Contract clash comes to a head

By By Gregor Heard
Updated January 5 2016 - 6:13pm, first published October 4 2007 - 11:00pm

FARMERS and marketers must sit and work through their differences on the vexed issue of physical forward contracts if the Australian industry is to avoid being caught up in a crippling holding pattern, according to Victorian Farmers Federation (VFF) grains group president Geoff Nalder.Mr Nalder said the distrust generated by this year’s high levels of wash-outs in forward contracts after the season turned bad could mean little grain will be forward contracted in the future, which will impact on grain traders’ own forward selling programs and by extension, their ability to capture good opportunities early in the season.“If we get to a situation where farmers are not game to go out and market their grain due to their experiences with forward contracts in the past, the impact on the trade will be enormous,” he said.“No one wants to see a scenario where we all sit on the product we’ve got because we’re not game to take on anything that could expose us to production risk.”The VFF has organised a meeting for farmers tomorrow at Birchip, where there have been large problems with contractual issues, to allow those with forward contracts to discuss their options with legal representatives before meeting with the trade later.While Mr Nalder acknowledged the buyers often had obligations as well, meaning they needed to source the grain to meet their own contracts, he said there was concern over rumours of some businesses charging excessive management fees of up to $30 a tonne for the wash-out, meaning they were profiting from farmers’ misfortunes.On the oth-er hand, he raised the example of some companies reportedly allowing hay deliveries to off-set wash-out contracts as one potential way both parties could work through the issue.“We’ll hear more about issues and potential solutions at the meeting, that’s why we facilitated it,” he said.Meanwhile, Geoff Honey from the National Agricultural Commodities Marketing Associa-tion (NACMA) said the key take-home message from the forward contract stand-off was that closer links were needed between growers and buyers.“It is imperative that there is strong grower involvement in the development of the process for contracts. We need all links in the supply chain represented.Mr Honey said he urged all growers with issues with their contracts to seek advice.“Your first port of call should be the company you have the contract with. If you are still unhappy, then we advise that you seek independent legal advice.”He said that traders were not profiting out of the drought at farmers’ expense.“When a grower does a contract, the merchant will generally pass off the price risk by selling the grain to an exporter or a domestic end user, meaning they are committed to supply that grain. “The grower will have sold to the marketer at $250, and the marketer usually sells it soon after for slightly more. They won’t be making windfall profits out of these wash-outs.”One of the aspects sure to be up for discussion at the Birchip meeting is that of verbal contracts. Many farmers have not been happy that a verbal contract is regarded as legally binding; however Mr Honey said this was simply a part of broader contract law.“This is just contract law – the contract may be verbal or written. If you want more assistance on the trade rules, have a look at our website (www.nacma.com.au).”

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