( USDA )

(UPDATED, June 21) Western Growers has sounded the alarm over a letter from Kroger to fresh produce shippers announcing the company’s standardized payment terms of net 90 days.

The letter, which Western Growers linked to on its website, said the new payment terms, applied to “all aspects” of the chain’s business, will be effective Aug. 1.

The letter said Kroger was making the change to:

  • Smooth the company’s cash conversion cycle;
  • More efficiently manage the chain’s working capital in order to re-invest in business; and 
  • Harmonize terms with Kroger’s industry peers.

In addition, Kroger said it would offer an early payment option in return for a discount on the invoice.

Matt McInerney, senior executive vice president for Western Growers, said accepting these new payment terms directly conflict with growers’ protection rights under the Perishable Agricultural Commodities Act Trust. 

Agreeing to any extension beyond 30 days permanently waives your PACA trust protection, according to Western Growers.

“Anytime any buyer is asking for terms that exceed the maximum (a) grower/shipper/seller is allowed to extend under PACA regulations, to continue to be protected under PACA Trust, is always something we’re concerned about for sure,” McInerney said June 20. 

Western Grower members reacted strongly to the letter, he said. “I can’t tell you how my phone and email have lit up over the last 48 hours with this request.”

Under PACA, to be eligible for trust benefits — which gives priority on claims from growers and sellers if a buyer goes bankrupt or simply refuses to pay — a Western Growers blog post said produce suppliers must use prompt payment, which means payment terms of “PACA Prompt” or “Net 10 days”. 

Sellers can only extend those terms to a maximum of 30 days. 

Anything beyond the 30 days will automatically invalidate suppliers’ protection and rights to the trust provision, Western Growers said. 

McInerney said no customer is worth waiving PACA trust rights.

“This is about process, and it is your process that you have the very best business practices in place that would say you need to, at all times, be protected under the PACA trust, no matter who your customer is,” he said. It is not a good precedent for any buyer to have special consideration, he said. 

Noting that the produce industry supply chain has benefited from the PACA trust provision since 1984, Western Growers said best business practices mandate that growers not waive trust rights, regardless of who may be requesting the waiver. In addition, if a supplier has outside growers, they would remain liable to them for any non-payment.

McInerney said Kroger’s listing of cash flow among its reasons for the net 90-day terms does not apply to fresh produce in the same way it might apply to other non-perishable products.

“One those unique attributes of produce is our inventory, once taken into possession by Kroger turns into relatively immediate cash,” he said. “So unlike the middle of the store, where other inventory might be sitting for a rather extended period of time waiting to get sold, (produce) turns into immediate cash,” he said. What’s more, he said PACA provisions were given to protect farmers – farmers that also have cash flow needs to invest in their crops.

Kroger’s notion of paying quicker for a discounted bill hits the wrong note, he said.

“We appreciate the challenge with cash flow and because our margins are so utterly slim and the thought of taking a discount for getting paid ... seems counterintuitive and not necessary,” he said. 

Western Growers advised suppliers to contact Kroger about grower concerns with the 90-day payment policy.

“We’re looking forward to, hopefully, a resolution that would recognize the need to have farmers of produce treated differently and consistent with a long-standing statute (PACA) that has worked so well for the supply chain over 88 years,” McInerney said.

 

Legal implications

The 90-day policy would likely prompt lawsuits if Kroger were to fail, said Steve McCarron, attorney with agricultural law firm McCarron & Diess in Washington, D.C. and former attorney with the USDA PACA division.

Produce suppliers have PACA trust language on their invoices, which dictate terms beyond 30 days can’t be extended to buyers.

“What’s going to happen here is that if people do supply to Kroger, under these 90-day terms, is there going to be a question that they have somehow given up their PACA trust rights?” Lawyers could challenge the applicability of the PACA trust protection by pointing out that a supplier was given notice of the 90-day terms in writing and went ahead and sold to Kroger anyway.

“Maybe that won’t make any difference, because I don’t think Kroger is going to go out of business,” McCarron said. “But if something did happen, then there would likely be some sort of a dispute if the produce suppliers weren’t paid in full,” he said. “Then the lender and or Kroger would say, well, ‘They knew what the terms were they were going to be outside the 30 days there would be no trust protection and therefore, that’s their problem.’ ”

McCarron said that scenario would be a “real mess.”

Kroger could reconsider its policy given the push-back it is getting from Western Growers and the produce industry, he said. 

“Maybe there’s some way that they could try to resolve this because it’s so far out of balance just doesn’t make any sense,” he said. 

An email inquiry to Kroger about the issue did not receive an immediate response on June 21.
 

 

 

 
Comments
Submitted by R Henry on Wed, 06/20/2018 - 16:59

It's amusing a corporate behemouth seeks financing from suppliers a mere fraction of its size. It's really just a dumb joke.

If memory serves, Kroger made a similar demand in the early aughts.

Submitted by Bruce Shackelford on Thu, 06/21/2018 - 06:34

When you buy from the store you pay cash, debit or credit as you leave. These giant chains want you to wait longer than it takes to grow many crops to be paid for a item that they have a 7 day or less investment. Farmers have to finance their crop and now we have to finance chain stores?

Submitted by Andrea S Chavez on Thu, 06/21/2018 - 10:01

If all of Kroger's produce suppliers hold firm to their PACA trust provisions, Kroger will not have any produce in their stores and consumers will stop shopping there. If produce suppliers submit to Kroger's new requirements, other chains may follow suit. Is this how us farmers and produce suppliers want to do business in the future?

Submitted by R. Cohen on Thu, 06/21/2018 - 10:02

Farmers have had their money out and in the ground for 3-4 months before they can even generate the first invoice. (that's the risk they take on.) Now they are being expected to go another 3 months before they see the first dime??!!! Six to seven months to see your cash come back?

Time to find better and faster paying customers.

Submitted by Mike Martino on Sat, 06/23/2018 - 19:31

This is quite of a concern for the grower shipper . Produce is very vilotal business, without the farmers we are in trouble.The majority of the time the MARKETS get glutted and farmers are force to sell for less than it cost to grow. I see Mexico dumping tomatoes for $3.60 for a 25lb box delivered and the stores do not pass this on to the consumer's. They charge a $ 1.49 a pound and get it because the regular Joe's at the stores do not know. Take California for instance with all of their rules which are pathetic. If a company runs a truck from Texas to California the freight rate is
$ 2000.00 to the truck then California to Texas that same truck gets
$ 7500.00. The drivers get paid right away with the best companies . The farmer who has to gamble his money to grow produce and mother nature permitting has to pay his or hers employees weekly and if their products arrive borderline they lose . The box ,the pallets and pre - cooling are another expense overlooked. The farmer should be paid in 7 to 10 days after arrival. 90 days are unacceptable. I see mis- management on their part . My father was in the produce business for 39 years . If there was an invoice in his desk it was paid . All invoices were paid. Being a produce buyer is not an easy task .A good buyer stays up on markets ,watches the weather and knows what each store sells ,knowing t
your clientele and buys accordingly. You can go to college but this is something that a person needs to grow up in. Pay the farmer and support farmers in every state . Get out of the office and visit your growers .

Submitted by Norma Hofmeister on Mon, 06/25/2018 - 11:56

Anytime a customer dictates extended terms it sends up red flags. I wonder about their viability of their future.

Submitted by Norma Hofmeister on Mon, 06/25/2018 - 11:56

Anytime a customer dictates extended terms it sends up red flags. I wonder about their viability of their future.

Submitted by JP Garey on Fri, 06/29/2018 - 11:14

Didn't Kroger just announce a bold plan to develop driverless delivery cars. If they have money for that, maybe they should pay suppliers on time.

Submitted by R HENRY on Fri, 06/29/2018 - 12:48

Gotta love that "Valued Supplier" salutation.

If Kroger truly values it's suppliers, why would it force them to provide an additional 60 day financing at their own cost?

Greed is ugly.