a DRC membership or a license from the CFIA to import or ship province to province, and the DRC has attracted more organizations than the CFIA option, in part due to its additional member services. For firms based outside Canada, the benefit of DRC membership is the faster and more affordable means of resolving disputes, compared to bringing them to court.
It takes 21 days or less for the DRC to resolve most informal disputes, Bernier reports.
Outside North America
Since its launch, the DRC has ex-tended its reach outside of North America, with companies from Chile and Peru among its members. Additional expansion to include more firms beyond the United States and Canada—which would benefit both foreign shippers and the Canadian companies that trade with them—is a goal going forward, with a call for more marketing to attract members in other regions.
“Membership needs to expand to ensure the entire supply chain core in North America is represented,” asserts Driediger. “Expanding membership in the United States and Mexico is a priority.”
Lemaire agrees awareness, even in Canada, is not universal. “I’m constantly surprised at the number of companies doing business in Canada that are not aware of the DRC and their services,” he says. “The DRC should be more aggressive in promoting itself and building membership, as this will only provide further benefit to all other industry players within the Canadian marketplace.”
Mexican membership in particular is less than originally hoped. “Mexico is still very much part of the DRC mandate,” explains Webber. “Currently, exporters in Mexico can benefit the most from DRC services. As we move forward and find ways to have inspection and licensing regimes in Mexico that are comparable to those in the United States and Canada, there will be additional opportunities for importers and the domestic trade in Mexico to benefit from our services.”
A Greater Role
Recent food safety developments in Canada are heralding a change in the DRC’s role. The organization will expand throughout Canada with the repeal of the country’s Licensing and Arbitration Regulations and the advent of the Safe Food for Canadians Act.
It is expected that all Canadian produce companies, with a few exceptions, will be required to become DRC members, with the CFIA license option eliminated. “That will put all parts of the Canadian industry under one common set of trading rules,” Webber says.
“The dual system has been a challenge for many years,” points out Lemaire. “This will not only improve our marketplace, but it will also allow the DRC to expand its work on fair and ethical trading practices to others, such as some within the farming community, who have not been included under their mandate.”
“The move to a single licensing system in Canada,” Driediger agrees, “should increase Canadian participation and improve membership in areas not previously covered in Canada.”
Another Goal: A Deemed Trust
Another part of the DRC’s evolution includes the creation of a PACA-like or “deemed trust.” Since the 1980s, the United States has had a statutory trust under PACA, which protects produce sellers by allowing them to recover money owed by insolvent customers ahead of banks and other nonproduce creditors. With a deemed trust, sellers essentially retain ownership of the assets related to the sale (cash owed and inventory) until payment is received.
The Canadian produce industry, led by CPMA and CHC, has been pushing for the Canadian government to implement a similar system to address nonpayment through bankruptcy. Not only would this reduce risk for domestic produce suppliers, but it would offer U.S. firms selling into Canada protection similar to what Canadian firms selling into the United States have enjoyed since the PACA trust was enacted.
In 2014, the Fresh Produce Alliance estimated that American suppliers were losing at least $10 million a year due to Canadian buyer insolvency, while Canadian suppliers were recovering approximately that same amount from the United States, thanks to the PACA trust. The lack of a Canadian trust also caused U.S. suppliers to charge a 5 to 15 percent price premium on fresh produce sales into Canada, according to a USDA survey of its licensees.
Until October 2014, Canadian produce companies benefited from preferred rights based on the so-called “reciprocity” under PACA, which allowed them to take advantage of PACA’s dispute resolution services (which is separate and apart from the PACA trust) when selling into the United States. Because the Canadian government does not offer a reciprocal reparation forum to U.S. firms, and because the U.S. government and produce industry have long desired a deemed trust when selling into Canada, preferred access to PACA’s reparation complaint process previously enjoyed by Canadian firms was eliminated in 2014.
When reciprocity ended, Canadians joined other foreign nationals in being required to post a surety bond for double the amount of the claim when they made a formal reparation complaint, compared to paying just a $100 filing fee prior to 2014.
Taking action
For its part, the DRC is serving as technical advisor to the industry and the Canadian government on the feasibility of implementing a trust system and facilitating model legislation. “From DRC’s perspective, there are no technical barriers for establishing a trust in Canada; it is simply a matter of political will,” comments Webber. “The outcome will depend on the industry’s desire and the will of the elected officials. At DRC, we will continue to provide information and research as our members and partners request.”
Suppliers have long been proponents of a trust. “It is long overdue and our company has been a strong supporter of bringing a PACA system to Canada,” Driediger says. “The produce industry is unique and requires a system that recognizes the perishability aspect of our products and the need to be able to secure proceeds from customers who are unwilling or unable to pay.”
Lemaire concurs. “The fundamental structure of the DRC is based on the trading rules and guidelines established under PACA in the United States,” he explains. “This alignment was essential for reciprocity between Canada and the United States and extremely necessary to ensure a harmonized approach to trade in the North American marketplace. The final piece to the puzzle—to bring a more fulsome financial protection system together—includes a PACA-like trust in Canada.”
Providing continued technical assistance on the deemed trust is a key initiative of the DRC going forward, along with expanding its educational services, and adding to its non-Canadian membership. It also hopes to bring in more transportation companies as members (which were outside its original mission), and prepare for the probable transition of CFIA licensees to DRC membership under the Safe Food for Canadians Act.
Meanwhile, it will continue to fulfill its core dispute resolution services, which have reduced financial volatility for Canadian and non-Canadian produce companies alike. “Since becoming a member of the DRC, we have not had any disputes to resolve, which is actually a good thing,” shares Tom Kioussis, vice president of sales and marketing and category director for vegetables at Gambles Ontario Produce. “The DRC’s presence alone has made shippers and receivers more aware of, and accountable for, practices on both sides.”
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