More about credit sales

Last week I gave A broad view of the issues surrounding credit sales on fresh-produce markets.

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This week I want to focus a little more closely on the issue of outside buyers versus the markets.

When producers are approached by “outside” buyers to supply them directly, the buyers invariably use “incentives”. Whether producers really benefit is besides the point, because they need to look closely at their costs, market prices and the prices they’re being offered to supply direct.

The terms of the deal also need to be weighed up against the benefits of a market deal. Top-quality producers inevitably get above-average prices on a market. So the first question is: which of those two prices is the buyer referring to?

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One incentive frequently offered is the “less 12,5% commission paid on the market” offer. That sounds sweet, but some buyers forget to tell their producers they’ll use that 12,5% discount to supply other buyers who could have purchased that producer’s products on the market.

On top of that, the buyer will be looking for generous payment terms, anything from cash up to 30 or 60 days – sometimes longer! On a market the producer is guaranteed his money within five days!

Thanks to the “generosity” of the producer, another buyer purchases off-market, and the competition factor on the market floor is watered down further. Farmers get lower prices, and then blame the market for their troubles!

To add to their woes, the next time the buyer comes around to negotiate a deal, they remind producers that the market prices are down, so producers have to offer a lower price! It becomes a vicious cycle with the producer the hapless victim.

There are two methods of credit-selling on a market. In the “proxy sale”, the market agent supplies the credit, the farmers gets their money and the market agent carries the risk, with the farmer covered by the Fidelity Fund.

The overdraft sale meanwhile requires the market agent to disclose the full details of the buyer as well as show the farmer’s written consent to supply that buyer. The farmer carries the risk, but isn’t covered by the Fidelity Fund.

Credit sales aren’t the preferred option on a market, but if they have to be done, then let’s do them correctly and within the law.