PACA for Processors

Jerr Brandel is tired of what he calls “bait and switch” tactics in the fresh-market produce industry, and he wants to see them stop. At the very least, he wants growers to take more control of the prices they get for their crop.

The president of Hart Produce Co. in Hart, Mich., gave an example of what he’s talking about: Let’s say a grower sells most of his produce through an agent. The agent, citing the “target” or “market” price for that day or week, tells the grower he can sell his apples for $10 per bushel, so the grower sends his apples to the agent’s warehouse. The agent sells one of the bushels for $10, but sells the others for less than that. The “target” price isn’t a guarantee, so the agent is not obligated to sell the apples for that much – and buyers aren’t obligated to pay that much. The agent gets a commission off the load of apples no matter what it sells for, and what’s left of the money goes back to the grower – often much less than what the grower thought he was getting.

Brandel gave another example: Let’s say a grower sends an agent a load of pickles. The agent keeps the pickles in a cooler for a couple of days – maybe he’s looking for a buyer or he has too many pickles on his hands – then ships them off to Florida, which takes another three days. By the time the buyer sees the pickles, they’re five days old and not up to standard. He won’t pay for them. The agent, thanks to his commission, still gets paid for his efforts, but the grower gets nothing – even though the pickles were perfectly fine the last time he saw them.

As a grower, Brandel has been on the losing end of similar transactions – and he’s not the only one. Once a grower gives his product to an agent he has little control over what happens to it – or how much it sells for. He can only hope he ends up getting his money’s worth.

The problem, as Brandel sees it, is that the crop’s sale price is rarely guaranteed – in writing – in a grower/agent contract. The grower can dispute the end result of the transaction, but if he didn’t get a written guarantee beforehand it’s going to be tough for him to get what he feels he deserves.

That’s how Brandel sees things. But is his characterization accurate? How common are such disputes in the fresh-market produce industry? And who are the culprits, if any? Are the disputes caused by dishonesty on the part of some of the players, or do they simply reflect fluctuating supply and demand and the nature of an unpredictable marketplace?

The complicated nature of produce transactions does not make it easy to answer those questions, but delving into the Perishable Agricultural Commodities Act (PACA) might offer some insights.

Resolving Disputes

The federal government created PACA in 1930 at the request of the fruit and vegetable industry, which needed a mechanism to resolve disputes and enforce fair trade practices on industry players. A special branch of USDA’s Agricultural Marketing Service (AMS) oversees PACA, said Bruce Summers, associate deputy administrator for AMS’ fruit and vegetable programs (including PACA).

According to the AMS Web site, PACA “protects businesses dealing in fresh and frozen fruits and vegetables by establishing and enforcing a code of fair business practices and by helping companies resolve business disputes.”
In general, any entity that buys or sells more than 2,000 pounds of fresh or frozen fruits and vegetables in any given day is required to have a PACA license, according to the Web site. That includes wholesalers, processors, truckers, retailers, foodservice firms, growers, brokers, handlers, packers, agents, etc.

There are similar state laws that deal with intrastate commerce, but once a load of produce crosses a state boundary it comes under PACA’s jurisdiction, Summers said.

The PACA branch has offices in Arizona, Texas and Virginia, along with the headquarters in Washington, D.C. There are about 78 employees in all, he said.

According to the AMS Web site, PACA employees receive hundreds of telephone calls (the phone number is 800-495-PACA) each week from companies requesting assistance on problems unique to the industry, such as the interpretation of inspection certificates, advice on bankruptcy payments or dispute mediation.

Though the frozen segment is covered, the vast majority of PACA disputes take place in the fresh market, which, with its highly perishable products and long shipping distances, definitely needs a speedy dispute-resolution service, Summers said.

Very few PACA disputes are the result of dishonesty or fraudulent activity, he said. They’re usually disagreements or misunderstandings over things like quality, quantity or price (and can cover any amount of product, from a single transaction to an entire crop year).

PACA employees, all trained mediators, resolve many disputes over the phone, but there are thousands that require more attention than that, Summers said.

If a dispute between two parties can’t be resolved with a simple phone call, the next step is an informal arbitration process, which has a 90-percent success rate. For the 10 percent that remain, a more formal process is required. That process is not part of the court system, but its verdicts – formal orders written by judicial officers citing legal precedent – are just as binding. Whoever loses has to pay, Summers said.

Growers, Agents

PACA disputes most commonly arise among shippers and receivers, Summers said, but disagreements also arise among growers and agents – and they can be particularly tricky.

Before continuing, however, it’s important to understand how PACA defines terms like “grower,” “agent,” “shipper” and “receiver,” which often get mangled with terms like “packer,” “processor,” “handler” and “broker.”

According to Summers:

• A grower produces a crop
• A shipper purchases produce from a grower at an agreed price, packs it, transports it and resells it
• A receiver usually gets produce from a shipper. Receivers could be wholesale produce markets, grocery chains, restaurants, etc.
• An agent is sort of like a bank. A grower will give his produce to an agent, who will sell it for a cut of the profit

Written contracts aren’t required for most produce transactions, but they are required between growers and agents – and that’s where things get tricky. There are no strict guidelines for grower/agent contracts. Both parties are required to live up to the terms, but the terms can vary widely, depending on what the parties need from each other.
When asked how PACA might deal with the situations Jerry Brandel was complaining about, Summers said any judgment would lean heavily on what’s written in the contract.

Usually signed on an annual basis, contracts can include the agent’s commission rate or the amount of produce needed, but they almost never include a guaranteed sale price, which isn’t required by PACA, he said.

If an agent wants to guarantee via contract that he’ll sell a grower’s produce for a certain price, he’s free to do that – but it rarely happens. That would be like a real estate agent guaranteeing that a house will sell at a certain price, Summers said. The market is just not that certain. Much depends on the availability of other product, and it’s hard to predict how much money buyers are actually willing to spend.

If a grower doesn’t think he got his fair share from an agent, he has nine months to file a complaint with PACA. If that happens, PACA employees will study the contract and gather as much evidence as they can from both parties. If they can’t determine that the parties ever agreed to a price, they’ll determine the “reasonable value” of the produce. If both parties agree to conclude their transaction at that price, the dispute is over, Summers said. If not, the process continues.

Rave Reviews

The produce industry is fortunate to have PACA to fall back on, said Scott Danner, COO of Liberty Fruit Co., Kansas City, Kan.

Danner, who has personal experience, said PACA’s arbitration process is simple, painless and effective.

“It might take a while to get your money, but you will get it,” he said. “It’s probably the best insurance anybody could have at any business.”

Matt McInerney, executive vice president of Western Growers, said growers in his organization are strongly in favor of PACA.

“Almost to a person, our growers are intimately involved in the PACA program,” he said. “It’s fundamental to their overall success.”

The regulations are simple but significant and the resolution process is quick – important when considering the fast-paced nature of the produce industry, McInerney said.

“Every minute we lose, the value of a perishable item goes down.”

PACA has been emulated by other countries, and could be seen as a successful model of private sector and government working together for the betterment of an industry, he said.

What to Do?

But what can a grower, or agent, do to avoid PACA disputes in the first place?

First of all, document everything, Summers said. If you make a claim, you need to be able to back it up. Record the price, volume, date and shipping time of every load.

And before you sign a contract, make sure you understand what you’re signing. Have your attorney look it over, he said.

Brandel, the Hart Produce Co. president, had his own advice for growers: Get a definite price from the agent, in writing, before you ship him your produce.



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