New legal guide will support more equitable contract farming arrangements, support better policy making

For both farmers and buyers to benefit fairly under contract farming, sound and transparent contracts are key.

FAO 28 July 2015, Rome - Contract farming – an expanding practice in which farmers produce agricultural goods for specific buyers in set quantities at prearranged prices – is getting a new tool to guide growers and buyers in establishing sound contracts and conflict resolution procedures.

The UNIDROIT/ FAO/ IFAD Legal Guide on Contract Farming  released today fills a need for a comprehensive legal tool to guide this longstanding practice, addressing the needs of a broad range of users.

Contract farming in principle can improve farmers' access to markets and boost their incomes while ensuring that agribusinesses have a stable supply of produce that meets their quality standards.

But as with any contractual relationship, there are potential pitfalls, and farmers can sometimes find themselves on the losing side of the deal. For example, a company might not pay the agreed price for the produce delivered, asserting that its quality was substandard, while the contract does not include any dispute resolution mechanism.

For everyone to benefit fairly, sound and transparent contracts are needed, supported by an adequate legal framework.

The legal guide is the result of a multi-year process spearheaded by the International Institute for the Unification of Private Law (UNIDROIT) in collaboration with the Food and Agriculture Organization of the United Nations (FAO) and the International Fund for Agricultural Development (IFAD) that gathered inputs from legal scholars, agricultural experts, producers and traders on ways to ensure contract farming relationships are sustainable.

Contract farming today

Today millions of farmers worldwide are producing under some form of contract and a number of industries in a range of producing countries have embraced it as their main mode of production.

Changes in the world's agrifood systems and consumer preferences have been a key driver of this trend. As food demand has risen both in developed and developing countries, processors and marketers need a steady and high volume stream of supplies, which they are not always able to meet buying on open commodities markets.

At the same time, more exacting commercial and consumer standards regarding freshness, quality, origin and appearance are leading buyers to seek more control over the process of production to ensure consistent quality – including requiring in contracts that farmers use new technologies they may not be able to access on their own.

In a best case scenario, contract farming arrangements help buyers gain a stronger hand in production, quality control and pricing, while farmers benefit from guaranteed income and market access. They may also acquire new productive assets – under some contract types, buyers commit to supporting growers by providing farm inputs, equipment, and technical advice.

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