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Office of Competition and Consumer Protection

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Contracts for supply of agricultural products - UOKiK recommendations for farmers

< previous | next > 10.05.2021

Contracts for supply of agricultural products - UOKiK recommendations for farmers
  • Farmers, are you aware of what a contract for the supply of agricultural products should look like to be beneficial for you? Please check the recommendations of UOKiK.
  • UOKiK office gives advice on, i.a., such issues as price, payment terms, force majeure, quality control or contract termination.

- For several years, the President of UOKiK can intervene in situations when large business entities make use of the contractual advantage in the agri-food market. Based on the experience of the Office, we suggest farmers, before the beginning of the production process, what a properly structured and beneficial contract for the supply of products should include. Written protection of the interests of suppliers is particularly important due to the specific nature of the market, which is extremely sensitive to external factors such as weather conditions - says Tomasz Chróstny, the President of UOKiK.

Price

The most important issue for farmers, without a doubt, is the price of the products they deliver. It should be clearly stated in the contract. In addition to indicating a specific amount, the criteria for determining the price may also be provided. What is important, there is no place for flexibility here - the parties should make it clear what policies are applied to calculate the price. The minimum price can also be stated to secure the supplier.

Date of payment

The timing of payment is important. Farmers should be aware of the legal provisions in this area. The basic period of payment should not exceed 30 days but the parties can agree that the payment can be made within 60 days. The above-mentioned time limit may, in turn, be extended only if the purchaser of the agricultural products is also a small or medium-sized business unit and if postponing the payment is not grossly unfair to the farmer.

It is worth remembering that if the payment deadline is longer than 30 days, the farmer is also entitled to interest until the date of payment.

However, it is in the interest of suppliers to receive the payment as soon as possible that is why shorter deadlines may be negotiated, e.g. 14 days or even less, or a faster payment of part of the remuneration can be agreed upon.

Deliveries

The parties to the contract should also specify the details of the delivery of products and the time schedule. The above is beneficial both for the farmer and the purchaser as it allows to plan the production activities. The contract should include the latest date by which the contracting parties agree on delivery, it should also include the terms and conditions for making changes to the deadline.

Quality control

The supply of agri-food products must comply with the regulations on the use of plant protection products. Farmers must remember that the purchaser is entitled to check if the delivered products are free from defects. The verification can be performed in the laboratory of the purchaser or by a third party, the purchaser incurs the costs of testing. Nevertheless, the result of the testing should be subject to verification by a third party at the request of the supplier. The cost of verification of the results of the testing should be covered by the party to which the results are unfavorable.

Force majeure

The interests of the supplier should be protected in the case that the production process is disrupted by the occurrence of phenomena beyond the supplier's control. The contract should indicate what events should be considered by the parties to be force majeure, as well as the procedure to be followed if the phenomena occur.

Importantly, a farmer cannot be required to report the occurrence of force majeure while the event is taking place. First of all, the farmer should remove the negative effects of, e,g. a flood or storm and make sure that the supplier, the farmer's family and the crops are safe. The deadlines for notifying about the occurrence of force majeure and other related obligations should be clearly stated so that the supplier does not have to face the "save or report" dilemma. 

Contractual penalties

Contractual penalties should be reasonably determined and should apply to both parties symmetrically in the event if one of the parties fail to fulfill the obligations. Both the supplier and the purchaser may face negative consequences if the other party fails to perform the contract. Therefore, it is important that the contractual penalties are reserved for the benefit of each of the parties.

Termination

Regarding termination of the contract, the parties may decide, whether it can be terminated by either of the parties upon giving notice or immediately. If the contract is concluded for a fixed period, e.g. for one season, its termination requires including an appropriate clause in the contract which will provide for such possibility. In the clause, the parties may agree on the circumstances, the occurrence of which would entitle one of the parties to terminate the contract. Determining the circumstances is at the sole discretion of the parties. The above can apply to the termination of the contract both with and without giving notice.

In the case of a contract for an indefinite period of time, the parties may terminate it
at any time subject to the indicated notice period. It should be considered to introduce the need to pay a contractual penalty by a party that terminates a contract shortly before the deadline of the delivery, as this puts the business partner in a difficult position.

The parties may also include a clause regarding the right to withdraw from the contract within a specified period. This is a sort of security for the parties, who may consider, during that time, whether they would like to implement the contract in the described scope. The withdrawal period should not be too long not to create unjustified uncertainty between the parties regarding the continuation of the cooperation.

Summary

- The supplier and the purchaser should be aware of their rights and responsibilities after reading the contract. It is crucial that the rights and obligations are equal for the farmer and the contractor, e.g. a supplier of fruits and the purchasing entity. If a large business unit offers to use a ready-made contract template, it should be formulated in such a way that a smaller business partner is not disadvantaged by the content of the contract - says Tomasz Chróstny, the President of UOKiK.

UOKiK reminds that all matters related to the obligation to conclude a written contract on the purchase of agricultural products from farmers are handled by the National Support Centre for Agriculture.

Additional information for the media:

UOKiK Press Office
Pl. Powstañców Warszawy 1, 00-950 Warszawa, Poland
Phone +48 695 902 088, +48 22 55 60 246
E-mail: [SCODE]Yml1cm9wcmFzb3dlQHVva2lrLmdvdi5wbA==[ECODE]
Twitter: @UOKiKgovPL

Attached files

 

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