Surviving the Demands of the Produce Industry
The United States consumes a large amount of fruits and vegetables the top being potatoes and orange juice, according to the USDA. The produce industry has changed dramatically over the last several years, as large retailers and food service companies have had to adapt their business models to meet the demands of the end-consumers. Most of the large commercial buyers demand high quality products, in large consistent volume, and visibility on the origin of the produce.
Most suppliers either grow products themselves or contract with farmers through joint ventures. In some cases, the suppliers are fronting the contract growers’ supplies to grow crops. The large commercial suppliers have also adjusted their wholesale buy/sell programs as the end-customer demands products come from their farms. The larger supplier operations are based in the Southern US, Central and South America on company owned or contracted farms.
One of the biggest working capital challenges facing producers today is the Perishable Agricultural Commodities Act (“PACA”). Most large operators in the US are buying product for cash to avoid PACA issues, or asking the contracted farmers to waive their PACA rights until paid in a timely manner. To ensure there are no potential PACA issues, buyers must pay suppliers cash within 30 days. Additionally, large commercial buyers usually pay their suppliers within 30 days, but during times of high demand, normal payment is extended past 45 days.
The cash flow pressures on suppliers are a direct result of cash outlay for growing crops, contracting with growers, and purchasing produce with cash. Having a flexible working capital solution in place can help with day-to-day needs and lower a suppliers PACA risks. Seacoast Business Funding alleviates these challenges for suppliers through our Asset Based Lending or Factoring solutions.