Overview of PACA

A User's Guide to the PACA
  ·  Introduction
  ·  Table of Contents

Overview of PACA

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 law.

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.

Generally, 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.