Perishable Agricultural Commodities Act (PACA)

Agricultural and Food Law October 14, 2015 Print Friendly and PDF

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The Perishable Agricultural Commodities Act (PACA) is a federal law, enacted in 1930 at the request of the fruit and vegetable industry to promote fair trade.  The primary purposes of the PACA are to prevent unfair and fraudulent conduct in the marketing and selling of these perishable agricultural commodities and to facilitate the orderly flow of these commodities in interstate and foreign commerce.  The PACA is administered and regulated by USDA’s Agricultural Marketing Service (AMS).

For more information on the PACA, please visit the National Agricultural Law Center’s website here.

Terms

  • A “perishable agricultural commodity” is any fresh fruit or vegetable, whether or not frozen or packed in ice including cherries in brine. 
  • A “fresh fruit or vegetable” includes all produce in fresh form generally considered as perishable fruits and vegetables, whether or not packed in ice or held in common or cold storage.
    • This definition does not include perishable fruits and vegetables which have been manufactured into food of a different kind or character.
  • A “dealer” is any person engaged in the business of buying or selling, in wholesale or jobbing quantities, any perishable agricultural commodity that has an invoice value in any calendar year in excess of $230,000, subject to several exceptions.
  • A “commission merchant” is any person engaged in the business of receiving any perishable agricultural commodity for sale, on commission, or on behalf of another.
  • A “broker” is a person engaged in the business of negotiating sales and purchases of perishable agricultural commodities either for or on behalf of the seller or buyer.
  • A “person” includes individuals, partnerships, corporations, and associations.

Unfair Conduct

The PACA prohibits certain types of conduct by commission merchants, dealers, and brokers.  The statute points to many unlawful situations which qualify as unfair conduct.  A few of those unlawful practices are included here:

  • Any commission merchant, dealer or broker who engages in or uses any unfair, unreasonable, discriminatory, or deceptive practice in connection with the weighing, counting, or determining the quantity of any perishable agricultural commodity received, bought, sold, shipped, or handled in interstate or foreign commerce.
  • For any dealer to reject or fail to deliver in accordance with the terms of the contract without reasonable cause any perishable agricultural commodity bought or sold or contracted to be bought, sold or consigned in interstate or foreign commerce by such dealer.
  • For any commission merchant to discard, dump, or destroy without reasonable cause, any perishable agricultural commodity received by the commission merchant.
  • For any commission merchant, dealer, or broker to make a misleading statement in connection with any transaction involving any perishable agricultural commodity for a fraudulent purpose.
  • For any commission merchant to misrepresent the character, kind, grade, quantity, size, pack, weight, condition, degree of maturity, or State, country, or region of origin of any perishable agricultural commodity.
  • For any commission merchant, dealer or broker to make, cause, or permit any change by way of substitution or otherwise to the contents of a load or lot of any perishable agricultural commodity without the consent of an inspector.
    • Does not prohibit resorting and discarding inferior produce.

Why is a PACA License Necessary?

  • The law requires all commission merchants, dealers, and brokers obtain a PACA license to operate a produce business.
  • Fruit and vegetable buyers and sellers must follow the fair trading practices established by the PACA or possibly have their license suspended or revoked.
  • A person who knowingly operates a produce business without a license may face a monetary penalty of up to $1,200 for each violation and up to $350 for each day the violation(s) continue.

Who needs a PACA license?

  • Any person who buys or sells more than 2,000 pounds of fresh or frozen fruits and vegetables in any given day.
    • Includes wholesalers, processors, truckers, grocery wholesalers, and food service firms.
  • A person who negotiates the sale of fruits and vegetables on behalf of another person is required to be licensed on the first transaction.
    • May be a commission merchant, broker, or growers’ agent.
    • Does not apply to a broker handling only frozen fruits and vegetables, unless the invoice value of the total negotiated sales exceeds $230,000 per calendar year.
  • A person selling at retail is subject to a PACA license once invoice costs of fresh and frozen fruits and vegetable purchases exceed $230,000 in a calendar year.

Statutory Trust Protection

  • The PACA trust provisions give sellers of fresh and frozen fruits and vegetables priority status as a creditor if their buyers become insolvent or file for bankruptcy protection.
  • A supplier becomes eligible to participate in the trust when it sells produce to a buyer.
  • Buyers are required to maintain a statutory trust on fruits and vegetables received but not yet paid for.
  • United States District Courts have jurisdiction over actions by trust beneficiaries and actions by the Secretary of Agriculture.

How to preserve your trust rights?

  • PACA Licensees:
    • Give notice to the debtor on an invoice.  Must have the following wording exactly as shown, on the face of the invoice:
      • The perishable agricultural commodities listed on this invoice are sold subject to the statutory trust authorized by section 5(c) of the Perishable Agricultural Commodities Act, 1930 (7 U.S.C. 499e(c)). The seller of these commodities retains a trust claim over these commodities, all inventories of food or other products derived from these commodities, and any receivables or proceeds from the sale of these commodities until full payment is received.
  • Sellers not licensed:
    • A written notice must be provided to the buyer and must include a statement that it is a “notice of intent to preserve trust benefits,” and must include the names and addresses of the seller, commission merchant, or agent, and the debtor; the date of the transaction, commodity, invoice price, payment terms, and the amount past due and unpaid.
    • Notice must be given within 30 days from the date payment was due or from receiving notification that a timely submitted payment was dishonored.
    • Terms for payment cannot exceed 30 days from the date of acceptance of the product. 
    • Payment terms other than PACA prompt payment terms (usually 10 days) must be agreed upon by the parties and to the transaction in writing before entering into the transaction.

Reparations Proceedings

  • Informal Complaint
    • Any person may file an informal complaint with the Secretary, alleging that a commission merchant, dealer, or broker has violated any of the PACA’s unfair conduct provisions.
    • The informal complaint must provide a brief statement of facts supporting the allegations.
    • If an amicable or informal settlement is not reached, the complaining party may file a formal complaint.
  • Formal Complaint
    • Must contain the information required for an informal complaint and a statement of the damages claimed.
  • Appeals
    • Either party may appeal a reparation order to the district court.

Disciplinary Proceedings

  • Any proceeding, other than a reparations proceeding, arising out of a violation of the PACA.
  • Governed by USDA’s Uniform Rules of Practice for Disciplinary Proceedings.

Written by: Emily Bridges

Photo by slushpup / CC BY http://creativecommons.org/licenses/by/2.0/

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This work is supported by the USDA National Institute of Food and Agriculture, New Technologies for Ag Extension project.