A Saskatoon lawyer has prepared a guide to production contracts that can be accessed free-of-charge through several Saskatchewan grower groups.
The 28-page document provides a list of dangerous clauses that appear in contracts as well as real examples of buyer- and grower-friendly clauses that farmers should be aware of when signing production contracts.
Craig Zawada said shrinking margins and a shift in the agricultural landscape necessitated such a guide.
“In the past if you made a mistake on a contract it was not the end of the world, you could recover. It would hurt, but you could recover,” said Zawada of the firm Wallace Meschishnick Clackson Zawada.
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“Now, with margins so low, if you do make a mistake or get stuck with a bad contract, you can literally destroy your farming operation.”
As well, there are a multitude of places to deliver grain, each with a different type of contract to sign. The large number of off-board grain buyers – some who are reputable, some who are not – further complicates matters.
A Farmer’s Guide to Production Contracts in Saskatchewan lists the questions farmers need to ask before entering into a binding contract.
The number one lesson is to get it in writing, Zawada said.
“We’re past the days when you rely on handshake deals, unfortunately.”
Verbal agreements are still surprisingly common in the agriculture community. They are less of a problem in farmer-to-farmer deals because the two parties have to live in the same community, but Zawada said the local elevator manager could be getting marching orders from hundreds of kilometres away.
Written agreements provide better evidence of what was intended because memories dim over time or there can be outright dishonesty by one of the parties.
Zawada said the herb and spice industry provides a recent example, where offshore buyers duped farmers into providing large samples of product for inspection as a requirement of sale. The farmers complied and that’s the last they saw of the buyers, who in some cases walked away with five kilograms of valuable commodity.
Another basic lesson is to take the time to carefully read through a contract to ensure it matches what has been promised.
“If you’re walking into the delivery point the day before you have to be seeding, you’re probably not going to have a lot of time to be able to look at it or to contact your lawyer,” he said.
If portions of the contract are confusing, a lawyer should be contacted.
Zawada also advised farmers to keep channels of communication open with buyers if problems arise during the term of the contract. He said it’s remarkable how many problems can be cut off at the pass by picking up the phone.
Zawada’s guide also outlines some of the dangerous clauses that can appear in contracts, such as unilateral grading clauses. He said producers should have a chance to bring in a third party should disputes arise.
While the guide also outlines buyer- and grower-friendly clauses, Zawada is quick to point out that the latter is a bit of a misnomer.
“You rarely get a contract where it’s just completely slanted in favour of the farmer.”
The Agriculture Institute of Management in Saskatchewan and the Saskatchewan Council for Community Development financed the guide.
Zawada said creating the guide was the first phase of a project that will eventually produce a contract that farmers can take with them when they visit grain buyers.
Large line companies would probably insist on using their own standard production contracts, but smaller independent buyers might be amenable to signing such a document.
At the very least, it would show farmers what clauses should be included in the contracts they sign.
Zawada hopes to have the farmer contract ready next January so it could be used next crop season.
He said his guide is no substitute for proper legal advice.
A copy of the guide can be obtained from Saskatchewan Agriculture and some provincial grower groups, such as Saskatchewan Pulse Growers at 668-5556. It is also on the internet at www.saskpulse.com.
