July, 1995

Fruits of Thought

PACA Deal Doesn't Guarantee New Law

Champagne is flowing as those produce industry members and trade associations involved in the battle over PACA celebrate the achievement of a compromise that has been unanimously approved by a subcommittee in the House of Representatives. Indeed, the forging of this compromise, which leaders from the United Fresh Fruit and Vegetable Association, the Food Marketing Institute, National American Wholesale Grocers Association and the National Grocers Association endorsed, was an achievement.

I think, however, that association leadership would be wise to save the champagne until their compromise agreement becomes law. Though it is possible it will be approved by the House, the Senate and the President, it is also possible that the compromise itself has created new enemies for PACA, which could derail the passage of this legislation.

The problem is that the compromise agreement was really not a compromise at all. Instead, what happened was the produce industry representatives kept all their positions and gave in to those powerful enough to stop the bill in the House, namely, the retail associations.

As such, the heart of this compromise is an agreement that exempts retailers and wholesale grocers from paying license fees. This is fine as far as political strategy goes, but it is unlikely to be sustainable long term and may not even survive the Senate. The dynamics in the Senate are significantly different than the dynamics in the House. The Senate runs because of the “unanimous consent” of its members. Let just one Senator object and a bill such as this can be derailed indefinitely.

Unfortunately, the unfairness in this bill’s financing compromise has easily created a number of people and organizations who may want to convince a Senator to stop the bill:

1) Foodservice Operators

Noticeably absent from the list of supporters of this bill was the National Restaurant Association. The NRA has not been involved in the PACA controversy, viewing it as a produce industry issue and relying on NAWGA – which also includes the International Foodservice Distributors Association- to protect the foodservice interests.

NRA is a politically potent lobby, with members in every congressional district. Let a foodservice operator, who has leaned his supplier will pay fees while the supplier of his supermarket/deli competition is exempt, get the ear of the NRA political staff in Washington and this bill will come to a dead halt in the Senate until foodservice distributors are treated equitably with wholesale grocers. Actually, it may not even take the NRA’s involvement. Every Senator eats in restaurants and has restaurant chains headquartered in his state. Let one businessperson explain this injustice to one sympathetic Senator and this agreement bogs down. In fact, long term, the financing program, as it now stands, will result in the foodservice industry paying a significant portion of PACA fees. This will be no more acceptable to foodservice than it was to retailers.

2) Foodservice Distributors

The bottom line is that foodservice distributors are treated unfairly under this bill. There is no reason why a foodservice distributor should pay a license fee but a wholesale grocer should not. It’s just a political power game.

3) Produce-Specific Service Wholesalers

Produce service wholesalers are particularly abused by this compromise owing to their small size and weak political position. This has been a vibrant industry in recent years, with wholesalers throughout the country springing up or converting from terminal market-type operations to provide all the services of the wholesale grocers, but strictly in the produce arena.

These companies compete aggressively with the large wholesale grocers for exactly the same accounts. Yet this compromise bill specifically exempts wholesale grocers from paying fees, yet compels produce-specific service wholesalers to pay fees. This is unfair and not sustainable.

4) Terminal Market Wholesalers And Brokers

Another party noticeable by its absence in the celebration of this accord is NAPAR, the National Association of Perishable Agricultural Receivers. It is possible that its members may be cowed into silence as both their suppliers and many customers of NAPAR members are on board for this compromise. But they cannot be happy with this agreement. Produce service wholesalers and terminal market wholesalers both compete with wholesale grocers for retail business.

5) Small Business

Small businesses also may feel aggrieved by the nature of the PACA compromise. Maintained in this deal was the highly inequitable form of financing, whereby every paying licensee kicks in the same fee regardless of volume. Increases are based not on volume but on number of branches. Whatever the benefits of PACA are, it is clear that one who ships 1,000 trailers gets much more of the benefits than the business that ships 10.

6) Others Outside Of The Produce Industry

Though the PACA trust has been simplified to reduce administrative costs, nothing has been done to treat truckers, floral vendors, fish vendors, bakery vendors and other vendors more fairly. As a result any one of these groups has a legitimate claim to bring to a United States Senator.

Aristotle taught us that fairness involves treating similarly situated people similarly. There is no risk of this compromise being called Aristotelian. This principle, in face, is violated in the PACA funding compromise. If we are going to keep PACA, what is needed is an alternative financing system that is fair to everyone.  pb