5+ SAMPLE Contract Farming Agreement
What Is a Contract Farming Agreement?
Before we define the agreement document, first of all, what is contract farming? Well, if the core definition of farming involves growing crops and keeping animals for food and raw materials personally to have something to eat every day, contract farming involves agricultural output that is carried out in accordance with an agreement between the customer and farm producers. In this approach of farming, the farmer agrees to furnish agreed-upon amounts of a crop or livestock product depending on the purchaser’s quality criteria and delivery requirements. In exchange, the buyer, who is generally a large company, agrees to purchase the goods at a certain price. Furthermore, this farming approach may be employed for a variety of agricultural goods, albeit it is less prevalent in poor nations for basic crops like rice and corn.
As stated, for contract farming to be carried out effectively between two parties while minimizing any chance of trouble, a document such as a contract farming agreement needs to be in place. It is a legal document that details a series of provisions in which the landowner or tenant (known as the farmer) provides land, buildings, and other technical devices while another farmer (known as the contractor) provides labor and machinery in exchange for an assured fixed annual payment per hectare and a bonus from net earnings. For tax reasons, both parties retain their own business identities and trading positions under this type of agreement. The agreement specifies the farmer’s and contractor’s responsibilities, as well as how any money and expenses would be split. This has the advantage of generating a bigger and more consistent revenue for both parties.
What’s Inside a Contract Farming Agreement?
Since this type of agreement needs to be present in order to practice contract farming effectively and trouble-free, it needs to be effective. And for this document to be effective, it needs to have the following key elements in place:
Title of the Agreement. The first key element of the contract farming agreement (or any kind of agreement) would be the title of the said document. In this case, the title of the document will be “Contract Farming Agreement”. This part is brief and should simply state the title of the document, which serves to illustrate its overall purpose.The Parties Involved. The next key part of this document will identify and briefly discuss the roles of the parties involved in the agreement. In the case of a contract farming agreement, the parties involved are the farmer and the contractor. Briefly speaking, the role of the farmer is to provide land, buildings, and equipment to carry out the agreement. The role of the contractor is to provide the necessary labor and machinery for the agreement to commence.Recitals. The next part that should be present in this type of agreement would be the recital section. Recitals are included in the contract farming agreement to provide context for the agreement. Furthermore, they can be a helpful resource for agreement interpretation since they contain language that demonstrates the parties’ purpose. Recitals are also known as the “whereas” sections of the agreement.Definition of Terms. The next part of the contract farming agreement will define the terms that are present in the document. The terms that may be defined in this agreement include “farming business”, “farming equipment”, “farm”, “farm produce”, and so on. How important is this section in the entire agreement? The description of terms part is essential in any sort of agreement since it aids in the comprehension of the document. In other words, they simplify contract clauses. The usage of defined terminology should always decrease the possibility of ambiguity. The bottom line is that this is the overarching concept that must be considered when considering whether and how to define a word in an agreement.Farming Services. The next key component of the contract farming agreement talks about the farming services that need to be carried out by the contractor throughout the course of the agreement. This may explicitly state in wording that the contractor needs to carry out the services in accordance and subject to the terms and conditions of the agreement. This may also state that the services done by the contractor need to be performed personally or under the contractor’s personal supervision. Lastly, this will state that the rights and obligations of the contractor under this agreement should be non-assignable.Commencement and Duration. The next key component of the contract farming agreement talks about when the agreement takes effect and for how long. In more defined terms, this part of the agreement states in wording that the agreement should take effect from the stated date of commencement and should last until the stated date of termination or early termination of the said agreement, in accordance with the provisions for early termination. It also states that the fiduciary responsibility shall remain in full force until everything has been accounted for.Extent of the Farm. The next key part of the agreement should talk about the extent of the farm that is to be used in the contract farming agreement. It states in wording that the given area of the farm to be used in the agreement needs to be agreed upon in advance between the parties involved. This section then states the agreed area of the farm to be used (ex. how many hectares are to be used) as an arable ground. Furthermore, this part of the agreement states that in the event that any portion within the agreed extent of the farm gets accepted under a particular environmental scheme, then the parties involved will then need to comply with such scheme.Farming Business. This part of the contract farming agreement should simply state that the farming business shall be the business of the party identified as the “farmer” in this agreement and the party shall be the registered producer of the goods for tax purposes. This part also states that the farmer should be in full possession of the farm but may grant leaves or access to the farm to the contractor for the sole purpose of the contractor carrying out their listed obligations in the agreement.Farming Policy. This key element of the agreement should dictate the farming policies to be observed throughout the duration of the agreement. The farmer should create the said policies, which may include cropping arrangements, fertilizer application, and so on. It also states that the contractor is deemed to be responsible for carrying out the compliance with the policies that are generated and in the event that there is a reason beyond the control of the parties involved that makes them unable to adhere to the said policy, appropriate revisions will have to be made to the policy after consultation with the contractor.Subsidy Entitlements. This is the next key part that should be present in a contract farming agreement and should state that every subsidy entitlement should remain to the farm and the farmer and will remain so throughout the duration of the agreement and at the termination.Fixed Equipment. The next key component of the contract farming agreement should state the provisions regarding the fixed equipment to be used in the agreement. In general, this part states that the fixed equipment shall remain as the farmer’s property and the contractor has the sole responsibility of carrying out maintenance of the said equipment. It also states that in the event of reckless damage to the equipment or any negligent or deliberate act by the contractor that leads to the destruction of the equipment, the contractor is solely responsible for the costs of the materials needed for repair or replacement of the fixed equipment.Compensation. The compensation clause of the contract farming agreement describes how the farmer is to compensate the contractor for services rendered, including how much is to be paid, how the payment is going to be handed out, and the schedule in which the contractor should be compensated.Farmer’s Responsibilities. This section of the contract farming agreement should now describe in greater detail the responsibilities of the party assigned as the “farmer” during the agreement. Some of the responsibilities of the farmer can include acknowledging a fiduciary duty to the contractor, giving leave to the contractor to enter the farm for the exclusive purpose of letting the contractor carry out the obligations of the agreement, and keeping the farm an ideal working environment by keeping it free from pests.Contractor’s Responsibilities. In addition to the farmer’s responsibilities, there also needs to be a section concerning the contractor’s responsibilities in this type of agreement. Some of the contractor’s responsibilities include carrying out all the necessary agricultural works, cultivating the farm for agricultural use, maintaining and improving the performance of the farming business, and acknowledging a fiduciary duty to the farmer.Insurance. This part of the contract farming agreement should state how insurance is going to be provided in the event of any loss or damage to the fixed equipment, the buildings, and the stored crops on the farm. It should also state how insurance is to be provided in the event of any harm or death of any person while on the premises of the farm.Termination. This serves as the last key clause of the agreement (that does not belong under a boilerplate clause) and should state the conditions in which early termination of the entire agreement may be carried out. This part should also state how the payments are to be carried out when the agreement is terminated prior to the agreed end date.
Steps in Writing a Contract Farming Agreement
Here are the important steps to be followed in order to create a contract farming agreement:
1. Identify Who is Involved
The first step that needs to be carried out when writing a contract farming agreement (or any type of agreement) is to identify who are the parties involved along with a brief description of their roles. In the case of the contract farming agreement, the parties involved are the farmer and the contractor. In brief terms, the role of the farmer in this agreement is to provide land, buildings, and equipment to the contractor that are necessary to carry out the agreement while the role of the contractor is to provide the necessary labor and machinery for the agreement to commence and to carry out every responsibility stated in the agreement in a professional manner.
2. Write the Key Clauses
After identifying who is involved in the agreement alongside their roles, it’s time to write down the key clauses that make up the main body of the agreement in this step. Some of the key clauses that make up the contract farming agreement include farming services, farming business, and the farming policy. The farming services clause should state that the contractor needs to carry out the services in accordance and subject to the terms and conditions of the agreement. The farming business clause states that the farming business shall be the business of the party identified as the “farmer” in this agreement and the party shall be the registered producer of the goods for tax purposes. The farming policy clause dictates the farming policies to be observed throughout the duration of the agreement.
3. Write the Secondary Clauses
After writing down the key clauses of the contract farming agreement, it’s time to write down the secondary (or the boilerplate) clauses that make up the agreement. Some of the secondary clauses of the agreement include the arbitration clause, the notices clause, and the governing law clause. The arbitration clause of this agreement states that in any event of disagreement that affects the construction of the agreement, an arbiter needs to be appointed, and his/her decision regarding the dispute shall be final. The notices clause states that any notices to be handed out by either party need to be given at the stated addresses and shall be done so at an appropriate date in order to be considered as properly given. The governing law clause states the place whose laws the agreement should observe.
4. Verify and Finalize
After writing down the main and secondary clauses of the agreement, it’s time to give it a second look. This also serves as the last step in creating this agreement. When verifying, check if there are any inconsistencies present throughout the main and secondary clauses, check if there are any typographical or grammatical errors that may alter the outlook of the document, and check if there are any missing elements that need to be included. When everything’s done, the agreement may now be set in motion by signing it.
What is the centralized model of contract farming?
In the centralized contract farming model, buyer engagement can range from limited input provision to management of the majority of production activities, such as land preparation and harvesting. This contract farming approach is commonly utilized for tree crops, annual crops, poultry, and dairy. The centralized model of contract farming gets its name from a centralized processor and/or packer purchasing from a multitude of small farmers.
How does a contract farming agreement benefit the farmer?
One advantage of this arrangement for the farmer is that he or she retains ownership of the land and may thus enjoy living there and the advantages of the agricultural lifestyle. Furthermore, the contract should yield a larger and more consistent revenue than in-hand farming because the farmer benefits from the contractor’s cheaper labor and machinery expenses, as well as their knowledge and skills. The agreement should also provide incentives for the contractor to be as efficient as necessary.
What is a type of farming?
Arable farming, which entails producing crops only in warm climates, is an instance of a type of farming practiced globally. It is done on moderately sloping or flat ground with rich, productive soil. In arable farming, it is critical that the ground not be excessively wet or too dry. Crop-growing land should be relatively protected and appropriate for the use of machines.
Contract farming establishes the conditions necessary for the production and marketing of a farm product, and it is understandable that the process can get so complex sometimes. In order for things to get streamlined between the parties involved as well as their interests to get protected, a contract farming agreement needs to be in place. In this article, plenty of sample templates are available should you require further understanding of this topic.