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January 2014

The Perishable Agricultural Commodities Act


Elizabeth Dillinger, JD
Associate Corporate Attorney, Legal Division

Executive Summary
The Perishable Agricultural Commodities Act (PACA) (codied at 7 U.S.C. 499a) provides sellers of Perishable Agricultural Commodities protections against unfair and fraudulent conduct by Dealers, Commission Merchants, and Brokers of such commodities. In short, the primary purpose of PACA is to ensure that suppliers and sellers of Perishable Agricultural Commodities receive full payment of sums owed by Commission Merchants, Dealers, and Brokers. This right to recover is provided for in the trust provisions of PACA, and is superior to the rights of all creditors.1 CoBank provides nancing to Commission Merchants, Dealers, and Brokers, making it important to understand how the PACA trust might affect CoBanks lien position on assets potentially subject to a Perishable Agricultural Commodity sellers priority interest, and/or CoBanks right to receive payments from a borrower that a seller has a right to recover rst. Transactions between cooperative associations and their members, however, are not subject to the PACA trust provisions.2 While a majority of CoBanks direct borrowers are cooperative associations that transact business with members, CoBank also lends to cooperative associations that transact business with non-members, and to non-cooperative borrowers that transact business with Perishable Agricultural Commodity sellers, opening the door to the PACA trust provisions with respect to such transactions. Additionally, CoBank participates in nancing producers of Perishable Agricultural Commodities. Generally, PACA is benecial when it comes to producers that sell Perishable Agricultural Commodities. However, there are requirements that a producer must satisfy to qualify for PACA protection. It is important to understand those requirements because a producers right to PACA protection provides assurances that a producer will be paid for its produce, and loans made to producers are typically secured by a lien on the producers accounts receivable.

Rachael Dettmann Spiegel, MS JD


Senior Economist, Knowledge Exchange Division

Inside this Issue


Executive Summary...............................1 Important Denitions.............................2 PACA Trust............................................2 Impact on CoBank Lending...................4 Conclusion............................................7

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CoBank ACB, 2014