[Federal Register Volume 74, Number 53 (Friday, March 20, 2009)]
[Rules and Regulations]
[Pages 11835-11836]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E9-6055]



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 Rules and Regulations
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  Federal Register / Vol. 74, No. 53 / Friday, March 20, 2009 / Rules 
and Regulations  

[[Page 11835]]



DEPARTMENT OF AGRICULTURE

Agricultural Marketing Service

7 CFR Part 46

[Doc. AMS-FV-08-0013; FV08-379]


Regulations Under the Perishable Agricultural Commodities Act, 
1930; Section 610 Review

AGENCY: Agricultural Marketing Service, USDA.

ACTION: Confirmation of regulations.

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SUMMARY: This notice summarizes the results of an Agricultural 
Marketing Service (AMS) review of the Regulations (Other than Rules of 
Practice) under the Perishable Agricultural Commodities Act, 1930, as 
amended, under the criteria contained in section 610 of the Regulatory 
Flexibility Act (RFA). Based upon its review, AMS has determined that 
the Regulations (Other than Rules of Practice) under the Perishable 
Agricultural Commodities Act, 1930, as amended, should be continued 
without change.

FOR FURTHER INFORMATION CONTACT: Interested persons may obtain a copy 
of the review. Requests for copies should be sent to Michiko Shaw, 
Assistant to the Chief, AMS, F&V Programs, PACA Branch, 1400 
Independence Avenue, SW., Room 2095-S, Stop 0242, Washington DC 20250-
0242, (202) 205-4887, e-mail: [email protected] or by accessing 
our Web site at http://www.ams.usda.gov/paca.

SUPPLEMENTARY INFORMATION: USDA's Agricultural Marketing Service (AMS) 
administers and enforces The Perishable Agricultural Commodities Act 
(PACA). The PACA establishes a code of fair trade practices in the 
marketing of fresh and frozen fruits and vegetables in interstate and 
foreign commerce. The PACA protects growers, shippers, distributors, 
and retailers dealing in those commodities by prohibiting unfair and 
fraudulent trade practices. The law also provides a forum to adjudicate 
or mediate commercial disputes. Licensees who violate the PACA may have 
their license suspended or revoked, and principals of such a licensee 
are restricted from employment or operating in the produce industry for 
a period of time.
    The PACA also imposes a statutory trust for the benefit of unpaid 
suppliers or sellers on perishable agricultural commodities received 
and accepted but not yet paid for, and may encumber products derived 
from those commodities, and any receivables or proceeds due from the 
sale of those commodities or products.
    In the case of a business failure or bankruptcy of an entity 
subject to PACA, the debtor's inventory and receivables (PACA trust 
assets) are not property of the estate and are not available for 
general distribution until the claims of PACA creditors who have 
preserved their trust rights have been satisfied. Because of the 
statutory trust provision, PACA trust creditors who have preserved 
their trust rights with the appropriate written notices, including 
sellers outside of the United States, have a far greater chance of 
recovering the money owed to them should an entity subject to PACA go 
out of business. The PACA trust provisions protect producers and the 
majority of firms trading in fruits and vegetables as each buyer of 
perishable agricultural commodities in the marketing chain becomes a 
seller in its own turn.
    There are approximately 14,500 firms that are licensed under the 
PACA to operate in the produce industry. PACA licensees are located 
nationwide and include dealers, brokers and commission merchants who 
buy, sell, or negotiate the purchase or sale of fresh and frozen fruits 
and vegetables in interstate and/or foreign commerce.
    AMS published in the Federal Register (68 FR 48574, August 14, 
2003) its plan to review certain regulations, including regulations (7 
CFR Part 46) under the PACA, under criteria contained in section 610 of 
the Regulatory Flexibility Act (RFA) (5 U.S.C. 601--612). An updated 
plan was published in the Federal Register on March 24, 2006 (71 FR 
14827). Because many of AMS' regulations impact small entities, AMS 
decided, as a matter of policy, to review certain regulations which, 
although they may not have a significant economic impact on a 
substantial number of small entities as required in section 610 of the 
RFA (5 U.S.C. 610), merit review.
    The review was undertaken to determine whether the PACA Regulations 
(Other than Rules of Practice) should be continued without change, or 
should be amended or rescinded (consistent with the objectives of the 
Act) to minimize any significant economic impact of the regulations 
upon a substantial number of small businesses. In conducting this 
review, AMS considered the following factors: (1) The continued need 
for the PACA regulations; (2) the nature of the complaints or comments 
received from the public concerning the PACA regulations; (3) the 
complexity of the PACA regulations; (4) the extent to which the PACA 
regulations overlap, duplicate, or conflict with other Federal rules, 
and, to the extent feasible, with State and local governmental rules; 
and (5) the length of time since the PACA regulations have been 
evaluated or the degree to which technology, economic conditions, or 
other factors have changed in the area affected by the PACA 
regulations.
    AMS published a notice of review and request for written comments 
in the Federal Register on March 21, 2008 (73 FR 15122). The comment 
period ended on May 20, 2008. AMS received three written comments in 
response to the notice of review.
    One comment was received from Thomas R. Oliveri, Director of Trade 
Practices and Commodity Services, Western Growers (WG), Irvine, 
California. WG is an agricultural trade association whose nearly 3,000 
members grow, pack, and ship approximately 90 percent of the fresh 
vegetables and nearly 70 percent of the fresh fruits and nuts grown in 
California and Arizona, which accounts for more than 50 percent of U.S. 
fresh produce production. WG was fully supportive of the program and 
the continued need for the PACA regulations. WG stated that the PACA is 
a user fee, self-funded program which has been supported by, and 
protecting the produce industry for nearly eighty years. WG stated that 
the primary purpose of the PACA is to prevent unfair and fraudulent 
marketing and selling of fresh fruits and

[[Page 11836]]

vegetables, and to facilitate the orderly marketing of fresh fruits and 
vegetables in interstate and foreign commerce. WG further stated that 
the program is the most efficient and inexpensive way for disputes 
between buyers and sellers of fresh fruits and vegetables to settle 
their differences under the Rules and Regulations of the PACA and its 
precedent decisions. AMS concurs with the stated position of WG.
    Another comment was received from Elise Cortina, Executive Director 
of the Frozen Potato Products Institute (FPPI), McLean, Virginia. FPPI 
is a national trade association representing domestic manufacturers and 
processors of frozen potato products. Its member companies account for 
approximately 95 percent of the total annual United States production 
of frozen potato products. Ms. Cortina specifically urged AMS to retain 
the current regulations recognizing battered and coated vegetables as 
being within the PACA's scope. Ms. Cortina also stated that the 
inclusion of this definition has no detrimental impact on small 
businesses and, in fact, is beneficial to small businesses. AMS agrees 
that the definition of coated and battered within the regulations 
should remain as is.
    An e-mail comment was received from Jennifer Jambor, a staff 
attorney for Farmers' Legal Action Group, Inc. (FLAG), of Saint Paul, 
Minnesota, on behalf of the Farmworker Association of Florida, Inc., 
which represents more than 6,330 farmer worker families from 
predominately Mexican, Haitian, African American, Guatemalan, and 
Salvadorian communities. FLAG works with beginning fruit and vegetable 
farmers from these and other communities in Florida to assist them in 
understanding their legal rights under the PACA.
    FLAG suggested that although the PACA regulations set forth 
specific time frames for buyers to make payment to sellers, the 
regulations also permit buyers and sellers to enter into agreements for 
payment outside the prescribed time limits, thereby creating a 
perceived loophole. FLAG believes that this loophole provides a buyer 
the opportunity to undermine a grower's right to full and prompt 
payment because such an agreement may result in a waiver of the 
seller's right to payment under the PACA trust. In its comment, FLAG 
states that it is a common practice for packing houses to obtain 
growers' initials on a receipt for delivered produce that has a pre-
printed purchase contract on the reverse side, which includes an 
express waiver of trust rights. The terms of the preprinted contracts 
are not subject to negotiation and result in the sellers' unknowing and 
involuntary waiver of their trust rights. Growers are faced with a 
take-it-or-leave-it situation because of their relative bargaining 
position vis-[agrave]-vis the packing houses. FLAG argues that under 
these circumstances, no real agreement to alter the payment terms has 
been reached. FLAG therefore states that AMS should consider removing 
the provision in the PACA regulations that allows agreement to payment 
terms outside the prescribed time limits. In the alternative, FLAG 
suggests that the provision be amended to require that any waiver of 
trust rights under the PACA must be made knowingly and voluntarily. 
FLAG also opined that any written agreement must contain a disclosure 
describing a grower's right to full and prompt payment under the PACA 
and must either be in a language that the grower can read, or be read 
aloud to the grower in the grower's preferred language.\1\
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    \1\ FLAG recognizes that litigation can be used to challenge 
these contracts, but argues that amendment of the regulations would 
be a more effective and comprehensive response to the problem.
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    The agency does not believe that the best interests of the firms 
engaged in buying and selling fruits and vegetables would be served by 
significantly limiting, through regulation, the ability of these 
businesses to negotiate contract terms. Currently the PACA regulations 
set forth the payment terms under which payment must be made from 
buyers and sellers in order to comply with the PACA. However, the 
regulations allow the parties the flexibility to deviate from these 
terms, if they agree to different terms and enter into a separate 
written agreement prior to the date of the transaction. The regulations 
also specifically provide the maximum time that sellers can extend 
credit terms and still qualify for trust protection.
    Aside from the comments from FLAG, the Department has not received 
complaints about the PACA regulations. Based on these comments, AMS has 
determined that the PACA regulations should be continued without 
change.
    AMS has determined that the PACA regulations are not unduly complex 
and will not preempt any State or local laws, regulations, or policies, 
unless they present an irreconcilable conflict with the PACA 
regulations.
    The agency meets about twice a year with the Fruit and Vegetable 
Industry Advisory Committee, which is appointed by the Secretary, to 
discuss the administration of the PACA and other USDA fruit and 
vegetable programs. In addition, PACA administrators continue to hold 
periodic discussions with industry associations, such as the government 
relations committee of the United Fresh Fruit and Vegetable 
Association, Alexandria, Virginia; the Produce Marketing Association, 
Newark, Delaware; Western Growers, Newport Beach, California; Food 
Marketing Institute, Arlington, Virginia; and other individuals and 
firms regulated under the Act. The recordkeeping requirements of the 
PACA have never raised great controversy in the industry. Changes in 
the regulations have been and will continue to be implemented through 
notice and comment rulemaking to reflect current industry practices and 
technological advances.
    For example, a recent amendment to the PACA regulations was made as 
a result of changes in the produce industry's buying, selling and 
billing practices. The changes to the regulations will ensure trust 
protection for produce sellers using electronic invoicing or other 
billing statements to invoice buyers. The PACA trust provisions protect 
unpaid sellers in the event that a buyer files for bankruptcy or goes 
out of business. Under the new regulations, a buyer operating subject 
to the PACA, or its representative is required to accept a trust notice 
submitted by a seller in documentary form, by electronic invoice, or 
other billing statement. The buyer must also allow sufficient data 
space for the seller to include the required trust language in its 
electronic billing system. Any failure, act or omission inconsistent 
with this responsibility is unlawful and a violation of the PACA.
    Based upon its review, AMS has determined that the Regulations 
(Other than Rules of Practice) under the Perishable Agricultural 
Commodities Act, 1930, as amended, should be continued without change. 
AMS plans to continue working with the fruit and vegetable industry to 
maintain an effective program.

    Dated: March 16, 2009.
Robert C. Keeney,
Acting Associate Administrator, Agricultural Marketing Service.
[FR Doc. E9-6055 Filed 3-19-09; 8:45 am]
BILLING CODE 3410-02-P