BILL ANALYSIS                                                                                                                                                                                                    ”



                                                                      



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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.  ›This 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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