BILL ANALYSIS Ó
SENATE AGRICULTURE COMMITTEE
Senator Anthony Cannella, Chairman
BILL NO: AB 907 HEARING: 07/03/12
AUTHOR: Ma FISCAL: Yes
VERSION: 06/21/12 CONSULTANT: Anne Megaro
Processors of farm products.
SUMMARY:
Existing law pursuant to the Food and Agricultural Code:
1. Provides definition for "processor" to mean any person
that is engaged in the business of processing or
manufacturing any farm product, that buys, or contracts to
buy, any farm product for the purpose of processing or
manufacturing it and selling, reselling, or redelivering it
in any processed form. It does not, however, include any
retail merchant that has a fixed or established place of
business in this state and does not sell at wholesale any
farm product which is processed or manufactured by said
merchant.
2. Requires that all processors of farm products apply and
obtain processor licenses with the California Department of
Food and Agriculture (CDFA).
3. Requires up to four years' financial documentation as
part of the license application. If the secretary is not
satisfied that an applicant/licensee is financially
responsible (able to pay in full for future farm product
purchases) the applicant/licensee is denied a license, with
the following exception:
a. a surety bond may be posted in lieu of
financial responsibility for a minimum of $10,000 or
20% of the total annual value of the products the
applicant/licensee intends to purchase.
4. Authorizes the secretary of CDFA, through the Market
Enforcement Branch (MEB), to enforce processor marketing
laws through licensing, fees, bonds, liens, audits,
investigations, violations, and penalties.
This bill:
1. Includes all debts, past and future, to be considered in
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the value of the surety bond or irrevocable guarantee that
ensures financial responsibility and ability to pay for the
licensee's obligations at the time the guarantee is issued
as a requirement of processor license approval.
2. Provides definition for "irrevocable guarantee" to
include a personal or corporate guarantee, a certificate of
deposit, a bank letter of credit, or a surety bond, as
determined to be appropriate by the secretary.
3. Increases by three times the amount of fees due to the
secretary of CDFA if any person is found to be operating as
a processor without a license within the last five years
that person has operated.
COMMENTS:
1. Purpose of Bill: Most wineries pay farmers for
delivered grapes in a timely manner, however, each year a
few wineries neglect to pay growers, causing economic
hardship to those farming operations. Within the last
three years, the California Department of Food and
Agriculture (CDFA) Market Enforcement Branch (MEB) received
formal complaints from 214 winegrape growers against 81
wineries, alleging $10.4 million in nonpayment for
delivered grapes. This bill authorizes CDFA to impose
sanctions three times the amount of unpaid or underpaid
license fees, as well as requires any bond or irrevocable
guarantee, placed in lieu of proof of financial
responsibility, to include both past and future debts owed
as a requirement of obtaining a processor's license. This
bill has been amended as a result of negotiations between
winegrape growers and wineries, and is noncontroversial in
its current form.
2. Background: The Market Enforcement Branch (MEB) of CDFA
was established in 1928 to ensure confidence and stability
in the agricultural marketplace and to protect against
unfair business practices between growers, handlers, and
processors of California farm products.
MEB is responsible for the licensing of dealers, buyers,
and processors, conducting audits and investigations,
ensuring timely payment for producers and dealers of farm
products, settling transaction complaints, and enforcing
disciplinary action when appropriate.
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MEB is supported by license fees paid by dealers, brokers,
commission merchants, and processors that range from $136
to $400 annually, plus agent licensing fees ($55 per
agent). In FY 2010-2011, MEB collected $2.23 million in
revenue from license application fees.
3. Financial Responsibility: Current law requires
processors to provide up to four years' history of
financial records with their processors license application
to MEB. Any applicant whose documents show insufficient
ability to pay for the coming year's purchases of farm
products, in full, are denied a license. However, the
applicant may choose to post a surety bond for a minimum of
$10,000, or 20% of the total value of the products they
intend to purchase, in lieu of proof of financial
responsibility. Should the processor be accused of non- or
underpayment by a grower, an administrative hearing process
commences. If the accusation is upheld in court or an
agreement settled, the bond may be used to pay growers for
moneys owed.
4. Past debts owed: This bill would close the gap in MEB's
authority to require an applicant to prove financial
responsibility, or post an irrevocable guarantee, as a
means to ensure payment for past debt in addition to future
debt. Therefore, a processor cannot obtain a license
without proving ability to pay for all debts owed.
5. Unpaid license fees: According to the author, MEB lacks
effective measures to ensure that all wineries that should
be licensed are licensed, and have paid all license fees in
full. This bill increases, by three times, the penalties
levied against licensees with any unpaid fees within the
last five years, as a means to deter fee avoidance.
RELATED LEGISLATION:
AB 2240 (Ma), Chapter 382, Statutes of 2010. Increases fees and
fee structures to cover minimum administrative processing costs.
Authorizes CDFA to appoint an advisory committee to provide
guidance in establishing fees.
AB 1061 (Assembly Committee on Agriculture), Chapter 613,
Statutes of 2005. Creates a procedure for complaints by growers
or licensed produce dealers where the claimed damages do not
exceed $30,000.
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AB 2630 (Ashburn), Chapter 412, Statutes of 2000. Raises the
level of administrative fines for violation to a maximum of
$5,000 and civil fines between $500 to $1,000 per violation.
SB 1535 (Costa), Chapter 768, Statutes of 2000. Authorizes MEB
to accept a representative's signature for processing an
application; expands bonding requirements to prevent offenders
from operating under another person's license.
AB 1249 (Assembly Committee on Agriculture), Chapter 198,
Statutes of 1999. Creates licensing application timetables for
produce dealers and processors of farm products.
SB 1198 (Costa), Chapter 696, Statutes of 1997. The first
significant change since 1928. Amends the Market Enforcement
Code to conform to similar federal programs where possible, and
changes fee structure, license application process, and method
of filing and processing claims, with the intent to reduce fees
to businesses and streamline the program.
PRIOR ACTIONS:
Not Applicable
SUPPORT:
California Association of Winegrape Growers (Sponsor)
California Farm Bureau Federation
OPPOSITION:
None received