Kroger Drops 90-Day Pay Policy for Produce: Industry Responds
Following negative reaction from the produce industry, the Kroger Co. has officially reversed a recently implemented policy, now saying that produce suppliers protected under PACA aren't required to commit to new 90-day payment terms for all suppliers.
In a letter to Judith Wey Rudman, USDA’s Perishable Agricultural Commodities Act division director, Matt P. Hodge, CPSM, Kroger’s senior manager of sourcing finance, reiterated that it sees its suppliers as “essential partners for shared success,” and that it never intended for PACA-eligible produce suppliers to waive their PACA trust rights.
“Our produce suppliers received a letter outlining our recently modernized payment terms and supply chain finance opportunity,” he said. “We’ve shared with individual produce suppliers that we will respect existing contractual and legal mandates, including PACA.”
Added Hodge: “I’d like to take this opportunity to clearly state that produce suppliers protected under PACA are not required to participate in Net 90 payment terms. For those PACA-eligible produce suppliers who are interested, we will continue to negotiate for payment terms that are permitted within their PACA trust rights.”
Cincinnati-based Kroger enacted the change to streamline its cash conversion cycle, more efficiently manage its working capital so it could reinvest in its business and harmonize its terms with industry peers, according to its original memo detailing Net 90. However, several associations and suppliers, such as the National Association of Perishable Agricultural Receivers, responded that compliance with Net 90 would automatically force produce suppliers to waive their rights under the Perishable Agricultural Commodities Act (PACA), which recognizes the suppliers’ “unique position” as providers of a highly perishable commodity, and ensures that they're first in line to receive payment for their produce in the event of a buyer’s bankruptcy.
Industry associations offered strong support for Kroger's decision to waive the Net 90 for produce suppliers:
California Fresh Fruit Association
The California Fresh Fruit Association (CFFA) expressed its satisfaction with Kroger’s statement, reminding that it still believes forcing produce suppliers to submit to Net 90 would be “wrong and illegal.”
“We appreciate Kroger’s acknowledgement that the 'Net 90' payment plan didn’t work for the produce industry. ... To force suppliers to forfeit their rights under the Perishable Agricultural Commodities Act, an act created specifically to protect the perishable fresh fruit industry, was unconscionable and should never have been proposed,” California Fresh Fruit Association President George Radanovich noted.
Radanovich commended the fresh produce industry for “coming together as a unified voice” for the industry, and that collectively, produce suppliers “held the line on an important issue.”
“As I’ve stated before, the fresh produce industry has been a good partner to Kroger,” he said. “We appreciate that Kroger remembered that partnership and fixed the mess it created.”
National Association of Perishable Agricultural Receivers
The National Association of Perishable Agricultural Receivers (NAPAR) is "delighted" that Kroger listened to the industry, as well as acted to address the concerns it expressed.
“Kroger’s letter to the director of USDA’s PACA division clearly stating that it was the retailer’s intention to exempt produce suppliers from its new 90-day payment policy was welcome news and the right thing to do,” said Matthew D’Arrigo, CEO of D’Arrigo Bros Co., of New York, and chairman of NAPAR. “Produce suppliers deal in a highly perishable product and need the protection provided by PACA.”
Western Growers said that it was “gratified and appreciative” of Kroger's attentiveness to its suppliers and subsequent decision to rescind the implementation of Net 90. The organization additionally reaffirmed its firm stance that PACA trust rights are “never negotiable.”
“We also want to acknowledge the associations across the country who unified together and provided the business rationale for why the announced policy would not be in the best interest of farmers and sellers of fruits and vegetables,” noted Matt McInerney, Western Growers SEVP. “Finally, we want to acknowledge USDA/PACA for taking an active outreach role with Kroger, which resulted in the letter rescinding the policy.”