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Kroger’s New Payment Policy A Cause For Concern For Produce Industry

A Kroger produce department

Kroger recently sent out a letter to produce shippers outlining its new 90-day standardized payment policy, which takes effect Aug. 1, 2018. According to a number of produce industry organizations, the new policy conflicts with protection rights under the PACA Trust, and agreeing to any extension beyond 30 days automatically forces produce suppliers to waive their PACA Trust protections.

Among those speaking out against the policy are Western Grocers, which represents fresh produce farmers in Arizona, California, Colorado and New Mexico, and the National Association of Perishable Agricultural Receivers (NAPAR), which represents produce wholesalers and receivers.

Western Growers says it has coordinated a coalition of regional and national associations to encourage a unified push back against the new policy, with the goal being to bring as much public attention to the issue as possible. 

“Although Kroger has since indicated ‘flexibility’ for produce suppliers, it is in our best interest to urge Kroger to make an official announcement rescinding the policy with specific clarification stating the policy does not apply to fresh produce,” said Matt McInerney, Western Grocers senior EVP, in a statement. “Kroger plans to talk with suppliers about payment options, however, the only acceptable option is coverage under PACA Trust terms and payment consistent with those terms.

“Western Growers views this request by Kroger as establishing a dangerous precedent and potentially the beginning of similar demands by other buyers,” McInerney continued. “While WG is pursuing all efforts to obtain the only acceptable outcome, which is to have the policy rescinded, all fresh produce sellers need to show a unified stance in writing Kroger declining the 90-day terms as unacceptable. Together, we must do the right thing and strive to preserve the PACA Trust rights for the produce industry.” 

“The Perishable Agricultural Commodities Act, or PACA, was signed into law in 1984 to protect produce suppliers. It recognizes the unique position of produce suppliers as the providers of a highly perishable commodity,” said NAPAR in a statement. “It ensures that they are first in line to receive payment for their produce in the event of the buyer’s bankruptcy. Agreeing to payment terms in excess of 30 days results in the automatic loss of PACA protection. That’s the law.” 

Many produce suppliers, especially wholesalers and receivers, are small, family-owned and -operated businesses providing highly perishable produce to large retailers and foodservice businesses.

“PACA was meant to level the playing field in the produce supply chain,” NAPAR continued. “It protects the wholesaler supplying the food industry’s giants.”

Matthew D’Arrigo, of D’Arrigo Bros Co. of New York Inc. and chairman of NAPAR, advised members “to proceed with extreme care. Agreeing to any retailer’s 90-day payment policy would forfeit their rights and protection from the PACA Trust.  This is not a decision to be made lightly and may not be good business practice.”

D’Arrigo also called upon The Kroger Co. to exempt produce suppliers from its new policy. 

“It may be a workable policy for the many non-perishable suppliers Kroger has, but providing fresh produce is a very different business. The process from harvest to sale in the grocery store is short, and produce suppliers need to be paid promptly to cover their expenses.”

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