Shippers rethink USDA inspections as prices rise - The Packer

Shippers rethink USDA inspections as prices rise

01/25/2008 12:00:00 AM
Tom Karst


The price the U.S. Department of Agriculture charges for a basic inspection of 51 packages or more will shoot up to $151 after March 1, compared with $86 for the same service in 2003.

(Jan. 25) It is a catch 22, or, in this case, a catch 15%.

Fresh produce destination inspection fees charged by the U.S. Department of Agriculture will increase 15% in March on the heels of a 15% increase in November, and previous 15% increases in 2006 and 2004.

The cost of a basic inspection — 51 packages or more — increases to $151 after March 1 this year. That fee compares with $86 for the service in 2003.

This trend is not over. The agency previously said 10% increases were likely in 2009 and 2010, with planned single-digit increases after that.

Changes in the industry, combined with increases in user fees in the past few years, have resulted in stable or decreased demand for USDA inspections, receivers say.

“It creates a Catch-22,” said Alan Siger, president of Consumers Produce Co. Inc., Pittsburgh. “They don’t have the number of inspections to do any more as business has dropped, but on the other hand as business drops, you have got to raise prices because you have certain fixed prices. By raising the prices they have cut down on demand for the service.”

Incremental fee increases — as opposed to a massive increase of 70% — have been supported by the USDA’s 2003 Fruit and Vegetable Industry Advisory Committee, said Bob Keeney, deputy administrator of fruit and vegetable programs at the USDA’s Agricultural Marketing Service.

“We don’t anticipate another increase for at least a year and perhaps into 2010,” Keeney said.

CHANGING USE

U.S. produce marketers said federal inspections are essential to their business but offered differing views about the effect of the latest fee increases.

One produce shipper said some growers may balk at asking receivers for federal inspections if fees keep rising.

Clark Mullins, manager of H.C. Schmieding Produce Co. Inc., Springdale, Ark., said growers are typically given the option of asking for an inspection when a receiver reports a problem with a load. If the grower does not ask for inspection, the receiver is cleared to work with the load “with protection,” or allowing changes in price for problems in quality.

However, he said the fee increase may not have a big effect.

“A lot of times an inspection is not an optional thing,” he said.

Tipper Sears, salesman for D’Arrigo Bros. of New York Inc., New York, said in-house evaluation of product doesn’t substitute for a federal inspection.

“If you feel something is out of grade, you have to get it inspected, no matter what,” he said.

Sears said the new 15% increase won’t change the company’s use of USDA destination inspections.

Siger said his company does not use USDA inspections in the same way as it did a decade ago.

With inspection fees in the low hundreds of dollars for a multiple lot inspection, he said an inspection is not practical as an everyday tool.

“When you are doing 6,000 to 7,000 loads of product a year, you start multiplying that by $150 and that adds up real quick,” he said.

Siger said receivers need to be more judicious in how they use inspections.

“We have become a better company by strengthening our quality control abilities and using USDA inspection when we find a problem,” he said.

Siger estimated the company requires less than 20% of the inspections the company needed five to seven years ago.

“We really used the USDA in some cases as our (quality control), and with certain commodities we would get every load inspected to alert ourselves if we had any problems,” he said. “Now the cost has become so prohibitive that is just unfeasible to do that.”

Siger said the company hired a former USDA inspector as a full-time quality control person and has trained their personnel to know the condition of a load.

“We have trained our receivers to look at product and alert our QC person,” he said. “If it needs inspection, only then will we get a federal inspection.”

The advent of digital photography has helped communicate with suppliers about problems with loads, particularly if the parties have an existing relationship.

“If you do an in-house inspection along with digital photographs, it is generally sufficient to get a message across when there is a problem,” he said.

Consolidation in the industry is a factor in the reduced use of inspections, Siger said.

Buyers and sellers tend to know one another better.

“People will know you are shooting straight with them and will deal with you,” he said.

However, Siger said the need for inspections won’t go away.

Even shippers with long standing relationship with receivers may have growers with an interest in the load who want an inspection, Siger said.

“If you get in a situation where there is a disagreement and you don’t have the USDA inspection to back you up, that would lessen your chances of your side holding up in some type of arbitration or PACA claim,” he said.

Compared to a potential five-figure loss on a load worth $50,000, the $250 saved on forgoing a federal inspection doesn’t seem all that much, he said.

“You don’t want to be trying to get help from a supplier and they say, ‘Where is your federal inspection?’ and you don’t have one,” Siger said.

Though rising fees are a concern, Siger said he has no complaints about the service his company receives from the USDA inspection service.

“They have always been very responsive, even working overtime, if they have to get something done for us,” he said.



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