The good ol’ days of a grower or shipper selling the grower’s crop on a hand shake has long since passed. In order to properly protect your grower as well as yourself as a shipper, it is imperative and a best practice to have a written agreement (contract) drawn up so each party knows what is expected from each other. The agreement needs to be straight forward, transparent with no hidden agendas and most importantly, be signed by both parties prior to the start of the shipping season.
You as a shipper, if you represent and handle grower’s product, are considered a Growers’ Agent/Commission Merchant which means according to The Perishable Agricultural Commodities Act (PACA), “any person operating at shipping point who sells or distributes produce in commerce for or on behalf of growers or others and whose operations may include the planting, harvesting, grading, packing and furnishing containers, supplies or other services.”
The extent of the grower’s agent authority and discretion in marketing another’s crop is dependent first and foremost, on the written and signed agreement between the parties. An agent, without a written signed agreement or statement of terms and conditions governing the marketing of the crops, is guilty of failing to maintain complete records as required under PACA. Moreover, written signed agreements which clearly outline the rights and duties of each party just make good business sense. With absent prior authorization from the owner of the crop, a growers’ agent is not permitted to, among other things:
- To utilize outside brokers to market the crop and to pass the brokerage fees incurred onto the grower;
- To agree to pay customers’ rebates, volume incentives, promotional allowances, rebates, slotting fees, and the like, and to deduct such expenditures from proceeds due grower;
- To make any sales on a consignment, P.A.S. basis, or open;
- To waive the grower’s right to a governmental inspection in the case of a reported condition or quality problem at destination;
- To sell on a pooled basis;
- To sell to affiliated or financially connected entities;
- To fail to fully, truly and promptly account to and pay the grower in the manner and within the time prescribed by the PACA regulations [7 C.F.R. §§46.2(2), 46.2(aa)]: Agents may not “overcharge” growers for materials or services in excess of the agreed charges for such services. (If no charge has been identified or agreed between agent and grower prior to the season, the agent is entitled to retain only its actual, substantiated costs in performing the service or supplying the material);
- To fail to exercise reasonable care and diligence in disposing of the produce promptly and in a fair and reasonable manner;
- To make any price adjustment for condition or quality without sufficient written documentation – e.g. governmental inspection certificates, accounts of sales, substantiating the need for such adjustment; and
- To make price adjustments for market decline.
Both PACA and the California Produce Dealer’s Act require written agreements with growers to be entered into before the start of the shipping season to be given effect. 7 C.F.R. §46.32. Under the PACA regulations, however, if, after receiving his agent’s written statement of terms and conditions, the grower delivers his produce to the marketing agent in the usual manner (business as usual), he or she will be deemed to have agreed to those terms, even though he or she did not sign a marketing agreement. 7 C.F.R. §46.32.
Those who market produce on behalf of growers and collect the proceeds and account to the growers for the funds received, have fiduciary obligations to their growers. This means that they must faithfully, truthfully and fairly represent the interests of their growers, and may not exceed the authority conferred upon them in the marketing of their grower’s crops. Marketing agents are licensed by the PACA Branch of the U.S. Department of Agriculture (USDA) and those operating in California by the California Department of Food and Agriculture (CDFA), Market Enforcement Branch. As part of the CDFA Market Enforcement Branch requirements, produce marketers are subject to a vast array of laws and regulations, including a pre-season disclosure that clearly delineates that the grower may be waving his or her rights with respect to certain aspects of the marketing of the season’s crop. Non-compliance with these regulations will subject the agent to loss of license and significant financial liability. The California Food and Agricultural Code allows for waivers as it relates to growers/shipper marketing agreements under the Market Enforcement Branch in section 56280.5. Consequently, it is imperative for shippers’ and growers’ agents to regularly review their written agreements with their growers to make sure the agreements address all of the issues which should be addressed.
Therefore, I strongly recommend that you have a written and signed Marketing Agreement and suggest you invest in having legal counsel that specialize in agricultural contract law help you with creating the agreement. If you need recommendations for attorneys who specialize in these matters, please contact me directly at TommyO@wga.com or 949-885-2269.