COMMON TRADE TERMS continued
“Protection” is not defined under the PACA; however, the term is often used throughout the industry in two main contexts:
1. “Market Protection” or “Price Protection” is understood as meaning that the buyer is protected against any market decline that might occur between the date of sale and the date the product is received. It should be noted that the shipper and receiver must clarify, before shipment, whether the decline is to be based on the shipping point market or the destination market. 2. “Protection,” “Full Protection,” and “Protection Against Loss” usually have the same meaning and should be distinguished from “market protection” or “price protection.” A protection agreement is a modification of the original sale contract that leaves the original sale price as the baseline price for determining whether the buyer makes a profit or is entitled to protection. The potential for profit remains after the conclusion of the protection agreement, and this potential can only be realized in the same manner as it is realized in any sale contract, namely by the buyer reselling at prices above the original price plus expenses. Therefore, when a buyer with protection fails to re-sell at such favorable prices and experiences a loss, the protection should only compensate the loss, and should not include a profit in the form of a commission or handling fee.
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