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Proposed Amendments: N.J.A.C. 2:72-3.1, 3.2, 3.3 and 3.4
Authorized By: State Board of Agriculture and Charles M. Kuperus, Secretary,
Department of Agriculture.
Authority: N.J.S.A. 4.11-15 et seq., specifically 4:11-33.1.
Calendar Reference: See Summary below for explanation of exception to calendar requirement.
Proposal Number: PRN 2006-237.
Submit comments by October 6, 2006 to:
Alfred Murray, Director
Division of Marketing and Development
New Jersey Department of Agriculture
PO Box 330
Trenton, New Jersey 08625-0330
The agency proposal follows:
Summary
N.J.A.C. 2:72 originated with the need to protect New Jersey growers of perishable agricultural commodities who fell victim to unscrupulous buyers of their product, by ensuring that the buyers of perishable farm products doing business with New Jersey growers have filed a sufficient surety bond with the Department of Agriculture. The rules have provided the New Jersey growers a method of recovering monies owed to them by licensed agricultural commission merchants (any person engaged in the business of soliciting or receiving any perishable agricultural commodity for sale on commission on behalf of the grower thereof who obtains a license pursuant to N.J.S.A. 4:11-15 et seq.), brokers, agents and commodity dealers in the event of bankruptcy or default by enabling the farmer to file a verified claim against the security or deposit held by the Department. The rules establish a formula to be used in determining the amount of the required bond as well as the requirement that dealers, commission merchants and brokers issue invoices that record the terms of the transaction. The rules have been amended over the years since 1930 to update the minimum and maximum values of the bond requirements, to include additional commodities, and to update payment due dates. This chapter continues to protect New Jersey growers from economic disadvantages caused by the failure of buyers to promptly pay for products ordered and received from growers.
The Department is currently proposing amendments to N.J.A.C. 2:72 that will incorporate the provisions of N.J.A.C. 2:67, which was previously its own separate chapter. Since the provisions of that chapter deal with when payment is due to growers by commission merchants, dealers, and brokers, the Department believes the language of N.J.A.C. 2:67, which expired July 1, 2006, belongs in this chapter.
Subchapter 1 was significantly amended. Specifically, the current N.J.A.C. 2:72-1.1 has been recodified and is now N.J.A.C. 2:72-1.2(b). In addition to the recodification, existing N.J.A.C. 2:72-1.1 was amended to clarify the statutory citation and to incorporate new definitions which are now found at N.J.A.C. 2:72-1.1. Moreover, N.J.A.C. 2:72-1.2(b) now includes a reference to the minimum and maximum bond requirements found in the statute. A new N.J.A.C. 2:72-1.1 was added, which sets forth the following new definitions for Chapter 72, “acceptable form of surety,” “applicant,” “certified vehicle tare weight,” “Department,” “invoice,” “persons,” and “prompt settlement.” In addition, N.J.A.C. 2:72-1.2(a) was added to specifically set forth the application process required when applying for a license. In addition to an application for a license, an applicant must submit an executed bond, a non-refundable application fee, and any other information deemed necessary by the Department. In lieu of filing a bond at the time of application, applicants may submit the date in which they will begin purchasing the commodity, so long as they later submit an executed bond at least 15 days prior to the first purchase.
New Subchapter 2 was added to clarify claim filing procedures. N.J.A.C. 2:72-2.1 specifies the method for obtaining forms for filing claims and sets forth the information required to be included in the claim. In addition, this section delineates the method for determining the 90-day filing period and sets forth the location for filing the claims.
Subchapter 3 was amended to reflect that the “record” that must be kept is an “invoice” and to require that all such invoices be presented upon demand to Department agents. N.J.A.C. 2:72-3.1, 3.2 and 3.3 were also amended to require that the invoice include the timeframe for payment to be made. The purpose for this amendment is to ensure the Department has access to the terms of the sale in the event a claim is made. The term “cash buyer” was removed from this chapter since N.J.S.A. 4:11-16 specifically excludes any transaction where the grower is paid in full at the time of the transaction. Throughout Subchapter 3, the words “dealer’s,” “commission merchant’s” and “broker’s” respectively were added prior to the word “agent” to clarify which agent is subject to the regulation. Additional technical amendments were made to this subchapter to ensure consistency with the definitions in this chapter and N.J.S.A. 4:11-15, specifically, “commodity” was changed to “agricultural commodity.”
At N.J.A.C. 2:72-3.1, the “Notes” found following subsections (a), (b) and (d) were deleted because they are confusing and are no longer relevant. Additional amendments were made to N.J.A.C. 2:72-3.1(a)4 to delete the reference to the list of sale terms in order to ensure that the invoice contains all the terms of sale and not just those listed. The phrase “how purchased” was also added to N.J.A.C. 2:72-3.2(a) to ensure the invoice includes the payment terms in order to assist the Department in determining compliance with these rules. N.J.A.C. 2:72-3.2(d) and 3.3(c) have been amended to clarify that the time period for recordkeeping shall be calculated from the date of the transaction. In order to ensure that producers are aware of the terms and conditions of their sale, N.J.A.C. 2:72-3.2(e) was deleted. Requiring dealers to include the terms of sale on each invoice rather than requiring the terms of sale only upon a change in terms, also helps the Department to be aware of such changes for compliance purposes. Additionally, the heading in N.J.A.C. 2:72-3.3 was amended to more accurately reflect the contents of that section and for consistency with the other section headings in Subchapter 3. Finally, N.J.A.C. 2:72-3.4 was amended to require the vehicle tare weight and gross weight to be recorded on the invoice. The purpose of this amendment is to ensure there is a record of the agreed-upon weight in the event of a later dispute. The word “shall” was also added to this subsection to correct a grammatical error.
As the Department has provided a 60-day comment period on this proposed readoption, this notice is excepted from the rulemaking calendar requirement pursuant to N.J.A.C. 1:30-3.3(a)5.
Social Impact
N.J.S.A. 4:11-19 requires that all commission merchants, dealers, agents and brokers of perishable agricultural commodities on a credit basis be licensed after filing the required security with the Department of Agriculture. All commission merchants, dealers, brokers and agents of perishable agricultural commodities in New Jersey, as well as New Jersey growers, are directly affected by these rules. N.J.A.C. 2:72 ensures that all credit buyers of perishable agricultural commodities are uniformly bonded and licensed to buy products directly from the New Jersey farmer. The purpose of the bonding requirement is to ensure that buyers of agricultural commodities have sufficient assets to pay growers for the commodities they purchase. Unlike typical non-perishable commodities, perishable commodities cannot be returned to the grower in the event of a breach of contract or a dispute, given their limited shelf life. All New Jersey growers receive a positive social impact in that they enjoy some economic protection through this process of having all buyers licensed. Unlicensed credit buyers are subject to monetary penalties pursuant to N.J.S.A. 4:11-34. The proposed amendments do not increase any burden on either the growers or the buyers, but rather clarify the requirements imposed by statute. Therefore, the amendments will ensure uniformity in application of these rules.
In addition, two new sections were added at N.J.A.C. 2:72-1.1 and 1.2. New N.J.A.C. 2:72-1.1 delineates definitions that will be used in this chapter. N.J.A.C. 2:72-1.2 clarifies the application procedures for commission merchants, dealers, brokers and agents who need to obtain licenses.
Economic Impact
Buyers of perishable agricultural commodities are annually charged a $30.00 application fee, as prescribed in N.J.S.A. 4:11-19. Buyers also bear the administrative cost of the deposited security, which usually runs $10.00 to $25.00 per thousand to a maximum of $3,750.00. The buyer pays this administrative charge directly to the bonding company. There is also a certain economic impact upon the Department of Agriculture for program administration costs.
There may be a negative economic impact on some buyers, as there may be a cost associated with obtaining a bond. However, the proposed amendments and new rules are not anticipated to increase the economic impact since they now permit submission of an executed bond later in the licensing year under certain circumstances and are not intended to create any new costs to be imposed on the buyers. Rather, there may be a slight positive economic impact on buyers who are now able to wait to submit the bond until 15 days before purchasing, rather than for the entire license year. This will allow buyers who are required to put up collateral for their bond and who only buy part of the year, an opportunity to have access to their assets for the non-purchasing portion of the year, that would normally be tied up in the bond.
The proposed amendments may also have a positive economic impact on the growers if they are unable to ensure the submission of the claims by the 90th day. Since the invoices now require inclusion of the date when payment is made, growers can more accurately calculate the date in which payment should be received and when claims may be filed. There may also be a positive economic value on the growers by providing clear standards for filing claims.
Finally, these rules as amended will have a positive economic impact on growers, as they help ensure that growers receive the agreed-upon purchase price from the brokers, dealers, and commission merchants.
Federal Standards Statement
Executive Order No. 27 (1994) and P.L. 1995 c. 65 require State agencies that adopt, readopt or amend State rules exceeding any Federal standards or requirements to include in the rulemaking document a comparison with Federal law. The Department has promulgated rules pursuant to its authority under the Perishable Agricultural Commodities Act (PACA), 7 U.S.C. §§499a et seq., for the licensing of brokers, dealers, commission merchants, and shippers who purchase and move perishable agricultural commodities through interstate commerce. 7 CFR 46.1 et seq.
The Perishable Agricultural Commodities Act and corresponding regulations provide Federal standards and licensing requirements for brokers, dealers, and commission merchants that deal with and purchase perishable commodities interstate. N.J.A.C. 2:72, however, provides licensing and bonding requirements for dealers, brokers, or commission merchants who purchase agricultural commodities in New Jersey. The requirements imposed under Chapter 72 do not exceed the Federal requirements under PACA; therefore, no Federal standards analysis is required.
Jobs Impact
An evaluation of the proposed amendments and new rules shows that there would be no gain or loss of New Jersey jobs.
Agriculture Industry Impact
The Summary, Social Impact, and Economic Impact statements above describe the impact of the proposed amendments and new rules on the agriculture industry.
Regulatory Flexibility Analysis
The proposed amendments and new rules have an impact on small businesses in that all buyers, both large and small, operating on a credit basis with New Jersey producers of perishable agricultural commodities, who are, to the best of the Department of Agriculture’s knowledge, almost exclusively small businesses, under the Regulatory Flexibility Act, N.J.S.A. 52:14B-16 et seq., must comply with the provisions of N.J.A.C. 2:72.
The rules provide for a different price for the security for small businesses. Since the bond is based on the value of the average month’s purchases, small businesses will generally have a smaller bond requirement. For example, based on the formula in N.J.A.C. 2:72-1.2(b), the security required for a small business could range from $5,000 to $15,000, while the security required for a large business could range from $50,000 to $150,000.
The rules impose both recording and recordkeeping requirements upon dealers and commission merchants to keep basic records of transactions and issue a copy to growers. These requirements, although stipulated in these rules, are normal requirements of doing business and therefore are not viewed as so burdensome as to merit differing standards. Likewise, the rules for filing claims apply uniformly to all growers and require consistent application. Therefore, no differing standard can be applied based on business size.
The Department of Agriculture does not feel the rules impose any more burdens on the regulated community than is necessary to ensure the fiscal responsibility of the purchaser on credit. There is no professional assistance required nor initial capital outlays to any business by the proposed amendments and new rules.
Smart Growth Impact
The Department does not anticipate that the proposed amendments and new rules will have any impact on the achievement of smart growth or the implementation of the State Development and Redevelopment Plan.
Fulltextof the proposal follows (additions indicated in boldface thus; and deletions in brackets [thus]):
SUBCHAPTER 1. COMMISSION MERCHANTS. DEALERS, BROKERS, AGENTS
2:72-1.1 [Bond requirement] Definitions
The following words and terms, as used in this chapter, shall have the following meanings, unless the context clearly indicates otherwise:
“Acceptable form of surety” means any security acceptable under N.J.S.A. 4:11-20 and N.J.A.C. 2:72-1.2(b).
“Applicant” means a dealer, broker, or commission merchant applying for a license pursuant to N.J.S.A. 4:11-19.
“Certified vehicle tare weight” means the weight of an empty vehicle as certified by agreement between the grower and the commission merchant, dealer, broker or agent.
“Department” means the New Jersey Department of Agriculture.
“Invoice” means the written record of transactions between a grower and a broker, commission merchant or dealer created pursuant to N.J.A.C. 2:72-3.1(a), 3.2(a) or 3.3(a)
“Persons” shall mean any individual, corporation, business, partnership, association, cooperative, limited liability company, or other legal entity.
“Prompt settlement” means 10 days from the date of delivery of the agricultural commodity unless a differing standard is provided in the invoice.
2:72-1.2 License application requirements
(a) All persons required to be licensed pursuant to N.J.S.A. 4:11-18 shall file an application on or before November 1 of each year that includes the following:
1. A written application upon a form provided by the Department that conforms to the requirements of N.J.S.A. 4:11-19, which shall include the names and addresses of all agents conducting business on behalf of the applicant in accordance with N.J.S.A. 4:11-22;
2. Proof of surety in accordance with the following:
i. An acceptable form of surety that conforms to the requirements of (b) below; or
ii. The date on which the commission merchant, broker or dealer will begin purchasing, receiving soliciting or negotiating the sale of any agricultural commodity, provided the applicant later submits an acceptable form of surety at least 15 days before engaging in such business. No license shall be issued until an acceptable form of surety that complies with (b) below is actually submitted;
3. A nonrefundable application fee of $30.00 made payable to the New Jersey Department of Agriculture; and
4. Any other information or documentation the Secretary of Agriculture deems necessary in order to determine the character, financial responsibility or good faith of an applicant.
(b) The [bond required in Title 4, Chapter 11, Article 2, Section 20 of the Revised Statutes] acceptable form of surety required in N.J.S.A. 4:11-20 shall be equal to the maximum calendar month purchases multiplied by the number of days before payment is made on those purchases divided by 30, which in no event shall be less than $5,000 nor greater than $150,000.
SUBCHAPTER 2. [(RESERVED)] GROWER CLAIMS
2:72-2.1 Claim filing procedures
(a) All claims filed pursuant to N.J.S.A. 4:11-28.1 shall be filed with the Department on forms provided for such purpose and in accordance with the requirements of this section. Each claim form shall be notarized and shall include the following:
1. The grower’s name, phone number, and mailing address, including the county;
2. The name and address of the purchaser against whom the claim is made;
3. The amount of the claim;
4. The signature of the grower;
5. The date; and
6. Any other information deemed necessary by the Department.
(b) Forms for filing claims against any commission merchant, dealer or broker are available by contacting the Department at:
New Jersey Department of Agriculture
P.O. Box 330
Trenton, New Jersey 08625-0330
(609) 292-5575
(c) All claim forms and any accompanying attachments shall be filed with the Department within 90 days from the date when payment was due, in accordance with the following:
1. All claims shall be filed at the following address:
New Jersey Department of Agriculture
P.O. Box 330
Trenton, New Jersey 08625-0330
(609) 292-5575;
2. Claims will be rejected if not received by the 90th day; and
3. For purposes of determining the 90-day time period, the date payment is due shall be 10 days from the date of the delivery of the agricultural commodity unless the invoice specifies a different payment date, which in no event shall be later than December 31 of the current licensing year.
2:72-3.1 Dealer's record of transaction; copy to grower
(a) Every dealer[, cash buyer] or dealer’s agent purchasing, receiving or obtaining an agricultural commodity from a grower shall, simultaneously with the purchasing, receiving or obtaining of the agricultural commodity, [make a correct record] create an invoice stating in detail for each agricultural commodity the following:
1.-3. (No change);
4. Terms of the sale [(]and how purchased[; FOB Farm, grade arrival, delivered, destination, platform, or any other such method.)], including the timeframe for when payment is to be made;
5. Price of the sale (If the price to be paid is based upon a market quotation for such agricultural commodity, the record shall specify the date and location of the market to be used in arriving at the purchase price[.]); and
6. Name of the agricultural commodity, number of containers, size, and net weight, and grade of agricultural commodity, where applicable.
[NOTE:--Egg Dealer--exception under item 5 of "Dealer’s record of transaction"]
(b) Where more than one agricultural commodity is purchased, received or obtained from a grower on a particular date, such information may be set forth on a single [record] invoice.
(c) A copy of the [record] invoice containing the [above] information required in [subsection] (a) [of this Section] above shall be issued to the grower upon purchase, receipt or obtaining possession of the agricultural commodity by the dealer[, cash buyer] or dealer’s agent.
(d) The dealer[, cash buyer] or dealer’s agent shall retain the invoice in his possession for a period of not less than one year [the aforementioned records] from the date of the transaction. These records must be presented upon demand to an authorized agent of the New Jersey Department of Agriculture.
[NOTE: This item should clarify the basis for establishing acceptance and liability for payment in connection with the prices stipulated and may also include when payment is to be made.
(e) Invoices following the first transaction with a farmer need not stipulate the terms of the sale on each invoice of receival unless the original terms are changed by mutual agreement. On such occasion, the new terms are to be stipulated in accompaniment with the statement that “these terms are continued in force until changed by a succeeding invoice noting the change”.]
2:72-3.2 Commission merchant's record of transaction; copy to grower
(a) Every commission merchant or commission merchant’s agent, upon entering into an agreement with the grower or receiving an agricultural commodity from a grower shall, simultaneously with the entry into the agreement or upon receipt of the agricultural commodity, make [a correct record] an invoice stating in detail for each commodity the following:
1.-3. (No change);
4. Terms of the sale, how purchased, and charges to be paid by the grower in connection with the sale, including the timeframe for when payment is to be made;
5. The lot number or other identifying mark for each consignment, which shall appear on all tags and other records needed to show what the agricultural commodity actually sold for; and
6. Name of the agricultural commodity, number of containers, size and net weight and grade of agricultural commodity, where applicable.
(b) Where more than one agricultural commodity is purchased, received or obtained from a grower on a particular date, such information may be set forth on a single [record] invoice.
(c) A copy of the [record] invoice containing the above information shall be issued to the grower upon entry into an agreement with the commission merchant or upon receipt of the agricultural commodity by the commission merchant.
(d) The commission merchant shall retain the invoice in his or her possession for a period of not less than one year [the aforementioned records] from the date of the transaction. These records must be presented upon demand to an authorized agent of the New Jersey Department of Agriculture.
2:72-3.3 Broker's [memorandum of sale]record of transaction, copy to grower
(a) Every broker or broker’s agent, upon negotiating the sale of an agricultural commodity on behalf of a grower shall, simultaneously with the negotiation of said sale of the agricultural commodity, make [a correct record] an invoice stating in detail for each agricultural commodity the following:
1.-3. (No change.)
4. Name of the agricultural commodity;
5.-6 (No change.)
7. Price of the sale. If the price to be paid is based upon a market quotation for such agricultural commodity, the record shall specify the date and location of the market to be used in arriving at the purchase price[.]; and
8. The timeframe in which payment should be made.
(b) A copy of the [record] invoice containing the above information shall be issued to both the grower and the purchaser upon negotiation of the sale of the agricultural commodity by the broker.
(c) The broker shall retain the invoice in his possession for a period of not less than one year [the aforementioned records] from the date on the invoice. These records must be presented upon demand to an authorized agent of the New Jersey Department of Agriculture.
2:72-3.4 Certified weights for each load of hay, grain and straw
Every commission merchant, dealer, or broker [or cash buyer] dealing in hay, grain and straw shall obtain a certified vehicle tare weight and gross weight for each load hauled or bought. This vehicle tare weight and gross weight shall be recorded on the invoice required to be made and maintained pursuant to N.J.A.C. 2:72-3.1(a), 3.2(a) and 3.3(a).
