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By Alice McFarlane

Court action on canceled Gluten-free oat contracts

Prairie farmers taking Purely Canada Foods to court on cancelled oat contract

Jan 8, 2024 | 4:56 PM

A group of Prairie farmers are taking court action against Purely Canada Foods, a division of Above Foods.

On March 1, 2023, Purely informed 27 farms it was voiding contracts for gluten-free oats that were grown in 2022. Purely Canada told farmers in a letter that oat processing machinery failed in the fall of 2022 and voided the contract in early March, 2023. Purely said it was invoking the force majeure clause.

The farmers chose to move to court action in the Saskatchewan King’s Bench after completing the mandatory mediation requirement with Purely Canada and Above Foods in late 2023.

The letter to the farmers from Purely stated, “The certified gluten-free oat conversion processor had a very unfortunate and disappointing process, equipment and system failure due to no fault of ours. The buyer (Purely) gives you immediate notice that the gluten-free supply contract is void in respect to purchase of the oats…. Please consider that the force majeure clause applies … for the buyer and conversely the seller. And you as seller will be released from obligations under the contract.”

Purely Executive Chairperson Lionel Kambeitz and Purley CEO Tyler West spoke with several of the farmers after the March 1 letter was sent and confirmed Purely’s reliance on the force majeure clause.

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Farmer group spokesperson Dylan Szakacs said it was shocking that Purely appeared to have made no genuine attempt to find alternatives for processing their oats, instead invoking force majeure, a clause that is usually reserved for catastrophic events.

“Grain companies often experience equipment difficulties, but they still honour their contracts with farmers – this is why farmers invest millions of dollars every spring planting their crops,” Szakacs said in a news release. “Purely’s actions will make it difficult for other companies to do business with farmers. No grower wants to take a chance that they won’t get paid.”

Many of the farmers’ contracts were priced between $8 to $8.75 per bushel. Gluten-free oats sell at a premium and cost more to grow than conventional oats because of crop rotation considerations and the extra time and care required for equipment and storage to avoid contamination.

Szakacs said some farmers were forced to consider selling their oats at a reduced price.

“The conventional oat market after the cancellation of the contract had dropped to $3.50 to $4.50 per bushel after March 1, 2022,” Szakacs told farmnewsNOW.

The farmer group has estimated losses of roughly $18 to $20 million for the 2022 crop, and an estimated $58,899,960 in losses over what was expected to be five-year contracts.

Szakacs said it is a significant number.

“Typically, when you sign a contract as a producer you can confidently take it for budgetary reasons. Usually the wild card is production not the contract changing,” he said.

Above Foods and Purely continue to deny the farmers’ claim, saying the failure of Purely to procure processing capacity should relieve them of their obligations to the farmers.

In a statement, they say both parties understand each others’ positions and that additional mediation in late February or March may yield a solution.

Prairie Oat Growers Association President and Alberta farmer Brad Boettger said it is very surprising that Purely Canada used an equipment failure to justify a force majeure and terminate the contracts.

“Producers are astonished and bewildered on how equipment challenges equals a force majeure. But something like in 2021, when Western Canada had the worst drought in history, farmers were not able to get out of (production) contracts without penalties,” Boettger said.

In a press release from May 1, 2023, Above Foods had projected fiscal year through January 2024 revenue of $482 million (USD).

Purely Canada Foods is expected to release a statement soon.

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alice.mcfarlane@pattisonmedia.com

On X: @farmnewsNOW