Vol. 145, No. 4 — February 16, 2011

Registration

SOR/2011-11 February 4, 2011

CANADA AGRICULTURAL PRODUCTS ACT

ARCHIVED — Regulations Amending Certain Regulations Administered and Enforced by the Canadian Food Inspection Agency

P.C. 2011-46 February 3, 2011

His Excellency the Governor General in Council, on the recommendation of the Minister of Agriculture and Agri-Food, pursuant to section 32 (see footnote a) of the Canada Agricultural Products Act (see footnote b), hereby makes the annexed Regulations Amending Certain Regulations Administered and Enforced by the Canadian Food Inspection Agency.

REGULATIONS AMENDING CERTAIN REGULATIONS ADMINISTERED AND ENFORCED BY THE CANADIAN FOOD INSPECTION AGENCY

FRESH FRUIT AND VEGETABLE REGULATIONS

1. Section 40 of the Fresh Fruit and Vegetable Regulations (see footnote 1) is replaced by the following:

40. (1) If a person wishes to have produce inspected for the purpose of compliance with the requirements of Part III or for the purpose of exporting onions, potatoes or field tomatoes to the United States or Puerto Rico, the person’s request for an inspection shall be made in writing in a form provided by the Agency.

(2) If a person wishes to have produce inspected for the purposes of export or interprovincial trade, other than a purpose referred to in subsection (1), the person’s request for an inspection shall be made in writing in a form provided by the Agency and shall be performed if an inspector is available in the area.

(3) The request for an inspection shall be made

(a) to an inspector at least 24 hours before the inspection, if there is an inspector in the area; or

(b) at the nearest inspection office at least 48 hours before the inspection, if there is no inspector in the area.

(4) The person who requests the inspection shall make readily accessible for inspection all produce from which samples can be taken by the inspector in carrying out the inspection.

2. Subsection 42(2) of the Regulations is repealed.

LICENSING AND ARBITRATION REGULATIONS

3. The definition “inspection” in section 2 of the Licensing and Arbitration Regulations (see footnote 2) is repealed.

4. Paragraph 16(1)(e) of the Regulations is replaced by the following:

(e) the Canadian Food Inspection Agency Fees Notice.

5. Section 1 of Part II of Schedule II to the Regulations is replaced by the following:

1. Where an agricultural product is in a damaged or deteriorated condition on arrival at its destination, the licensed dealer at that destination shall obtain certificates or a notice of dumping or other disposition in respect of that agricultural product in accordance with the procedures set out in sections 2 to 4.

6. (1) Paragraph 2(d) of Part II of Schedule II to the Regulations is replaced by the following:

(d) within 24 hours, exclusive of Sundays and holidays, after receipt of notice of arrival of the agricultural product request an inspection and, within three hours after receipt of an oral or a written report of the result of the inspection, the licensed dealer shall advise the seller of the product or the seller’s local representative in writing that the licensed dealer rejects the agricultural product,

(2) Paragraph 2(g) of Part II of Schedule II to the Regulations is replaced by the following:

(g) where the licensed dealer has dumped or donated to a charitable organization more than 5% of any lot of agricultural product belonging to another person, forward a notice of dumping or other disposition to that person showing the quantity of the product that was dumped or donated to a charitable organization and retain a copy of that notice, and

7. Section 3 of Part II of Schedule II to the Regulations is replaced by the following:

3. (1) The report referred to in paragraph 2(d) or the certificate referred to in paragraph 2(e) may be issued only by

(a) an inspector; or

(b) any commercial agency or service that makes inspections for the agricultural products industry and that is agreed upon by the seller and the licensed dealer.

(2) A report referred to in paragraph 2(d) and a certificate referred to in paragraph 2(e) shall include the information described under the heading “Inspection Elements” in the Good Inspection Guidelines published by the Fruit and Vegetable Dispute Resolution Corporation (DRC), as amended from time to time.

(3) The notice of dumping or other disposition referred to in paragraph 2(g) may be issued only by

(a) an inspector;

(b) any commercial agency or service that makes inspections for the agricultural products industry and that is agreed upon by the seller and the licensed dealer;

(c) any health officer or food inspector of any province, county, parish, city or municipality; or

(d) if no person referred to in any of paragraphs (a) to (c) is available, any two persons who

(i) have no financial interest in relation to the agricultural product involved or to the business of any person who has a financial interest in the agricultural product,

(ii) have no personal interest that could influence, or reasonably appear to influence, the exercise of their duties, and

(iii) have been engaged for a period of at least one year immediately before the time of the dumping or other disposition in the preparation of the same kind or class of agricultural product as the agricultural product being dumped or otherwise disposed of.

(4) The two persons who issue a notice of dumping or other disposition under paragraph (3)(d) shall, in respect of that notice,

(a) include a statement that each of them satisfies the criteria set out in that paragraph;

(b) identify the agricultural product by indicating, if applicable,

(i) the commodity,

(ii) the lot number,

(iii) the brand or principal identifying marks on the containers, and

(iv) the quantity that was dumped or donated to a charitable organization;

(c) identify the place where the agricultural product was dumped or the name and address of the charitable organization to which it was donated;

(d) indicate the name and address of the seller;

(e) indicate the name and address of the licensed dealer;

(f) indicate the name and address of the person by whom it was dumped or donated;

(g) indicate the time and date of dumping or donation; and

(h) indicate the number on the notice, if any.

8. (1) Part IV of Schedule IV to the Regulations is amended by replacing “Government Inspection” with “Government or Other Inspection”.

(2) The Note at the end of Part IV of Schedule IV to the Regulations is replaced by the following:

Note: If more than 5% of a lot is dumped or donated to a charitable organization, enclose a copy of the notice of dumping or other disposition.

COMING INTO FORCE

9. These Regulations come into force 90 days after the day on which they are registered.

REGULATORY IMPACT
ANALYSIS STATEMENT

(This statement is not part of the Regulations.)

Executive summary

Issue and objectives

Destination inspection is a commercial quality inspection which assesses, in an unbiased manner, the quality of produce. This type of commercial quality inspection is not related to food safety activities performed by the CFIA. The CFIA has developed food safety inspection strategies that monitor the compliance of domestic and imported fresh fruit and vegetables with the FFVR and the Food and Drugs Act and its Regulations. These strategies operate independently of the destination inspection program and will not be affected or altered as a result of this amendment.

The main food safety inspection strategy for fresh fruit and vegetables consists of sampling and testing of domestic and imported fresh fruit and vegetables to detect excess pesticide residues, chemical contaminants, pathogens, food additives and food preservatives and treatments, and to detect irradiated produce. Food sampling and testing are part of the CFIA’s daily activities. The CFIA remains committed to food safety and will continue its activities to ensure the safety of fresh fruit and vegetables in Canada.

Destination inspections are used solely by the commercial fresh fruit and vegetable industry as a method of alternative dispute resolution and to maintain fair competition in the marketplace. The amendments to the LAR and FFVR will remove the requirements associated with a destination inspection allowing the produce industry and CFIA to move to a stronger business model to manage requests for commercial quality inspections, delivery of destination inspections, and fees. Strengthening the DIS will assist in reducing opportunities for some industry participants to make fraudulent claims regarding the quality of the produce being received.

In Canada, persons trading in fresh products in excess of $230,000 per annum are required to be licensed pursuant to the LAR. Alternatively, they may be a member of the DRC, which was created under Article 707 of the North American Free Trade Agreement (NAFTA). Currently, dealers licensed pursuant to the LAR who wish to have produce inspected for commercial quality purposes are obliged to use CFIA-delivered commercial quality inspection services and do not have the opportunity to utilize a private service. Members of the DRC have a similar duty to obtain a certificate when handling product that arrives in damaged or deteriorated condition. However, they are not required to obtain CFIA-delivered commercial quality inspection services and are permitted to utilize private services. These amendments will remove the requirement for LAR licensees to obtain only CFIA-delivered services, allowing dealers the choice of using private commercial quality inspection services, such as those of the non-profit organization known as the Ontario Produce Marketing Association.

Description and rationale

The perishable nature of fresh fruit and vegetable commodities promotes a fast trading environment. An initial assessment of the quality of produce shipments must be done quickly, often by the buyer (dealer) alone. This environment creates opportunities for some dealers to make fraudulent allegations regarding the quality or condition of the product on its arrival in Canada. Sellers in distant locations cannot themselves determine the accuracy of a buyer’s assessment regarding the quality of the product, and they rely on third-party commercial quality inspections to ensure such assessments are accurate. In this scenario, a commercial dispute between the two parties may ensue, and without a commercial quality inspection, sellers are left at a disadvantage.

A destination inspection is an important tool for the fresh produce industry because it helps maintain fair competition and balances the interests of producers, wholesalers and retailers, dominant players, and minor players in the marketplace. A destination inspection ensures that there is a third party providing unbiased evidence in situations where disputes about the quality of fresh produce shipments are occurring. A destination inspection describes the condition of a fresh produce shipment relative to established and recognized standards in terms that are accepted and understood by buyers and sellers of fresh produce. Sellers need to be assured of the accuracy and impartiality of an inspection service and buyers need access to rapid and reliable services so produce can make it to the marketplace in a timely manner.

The Board of Arbitration (Board) and DRC function as commercial dispute resolution bodies for the fresh produce industry, and they rely on destination inspection reports as evidence when hearing disputes and rendering decisions. A vast majority of disputes are resolved on the strength of a destination inspection alone.

The Canada Agricultural Products Act (CAP Act) confers on CFIA the responsibility for regulations pertaining to fair and equitable trade practices in the Canadian fresh fruit and vegetable industry. The need for government involvement in providing DIS is bolstered by the integrity that shippers of produce in foreign countries attribute to government inspection services; government is seen as credible, standards-based, and unbiased.

The LAR contribute to reducing the incidence of fraud by establishing trading standards, rules, and a language of commerce by which transactions must be conducted. They also establish certain responsibilities for a dealer (person handling produce) in cases where a product has arrived in a damaged or deteriorated condition, including the obligation to request an inspection pursuant to Part VII of the FFVR. Part VII of the FFVR establishes rules relating to inspections.

In the past, CFIA DIS inspectors were often designated as multi-commodity inspectors, meaning they performed duties in other CFIA inspection programs in addition to their DIS duties, largely focussed on quality assurance. Due to the short shelf life of fresh produce, delays in inspection had the potential to impact the results of the inspection. This resulted in criticisms regarding consistency in service levels across the major distribution centres and regions — response times, performance capacity, and lack of flexibility in where to obtain inspection services. Some dealers took advantage of the situation to achieve price reductions on shipments by claiming quality problems, which affected Canada’s reputation as a fair trading nation for produce.

The CFIA has worked with the industry to better design the DIS structure to address the problems described, which led to the joint CFIA/Fresh Produce Alliance endorsement of a new DIS business model. The new CFIA DIS model dedicates staff solely to DIS activities in order to improve service delivery and improve industry confidence in the DIS system. In turn, the industry has agreed to contracted service fees which will fully cover the DIS program costs.

The amendments to the LAR and FFVR will help provide an environment that supports offering a market-oriented, flexible, credible, and timely DIS. The amendments will remove the requirement for licensees to obtain only CFIA-delivered destination inspections, by repealing the definition of “inspection” and amending the LAR to provide licensees with access to other inspection service providers. More flexibility will also be introduced, allowing for a more service-oriented approach when a destination inspection is requested (providing licensees and DRC members with equal access to commercial quality inspection services).

These amendments will maintain CFIA regulatory oversight over destination inspection in the LAR and will allow the CFIA to make improvements to performance in delivery capacity as it relates to DIS. In the longer term, improvements in the delivery of destination inspection will contribute to improving the overall business environment for the fresh produce industry and will support the CFIA’s priority of improving the program and regulatory framework to support economic prosperity. Canadians will also retain access to quality produce at competitive prices.

Regulatory and non-regulatory options considered

Option 1 — Increase capacity of delivery of destination inspections within the CFIA

The option of maintaining the current regulatory framework and making adjustments to prioritize the delivery of DIS within the mandated activities of the CFIA was examined. To increase the capacity within the CFIA to deliver DIS, resource enhancement will be required. Without adjustments to the current regulatory framework, licensees will also be left at a disadvantage compared to DRC members.

Option 2 — Enhance destination inspection service

The option of modifying the method of delivery of DIS within the CFIA was considered. Changes to the operational delivery of DIS will be required (e.g. dedication of inspection staff, adjustments to service standards), including regulatory amendments affecting the rules related to inspections in the FFVR and LAR. Under this approach, the DIS will need to operate a cost-competitive, sustainable business model of revenue and expenses to ensure the service remains viable and that a fully trained and dedicated inspection staff can be retained. This option will require the amendment of the inspection requirements associated with a destination inspection in the FFVR to permit the introduction of a more service-oriented approach.

Under this option, licensees will also be placed on a more level playing field with their DRC counterparts insofar as access to commercial quality inspection services is concerned. Licensees could engage private inspection services to assist them in meeting their regulatory obligation of obtaining evidence of the quality of the allegedly deteriorated product on arrival.

Conclusion

Following consultation with industry it was concluded that option 2, an enhanced DIS model, will be required to support the fair and equitable trade of fresh fruit and vegetables. Maintaining the official status accorded to a federal government inspection program is important from an international trade perspective. Additionally, the inspection program must operate with a service level which meets industry’s operating requirements, deliver the service in a timely and flexible manner and be cost effective and financially self-sustaining. In achieving this, the CFIA must be able to continue to fulfil its mandate in the area of consumer protection and food safety.

Maintaining the credibility of the destination inspection program will ensure that the destination inspection system and resulting certificates will continue to be recognized by dispute settlement mechanisms (e.g. the courts, the Board, DRC, and USDA’s dispute resolution mechanism, the United States of America Perishable Agricultural Commodities Act).

In the longer term, improvements in the delivery of DIS will contribute to improving the overall business environment for the fresh produce industry and continued access for Canadians to competitively priced quality produce. It is anticipated the enhancements to the DIS will contribute to restoring confidence in the Canadian marketplace for fresh fruit and vegetables with foreign suppliers and will serve to reinforce Canada’s image as a reputable trader in perishable products in foreign markets when coupled with the access they have to dispute resolution either through the DRC or the Board pursuant to the CAP Act.

Benefits and costs

Benefits

These amendments will allow the CFIA to dedicate resources to DIS, improve inspection response times and establish service delivery objectives. This will be achieved through a new business model for DIS.

Strengthening the DIS will contribute to a broader industry-based strategy of improving Canada’s reputation as a receiving market for fresh fruit and vegetables and will improve trading partner confidence. A credible DIS will contribute to mitigating the economic risks associated with shipping perishable products over long distances from foreign market sources (e.g. claims and price adjustments). Credible and timely inspection services will support fair and equitable business practices and will support maintaining a competitive marketplace.

While these amendments will introduce increased flexibility for service delivery, linkages to the FFVR will be maintained. The FFVR establishes minimum standards for quality and food safety so as to ensure products are safe, wholesome and fit for consumption. Together the FFVR and LAR provide a basis for the language of trade used by the buyers and sellers when negotiating the sale of fresh produce.

In the past, dealers (buyers) have used third-party commercial quality inspection services that are not recognized by the LAR because a CFIA-delivered service was not available in an acceptable time frame. This amendment will permit the use of private, commercial quality inspection service delivery when requesting destination inspections and will provide licensees with the same flexibility as those dealers who are members of the DRC. This will allow traders to have options in obtaining commercial quality inspection services.

In recent years, Canada’s reputation has suffered as a result of fraudulent business practices (e.g. persons making claims regarding quality when product arrives in suitable condition, requesting commercial quality inspections to initiate discussion on price adjustment). Such activities have resulted in price distortions in the market. Dealers (buyers) employing such business tactics have been able to extract unwarranted price reductions, without having documented, through inspection, a deterioration in the quality of the product received. These amendments would recognize third-party commercial quality inspection providers. The buyer and the seller must both agree to the third-party commercial quality inspection service before it is utilized so as to limit the potential for introducing bias in inspection results. The obligation to document problems with quality remain with the buyer and with an enhanced and timely service, shippers can have greater confidence in the results of the commercial quality inspection from the perspective of obtaining an unbiased, standards-based timely report on the condition of the product.

Other references to the FFVR within the LAR will be maintained to ensure that dealers and shippers comply with regulatory provisions respecting the grading, packing and marketing of fresh fruit and vegetables, thereby lending support to the broader intent of the regulatory framework of promoting fair and equitable trading practices in perishable products.

These amendments will allow CFIA to improve performance in delivery capacity by dedicating inspectors to delivering the DIS.

Costs

During consultations, the Fresh Produce Alliance (FPA) has continually and favourably supported moving towards a new business model for DIS as a means of ensuring continued availability of a credible destination inspection service in Canada. The FPA as an organization was created to advance the development of a revitalized policy framework that will encourage an improved business environment for the produce industry, expand trade and encourage the long-term success of the sector. Generally, the costs associated with these commercial quality inspections are passed on to the foreign shipper in the claim settlement process. It is therefore anticipated that these amendments will not significantly impact Canadian users of the CFIA’s DIS. However, the move to contracted service fees will result in a more reliable system that could contribute to reducing the financial losses of foreign shippers.

The DIS model has a cost estimated at $5.9 million per year, when full implementation is achieved. The CFIA implementation will take place in three phases over a three-year time period. In the first year, existing fees will increase to roughly 50% of full cost recovery; in the second year, fees will increase to 75% of full cost recovery; and in the third year, fees will increase to full (100%) cost recovery.

Following consultation with stakeholders, the current user fees associated with DIS will be repealed. The revised fees will be implemented through the use of service agreements with a view to eventually setting out the new fees in the Canadian Food Inspection Agency Fees Notice. This will occur at the same time that the amendments described here will come into force. The coming into force date will be 90 days after promulgation.

Currently, the fee assessed is $1.37 per 100 kg of produce inspected, subject to a minimum fee of $68. An hourly rate fee will be phased in over time until full cost recovery levels are achieved. The initial fee will be assessed at a rate of $99 per hour of service.

Future revision to the fees will be based on an annual review of the actual program costs, program performance according to established service standards, and will be established following consultation with the DIS National Industry Advisory Board. In arriving at this rate, the CFIA and stakeholders have considered fee levels assessed by the USDA for similar commercial quality inspection services. In return for these fees, applicants will receive an inspection delivered in a timely fashion by a qualified and competent inspector and will be provided with a certificate outlining the results of the inspection.

Consultation

Studies and consultations undertaken by both industry and the CFIA over the past few years have led to the recognition that changes to the regulatory framework and current delivery system of DIS are required to meet current and future industry service standards. The studies and consultations all indicate that increased front line resources, new service standards and increased cost recovery levels to support these changes are required. Findings from the industry’s studies are available on the Internet at www.freshproducealliance.com/text/publication_Eng.htm.

A number of meetings between industry and government were held between 2001 and 2004 to begin work on the scope of a new DIS model. In January 2004, the CFIA received a request from the industry in Canada and the United States to adopt a streamlined model based on the USDA’s system. In July 2004, an industry-government working group was established to develop the DIS Business Plan. By December 2004, a business plan had been developed and validated by a working group comprising both CFIA and industry representatives.

A series of national meetings held in 2006 presented the changes to the DIS to the industry with favourable response. Since then, additional bilateral meetings have occurred to fine-tune the changes and discuss the regulatory amendments that would be necessary for both the short-term and the long-term implementation of the DIS.

To ensure ongoing communications and consultations with the industry, the DIS National Industry Advisory Board was created in 2007 to provide advice for the overall management and administration of the services provided by the new DIS. To complement the work of this advisory board, three area advisory committees (East, West, Ontario) have been established to assist and advise the local DIS manager in maintaining constructive relations with the client community.

There were five responses received from the stakeholder groups after publication of the proposed amendments in the Canada Gazette, Part I. Each of the responses indicated that the responding stakeholder group approved of and was supportive of the amendments.

As indicated in the costs section, the coming into force date will be 90 days after promulgation. The stakeholders agree with this timing, as it will mean that the regulated parties will have an opportunity to adjust to the new regulations and fee schedule during a convenient time in their business cycle.

Implementation, enforcement and service standards

From both the Canadian and American produce industries’ perspectives, the application and use of grade and marketing standards and the verification of compliance with these standards and their enforcement through inspection and other related activities, including licensing, are and will continue to be important factors in the trade of fresh fruit and vegetables in the North American marketplace.

The CFIA will continue to verify compliance and enforce all aspects of the FFVR and LAR, including the monitoring of product for compliance with quality (grade) requirements and packaging and labelling requirements and the licensing of dealers who market fresh fruit and vegetables. Compliance and enforcement will be verified through on-premise visits and follow-up on consumer or industry complaints and through other import control systems.

The CFIA remains committed to food safety and will continue its activities to ensure the safety of fresh fruit and vegetables in Canada. CFIA food safety activities will consist of sampling and testing of domestic and imported fresh fruit and vegetables to detect excess pesticide residue, chemical contaminants, pathogens, food additives and food preservatives and treatments, and irradiation.

The CFIA will establish service standards of responding to 80% of the requests for a destination inspection within 8 hours and to 100% within 24 hours of having received a request. This will provide delivery targets and will provide a basis for ongoing reviews of the service.

Performance measurement and evaluation

The CFIA recognizes that adjustments to the commercial quality inspection infrastructure are required to support the introduction of improvements in the delivery of destination inspection. To measure and evaluate the effectiveness of these amendments to the FFVR and LAR, the CFIA will undertake to collect, analyze and evaluate performance based on the following key indicator:

A fair and effective regulatory regime — the CFIA has identified making improvements to program and regulatory frameworks as a priority means of supporting continued consumer protection and economic prosperity.

To measure whether DIS responds to the industry’s business needs in the marketplace, performance will be evaluated based on the timeliness of inspections measured against service standards. New time standards for performing inspections have been developed to reflect the hands-on or direct inspection times for the commodities inspected by DIS.

The time standard will be carefully monitored during the three-year transition period to ensure that national uniformity and consistency be maintained and that sufficient inspection staff will be available to meet the service standards for responding to requests.

The quality of inspections will also be evaluated, albeit in a more subjective manner, through assessment of the number of re-inspections requested and of the comments from the Board of Arbitration and DRC personnel that use the inspection results to resolve disputes.

Ongoing review and analysis of the demand for DIS will be performed on a quarterly basis to monitor variations and measure them against historical norms, allowing the CFIA to respond appropriately to any deficiencies in service delivery.

Finally, an audit protocol has been developed to monitor the performance of all inspectors. CFIA managers will be responsible for ensuring that national performance standards will be met and be delivered consistently.

Progress towards meeting these stated objectives will be reported annually in the CFIA’s Departmental Performance Report.

The CFIA will also amend the Fees Notice under the Canadian Food Inspection Agency Act to repeal fees related to destination inspection. In the future, the applicant will be required to enter into a service agreement with the CFIA when requesting a CFIA inspection.

Contact

Luc MougeotSenior Adviso
Destination Inspection Service
Canadian Food Inspection Agency
59 Camelot Drive, 3rd Floor West
Ottawa, Ontario
K1A 0Y9
Telephone: 613-221-4468
Fax: 613-228-6615
Email: dis-sid@inspection.gc.ca

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

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

Footnote 1
C.R.C., c. 285

Footnote 2
SOR/84-432