The Perishable Agricultural Commodities Act (PACA) promotes fair trading in the fresh and frozen fruits and vegetables industries. One of the aspects of PACA is that it imposes a statutory trust on all produce related assets held by agricultural merchants, dealers, and brokers in order to better assure that suppliers of produce are paid.
A PACA trust is a nonsegregated “floating” trust composed of all perishable agricultural commodities received by a dealer in all transactions and all inventories of food or other products derived from perishable agricultural commodities and any receivables or proceeds from the sale of such commodities or products. The dealer receiving the commodities must hold the trust for the benefit of any unpaid seller of the commodity until the seller has received full payment owing in connection with the transaction by the buyer.
There are certain notice requirements that a seller must provide to the dealer in order to preserve the seller’s benefits under the PACA trust. However, when the statute and regulations are properly complied with, the seller’s interest will generally trump liens of other creditors, including secured lenders. Aside from produce dealers, PACA liens are also typically applicable to grocery operations and also to large restaurant operations.