Vol. 139, No. 36 — September 3, 2005

Regulations Amending the Licensing and Arbitration Regulations

Statutory authority

Canada Agricultural Products Act

Sponsoring agency

Canadian Food Inspection Agency

REGULATORY IMPACT ANALYSIS STATEMENT

(This statement is not part of the Regulations.)

Description

The Licensing and Arbitration Regulations (L&AR;) are made pursuant to the Canada Agricultural Products Act. They promote fair and equitable trading of fruits and vegetables in interprovincial and international trade and reduce the incidence of fraud by establishing trading standards, rules, and a language of commerce by which transactions must be conducted.

In 1988, the L&AR; were amended to provide exemptions for growers of their own produce, small dealers who sell directly to the consumer and small brokers who negotiate transactions on behalf of buyers or sellers.

In 2002, as a result of a licensing challenge, the exemption provision (paragraph 2.01(d)), which was intended to exempt small brokers from being licensed, was legally reviewed and it was determined that the scope of the exemption could not be limited to brokers. The change in scope of the exemption provision has resulted in the exemption of all produce businesses involved in the negotiation of sales, and not just small brokers. The exemption provision is resulting in market disruptions and is the focus of industry concern. Unethical business practices in a market dealing with highly perishable products are eroding confidence in the fresh fruit and vegetable industry in Canada and are damaging Canada's trading image and potentially contributing to higher prices of fruits and vegetables to consumers.

The amendment will result in a minor reorganization of the Regulations to clarify to whom the licensing requirements apply. The amendment would make it clear that anyone who is involved in the marketing of produce across international or provincial boundaries is subject to the Regulations and/or must be a member of the Fruit and Vegetable Dispute Resolution Corporation (DRC).

The amendment will also remove the words "preceding calendar year" and replace them with "current calendar year." Current calendar year would be interpreted to be between January 1 and December 31 of any year in which the company is or has acted as a dealer of fresh fruits and vegetables. This change is being proposed to limit the application of the exemptions, in general. Under the proposed wording, all applicants may be exempt if they have not operated in the preceding calendar year. As an example, a business or individual may operate for six months within a calendar year, achieve one million dollars worth of sales and fail to pay its financial obligations as they come due, and the Canadian Food Inspection Agency (CFIA) would not be in a position to take any action because the individual or business did not operate in the preceding calendar year (as the base of reference).

In changing the words to "current calendar year," as soon as the CFIA is aware that the company has exceeded $230,000 in sales in the calendar year, in which it was previously deemed to be exempt, and regardless of when it may have begun operating within the calendar year, the CFIA can approach the company regarding the requirement to be licensed and can then begin to address any subsequent failures to pay through licensing action.

Within the proposed amendment, an additional exemption provision is being included for clarification purposes and for consistency with the Fresh Fruit and Vegetable Regulations (FF&VR;). It is proposed that an exemption for an "agricultural product donated to any organization that is a registered charity under the Income Tax Act or is a non-profit organization within the meaning of that Act" be incorporated, making it clear that such a product is not subject to licensing requirements. Similar exemptions are included in the FF&VR;, which basically exempt the product from having to meet the quality, packaging and labelling standards for the commodities for which Canada has grades and standards.

Alternatives

Status quo

Not implementing the recommended changes could result in the United States removing their recognition of Canada's licensing and dispute resolution system as being equal to theirs under the Perishable Agricultural Commodities Act (PACA). This U.S. recognition provides Canadian shippers with the privilege to make claims against U.S. buyers without submitting a bond in twice the amount of their claim when registering the complaint with the PACA.

The exemption which allows some dealers to conduct business without a licence is causing diminishing returns and economic hardship for producers in Canada and other countries.

Amend Regulations (preferred option)

Unethical business practices in a market dealing with highly perishable products are eroding confidence in the fresh fruit and vegetable industry in Canada and are damaging Canada's trading image. The intent of the amendment is to ensure that the Agency has the necessary authority to support fair trading practices between buyers and sellers, without impeding legitimate business transactions or marketing activities.

The amendment is designed to reduce the scope for market disruption stemming from questionable trading practices.

Benefits and costs

Benefits

The amendments would benefit consumers by supporting the availability of a reliable supply of quality and affordable fresh produce year round. Should Canada's trading image in fresh produce continue to erode, foreign suppliers may elect not to market their product in Canada or may only market it at a premium price. If a decrease in supply were to result, there could potentially be an increase in prices to the consumer.

The intent of the Regulations is to provide long-term stability to the Canadian produce market and fair returns to shippers and receivers, while ensuring a reliable supply of high-quality fruits and vegetables is available to the consumer.

Approximately 150 different countries now trade with Canada, accounting for almost two thirds of the fresh produce consumed in Canada. The sector is considered a growth industry, as consumers continue to improve dietary habits through the consumption of fresh fruits and vegetables.

Costs

Produce industry businesses who may currently fall within this exemption may be required to either obtain a federal produce licence or obtain a membership in the DRC. However, no new fees are imposed by this proposed amendment.

This regulatory amendment could result in an increase in the number of licensees. The increase would not likely exceed 300 individual licences, and it is anticipated that many of these companies that would be impacted by the change would elect to join the DRC. Presently, approximately 85 percent of those who were licensed with the CFIA have elected to obtain a DRC membership.

Monitoring of exempt parties would be required to verify that they are not exceeding the C$230,000 provision.

The CFIA collects $1,075 per year per licence issued. The CFIA currently administers licences for approximately 130 establishments.

Consultation

In February 2005, the Fresh Produce Alliance (the Canadian Horticultural Council, the Canadian Produce Marketing Association and the DRC) identified concerns regarding unethical business practices in the produce industry and requested support from the agriculture portfolio for the industry's strategy to encourage better business practices.

The Fresh Produce Alliance has tabled a strategy for promoting fair and ethical trading in the produce industry with the Canadian Horticultural Value Chain Roundtable. The strategy is designed to promote better business practices, mitigate market risks for perishable products, and support expanded trade and the ongoing prosperity of the entire sector. The strategy has been developed under a strong Canada–United States co-operation framework. The strategy promotes a more comprehensive review of the Regulations, which will likely result in additional changes to the Regulations. The Fresh Produce Alliance has requested that consideration be given to this amendment to the L&AR; to address the exemption provision which is resulting in market disruptions and is affecting Canada's trading image internationally.

Trading partners, particularly the United States, are supportive of this amendment in that it strengthens the image and credibility of the Canadian regulatory system for fresh produce.

Compliance and enforcement

The CFIA will continue to enforce the provisions of the Regulations and compliance with the exemptions. Enforcement will continue through import control systems, premise visits and follow-ups on consumer or industry complaints.

Contact

Helen Zohar-Picciano, Chief, Licensing and Arbitration Program, Canadian Food Inspection Agency, 159 Cleopatra Drive, Ottawa, Ontario K1A 0Y9, (613) 221-7212 (telephone), (613) 221-7294 (fax).

PROPOSED REGULATORY TEXT

Notice is hereby given that the Governor in Council, pursuant to section 32 (see footnote a) of the Canada Agricultural Products Act (see footnote b), proposes to make the annexed Regulations Amending the Licensing and Arbitration Regulations.

Interested persons may make representations concerning the proposed Regulations within 30 days after the date of publication of this notice. All such representations must cite the Canada Gazette, Part I, and the date of publication of this notice, and be sent to Helen Zohar-Picciano, Chief, Licensing and Arbitration Program, Canadian Food Inspection Agency, 159 Cleopatra Drive, Ottawa, Ontario K1A 0Y9 (tel.: (613) 221-7212; fax: (613) 221-7294).

Ottawa, August 30, 2005

EILEEN BOYD 
Assistant Clerk of the Privy Council 

REGULATIONS AMENDING THE LICENSING AND ARBITRATION REGULATIONS

AMENDMENTS

1. Section 2.01 of the Licensing and Arbitration Regulations (see footnote 1) and the heading before it are repealed.

2. Subsections 2.1(2) and (3) of the Regulations are replaced by the following:

(2) Subsection (1) does not apply in the case of

(a) dealers who market only agricultural products that they grow themselves;

(b) dealers who market only agricultural products purchased within the province where their business is located;

(c) dealers who market agricultural products directly to consumers if the total invoice value of the products at any time during the current calendar year is less than $230,000;

(d) agricultural products that are donated to any organization that is a registered charity as defined in subsection 248(1) of the Income Tax Act or is a club, society or association described in paragraph 149(1)(l) of that Act;

(e) dealers who are members of the Fruit and Vegetable Dispute Resolution Corporation — a corporation incorporated under Part II of the Canada Corporations Act, being chapter C-32 of the Revised Statutes of Canada, 1970 — in accordance with the by-laws of that Corporation; and

(f) agricultural products that are imported from the United States onto the Akwesasne Reserve for use by an individual who has established permanent residence on the Akwesasne Reserve.

COMING INTO FORCE

3. These Regulations come into force on the day on which they are registered.

[36-1-o]

Footnote a

S.C. 2001, c. 4, s. 64

Footnote b

R.S., c. 20 (4th Supp.)

Footnote 1

SOR/84-432

NOTICE:
The format of the electronic version of this issue of the Canada Gazette was modified in order to be compatible with hypertext language (HTML). Its content is very similar except for the footnotes, the symbols and the tables.

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