Overview of PACA
The PACA Web Guide
The Perishable Agricultural Commodities Act (PACA)
is a federal law that regulates the produce industry.
PACA sets rules of fair dealing for produce companies
that go beyond the normal rules for other businesses due to the perishability
of the product. The PACA ensures that produce merchants follow these
rules through a system of licensing. Anyone who buys or sells large
quantities of produce must have a PACA license to operate. Such persons
are subject to penalties, such as loss of license or fines, for violating
the rules established by PACA. The fair dealing rules are further
detailed in regulations published by USDA which have the force of
The law is enforced by USDA through the PACA Branch.
The PACA Branch is headed by a Chief who oversees three sections
in Washington, D.C. (Trade Practices, Dispute Resolution and Licensing),
and five regional offices. Each Regional Office is staffed with persons
available to answer questions about the law or contract disputes
and to investigate violations of the law. The PACA Branch is assisted
by USDA attorneys who act as presiding officers in deciding contract
disputes and who advise the PACA Branch on all legal questions.
PACA has four (4) main areas: licensing, the trust, contract dispute
resolution and enforcement.
Licensing: Nearly every company that handles
large quantities of produce must be licensed. There are gray areas,
but for all practical purposes if a company buys or sells wholesale
quantities of produce, it must be licensed. What are “wholesale quantities?” They are defined as one ton or
more of produce in any one day. The business must also be involved in “interstate
commerce.” This is defined broadly and basically means that the produce,
at any point in its commercial life, crosses a state line. So, nearly everyone
who handles produce in a distribution scheme must be licensed.
The Trust: The PACA trust was created
by Congress in 1984 to ensure that produce suppliers are paid from
the proceeds of their produce before any other creditor. This means
that produce creditors, who are PACA trust beneficiaries, have priority
over all other creditors, including banks with security interests
on produce-related assets. The law does not require that the produce-related
assets be held in a separate account by the buyer. Rather, the trust
floats over all the produce-related assets of the buyer until all
qualified produce suppliers have been paid in full.
The PACA trust provides a very strong collection
remedy. This remedy allows a produce supplier to file suit immediately
in federal court to freeze the assets of a buyer who has not paid.
It also requires that produce suppliers be paid before anyone else
in a bankruptcy.
Contract Dispute Resolution: When a dispute
arises over a produce transaction, USDA is available to resolve the
dispute through reparation cases. “Reparation” is
a fancy word for damages. USDA handles these cases in two stages. First, there
are informal proceedings to attempt to settle the case. If there is no settlement,
then there are formal proceedings in which the dispute is decided by the USDA
in formal proceedings. The case can be resolved either informally by
agreement between the parties, or formally by dismissing the complaint or requiring
the produce company to pay reparations, i.e. money damages. If payment is not
made, then the PACA license of the company is suspended.
Enforcement: USDA enforces the PACA by
first investigating a complaint against a produce company. If the
investigation shows that a violation has been committed, USDA will
begin formal proceedings against the company. This is the equivalent
to a state prosecuting someone for a crime. If the offence is minor
and the company agrees to make changes required by USDA, then USDA
will only issue a warning letter. However, if the violations are
more serious, or they are repeated, USDA will file a disciplinary
case against the company charging a violation of the PACA. If the
matter is not settled, the company is entitled to a hearing before
an Administrative Law Judge. If the company is found to have violated
the rules, it can be fined, or have its license suspended or revoked.
A license suspension or revocation prohibits the officers, directors
and shareholders of the company from obtaining a license or working
in the industry.
If you have a question about the
PACA, your first resource is to call the PACA Regional Office for
your state. Regional Office personnel will be able to answer many
questions about the PACA. However, when you are involved in a dispute,
an investigation, an enforcement proceeding or a trust action, you
should seek the advice of a knowledgeable attorney.