I receive daily inquiries from our shipper-members concerning problems on sales transactions happening on a real-time basis, or after the fact, and the member is endeavoring to arrive at a resolution. On such occasions, the inquiring-caller tells me that a federal inspection for condition and quality was secured at contract destination and he/she has granted the buyer Protection. My immediate follow up question is always to ask the caller what Protection means to them. Needless to say, I receive many unique explanations. Therefore, I want to break down for you the two most commonly used types of Protection, even though neither one is defined by the PACA federal regulations. As a caveat, I always encourage sellers of perishable commodities to stay away from undefined terms under the PACA, and Protection is a major one to avoid using.
Below is my attempt to explain the most commonly used Protection language within the industry and how it is interpreted by PACA:
Although the term “Protection” is non-defined in the PACA regulations, the term is often used in the industry in one of two ways:
1. “Market Protection” or “Price Protection”
This term protects the buyer against any market decline that might occur between the date of the sale and the date the product is received. The parties should agree before the sale whether the decline is to be based on the shipping point market or the destination market. If granting market decline adjustments is part of the shipper’s practice, there must be a reservation of authority to grant such adjustments in the contract with its growers. Sales agents should preserve records or other evidence that “protection” was discussed and agreed to prior to shipment. Market decline adjustments should not be used to justify a customer’s short pay sixty (60) days after shipment.
2. “Protection,” “Full Protection,” or “Protection Against Loss”
These terms should be distinguished from “market,” or “price protection.” A protection agreement is a modification of the original sales contract that leaves the original sales price as the baseline price for determining whether the buyer makes a profit, or is entitled to protection. When a buyer with protection fails to resell at favorable prices and experiences a loss, the protection should only compensate the loss, and should not include a profit in the form of commission or handling fee. If the gross proceeds of the buyer’s resale exceed the F.O.B. contract price, plus freight, then the buyer gets to keep the excess as profit. If gross proceeds of the re-sale are less than the buyer’s cost (F.O.B. plus price plus freight, delivered cost), the buyer deducts its freight cost from the gross proceeds, thus suffering no out of pocket loss. If gross proceeds are not enough to cover freight, then the seller who grants its buyer full protection must pay the remainder of the freight cost. In these instances, it is important to note that the seller is not always entitled to have access to the account of sales.
If the above mentioned explanation seems challenging to understand, then strongly consider never using the term Protection when attempting to arrive at a disposition of a load with your customer. Either grant an adjustment (allowance) or allow your customer to handle the product on a consignment basis (where you will be given a detailed account of sale).
As always, should you as a WG Regular member run into a situation such as this or would you like guidance on any problem files or disputes, please feel free to contact Western Growers Trade Practices Department’s Bryan Nickerson at [email protected] or 949-885-2392.
RIP Tommy O
As I conclude this month’s blog, I would be remised if I didn’t mention the passing of my good friend and predecessor Tom Oliveri aka Tommy O, which occurred on Thursday May 28th in his sleep at the age of 67. He was larger than words and dedicated his entire 40+ professional career to supporting the many men and women in the fresh produce industry. He was so passionate he couldn’t stay away, even after retirement from Western Growers in 2018. I owe and thank him for providing such big shoes to fill as I continue in the Trade Practices role, supporting WG’s membership.
Pictured below is Tommy O at Shaw’s Restaurant in Santa Maria, CA around June 2016. He loved a good steak after a successful day on the road, engaging with producers that feed the world. Rest in Peace Tommy O, until we meet again.