Agricultural contract review is more than a checklist for large agricultural companies. Before You Sign an Agricultural Contract: 10 Provisions Farmers and Agribusinesses Should Review highlights issues that farmers, ranchers, livestock producers, growers, food businesses, input suppliers, and other agribusinesses should understand before committing to an agreement.
Agricultural contracts may govern crop sales, livestock production, equipment, custom farming, storage, transportation, inputs, marketing, or long-term business relationships. Some of the most important provisions do not seem important until something goes wrong.
Before signing, understand not only what the agreement is supposed to accomplish, but also what happens if the relationship does not go according to plan.
-
Who Are the Actual Parties?
Start with the basics.
Is the agreement with you individually, your farm LLC, a partnership, a corporation, or another entity?
The contract should correctly identify the parties and clarify who is responsible for each obligation. If the farm operates through an LLC but the farmer signs personally, the signature language deserves careful review.
Personal guarantees also matter. Signing on behalf of a company is different from personally guaranteeing the company’s obligations.
-
What Exactly Must Each Side Do?
A good agricultural contract should clearly describe what each party is required to provide or perform.
Depending on the transaction, that may include:
- Quantities or acreage
- Quality or grade requirements
- Production standards
- Delivery dates and locations
- Equipment and services
- Storage requirements
- Transportation responsibilities
- Inputs or supplies
If quality requirements apply, determine how compliance will be measured, what testing or inspection process applies, who performs the inspection, and whether the result can be challenged.
-
How and When Will You Be Paid?
Do not look only at the price.
Review when payment is due, how the price is calculated, and whether bonuses, deductions, discounts, penalties, or setoffs, meaning amounts one party may deduct or offset from payment, may apply.
Also review who controls weighing, grading, inspection, and rejection decisions and whether the other party has audit, testing, or dispute rights. Determine whether payment is contingent on resale, acceptance by a downstream buyer, or another event.
Federal law may also affect payment terms in certain agricultural industries.
For example, the Perishable Agricultural Commodities Act, or PACA, applies to qualifying transactions involving fresh and frozen fruits and vegetables. USDA explains that PACA generally treats payment within 10 days after acceptance as prompt payment, unless the parties agree in writing to different terms before the transaction.
If the seller is seeking to preserve PACA trust protection, agreed payment terms generally cannot exceed 30 days from acceptance, and additional notice requirements may apply.
PACA is a specialized federal law and should not be assumed to apply to agricultural products generally.
-
How Long Does the Contract Last?
Know exactly when the agreement begins and ends.
Look for:
- Contract duration
- Automatic renewal
- Renewal deadlines
- Notice requirements
- Early termination
- Termination for cause
- Termination without cause
Automatic-renewal clauses deserve particular attention. Missing a notice deadline could result in a contract continuing for another season or longer.
- What Happens If Someone Defaults?
The agreement should explain what happens when one party fails to perform.
Possible remedies may include notice of default, an opportunity to cure, termination, damages, interest, reimbursement of expenses, attorney fees, or other contractual remedies.
Pay attention to whether the remedies are balanced. A contract giving one party broad termination or recovery rights while sharply restricting the other’s options may create significant business risk.
- Who Bears the Risk When Something Goes Wrong?
Agriculture involves risks that are difficult to predict.
Weather, disease, market conditions, transportation problems, equipment failures, labor shortages, supply interruptions, and government actions can all interfere with performance.
Important provisions may address:
- Indemnification
- Insurance
- Warranties
- Limitation of liability
- Risk of loss
- Disclaimers
- Force majeure
An indemnification provision can be especially important because it may require one party to indemnify or reimburse the other for specified losses, claims, liabilities, or legal expenses.
These provisions should not be dismissed as boilerplate.
-
What Does the Force Majeure Clause Actually Cover?
A force majeure provision may excuse or delay performance after certain events outside a party’s control.
But the wording matters.
Determine whether the clause covers only events such as weather, transportation interruptions, disease outbreaks, or government orders, or whether it also addresses supply shortages, market disruptions, price changes, or increased costs.
Economic hardship is not necessarily covered simply because performance becomes more expensive.
The agreement should also explain whether obligations are suspended, whether substitute performance is allowed, and whether either party may terminate if the event continues for a specified period.
-
Where and How Will Disputes Be Resolved?
This provision becomes much more important after a disagreement develops.
The contract may require:
- Negotiation
- Mediation
- Arbitration
- Litigation
- Proceedings in a specific state or county
- Application of a particular state’s substantive law
A governing-law clause generally identifies which law applies to the agreement. A venue or forum-selection clause generally identifies where a lawsuit or other proceeding must be brought. They are not necessarily the same thing.
Arbitration provisions should also be reviewed carefully because arbitration may affect the location of the proceeding, discovery, presentation of evidence, confidentiality, fee allocation, available remedies, appellate rights, and overall costs.
-
Can the Contract Be Assigned or Transferred?
Farm businesses change.
A farmer may create a new LLC, bring a child into the operation, restructure ownership, or transfer the business as part of succession planning.
The agreement may restrict assignment or require consent before contractual rights or obligations can be transferred.
A transfer of the business, change in ownership, or creation of a new entity may not have the same legal effect as an assignment. Review the contract’s language regarding assignment, delegation, change of control, and successor entities.
Do not assume the agreement automatically follows the business to the next generation.
-
Are There Industry-Specific Federal Rules?
Some agricultural contracts are subject to specialized federal requirements in addition to applicable state contract law.
The Packers and Stockyards Act and related USDA regulations impose requirements on certain poultry growing arrangements.
Depending on the arrangement, applicable requirements may address payment terms, contract duration, termination conditions, performance-improvement plans, and the grower’s right to receive a written copy of the arrangement.
Certain swine production contracts may also be subject to specialized federal requirements, including disclosure obligations and a limited cancellation right for qualifying growers.
Depending on the arrangement, federal law may provide poultry growers or swine production contract growers with a limited right to cancel after receiving or signing the contract. The timing, method, and scope of any cancellation right depend on the applicable federal requirements and the contract’s language.
Other agricultural transactions may involve PACA, federal crop insurance, USDA programs, food-safety laws, or additional federal regulations.
Make Sure the Written Contract Matches the Actual Deal
Before signing, ask a simple question:
Does this document actually say what we agreed to?
If an important promise was made during negotiations but does not appear in the written agreement, address it before signing.
Many contracts also contain integration or merger clauses stating that the written agreement represents the parties’ complete agreement.
The contract may incorporate other documents, including purchase orders, specifications, producer manuals, settlement statements, exhibits, schedules, or policies posted online. Those materials should be reviewed too.
Also confirm whether the agreement incorporates documents available through a website or online portal and whether those documents can be changed unilaterally after the contract is signed.
Frequently Asked Questions About Agricultural Contracts
Should a lawyer review every farm contract?
Not every routine transaction requires extensive legal review. Legal review becomes more valuable when an agreement involves significant money, a lengthy contract term, substantial capital investment, personal guarantees, exclusivity, unfamiliar risk provisions, or an important ongoing business relationship.
Can an agricultural contract be negotiated?
Often, yes. A document described as a “standard contract” is still worth reviewing. Whether particular terms can be changed depends on the transaction and the parties’ bargaining positions.
Are oral agricultural contracts enforceable?
Sometimes, but the answer depends on the type of transaction, governing law, and whether a statute requires a writing.
Rules concerning the sale of goods, land, services, livestock, and long-term production arrangements may differ. Even when an oral agreement may be enforceable, proving its terms can be difficult, particularly if the parties’ communications are incomplete or inconsistent.
What is a governing-law clause?
A governing-law provision identifies which jurisdiction’s law the parties intend to apply to their agreement.
It does not necessarily determine where a lawsuit or arbitration must occur. That issue may be addressed separately by a venue or forum-selection provision.
What is the difference between mediation and arbitration?
A mediator generally helps the parties attempt to negotiate their own resolution. An arbitrator generally hears the dispute and issues a decision.
Arbitration provisions can significantly affect how a future dispute will be handled and should be understood before signing.
Can federal law affect an agricultural contract even if the contract does not mention it?
Yes. Depending on the transaction, federal statutes and regulations may impose rights, disclosure requirements, restrictions, or other obligations independent of the contract. PACA and the Packers and Stockyards Act are two examples.
Review the Contract Before the Problem Starts
A contract is usually easiest to address before everyone has signed it.
Once crops have been delivered, livestock or poultry production has begun, buildings have been constructed, equipment has been purchased, or significant money has changed hands, the available options may be narrower.
Farmers and agricultural businesses should understand the financial obligations, performance standards, risk allocation, termination rights, dispute-resolution provisions, and industry-specific requirements before entering a significant agreement.
Rincker Ag Law works with farmers, ranchers, food businesses, and agricultural companies nationwide on agricultural contracts, business transactions, and disputes. If you are considering a significant agricultural agreement or have questions about an existing contract, contact Rincker Ag Law at (217) 774-1373 to discuss the agreement and the circumstances involved.
Legal Disclaimer: This article is for general informational purposes only and does not constitute legal advice or create an attorney-client relationship. Contract rights and obligations vary depending on the agreement, transaction, governing state law, federal law, and industry involved. Federal agricultural regulations and program requirements may change. Parties should obtain legal advice regarding their specific contract before signing or acting.