BILL ANALYSIS Ó
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|SENATE RULES COMMITTEE | AB 907|
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THIRD READING
Bill No: AB 907
Author: Ma (D)
Amended: 6/21/12 in Senate
Vote: 27
PRIOR VOTES NOT RELEVANT
SENATE AGRICULTURE COMMITTEE : 7-0, 7/3/12
AYES: Cannella, Rubio, Berryhill, Evans, La Malfa, Vargas,
Wolk
SENATE APPROPRIATIONS COMMITTEE : 7-0, 8/6/12
AYES: Kehoe, Walters, Alquist, Dutton, Lieu, Price,
Steinberg
ASSEMBLY FLOOR : Not relevant
SUBJECT : Processors of farm products
SOURCE : California Association of Winegrape Growers
DIGEST : As it left the Assembly, this bill dealt with
harbors and ports. This bill now deals with farm product
processors. It authorizes the Department of Food and
Agriculture (CDFA) to impose sanctions three times the
amount of unpaid or underpaid license fees and 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.
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ANALYSIS :
Existing law:
1. Defines "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 CDFA.
3. Requires up to four years' financial documentation as
part of the license application. If the Secretary of
CDFA 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 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
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.
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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.
Background
The MEB . In 1928, the MEB was established 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. The 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. The
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 fiscal year 2010-11, the MEB collected $2.23
million in revenue from license application fees.
Financial responsibility . Existing 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.
Past debts owed . This bill closes the gap in MEB's
authority to require an applicant to prove financial
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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.
Comments
According to the Senate Agriculture Committee analysis,
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 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.
Unpaid license fees . According to the author's office, the
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, and authorizes CDFA to appoint an
advisory committee to provide guidance in establishing
fees.
AB 1061 (Assembly Agriculture Committee, 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 to a maximum of $5,000 and
civil fines between $500 to $1,000 for violation of the law
governing licensing of produce dealers and processors of
farm products.
SB 1535 (Costa, Chapter 768, Statutes of 2000) authorizes
the MEB to accept a representative's signature for
processing an application, and expands bonding requirements
to prevent offenders from operating under another person's
license.
AB 1249 (Assembly Agriculture Committee, Chapter 198,
Statutes of 1999) creates licensing application timetables
for produce dealers and processors of farm products.
FISCAL EFFECT : Appropriation: Yes Fiscal Com.: Yes
Local: No
According to the Senate Appropriations Committee, likely
minor increase in revenue from additional penalties
deposited in the Department of Food and Agriculture Fund
for unpaid licensing fees.
SUPPORT : (Verified 8/8/12)
California Association of Winegrape Growers (source)
California Farm Bureau Federation
ARGUMENTS IN SUPPORT : The bill's sponsor, the California
Association of Winegrape Growers (CAWG), writes: "CAWG
believes AB 907 is an important step the Legislature can
take to improve the security of commercial transactions
between winegrape growers and wineries. And, by better
ensuring that all processors who should obtain a license in
fact do so, the Legislature will be securing the future of
the Market Enforcement Branch at CDFA, which is wholly
dependent upon on license fee revenue."
The California Farm Bureau Federation writes that this bill
will "provide MEB additional tools to ensure processors are
properly licensed and paying for delivered agricultural
products. This bill will improve the Processors Law by
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codifying the definition of 'irrevocable guarantee' to
include a surety bond as a qualified instrument to ensure
wine grape growers receive timely payments for products
already delivered and processed. This improved definition
will close the gap in CDFA's authority by allowing CDFA to
require a licensed winery to post a surety bond as a means
of securing a payment plan to ensure payments to growers
for amounts past due. ÝThis bill] strengthens the
Processors Law, and creates a much needed deterrent against
the avoidance of licensure. ?these changes will improve the
marketplace for California's wine grape growers?"
MEL:m 8/8/12 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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