Negotiate early if tonnage looks short on crop contracts

Farmers worried they may not be able to supply contracted tonnages from the drought-stricken 2011 crop are urged to contact their buyers and negotiate an early solution.

Traders estimate 25-30% of grain has been committed, but that few have sold 100% of any crop.

However, Jon Duffy, chairman of the Agricultural Industries Confederation’s crop marketing committee. said that where there were problems, it was important to open negotiations.

“The most important thing is to start the conversation early about what you can do. Speak to the counter party about potential issues,” he said. “There could be financial consequences in taking that decision, but it’s best to have the conversation.”

There had to be some certainty about the issue, it would not be sufficient to simply warn a merchant in May that you might not meet the contract tonnage and leave things at that, he said.

The NFU has seen a rise in the number of calls from members concerned about contract commitments, said crops adviser Ruth Digby. Those who made early contact were likely to have a wider range of options open to them.

“If you are expecting not to meet your contract commitment, contact the merchant sooner, not in the stress of harvest or when the crop is due to be delivered,” she said. “You need to work out a deal. Try to avoid arbitration where no party has certainty.”

First, the scale of the problem has to be quantified and any financial impact calculated. Negotiations then need to cover the options, which could include the grower buying-in grain of the right quality to make up the contract tonnage or the merchant doing this and charging the grower if there is a difference in cost compared with the original contract price.

How any financial agreement is transacted also has to be agreed. For example, it could be invoiced or there could be an agreement to supply an alternative commodity to the agreed value.

Some merchants may agree to roll contracts forward into the following crop year, but this is likely to depend on whether they have sold the contract on.

Contracts should be read in conjunction with the standard terms of trade issued annually or periodically by merchants, as these sometimes override industry-agreed contract terms, warned NFU legal adviser James Potter. Problems often arose because documents were not issued simultaneously, he said.

The AIC No 1/11 contract is the most widely used ex-farm grain contract. This stipulates that goods are warranted to have been grown in the UK, but are not necessarily the sellers’ own produce. Oilseed rape is mainly traded ex-farm on the FOSFA 26A contract, which also stipulates simply that the seed will be UK grown.


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