In the fresh produce industry, maintaining strong customer relationships sometimes requires offering adjustments or allowances on shipments. This becomes crucial when your product arrives at its contract destination, undergoes a federal inspection, and fails to meet the contract specifications, such as the “Good Arrival Guidelines” or “Good Delivery” standards. Assuming there are no transit-related issues, this is when negotiating an allowance with your buyer should be considered.

The adage “your first loss is your best loss” holds particularly true in the produce industry. When offering an adjustment, it’s essential to document it immediately through written communication. For sales to wholesalers or customers at destination markets in major metropolitan areas, familiarity with the USDA Market News quotes at the destination is key. Understanding the market’s strengths or weaknesses can provide leverage in negotiating a fair allowance.

In a weak market, settling a claim before the product is sold might be challenging. In such cases, your adjustment can be based on the actual damages claimed, provided the original sales contract remains in effect. These damages are calculated based on the difference between what your customer should have received for the product versus what they actually sold it for, assuming prompt and proper sales practices. If an agreement on the adjustment can’t be reached at the time of arrival, do not permit your customer to independently adjust the invoice. Instead, remind them that the original contract is still in force and that any adjustment will be considered after their sales are finalized to determine if any damage occurred.

To calculate damages, use the representative prices for the commodity on the arrival date and at the contract destination. If available, utilize the USDA Market News Service for the closest market where the product will be sold. Refer to the average price range (from high to low quotes) for the produce in question. When provided with a detailed, accurate accounting from your customer, compare their average actual sales price to the Market News average price. This comparison helps determine the per-carton damages, if any. It’s crucial to focus on the gross sales prices before subtracting expenses like freight.

Example:
If the Market News average for your commodity is $19.50 per carton, and your customer’s average sales price is $15.75, the difference of $3.75 per carton represents the damages. If your original sale price was $12.00 per carton FOB, subtracting the $3.75 in damages results in a return of $8.25 FOB per carton to the shipper.

If Market News prices aren’t available for the destination, a delivered price can be used instead. In situations where your customer doesn’t provide a detailed accounting, you can calculate damages based on the percentage of total condition defects (excluding permanent defects) noted in the USDA inspection, using either the Market News quote or the delivered price.

Example:
With 22% condition defects and a delivered price of $19.50, the damages amount to $4.29 per carton. Subtracting these damages from an original FOB price of $12.00 per carton gives a return of $7.71 FOB per carton.

By mastering these methods, you can determine a fair adjustment or allowance for your customer. These are similar techniques used by the PACA to ensure a fair market return if the seller and buyer can’t agree on an adjustment when the product fails to meet “Good Arrival Guidelines.”

For Western Growers members dealing with a breach of contract due to failing to meet “Good Arrival” standards, I encourage you to reach out to discuss all options for resolving the situation in real time. Delaying these conversations could complicate the resolution process. As always, I’m here to answer any questions. You can reach me at 949-885-4808 or [email protected].