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Rules and Regulations Federal Register

11835 

Vol. 74, No. 53 

Friday, March 20, 2009 

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. 

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: 

Michiko.Shaw@ams.usda.gov 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 

11836 Federal Register / Vol. 74, No. 53 / Friday, March 20, 2009 / Rules and Regulations 

1FLAG 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. 

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-orleave-it situation because of their 

relative bargaining position vis-a`-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

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