Underwriting Q&A: What in the world is PACA and PSA?

Q: What in the world is PACA and PSA?

A: “PACA” refers to the Perishable Agricultural Commodities Act, while “PSA” refers to the Packers and Stockyards Act.

These statutes were designed to protect agricultural and livestock producers who were commonly subjected to wrongful/unfair business practices. Over time, these statutes were strengthened to add trust provisions for the benefit of unpaid sellers and suppliers, putting them at an advantage over the buyers’ other creditor’s (otherwise they would just be treated as an unsecured creditor). The trust acts as a lien over the perishable agricultural commodities, products derived from those commodities, and any proceeds from the sale of those commodities, until full payment is received. The statutory trust arises automatically and no documentation is typically recorded in the Public Records to inform parties of its existence.

These statutes can pose risks in an insured transaction as they create a trust for the benefit of unpaid sellers and suppliers of perishable agricultural commodities (“PACA Trust”) and poultry, poultry products, livestock, dairy, and meat products (“PSA Trust”). Property acquired or commingled with trust funds may subject that property to the PACA/PSA trust (i.e., funds used to pay down a mortgage or funds used to build improvements). For this reason, the title commitment involving, the purchase, lease, or financing of property owned by a party who may be subject to these statutes, typically includes the following exception:

Any right, interest or claim that may exist or be asserted against the Title pursuant to the Perishable Agricultural Commodities Act of 1930 (7 U.S.C. 499a, et seq.), the Packers and Stockyards Act of 1921 (7 U.S.C. 181, et seq.) or any similar federal or state laws.

When Do These Statutes Apply?

PACA applies to transactions involving “perishable agricultural commodities”, which can be generally defined as fresh fruits and vegetables of every kind and character (whether or not frozen or packed in ice). The PACA trust applies to “perishable agricultural commodities” received by a commission merchant, dealer, or broker. The definitions of commission merchant, dealer or broker could include: food, produce, and grocery wholesalers; grocery stores; food and produce packers; and restaurants.

PSA applies to the sale of poultry, poultry products, livestock, dairy and meat products. The PSA trust applies to packers and live poultry dealers which may include: poultry, livestock or swine farms; meat and poultry packing facilities; and grocery stores.

Summary

The trusts created under these statutes extend beyond the products or produce themselves and extend to assets purchased with the trust proceeds. The statutory trusts do not appear to create a lien on real property, per the terms of the statutes, however, a New York decision has imposed a lien on real property resulting from a PACA Trust. Therefore, these statutes must be taken into consideration when dealing with a party who may be subject to the PACA/PSA trusts.