Farm Progress

Growers who sell to Kroger stores were recently told of a new payment policy that likely violates federal law

June 28, 2018

2 Min Read
Growers who sell crops like lettuce to Kroger stores could be forced to wait an entire crop cycle to be paid.

Kroger, the large national food chain with nearly 2,800 retail stores in 35 states, recently garnered some negative attention when it announced new financial protocols that may violate federal law. The new store policy effectively demands that farmers waive their rights under the Perishable Agricultural Commodities Act (PACA).

Some of Kroger’s brands Ralphs, Smith’s, Foods Co., Food4Less, and Fred Meyer. Annual sales, exceed $115 billion, according to the company website.

Under a company policy called “Net 90,” vendors who sell to Kroger will fall under the same invoice payment policy. This means produce growers who ship to the chain could wait up to 90 days to be paid. For some crops that’s an entire growing cycle, meaning farmers who grow lettuce, for example, would have to float the cost of an entire crop while waiting for the chain to pay them for the one they just sold.

Growers will then be forced to lean harder on their banks for additional lines of credit to pay for things like seed, fuel and payroll while their grocer has long-since sold that food and is using the proceeds to build their business on the backs of farmers.

Kroger claims it wants to streamline its payables process – make it more efficient and allow the chain to reinvest in the business. It sounds like they just want to hold onto someone else’s money a little longer, which is tantamount to a 90-day, interest-free loan. Who wouldn’t want terms like that with billions of dollars on the line?

Perhaps even more offensive in this move is the suggestion that farmers can simply request to be paid early “for a price.” A $1 million invoice will be discounted by about $7,200 if the farmer chooses to apply to Citibank, a third-party partner of Kroger, to pay producers before the 30-day PACA deadline.

I’ve long been perplexed at the notion that farmers can create a raw product necessary to sustain life, but when it comes time to sell that raw product, the buyer gets to dictate the price. When was the last time someone could buy a smart phone or automobile, for instance, and totally set the price they wanted to pay, regardless of whether it's a fair or even profitable price? This may be a poor example in that cars and cell phones do not provide life-giving sustenance, but you get the idea.

The argument that if Kroger can get away with this, then ideas like this will spread to other chains is valid and has precedent. The entire notion of the vaguely-defined “sustainability” movement is already driving not only what grocers choose to buy, but allows farming practices to be micromanaged from board rooms and agencies far-removed from the farm.

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