Every secured lender hates to hear it: Yet another statutory
scheme could potentially cause the lender to lose its first
priority security interest in certain collateral. While the
Perishable Agricultural Commodities Act (PACA) has been around
since 1930, it is often forgotten or overlooked by many lenders.
However, to the extent that a lender's collateral includes
perishable agricultural commodities, such as when the borrower is a
restaurant or grocery store, PACA can present significant risks for
a lender.
PACA Basics
PACA was introduced to protect growers and suppliers of fruits
and vegetables, who had suffered immensely during the 1920s. In
1984, PACA was amended to add additional protections for suppliers,
including provisions for the creation of a statutory trust.
Pursuant to these provisions, a floating, non-segregated trust is
created in favor of suppliers selling perishable agricultural
commodities in their original state (e.g., fresh corn but
