The PACA Trust And How It Works

The Perishable Agricultural Commodities Act or PACA was passed in the year 1930 by Congress to establish fair trade and business practices in the vegetable and fruit industry. All agricultural produce exporters must be familiar with these government regulations. PACA is managed by the U.S. Department of Agriculture or USDA.

Important facts about PACA are mentioned below:

How to get a PACA License

Companies that buy or sell more than one ton of produce on a daily basis must get licensed by PACA. Companies which buy or sell produce which crosses the U.S. state lines also need to be licensed which can be obtained through the U.S. Department of Agriculture or USDA. PACA license fee is $995 for a year and $600 for the other branch locations across the United States. Companies which operate without a PACA license could pay a penalty upto $1200. Having a PACA license protects your PACA trust rights even if the buyer goes out of the business.

Protection under PACA

The PACA trust was developed as a means for sellers and suppliers to obtain payment on undisputed amounts which are owed for product sales.  Provisions under PACA require produce sellers to maintain a statutory trust on vegetables and fruits received but not yet paid for. In case the buyer's company or business becomes bankrupt, the trust will ensure that the produce vendors are compensated before other creditors if they file claims for confidence.

PACA licensed sellers must have the following wordings on their billing documents as well as invoices.

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 who don't have these wordings in their bills are required to send a written notice to all buyers within 30 days of payment due date ensuring the buyer that the vendor wishes to preserve the trust benefits of PACA.

Reparation and Dispute Resolution Cases

In case a PACA licensed company fails to pay for produce, USDA can suspend the license of that company. PACA licensed companies can file for reparation cases through PACA. This case can take six months and the reparation case requires $100 filing fee. A formal proceeding begins involving the seller and the buyer if the case is not resolved informally.