The Kroger Co., which operates Foods Co grocery stores in California, including the one in Fresno pictured here, submitted a letter on Monday reversing its policy of 90 day payments for produce suppliers. Photo by David Castellon.
A decision by the nation’s largest grocery chain to extend to 90 days its purchase payments to all its suppliers has raised the ire of farmers across much of California.
The dispute stems from The Kroger Company’s recent letters to its suppliers stating that starting Aug. 1, it would end its policy of paying those suppliers within 30 days and instead make the payments in 90 days.
In one letter, the company states the change is intended to smooth the company’s cash conversion cycle, allow it to more effectively manage its working capital to re-invest in the business and to “harmonize our terms with industry peers.”
But two group representing large numbers of California farmers are objecting to the actions of Kroger, which in California operates FoodsCo grocery stores, including those in Hanford, Fresno and Tulare.
“Farmers are in business as well, and farmers have their own banks to deal with on different loans, and they have their own payment plans, and to change this business model – especially for our commodities in the middle or early portion of the season — that doesn’t work for us,” as waiting up to a couple of months extra to receive payments for their goods could be difficult or impossible for some farmers to manage, said Ian LeMay, director of member relations and communications for the Fresno-based California Fresh Fruit Association.
“It is inappropriate, if not illegal to force suppliers to forfeit their rights under the Perishable Agricultural Commodities Act (PACA)” the association’s president, George Radanovich, stated in a press release.
PACA is a law from the 1930s intended to prohibit unfair trade practices in the sales of fruits and vegetables, as well as to assure that sellers are paid promptly.
Radanovich’s statement goes on to describe PACA as “an act created specifically to protect the perishable fresh fruit industry. We are very disappointed with Kroger’s decision.”
On its website, Western Growers states that if growers agree to allow payments after 30 days, they forfeit all their PACA protections.
“The produce industry supply chain has benefitted from the trust provision since 1984,” Irvine-based Western Growers’ statement continues. “Any shipper’s best business practices mandate that you not waive trust rights, regardless of who may be requesting the waiver. Also, if you have outside growers, you will remain liable to them for any nonpayment. Based on those aforementioned reasons, it is recommended that you contact Kroger about your concern with the new 90-day payment policy.”
“We’re pushing back and saying this is a bad policy. It’s a law for a reason,” LeMay commented.
He added that Kroger has backpedaled slightly, announcing that individual agreements with quicker payment schedules could be worked out with some suppliers and then announced a deal through CitiBank “that basically, you’ll pay .72 percent on whatever your sale was to get paid immediately. So out of a million dollars, you would pay $7,200 to get your payment immediately.
“You see the ridiculousness in that,” LeMay said, adding, “That’s bad business, and it doesn’t make sense.
“It’s a law for a reason, and we don’t want to see people peel off and try to do side deals with Kroger.”
The Cincinnati-based grocery chain didn’t respond to an interview request.
“It is our understanding the Kroger [Co.] has expressed a willingness to be flexible with this new policy, but ‘flexibility’ in this matter won’t help,” Radanovich’s statement continued.
“By this action, they have opened the door for other retailers to violate supplier rights protected by law. Our industry should not and will not stand for attacks like this.”
LeMay added that “Kroger just needs to go back to the 30-day policy, and that’s where we’re at today.”