Farmers Weekly’s Business Clinic experts offer free advice on legal, finance, tax, insurance, farm management and land issues.
Here Derek Walsh – partner at Thrings – advises on changes made to contracts with suppliers.
Q: Does Tesco have the right to insist that I make my farm business records (profit and loss) available to Promar? From 1 April, failure to do so means Tesco will not honour the contract between us and will not accept my milk. I consider my farm records to be strictly confidential between me, my accountant and HMRC.
A: Dairy farmers supplying milk under the Tesco Sustainable Dairy Group (TSDG) are paid a price for their milk based on the cost of production.
TSDG contracts have been in place for several years. Tesco appointed Promar to calculate the cost of production – suppliers provide Promar with data from their farms and Promar then calculates the milk price.
Under the old Tesco contract, suppliers were not required to provide details of their farm accounts, but received a bonus if they did so.
Following a review of its contract and consultation with TSDG members, Tesco has introduced contract changes making it compulsory to provide this accounting information to Promar, with the cost of doing so met by Tesco.
The starting point is that there is freedom of contract – if one party seeks to impose terms that are considered unacceptable to another party, that other party does not have to enter into that agreement and cannot be forced to do so.
Tesco is making the provision of accounting information compulsory for TSDG suppliers. Any supplier who does not agree to this term is entitled to serve notice on Tesco under the terms of the contract to terminate the agreement, with effect after expiry of a contractual notice period.
On the other hand, and given the provision of this information is now compulsory, Tesco can serve notice to terminate the contract on the same basis if a supplier refuses to comply.
If the confidential nature of this information is a concern, the contract should be reviewed to ensure it contains a robust confidentiality clause.
For limited companies and limited liability partnerships this will not be an issue as they will already be used to filing this information at Companies House.
Queries or concerns about what the information will be used for should be directed to Tesco or Promar. The reasoning behind the change is to allow progress of the whole group to be monitored, something that was not possible when the provision of accounting information was voluntary.
In short, anyone who does not wish to provide the required information under the revised contract is free to terminate the contract in accordance with its termination provisions.
That said, concerns about finding an alternative outlet for your milk and/or the price you might receive are factors which will need to be considered in making that decision.
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