A Brief Introduction of Agricultural Production Agreement
To begin with, what is agricultural production? It refers to means the production of agricultural and forest crops for profits derived from normal farming operations.
In contract farming, a farmer or more sign an agreement with the buyer. The buyer specifies his need for the farmers, and further, they both focus on delivery.
The farming contracts specify all the rules and conditions for the production of agriculture. Such an agreement is known as the Agricultural Production Agreement. The buyer can be an individual, but in most cases, but it can be an organization. The company, in most cases, promises to help the farmers with inputs, land preparation, transportation, etc.
Such an agreement benefits both the farmers and buyers. Buyers further present the material in the market. The farmers are either promised fixed money in return for their work, or they are given a percentage of benefits earned. In most cases, their salary is pre-decided. If farmers tell their requirements to the buyer, then the buyer arranges perfect seeds and other suitable material for the farmers. There can also a provision of bonuses and penalties in the agreement.
Other names for the Agricultural Production Agreement are Contract Farming Agreement and Farming Contract.
Who Takes the Agricultural Production Agreement?
The agreement is signed between the buyer and a farmer or more. The agreement ensures both parties are protected while farmers produce as per the requirement of the buyer. The buyer also ensures that the farmers are paid on time, and their hard work is acknowledged. The parties can also add more members who can mediate in case of any breach. The agreement is a legally binding agreement with some other documents.
Purpose of the Agricultural Production Agreement
An Agricultural Production Agreement is used when a big organization of buyers or contractors come in contact with farmers. These big organizations may provide resources to the farmers, in exchange of which farmers create commodities. The land is also provided by these organizations or contractors. Here are more reasons to use this agreement –
- The agreement legally protects both parties
- It specifies the responsibilities of the farmers
- It specifies the obligations of both the parties
- It gives the proper details about the payment structure
- It also mentions the details of any penalty
- It provides information about the supplies provided by the organization or contractor
- It gives the timeline to the farmers
- It lists down the governing laws
- It protects both parties from unnecessary dispute or confusions
Contents of the Agricultural Production Agreement
Like most other legal agreements, An Agricultural Production Agreement also contains the basic details of parties involved. Basic details are
- The names, addresses, phone numbers, etc.
- The agreement must clearly specify the responsibilities of the farmers.
- It must also elaborate on the deadlines and delivery dates.
- It should also give a proper compensation structure so that there is no confusion or doubts later.
Further, the agreement must list out the help given by the buyer, organization, or contractor. In each state, the laws are different for such an agreement; thus, depending on the state you live in, the state laws must be specified in the agreement. The agreement must also give a dispute resolution method as well as a termination policy.
How to Draft the Agricultural Production Agreement?
Before drafting the agreement, the organization, buyer, or contractor must speak to the farmers about everything in detail. There is a huge possibility that the contractors understand the state laws, but the farmers don’t.If the farmers can hire an attorney, then they can get assured about what they are getting into. Otherwise, the buyer must ensure that farmers know what they are getting into.
Disclosure of risks must be mandated. The contract must include the material risks of the contract.
- A three-day cooling-off period wherein the producer is given the right to cancel a contract within three days of document execution.
- Confidentiality clauses are considered void. It encourages the producers to seek advice from legal professionals or even other family members, thereby and creating transparency in agricultural markets.
- Production contracts must adhere to the governing laws of the state, ensuring that a choice of law clause in the contract will not remove the statutory producer protections.
- A production contract lien must be established. This enables a producer to receive a first priority lien against the produced commodity, its cash proceeds, or contractor property.
Farmers must also negotiate when it comes to compensation. The requirements for farming must be specified. This can help the buyer in buying suitable equipment, seeds, etc.
Negotiations are a crucial part of any important partnership or agreement. In an Agricultural Production Agreement, it is important that the farmers negotiate with the buyers or contractors. They can also put forward their viewpoints in front of the farmers. Negotiations should be made in a way that both the parties are eventually happy and passionate about work, and they deliver on time.
Benefits & Drawbacks of the Agricultural Production Agreement
There are many benefits of signing such an agreement as it ensures that the farmers get fixed and pre-decided compensation. It also ensures that if the demand increases, the contractor can do something about it.
Apart from this, there are more benefits of this agreement –
- It lists out the responsibilities and obligation of all parties
- It gives a legal remedy for any breach
- It can be referred in case of any doubt or confusion
- It contains all the details about the raw material provided by the buyer or contractor
- It reduces the risk
- It provided flexibility
- It establishes a sense of good faith is established for all agricultural contracts. As per the Uniform Commercial Code (“UCC”), this is “honesty in the concerned transaction could help protect producers. It also helps identify and curb unfair practices.
- Further, the producers are protected from retaliation, coercion, and/or discrimination by the contractor for exercising the producer rights. The rights include joining associations, contracting with other associations, whistle blowing, and/or other PPA-created statutory rights.
There are no disadvantages to this agreement if the agreement is drafted carefully, keeping everything in mind. It can seem risky to some people if the equation between both parties is not very well.
[ Also Read: Agricultural Technology Cooperation Agreement ]
What Happens in Case of Violation?
In case of any dispute or misunderstanding, the agreement must be referred to If the agreement has a name of a mediator, then parties must mediate. However, if there is no mediator involved, then parties are well within their rights to approach the court. In each state, there are different laws for such farming(1). Depending on your state laws, you must mention the legality details in the agreement so that in times like these, they can come handy.
Agricultural production is required in all states. It is one very important aspect of all our lives. Thus it is really important to ensure that the farmers and contractors draft an agreement very carefully. It is advisable that you always draft the agreement in order to remain safe. This ensures you don’t have to worry about the intricacies of terms and conditions of the partnership.