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DRC celebrates 10 years of resolving produce disputes

by Joel Gebet | February 18, 2010
One thousand, two hundred and three. That is the number of disputes resolved in the past 10 years by the Fruit & Vegetable Dispute Resolution Corp.

The Ottawa-based organization, which was incorporated Oct. 7, 1999, and officially opened its doors for business Feb. 1, 2000, has grown from about 250 members at its onset to nearly 1,300, and those members -- and the produce industry in general -- have reaped the rewards that the DRC has provided over the past decade.

The DRC's vision, according to its web site, is for "fair and ethical trade in fresh produce in North America," while its mission is "to provide the North American produce trade with harmonized standards, procedures and services necessary to avoid and resolve commercial disputes in a timely, cost- effective manner."

Stephen Whitney, president and chief executive officer of the DRC, told The Produce News that the organization might never have come into existence had it not been for a Canadian judge's decision in a court case brought in the early 1970s by Montreal wholesaler Steve Dart.

Mr. Dart was sued by the Virginia-based M.J. Duer & Co. "for the alleged failure to pay the sum of $3,992.10 for the latter's shipment of 862 crates of corn," court records stated.

Mr. Dart challenged the ruling of the Canadian Board of Arbitration - an entity that had been operating under the Canada Agricultural Products Standards Act with a licensing and arbitration system, similar to the PACA since the 1930s - because he said there were other mitigating circumstances, Mr. Whitney said.

The board of arbitration would deal with all types of disputes, from condition-related concerns to pure contractual problems, Mr. Whitney said. In June 1974, the judge ruled that since there was no legislation providing for the board of arbitration, its regulations were ultra vires, or beyond the scope or in excess of its legal power or authority.

"Just like in the U.S. Congress, in Canada we have to have Parliament pass an act that sets up certain authorities, and while the board was established under regulations, there was no legislative authority to have a Board of Arbitration," Mr. Whitney said, adding that "the judge made a couple of observations that really created the additional problem that we faced for many years because he said the board was making judgments in areas that were not federal jurisdiction."

The act was rewritten to finally give authority back to the board of arbitration, but because of the judge's reasoning, Mr. Whitney said that the board "had no authority to deal in anything that related to simple non-payment or slow- pay situations because they were not allowed to deal with contract law, just breaches of standards."

He said, "There was no system by which the board could render this type of decision, and we still had a big hole, because about 40 percent of the cases that people wanted to bring to the board were deemed to be contractual cases."

Mr. Whitney said that the produce industry "started to look at alternatives," and in the mid-1990s, it found a possible option utilizing a provision in Article 707 of the North American Free Trade Agreement that called for the establishment of private commercial dispute vehicles for agriculture and agricultural goods.

"It was decided that one of the ways of addressing what we defined as being the 'Canadian problem' was to use the NAFTA provision to see what kind of an instrument we could develop internationally that might help us resolve the problem we had domestically," he said.

Mr. Whitney said that in 1997, "a process was started and led by Agriculture Canada and the U.S. Department of Agriculture's Agricultural Marketing Service, and a NAFTA working group was established with key industry players from both countries. The Mexican industry also got involved through its Ministry of Trade, and we ended up meeting twice in 1997."

The initial meeting took place in Mazatlan, Mexico, where representatives "laid out some of the terms of reference and what a vehicle might look like," Mr. Whitney said. "The Canadians and Americans focused on trying to come up with something that would deal with the deficiency we had in Canada, and the Mexicans wanted to talk about everything from apples to hogs to sugar."

In the fall of 1997, the group met at the Produce Marketing Association's convention in Anaheim, CA, and "concluded an agreement of a set of principles that we would work toward the creation and establishment of a private commercial dispute settlement group that would be built on existing systems such as [the Perishable Agricultural Commodities Act], and would not duplicate what was going on in the credit world with The Blue Book and The Red Book. It would fit the niche that would provide affordable, effective and enforceable dispute resolutions on commercial transactions of fruits and vegetables with the provision that later on if we could add other commodities we would."

Mr. Whitney continued, "After a lot of work, we ended up developing a not- for-profit organization that we ended up calling the DRC. We began the process in the fall of 1998, and by the fall of 1999, we had a vehicle incorporated and in place. In a little over 12 months, we basically took it from concept to fruition. Everyone came to the table with a willingness to try and get something done and create something that would be effective. We had support from The Blue Book and The Red Book, and really and truly it was an industry effort to try to come up with a solution. It's pretty amazing when you think about it, and it's probably one of the most interesting journeys that I've ever been on in my entire career."

Mr. Whitney was initially the DRC's sole employee. "We started looking at our options on how we were going to provide service," he said. "We weren't sure where we were going to go and find the resources to hire to do the work. We initially had discussions with The Blue Book about the possibility of contracting out with them for services, and we were fortunate that The Blue Book was willing to be that service provider for us."

The organization hired Fred Webber, who had spent 17 years at The Blue Book as vice president of trading assistance and four years at the PACA, as its vice president of trading assistance. The full-time staff now has two trading assistance officers, a member services administrator and an administrative assistant.

"We keep our full-time staff very small, and the way we make that work, and as a sign of our credibility, is that we have in place a contract with the PACA that they can take overflow cases from us and help us," Mr. Webber added. "They are also one of the arbitrators and mediators that our members can choose in the case of a formal arbitration. We have a very close working relationship with the PACA."

Although its largest dispute involved $143,572.67, Mr. Webber recalled that one member wanted to take his neighbor to arbitration for $257, but the organization convinced him not to.

"The majority of our cases are small ones. Our members want them handled fast and efficiently," Mr. Webber said, noting that "generally, only about 15 percent of disputes go to arbitration and about 85 percent are handled amicably and are resolved within 40 to 45 days. For the ones that go to arbitration, that time is about six months."

Mr. Whitney added, "We have about an 86 percent success rate in payment of arbitrations, and though it might seem low to some people, I'm told from most people that deal with courts that it is a high average. For the most part, the [disputes] that aren't paid are because companies have gone bankrupt. If they don't pay, there is nobody out there that didn't pay an arbitration award that is still a member of the DRC."

Messrs. Whitney and Webber credited the DRC's success rate to the 23 people from the industry who agreed to be its arbitrators.

"There is quite a long checklist to be an arbitrator," Mr. Webber said. "One of the things the members said loud and clear was that they want a 'panel of neutrals [who] are from this industry, [who] understand this industry and talk this industry and we want some attorneys and we want some lay people.' These are people that Stephen or I have known for 20 years and are well experienced. If we put someone on [as an arbitrator] that the board of directors doesn't know, they're going to talk to us about it."

"We would have been unable to deliver service had we not had people come to the table and agree to deal with some of the disputes that we've had," Mr. Whitney added. "For some of them, it's pro bono work."

Matt McInerney, executive vice president of the Western Growers Association, who has served as the DRC's chairman of the board since 1999, told The Produce News, "I've been with Western Growers for 35 years, and there is probably no better example of industry coalescing around a problem and devising a solution. Ten years later, I can say it's delivered on the promise that we envisioned when we had that initial meeting in Mexico to see what we could do to effect change and do it in a meaningful way for whomever is in the supply chain."

Marie Gosselin, president and general director of Quebec greenhouse grower Les Serres du St-Laurent (which is also commonly known by its label, "Savoura"), is also the first woman to serve on the DRC board.

Ms. Gosselin told The Produce News, "The arrival of DRC 10 years ago gave confidence to every player in the industry that business can be done in a safe and honest way. Today, it still is insurance that we do business in between the [three] countries without always thinking something bad will happen. I am proud to be a part of the DRC and that 'Savoura' was there at the beginning."

Courchesne Larose Ltd. is the DRC's sixth member, and Guy Milette, vice president of international and business development for the firm, told The Produce News, "When the DRC was first born, there was an urgent need for Canadian importers to have an organization like the DRC. It is a world-class mediation and arbitration process that shows some teeth and acts much quicker than previous available processes. From an international point of view, I can confirm that the reputation of Canadian import companies has strongly improved and will keep getting better, as the DRC is a continuously improving program. We should all be proud to be part of this process, and Courchesne Larose is really proud to be among the founding members."

Messrs. Whitney and Webber noted that while there have been trials and tribulations during the past 10 years, at the end of the day the DRC has become very important for doing business in the produce industry.

"It is interesting because when we kick someone out, it really does make it difficult for them to do business," Mr. Webber said. "In this day and age, when a buyer calls up someone to buy product, there are a few questions asked, including, 'What's your Blue Book rating and what's your DRC number? '"

"We've become a standard of doing business between a number of the players out there, and that's a good thing," Mr. Whitney said.

Mr. Webber said that the DRC recently surveyed the three countries to get a handle on what their views were on dispute resolution.

In the Canadian market, the organization has worked on a pilot with the Prince Edward Island Potato Board that looked into requiring a DRC membership before the board would grant a member a dealer's or exporter's license.

"We're starting to look at where we can work out arrangements with commodity groups on a regional basis where they can come to the table and offer certain things, and we can offer things back," Mr. Webber said. "We're trying to fine-tune our membership rules and fee schedules so we can attract a greater number of people."

In the United States, "we are working with regional trade associations to get in front of their membership to talk about the benefits and try to promote membership with them," Mr. Whitney said.

Although membership in the DRC among Mexican companies has dropped over the past several years, Gerardo Mena Prieto, administrator of Frutas San Antonio S.A. de C.V. and a DRC board member, told The Produce News, "I think there is a great potential for growth in Mexico, but first we have to succeed in getting on board most of the Mexican fresh produce exporters to the United States, especially the exporters to Canada. And if in the long term we get to have a good destination inspection [program] in Mexico, this would also help a lot to bring new members on board."

Regarding any shortcomings of the DRC, Mr. Whitney said, "We were never designed to deal with issues where we didn't have two trading partners that were legitimate and willing to work out an arrangement and come to the table and pay their bills. When you get beyond that into the area of people having financial difficulty or who are playing games, that brings in the need for some other instrument. In some cases, it's law enforcement; in other cases, it's simply a matter of having a financial risk-mitigation tool, and we're not there yet."

Mr. McInerney summed it up best.

"We're here to coach, counsel and mentor, and, like PACA, give buyers and sellers the tools to allow them to effect a resolution to their problems and frankly get out of their way and let them do the business of buying and selling fresh fruits and vegetables," he said. "I'm proud of that effort. We have initiatives and projects on the horizon that are exciting and that will continue to benefit the industry. The future is limitless on what the DRC can do to help benefit the industry even further."