Agricultural Contracts

1
Agricultural Contracts

• John C. Becker
• Penn State University

2
Contracts

• What is a Contract?
• Five Elements of a Valid and Enforceable Contract
• Contract Formation
• Contract Performance
• Excuses for the Failure to Perform the Contract

3
Long-Term Marketing Contracts

• An agreement under which a producer agrees to
  sell all of a designated commodity that is raised
  according to specific requirements and for which
  a specific price will be paid.

4
Production Contracts

• An agreement under which a farmer agrees to feed
  and care for livestock owned by the contractor
  until the livestock are ready for market at which
  time the farmer is paid according to the terms of
  the contract.

5
Reasons to Contract - Farmers

• Farmer gains another income source with little
  capital invested.
• Farmer gains a stable income source and reduces
  risk.
• Farmer has a guaranteed market for the production.

6
Reasons to Contract - Contractors

• Contractors gain access to a predictable supply
• The cost of this supply is fixed
• Contractors can quickly respond to changing
  consumer demand.
• Contractors can gain efficiency in producing
  large quantities of uniform goods.

7
Legal Considerations

• Transferring possession of an item with
  transferring ownership.
• Relationship between contractor and farmer. Is
  it an employer/employee issue or that of an
  independent contractor?
• Leasing as a comparison

8
Contract Issues - Farmer

• Who owns what is being raised?
• Will the contract pay for improvements needed to
  complete the contract?
• Under what circumstances can the contract end?
• Does the economics of the contract support
  being part of it?

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Contract Issues Farmer, pt.2

• How and when will payment be made?
• Who bears the risk of loss?
• Nonperformance by the Contractor
• Who should be responsible for environmental
  consequences?
• What if the Contractor files a Bankruptcy
  petition or assigns the contract?

10
Contract Issues - Contractors

• Does the farmer have an interest in what is
  being raised under the contract?
• Clarifying the relationship between the
  contractor and the farmer
• What if the farmer files a Bankruptcy petition?

11
Contracting in Modern Agriculture

• What is the role played by contracts in modern
  agriculture?
• How do you assess that role? What is the basis
  for your conclusion?