PACA Trust Compliance for Idaho and Utah Produce Handlers

When a produce buyer stops paying, an unpaid seller with an active PACA trust claim moves ahead of the buyer’s secured lenders in the collection line. That priority is one of the most valuable protections in agricultural commerce, and it depends on paperwork that starts before the first invoice, not after the default. Idaho and Utah produce handlers, from onion growers in the Treasure Valley to potato repackers in Eastern Idaho, either have this protection or they do not, depending on how they set up their trade terms.

The Perishable Agricultural Commodities Act (PACA) is federal law administered by USDA-AMS. It applies to buyers, sellers, and brokers of fresh and frozen fruits and vegetables in wholesale quantities. The trust provision is the enforcement tool that gives it real teeth.

What PACA is and who it covers

PACA is a federal statute (7 U.S.C. §499a et seq.) enacted in 1930 to protect fair trade in perishable produce. Its core requirements:

• Licensing. Buyers, sellers, and brokers of fresh and frozen produce above a specified wholesale threshold must hold a PACA license, renewed annually.
• Fair trade practices. Licensees must abide by rules on invoicing, inspections, and dispute resolution.
• Statutory trust. Buyers hold produce, receivables, and proceeds in trust for unpaid sellers.

The wholesale threshold is dollar-based and adjusts over time. Small direct-to-consumer operations generally fall below it. Operations that ship to grocery chains, wholesalers, foodservice distributors, or other commercial buyers usually clear it.

The statutory trust explained

The core protection: a buyer of covered produce holds the produce, all inventories derived from it, all receivables generated by its sale, and all proceeds of those receivables in trust for the benefit of unpaid sellers. The trust exists as a matter of federal law from the moment of the transaction.

Practical effect: if the buyer files bankruptcy or defaults, the trust assets belong to the unpaid PACA sellers rather than to the general creditor pool. Secured lenders with a security interest in the buyer’s inventory or receivables lose priority to PACA trust claims on the covered assets.

This priority is powerful. A produce grower who ships a truckload to a distributor that files bankruptcy the following week can, with proper documentation, recover from the bankruptcy proceeds ahead of the distributor’s bank.

How to preserve trust rights

The trust protection is automatic in theory. In practice, preserving it requires specific steps:

• Invoice language. Every invoice must contain the statutory notice: “The perishable agricultural commodities listed on this invoice are sold subject to the statutory trust authorized by section 5(c) of the Perishable Agricultural Commodities Act, 1930 (7 U.S.C. 499e(c)). The seller of these commodities retains a trust claim over these commodities, all inventories of food or other products derived from these commodities, and any receivables or proceeds from the sale of these commodities until full payment is received.”
• Payment terms. Payment terms cannot exceed 30 days from receipt to preserve trust rights automatically. Longer terms are possible but require a separate written notice-of-intent under the PACA regulations, filed before the transaction.
• Timely notice on default. A licensed seller with the invoice language above generally preserves trust rights automatically. Unlicensed sellers or those with modified terms must file a formal notice-of-intent-to-preserve within 30 days of the payment becoming past due.

Missing any of these steps can invalidate the trust claim. The bank steps back in front of the produce seller in the collection line.

When a buyer fails

Steps when a produce buyer defaults:

• File a PACA claim promptly. USDA-AMS provides a formal complaint process. The claim identifies the seller, the buyer, the invoices unpaid, and the amount owed.
• Preserve trust documentation. Copies of every invoice with the statutory language, delivery documentation, and payment terms.
• Follow through USDA-AMS process. The agency mediates and can order payment. In many cases, the threat of license suspension prompts settlement.
• Pursue trust remedies in court if needed. If the buyer is in bankruptcy or otherwise refuses payment, the seller enforces the trust in federal court. Individual principals of a corporate buyer can be personally liable for trust breaches under settled case law.

What Idaho and Utah handlers should do now

For any operation shipping wholesale produce, a short PACA-compliance checklist to run through this month:

• Confirm PACA license is current. Renewal is annual.
• Review invoice templates. Is the statutory trust language on every invoice? If not, update the templates.
• Review credit terms. Are any customers on terms longer than 30 days? If so, is there a documented notice-of-intent for each?
• Prepare a notice-of-intent template for future defaults. Having the form ready in the file system saves days when a default happens.
• Confirm the accounts-receivable system flags past-due PACA-covered accounts within 30 days.

None of this is complicated. Not doing it is where growers lose recovery rights on legitimate unpaid balances.

This overview is general information, not legal advice for your specific operation. Talk with Cooper Norman’s agriculture team and consider our controls review to check invoice-and-receivable processes against PACA requirements. Review your PACA compliance with Cooper Norman before the next default catches you unprotected.