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The importance of the PACA proposal

The California Fresh Fruit Association and Western Growers BB #:144734 sent letters late last week to Agriculture Secretary Sonny Perdue and Congressional leaders suggesting a way for the Perishable Agricultural Commodities Act to stabilize the industry during the COVID-19 pandemic.

CFFA wrote: “In these unprecedented circumstances, we propose that the USDA guarantee the payment of all legitimate PACA Trust claims, to the extent these claims are not satisfied by the available PACA Trust assets (e.g., receivables realized from the sale of perishable agricultural commodities).”

The critical point of the proposal is that USDA would step in when receivers can’t meet their financial obligations and file bankruptcy.

“If USDA gave its full backing, it would keep the liquidity in the market,” said Ian LeMay, president of CFFA, in a March 31 interview.

He said since California agriculture groups sent the proposal last week, and then the $2 trillion Congressional recovery bill was passed and signed by President Trump on Friday, he’s heard positive feedback from both members of Congress and USDA.

But he had no indication when such a proposal could be adopted and implemented.

Steve Kenfield, vice president of marketing and business development for The HMC Group Marketing, Inc. BB #:129161 Kingsburg, CA, helped push the idea, and said it would provide necessary accounts-receivable protection for the produce industry.

Like LeMay, he said the key factor is liquidity and keeping as much business moving as possible and keeping as many companies in business as possible.

“We need credit to keep things flowing,” Kenfield said. “The bigger benefit is the courage to hang in there and keep trading,” and a guarantee from USDA would enable this and reduce the number of PACA actions that would result in suspensions of PACA licenses.

On March 30, a broad industry group of about 75 produce associations sent a letter to Sec. Perdue asking USDA to move quickly in stabilizing the produce industry using the recovery bill’s allotted funds.

The letter said, “USDA should immediately act to develop a disbursement plan to pay grower-shippers for debts identified from PACA licensees and customers along with other contractual obligations that cannot be repaid due to the collapse of the foodservice sector.”

LeMay said the broad produce industry has gotten behind this effort, based on all the groups that signed onto the letter.

“Sometimes not all of our viewpoints align, but in this, our intent is to position our industry for success,” he said.

An important angle in the proposal is that PACA trust claims filed prior to a bankruptcy filing would be ineligible for the USDA guarantee. This would discourage suppliers from filing premature trust claims that might force buyers into bankruptcy.

Full disclosure: Blue Book leadership helped with the proposal and fully supports the idea.

Additionally, as President and CEO Jim Carr wrote, “We are aware that many companies are seeking time extensions to pay vendors. This phenomenon is widespread and, frankly, applies across the board. We understand this and are sympathetic to companies who are doing the best they can to honor their commitments and contracts. For the present and until there is some semblance of stability in the market, Blue Book will not report that companies are seeking extensions.”

This PACA proposal isn’t the only idea that will help bring stability to the produce market, but it’s the best we’ve seen, and it can’t be implemented too soon.

Greg Johnson is Director of Media Development for Blue Book Services