UFFVA CONVENTION 1999-02-15

ROBERT VOSBURGH

SAN DIEGO -- Like an orange, produce grower/shippers are being squeezed for extra profits by retailers who are using business practices once thought confined to Center Store, a panel of government and industry officials said at the United Fresh Fruit and Vegetable Association convention here.

Slotting fees, rebates, allowances and related payments are becoming a regular part of doing business in produce these days; in a revitalized department that has risen meteorically from a simple commodity dumping ground to a high-margin destination for precut vegetables, fancy herbs and gourmet mixed greens, they said.

The nature of these practices will be the subject of a federal study conducted by the Economic Research Service of the U.S. Department of Agriculture, Washington. The findings may then be presented to Congress for committee hearings.

"You want to be sure that if you pay for eye-level [shelf] space, you got it," said Susan Offutt, ERS administrator.

Certainly, there are a myriad of factors at play in this subject, the panelists agreed, beyond the fact that produce consumption is way up, creating profits ripe for the picking -- a move away from spot, terminal-market pricing to longer-term, exclusive contracts; retail consolidation that reduces competition; pressure on retailers to protect their existing customer base from niche competitors; advances in technology like electronic data interchange that favor larger suppliers; and the need to bolster thin gross margins with additional revenue sources.

"There are a growing number of examples of companies that appear to seek profitability from up-front cash fees, slotting requirements and other supplier payments as a more important consideration than actually moving high-quality produce to consumers," said Richard Matoian, president of the California Grape and Tree Fruit League. "In the produce marketplace, sellers are price-takers. Buyers know all too well that produce is highly perishable, so sellers must 'sell it or smell it.' "

Suppliers today also find themselves contributing warehouse construction and opening charge fees, refrigeration and fixture fees and hold-harmless agreements that protect buyers from liability "even though control of the product is no longer in control of the grower/shipper," he said.

At the same time, Matoian conceded that the retailer is not entirely to blame for the increase in questionable purchasing strategies. He noted that the number of grower/shippers is increasing at a high rate, including in his home state, where there were more than 2,600 firms licensed to sell produce in 1998, a "staggering" number.

"The industry is competing with itself, and falling all over itself, to sell to a limited number of buyers, which is growing smaller and smaller each day," he said.

Though the industry is feeling the pinch hard enough to bruise, many suppliers are still reluctant to step forward and publicly challenge the practices.

"Will a shipper protest if that protest means losing future business?" asked Matoian.

Part of the fear comes from the ability of buyers to "harass" the grower/shipper using tactics that are not necessarily new to the industry. They can refuse a shipment of produce on grounds it is poor quality, when it may be that the market price has retreated since the agreement was made, or because the buyer overbought the commodity, according to Matoian.

"There are also chronic slow-pay practices that are increasing. Many pay practices come close to or exceed the 30-day written contract provisions," he said.

Another panelist, Nicholas Pyle, vice president for environmental and legislative affairs for the Independent Bakers Association, urged suppliers intent on combating the retail practices to collect evidence in a legal manner through documentation and seek confidential interviews with federal regulators; or to face the buyer and openly negotiate for a tangible return on investment through placement in inserts and other benefits.

"Supermarkets are the seller of shelf space, and you are the buyer," he reminded the audience.

In the end, after all the studies and debate, some panelists agreed that a policy of "full disclosure," similar to those in effect in other industries, may be the best way to live with slotting fees and similar practices.