Be clear about your grain contract rights

A difficult growing season and catchy harvest have raised concerns for crop quality this year. What rights and obligations do growers have if crops don’t meet contract specification?

The prospect of crops failing to meet contract specification is a daunting one, yet it’s the sad reality of farming’s reliance on the weather, no matter how good the grower.

Once farmers are signed up to a contract there is limited scope for negotiation and even less when a lorry is sat waiting to tip. The best advice is to contact your merchant or buyer as soon as possible if you think there will be a problem fulfilling requirements.

“Some problems are inevitable, but by looking at and understanding the contract and maintaining a dialogue between both parties then issues are commonly resolved,” says arbitrator Philip Noyce from Peter Brown Associates.

“Out of the thousands of contracts which are traded every day, a very small number end up in arbitration, maybe eight or 10 annually, showing the success of the system.”

But this year could be more challenging than normal, given the difficult weather and forecast for higher risk of mycotoxins in some regions, says the NFU’s chief arable adviser Guy Gagen. While mycotoxins are typically more of an issue for premium wheats destined for human consumption, feed wheat is not immune, as it can be used in starch manufacture, breakfast cereals and form part of the grist in mills, he says.

“End uses vary considerably, so it really is worth understanding where your grain is going. Make sure you get hold of the exact contract cover note for an individual load and be clear of your responsibilities and obligations. All too often they’re just filed and not looked at.

“If you suspect there may be a problem, early dialogue with grain buyers is vital.”

Grower obligations

Most UK grain traders issue company terms and conditions annually, based on the AIC No 1 Grain & Pulses contract. Every farmer (grain seller) should have a copy of the latest version (01/12) and should understand the main clauses and how to interpret and apply them.

The seller is obliged to supply goods as per what has been sold. The AIC contract states: “The unavailability of the Seller’s own produce does not remove the obligation on the Seller to make available goods which meet the following terms and conditions.”

Therefore, if grain of sufficient quality is not produced when called for, the buyer may buy-in grain of that quality to make up the shortfall and charge the farmer for any difference in cost between the contract and market price, says Mr Noyce. The seller can buy-in grain to meet his contract obligations and avoid a damages claim, although he may be liable for any additional haulage costs.

“If a seller knows he is short of quantity or the quality is wrong he should tell the buyer before the time of delivery to allow the buyer, with the seller’s agreement, to replace the likely shortfall. Where this happens, the buyer must minimise the seller’s losses.”

Where a seller defaults on a contract by not supplying the full contract quantity, the default date is the first business day after the expiry of the contract period. Any damages claimed must be established according to the market price on that date or very shortly afterwards.

Making allowances

Quality, price or other contract terms can be amended with the agreement of both parties and a seller may impose his own provisions, provided the buyer accepts them. However, this must be done when the original agreement is made, Mr Noyce says.

Fallbacks can be agreed at the time of contract so that quality in a bad year may be adjusted. “A buyer may adjust allowances depending on the quality of the year at certain times and it is worth noting these too, although, generally, buyers will not change a previously agreed scale of allowances.”

Testing samples

While testing of grain samples on farm is advisory to know what you’re selling and provide an early indicator of any problems, the results are not contractually binding. Sample analysis using accredited and calibrated equipment on delivery determines contractual quality and price received, says Mr Noyce.

Where grain is tested by the buyer and found to be deficient, the buyer can claim an allowance or reject the load. If it is rejected, the cheapest option is often to ask for a re-test, says Mr Gagen. Some merchants may do this, but could charge for it if the test result is upheld. In some cases growers may call for an independent test, typically costing around £100.

The farmer may be liable for the cost of independent testing if the rejection claim is upheld, while the grain buyer should foot the bill if the load is upheld to be contractual.

Buyers require a mycotoxin tests to be carried out by a seller to certify goods conform to current EU regulation. The cost of the test in this instance is usually borne by the seller, notes Mr Noyce.

Further information

NFU/ HGCA cereal sellers checklist

AIC contract details and mycotoxin advice

• NFU CallFirst – legal advice for NFU members – 0870 845 8458

www.nfuonline.com/your-sector/crops/grain-contracts

HGCA mycotoxin advice

Peter Brown Associates – 01730 352200

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