Lunching with a farmer's wife at a conference, she was commenting on the challenges of marketing produce.
"Time to rethink PACA? "
"That moment has been awhile..."
When I first encountered the Perishable Agricultural Commodities Act of 1930 twenty years ago, I was curious as to why fresh and frozen fruits and veggies would need its own set of rules for trade, and doubly suspicious that it was a government agency managing this program.
To be in the fruit and veggie business, on pain of civil prosecution, as noted above, players must
1. Pay a fee to join a club, in violation of the freedom of association clause in the Constitution, in order to do business,
2. and fund a trust program that resolves disputes and protects sellers from nonpayment when buyers become bankrupt.
Where have we heard this before? Ah yes, banking! How has the same sort of set up worked out in banking? Well, we get practices that ultimately take us from thousands of small and dozens of larger banks to hundreds of small and about four large banks. We get collectivization.
I think the item 2 above is far more damaging than item 1, because I believe the market driven solutions to dispute resolution and bankruptcy are superior to any that can be reduced to a government program, and the flipside is a government program causes atrophy in people's natural inclination to protect what is theirs. If the common pool will cover me when I play loose, I can play loose.
This is not theoretical supposition on my part. In the mid-1990s I consulted on export development with a couple of agricultural firms, one small and one huge. The small firm was quick to respond to the prescriptions, so that was fast and easy. The large firm farmed products under the PACA rules, and I could see the distortions caused by those rules throughout the company. The general manager that hired me had been victim to a scam possible only due to the unique rules of PACA, and he did not want to get similarly burned on export sales. It was my international trade specialty that allowed me to compare and contrast the two systems, and see clearly the disadvantage of trading under PACA rules domestically.
The aforementioned scam was made possible by PACA when some gangsters took over a small, very well respected grocery broker and quietly placed orders all over the country, full container loads, and directed they all be shipped to Mexico, leaving (if I recall directly) Labor Day weekend giving them a 3 day start before any rumors might feed back to the principals. Mexico at the time was a no-problem destination since all of the responsible parties were USA members of the PACA program, of which the gangster-infested small broker was a member in good standing.
Once the containers were in Mexico, they would be quickly looted and distributed into untraceability, sold for cash, for a tidy sum, the only loss being the ownership of the small, respected trader for which they simply would stop making payments and forfeit ownership. What do they care..? No downside, all upside.
To this large corporate orchard, ten container loads at a good price from a respected dealer in USA was a cause for celebration. What could go wrong..? By Monday, enough truckers short of equipment, Customs officers at the border complaining of overwork, bragging rights among farmers revealing EVERYONE got a huge order from the small trader alerted first the brightest and eventually even those in denial to figure it out. Scam!
Now recall this program is self-funding. Who will have to make up the losses? The people who lost, they themselves. Also, the rules have a duty to mitigate, that is, if you know something is up, you have to do what you can to undo the damage being done. That means, get the manifests and start tracking each container and see if it has crossed the border, if not, stop it, and call it back. On your dime.
What a mess! Maybe half made it into Mexico, and some were found as far away as on the USA side in Texas (from Washington State) since the scamsters caught on early Customs was noticing something as up and began redirecting the shipments to other border crossings. (And then again, Customs wonders how come so many Washington apples are crossing at Laredo?)
Now keep in mind most apples and pears are packed to order. The fruit is pre-sorted and then packed in 40 pound boxes to buyers specification. To pack it ship it, then bring it back is to give the load a good beating, and then store it packed in hopes of a sale that matches the pack. Ugggh... and then the paperwork to redirect goods back that you no longer legally own, whole lotta processing going on.
Now I surmise that one of the reasons we do not have as much fresh export as we could, or not as much for which there is demand, has to do with the PACA rules fostering an atrophy of natural inclinations to defend what is yours: your produce. And without growers doing the exporting, necessarily they cannot get as much for their produce as they could. They are price takers, not price makers.
So even if they got it all back (and they did not) the program is not much help in recovery, but facilitates loss. Why tolerate it?
Say you a playing pro-football, and don't like the referees, and want a different set of referees. The problem is to advocate change is dicey as long as the old referees are in charge. They can make calls deleterious to your interest as long as they are still in control.
The big irony is while farmers may have an outsized reticence to exporting based on the atrophy attendant to the PACA regime, export agents live in a wild west world in which relationship is everything, and misbehaviour leads to catastrophic shunning. There is a gap between the regime in place domestically in USA which controls and informs farmers, and the natural real-world business in the export trade. If the free market recourse works for perishable in int'l trade, why would it not work in domestic trade?
With so many Stalinist-inspired loopy government programs still in effect, why pick on PACA? Well, PACA would be another candidate for cutting back on government and restoring freedom. Just as the solution to the Post Office mess is to "corporatize' (not privatize) the USPO, so to with the PACA regime. Announce the program loses its monopoly in 2 years, at which point al of the assets and liabilities of the program become owned by the workers, past and present, in the program, and association with the program becomes voluntary (see point one above.)
O! All eyes on the suggestion box! For the next two years the official folks populating PACAdom would be listening very closely to their target market, and bankers and insurance companies would be eyeing either competing with the voluntary-PACA or buying it from the new owners, the PACA workers.
PACA is a problem, and as the farm-lady said, its time has come. There is a way out in which everyone wins, and that is always the peaceful free market process.
What do you think?
Feel free to forward this by email to three of your friends.
"Time to rethink PACA? "
"That moment has been awhile..."
When I first encountered the Perishable Agricultural Commodities Act of 1930 twenty years ago, I was curious as to why fresh and frozen fruits and veggies would need its own set of rules for trade, and doubly suspicious that it was a government agency managing this program.
From wiki: The Perishable Agricultural Commodities Act (PACA) of 1930 — (P.L. 71-325 (June 10, 1930), as amended) regulates the buying and selling of fresh and frozen fruits and vegetables to prevent unfair trading practices and to assure that sellers will be paid promptly.Well, who could argue with that? We are all for fair trade practices and against unfair trade practices... apparently in 1930, as the depression dawned, there were sharp practices in the grocery business. Along with PACA, there were programs such as burning crops and killing livestock to force the prices up to deal with the depression. Never mind falling prices is the evidence the cure is happening, governments want prices only to go up, so their subjects are like the patient whose fever does not go away. Control.
Both produce sellers and buyers must pay fees for a license in order to do business, and these license fees are the source of funding for a trust program that resolves disputes and protects sellers from non-payment when buyers become bankrupt.Well, what makes greengrocers goods need a special venue? Perishability? For all of the nuances of the lex mercatoria, upon which the UCC is based, it fails fruits and vegetables? Sounds unlikely...
To be in the fruit and veggie business, on pain of civil prosecution, as noted above, players must
1. Pay a fee to join a club, in violation of the freedom of association clause in the Constitution, in order to do business,
2. and fund a trust program that resolves disputes and protects sellers from nonpayment when buyers become bankrupt.
Where have we heard this before? Ah yes, banking! How has the same sort of set up worked out in banking? Well, we get practices that ultimately take us from thousands of small and dozens of larger banks to hundreds of small and about four large banks. We get collectivization.
I think the item 2 above is far more damaging than item 1, because I believe the market driven solutions to dispute resolution and bankruptcy are superior to any that can be reduced to a government program, and the flipside is a government program causes atrophy in people's natural inclination to protect what is theirs. If the common pool will cover me when I play loose, I can play loose.
This is not theoretical supposition on my part. In the mid-1990s I consulted on export development with a couple of agricultural firms, one small and one huge. The small firm was quick to respond to the prescriptions, so that was fast and easy. The large firm farmed products under the PACA rules, and I could see the distortions caused by those rules throughout the company. The general manager that hired me had been victim to a scam possible only due to the unique rules of PACA, and he did not want to get similarly burned on export sales. It was my international trade specialty that allowed me to compare and contrast the two systems, and see clearly the disadvantage of trading under PACA rules domestically.
The aforementioned scam was made possible by PACA when some gangsters took over a small, very well respected grocery broker and quietly placed orders all over the country, full container loads, and directed they all be shipped to Mexico, leaving (if I recall directly) Labor Day weekend giving them a 3 day start before any rumors might feed back to the principals. Mexico at the time was a no-problem destination since all of the responsible parties were USA members of the PACA program, of which the gangster-infested small broker was a member in good standing.
Once the containers were in Mexico, they would be quickly looted and distributed into untraceability, sold for cash, for a tidy sum, the only loss being the ownership of the small, respected trader for which they simply would stop making payments and forfeit ownership. What do they care..? No downside, all upside.
To this large corporate orchard, ten container loads at a good price from a respected dealer in USA was a cause for celebration. What could go wrong..? By Monday, enough truckers short of equipment, Customs officers at the border complaining of overwork, bragging rights among farmers revealing EVERYONE got a huge order from the small trader alerted first the brightest and eventually even those in denial to figure it out. Scam!
Now recall this program is self-funding. Who will have to make up the losses? The people who lost, they themselves. Also, the rules have a duty to mitigate, that is, if you know something is up, you have to do what you can to undo the damage being done. That means, get the manifests and start tracking each container and see if it has crossed the border, if not, stop it, and call it back. On your dime.
What a mess! Maybe half made it into Mexico, and some were found as far away as on the USA side in Texas (from Washington State) since the scamsters caught on early Customs was noticing something as up and began redirecting the shipments to other border crossings. (And then again, Customs wonders how come so many Washington apples are crossing at Laredo?)
Now keep in mind most apples and pears are packed to order. The fruit is pre-sorted and then packed in 40 pound boxes to buyers specification. To pack it ship it, then bring it back is to give the load a good beating, and then store it packed in hopes of a sale that matches the pack. Ugggh... and then the paperwork to redirect goods back that you no longer legally own, whole lotta processing going on.
Now I surmise that one of the reasons we do not have as much fresh export as we could, or not as much for which there is demand, has to do with the PACA rules fostering an atrophy of natural inclinations to defend what is yours: your produce. And without growers doing the exporting, necessarily they cannot get as much for their produce as they could. They are price takers, not price makers.
So even if they got it all back (and they did not) the program is not much help in recovery, but facilitates loss. Why tolerate it?
Say you a playing pro-football, and don't like the referees, and want a different set of referees. The problem is to advocate change is dicey as long as the old referees are in charge. They can make calls deleterious to your interest as long as they are still in control.
The big irony is while farmers may have an outsized reticence to exporting based on the atrophy attendant to the PACA regime, export agents live in a wild west world in which relationship is everything, and misbehaviour leads to catastrophic shunning. There is a gap between the regime in place domestically in USA which controls and informs farmers, and the natural real-world business in the export trade. If the free market recourse works for perishable in int'l trade, why would it not work in domestic trade?
With so many Stalinist-inspired loopy government programs still in effect, why pick on PACA? Well, PACA would be another candidate for cutting back on government and restoring freedom. Just as the solution to the Post Office mess is to "corporatize' (not privatize) the USPO, so to with the PACA regime. Announce the program loses its monopoly in 2 years, at which point al of the assets and liabilities of the program become owned by the workers, past and present, in the program, and association with the program becomes voluntary (see point one above.)
O! All eyes on the suggestion box! For the next two years the official folks populating PACAdom would be listening very closely to their target market, and bankers and insurance companies would be eyeing either competing with the voluntary-PACA or buying it from the new owners, the PACA workers.
PACA is a problem, and as the farm-lady said, its time has come. There is a way out in which everyone wins, and that is always the peaceful free market process.
What do you think?
Feel free to forward this by email to three of your friends.
4 comments:
"The small firm was quick to respond to the prescriptions, so that was fast and easy. "
So is it better to just keep our business small in perpetuity - that is, to be able to take advantage of the benefits of our insignificance? Small companies, or even sole-proprietorships, can still be highly profitable.
At the point your offering is so widely received that the conservators plot to "steal your idea" you can always go IPO and get big yourself, such is the timing of these things.
But most people have no interest in "big", only happy. Therefore they get to the right balance for themselves and begin to dump 20% each year and introduce the same amount to maintain that position.
It is better to do what you are best at, at the level you perform best. It is a pas de deux between oneself and the market.
Also, we are in a strange time where young people need to hear it is ok to run a small business. Most don't know that, or have even ever heard of small business.
http://www.washingtonpost.com/business/economy/sigtarp-the-watchdog-thats-putting-bankers-behind-bars/2013/12/06/9dd2068e-4b25-11e3-9890-a1e0997fb0c0_story.html?hpid=z1
Some bankers are actually being prosecuted.
If they are nobodies... and if they are small, to further terrify anyone from starting a small bank... from the cited article..
"SIGTARP has a strong record, but the office has mainly taken down community bankers, not Wall Street titans, for brazen acts of fraud, some observers say. “The amount of direct evidence of banker wrongdoing in these smaller bank cases is easier to show,” said Mark Williams, a former bank examiner who teaches finance at Boston University."
Get big or get out in USA.
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