I frequently receive calls from our members about transaction issues, whether unfolding in real time or arising after the fact, as they work to resolve them. A common theme I hear is, “I granted the buyer protection,” and my immediate response is always the same: “What does ‘protection’ mean to you?” The answers vary widely, underscoring a key issue—there is no standard definition of “protection” under the PACA (Perishable Agricultural Commodities Act). This is why it is advised for sellers to avoid using undefined terms like “protection” or “price after sale” in their dealings, as it can lead to confusion and complicated disputes.

To clarify, let me break down the two most common ways “protection” is used in the industry—neither of which are PACA-defined terms, but both are prevalent in produce transactions:

1. Market or Price Protection

This type of protection shields the buyer from a market price decline between the date of sale and the date the product is received. It’s crucial that both parties agree, before the sale, whether this protection will apply to changes at the shipping point market or the destination market.

If providing market protection is part of your business practice, be sure that your agreements with growers reserve the authority to grant such adjustments. Sales agents should also retain records showing that market protection was discussed and agreed upon before shipment. Importantly, market decline adjustments should never be used by buyers to justify short-paying invoices 60 days after shipment.

2. “Full Protection” or “Protection Against Loss”

This type of protection is a modification of the original sales contract. It doesn’t alter the sales price but instead serves as a safety net if the buyer resells the product at a loss. In this case, if the resale price is higher than the original F.O.B. price plus freight, the buyer keeps the excess profit. However, if the gross proceeds from resale are lower than the total cost (F.O.B. price plus freight), the buyer deducts freight from the proceeds, ensuring they don’t suffer an out-of-pocket loss. If the resale proceeds are insufficient to cover the freight, the seller covering “full protection” must pay the remainder of the freight cost.

In such cases, the seller may not always have access to the account of sales, which can further complicate matters.

If you are finding these distinctions complex or difficult to manage, it may be best to avoid using the term “protection” altogether when negotiating load dispositions with your customers. Instead, consider granting a straightforward adjustment (allowance) or allow the customer to handle the product on a consignment basis, where you’ll receive a detailed account of sales.

As always, if you have any questions, concerns, or need assistance, please don’t hesitate to contact me at 949-885-4808 or [email protected].