Ag Retail’s First Contract Confirmation Model

There’s a hesitancy to use standard terms and conditions like this because they feel a producer might go to the competition because they don’t have the same terms and conditions. Now, however, there will be an increased use of contacts. The farmer is used to it in grain; now they’ll see it when they go to buy chemicals and fertilizer. It will become increasingly common.

Langel: In the feed business, it’s more common that you get an invoice or letter of receipt that maybe has a disclaimer and scale ticket attached to it, but typically there is no formal contracting unless there’s a formalized credit agreement.

F&G: What are the differences between an ag retail contract and a grain contract?

Bylund: In a grain contract the product itself is standardized — e.g., reference #2 corn or reference a moisture percentage — and they have standardized grain trading rules. On the ag retail side — where they’re selling a fertilizer or pesticide — it’s not uncommon to have a complaint made about the product’s performance.

Langel: Ag retail and feed sectors are generally more service-based; in conjunction with a fertilizer or feed sale, there is often an additional service, like fertilizer application or nutritional work. These services can give rise to performance claims associated with the sale of the product. For example, complaints related to nutritional content or performance; or application problems with pesticides; product contamination where the producer will argue that something was contaminated with glyphosate. When you get a product claim in the application context, you have a lot of issues and allegations that the product wasn’t applied at the correct rate, parts of the field were missed. When you are selling ag inputs, you want to include a disclaimer of implied warranties and a clause for limitation of damages. If you look at the ARA template contract, both of those provisions are included.

F&G: If you were going to offer up a to-do checklist, what would be on it?

Bylund: If I were a country elevator manager, I would revisit what my company had in place with all of its contracts. I would refocus on grain contracts and make sure they were still adequate, but I wouldn’t stop there. You should also be thinking about the other inputs you sell and take a look at what contact you have in place on that side of the business. And I think what they may find on that side of their business, if they ask their sales force about the contracts they use, they’re going to be handed an invoice or a purchase order or a delivery ticket.

Langel: While many oral contracts are enforceable, these transactions are often evidenced by delivery documents and other records. You still have to prove the contract exists and it’s a lot easier if you have an actual contract confirmation — a physical document — that is signed by both parties.

Bylund: If co-ops are interested in implementing this, they should bring this up to their board and sell it as a positive. While with most of the people you do business with this isn’t necessary, let’s plan to manage this risk anyway and have a better process in place.

For more information on the Agricultural Retailers Association’s efforts, visit www.aradc.org.