The Perishable Agricultural Commodities Act (PACA) was passed by Congress in 1930 as a way to establish fair trade and business practices in the fruit and vegetable industry. While PACA is not new, it is important for agricultural produce exporters that are selling their products in the U.S. for the first time to become familiar with this government regulation.
Below are five important facts about PACA, which is managed by the U.S. Department of Agriculture (USDA). To gain a more in-depth understanding of PACA’s rules and protections, it is always a good idea to consult an attorney who is an expert in PACA.
Getting a PACA License
Companies that buy or sell wholesale quantities of produce (meaning more than one ton of produce per day), need to be licensed by PACA. This requirement also applies to companies that buy or sell produce that crosses U.S. state lines.
PACA licenses can be obtained through the USDA. License fees are $995 per year, plus $600 for each additional branch location or business facility you have in the United States. The annual PACA fee cannot exceed $8,000, regardless of the size of your operation.
If you do not obtain a PACA license, your produce company is still governed by all PACA rules and you could pay a penalty of up to $1,200. The advantage of having a license is that it can more easily protect your PACA trust rights in the event a buyer goes out of business. The license also shows that your business can be trusted to meet its contractual obligations.
Protection Under the PACA Trust
The PACA trust was created as a way for produce sellers and suppliers to receive payment on undisputed amounts that are owed for product sales. Provisions under PACA require that buyers of produce maintain a statutory trust on fruits and vegetables received but not yet paid for. If the buyer’s business fails or enters into bankruptcy, the trust ensures that produce sellers are paid before other creditors if they file trust claims.
In order to preserve trust rights, a seller that is licensed under PACA must have the following wording on its invoices and other billing documents. Without it, there is no trust protection:
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.
Produce sellers that do not want to include that wording on their invoices must provide a written notice to a buyer within 30 days of a payment due date, informing the buyer that the seller wishes to preserve its PACA trust benefits.
Dispute Resolution and Reparation Cases
In the event of a dispute over whether payment is due on produce sold, the debtor can take one of three courses of action: PACA, the Fruit and Vegetable Dispute Resolution Corporation or the U.S. Courts. Companies that have PACA licenses can file reparation cases through PACA. The informal stage of a reparation case can take six months and involves a $100 filing fee to the USDA.
If the reparation case is not resolved informally, a formal proceeding can begin involving the buyer and seller. The average time to reach a decision in a PACA reparation case is two years with an administrative cost of $600. Companies that are nonresidents of the United States must post a bond to proceed with a formal complaint through PACA.
The PACA act provides regulatory teeth for the USDA to use against companies that fail to pay for produce. When a PACA-licensed firm fails to pay an order, the USDA can suspend that company’s license and prohibit it from operating in the produce industry until the payment is made in full.
Checking Up on Other PACA Licensees
One advantage of PACA is that it establishes a business history for buyers, sellers and brokers dealing in produce. To obtain general information on a potential customer’s PACA complaint and license history, contact the USDA’s PACA division at (800) 495-7222.
Sources: United States Department of Agriculture, McCarron & Diess PACA Web Guide