October 6, 2000

The state of Minnesota has approved a law to provide some basic protection to farmers who produce or market through contractual arrangements, and more than a dozen other states are considering similar moves. But what farmers who produce under contact want done on their behalf remains up in the air.

At a recent meeting coordinated by the American Farm Bureau Federation in Nashville, TN , farmers, members of state Farm Bureau commodity and legal staffs, state government officials and legal experts took a look at the many issues surrounding the growing use of agricultural contracts.

"As agriculture moves toward a more consumer-driven marketplace, companies that sell to consumers will ask farmers to meet specific end qualities that can best be spelled out in the terms of a contract," said Joe Miller, an AFBF commodity specialist. "If properly carried out, contracts are a great risk management tool for both parties. The state legislative climate on this issue and the possibility of action at the federal level dictates that farmers be prepared to make informed recommendations to their elected officials."

As AFBF begins to prepare policy development information on the use of agricultural contracts, many related topics warrant consideration. Contract readability and clarity just scratch the surface. In some cases, farmers need to be able to share contract information with advisers. In order to ensure price discovery, some contract terms should be non-confidential. Other contract terms, however, should remain confidential to protect the interests of both farmers and contracting buyers.

The impact of increased contract production also comes to bear on the captive supply issue. If one company is able to control through contract a vast amount of production for a commodity, that could affect a farmer's marketing opportunity and price.

While contracts can help growers and buyers manage risk and formalize their business relationship, some agricultural interests believe that the increased use of contracts threatens to undermine the structure of American agriculture and the independence of the American farmer.

Farmers at the meeting expressed a wide array of opinions regarding agricultural contracts--from the belief that they provide a win-win marketing solution that gives farmers control and a lion's share of bargaining power, to one where the farmer has little say in production and no viable marketing alternative to immediately signing a contract the moment it is presented.