Check the contract: Farmers may be liable for import tariffs

Farmers are warned to check contract terms for their potential liability to tariffs should the UK leave the EU without a deal on 29 March.

Many contracts contain a clause which, despite a price having been agreed, pass back to the buyer or seller any taxes, tariffs or levies imposed subsequent to the contract date.

This is likely to be more of a short-term issue for imported inputs, as little if any export trade is being done in advance of tariff rates being announced.

The main advice for farmers is to make sure they have copies of and understand all relevant buyer or supplier terms and conditions, even where they have been doing business with the same buyer or supplier on a long-term basis.

Terms of trade

This includes not only the contract for a specific sale or purchase, but also the general terms of trade issued by businesses. In the case of grain merchants, for example, these are issued separately, usually annually and override standard industry terms.

The tariff falls to be paid by the importer, but contracts may provide for someone else to cover the risk or share it, said Julie Robinson, a partner at Roythornes solicitors. “Just make sure it doesn’t fall to you without you realising it.”

The importance of good relationships with suppliers and buyers is also stressed by advisers.

Many suppliers are informing their customers or members of these obligations, but it is widely thought that some farmers will not be aware of their potential liability for tariffs on feed, feed ingredients, fertiliser, seed or agrochemicals.

At the Oxfordshire-based Orion Farming Group, a buying co-op which has more than 300 farmer members, feed and livestock manager Joe Cobb said the group had been making members aware of any impending tariff or other issues that would have a direct effect on their cashflow since these clauses began appearing in contracts from early December 2018.

They are now being included in all shipper and importer forward contracts, in the following form: “All tariffs/taxes/levies imposed on goods sold, for delivery post March 2019, will be for the buyer’s account”.

Similar clauses were contained in straights and compound feed contracts, said Mr Cobb.

Paul Rooke, head of crop marketing at the Agricultural Industries Confederation (AIC), which represents the trade, said the current situation presented a short-term risk on imported inputs in this period when there is uncertainty over the UK’s terms of trade, as the tariff rates that would be imposed under a no-deal exit are not known.

Tariff risk restricts exports

On cereal exports, it was more the case that business was simply not being done for shipments that would arrive after 29 March because no-one wanted to take the risk of high tariffs.

On some products, such as agrochemicals, where the likely tariff rate was relatively low, the issue would be more logistical, including regulatory hurdles, than cost, say traders.

How to cut no-deal risk

As well as understanding the terms of contracts, other measures to reduce the business risk of a no-deal exit include:

  • Develop relationships with end-users to cut currency, price, tariff and market risk. Many farmers may have a good relationship with a dealer or merchant, but have no clear idea of the end user of a crop.
  • Work with local users of the farm’s produce, helping processors to mitigate their supply chain risk, and to allow new and niche products and markets to be identified. Direct supply contracts could be developed that adequately share the growing risk, with the ultimate aim of growing nothing that is not pre-sold under contract.
  • Make maximum use of organic fertilisers – for conditioning to improve soil organic matter, the efficacy of ag-chem applications and drought tolerance. As well as saving on expensive P and K nutrients, this will cut the currency, price and tariff risk of imported manufactured nutrients. Organic fertilisers are harder to handle, but specialist contractors will ensure maximum nutrient availability. Farms without a livestock enterprise on the farm could consider a partnership with a local livestock producer, energy plant or utility provider.

Source: Alex Bragg of Savills’ food and farming team