December, 1999

Fruits of Thought

Inspecting Standards

The focus on the bribery scandal in Hunts Point, in which inspectors are alleged to have accepted bribes to throw loads out of grade, has usefully focused attention on inspection reform. Just as important, though, and almost completely ignored in coverage of this scandal, is the nature of the grade standards themselves and, more importantly, the standards for good delivery.

One cannot understand what goes on at the wholesale markets without understanding how the antiquated nature of grade standards and good delivery standards interplay with the desperate desire of wholesalers to get items thrown out of grade.

In some cases, the grade standards themselves are relics of outdated varieties and a different level of consumer expectation. In apples, for example, a Washington Extra Fancy Red Delicious apple must be at least 66 percent good red color to meet the grade standard. Yet the internal procedures at quality shippers require at least 90 percent good red color. This almost completely red apple has become the expectation of the market. In this disparity, one finds a truth: A shipper can fully be meeting grade standard and still be ripping off the receiver.

As a practical matter, this does not apply to large supermarket chains that explicitly or implicitly buy all produce only with the “right of rejection”, but these problems with grade standards apply in all their force to smaller wholesalers who don’t have the same leverage as a giant chain store.

Receivers will frequently buy only the top grade, but that is not really the truth. Grade standards apply at the shipping point. In the F.O.B. sales that are customary in the industry, shippers are not responsible for shipping product that will arrive meeting grade standards. Instead they have to ship product that will, under normal transportation, meet good delivery guidelines.

Unfortunately, the Perishable Agricultural Commodities Act provides a specific good delivery standard solely for lettuce. For every other item, there is a sort of hazy standard defined by trade custom. In most cases, this means that the good delivery guideline will be 50 percent over whatever the grade standard allows at F.O.B. So, if the grade standard causes an item to fail to make grade due to 8 percent total defects at shipping point, good delivery standards establish that the same item will fail to make grade with 12 percent total defects.

The most important thing to note is tremendous disparity between the expectations of the marketplace and the good delivery guidelines. Good delivery standards for western oranges, for example, generally allow for up to 5 percent decay. This means that when one orders a trailer of 113 size oranges, every single box can have five oranges covered in mold and still meet good delivery standards.

Look, everyone understands that odd imperfection, the one box in a trailer with mold showing up. But today the market expectation is for generally perfect product. On items such as grapes or oranges, no chain store will buy the product if it doesn’t generally have zero percent decay.

None of this matters if you are a giant chain store with such buying power that you can just reject the load. All these rules also don’t matter if one can count on getting things thrown out of grade illicitly.

But they sure do matter to an honest terminal market buyer who is trying to buy good product he can resell. Beyond this, it matters to the general principle of grade standards. These standards exist to smooth the functioning of commerce – to enable a buyer to order a particular grade and know what one is buying.

The existing standards were established, with few exceptions, during an age when varieties were very different from what we have today, when pre-cooling and other packing technologies were non-existent and when transportation to New York might have involved a rail car with ice being poured on top as a form of refrigeration, followed by a barge ride from New Jersey to New York, finally with the product being pulled by a horse over to the Washington Market.

There have been a few bright lights. A few years back, the Washington Apple industry pushed and succeeded in having the standards changed to require minimum firmness in Controlled Atmosphere apples and to include watercore as a defect. The growers of Washington State recognized that it was not in their interest to have buyers be uncertain of quality when ordering apples.

Growers in every industry should want buyers to purchase with complete confidence. This means that USDA grade and good delivery standards have to be revised to conform to accepted commercial practices.

This will be frightening for growers because it is going to mean that they will not have wiggle room. Those who buy top grade stuff will have the right to expect decay-free deliveries and full colored fruit. But the truth is that these are the contemporary marketing standards, and growers deceive themselves if they don’t realize that anything less is a number 2, not the top stuff. Besides, the ease of buying created by realistic grade standards would rebound to the benefit of all growers.

And it would restore grade and good delivery standards to their proper place: Instead of being a riddle for aficionados to decipher, modernized grade and good delivery standards would give a modernized inspection service a way to usefully contribute to maintaining an efficient and fair produce trading system.  pb