Surety Bonds and the PACA: Protecting Growers and Consumers from Fraud

A classic nightmare is getting caught in the web of a giant spider. Dream theorists — who have a pretty easy job — believe it means that you are worried about things going wrong. For those who work in agriculture, the dream might not be an actual spider web, but the far more real and pernicious trap of red tape. The world of surety bonds can be incredibly complex, with multiple layers of regulations and many different masters to serve. You might deal with local, state, federal, and even global trading regulations, depending on the business you are in. If you work in agriculture, the nexus between health codes, trading rules, and shipping standards can become incredibly complex when adding in the different municipalities. Even the most conscientious grower or producer can accidentally run afoul of the law. When this happens, you should be protected or your future work can suffer under the rules of the main federal regulatory commission, the PACA. Surety bonds can give you the necessary protection.

Understanding the PACA

The Perishable Agricultural  Commodities Act (also known as “the PACA” or just “PACA” depending on usage) was signed into federal law in the 1930s as a way to regulate the interstate transactions of perishable fruits and vegetables. It is a wide-ranging law that can be employed in state and federal courts, as well as in investigations by the USDA. PACA can cover a broad spectrum of issues, including:

• Storage and shipping regulations
• Unfair practices
• Health and safety violations
• Trade collusion
• Price manipulation
• Restaurant and grocery stores practices

As you can see, it is one of America’s broadest laws, tied intimately to the Interstate Commerce Act. It is pretty easy to run afoul of it. When a violation occurs, the violator is ordered under PACA to pay reparations to the wronged party. This party can be the government, but it is usually a vendor, buyer, or other intermediary. These reparations have the force of law.

One example of the PACA in action concerns the company World Best Tropical. World Best was found to have been in violation of the rights of one of its vendors, a Florida seller. PACA ordered World Best to pay reparations in the amount of $14,720. However, the company never paid and consequentially was slapped with PACA sanctions. This result impacts not just how it can conduct business, but how employees and executives who leave to go elsewhere can do their business. In a situation such as this, surety bonds can help.

How Surety Bonds Can Alleviate PACA Sanctions

PACA looks out for everyone in the industry — though some would say with the penetrating eye of Sauron — and so it doesn’t want to set any precedents where sanctions of reparations can be avoided. A former employee of World Best went to work for another produce company on Florida, A&B Tropical. However, because he had worked for a sanctioned company that failed to pay its fines, A&B had to prove that they wouldn’t do the same thing. This required a surety bond.

Just this week, A&B obtained a surety bond of $75,000[1. “A&B Obtains $75,000 Surety Bond,” June 29, 2015, http://www.thepacker.com/news/ab-tropical-post-75000-surety-bond] over four years in order to guarantee to PACA that they would follow regulations and that if they were ordered to pay a reparation due to running sideways with the rules they would be able to pay it. This helped to alleviate any potential suspicions by association that the company might feel. PACA was comfortable knowing that, regardless of the circumstance, there could be no material damage inflicted upon any company under its purview.

This example demonstrates why surety bonds in the agricultural field are so important. Even the best and most efficient companies can experience troubles with regulations and getting work often requires a level of trust. Having a surety bond from a leading and trusted company allows the government, whether it is PACA or a local board, to know that you will be able to make good, no matter what happens. This helps with any licensing issues and helps get your business moving.

Having a surety bond also helps protect you by preventing reparations from turning into sanctions. The surety bond serves as coverage, and while of course you will ultimately be paying the costs, you don’t have to face a choice between running through all your liquidity or facing harsh, business-crippling sanctions.

Surety1 is a leading bond provider that understands both the market and agricultural bonds. We can help get you bonded, demonstrating to PACA that you are trustworthy and serving to ease your fears that your business could face trouble. The spider web of red tape will always be there. Surety1 can help make sure you avoid becoming tangled within it.