What Is The Perishable Agricultural

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What is the Perishable AgriculturalCommodities Act?The Perishable Agricultural Commodities Act(PACA) establishes a code of fair trading practicescovering the marketing of fresh and frozen fruitsand vegetables in interstate and foreign commerce.The PACA protects growers, shippers, distributors,retailers, and others who deal in those commoditiesby prohibiting unfair and fraudulent practices.Why do businesses that buy or sellfruits and vegetables need moreprotection than businesses in otherindustries?The produce industry is unique. Dealers handle aperishable product and even a 1- or 2-day delay inmarketing can mean the difference between profitand loss. By spelling out the responsibilities ofall involved parties, the PACA helps promote theprompt marketing of produce, and protects therights of buyers and sellers in the event of a contractdispute.How is the PACA enforced?The U.S. Department of Agriculture (USDA)PACA Division enforces the PACA through alicensing system. Nearly every trader involved inthe marketing of commercial quantities of freshand frozen fruits and vegetables in interstate orforeign commerce must have a valid PACA license.A produce trader who is found to have committedunfair trade practices may face a monetary penaltyor other sanctions, license suspension, or in the mostserious cases, license revocation.How do I get a PACA license?For information on obtaining a license, visitwww.ams.usda.gov/paca or call the PACA Divisionat 800-495-7222.1

Who needs a license? Who doesn’t?In general, wholesalers, processors, truckers, grocerywholesalers, and foodservice firms that buy or sellmore than 2,000 pounds of fresh or frozen fruitsand vegetables in any given day are required to belicensed under the PACA.Commission merchants, brokers, or growers’ agentswho negotiate sales of fresh fruits and vegetables onbehalf of others are required to be licensed on theirfirst transaction.Brokers who negotiate sales of only frozen fruits andvegetables on behalf of the vendor are subject tothe PACA licensing requirements after the invoicevalue of total negotiated sales exceeds 230,000 in acalendar year.Retailers must obtain a PACA license once theinvoice cost of fresh and frozen fruit and vegetablepurchases exceeds 230,000 in a calendar year.Growers can apply for a PACA license but otherwiseare exempt, so long as they sell only products theyhave grown.Is there a penalty for operating withoutthe required PACA license?Yes. Companies that operate without a valid PACAlicense are subject to fines of up to 1,200 for eachoffense and 350 for each day the offense continues.Court injunctions can be issued against those whocontinue to operate without a license.How is the PACA program financed?The USDA PACA program is funded by license feesand complaint filing fees. No tax revenues are usedto fund the PACA program.2

What are my responsibilities as aPACA licensee?The law requires that produce traders comply withthe terms of their contracts. Sellers must ship thequantity and quality of produce specified in thecontract. Buyers must accept shipments that meetcontract specifications and pay promptly afteracceptance. Prompt payment is defined as paymentwithin 10 days unless the buyer and seller agree,prior to the sale, in writing, to different paymentterms.What can I do if I have a dispute witha supplier or a buyer over a businesstransaction?The PACA Division offers dispute resolution servicesto members of the produce industry. A party can filea complaint, if a transaction is unpaid or there is adispute between the parties over the contract. Theother party must be a licensee or operating subjectto license for a claim to be handled. The writtencomplaint, accompanied by a 100 filing fee, mustbe filed within 9 months from the date payment wasdue or the damages were suffered.The PACA Division's complaint services includeinformal mediation to help the parties resolvetheir differences. Mediation allows both parties toair their differences in a neutral environment andidentify a resolution.If parties cannot reach an informal resolution, thecomplainant may file a formal complaint. USDAhandles formal complaints much like lawsuits arehandled in a court of law. However, instead of ajudge, the Secretary of Agriculture determines theoutcome of the complaint, and can issue an award,plus interest, based on the evidence in the case.There is a 500 filing fee for a formal complaint.3

The complainant can recover the filing fee if an orderis issued in its favor.If a licensee fails to satisfy a PACA award, USDAwill suspend the firm’s license and restrict the firmand its principals from operating in the produceindustry for up to 3 years.What types of unfair trade practicescan result in claims being filed? Failure to pay promptly the agreed price ofproduce that complies with contract terms; Failure or refusal to account truly andcorrectly, or to make full payment promptly,for produce shipped on consignment or onjoint account; Rejecting, without reasonable cause, producebought or contracted to be handled onconsignment; Failure to deliver the contracted produce in atimely manner, and at the price and qualitylevel specified in the purchase agreement; and Discarding, dumping, or destroying withoutreasonable cause any produce received to besold on behalf of another firm.Where can I get information abouta firm’s PACA license status orcomplaint history?Visit www.ams.usda.gov/paca to verify whether afirm has a valid license. Call the PACA Divisionat 800-495-7222, for general information about afirm’s PACA complaint history.4

Can I recover money from a firm thathas gone out of business or filed forbankruptcy protection?Yes. Under the PACA trust provisions, a buyermust hold its produce-related assets for the benefitof unpaid produce suppliers who have preservedtheir trust rights. In the case of a business failure,the debtor’s trust assets are not available for generaldistribution to other creditors until all valid trustclaims have been satisfied. Because of this, suppliersthat file for trust protection have a far greater chanceof recovering money owed them when a buyer goesout of business.What must sellers do to preserve theirtrust rights?Although the trust automatically goes into effectwhen the buyer receives the goods, sellers mustproperly preserve their trust rights by meetingspecific notification requirements. Produce sellerscan preserve their eligibility for trust benefits byproviding a trust notice that contains detailedinformation sufficient to identify the transaction totheir selling agent or customer.What are the notificationrequirements?The law allows PACA licensees to qualifyautomatically for trust protection by includingon their invoices or other billing documents thefollowing statement:“The perishable agricultural commodities listedon this invoice are sold subject to the statutorytrust authorized by section 5(c) of the PerishableAgricultural Commodities Act, 1930 (7 U.S.C.499e(c)). The seller of these commodities retains atrust claim over these commodities, all inventoriesof food or other products derived from thesecommodities, and any receivables or proceeds from5

the sale of these commodities until full payment isreceived”.Unlicensed produce sellers must provide the buyer,i.e., the produce debtor, with written notice of theirintent to preserve trust benefits under the PACAwithin 30 days of the date that payment was pastdue or notification was received that a paymentinstrument was dishonored.I am a grower selling only producethat I grow. While I am not requiredto have a license, can I obtain a PACAlicense and use the alternative methodof including the trust statement on myinvoices to qualify for trust protection?Yes, a grower with a PACA license is eligible touse the alternative method of including the truststatement on its invoices or other billing documentsto qualify for trust protection.How long are a seller's rightspreserved?Trust claimants who preserve their trust rights byproviding proper notice remain beneficiaries untilpaid.How is payment from trust assetsenforced?The trust is a self-help tool that is separate andunrelated to filing a complaint under the PACA.Trust beneficiaries may file an action in U.S.District Court to enforce payment from thetrust immediately following a buyer's failure topay promptly. If the debtor is bankrupt, trustbeneficiaries should file their claims for paymentwith the bankruptcy court.6

If I file a trust claim with the court, canI still file a PACA complaint?Yes, a party can file a complaint under the PACAwhile pursuing a trust action with the court.However, PACA may, in some cases, stay the PACAcomplaint pending resolution of the trust action.Can I agree to payment terms otherthan those in the PACA regulationsand still qualify for protection underthe trust?Although PACA prompt payment terms specifypayment within 10 days of the date of acceptance,a buyer and seller may agree to extended terms aslong as the agreement is made in writing prior tothe transaction, and the terms are reflected on theinvoice and all other billing documents. However,to qualify for trust protection, the agreed-uponpayment term cannot exceed 30 days from the dateof acceptance.What is a disciplinary action under thePACA?USDA may penalize a licensee or an entityoperating subject to license that repeatedly andflagrantly violates the PACA. Disciplinary actionmay include sanctions and/or the suspension orrevocation of an individual’s or firm’s PACA license.In lieu of suspension or revocation, the Secretaryof Agriculture may assess a civil penalty of upto 2,000 for each violation or for each day theviolation continues.7

How does the USDA decide if a PACAlicense should be suspended orrevoked as the result of a disciplinaryproceeding?USDA considers the seriousness and nature of theviolation(s), the number of violations that tookplace, the length of time during which the violationsoccurred, and the effect that the violations had onthe produce industry. Revocation of a PACA licenseis the most severe penalty that can be imposed.How does a PACA license suspensionor license revocation restrict a firmand/or its principals?Upon the suspension or revocation of a PACAlicense, both the firm and its responsibly connectedindividuals are automatically subject to licensing andemployment restrictions that prohibit them fromworking or operating in the produce industry for acertain period of time. Individuals are consideredto be responsibly connected if they are an owner, apartner in a partnership, a member or manager ina limited liability company, or an officer, director,or holder of more than 10 percent of the stock of acorporation or association.When a PACA license is suspended, or a licensee orindividual fails to pay a reparation award resultingin sanctions, the firm or individual cannot conductbusiness in the produce industry. Furthermore,none of the persons responsibly connected with thefirm can engage in business under the PACA, norcan another PACA licensee employ them, unless aPACA-approved surety bond is posted.8

After one year, responsibly connected individualsthat were barred from employment as a result of alicense revocation or sanctions based on findings ofrepeated and flagrant violations may be employed bya PACA licensee that posts a PACA-approved suretybond.What are some common PACAviolations that prompt the USDA totake disciplinary action? Failure to pay for produce purchased; Slow payment; Failure of a commission merchant or grower’sagent to render accurate accountings and paypromptly the net proceeds due the shippersand growers; Flagrant misbranding or misrepresentationof produce shipped in interstate or foreigncommerce; Making false and misleading statements for afraudulent purpose; and Employing a restricted person after receivingnotice from the USDA that the employmentis prohibited.Does the produce industry support thePACA?The industry developed and sponsored this law,and the PACA is broadly supported throughout theproduce industry. The law has been amended severaltimes over the years to keep pace with changingtrade practices.9

Where can I get more informationabout the PACA program?Visit the PACA Division’s website at:www.ams.usda.gov/pacaThe website contains information on licensing,current PACA licensees, resolving commercialdisputes, mediation, reporting PACA violations,the PACA trust, PACA publications andannouncements, and PACA’s regional offices andstaff contacts.The USDA PACA Division also offers a free onlinetraining program that covers the basic informationneeded to comply with the PACA. To access theonline training, click on the Education and Traininglink on the website.For questions or additional information, call thePACA Division at 800-495-7222.10


“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