BILL ANALYSIS SENATE FOOD and AGRICULTURE COMMITTEE Senator Dean Florez, Chairman BILL NO: AB 2240 HEARING: 6/15/10 AUTHOR: Ma FISCAL: Yes VERSION: 5/3/10 CONSULTANT: John Chandler Agriculture: processors of farm products: dealers: licensing: fees. BACKGROUND AND EXISTING LAW The Market Enforcement Branch (MEB) functions of the California Department of Food and Agriculture (CDFA) were established by the legislature beginning in 1928, with the goal of stabilizing chaotic marketing conditions for most agricultural commodities. The branch is charged with licensing dealers and processors, conducting audits and investigations, ensuring timely payment for producers and dealers of farm products, and settling transaction complaints. Current law requires that all persons engaged in the processing or manufacturing, or purchasing for processing or manufacturing of any farm product be licensed by CDFA. Similarly, all persons buying, receiving on consignment, soliciting for sale on commission, or negotiating the sale for resale must be licensed by CDFA. The current licensing fees are based on annual volume of sales for each licensee: $20,000 or less, sales fees are $100; $50,000 to $2 million, fees are $300; and over $2 million, fee is $400. Agents of a licensed principal are required to pay a $35 fee. MEB may deny or discipline licensees for violations of California marketing laws. Further, aggrieved growers with a complaint against a processor or broker/dealer may file a complaint with the MEB for a fee of $60 to help work toward a settlement of the aggrieved grower's dispute. Federal law authorizes similar marketing laws under the Packers and Stockyards Act of 1921 (7 U.S.C., Sec. 181, et. seq.). SB 1198 (Costa), Chapter 696, Statutes of 1997, recast provisions in the Processors of Farm Products and Produce Dealers Acts for denial, suspension or revocation of licenses, while exempting livestock dealers, as specified; reduced licensing fee and placed sunset on licensees Food Safety Fund surcharge; expanded prohibitions for licensure of agents; repealed current complaint process if federal AB 2240 - Page 2 alternatives are available and created new complaint process including an alternative dispute resolution option; and established claim limits and payments of trust fund. AB 1459 (Wiggins), Chapter 143, Statutes of 1999, made technical changes to require CDFA to include in their evaluation report an analysis of whether the fee structure is appropriate and to list a summary of fees paid by commodity and dollar volume. AB 1061 (Agriculture), Chapter 613, Statutes of 2005, the committee omnibus bill that included creating a procedure for complaints by growers or licensed produce dealers where the claimed damages do not exceed $30,000. PROPOSED LAW AB 2240 would do the following: Increase the fee for an aggrieved grower or licensee filing a complaint against a processor or dealer/broker from $60 to $100. Increase the fee for each agent of a licensed producer or dealer/broker from $35 to $55. Increase the fee for processors and dealer/broker buyers of annual volumes of $20,000 or less from $100 to $150. Authorize CDFA to appoint an advisory committee of producers and licensees to provide guidance in establishing processor and dealer/broker fees or rely on input from any similar advisory committees already assembled by CDFA. Eliminate the outdated fee structure and reporting provisions. COMMENTS 1.Supporters state that the MEB is facing a proposed $600,000 shortfall of its annual $2.6 million budget in 2010-2011. The current fee of $100 for the processors and produce dealers with less than $20,000 purchases per year does not cover the $136 cost to CDFA to process a single application. It is estimated that the fee increases in AB 2240 recommended by the Marketing Enforcement Advisory Committee, made up of appointees by CDFA, would bring in $268,400 annually. With AB AB 2240 - Page 3 2240, combined with the effort by MEB to locate processors and produce dealers currently operating without a license, CDFA expects the revenue to increase $425,000. AB 2240 fee increases will help prevent the MEB from running out of funds needed to operate. 2.Opponents state that AB 2240 would increase the processor licensing fee on the smallest buyers and producers which is inequitable as over 3,000 processors will not face a fee increase. The fee increase would, therefore, be borne by processors and produce dealers that would be most impacted by even a small increase in costs to their operations. Opponents feel that the MEB enforcement costs are driven by more complaints against the licensees that are not facing a fee increase, and therefore, all processors and produce dealers should share in the fee increases needed to keep the MEB operating. 3.AB 2240 seeks to address the shortfall with fee increases. It is estimated that the cost to process a single registration application from a processor is $136, which is $36 above the fee charged to the smallest processors. This raises questions of whether the program was established with a insufficient fee structure and why the costs of the program have increased beyond the revenue. The committee may wish to consider if why the cost to process a single application costs $136 and if there are cost saving changes that if addressed could solve the MEB budget shortfall without fee increases. PRIOR ACTIONS Assembly Floor 58-11 Assembly Appropriations12-1 Assembly Agriculture 8-0 SUPPORT California Farm Bureau Federation OPPOSITION Family Winemakers of California AB 2240 - Page 4