Contracts should be written to be enforceable in a court of law, even though verbal contracts do exist and are binding in most countries. Contract presentation should be simple and the terms used understandable to all the parties. It should define the parties and clearly specify the product under consideration (quality and quantity).

Contracts for agricultural production should include the following sections:

1. The parties, including names and addresses of the signatories.
2. The purpose, providing the reason for the contract, including the name of the specific commodity to be produced.
3. The production site, where the size and location of the farming area should be specified in as much detail as possible. Where land is leased or rented, evidence of land-use agreements should be provided and, sometimes, the owner’s approval may be required.
4. Obligations of the parties will describe what the farmer is expected to produce and how it should be delivered, and what support the buyer is required to provide. If the buyer is to provide inputs and/or technical assistance, this may be included here or in a separate section.
5. Price and payment, explaining the price to be paid or how it will be calculated, as well as when and where payment will take place.
6. Input provision, including a specific description of the inputs provided by the buyer and when and where they will be delivered, and how repayment by the producer will be calculated and made.
7. Third parties, describing the relationships with others who may contribute to the contract’s success are described here. This may include financial institutions such as banks or quality assurance certification bodies.
8. Excuses, defining an acceptable justification for failing to comply with the contract, such as because of force majeure, can be included in this section.
9. Remedies includes description of ways in which one party can be compensated for the failure of the other to meet its obligations.
10. Duration, renewal and termination, gives details of how long the contract is for, arrangements for extension or renewal, and how and why it can be ended.
11. Dispute resolution, introduces ways of addressing potential disagreements between buyers and farmers.
12. Signatures, where the parties should sign, ideally in the presence of witnesses. The signature clause will allow the parties to commit themselves and feel obliged to honour their obligations. Key to success is that the parties realise that a contract is a mutual assent manifested by an offer and an acceptance upon a legal consideration to meet some commitments or to abstain from doing some acts that damage the relationship.

The obligations of the parties can be divided into four categories:

1. Product-related obligations include specification of the product quantity and quality, which can be defined as:

•  Quantity: Farmers agree to sell to the buyer a certain quantity of produce as indicated in the contract. This amount may be the whole production from a specific plot of land or from the inputs provided by the buyer. Some contracts may specify a minimum quantity, or variable quantity, or a percentage of the production. Whatever the method used to determine the quantity, contracts typically state that the produce must come from the farmer’s own production, at the agreed location, using the inputs and methods provided for in the contract

• Quality: Farmers agree to sell a product to the buyer that meets the quality specified in the contract. Quality requirements may refer to physical characteristics such as colour, size, and shape; contents of the product (e.g. low fat milk, seedless grapes); or fitness for a certain purpose (e.g. virus-resistant seeds, green beans free of chemicals). A good practice is to specify these requirements in detail. For example, sentences like “of good quality”, “the highest quality”, or “acceptable quality” should be avoided as these are too vague. Better contracts give precise and objective indications, such as “maximum moisture content 6.5 percent”. They may also provide more detail in an annex, with descriptions of unacceptable product faults or reference to public or private quality standards that must be met, such as Global Good Agricultural Practices (GlobalGAP).  

2. Process-related obligations include details on the production method and technology to be used, as well as harvesting instructions. Farmers must follow these instructions and buyers (or third parties) may provide specific inputs and technical assistance to help farmers during the production cycle.

• Inputs: As indicated in the contract, farmers may have to use inputs provided by the buyer following their instructions. In these cases, the costs of the inputs may be deducted from final payments made after delivery of the contracted product. On their side, the buyer must deliver inputs of good quality, suitable to the production purpose, and on an appropriate date to ensure that the farmer has sufficient time to meet their normal production requirements.
• Land, facilities and equipment needed for production. Farmers may need to prove that they have land-use rights for the duration of the contract; they may be required to build or improve a facility such as sheds for poultry production; or use specialized equipment to prepare the land for production.
• Buyers may ask farmers to follow certain public or private standards and certifications, for example in relation to hygiene, labour conditions, and product quality.
• There may also be obligations related to the protection of intellectual property rights on inputs provided, in particular seeds.

3. Delivery-related obligations

Contracts should indicate the date, time and place and any other requirements that occur before or after delivery. Farmers may be responsible for delivering the product to the location indicated by the buyer, or the buyer may collect the product at a location agreed upon with farmers.

Moreover, contracts should clearly state who is responsible for transporting the product and who will bear the costs. In cases where weighing or inspection of the product is required upon delivery, it is recommended that the contract allows the farmer or a trusted third-party to be present during this process.

4. Price and payment-related obligations

Buyers must pay the farmer the agreed price stated in the contract in return for the products delivered. Price is an essential component of any contract and failure to set the price or explain how it will be determined may make the contract legally unenforceable. The contract must therefore clearly state the price to be paid, or describe in a clear and transparent way how it will be calculated. Any formulas used to calculate price should always be clear enough for farmers to be able to estimate the expected payment.

The contract should also specify the time and method of payment for both goods and inputs. Payment terms can vary widely in contracts, with some contracts providing immediate on-the-spot cash payments to farmers on delivery, and others fixing a certain number of days for payment to be made after delivery. Buyers must respect the payment conditions indicated in the contract, and the farmer must pay back any advances provided by the contractor. 

Contracts dealing with agricultural production should clarify how long do they last, how will they be renewed or, alas, terminated.

Duration

The duration of the contract should be clearly stated. This will depend on the production cycle of the product and should take into account the financial investments made by both parties. Generally, contracts are stipulated for a short term, usually expressed as a number of months or the duration of a crop season for short-cycle crops like vegetables; or up to several years for crops such as coffee, sugar cane, oil palm, tree crops or livestock, which involve higher levels of investment.

Renewal

Contracts may include provisions on renewing the contract upon expiration. Clauses for automatic renewal can also be included and are particularly common for short-duration contracts, to reduce the costs involved in renegotiation, and in the reissuance of contracts every few months.

Termination

Contracts should include termination clauses, explaining when and how the contract will reach its natural completion, or if early termination by either parties is allowed. Termination of a contract can occur automatically upon fulfilment by the parties of their obligations. If one of the parties intends to terminate the contract prior to the completion date, they are normally required to provide written notice in advance to the other party. See Box for an example of a termination clause.

Here is the contract termination example clause from a real Zambia cotton contract : “The parties agree that either party may terminate the agreement by giving one month written notice to the other party of its intention to terminate” (Source: Contract Farming Resource Centre database).