The value of trust

The PACA Trust is a testament to what works.

When it was conceived, passed by Congress, and implemented, it was tested by banks, fearing they would be left holding the bag if unsecured creditors went before secured creditors.

“Whoever heard of such a thing” was the outcry from banks as it seemed almost unpatriotic and an upheaval of common sense established financial rules. However, after many court challenges, the Trust was upheld and is not only the law of the land but recognized and accepted as a needed and important business tool.

This is not to say the Trust does not continue to come under duress or be challenged. Witness the challenge brought by Kroger when it sought to implement payment terms, favorable for the company, but outside the parameters of the Trust.

Had the challenge been allowed to succeed, the Trust would, in effect, have become worthless. The industry and PACA knew this challenge could not stand, and to Kroger’s credit, it was withdrawn, keeping the Trust intact.

The Trust is not a subsidy; rather, it is a realization that the produce industry is unique: for the free trade of fruits and vegetables to succeed, it has been deemed important that pay within well understood parameters, no more than 30 days, be law.

If we were talking about steel or aluminum, prompt pay wouldn’t be such a big deal, but produce is a living, breathing commodity that quickly changes and spoils, hence the need for prompt pay. The industry recognizes the importance of the Trust, all parties understand how it works, and the courts have given it credibility and validity.

Wouldn’t it be nice if the Trust need not exist? For this to occur, it would require all parties to fulfill their transactional responsibilities to pay promptly and act fairly. Human nature, being what it is, renders such a universal ideal unworkable.

Economics also play a practical role—businesses sometimes run into financial difficulties and are unable to fulfill their responsibilities. Thus, the need for the Trust. We do not live in a perfect world of supply and demand, nor are all business entities capable or inclined to pay promptly. The Trust may not be perfect, but it is clearly the best solution available and is deserving of everyone’s respect and protection.

The PACA Trust is a testament to what works.

When it was conceived, passed by Congress, and implemented, it was tested by banks, fearing they would be left holding the bag if unsecured creditors went before secured creditors.

“Whoever heard of such a thing” was the outcry from banks as it seemed almost unpatriotic and an upheaval of common sense established financial rules. However, after many court challenges, the Trust was upheld and is not only the law of the land but recognized and accepted as a needed and important business tool.

This is not to say the Trust does not continue to come under duress or be challenged. Witness the challenge brought by Kroger when it sought to implement payment terms, favorable for the company, but outside the parameters of the Trust.

Had the challenge been allowed to succeed, the Trust would, in effect, have become worthless. The industry and PACA knew this challenge could not stand, and to Kroger’s credit, it was withdrawn, keeping the Trust intact.

The Trust is not a subsidy; rather, it is a realization that the produce industry is unique: for the free trade of fruits and vegetables to succeed, it has been deemed important that pay within well understood parameters, no more than 30 days, be law.

If we were talking about steel or aluminum, prompt pay wouldn’t be such a big deal, but produce is a living, breathing commodity that quickly changes and spoils, hence the need for prompt pay. The industry recognizes the importance of the Trust, all parties understand how it works, and the courts have given it credibility and validity.

Wouldn’t it be nice if the Trust need not exist? For this to occur, it would require all parties to fulfill their transactional responsibilities to pay promptly and act fairly. Human nature, being what it is, renders such a universal ideal unworkable.

Economics also play a practical role—businesses sometimes run into financial difficulties and are unable to fulfill their responsibilities. Thus, the need for the Trust. We do not live in a perfect world of supply and demand, nor are all business entities capable or inclined to pay promptly. The Trust may not be perfect, but it is clearly the best solution available and is deserving of everyone’s respect and protection.

C. James Carr is president and CEO of Blue Book Services, Carol Stream, IL

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