Perishable Agricultural Commodities Act (PACA)

The Perishable Agricultural Commodities Act of 1930 (7 U.S.C. §§ 499a–499s) governs the buying and selling of fresh and frozen fruits and vegetables in interstate and foreign commerce — requiring federal licensing of produce dealers, commission merchants, and brokers, and prohibiting unfair trade practices in the industry. PACA's most powerful feature is the PACA trust: when a buyer receives perishable produce, the produce and all proceeds from its sale are held in trust for the unpaid seller until full payment is made. This trust gives produce sellers a priority claim ahead of banks and other creditors — a critical protection in an industry where product is delivered on credit, spoils quickly, and buyers sometimes fail before paying. USDA's Agricultural Marketing Service licenses approximately 15,000 produce businesses under PACA and handles approximately 2,500 disputes annually.

Current Law (2026)

Legal Authority

• 7 U.S.C. § 499b — Unfair conduct (prohibits unfair, unreasonable, and discriminatory practices by licensed produce dealers, including failure to pay promptly, rejection of produce without reasonable cause, misrepresentation, false advertising, and fraudulent accounting)
• 7 U.S.C. § 499c — Licenses (no person may do business as a commission merchant, dealer, or broker in perishable agricultural commodities in interstate commerce without a valid PACA license)
• 7 U.S.C. § 499e — Liability and PACA trust (violators are liable for full damages; perishable commodities received, products derived from them, and any receivables or proceeds are held in trust for unpaid sellers; trust beneficiaries must give written notice to preserve trust rights)
• 7 U.S.C. § 499g — Reparation orders (Secretary may order violators to pay damages after investigation and hearing)
• 7 U.S.C. § 499h — License suspension or revocation (Secretary may suspend up to 90 days or revoke for repeated, flagrant, or willful violations)

How It Works

Licensing is the entry point. Anyone who buys, sells, or brokers $230,000 or more of fresh or frozen fruits and vegetables annually in interstate or foreign commerce must hold a PACA license. Commission merchants (who sell on consignment), dealers (who buy and resell), and brokers (who negotiate transactions) are all covered. Operating without a license is a federal offense. The license fee is modest, but the obligations are significant — including fair dealing requirements, prompt payment, and record-keeping.

The PACA trust is the Act's most important mechanism. When a licensed buyer receives perishable produce, the produce itself, all inventory derived from it, and all receivables and proceeds from selling it are automatically held in trust for the unpaid seller. This statutory trust gives produce sellers a superpriority — they have a claim on the buyer's assets ahead of secured creditors (including banks with blanket liens). To preserve trust rights, the unpaid seller must provide written notice to the buyer within 30 days after the payment due date. This protection exists because produce is perishable, transactions happen on credit, and sellers can't repossess spoiled product — without the trust, a buyer's bankruptcy would leave produce sellers with nothing.

Prompt payment is a core requirement. The industry standard is 10 days from delivery for payment (or as agreed by contract). Failure to pay promptly is an unfair trade practice that can trigger reparation proceedings and, if repeated, license revocation.

Reparation proceedings are the primary dispute resolution mechanism. Any person (including unlicensed parties) may file a complaint with USDA within 9 months of the violation. The $60 filing fee makes it accessible. USDA investigates, and if the complaint has merit, the Secretary issues a reparation order requiring the violator to pay damages. Reparation orders are enforceable in federal court. Approximately 2,500 complaints are filed annually.

License revocation is the ultimate sanction. A revoked dealer cannot operate in the produce industry for at least 1 year. The principals of a revoked company (officers, directors, anyone with 10%+ ownership) are also barred from operating under a different license — preventing shell-company evasion. Revocation effectively ends a produce business.

How It Affects You

If you're a produce grower or shipper: The PACA trust is your single most important payment protection tool — but it's only available if you act in time. When you sell perishables to a licensed dealer and aren't paid, the PACA trust (7 U.S.C. § 499e(c)) gives you a superior claim against the buyer's entire inventory, receivables, and proceeds — ahead of the buyer's bank and most other creditors. The catch: you must preserve your trust rights within 30 days of payment becoming due by including specific PACA trust language on your invoices. The magic language: "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." Add it to every invoice. If a buyer files bankruptcy with your trust claim properly preserved, you are a secured trust beneficiary — not an unsecured general creditor. File a PACA reparation complaint at ams.usda.gov/services/enforcement/paca if a buyer fails to pay within terms.

If you're a produce dealer, retailer, or food service distributor: You must hold a valid PACA license if you buy or sell $230,000 or more of fresh or frozen fruits and vegetables in interstate commerce annually — regardless of whether you think of yourself as a "produce dealer." Many food service distributors, grocery wholesalers, and large restaurant chains are licensed PACA dealers and may not realize it. Check your license status and renew annually at ams.usda.gov/services/licensing/paca. The core obligations: pay within 10 days of acceptance (or within the agreed payment period, not to exceed 30 days), make full payment of the full invoice amount without unauthorized deductions, and maintain accurate records of all produce transactions for 2 years. Failure to pay triggers an unfair trade practice finding that can result in license suspension — and a suspended PACA license means you cannot operate in the produce industry.

If you're a lender to produce businesses: The PACA trust fundamentally changes your collateral analysis. When your borrower — a grocery chain, food distributor, or produce dealer — holds produce bought on credit, those assets and their proceeds are legally encumbered by a statutory trust in favor of the unpaid growers. Your UCC Article 9 security interest in the borrower's inventory and receivables is subordinate to the PACA trust claims of unpaid produce sellers. Before extending credit, get a current payables analysis showing amounts owed to produce suppliers and whether those obligations are within payment terms. In a distressed situation, PACA trust creditors must be paid out of the trust corpus before you can recover on your security interest. This matters for agricultural lenders, asset-based lenders, and any financial institution making loans secured by food industry inventory or receivables. The PACA trust is not recorded publicly — it arises automatically — so you cannot search for it the way you search UCC liens.

If you're a produce industry attorney or compliance professional: The PACA reparation process is fast and low-cost by legal standards: file a complaint with USDA's Agricultural Marketing Service, the agency investigates, and if the violation is clear, USDA issues a reparation order within months. Most reparation awards are for amounts under $50,000 and resolve without formal hearings. Critically, an unpaid reparation order can trigger automatic license suspension — making USDA an effective collection enforcement arm. For trust claims in bankruptcy, the preserve-trust-rights deadline and the specific invoice language requirements are traps for creditors who don't know PACA; representing distressed produce businesses or their creditors requires checking whether sellers properly preserved trust rights before assuming they have secured status. Resources: PACA Division at ams.usda.gov/services/enforcement/paca, and the International Fresh Produce Association (freshproduce.com) publishes compliance guides.

State Variations

PACA is exclusively federal for interstate commerce, but state laws add protections:

• Some states have their own produce dealer licensing and bonding requirements
• State prompt payment laws may provide additional protections
• State UCC Article 9 (secured transactions) interacts with the PACA trust — the federal trust generally takes priority
• State departments of agriculture may conduct produce inspections and quality certifications
• State contract law governs produce transactions not covered by PACA (intrastate commerce below the federal threshold)

Implementing Regulations

• 7 CFR Part 46 — Perishable Agricultural Commodities Act Regulations (49 sections — AMS operational rules for licensing, recordkeeping, duties, and conduct of produce dealers, commission merchants, and brokers):

  • Licensing requirements (§§ 46.3, 46.10–46.13): every commission merchant, dealer, or broker must hold a valid PACA license before doing business; a person may operate under more than one trade name only after notifying the Director; a nonlicensed person who transacted business inadvertently may avoid the harshest penalties by filing a late license within 30 days of discovery if the Director finds the violation was not willful (§ 46.10); license display requires showing a serial number, business name, and type of ownership — individuals list owner name, partnerships list all general partners, corporations list officers and directors; the license inscription must read "Licensed by the U.S. Department of Agriculture" with the license number (§§ 46.11–46.12); any change in address, ownership, officers (>10% stock holders), trade name, or branch count must be reported immediately in writing to the Director (§ 46.13)
  • Recordkeeping (§§ 46.14–46.25): all licensees must maintain accounts, records, and written memoranda of every produce transaction for 2 years after the closing date; records must fully and correctly show all costs, expenses, and proceeds and be kept in an orderly, accessible system; market receivers must maintain a bound or serially numbered log of every incoming delivery with arrival time, shipping marks, and quantity; sales tickets must bear printed serial numbers in sequence with no number reused within 90 days — tickets must be filled in clearly with all required particulars (§ 46.19); lot numbers must be assigned to all consignment, joint-account, and disputed shipments (§ 46.20); USDA representatives may enter any licensee's business during ordinary hours to inspect records on demand (§ 46.17)
  • Duties of brokers (§§ 46.27–46.28): brokers negotiate transactions between buyers and sellers; upon agreement, brokers must promptly provide a written confirmation to all parties stating the agreed terms; brokers must be honest with all parties about proposed terms and may not favor one side; brokers typically do not take title to produce — they facilitate contracts
  • Duties of commission merchants (§§ 46.29): commission merchants who receive produce to sell for others must sell quickly and fairly; they may not divert shipments to another market or hire another firm without the consignor's consent; they must account promptly and fully; if produce must be dumped, they must document the destruction with a witness statement or official condemnation order (§§ 46.22–46.23)
  • Conversion-of-funds prohibition (§ 46.33): any licensee who collects money on behalf of another person in a produce transaction must not use or spend those funds in any way that could delay payment to the owner — the funds must be kept identifiable and available until remitted; this provision underpins the PACA trust's practical operation
  • Confidentiality (§ 46.34): USDA staff must keep licensee business information private unless the licensee consents or a specific exception applies (disclosure to persons with a direct financial interest in the transaction is permitted)
  • License suspension/revocation (§§ 46.35–46.36): when a license is suspended or revoked, the Hearing Clerk serves the order on the licensee and publishes the action publicly — USDA publishes suspension and revocation orders as a deterrent to unfair conduct in the trade

• 7 CFR Part 47 — Administrative Procedures Under the Perishable Agricultural Commodities Act (29 sections across 2 procedural frameworks — the hearing and adjudication rules governing (1) reparation cases brought by unpaid sellers against PACA licensees and (2) "responsibly connected" determinations that extend license suspensions to corporate officers and employees):

  • Reparation case process (§§ 47.3–47.25): any injured party (seller, shipper, or state official) may file an informal complaint with the Deputy Administrator; if informal resolution fails, the party may file a formal complaint within 90 days of being notified that the case may proceed (§ 47.6); the respondent must file an answer within 20 days (§ 47.8); USDA's Fruit and Vegetable Programs prepares an investigation report that is shared with both parties (§ 47.7); for claims of $30,000 or less (excluding interest), there is normally no oral hearing — the case is decided on written submissions alone in a documentary procedure (§ 47.20); for claims above $30,000, the examiner may order an oral hearing with testimony, depositions, and subpoenas (§§ 47.15–47.17); subpoenaed witnesses receive the same fees and mileage as witnesses in federal court (§ 47.18); after the examiner files a report, the record goes to the Secretary, who issues an order; parties seeking reconsideration must petition within 20 days of receiving the order (§ 47.24)
  • Responsibly connected determinations (§§ 47.47–47.68): when a PACA license is suspended, revoked, or terminated, USDA may also find that specific officers, directors, or employees are "responsibly connected" to the violation — meaning they had actual or constructive knowledge of and authority over the conduct; a responsibly connected finding extends the licensee's ineligibility to the individual, preventing them from working in a licensed firm while the disqualification is in effect; the PACA Branch makes the initial determination; individuals receive written notice and may request a hearing before the Branch Chief to contest the finding; this mechanism prevents bad actors from simply moving to a different firm after their employer loses its license

Pending Legislation

No standalone PACA reform bills have been introduced in the 119th Congress. Related agricultural marketing provisions appear in broader legislation — see Agricultural Marketing Orders. The PACA trust is analogous to the statutory trust under the Packers & Stockyards Act for livestock. See also Federal Meat Inspection for the parallel inspection regime governing meat products.

Recent Developments

AMS has modernized PACA licensing and dispute resolution through electronic filing systems. The PACA trust remains the subject of significant litigation, particularly regarding the interaction between PACA trust claims and bankruptcy proceedings — courts have generally upheld the trust's superpriority over secured creditors. License fee adjustments and threshold updates have been implemented to keep pace with inflation. The growth of direct-to-consumer produce sales (farmers' markets, CSAs, online platforms) has raised questions about whether emerging distribution models fall within PACA's coverage framework. Broader agricultural market policy — including commodity price supports and marketing programs — is set through the farm bill.