It’s that time of year again when farmers and combine harvesters are getting fired up for what will be a busy period. However, following another difficult growing season, some will be concerned about the quality of this year’s crop. The weather can’t be controlled and regardless how good the grower is, if the conditions aren’t right then yields and quality can be threatened. So, what does this mean for growers in terms of their rights and obligations under their grain contract?
Most UK grain traders issue their own standard terms and conditions that are based on the Agricultural Industries Confederation (AIC) No 1 Grain & Pulses contract (latest version 1/16). And shortfalls in yield and / or quality can mean that growers are unable to fulfil their obligations. So, is there anything they can do about it?
Generally, buyers will only be willing to negotiate and adjust contract terms prior to the contract being signed. Growers shouldn’t shy away from raising queries with the buyer in relation to the contract and if the grower wishes to seek changes to the contract then they should propose any amendments before the contract is signed. Once the contract is signed, it is binding on both parties and, generally, buyers will be unwilling to enter into further negotiations. It is unusual (although not unheard of) for a buyer to agree to amend a binding contract just because the grower might have had a bad year.
By the time the grower gets to harvest time, the chances are that there will already be a binding contract in place with the buyer. Problems arise when the grower is unable to fulfil the terms of that contract. In this situation, it is essential that the grower fully understands their rights and obligations under the contract and strictly follows the terms of the contract. If they don’t they could find themselves caught out down the line.
Under the AIC contract, the grower is obliged to supply the goods as has been agreed and the unavailability of the grower’s own produce doesn’t remove this obligation on the grower. Therefore, if the grower’s own crop is insufficient to meet the quantity and / or quality agreed in the contract, it is possible that the grower might have to buy grain from elsewhere, at no extra cost to the buyer, to meet the terms of the contract. Alternatively, the buyer can buy additional grain elsewhere to fulfil the terms of the contract, with the grower being obliged to meet the difference in cost between the contract price and the market price.
Growers should also familiarise themselves with the provisions relating to tolerances. Generally, the tolerance will allow for delivery of plus or minus five tonnes or 15% of the contractual quantity - whichever is less. However, if the contractual quantity is set out as being between a certain weight (i.e. 230-250t) then no tolerance will be permitted because the grower’s obligation is to deliver a quantity between those two weights. In calculating any damages payable to the buyer due to the grower’s failure to deliver the contractual quantity, the sum will be based on the actual quantity set out in the contract and won’t take account of the permitted tolerances.
Most growers will be aware that contracts generally contain a force majeure provision to protect the grower when some unpredictable event or Act of God prevents the grower from performing the contract. However, bad weather conditions, the breakdown of plant or machinery, power failure or fire, will rarely count as a force majeure event and, even if such an event does, it will only give the grower an extension of time to perform the contract - it doesn’t mean that the grower no longer has to deliver on the contract.
There are just a few of the key considerations that should be taken into account in the event of a potential dispute with a buyer. It is always worth trying to resolve any disputes amicably and fairly between the parties but, to do so, it can help if the grower and the buyer are aware of their legal position. A number of disputes arise every year that could be avoided with a bit of forward thinking, planning and consideration of the contract.