From the farmers that grow our food to the restaurants that serve us, the nationwide shutdowns delivered a painful blow to the entire food supply chain. Can the PLUS Act revive it?
By: Melissa Montalvo
Despite most states being operational in either Phase 1 or Phase 2 for several weeks now, farmers, distributors, and restaurants are still dealing with the aftermath of the March shutdowns.
“All of a sudden, restaurants shut down, they can no longer pay the distributor for food that either was already consumed or sold to their customer or are going to go back in their own refrigeration. You can’t return perishable food,” explains Mary Coppola, Vice President of Marketing & Communications for the United Fresh Produce Association.
COVID-19 still poses threats in the form of health concerns and business uncertainty in the restaurant and hospitality industries, leaving food distributors—the middlemen that buy from farms and sell to restaurants, grocery stores, and schools—in a difficult position. As of late July, the foodservice distribution industry has incurred $12 billion in uncollectible debt.
Distributors play an important role in moving produce and other perishable items from the farmers and fishermen to the consumer market. To understand how the supply chain works, Coppola explains that the distributor buys the produce from the grower. “That is done on a payment in 30-60 day accounts payable,” Coppola says. The distributor then sells to a restaurant, hotel, cruise line, or airline. The distributor acts as a creditor to them, so they have an account payable back to the distributor. The shutdowns created a situation where distributors were stuck with uncollectible debts and unsellable food.
As of late July, the foodservice distribution industry has incurred $12 billion in uncollectible debt.
To help distributors offset the debt, Representatives Darin LaHood (IL) and Jimmy Panetta (CA) are proposing a bipartisan bill backed by the United Fresh Produce Association, the International Food Distributors Association, and the National Fisheries Institute. The Providing Liquidity for Uncollectible Sales (PLUS) Act would provide financial assistance in the form of tax credits to distributors.
The long-term goal of the bill is to create a positive ripple effect in helping farmers, distributors, and restaurants alike. Coppola hopes that this bill can help reactivate the foodservice industry. “Restaurants are trying to get back online. Part of their business model was always to rely on the credit of the distributor and unless the distributor is alleviated of that debt, then they’re not able to do that,” says Coppola. “And the way that they would be alleviated is through tax credits going forward.”
Distributors aren’t the only ones suffering in debt. Farmers have incurred debt thanks to huge quantities of perishable produce that they had to quickly divert to retail. While they moved as much as they could from food service to retail and farmer’s markets, they still had unsellable produce. Much of this went to the Farmers to Families Food Box program run by the USDA, but a lot of the unsold produce went back into the farms as mulch. While many farmers received relief through the Coronavirus Food Assistance Program and other USDA aid programs, other small and family farmers are struggling to receive much needed support due to a CFAP technical glitch.
“The loss number [across the supply chain] goes up as they continue day to day with opening and then closing again, and not really knowing the future of what foodservice looks like,”
While the PLUS Act doesn’t directly help farmers or growers, Coppola states that the bill will help distributors support the growers again, allowing them to find new channels of business. In the meantime, growers and farmers that typically rely on sales to distributors and foodservice have had to get creative in finding ways to reach consumers, including experimenting with direct-to-consumer sales.
“The loss number [across the supply chain] goes up as they continue day to day with opening and then closing again, and not really knowing the future of what foodservice looks like,” explains Coppola.
Advocacy groups, policymakers, and the foodservice industry are working on solutions in response to the irreversible damage caused by the shutdowns. The PLUS Act could be one idea that can help fill a gaping hole in the industry and get businesses back on track. While this act helps distributors with the debt already incurred, perhaps it doesn’t go far enough to protect distributors—and the farmers, fisherman, and growers who rely on them—for the ongoing challenges related to the uncertainties in the restaurant and hospitality sectors. Although the bill is independent of the CARES Act, Coppola says they are optimistic that the bill will pass.