Producing Inefficiency: The Perishable Agricultural Commodities Act

May 1, 2003

Originally enacted in 1930, the Perishable Agricultural Commodities Act (“PACA”) was intended to protect the interests of producers of perishable agricultural commodities when they bring their products to market. Over the course of five decades, it proved difficult to enforce the provisions of PACA as drafted and codified. Therefore, in the 1980s Congress determined to strengthen PACA, creating iron-tough statutory provisions in favor of producers of perishable produce, and simultaneously causing great difficulties for already-struggling purchasers of perishable produce. The most severe provision of the revised PACA virtually eliminates any possibility of a debtor produce company reorganizing under the U.S. Bankruptcy Code by imposing a trust on purchased produce and the proceeds thereof. Another provision of PACA, almost equally harsh for the modern-day produce business, is the ability of creditors under PACA to pursue claims against a debtor corporation’s directors and officers if the creditors are unable to collect from the corporation itself. Therefore, PACA puts produce distributors at a double disadvantage compared to companies in other industries: bankruptcy reorganization is virtually eliminated as a possibility for a struggling company, and management (assuming that competent leaders can be found who are willing to bear this risk) is threatened with the possibility of industry- specific personal liability on the company’s debts. As a result, in our current economy a struggling small or mid-level produce business stands virtually no chance of surviving through difficult periods. Congress should consider revisiting PACA to eliminate these provisions, and should seek an alternative means, such as a purchase-money security interest, to protect producers.

Producing Inefficiency: The Perishable Agricultural Commodities Act