Overview of PACA Web Guide
The Perishable Agricultural Commodities Act (PACA) is a federal law that regulates the produce industry.
Why PACA is Important for Your Produce Industry Business
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. PACA ensures 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 law.
PACA’s Four Key Areas
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 three regional offices. Each Regional Office is staffed with persons available to answer questions about the law or contract disputes, and 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.
Generally, PACA has four (4) main areas: licensing, the trust, contract dispute resolution, and enforcement.
Nearly every company that buys, sells or handles large quantities of fresh and frozen 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. Wholesale quantities are defined as sale of 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 or distributes produce must be licensed.
The PACA Trust & Income Protection
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 the seller. The PACA trust 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. Second, the parties can try to mediate their dispute; and if there is no settlement, then there are formal proceedings in which the dispute is decided by 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, the PACA license of the company may be suspended.
PACA Enforcement by the USDA
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 prosecuting a company. 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, call or email our office to speak with one of our knowledgeable attorneys who will be able to answer your questions.