guia de principios para las operaciones de agricultura por contratos

8/11/2019 Guia de Principios Para Las Operaciones de Agricultura Por Contratos

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RURALINFRASTRUCTUREAND

AGRO-INDUSTRIESDIVISION

Guiding principles

for responsiblecontract farming

operations


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The designations employed and the presentation of material in this information product do not implythe expression of any opinion whatsoever on the part of the Food and Agriculture Organization of theUnited Nations (FAO) concerning the legal or development status of any country, territory, city or area orof its authorities, or concerning the delimitation of its frontiers or boundaries. The mention of specific

companies or products of manufacturers, whether or not these have been patented, does not imply thatthese have been endorsed or recommended by FAO in preference to others of a similar nature that arenot mentioned. The views expressed in this information product are those of the author(s) and do notnecessarily reflect the views of FAO.

All rights reserved. FAO encourages the reproduction and dissemination of material in this informationproduct. Non-commercial uses will be authorized free of charge, upon request. Reproduction for resaleor other commercial purposes, including educational purposes, may incur fees. Applications for permis-sion to reproduce or disseminate FAO copyright materials, and all queries concerning rights and licences,should be addressed by e-mail to [email protected] or to the:

Chief, Publishing Policy and Support BranchOffice of Knowledge Exchange, Research and ExtensionFAOViale delle Terme di Caracalla

00153 Rome, Italy

FAO 2012

Photo credits

FAO/Olivier Asselin A farmer woman using a magnifying glass to check rice reeds for insects [cover]

FAO/Rodger Bosch Cotton is widely grown in Africa by smallholders working under contracts that

can have specifications regarding the provision of inputs by the product buyer

Antonello Proto The fruit processing industry often contracts farmers to grow their rawmaterials under specific quality requirements. These should be clearly expressedin the contractual instruments

F. Mattioli Timeliness of delivery is a common pre-requisite in contract farmingoperations. Clauses that deal with assignment of responsibilities for harvestingand product delivery issues are advisable to be included in the contracts

FAO/Bay Ismoyo Food processing enterprises can be an important outlet for smallholderagricultural production. Well-designed contracts can be a mechanism topromote fairness in the relationship between small farmers and agro-processors

J. Koelen Through the provision of technical assistance, contracting firms can promoteimprovements in agricultural productivity and farmers income

This text has been prepared by Caterina Pultrone and Carlos A. da Silva, from the Rural

Infrastructure and Agro-Industries Division (AGS) of FAO, and Andrew Shepherd,formerly with FAO and now with CTA, the Technical Centre for Agricultural and RuralCooperation (ACP-EU). Comments by Doyle Baker (AGS) and the professionals fromthe Development Law Service of FAO are acknowledged with thanks. Contributionsfrom the panel of international experts who kindly commented on the earlier draftare also recognized with appreciation.


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BACKGROUND

Contract farming can be definedas an agricultural productionsystem carried out accordingto an agreement between abuyer and farmers, whichestablishes conditions for theproduction and marketing ofa farm product or products.Typically, the farmer commits toproviding agreed quantities ofa specific agricultural product.This should meet the qualitystandards of the buyer and be

supplied at the time that thebuyer determines. In turn,the buyer agrees to purchasethe product at agreed pricingconditions and, in some cases,to support production through,for example, the supply of farminputs, land preparation and theprovision of technical advice.

If the conditions that arestipulated in a contract farmingagreement are detrimental to

the interests of either partner,be it for reasons of imbalancesin market power, opportunisticbehaviour or other unfairpractices, the relationshipbetween buyer and farmer willmost likely deteriorate. Undersuch a scenario, contract farmingoperations will not be successfuland opportunities for the mutualbenefits that can ensue from awell coordinated buyer-sellerrelationship will be missed.

Contract farming continuesto gain importance as amechanism for governingtransactions in agrifoodsupply chains and as a toolto promote the access ofsmallholder farmers to markets.It is therefore timely andopportune to consider thevarious approaches availablefor minimizing the likelihoodof conflict in contractual

relationships, with a view toenhancing the potential ofbenefits for both partners

and promoting the social andeconomic development impactsof contracting in the agrifoodsector.

This document presents aset of guiding principles thatare conducive to responsiblecontract farming operations. Itis intended to serve as guidancefor farmers and buyers engagedin contractual relationships, inorder to promote good businesspractices and maintain anatmosphere of trust and respect

that is essential if contractfarming is to prove effective.

This brief is a complementto other publications availableon FAOs Contract FarmingResource Centre(www.fao.org/ag/ags/contract-farming).

GUIDING PRINCIPLES

Common purpose

Farmers and buyers shouldhave a common purpose whenengaging in contract farming.The arrangements should bebased on the principle that thecontract will protect the partiesfrom risks that may occurduring the fulfilment of dutiesand facilitate the execution ofcontractual obligations. The aimis that the agreement shouldpromote agricultural productionand guarantee a secure market

for the commodity, therebyallowing farmers to earnincreased revenue and buyersto obtain a return on theirinvestments (the so-calledwin-win situation).

Adherence to a legalframework

To regulate their agreements,farmers and buyers should agreeto enter into a contract.

To be valid, contracts mustcomply with a number ofessential requirements: parties

must have the legal capacityto contract and provide freeand informed consent. In caseswhere a group/associationenters into a contract, it

must be made clear whetherresponsibility lies with theindividual member or with thegroup. This will depend on thetype of association chosen forthe group and on the nationallegislation in force.

Contracts should beconcluded by the acceptance ofan offer that one party (e.g. thebuyer) makes to the other (e.g.the farmer).

Contracts should

clearly specify the partiesresponsibilities. In addition,contracts must be based on anobject (i.e. the good or servicethat constitutes the obligationof farmer and buyer) such as thesale of a designated crop by thefarmer and the payment by thebuyer. Finally, the contract mustbe based on the detailing of thefarmers and the buyers dutiesand responsibilities (the so-called

cause or considerationin legal terminology), whichincludes the price and the

Guiding principles for responsible contract farming operations

COTTONISWIDELYGROWNINAFRICABYSMALLHOLDERSWORKINGUNDER

CONTRACTSTHATCANHAVESPECIFICATIONSREGARDINGTHEPROVISIONOFINPUTSBYTHEPRODUCTBUYER.


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method of payment. Theobject and the cause/consideration of the contractshould be lawful, i.e. theyshould not be illegal, immoral orcontrary to public policy.

Clear documentation

Preferably, a contract shouldbe stated in writing, so as todocument the terms that theparties have agreed to and theright to obtain enforcement oftheir obligations, as outlined

in its terms. It is recommendedthat written agreements bedrawn up to provide clearguidelines regarding agreedquality of products, conditionsregarding prices, paymentand product delivery and toprevent conflicts arising dueto misunderstandings. In caseswhere the parties make a verbalagreement, this should ideallytake place in the presence of

one or more witnesses whohave no interest in the economicrelationship between the farmerand the buyer.

Readability of contracts

Contracts should be written inclear and coherent language,using a legible typeface andwords that are understandableby a farmer of average educationand experience. Confusion

and misunderstandings caneasily arise if the terms ofthe agreement are not clearlyexplained and understood.It would be advantageous ifcontracts were drafted in thelanguage with which bothparties are mostly familiar.In cases where farmers areilliterate, the text of thecontract should be read aloudby a third party.

Due attention and review

Buyers should grant farmersa sufficient period of time,depending on the case, to reviewthe draft contract and seeklegal or other advice beforesigning. Contracts should beconcluded well in advanceof the commencement of anagricultural season and farmersshould not be pressured to agreeto a contract without having firsttaken necessary advice. Buyers

should also grant the right tocancel the contract within adesignated period. Once theagreement is concluded, buyersshould provide a copy of thesigned contract to farmers.

Disclosure

Farmers and buyers shouldmake full disclosure of allinformation necessary for theconclusion of the agreement

and be transparent in all theirdealings. Contracts shouldclearly indicate the quantity ofthe commodity to be suppliedby the farmer over a periodof time, the quality standardsrequired and the means ofassessing these on delivery.Other conditions to be set outin the contract, if established bythe buyer, may include the timewhen farmers should deliveror when buyers should collectthe commodity, as well as the

responsibility for transportation.Terms and conditions for theeventual supply of productioninputs to farmers should beclearly outlined in the contract.Criteria for product pricedetermination, and their meansof verification, should alsobe specified unequivocally.Contracts should establishthe contract duration andconditions for termination, i.e.

a written notice of terminationwithin a reasonable time period.

Transparency in pricedetermination

Prices and payment constitutea key element of any contract,and these points need tobe clearly understood andagreed upon by farmer andbuyer. It is advisable that theparties negotiate in order to

THEFRUITPROCESSINGINDUSTRYOFTENCONTRACTSFARMERSTOGROWTHEIRRAWMATERIALSUNDERSPECIFICQUALITYREQUIREMENTS. THESESHOULDBECLEARLYEXPRESSEDINTHECONTRACTUALINSTRUMENTS.



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agree a price that is mutuallysatisfactory, and that both sidesstrictly honour this agreement.The price and payment methodsshould be carefully determinedin the contract, including allnecessary information to ensureclarity in the performance ofcontractual clauses. It is alsoimportant to specify when andwhere payments to farmers willbe made.

Contracts should ensuretransparency in price

determination and paymentprocedures. They shouldavoid complex formulas ormeasurements of quantity andquality unlikely to be fullyunderstood by farmers. It isadvisable that contracts shouldclearly disclose any charge ordeduction that may affect thenet amount paid to the farmerunder the terms of the contract.Contracts should also provide

transparency on informationregarding the costs of any inputsand services to be supplied.

It is advisable that a contractshould allow provision for pricesto be renegotiated in the event ofunforeseen circumstances, suchas substantial changes in marketconditions leading to largedifferences in price with respectto the contracted terms.

Transparency and fairness in

clauses relating to qualityContractors expect farmersto engage in productionpractices and procedures thatare conducive to producinggood quality products. Suchpractices include proper useof production inputs, whichare recommended for the typeof agricultural product to begrown or reared. Farmers arealso expected to follow good

management practices, whichmay include maintenance ofhygienic conditions, use of

clean containers and water andprotection of produce fromheat. Ideally, these expectationsshould be expressed in the formof clear contractual clauses.

It is advisable that contractsshould indicate not just thetype of production processrecommended for farmers, butalso the post-harvest handlingmaterials to be used, specifyingwhich party will supply themand their price. After harvest,farmers are expected to complywith the post-harvest handlingspecifications needed to preventspoilage or other forms ofproduct loss.

Buyers should strictlyadhere to agreed commoditygrades and should promotefair and transparent ways ofassessing the quality of producedelivered. Farmers and theirrepresentatives should have theright to be present at the timeof delivery and receive a fullexplanation in the event of anyrejects or downgrading. Soonafter delivery, farmers should

receive a written report ofquantities received and gradesapplied to their produce.

Transparency and fairnessin clauses related to inputsupply and use

The contract should stipulatewhich party will be responsible

for supplying and applyingfarming inputs. Where contractsenvisage the supply of inputs(i.e. pesticides, fertilizer, seeds,fuel, veterinary inputs, feed,etc.), before the start of eachseason all inputs should beidentified and ordered well inadvance of farming operationssuch as sowing, transplanting orlivestock breeding.

Where farmers require inputsfor the crops under contract,

the buyer could considersupplying these and deductingthe cost upon delivery of thecontracted product. If providedby buyers, inputs defined in thecontract should meet necessaryquality standards at prices thatare no higher than prevailingcommercial prices. Theyshould be delivered on time sothat farmers can use them tomaximum effect. In cases where

the buyer undertakes to providefarmers with inputs and otheradvances, farmers should not

TIMELINESSOFDELIVERYISACOMMONPRE-REQUISITEINCONTRACTFARMINGOPERATIONS. CLAUSESTHATDEALWITHASSIGNMENTOFRESPONSIBILITIESFORHARVESTINGANDPRODUCTDELIVERYISSUESAREADVISABLETOBEINCLUDEDINTHECONTRACTS.



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use these for purposes otherthan those for which they wereintended.

Farmers should also followrecommended practices inorder to meet specifications andmaximize returns from the useof the buyer-supplied inputs

Fairness in risk sharing:force majeureandcontractual flexibility

Contracts should envisage thepossibility of renegotiation.

They should also specify theissue of sharing of productionand market risks among parties.

In cases of controllableplant or animal disease risksthat may impede productionfrom reaching the contractedagreement, distribution ofthe resulting financial burdenshould be assigned in a waythat is commensurate with eachpartys responsibility for the

event. Problems caused, forexample, by inadequate inputsor technical advice providedby buyers should not resultin financial losses for farmers.Conversely, problems caused bymismanagement, inadequate useof inputs or failure to complywith the technical advicesupplied by the buyer, shouldnot penalize the buyer.

In cases where naturaldisasters (weather related, non

controllable plagues or diseases)

or man-made disasters (war,civil conflict, strikes), which canbe classified asforce majeure,cause farmers or buyers to beunable to meet the conditionsof the contract, neither partyshould be considered liable forthe non-performance and, inthese circumstances, the contractshould have a provision forrenegotiation. Renegotiationshould be based on the principleof equal sharing of the costs, orbenefits, arising from the event

classified asforce majeure.The possibility of insurance

programmes against crop orlivestock losses should also beevaluated as a means of riskmanagement.

Prevention of unfair practicesin buyer-farmer relations

Contracts should not prohibitor discourage farmers fromassociating with other farmers to

compare contractual clauses orto address concerns or problems.Moreover, they should notprohibit or discourage farmersfrom discussing contracts withbusiness partners or seekingprofessional, legal, financial oragricultural production advicerelated to the contracts terms,obligations, and responsibilities.

Buyers should not engagein retaliatory or discriminatorypractices against farmers who

exercise their rights against them,

such as by filing a complaintagainst a buyers perceivedunlawful conduct. They shouldnot misrepresent contract termsas an inducement to a farmer tosign the agreement.

Buyers should avoidsituations that can lead tofarmer dissatisfaction, such asdiscriminatory buying (unequaltreatment of farmers), latepayments, inefficient services,poor technical advice andunreliable transportation for

commodities. They should notchange pre-agreed productionquotas in the event of changingmarket conditions in an attemptto avoid purchasing contractedproduction. Additionally, theyshould not refuse delivery ofgoods when farmers are readyto supply them. In order tomaintain trust and respect, theyshould ensure transparencyand fairness during the buying

process.

Honouring contractual terms

Farmers and buyers shouldbe loyal to each other. Mutualtrust and respect are importantfactors for the success ofcontract farming operations.

In order to avoiddisagreements, buyers shouldensure that farmers have allnecessary information to enablethem to plant, grow, harvest and

deliver the required commodity,

FOODPROCESSINGENTERPRISESCANBEANIMPORTANTOUTLETFORSMALLHOLDERAGRICULTURALPRODUCTION. WELL-DESIGNEDCONTRACTSCANBEAMECHANISMTOPROMOTEFAIRNESSINTHERELATIONSHIPBETWEENSMALLFARMERSANDAGRO-PROCESSORS.



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and buyers should guaranteethat they will purchase theproduct from farmers asscheduled. In turn, farmersshould supply the produce,meeting the quality standardsspecified in the contract.

Farmers should respectthe commitment agreed inthe contract to deliver itemsproduced by using inputsand financing supplied bythe buyer exclusively to that

specific buyer, unless alternativearrangements are specified in thecontract. They should not sellall or part of their production toa different buyer (side-selling)if the latter offers a higher price.For their part, buyers, in theirturn, should not renege oncontractual terms when marketcircumstances or governmentpolicy change.

It is advisable that farmers or

their representatives be presentwhen the product is collectedfrom the farm or delivered to

the buyers premises. In theevent of product rejection,buyers should notify farmersof the reasons and offer themthe chance to inspect therejected consignment or have itinspected by a third party.

Open dialogue

Dialogue between farmers ortheir representatives and buyersis essential for the stability ofcontract farming operations.

Lack of communicationbetween them can lead tomisunderstandings and conflict.

Dialogue between theparties should be promotedon matters such as contractualterms and requirements forland cultivation or livestockrearing, as well as to help rectifymisunderstandings and resolveconflicts.

It is also advisable that

farmers and buyers should meetat the beginning of each seasonso that buyers can explain their

management programme, clarifythe duties of both parties as setout in the contract and addressany emerging problems.

Clear mechanismsto settle disputes

Farmers and buyers shouldagree in the contract on aneutral third party to assistthem in the event of disputes.When contractual disputes arise,both parties should endeavour

to resolve them amicably. Ifthese attempts fail, it is advisablethat the parties seek mediationor arbitration before resortingto judicial proceedings.

If the buyer is the subsidiaryof a parent company, this parentcompany should be liable to thefarmer for any debts and claimsagainst the buyer.

If the farmers and buyers arelocated in different countries,

the contract should specifywhich countrys law shouldapply in the event of a dispute.

THROUGHTHEPROVISIONOFTECHNICALASSISTANCE, CONTRACTINGFIRMSCANPROMOTEIMPROVEMENTSINAGRICULTURALPRODUCTIVITYANDFARMERSINCOME.



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RURALINFRASTRUCTUREANDAGRO-INDUSTRIESDIVISION(AGS)Food and Agriculture Organization of the United Nations (FAO)

Viale delle Terme di Caracalla, 00153 Rome, Italywww.fao.org/ag/ags | [email protected] | fax: +39 06 57053057

Guiding principles for responsiblecontract farming operations

guia de principios para las operaciones de agricultura por contratos

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