Since the middle of the last decade, the competitive environment for Canadian food manufacturing and agriculture has changed dramatically. Increasing input and energy costs coupled with a rising Canadian dollar value challenged the competitiveness of Canadian exports globally. Additionally, increased importation of food products continues to negatively impact the trade balance in the processed foods industry.1 These circumstances have significant implications given that approximately half of the value of primary agriculture production in Canada is exported. It remains to be seen whether the recent decline of the Canadian dollar and falling energy prices will help to reverse this trend. Despite the challenges, Canada’s food and agribusiness industry has generally shown resilience. While the recent global recession drove revenues down in most manufacturing sectors, food and agribusiness sectors experienced modest increases. In response to challenges, the food and agriculture sector has restructured and transformed, and the sector continues to be a leading employer in Canada. In 2014, the Canadian food and agribusiness sector was once again the subject of a number of high-profile transactions (see Notable Transactions, page 2). Canada continues to be a leading exporter, and a significant importer, of agricultural and agri-food products. In 2015, we anticipate growth in the global food and agribusiness sector to be fuelled by reduced input and lower energy costs and as such Canada remains well-positioned to benefit from such increased growth. The last issue of this report provided an overview of significant transactions and certain regulatory changes affecting the food, beverage and agribusiness sector. 1 Douglas Hedley and Canadian Agri-Food Policy Institute (CAPI), “The State of Canada’s Processed Food Sector: Trade Balance,” November 2012, online: http://capi-icpa.ca/ pdfs/2012/CAPI_Processed-Food_Nov2012.pdf. In this issue, we again highlight notable global and Canadian M&A transactions. We also present five feature articles. The first article discusses current trends in commercial urban agriculture and highlights significant international and Canadian initiatives. The second article discusses investment in Canadian farmland by both Canadian and international investors. This report also contains an article comparing the legal landscape of food labelling class actions in the United States and Canada and summarizes Canada’s two contested certification decisions with respect to food labelling. We have also included an article outlining the requirements for labelling alcoholic beverages, as well as charts and graphs showing deal values and trends. This report was prepared by the Blakes Food, Beverage & Agribusiness group based on non-confidential information acquired through our practice and from a review of public information. The information was gathered in the first three quarters of 2014. Our goal in preparing and presenting this report is to highlight those trends and opportunities we believe will have an impact on the food, beverage and agribusiness sector going forward. The information contained in this report is intended for general informational purposes only and does not constitute legal advice. While care has been taken to ensure the information herein is accurate, we make no representations regarding its accuracy. This report should not be relied on to replace professional advice, legal or otherwise, relating to any specific circumstances. INTRODUCTION 1 Douglas Hedley and Canadian Agri-Food Policy Institute (CAPI), “The State of Canada’s Processed Food Sector: Trade Balance,” November 2012, online: http://capi-icpa.ca/pdfs/2012/CAPI_Processed-Food_Nov2012.pdf. 2 Blake, Cassels & Graydon LLP Featured Canadian Transactions Maple Leaf Sells Canada Bread to Grupo Bimbo On May 23, 2014, Grupo Bimbo, S.A.B. de C.V. of Mexico (Grupo Bimbo) completed its acquisition of Canada Bread Company, Ltd. (Canada Bread) for aggregate cash proceeds of C$1.83-billion by way of a plan of arrangement. Canada Bread is Canada’s largest bakery and the owner of the Dempster’s baked goods brand, while Grupo Bimbo is one of the world’s largest baked goods companies, with operations in 19 countries. The transaction was completed with the support of Maple Leaf Foods Inc. (Maple Leaf), which had held 90 per cent of the shares of Canada Bread. Shareholders received C$72 per share, a 34 per cent premium. Canada Bread was delisted from the Toronto Stock Exchange on May 26, 2014. The acquisition gives Grupo Bimbo a leading market share in Canada and a foothold for expansion into the United States and the United Kingdom, while also allowing Maple Leaf to focus on its core meat operations. OTPP Acquires Majority Stake in Burton’s Biscuit Company On November 18, 2013, Teachers’ Private Capital, the private equity investment division of the Ontario Teachers’ Pension Plan (OTPP) agreed to acquire a majority stake in Burton’s Biscuit Company (Burton’s) from the Canadian Imperial Bank of Commerce and funds managed by affiliates of Apollo Global Management, LLC for US$563.71-million. Burton’s is the second-largest biscuit supplier in the U.K. It owns and bakes brands such as Maryland, Jammie Dodgers and Wagon Wheels, and bakes Cadbury biscuits under licence. The acquisition represents the latest in a string of investments by OTPP in U.K. businesses. Saputo Outbids Rival for Control of Warrnambool Cheese & Butter On October 17, 2013, Montréal-based dairy company Saputo Inc. (Saputo) announced that it would make a take-over offer for Australian dairy producer Warrnambool Cheese & Butter Factory Co. Holdings Ltd. (WCB). Over the next three months, Saputo increased its offer four times, from an initial offer price of AU$7 per share on October 7, 2013, to a final offer price of AU$9.40 per share on January 28, 2014, in an effort to outbid rival bidders Murray Goulburn Co-operative Co. and Bega Cheese Ltd. When the final offer closed on February 12, 2014, Saputo had acquired an 87.92 per cent interest in WCB for approximately C$500-million. Since Saputo did not acquire 100 per cent of the share capital in WCB, it remained listed on the Australian Stock Exchange. Aryzta Acquires Pineridge Bakery On March 10, 2014, Aryzta AG (Aryzta) agreed to buy Pineridge Bakery Inc. (Pineridge) from Pineridge Group, a unit of Swander Pace Capital LLC, for C$377-million. The transaction closed on April 2, 2014. Pineridge is a leading producer of fresh and frozen baked goods in the Canadian market. Aryzta, a Switzerland-based global food business with a leadership position in the speciality frozen bakery sector, made the acquisition concurrently with its acquisition of Cloverhill Bakery, an American baked goods company. Post Holdings Acquires Golden Boy Foods On February 1, 2014, Post Holdings Inc. (Post) completed its acquisition of Golden Boy Foods Ltd. for C$320-million in accordance with an agreement announced on December 9, 2013. Golden Boy Foods Ltd. is a British Columbia-based manufacturer of private-label peanut and other nut butters, as well as dried fruits and snacking nuts. Post, a consumer goods company known largely for its breakfast cereal brands, made the acquisition as part of its strategy to strengthen its nutritional products and private-label products categories. NOTABLE TRANSACTIONS 2015 Food Report Blake, Cassels & Graydon LLP 3 Teachers’ Private Capital Invests in Flynn Restaurant Group An investor group comprised of Teachers’ Private Capital, a unit of OTPP, and Flynn Restaurant Group LP’s (FRG) management team, led by Chairman and CEO Greg Flynn, acquired an undisclosed minority stake in FRG, a San Francisco-based owner and operator of franchised restaurants, from GS Capital Partners LP, a unit of Goldman Sachs Group Inc., and Weston Presidio LLC, for an estimated US$300-million in cash, in a privately negotiated transaction. With 640 restaurants and US$1.4-billion in sales, FRG is the largest restaurant franchisee in the U.S. Cooke Aquaculture Acquires Meridian Salmon Farms On May 14, 2014, Cooke Aquaculture (Cooke), a New Brunswick-based aquaculture business, completed its acquisition of Meridian Salmon Farms Ltd. (Meridian) from Marine Harvest ASA for US$203-million. Meridian has assets located in Shetland and Orkney, and the mainland of Scotland. The acquisition adds U.K. assets to Cooke’s portfolio of fish-farming operations, which includes operations throughout Atlantic Canada and Maine, as well as in Spain and Chile. Forty Creek Sold to Davide Campari-Milano On June 3, 2014, Italian beverage producer Davide Campari-Milano S.p.A. (Campari) reported the completion of its previously announced acquisition of Forty Creek Distillery Ltd. (Forty Creek) for C$198.2-million. Forty Creek, an Ontario-based producer of spirits, is best known for its self-titled brand of premium Canadian whiskies. For Campari, whose portfolio includes an array of alcoholic and non-alcoholic beverages, the acquisition is an entry point into the growing Canadian whiskey products market. TreeHouse Foods Acquires Protenergy Foods On May 30, 2014, TreeHouse Foods, Inc. (TreeHouse), a U.S.-based food-processing company specializing in private-label packaged foods, completed its acquisition of Protenergy Foods Corp. (Protenergy) from Whitecastle Investments Ltd. Protenergy, which is based in Ontario, specializes in the production of soups and sauces in aseptic and sterile packaging. The acquisition will enable TreeHouse to expand its offering of broths, soups and gravies sold under both private labels and corporate brands. TreeHouse paid an estimated C$170-million in cash for the business. CPPIB Acquires Farmland Portfolio of Assiniboia Farmland On January 10, 2014, the Canada Pension Plan Investment Board (CCPIB) completed a previously announced transaction to acquire the assets of Assiniboia Farmland LP (Assiniboia), a fund that owns and manages a portfolio of farmland in Saskatchewan, for C$128-million. The acquired portfolio includes approximately 115,000 acres of farmland located throughout Saskatchewan, which largely produces wheat, barley and canola. The acquisition was made pursuant to the CPPIB’s agricultural investment program, launched in 2012, which targets the acquisition of farmland in Canada, the U.S., Australia, New Zealand and Brazil. 4 Blake, Cassels & Graydon LLP Featured Global Transactions Suntory Acquires Beam On May 1, 2014, Suntory Holdings Limited (Suntory), a Japanese beverage company, announced that it had completed its acquisition of all of the share capital in Beam Inc. (Beam), a U.S.-based producer of spirits, for a total value of US$13.933-billion. Beam shareholders received US$83.50 in cash for each share. The acquisition combined Suntory’s portfolio of both non-alcoholic and alcoholic drinks, including Japanese whiskies, with Beam’s product line of spirits, including its flagship Jim Beam bourbon whiskey brand. As a result of the acquisition, Beam has been renamed Beam Suntory. Tyson Foods Acquires Hillshire Brands On August 28, 2014, Tyson Foods, Inc. (Tyson Foods) completed its acquisition of all of the outstanding shares of The Hillshire Brands Company (Hillshire Brands). Both Tyson Foods and Hillshire Brands are major competitors in the packaged foods industry with a strong focus on packaged meats. The acquisition was completed pursuant to a merger agreement announced on July 2, 2014, following a competitive bidding process. Tyson Foods paid US$63 per share, for a total of approximately US$8.55-billion. In connection with the acquisition, shares of Hillshire Brands common stock were delisted and ceased trading on the New York Stock Exchange on August 29, 2014. The acquisition substantially expands Tyson Foods’ portfolio of brands and positions Tyson Foods as a clear leader in the packaged foods business. AB InBev Reacquires Oriental Brewery On March 31, 2014, global brewing giant Anheuser-Busch InBev (AB InBev) announced that it had completed its previously announced acquisition of Oriental Brewery Co. Ltd. (Oriental Brewery) from private equity firms KKR & Co. L.P. and Affinity Equity Partners for KRW 6.17-trillion (approximately C$6.4-billion). Oriental Brewery, the producer of the popular Cass brand, is the largest brewer in South Korea. Oriental Brewery had originally been sold by AB InBev to the private equity firms in 2009 and was repurchased pursuant to a buy-back right contained in the 2009 agreement. The reacquisition gives AB InBev a platform to promote its global brands in South Korea, while also allowing it to export Oriental Brewery brands to new markets. Maersk Sells Stake in Dansk Supermarked On April 11, 2014, Danish conglomerate A.P. Møller - Maersk A/S (The Maersk Group or Maersk) announced that it had completed the sale of 48.68 per cent of the shares in Dansk Supermarked A/S (Dansk Supermarked) and 18.72 per cent of the shares in F. Salling A/S to F. Salling Invest A/S and F. Salling Holding A/S (the Salling Companies). The sale increased the Salling Companies’ share in Dansk Supermarked A/S from 32 per cent to 80.683 per cent. Dansk Supermarked is the largest retailer in Denmark. It operates four retail chains that offer both food and non-food products. Maersk had partnered with Dansk Supermarked founder Herman Salling in 1964 but made the divestitures as part of a continuing effort to streamline its business and invest in its core operations of shipping and oil and gas production. The cash proceeds to Maersk from the sale were DKK 17-billion (approximately C$3.2-billion). Archer Daniels Midland Acquires Wild Flavors On July 7, 2014, food-processing and commodities giant Archer Daniels Midland Company (ADM) announced that it would be acquiring global drink and beverage flavouring company WILD Flavors GmbH (WILD Flavors) for €2.3-billion (approximately C$3.1-billion). The transaction closed on October 1, 2014. As one of the world’s leading suppliers of natural flavours and colours for the food and beverage industry, WILD Flavors’ assets will form the core of a new business unit within ADM, called WILD Flavors and Specialty Ingredients. The acquisition represents a diversification, taking ADM beyond its traditional product markets, which will help insulate it from changes in commodity prices. 2015 Food Report Blake, Cassels & Graydon LLP 5 Mars Acquires P&G Pet Foods Business On August 1, 2014, Mars Inc. (Mars) announced that it had completed the acquisition of a portfolio of pet food brands from The Proctor & Gamble Company (P&G) for US$2.9-billion. The acquisition, which was initially announced on April 9, 2014, includes the Iams, Eukanuba and Natura brands in North America, Latin America and other select countries, accounting for approximately 80 per cent of P&G Pet Care’s global sales. These brands will be incorporated into Mars’ Petcare division, which is already Mars’ largest business, and boasts well-known brands such as Pedigree and Whiskas. The move enables P&G to focus on its core product lines, including its personal care and cleaning brands. Temasek Increases Stake in Olam International On March 14, 2014, a consortium led by Temasek Holdings (Private) Limited, Singapore’s stateowned investment company, announced an agreement to acquire the remaining 48.605 per cent interest that it did not already own in Olam International Ltd. (Olam), a multinational trader of agricultural commodities based in Singapore. The Temasek consortium offered SGD 2.23 in cash per ordinary share for a total value of SGD 3.317-billion (approximately C$2.92-billion). The offer was conditioned upon at least 50 per cent of Olam shares being tendered. At the close of the offer on May 23, 2014, the consortium members had acquired or agreed to acquire 80 per cent of Olam shares. The value of Olam shares had fallen in recent years, as prominent analysts questioned the company’s finances and accounting practices. The Temasek consortium likely saw a deflated share price as an opportunity to increase its stake in the business. Post Holdings Acquires Michael Foods On June 2, 2014, Post Holdings, Inc. (Post) announced that it had completed the previously announced acquisition of MFI Holding Corporation (Michael Foods) from GS Capital Partners, the private equity arm of Goldman Sachs Group, Inc., for US$2.45-billion. Michael Foods produces food products for both the food-service and retail markets, specializing in egg products. Post, which is largely known for its breakfast cereals, has made a series of acquisitions in recent years in order to expand its portfolio of brands and diversify its product offerings. Darling International Acquires VION Ingredients On January 8, 2014, Darling International Inc. (Darling) announced that it had completed its previously announced acquisition of VION Ingredients Nederland BV (VION Ingredients). VION Ingredients, a subsidiary of VION Food Group, and Darling are both involved in the development and production of specialty ingredients from animal origin for applications in pharmaceuticals, food, feed, pet food, fertilizer and bioenergy. Darling paid €1.6-billion (approximately C$2.26-billion) in cash for the business. Mizkan Group Acquires Pasta Brands from Unilever On May 22, 2014, Mizkan Holdings Co., Ltd. (Mizkan), a Japanese producer of condiments and sauces, announced that it had agreed to acquire the Ragú and Bertolli pasta sauce brands from Conopco, Inc., a majority-owned unit of Unilever NV (Unilever), for US$2.15-billion in cash. For Mizkan, which produces a variety of brands of vinegars, mustards and salad dressings, the acquisition both diversifies its product portfolio and presents a foothold in the U.S. market, where Ragú and Bertolli are leading brands. Entry into the pasta sauce business is the latest in a series of brand divestitures for Unilever, which is focusing on its health and beauty business. 6 Blake, Cassels & Graydon LLP The following charts are our observations with respect to transactional activity in the food, beverage and agribusiness sector. The total value of deals was up slightly from 2013. However, the value of deals involving a Canadian party more than doubled. This increase was largely on account of the August 2014 merger of Tim Hortons with Burger King, which was valued at more than US$13-billion. Transactional Activity in 2014 Value of Deals US$19,642-million US$206,611-million Canadian Deals Global Deals While the overall volume of announced transactions was consistent with 2013, the number of transactions involving a Canadian party (as either target or acquirer) was up from 89 to 119. This still represents a relatively small percentage (4.3 per cent) of global deal activity. 2,757 119 Canadian Deals Global Deals Deals Announced 2015 Food Report Blake, Cassels & Graydon LLP 7 The total value of transactions announced in the global food, beverage and agribusiness sector increased steadily from Q4 2013 to Q2 2014 before dipping again in Q3 2014. This dip occurred despite a steady rise in the total number of transactions from Q1 to Q3 in 2014. Global Deals (by Value) $90,000 780 760 740 720 700 680 660 640 $80,000 $70,000 $60,000 $50,000 $40,000 $30,000 $20,000 $10,000 0 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Value (US$Million) Number of Deals The total number of transactions announced in the global food, beverage and agribusiness sector dropped significantly from Q4 2013 to Q1 2014. However, the sector’s appetite for deals rebounded throughout the year as the number of transactions steadily increased from Q1 through Q3. Global Deals (Number of Deals) Q4 2013 Q1 2014 Q2 2014 Q3 2014 780 760 740 720 700 680 660 640 8 Blake, Cassels & Graydon LLP The number of announced transactions involving a Canadian party steadily declined from Q4 2013 to Q3 2014. However, the total transaction value spiked in Q3 2014. This jump was largely a result of the announcement of the Tim Hortons and Burger King merger in August 2014, which was valued at more than US$13-billion. The number of announced transactions involving a Canadian party in the food, beverage and agribusiness sector steadily declined from Q4 2013 to Q3 2014. Canadian Deals (by Value) 40 35 30 25 20 15 10 5 0 $16,000 $14,000 $12,000 $10,000 $8,000 $6,000 $4,000 $2,000 $0 Value (US$Million) Number of Deals 40 35 30 25 20 15 10 5 0 Canadian Deals (Number of Deals) Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2013 Q1 2014 Q2 2014 Q3 2014 2015 Food Report Blake, Cassels & Graydon LLP 9 The most common home jurisdiction of the acquiring party in food, beverage and agribusiness transactions is, not surprisingly, the United States, as many of the world’s largest food, beverage and agribusiness companies are headquartered in the U.S. Japan, China, Russia and France round out the five most common acquirer nations, while Canada ranked seventh, just after the United Kingdom and ahead of Spain, Germany and Australia. The most common home jurisdiction of the target party is the U.S., followed by Japan, China, Russia, France, the U.K. and Canada. Acquirer Nation 0 100 200 300 400 500 600 United States Japan China Russian Fed France United Kingdom Canada Spain Germany Australia India Netherlands South Korea Malaysia Italy Hong Kong Turkey Vietnam Singapore Brazil Norway Unknown Switzerland Sweden New Zealand South Africa Philippines Ireland-Rep Cyprus Poland Denmark Ukraine Belgium Colombia Finland Mexico Utd Arab Em Chile Egypt Other Number of Deals Target Nation Number of Deals 0 100 200 300 400 500 600 United States Japan China Russian Fed France United Kingdom Canada Spain Australia Germany India Turkey Vietnam South Korea Malaysia Italy Brazil Ukraine New Zealand Norway Singapore Philippines Hong Kong Sweden Netherlands South Africa Indonesia Poland Denmark Ireland-Rep Switzerland Egypt Mexico Colombia Finland Belgium Chile Argentina Peru Lithuania Other 10 Blake, Cassels & Graydon LLP Within the food, beverage and agribusiness sector, transactions were fairly evenly distributed between subsectors, with food and beverage production accounting for just less than half of transactions. Meanwhile, food and beverage retailing accounted for about a quarter of transactions, while the remaining 25 per cent was split between the agriculture and livestock industry and various other subsectors. Nearly three-quarters of global transactions in the food, beverage and agribusiness sector involved a target that was privately held. Target Industry Target Company Status (Global) 12% 18% 24% 73% 46% 27% Food and Beverage Agriculture and Livestock Food and Beverage Retailing Private Public Other 2015 Food Report Blake, Cassels & Graydon LLP 11 Close to 60 per cent of acquirers’ global transactions in the food, beverage and agribusiness sector are private companies. Most of the remaining 40 per cent are publicly traded. Approximately one per cent of global transactions involve an acquirer that is a government entity or state-owned enterprise. The target was a privately held company in 71 per cent of transactions in the food, beverage and agribusiness sector where either the target or acquirer was from Canada. Acquirer Company Status (Global) Target Company Status (Canadian) 38% 29% 71% 1% 61% Government Private Public Private Public 12 Blake, Cassels & Graydon LLP Slightly more than half of acquirers were publicly traded corporations in transactions in the food, beverage and agribusiness sector where either the target or acquirer was from Canada. The acquirer was a privately held company in 45 per cent of transactions, while in four per cent of transactions, the acquirer was a government entity or state-owned enterprise. Acquirer Company Status (Canadian) 27% 45% 4% 51% Government Private Public 2015 Food Report Blake, Cassels & Graydon LLP 13 Introduction Urban agriculture has traditionally been confined to gardening in backyards, community plots and farms at city boundaries. As urban sprawl continues, transportation costs increase and access to arable land and fresh water supplies dwindles, food and agriculture providers are exploring farming in urban centres as an innovative, viable option to feed a rapidly growing global population. Organizations are adopting various methods of urban agriculture, commonly known as “urban farming,” to produce local and sustainable food. Whether through the refurbishment of empty industrial spaces, development of large rooftop farms or the design of innovative vertical greenhouses, urban agriculture can alleviate some of the pressures associated with population growth, urbanization, limited resources and climate change by providing fresh produce to consumers efficiently and effectively. Scaling Up Urban agriculture exists on a variety of scales. Small-scale urban agriculture such as backyard gardens involves the same people producing and consuming the food. Medium-scale urban agriculture resembles a university or community-based garden where members of an organization work together to provide food for a community. Urban agriculture on a large-scale tends to be organized by a professional entity that employs people on a full-time basis to operate its facilities.1 Growth strategies vary from using advanced LED technology in state-of-the-art greenhouses on rooftops to utilizing hydroponics, where plants are cultivated by placing the roots in liquid nutrient solutions instead of growing them in soil. Others have adopted a foodproduction system known as aquaponics that serves as a form of aquaculture in which the waste produced by farmed fish supplies nutrients for plants grown hydroponically, which in turn purifies the water. 1 Tom Bosschaert, “Large Scale Urban Agriculture: Supplying (plenty of) food for the city,” Except Integrated Sustainability (June 6, 2008), online: http://www.except.nl/en/#.en.articles.91-large-scale-urban-agriculture. FROM FARM TO TABLE: The Current Trend of Commercial Urban Agriculture 14 Blake, Cassels & Graydon LLP Examples In recent years, various large-scale commercial urban farms have been developed in North America and abroad. Below is a brief summary of some of the notable examples. Mirai – Tokyo Japanese plant physiologist Shigeharu Shimamura is a leader in urban agriculture. Shimamura developed the urban agriculture company Mirai and retrofitted a 25,000-square-foot former Sony factory, creating an indoor farm that accelerates plant growth by 250 per cent and produces 10,000 heads of lettuce per day.2 The farm uses hydroponic cultivation, as well as a LED lighting system developed by GE for optimal plant growth that uses 40 per cent less power than conventional fluorescent lights.3 Toshiba Clean Room Farm – Tokyo Toshiba Corporation recently announced that it has begun production of vegetables at the Toshiba Clean Room Farm Yokosuka. Located in an empty factory, Toshiba’s urban farm operates under almost aseptic conditions to minimize the entry of germs and extend the freshness and shelf life of vegetables. With a production management system based on that utilized for semi-conductor device production, Toshiba aims to produce three million bags of leaf lettuce, baby leaf greens, spinach, mizuna and herbs annually and has an annual sales target of JPY 300-million.4 Panasonic – Singapore Japan’s Panasonic Corporation, best known for its television sets, has also entered into the urban agriculture industry. In July 2014, Panasonic announced a pilot project whereby premium Japanese crops, including mini red radish, red leafy lettuce and mizuna, are cultivated in Singapore’s first licensed indoor vegetable farm. Currently, produce is only being sold to local restaurants, but the company projects that it will increase its contribution to local food production from the current 0.015 per cent to five per cent by March 2017.5 The Plant – Chicago The Plant, based in Chicago, Illinois, is an urban farm that was developed in 2010 as a way to reclaim a 93,500 sq. ft. former meat packing plant.6 Organized by a group of food businesses, including farms, commercial kitchens and food manufacturers, The Plant turned a vacant factory into a closed-loop vertical aquaponics facility in which a fish farm fertilizes plants. In addition, the “grow lights” over salad greens provide heat for the building, and a new brewery may soon provide waste carbon dioxide to help plants grow.7 2 Mirai, online: http://miraigroup.jp/en/. See also: Tuan Nguyen, “Is world’s largest indoor farm the way of the future?” The Washington Post (July 28, 2014), online: http://www.washingtonpost.com/blogs/innovations/wp/2014/07/28/is-worlds-largest-indoor-farm-the-way-of-the-future/; Andrew Tarantola, “The World’s Largest LED Hydroponic Farm Used to Be a Sony Factory,” Gizmodo (October 7, 2014), online: http://gizmodo. com/the-worlds-largest-led-hydroponic-farm-used-to-be-a-son-1603082545. 3 Flavie Halais, “Five urban farms that are growing big,” Citiscope (August 21, 2014), online: http://citiscope.org/story/2014/five-urban-farms-are-growing-big. 4 “Toshiba Starts Vegetable Production at Toshiba Clean Room Farm Yokosuka,” Toshiba Corporation (September 30, 2014), online: http://www.toshiba.co.jp/about/press/2014_09/pr3001.htm. 5 “Panasonic Contributes to Singapore’s Self-Sufficiency Level of Vegetables with First Indoor Vegetable Farm,” Panasonic (July 31, 2014), online: http://www.panasonic.com/sg/corporate/news/article/singaporeindoorfarm.html. See also: “Electronics giant Panasonic wants Singaporeans to eat its veg,” Reuters (August 3, 2014), online: http://www.reuters.com/article/2014/08/03/us-panasonic-singapore-farmingidUSKBN0G30R720140803. 6 The Plant, online: http://www.plantchicago.com/. 7 Adele Peters, “Inside An Old Chicago Packing Plant, Inspiring Proof That Urban Indoor Farming Can Succeed,” Fast Co.Exist (April 17, 2014), online: http://www.fastcoexist.com/3028985/inside-an-old-chicago-packing-plant-inspiring-proof-that-urban-indoor-farming-can-succeed. 2015 Food Report Blake, Cassels & Graydon LLP 15 Brooklyn Grange – New York City Growing more than 50,000 pounds of organically cultivated produce per year, Brooklyn Grange operates a commercial urban farm in New York City and currently functions as one of the world’s largest rooftop soil farms.8 Brooklyn Grange operates farms on two rooftops, one on a 43,000 sq. ft. building and the other atop the Brooklyn Navy Yard. In addition to growing and distributing local vegetables and herbs, Brooklyn Grange provides urban agriculture and green-roof consulting services to clients worldwide and operates one of New York City’s largest apiaries.9 Gotham Greens – New York City In contrast to other operators using soil farming, aquaponics and hydroponics, Gotham Greens uses commercial-scale rooftop greenhouses to provide quality, pesticide-free produce to grocery stores, restaurants and retailers. By using advanced technology and a climate-controlled environment, Gotham Greens is able to provide produce year-round.10 In October 2014, Gotham Greens partnered with eco-friendly cleaning products leader Method Products and announced the partnership’s plan to build the world’s largest rooftop farm at Method Products’ new manufacturing plant in Chicago. Designed by William McDonough + Partners, the state-of-the-art agricultural greenhouse facility on the roof of the plant will produce up to one million pounds of fresh, pesticide-free produce annually to be distributed through local retailers, restaurants, farmers’ markets and community groups.11 Lufa Farms – Montréal Lufa Farms, located in Montréal, was one of the first commercial rooftop greenhouses to begin operations in Canada. In 2011, Lufa Farms developed a 31,000 sq. ft. facility using hydroponics.12 From the greenhouse, Lufa Farms produces approximately 200 metric tons of pesticide-free produce annually and sells its produce through a complex distribution system and an online marketplace, feeding thousands of city residents who have subscribed to the service.13 Fresh City Farms – Toronto In Toronto, Fresh City Farms currently serves as one of Canada’s largest commercial urban farms with the largest aquaponics system in Ontario.14 With more than six acres of land and a 3,000 sq. ft. year-round greenhouse, Fresh City Farms has succeeded in offering aggregation, storage, local production and distribution services across Toronto. Fresh City Farms has seen triple-digit annual growth over its first three years. Currently, it serves more than 1,500 customers and delivers nearly 4,000 orders monthly. Recently, the company launched an online grocery store featuring its own produce as well as nearly 1,000 different local and organic products.15 8 Brooklyn Grange, online: http://brooklyngrangefarm.com/about/. 9 Ibid. See also: supra note 3. 10 Gotham Greens, online: http://gothamgreens.com/. 11 “Method and Gotham Greens Partner to Build World’s Largest Rooftop Farm in Chicago”, PR Newswire (October 7, 2014) http://www. prnewswire.com/news-releases/method-and-gotham-greens-partner-to-build-worlds-largest-rooftop-farm-in-chicago-278383241.html. 12 Lufa Farms, https://montreal.lufa.com/en. See also: Rachel Dring, “The rooftop revolution,” Sustainable Food Trust (July 25, 2014), online: http:// sustainablefoodtrust.org/articles/can-urban-growing-feed-cities/. 13 Ibid. 14 Fresh City Farms, online: https://www.freshcityfarms.com/faq. 15 Jonathan Hera, “Produce grown in Toronto gives organic grocer a leg up,”The Globe and Mail (September 4, 2014), online: http://www.theglobeandmail.com/report-on-business/small-business/sb-growth/sustainability/produce-grown-in-toronto-gives-organic-grocer-a-legup/article20354379/. 16 Blake, Cassels & Graydon LLP TruLeaf – Nova Scotia In addition to operators in Ontario and Quebec, TruLeaf, based in Nova Scotia, has recently developed an indoor farming system that involves a multi-layer plant farm that grows fresh produce, regardless of environmental factors, 365 days a year. The system integrates growing technologies in a controlled environment to cultivate high-quality, price-competitive leafy greens with a predictable yield.16 What makes TruLeaf unique is its ability to take its technology and locate it anywhere in the world, from the heart of an urban centre to remote locations or harsh climate areas, where growing would otherwise not be possible.17 Regulatory Hurdles Governments have traditionally focused on managing rural agricultural development and have generally struggled to manage urban areas for agricultural purposes.18 As a result, despite the benefits, governments are trying to figure out if, and how, they should amend applicable legislation to facilitate various forms of urban agriculture. Shaped by both federal and provincial/ state rules and regulations, in addition to local ordinances and bylaws, urban agricultural development must overcome a variety of regulatory hurdles. Zoning, building permits, licences, tax matters and ownership/leasing arrangements may all pose challenges for current and potential market participants.19 Conclusion Despite the obstacles, as the organic food industry flourishes and consumers demand more farm-to-table products, many opportunities are presented locally and abroad for growth in urban agriculture. Scaling up urban agriculture can positively impact the quality of our food, improve public health, create economic opportunities and sustainably develop the landscape of urban areas. 16 TruLeaf, online: http://www.truleaf.ca/. See also: Michael Gorman, “An evolution in the greenhouse,” The Chronicle Herald (July 13, 2012), online: http://thechronicleherald.ca/business/116818-an-evolution-in-the-greenhouse. 17 Ibid. 18 Joseph Nasr, Rod MacRae and James Kuhns, “Scaling up Urban Agriculture in Toronto: Building the Infrastructure,” Metcalf Foundation (June 2010) at p.46, online: http://metcalffoundation.com/wp-content/uploads/2011/05/scaling-urban-agriculture.pdf. 19 Ibid. 2015 Food Report Blake, Cassels & Graydon LLP 17 Since the financial crisis in 2007, there has been a significant increase in capital investment in agricultural farmland. Not only have investors been turning to stable, asset-backed investments, which can be less volatile and hedge against inflation, but the rapidly growing global population and accompanying urbanization have created an unprecedented demand for food and livestock feed, driving up the price of agricultural assets and commodities.1 Given the abundance of farmland nationwide, it is no surprise that agricultural farmland investment in Canada has gained momentum over the past seven years as well. Across the globe, institutional investors and private equity firms have acquired vast tracts of farmland with the goal of leasing this land back to local farmers while collecting a share of the annual proceeds and benefiting from rising property prices. In 2011, European and United States pension funds combined for an estimated US$5-billion to US$15-billion in farmland investments worldwide.2 The rate at which interest in this sector has accelerated is best exemplified by investments made by its largest institutional investor, the Teachers Insurance and Annuity Association-College Retirement Equities Fund (TIAA-CREF). TIAA-CREF, which has US$542-billion in assets, did not own a single farm before 2007. Today, it is the largest platform for agricultural investment worldwide.3 TIAA-CREF currently holds over US$3-billion in farmland, comprised of more than one million acres of land in South America, Australia, Eastern Europe and the United States.4 To date, the largest of TIAA-CREF’s funds is TIAA-CREF Global Agriculture LLC. The fund was set up to facilitate investments of up to US$2-billion in farmland in the United States, Australia and Brazil by international institutional investors, and closed in 1 “Agcapita’s Canadian Farmland Investment Thesis Confirmed by New Report from Farm Credit Canada” (April 15, 2014), online: http://www.pr.com/press-release/553216. 2 Anjuli Davies, “Big pension funds plough money into farmland,” Reuters (June 27, 2012), online: http://www.reuters.com/article/2012/06/27/us-pensions-farmland-idUSBRE85Q1DN20120627. 3 Down on the Farm – Wall Street: America’s New Farmer, The Oakland Institute (2014) at p.19, online: http://www.oaklandinstitute.org/sites/oaklandinstitute.org/files/OI_Report_Down_on_the_Farm.pdf. 4 Down on the Farm – Wall Street: America’s New Farmer, The Oakland Institute (2014) at p. 19, online: http://www.oaklandinstitute.org/sites/oaklandinstitute.org/files/OI_Report_Down_on_the_Farm.pdf. RISING INTEREST IN FARMLAND INVESTMENT: Canadian Investors Find Themselves in a Unique Position 18 Blake, Cassels & Graydon LLP May 2012.5 It appears that TIAA-CREF is getting ready to expand its farmland portfolio, as filings made with the United States Securities and Exchange Commission on August 8, 2014, indicate that TIAA-CREF has now secured US$1.4-billion (of an undisclosed target) for a second fund to be known as TIAA-CREF Global Agriculture II LLC.6 Typically, investors have focused on regions that are net exporters of food, such as North America, South America, Australia, and Central and Eastern Europe.7 Among these, farms in the U.S. are considered to have a competitive advantage because the U.S. has the most developed infrastructure for harvesting crops.8 As such, it is not surprising that agricultural farmland prices in the U.S. increased by 213 per cent from 2003-2013.9 Although this represents an annual price increase of 12 per cent,10 it is still possible that institutional investment in U.S. farmland will increase at a greater rate. As the current generation of American farmers retires over the next 20 years, it is anticipated that ownership of almost 400 million acres, approximately 50 per cent of American farmland, will be transferred. In fact, one industry leader has estimated investors with US$10-billion in institutional capital are currently seeking to invest in U.S. farmland.11 Institutional investors are not the only ones focusing on farmland investment. Private equity firms have also increased their presence in this sector. In a 2009 report on private equity vehicles investing in farmland internationally, The Globe and Mail only identified closed funds that together had raised a total of approximately US$3.5-billion in private capital and open funds seeking approximately US$470-million more.12 In a briefing prepared by the International Institute for Environment and Development (IIED), IIED estimated that by January 2012, 190 private equity firms were actively investing in farmland and agricultural infrastructure internationally, with approximately US$14-billion in private capital invested. Furthermore, experts anticipate that the value of private capital investment could continue to rise to almost US$30-billion in 2015.13 In Canada, similar trends have emerged. According to Farm Credit Canada (FCC), from 2008- 2012, the price of Canadian farmland rose 12 per cent a year on average, a rate that is several times faster than the rise in home prices over the same period.14 According to the FCC 2013 Farmland Values Report, this growth rate is only continuing to climb. The average value of Canadian farmland increased 22.1 per cent in 2013, representing the highest national increase since FCC began reporting on farmland values in 1985. Saskatchewan led all provinces with an increase in value of 28.5 per cent (bringing its three-year increase to 89 per cent), followed by Manitoba (25.6 per cent) and Quebec (24.7 per cent), respectively.15 5 “TIAA-CREF Announces $2 Billion Global Agriculture Company,” Teachers Insurance and Annuity Association of America – College Retirement Equities Fund (May 14, 2012), online: https://www.tiaa-cref.org/public/about/press/about_us/releases/articles/pressrelease422.html. 6 “Form D – Notice of Exempt Offering Securities,” US Securities and Exchange Commission (August 8, 2014), online: http://www.sec.gov/Archives/edgar/data/1616610/000161661014000001/xslFormDX01/primary_doc.xml. 7 Sarah McFarlane, “Pension funds join forces to invest in farmland,” Reuters (March 6, 2013), online: http://www.reuters.com/article/2013/03/06/farmland-pensions-idUSL6N0BYD0220130306. 8 Constance Gustke, “Are farmland investments heading for a barn bubble?” BBC – Capital (June 6, 2013), online: http://www.bbc.com/capital/story/20130604-headed-for-a-barn-bubble. 9 David Randall, “Analysis: Despite talk of farm bubble, Farmer Mac woos investors,” Reuters (September 23, 2013), online: http://www.reuters.com/article/2013/09/23/us-usa-stocks-farmer-mac-analysis-idUSBRE98M04M20130923. 10 David Randall, “Analysis: Despite talk of farm bubble, Farmer Mac woos investors,” Reuters (September 23, 2013), online: http://www.reuters.com/article/2013/09/23/us-usa-stocks-farmer-mac-analysis-idUSBRE98M04M20130923. 11 Down on the Farm – Wall Street: America’s New Farmer, The Oakland Institute (2014) at pp. 3-6, online: http://www.oaklandinstitute.org/sites/oaklandinstitute.org/files/OI_Report_Down_on_the_Farm.pdf. 12 “Farmland Investing Continues to Grow in Popularity,” The Globe and Mail (April 27, 2009), online: http://globeinvestor.com/servlet/WireFeedRedirect?cf=GlobeInvestor/config&date=20090427&archive=nlk&slug=00013512. 13 “Farms and funds: investment funds in the global land rush,” International Institute for Environment and Development (January 2012), online: http://pubs.iied.org/pdfs/17121IIED.pdf. See also: Gustke, Constance, “Are farmland investments heading for a barn bubble?” BBC – Capital (June 6, 2013), online: http://www.bbc.com/capital/story/20130604-headed-for-a-barn-bubble. 14 Barrie Mckenna, “Green acres: The soaring value of Canada’s farmland”, The Globe and Mail (September 5, 2013), online: http://www.theglobeandmail.com/report-on-business/green-acres-the-soaring-value-of-canadas-farmland/article14154870/. 15 “2013 Farmland Values Report,” Farm Credit Canada (April 14, 2014), online: https://www.fcc-fac.ca/fcc/about-fcc/corporate-profile/reports/farmland-values/farmland-values-report-2013.pdf. 2015 Food Report Blake, Cassels & Graydon LLP 19 However, this private equity and institutional investment in Canadian farmland can be distinguished from the corresponding international trends: the investors in Canadian farmland are primarily Canadian. Certain provinces in Canada restrict ownership of their farmland to Canadian citizens, permanent residents or wholly owned Canadian groups. For example, Saskatchewan, which is home to 40 per cent of the country’s arable land, restricts foreign ownership to 10 acres.16 Similar restrictions are in place in the provinces of Alberta, Manitoba and Quebec. These restrictions have opened the door for Canadian private equity funds like Bonnefield Financial, Agcapita and Assiniboia to become leaders in the Canadian market.17 Bonnefield Financial has closed three separate farmland investment limited partnerships since 2010. Bonnefield Canadian Farmland LP I, which closed in 2010, has approximately C$28-million of assets under management consisting of approximately 15,000 acres of farmland in Alberta, Saskatchewan, Manitoba and Ontario.18 Bonnefield Canadian Farmland LP II, which closed in February 2013, has C$22.5-million in committed capital19 and holdings of approximately 10,600 acres of farmland in Alberta, Saskatchewan, Manitoba, Ontario and New Brunswick. 20 In line with the rapidly rising farmland prices in Canada, both these funds have outperformed the S&P TSX since their inception.21 Despite the successes of Bonnefield Canadian Farmland LP I and II, the closing of Bonnefield Canadian Farmland LP III in 2014 is the clearest indicator of the rapid rise of private investment in Canadian farmland. On January 28, 2014, Bonnefield Financial announced the closing of Bonnefield Farmland LP III, after securing C$261-million in commitments, which exceeded its original C$200-million target by more than 30 per cent.22 Other Canadian private equity firms have been actively investing in Canadian farmland as well. Calgary-based Agcapita is focused on constructing diversified portfolios of farmland in Western Canada, particularly in Saskatchewan. On April 28, 2014, Agcapita closed its fourth farmland investment fund since 2008, Agcapita Farmland Fund IV, a C$20-million offering.23 Looking to build on the success of its funds to date, including the sale of its Fund I portfolio for nearly C$10-million more than its January 2014 acquisition price,24 Agcapita announced the launch of a fifth fund in July 2014, Agcapita Farmland Fund V, another C$20-million offering.25 Finally, Canadian institutional investors have also demonstrated strong interest in agricultural farmland investments in Canada and abroad. In 2012, the Canada Pension Plan Investment Board (CPPIB), which manages approximately C$200-billion in assets, launched its own agriculture investment program. In 2013, the CPPIB completed its first direct farmland investment through North American Agriculture Investment, LLC to acquire a portfolio of geographically diverse U.S. 16 Eric Atkins, “CPPIB buys Saskatchewan farms in $128-million deal,” The Globe and Mail (December 12, 2013), online: http://www.theglobeandmail.com/report-on-business/cppib-buys-saskatchewan-farms-in-128-million-deal/article15910970/. 17 Don Pittis, “Soaring farmland prices a crisis in the making,” CBC News (November, 2013), online: http://www.cbc.ca/news/canada/soaring-farmland-prices-a-crisis-in-the-making-don-pittis-1.2420223. 18 “Bonnefield Canadian Farmland LP I,” Bonnefield Inc., (December 31, 2013), online: http://bonnefield.com/index.php?page=LP_1. 19 “Bonnefield Financial Closes Second Investment Partnership,” Bonnefield Inc. (February 5, 2013), online: http://bonnefield.com/index.php?mact=News,cntnt01,detail,0&cntnt01articleid=32&cntnt01returnid=90. 20 “Bonnefield Canadian Farmland LP II,” Bonnefield Inc. (December 31, 2013), online: http://bonnefield.com/index.php?page=bonnefield-canadian-farmland-lp-ii-2. 21 “Bonnefield Canadian Farmland LP I,” Bonnefield Inc. (December 31, 2013), online: http://bonnefield.com/index.php?page=LP_1. See also: “Bonnefield Canadian Farmland LP II,” Bonnefield Inc. (December 31, 2013), online: http://bonnefield.com/index.php?page=bonnefield-canadian-farmland-lp-ii-2. 22 “Bonnefield Canadian Farmland LP III Closes, Oversubscribed at $261 Million,” Bonnefield Inc. (January 29, 2014), online: http://bonnefield.com/index.php?mact=News,cntnt01,detail,0&cntnt01articleid=36&cntnt01pagelimit=3&cntnt01returnid=84. 23 “Agcapita Farmland Fund IV Launches,” Agcapita Partners LP (April 2, 2013), online: http://www.farmlandinvestmentpartnership.com/news/1888-agcapita-farmland-fund-iv-launches. See also: “Agcapita Farmland Fund IV Completes Capital Raising, (April 30, 2014), online: http://www.pr.com/press-release/555463. 24 “Agcapita Fund I – Land Portfolio Sale Complete,” Agcapita Partners LP (January 19, 2014), online: http://www.farmlandinvestmentpartnership.com/news/1906-agcapita-fund-i-land-portfolio-sale-complete. 25 “Agcapita Farmland Fund V Launches,” Agcapita Partners LP (April 17, 2014), online: http://www.farmlandinvestmentpartnership.com/agcapita-farmland-fund-v-launches/. 20 Blake, Cassels & Graydon LLP farmland.26 Later that year, in December 2013, the CPPIB announced the planned acquisition of what was one of the largest investable farmland portfolios in Canada from Assiniboia Farmland LP. The C$128-million acquisition, which closed on January 10, 2014,27 appears to be only the beginning of CPPIB’s agricultural investment. The fund is planning agricultural investments in four other countries (Australia, New Zealand, the U.S. and Brazil) and could build a portfolio worth up to C$3-billion within five years.28 While there has been some concern that the rapid rise in farmland prices across the U.S. may have created a bubble,29 Canadian experts maintain that a crash in farmland prices is unlikely.30 Whether or not the value of Canadian farmland continues to increase at record rates, a strong demand from investors is apparent. Due to the provincial restrictions on ownership of Canadian farmland, Canadian investors find themselves in a unique position to invest in Canadian farmland — and they have taken action. 26 Annual Report 2013, Canada Pension Plan Investment Board, online: http://viewer.zmags.com/publication/2ac4d168#/2ac4d168/1. 27 “Assiniboia Farmland Limited Partnership closes transaction for the sale of its farmland portfolio,” CNW (January 10, 2014), online: http://www.newswire.ca/en/story/1287897/assiniboia-farmland-limited-partnership-closes-transaction-for-the-sale-of-its-farmland-portfolio. 28 Eric Atkins, “CPPIB buys Saskatchewan farms in $128-million deal,” The Globe and Mail (December 12, 2013), online: http://www.theglobeandmail.com/report-on-business/cppib-buys-saskatchewan-farms-in-128-million-deal/article15910970/. 29 Constance Gustke, “Are farmland investments heading for a barn bubble?” BBC – Capital (June 6, 2013), online: http://www.bbc.com/capital/story/20130604-headed-for-a-barn-bubble. 30 Barrie Mckenna, “Green acres: The soaring value of Canada’s farmland,” The Globe and Mail (September 5, 2013), online: http://www.theglobeandmail.com/report-on-business/green-acres-the-soaring-value-of-canadas-farmland/article14154870/. 2015 Food Report Blake, Cassels & Graydon LLP 21 Spurred by strong consumer protection laws and the expanding regulation of food and health generally, food labelling class actions are on the rise in the United States, particularly in California, where the U.S. District Court of Northern California is now dubbed the “Food Court.”1 As a result, American jurisprudence has developed a body of case law relating to motions to dismiss or to certify these class actions. Despite this U.S. trend, there have only been two significant food labelling class-action decisions in Canada, both of which failed at the certification stage. Differences in the American and Canadian Legal Landscapes While there is generally a lower threshold for the certification of a proposed class action in Canada as compared to in the U.S., elements of the Canadian regulatory and legislative landscape may be discouraging a surge of Canadian food labelling claims. Although some Canadian provinces have consumer/plaintiff-friendly consumer protection regimes, others offer more limited opportunities for suing parties other than immediate sellers. In both Canada and the U.S., private rights of action for misleading or deceptive statements on labels arise under state/provincial consumer protection legislation. British Columbia’s Business Practices and Consumer Protection Act (BPCPA)2 is one of the most generous schemes in Canada and is modelled in part on California’s plaintiff-friendly consumer protection statutes.3 A restoration order can be made under BPCPA s. 172, for example, without proof of individual reliance. Even under B.C.’s regime, however, consumers claiming damages (under BPCPA s. 171) must show that the challenged label caused them to suffer a loss or damage. This is a significant hurdle, as they must prove that their purchase was based on the label’s representation, and not taste, brand, price or other characteristics of the product. In most cases this will require proof of reliance. In California, defendants have had some success in getting claims dismissed based 1 Paul Barrett, “California’s Food Court: Where Lawyers Never Go Hungry,” Bloomberg Business Week (August 22, 2013), online: http://www.businessweek.com/articles/2013-08-22/californias-food-court-where-lawyers-never-go-hungry. 2 SBC 2004, c. 2. 3 Unfair Competition Law, California Business and Professions Code, s. 17200-17210; False Advertising Law, California Business and Professions Code, s. 17500-17509; and Consumer Legal Remedies Act, Civil Code, s. 1750-1784. FOOD LABELLING CLASS ACTIONS: The Canadian Experience to Date 22 Blake, Cassels & Graydon LLP on the plaintiff’s lack of reliance on the challenged label when making the purchase.4 The Food Court’s willingness, however, to presumptively infer reliance on a class-wide basis has made reliance requirements easier for Californian plaintiffs to overcome. This approach has not yet been applied in the food labelling context in B.C. In other provinces, statutory causes of action against manufacturers are limited. For example, the Ontario Consumer Protection Act 5 largely precludes claims against a manufacturer who sold a product through retailers as it requires a contractual nexus between the consumer and the manufacturer.6 Furthermore, some Canadian provinces, such as Nova Scotia, do not have consumer protection laws applicable to food labelling. Consumer protection legislation is, however, constantly evolving and future amendments may create a more hospitable environment for food labelling class actions in Canada. While certainly possible, the Canadian regulatory framework may discourage the “natural” claims popular in America. Neither the U.S. nor Canada currently has a legislated definition of “natural.”7 However, the Canadian Food Inspection Agency has a strict guidance document limiting when food or ingredients can be labelled “natural.” As a result, Canadian companies have tended to make more tailored natural representations, such as this product contains only “natural ingredients” or “natural flavours.” Canadian Food Labelling Class Actions To date, there have been two contested certification decisions respecting allegedly misleading food labels — one in B.C. and one in Quebec. Both decisions involved the labelling and marketing of vitaminwater® beverages and both resulted in a refusal to certify or authorize a class proceeding. The plaintiffs in both actions claimed that the labelling and marketing of vitaminwater® beverages could lead consumers to conclude that the drinks are healthy and contain minimal sugar. The plaintiffs pointed to vitaminwater® labels, particularly to the name vitaminwater®, flavour names, the fact the nutrient label did not disclose the quantity of sugar and the description of vitaminwater® as a “nutrient enhanced water beverage.” The defendants argued that the presence of sugar and the number of calories were clearly disclosed on the label and that several aspects of the labelling that the plaintiffs alleged were misleading were required by the applicable regulations. In June 2014, the Quebec Superior Court refused to authorize a class action in Wilkinson v. Coca-Cola Ltd.8 This decision was based largely on the fact that the petitioner had failed to show, on a prima facie basis, that the respondents’ representations were untrue or that the respondents had committed any error under the applicable statutes. The court held that the petitioner’s allegations, including that the respondents falsely represented the beverage as a healthy alternative to soft drinks, were not supported by evidence. The court also found that the respondent’s labelling was in conformity with applicable laws and regulations. 4 For example, see Khasin v. The Hershey Company, Case No. 5:12-CV-01862-EJD (N.D. Cal. May 5, 2014), in which the Food Court dismissed the claim prior to certification where the plaintiff could not prove actual reliance under California’s consumer protection laws. 5 2002, S.O. 2002, c. 30 Schedule A. 6 Singer v. Schering-Plough Canada Inc., 2010 ONSC 42 at para 85; Arora v. Whirlpool Canada LP, 2013 ONCA 657 at paras 31-32. 7 A current bill (Bill H.R.4432, Safe and Accurate Food Labelling Act of 2014 ) in Congress would eventually institute a legislated definition of “natural.” 8 2014 QCCS 2631. 2015 Food Report Blake, Cassels & Graydon LLP 23 Similarly, in October 2014, the British Columbia Supreme Court in Clark v. Energy Brands Inc.9 refused to certify a proposed class action regarding alleged breaches of the BPCPA. The court found that the plaintiff had not presented some basis in fact to support a common issue for aggregate damages under section 171 of the BPCPA. The plaintiff put forward a price premium theory of damages, claiming that the impugned labelling inflated the price of vitaminwater® beverages but did not advance any evidence to support this theory. There was no evidence of the products’ retail price and no evidence that there was a realistic prospect of establishing loss on a class-wide basis. Furthermore, the court held that it was not appropriate to certify the action on the basis that some evidence might be revealed on discovery that may support the claim. The plaintiff’s pleading of the price premium theory of damages, and the theory itself, were too vague to justify certification. Finally, the court also held that there was no identifiable class and that a class proceeding was not the preferable procedure. The management of individual claims would involve questions regarding each individual’s reliance, loss and quantum of damages that would be exceedingly difficult to manage and fairness to the defendants would be impossible. Recommendations Despite the scarcity of Canadian food labelling class actions to date, companies should be cautious when making representations on food labels and should note that Canada has its own distinct regulatory requirements. Misleading labels could give rise to actionable claims. In opposing proposed food labelling class actions, Canadian defendants should understand the applicable provincial consumer protection and class proceedings acts in order to tailor their defence to the specific provincial context and challenge multi-jurisdictional classes. 9 2014 BCSC 1891. 24 Blake, Cassels & Graydon LLP According to Statistics Canada, Canadians spent C$21.4-billion on alcoholic beverages in the 2013 fiscal year.1 As this industry continues to grow, foreign manufacturers and suppliers looking to enter the Canadian alcoholic beverages market should be aware of the detailed packaging and labelling requirements for these products. Set out below is a brief introduction to some of the general requirements for alcoholic beverage labelling in Canada. At the federal level, alcoholic beverages (that is, beverages containing 1.1 per cent or more alcohol by volume) are regulated as a food product under the Food and Drugs Act. 2 As with other food products sold to consumers, they must meet labelling and compositional requirements under the Food and Drug Regulations 3 (FDR) and consumer packaging and labelling requirements under the Consumer Packaging and Labelling Act 4 and the Consumer Packaging and Labelling Regulations. 5 All alcoholic beverages must have certain basic information on the product packaging, such as the common name, net quantity, percentage of alcohol by volume declaration and manufacturer or dealer information. Most of this information is required to be shown in both official languages (English and French) and is subject to location and sizing requirements. Unlike most processed foods in Canada, standardized alcoholic beverages (i.e., those with compositional standards under the FDR, such as beer or wine) are exempt from the requirement to show a list of ingredients on product packaging. However, non-standardized alcoholic beverages (i.e., those for which there is no compositional standard under the FDR, such as coolers or pre-mixed drinks) must have a list of ingredients and comply with allergen labelling requirements. Beverages with an alcohol content of greater than 0.5 per cent are also generally exempt from displaying a Nutrition Facts Table (NFT). This exemption is lost, however, if the product makes a nutrient content or energy claim. For example, a standardized beer product that is otherwise exempted from having to display an NFT would lose its exemption if the label or 1 Statistics Canada, “Control and sale of alcoholic beverages, for the year ending March 31, 2013” (April 10, 2014), online: http://www.statcan.gc.ca/daily-quotidien/140410/dq140410a-eng.htm . 2 R.S.C., 1985, c. F-27. 3 C.R.C., c. 870. 4 R.S.C., 1985, c. C-38. 5 C.R.C., c. 417. PRIMER: Labelling of Alcoholic Beverages 2015 Food Report Blake, Cassels & Graydon LLP 25 advertising contains a calorie claim. The exemption from showing an NFT also does not apply if the beverage contains certain ingredients, such as sucralose. Depending on the type and composition of the alcoholic beverage in question, additional information may also be necessary. For example, all standardized wine products (for which there is a compositional standard under the FDR) and brandy that is wholly distilled in a country other than Canada must have a country of origin declaration on the label. Furthermore, certain spirit drink names can only be used if the drink originates from a specific country. For example, cognac can only be used to describe a product that originates from France, and grappa can only be used for a product that originates from Italy. Where the durable life of a product is 90 days or less (e.g., some draft beers), a durable life date must also be declared on the label. Alcohol is also regulated at the provincial or territorial level. The control, distribution, sale and service of alcoholic beverages are regulated by the liquor board or commission of each province or territory. Care should be taken to ensure compliance with any provincial requirements applicable to product packaging. For example, the Alcohol and Gaming Commission of Ontario’s Liquor Advertising Guidelines6 prohibit advertisements that depict certain activities. It could reasonably be interpreted to apply to information found on labels. Given the large amount Canadians spend on alcoholic beverages each year, we expect to see continued growth in this industry. When considering expansion into Canada, foreign companies should consider the distinct regulatory requirements of these products in Canada, including with respect to labelling. 6 “Liquor Advertising Guidelines: Liquor Sales Licensees and Manufacturers,” Alcohol and Gaming Commission of Ontario (August 2011), online: http://www.agco.on.ca/pdfs/en/guides/3099_a.pdf. 26 Blake, Cassels & Graydon LLP For more information on our Food, Beverage & Agribusiness practice, visit www.blakes.com or contact the editors: Blakes Food, Beverage & Agribusiness Group Blakes has one of the most active food, beverage and agribusiness practices in the country. In addition to mergers and acquisitions, lawyers in our Food, Beverage & Agribusiness group advise on a wide range of legal matters affecting the sector, including corporate/commercial, technology, intellectual property, financial services, labour and employment, pension and employee benefits, class action defence, consumer product safety, administrative and regulatory processes, and real estate. Blakes has substantial experience advising well-known consumer brands in the food and beverage industry with respect to regulatory compliance. We advise on the advertising and marketing of food and beverage products, including structuring promotions, offers and campaigns, as well as the negotiation of advertising agreements; product claim substantiation; labelling issues; product recalls; the acquisition, licensing, transfer and litigation of patent, trademark, copyright and industrial design rights; regulatory classification issues (food versus natural health product versus drug); dispute resolution between companies and regulatory officials when interpreting legislation, administrative and policy matters, including disputes and complaints with Advertising Standards Canada, the Canadian Food Inspection Agency, and Health Canada; merger reviews before the Competition Bureau and abuse of dominance cases; and international trade rights and disputes, including subsidies, tariffs, food and health regulations that impact market access, and import controls. Our multidisciplinary team has advised some of the most well-known brands and participants in the sector. Our clients include leading food, beverage and agribusiness companies, such as producers, processers, distributors, suppliers, retailers, manufacturers, cooperatives and marketers as well as crop protection companies, seed companies, dairy breed associations, agricultural fairs, biotechnology organizations, biofuel production and distribution companies, and animal nutrition companies. Arash Amouzgar Associate | Vancouver, Toronto firstname.lastname@example.org Vancouver: 604-631-4201 Toronto: 416-863-3338 Michael Stevenson Partner | Toronto email@example.com Toronto: 416-863-2458 The editors would like to thank Andrew Cyr (Articling Student), and Pei Li, Jason Kolarich, David Mender, and Sarah Emery for their assistance in the preparation of this report. 2015 Food Report Blake, Cassels & Graydon LLP 27 MONTRÉAL 600 de Maisonneuve Boulevard West Suite 2200 Montréal QC H3A 3J2 Canada Telephone: 514-982-4000 Facsimile: 514-982-4099 Email: firstname.lastname@example.org OTTAWA 340 Albert Street Suite 1750, Constitution Square,Tower 3 Ottawa ON K1R 7Y6 Canada Telephone: 613-788-2200 Facsimile: 613-788-2247 Email: email@example.com TORONTO 199 Bay Street Suite 4000, Commerce Court West Toronto ON M5L 1A9 Canada Telephone: 416-863-2400 Facsimile: 416-863-2653 Email: firstname.lastname@example.org CALGARY 855 - 2nd Street S.W. 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