During Economic Uncertainty, Agricultural Producers Should Utilize All Available Tools—Especially Agricultural Liens—to Ensure Payment for Their Products
COVID-19 has brought about new economic uncertainty that is disrupting supply chains, from farmers and ranchers to cooperatives, from processors to grocery stores, and all of the way down to consumers. Even solvent purchasers of agricultural products may begin to request extensions of payment terms from agricultural producers, impacting growers’ cash flow and balance sheets. Particularly in times like this, agricultural producers should utilize all available tools to ensure that they are paid for the products that they bring to market. Agricultural liens, such as those granted under state statute and the federal Perishable Agricultural Commodities Act (“PACA”), can help make sure producers get paid, but only if the appropriate filings are made within applicable deadlines.
Generally speaking, liens are a way to create a security interest in an object, or in this case, agricultural goods. If a purchaser of agricultural goods ever declares bankruptcy or becomes insolvent, then having a security interest in the goods helps to ensure that producers are paid before other creditors. Importantly, many agricultural liens also grant “super-priority,” meaning that they even take precedence over other secured creditors, such as banks, that may have filed liens prior to the agricultural producer. For these reasons, agricultural producers should utilize agricultural liens, described below, to ensure they are paid for their goods.
Agricultural-produce liens under ORS 87.700 et seq. apply to most crops grown in Oregon, including horticultural products, berries, vegetables, nuts, Christmas trees, meat animals, and dairy products. Agricultural-produce liens are automatically created when an agricultural producer sells the above products to a purchaser; however, the lien expires 45 days from the date that the final payment for the goods was originally due. Importantly, agricultural producers can extend this lien up to 225 days, but only if they make the appropriate filings with the Secretary of State and also give notice to other secured parties. Agricultural-produce liens are powerful because they are superior to all other liens (except for tax liens), and the lien automatically attaches to not only the agricultural produce itself, but also to other produce in the purchaser’s possession, all the other inventory of the purchaser, and the proceeds received by the purchaser in exchange for the goods. Thus, even if the purchaser of agricultural goods no longer has the goods in its possession, the grower’s lien persists and attaches to other possessions of the purchaser. Ranchers receive additional protection due to the fact that the lien for meat animals also attaches to all accounts receivable of a purchaser.
As the name implies, the grain-producer’s lien applies to various grains, as defined in ORS 87.750 et seq., such as wheat, barley, beans, peas, and seed, including vegetable and grass seed. The grain-producer’s lien, like the agricultural-produce lien, is automatically created when grain is delivered to a purchaser. Unlike the agricultural-produce lien, the grain-producer’s lien is valid for 180 days following delivery, and with the appropriate filing with the Secretary of State, the grain-producer’s lien can be extended to a total of 18 months by filing notice with the Secretary of State and also giving notice to other secured parties. The grain-producer’s lien attaches to all inventory of a purchaser, as well as the proceeds of any grain inventory, as of the date of delivery.
Agricultural suppliers, service providers, and custom hire operators can also benefit from liens. The agricultural-services lien contained in ORS 87.226 et seq. is available to those who perform labor, supply materials, or otherwise provide services to assist in growing or harvesting crops or in raising animals. Notice of agricultural-services liens must be filed with the Secretary of State within 75 days of the last labor, services, or materials being provided. Depending upon the extent of services or supplies provided and the crops or animals involved, multiple liens may need to be filed. Filers of agricultural-services liens also must provide a copy of the lien to the agricultural producer as well as any other secured parties.
Agricultural property owners can avail themselves of landlord liens for crops grown on leased premises. However, different from the liens discussed above, the landlord lien is a possessory lien, meaning that it only attaches to crops while they are still on the leased property. If tenants are or become delinquent on rent, agricultural landlords need to take action while crops are still growing or otherwise on the property.
Perishable Agricultural Commodities Act (“PACA”)
While the previously mentioned liens arise under state law, PACA is a federal law amended in 1984 that may also provide protection for agricultural producers. PACA was enacted to recognize that agricultural producers face challenges in securing and enforcing liens against perishable goods, particularly in interstate commerce. To address this inequity, Congress established a trust relationship between farmers and dealers of perishable commodities. Dealers who purchase in excess of $230,000 annually of perishable goods are required to obtain a license from the Agricultural Marketing Service. Then, any proceeds that a dealer receives in exchange for perishable goods must be held in trust until the grower of those perishable goods has been paid. The trust relationship creates similar benefits to the agricultural-produce lien and ensures that growers are paid before other creditors. To preserve their rights under PACA, growers must give notice to a dealer within 30 days of the dealer becoming delinquent.
In sum, both state law and federal law recognize that supply chain disruptions, such as those being experienced during the COVID-19 pandemic, threaten the livelihood of farmers and ranchers. To assist agricultural producers, state agricultural liens and PACA were enacted to help growers get paid. However, to obtain the protections of these statutes, producers need ensure that the filing requirements and deadlines are strictly followed, or they risk losing out. The above provides a brief and nonexhaustive summary of agricultural liens. Growers should consult knowledgeable attorneys to analyze the intricacies of agricultural liens and the grower’s particular situation and then establish routine filing practices, because by the time questions arise regarding a purchaser’s ability to pay, it could be too late. Now more than ever, the proper use of agricultural liens could mean the difference between getting paid, or not.
- Joseph HobsonShareholder
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