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A Challenge To USDA: Bring Good Delivery Standards Into Line With 21st Century Receivers

Our piece, Making Life Tougher For The Little Guy: USDA Good Delivery Standards Have Not Kept Up With Industry Standards, brought a great deal of response from people searching for answers, including this letter from a respected industry member:

Thanks for publicizing Mike Pflueger’s story.

We both have known Mike and his business ethics for many years.

What courage he had to close his longstanding successful business for a principle!

How can PACA let the bad guys win while a well-respected,  honest and fair member of our produce community be forced to close his doors rather than give into an unfair judgment?

PACA rules are outdated and seem to always favor shippers.

I have had to pay for merchandise that made good delivery standard but was rejected by every chain store that received it.

Having been in business for over 70 years with impeccable ratings, our company always has to abide by PACA rulings and absorb many unfair PACA rulings mostly dealing with the tolerances for ‘good delivery standards’ that are way beyond our customers’ tolerances.

Often we experience, as in Mike’s case, overly stringent regulations that won’t consider common sense.

Should a re-inspection a few days later on hardware like garlic not count for something?

I am a grower and shipper of Chilean garlic and fruit who appreciates the PACA regulations (those that prevent companies from taking advantage of its members).

Over the years, PACA has saved me from large losses on credit issues and all of us in the produce business rely on that, but Mike and the Pundit are correct: It’s time to review many of the antiquated PACA rules….

How can we initiate fair change?

— Zach Schulman
New York Export Co Inc.
Nexco Chile S.A.
Isla Produce Inc.

Zach’s letter is thoughtful and it really raises the issue of whether the receiver community has any true representation at all.

United, with its strong terminal market history — the United in its title refers to the union between receiver and shipper organizations — should be the one to represent the concerns of shippers on this matter.

However, United depends heavily on grower-shippers for its financial support, and many of these shippers would perceive a tightening of good delivery standards as not in their interest. So there is a question as to whether, whatever the justice of the cause, United is really going to be willing to spearhead an effort to bring good delivery standards into the 21st century.

There is NAPAR — the North American Perishable Agricultural Receivers — which was founded, specifically, to deal with the fact that United could not always represent receivers when their interests conflicted with shippers. NAPAR is, however, very small with no full time staff, and it would have trouble waging the kind of campaign that is required.

So the wholesaler/distributor sector of the industry is left today, as so often before, without effective representation in Washington. The retailers at PMA don’t care about this issue because they have the market power to establish their own specifications.

The shippers at United don’t see any upside for themselves to stricter good delivery standards so they don’t see this as their issue.

And NAPAR is too small to make things happen on its own.

Is there a way out of the impasse? Perhaps two things could happen:

1) Perhaps an appeal could be made to the institutional integrity at USDA. The people at the department want to be relevant, want to be important, but they don’t work in the produce industry. They may not fully realize how far the department’s good delivery standards have drifted from industry practice.

We have many Pundit readers who work at the USDA. Perhaps to defend the relevancy of the department, one will champion a simple initiative. The goal should be to study the receiving specifications of Wal-Mart, Costco, Kroger, Safeway, Sysco and US Foods and then compare these standards against good delivery standards on each commodity. 

The idea is that these six companies represent contemporary industry standards, and any product that meets good delivery standards should be suitable to sell to these organizations.

Right now, USDA standards say that garlic, with 4% decay and 11% other defects, must be paid for as if perfect but such product is actually unsalable in mainstream commercial channels. Those who care about the long term relevancy and importance of the USDA should be fighting to bring USDA standards into line with commercial expectations. Otherwise, one day, someone will ask what is the purpose of maintaining this whole infrastructure.

2) The grower-shipper community will come to see its interests in a longer term perspective. It may currently seem that lower standards are good for grower-shippers but they rarely are.

This product, in the end, has to be eaten by consumers, and allowing low quality producers to foist such product on the unsuspecting public will not serve to boost consumption.

In addition, disjointed USDA standards increase friction in the market. This adds costs that increase prices and thus depress demand. The whole purpose of USDA grade standards and good delivery standards is to reduce friction in the market by allowing procurement to be done easily.

Most good shippers deal in the commercial world and know they would be bankrupting their customers of they shipped garlic with 4% decay and 11% other defects while insisting the customers pay full price for it, so they don’t really get any protection from this lower standard. Therefore, they would benefit from stricter rules that kept sub-standard players out of the game.

The question is whether they can be brought to see this long term interest.

Many thanks to Zach Shulman for helping us think through this important issue.

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