UNIDROIT Legal Guide on Contract Farming

Legal Guide on UNIDROIT FAO IFAD contract farmingInternational Institute for the Unification of Private Law (UNIDROIT) Food and Agriculture Organization of the United Nations (FAO) International Fund for Agricultural Development (IFAD) Rome, 2015 Legal Guide on UNIDROIT FAO IFAD CONTRACT FARMINGThis UNIDROIT/FAO/IFAD Legal Guide on Contract Farming is a joint publication of the International Institute for the Unification of Private Law (UNIDROIT), the Food and Agriculture Organization of the United Nations (FAO) and the International Fund for Agricultural Development (IFAD). The designations employed and the presentation of material in this information product do not imply the expression of any opinion whatsoever on the part of UNIDROIT, FAO and IFAD concerning the legal or development status of any country, territory, city or area or of its authorities, or concerning the delimitation of its frontiers or boundaries. The mention of specific companies or products of manufacturers, whether or not these have been patented, does not imply that these have been endorsed or recommended by UNIDROIT, FAO or IFAD in preference to others of a similar nature that are not mentioned. The views expressed in the work do not necessarily reflect the views or policies of

FAO or IFAD.

ISBN 978-88-86449-30-4

© UNIDROIT, FAO and IFAD, 2015

UNIDROIT, FAO and IFAD encourage the use, reproduction and dissemination of material in this information product. Except where otherwise indicated, material may be copied, downloaded and printed for private study, research and teaching purposes, or for use in non-commercial products or services, provided that appropriate acknowledgement of UNIDROIT/FAO/IFAD as the source and copyright holders is given and that UNIDROIT/FAO/IFAD’s endorsement of users’ views, products or services is not implied in any way. All requests for translation and adaptation rights, and for resale and other commercial use rights

copyright holders is given and that UNIDROIT/FAO/IFAD’s endorsement of users’ views, products or services is not implied in any way. All requests for translation and adaptation rights, and for resale and other commercial use rights should be made via http://www.unidroit.org/publications/unidroit-publications or addressed to publications@unidroit.org. UNIDROIT information products are available on the UNIDROIT website (http://www.unidroit.org/ publications/unidroit-publications) and can be purchased through publications@unidroit.org. FAO information products are available on the FAO website (www.fao.org/publications) and can be purchased through publications-sales@fao.org IFAD information products are available at IFAD website (www.ifad.org) Recommended citation UNIDROIT, FAO and IFAD. 2015. UNIDROIT/FAO/IFAD Legal Guide on Contract Farming. Rome Cover artwork and design: Simone Morini Cover photo: ©FAO/Sergey KozminFOREWORD Contract farming, broa dly understood as agricultural production and marketing carried out under a previo us agreement between producers and their buyers, supports th e production of a wide range of agricultural commodities and its use is growing in many countries. Contract farming helps increase ag ricultural productivity, improve the livelihoods of the rural poor and may play a role in preventing rural exodus. These and other potential economic and social benefits explain the interest of many domestic policymakers and inte rnational organizations in promoting sustainable contract farming models as part of their efforts to achieve food security. Mindful of the importance of enha ncing knowledge and awareness of the legal regime applicable to contract farming operations, the International Institute for the Unification of Private Law (U NIDROIT), the Food and Agriculture Organization of the United Nations (FAO) and the International Fund for Agricultural Developmen t (IFAD) have prepared this UNIDROIT/FAO/IFAD Legal Guide on Contract Farming.

Institute for the Unification of Private Law (U NIDROIT), the Food and Agriculture Organization of the United Nations (FAO) and the International Fund for Agricultural Developmen t (IFAD) have prepared this UNIDROIT/FAO/IFAD Legal Guide on Contract Farming. The Guide is the product of a Working Group set up by U NIDROIT, which brought together internationally recognised legal scholars, partner multilateral organisations and representatives from the farming community and agribusiness. Stakeholder representatives, international civil servants, practising lawyers and academics fro m different backgrounds and legal cultures contributed to the process of development of the Guide, and valuable input was received during consultations held during 2014 with stakeholders in Buenos Aires (Argentina), Addis Ababa (Ethiopia), Rome (Italy) and Bangkok (Thailand), as well as through online consultations. At the end of a two-year process of development, the UNIDROIT Governing Council considered and adopted the Guide at its 94th session, held in May 2015. The UNIDROIT/FAO/IFAD Legal Guide on Contract Farming is aligned with the Principles for Responsible Investments in Agriculture and Food Systems (CFS-RAI Principles) approved in October 2014 by the Committee on World Food Security. The Guide also shares with the CFS-RAI Principles the goal of providing a framework that stakeholders can use when developing domestic policies, regulat ory frameworks, corporate social responsibilityiv Foreword programmes, individual agreements and contracts, all of which in responsible and inclusive ways. We place on record our deep gratitude to the members of the Working Group for their hard work, enthusiasm and dedication. We also wish to thank all those who submitted comments, made suggestions and otherwise contributed at various stages of development of this text. We are confident that the Guide will be a useful tool and reference point for a broad range of users involved in cont ract farming practice, policy design, legal research and capacity-building. We hope that the Guide will contribute

those who submitted comments, made suggestions and otherwise contributed at various stages of development of this text. We are confident that the Guide will be a useful tool and reference point for a broad range of users involved in cont ract farming practice, policy design, legal research and capacity-building. We hope that the Guide will contribute to create a favourable, equitable and sustainable environment for contract farming.

José Angelo Estrella Faria Secretary-General

UNIDROIT

Rome, July 2015

Antonio Tavares Legal Counsel FAO

Gerard Sanders General Counsel

IFADWORKING GROU P FOR THE PREPARATION OF

THE UNIDROIT/FAO/IFAD LEGAL GUIDE

ON CONTRACT FARMING

MAIN CONTRIBUTORS TO THE DRAFTING OF THE GUIDE UNIDROIT Michael Joachim BONELL — Professor of Law (emeritus), University of Rome I “La Sapienza”, Italy; Consultant, UNIDROIT Fabrizio CAFAGGI — Professor of Law, SNA (School of National Administration); University of Trento (on leave), Italy

A. Bryan ENDRES — Professor of Law, Director, European Union Center, University of Illinois, Urbana, USA Marcel FONTAINE — Professor of Law (emeritus), Catholic University of Louvain Law School, Louvain-la-Neuve, Belgium Henry D. GABRIEL — Professor of Law, Elon University Law School, Greensboro, N.C., USA; Member of the U NIDROIT Governing Council; Chairman of the Working Group Paola IAMICELI — Associate Professor of Law, University of Trento, Italy Paripurna P. SUGARDA — Professor of Law, University of Gadjah Mada, Faculty of

Law, Yogyakarta, Indonesia UNIDROIT Secretariat José Angelo ESTRELLA FARIA — Secretary-General Anna VENEZIANO — Deputy Secretary-General; Professor of Law, University of

Law, Yogyakarta, Indonesia UNIDROIT Secretariat José Angelo ESTRELLA FARIA — Secretary-General Anna VENEZIANO — Deputy Secretary-General; Professor of Law, University of Teramo, Italy (on leave) Frederique MESTRE — Senior Officer, Secret ary to the Working Group William GARTHWAITE — International Legal Consultant FOOD AND AGRICULTURE ORGANIZATION OF THE UNITED NATIONS (FAO) Carlos A. DA SILVA — Senior Agribusiness Economist, Rural Infrastructure and Agro-Industries Division Marlo RANKIN — Agribusiness Economist, Rural Infrastructure and Agro-Industries Divisionvi Members of the Working Group Caterina PULTRONE — International Legal Consultant, Rural Infrastructure and Agro-Industries Division Carmen BULLON — Legal Officer, Development Law Service, Legal Office Luisa CRUZ — Legal Officer, Development Law Service, Legal Office INTERNATIONAL FUND FOR AGRICULTURAL DEVELOPMENT (IFAD) Liam CHICCA — Counsel, Office of the General Counsel Marieclaire COLAIACOMO — Counsel, Office of the General Counsel WORLD FARMERS’ ORGANISATION (WFO) Paul BODENHAM — Legal Counsel David G. VELDE — Velde Moore, Alexandria, MN; General Counsel for the United States National Farmers Union, USA

OTHER ATTENDEES AT THE WORKING GROUP SESSIONS

UNIDROIT Eduardo Alexandre CHIZIANE — Lecturer, Eduardo Mondlane University, Maputo, Mozambique; Horacio ROITMAN — Professor of Law, National University of Cordoba, Argentina; Kassia WATANABE — Post-Doctorate Researcher, São Paulo State University, Brazil Food and Agriculture Organization of the United Nations (FAO) Eugenia SEROVA — Director, Rural Infrastructure and Agro-Industries Division; Blaise KUEMLANGAN — Chief, Development Law Service, Legal Office; Pascal LIU

State University, Brazil Food and Agriculture Organization of the United Nations (FAO) Eugenia SEROVA — Director, Rural Infrastructure and Agro-Industries Division; Blaise KUEMLANGAN — Chief, Development Law Service, Legal Office; Pascal LIU — Senior Economist, Trade and Market Division; Philine WEHLING — Legal Officer, Development Law Service; Emily SPIEGEL — Legal Officer, Development Law Service World Bank / International Finance Corporation Federica SALIOLA — Program Manager, Special Initiatives Unit, Global Indicators and Analysis, Financial and Private Sector Development ; Damien SHIELS — Program Manager, Industry Specific Investment Climate, Investment Climate Advisory Services; Justin YAP — Senior Private Sector Development Specialist, Investment Climate, Investment Climate Advisory Services World Food Programme (WFP) Brigitte LABBÉ — Procurement Officer, Food Procurement Division, Purchase for Progress (P4P) InitiativeUNIDROIT/FAO/IFAD Legal Guide on Contract Farming vii

Technical Centre for Agricultural an d Rural Co-operation (CTA) (ACP-EU Cotonou Agreement) Andrew W. SHEPHERD — Senior Technical Adviser on Market-led Development World Farmers’ Organisation (WFO) Brian DUGGAN — Manager, Workplace Relations & Legal Affairs, Australian National Farmers’ Federation; Paola GROSSI — Chief of the Legal Department, Italian National Farmers’ Association Coldiretti; Dave McKEON — Manager of Rural Affairs, Australian National Farmers’ Federation; Marco MARZANO DE MARINIS — WFO Executive Director; Vincent OPYENE — Legal Counsel Litigation, Uganda Wildlife Authority, Opeyne & Company Advocates, Kampala Experts from the food manufacturing and marketing industry Suhas R. JOSHI — Head, Sustainable Development Department, Bayer Group Companies; Managing Director, Bayer Prayas Rural Development Association, India; Gary KUSHNER — Partner, Hogan Lovells, LLP, Washington, D.C.; General Counsel, United States National Chicken Council Fondation pour le droit continental

Suhas R. JOSHI — Head, Sustainable Development Department, Bayer Group Companies; Managing Director, Bayer Prayas Rural Development Association, India; Gary KUSHNER — Partner, Hogan Lovells, LLP, Washington, D.C.; General Counsel, United States National Chicken Council Fondation pour le droit continental Patrick PAPAZIAN — Director General; Bénédicte FAUVARQUE-COSSON, Professor of Law, Paris II University, Panthéon-Assas, France World Food Law Institute Marsha ECHOLS — Director; Professor of Law, Ho ward University School of Law, Washington D.C., USA Korean National Court Administration Eun Kyung CHO — Judge, Western Branch of Daegu District Court, Daegu, Republic of KoreaCONTENTS Foreword iii Members of the Working Group v PREFACE xv

I. Overview and purpose xv

II. Approach and how to use the Guide xvi

INTRODUCTION 1

I.  General introduction to contract farming 1

A. Various contract farming operations in practice 2

B. Benefits and risks of contract farming 6

1.  Risk mitigation 7

2.  Access to credit 9

3.  Technology and know-how transfer 10

4.  Economic, social and environmental development 11

II.  Scope of the Guide 12

A. The agricultural production contract under the Guide 13

B. The contractor’s involvement in production 13

C.  Distinguishing agricultural production contracts from partnership and employment relationships 14

1.  Agricultural production contract versus partnership 15

2.  Agricultural production contract versus employment 15

CHAPTER 1 – THE LEGAL FRAMEWORK 17

I.   The applicable private law regime 17

A. Legal treatment of agricultural production contracts 18

1.  Special category of contract 19

2.  Traditional contract types 20

B. Other domestic legal sources 22

1.  Rules and principles of law 23

2.  Customary rules and usages 24

A. Legal treatment of agricultural production contracts 18

1.  Special category of contract 19

2.  Traditional contract types 20

B. Other domestic legal sources 22

1.  Rules and principles of law 23

2.  Customary rules and usages 24

3.  Trade usages and practices 25

4.  Standard terms and guidance documents 26

(a)  Standard contract terms and contractual documents 26 (b)  Technical standards 26 (c)  Soft law 27x Contents

C.  Contracts with an international element 28

1.  Contractual obligations 28

2.  Non-contractual obligations 30

II.  The role of the regulatory environment 30

A. Agri-food trade 31

B. Production inputs 33

1.  Seeds 33

2.  Biosafety 34

3.  Plant variety protection 34

4.  Producers’ right to genetic resources 35

5.  Other agricultural inputs 35

C. Agricultural finance and support 35

D. Competition and antitrust 36

E.  Human rights 36

F.  Labour law 38

G. Access to natural resources 38

CHAPTER 2 – PARTIES, FORMATION AND FORM 40

I.   Parties to the contract 40

A. The agricultural producer 41

1.  Distinctive features 41

2.  Legal status 42

3.  Forms for conducting an agricultural production activity 43

(a)  Individual producers 43 (b)  Producer organisations 45

B. The contractor 49

1.  Private corporate structures 50

2.  Public entities 51

C. Other parties 52

1.  Supply chain participants 52

(a)  Linkages between participants 53 (b)  Types of participants 54

2.  Other interested third parties 56

II.   Contract formation 57

A. Offer and acceptance 58

B. Capacity and consent 62

1.  Supply chain participants 52

(a)  Linkages between participants 53 (b)  Types of participants 54

2.  Other interested third parties 56

II.   Contract formation 57

A. Offer and acceptance 58

B. Capacity and consent 62

C. Role of those who intervene or assist in contract negotiation 64

1.  Producer organisations 65

2.  Facilitators 65

3.  Public authorities 65

4.  Intermediaries 66

III.  Contract form and content 67

A. Contract form 67

B. Contract content 69

C. Consequences of breach of required form or content 73UNIDROIT/FAO/IFAD Legal Guide on Contract Farming xi

CHAPTER 3 – OBLIGATIONS OF THE PARTIES 75

I.  Risk allocation 76

A.  Production risk allocation 77

B.  Commercial risk allocation 78

C.  Exclusivity 80

II.  Core obligations of the parties 81

A. The product 81

1.  Quantity 82

(a)  The whole production is purchased 82 (b)  Only part of the production is purchased 84

2.  Quality 86

(a)  Determining quality 87 (b)  Quality standards 88 (c)  Product safety 91 (d)  Link with certification requirements 92

B.  Production process 92

1.  Provision and use of inputs 92

(a)  General obligations 93 (b)  Specific obligations related to certain types of inputs 95 (c)  Obligations related to intellectual property rights 101

2.  Production methods, compliance and control 104

(a)  Specified production methods 105 (b)  Monitoring and control 109

C. Delivery 110

1.  Time and place 112

2.  Acceptance 113

D. Price and payment 116

1.  Price determination 116

2.  Price mechanisms 117

(b)  Monitoring and control 109

C. Delivery 110

1.  Time and place 112

2.  Acceptance 113

D. Price and payment 116

1.  Price determination 116

2.  Price mechanisms 117

(a)  Fixed prices 118 (b)  Price scales 118

3.  Time and method of payment 120

III.   Additional obligations 122

A. Insurance obligations 122

B. Record keeping and information management 123

C. Community interests 124

IV.  Transfer of obligations 124

CHAPTER 4 – EXCUSES FOR NON-PERFORMANCE 126

I.  Force majeure and change of circumstances in agricultural production contracts 126

A.  Supervening events affecting the performance of the parties 126

B.  Force majeure versus change of circumstances 127

C.  Contractual allocation of risks through force majeure clauses 129xii Contents

D.  Risk allocation and title transfer 130

E.  Insurance and other risk mitigation and allocation schemes 130

II.   Events qualifying as force majeure and change of circumstances 131

A. General notion of force majeure in contractual practice 131

1.  Natural events (“Acts of God”) 133

2.  Governmental acts 134

3.  Other disturbances: strikes, wars, social unrest and market disruptions 134

B.  Relevant change of circumstances in contractual practice 135

C.  Burden of proof 135

III.  Consequences of the recognition of force majeure and change of circumstances 136

A.  Effects on the parties’ obligations 136

1.  Excuse from non-performance 136

2.  Suspension of performance 137

3.  Compensation and indemnities 138

4.  Additional obligations: notice and mitigation requirements 138

B.  Effects on the contract as a whole 140

1.  Termination of the contract 140

2.  Suspension of performance 137

3.  Compensation and indemnities 138

4.  Additional obligations: notice and mitigation requirements 138

B.  Effects on the contract as a whole 140

1.  Termination of the contract 140

2.  Right or duty to renegotiate 141

3.  Judicial adaptation 142

CHAPTER 5 – REMEDIES FOR BREACH 143

I.   Overview of remedies 143

A.  Different types of remedies 146

1.  Remedies in kind 147

2.  Withholding performance 148

3.  Price reduction 149

4.  Termination 150

5.  Restitution 152

6.  Damages 154

7.  Interest and late payments 157

B.  The role of the aggrieved party’s conduct 157

C.  The breaching party’s right to cure 158

D.  Renegotiation 159

II.   Contractor’s remedies for producer’s breach 160

A.  Remedies in kind 161

1.  Breach of process-related obligations 161

(a)  Right to performance 162 (b)  Corrective actions 162

2.  Product non-conformity 163

(a)  Corrective measures 165 (b)  Repair 167 (c)  Replacement 167

3.  Failure to deliver the product 168UNIDROIT/FAO/IFAD Legal Guide on Contract Farming xiii

B.  Product withdrawal and product recall 168

C.  Withholding performance 170

D.  Price reduction 171

E.  Termination 171

1.  Breach of process-related obligations 172

2.  Product non-conformity 172

3.  Failure to deliver the product 173

F.  Damages 173

1.  Breach of process-related obligations 174

2.  Product non-conformity 174

3.  Failure to deliver the product 176

2.  Product non-conformity 172

3.  Failure to deliver the product 173

F.  Damages 173

1.  Breach of process-related obligations 174

2.  Product non-conformity 174

3.  Failure to deliver the product 176

G.  Penalties, fines and blacklists 176

H.  Contractor’s conduct and claims for remedies 177

III.   Producer’s remedies for contractor’s breach 180

A.  Right to performance 180

1.  Delay in price payment 180

2.  Failure to provide (conforming) inputs 181

3.  Failure to take delivery of conforming goods 183

B.  Withholding performance 183

C.  Termination 185

1.  Failure to pay 185

2.  Failure to provide (conforming) inputs 187

3.  Failure to take delivery of conforming goods 187

4.  Failure to purchase the whole production (or a percentage of it) 188

D.  Damages 188

1.  Delay in payment 188

2.  Failure to provide (conforming) inputs 189

3.  Failure to take delivery of conforming goods 189

4.  Liquidated damages and penalty clauses 190

E.  Producer’s conduct and claims for remedies 191

CHAPTER 6 – DURATION, RENEWAL AND TERMINATION 193

I.   Duration 193

A. “Short-term” contracts versus “long-term” contracts 194

B. Maximum and minimum duration imposed by law 194

II.  Renewal of contracts 195

A. Renewal by express agreement 195

B. Tacit or automatic renewal 196

C. Renewal at the option of one party 197

III.   Termination of contracts 197

A. Scope 197

B. Termination clauses 198

C. Notice requirement for termination 198

D. Grounds for termination 199

1.  Automatic termination 199

III.   Termination of contracts 197

A. Scope 197

B. Termination clauses 198

C. Notice requirement for termination 198

D. Grounds for termination 199

1.  Automatic termination 199

2.  Consensual termination 199xiv Contents

3.  Termination by one of the parties in accordance with special termination clauses 199

(a)  Clauses providing for termination by either party 199 (b)  Clauses providing for termination by one party 200 (c)  Termination for loss of trust 201

E.  Effects and consequences of termination 202

CHAPTER 7 – DISPUTE RESOLUTION 203

I.  Disputes and dispute resolution in agricultural production contracts 204

A. Addressing disputes in agricultural production contracts 204

1.  The importance of addressing dispute resolution in the contract 204

2.  Preventing disputes through negotiations and cooperation 204

3.  Parties’ access to a fair and effective dispute resolution method 205

B. Considerations regarding the various dispute resolution methods available for the parties 206

1.  Nature of the dispute, time factor, interim relief 206

2.  Fairness, confidentiality 207

II.  Non-judicial dispute resolution methods 208

A. Common features 208

B. Mediation and conciliation mechanisms 210

1.  Alternative amicable dispute resolution methods 210

2.  Benefits of mediation 210

3.  Organising mediation proceedings 211

(a)  Mediation clauses 211 (b)  Institutional versus ad hoc mediation 212 (c)  Elements of mediation proceedings 212 (d)  Outcome of mediation proceedings 213

C. Arbitration 214

1.  A binding (adjudicatory) dispute resolution 214

2.  Organising arbitration proceedings 215

(a)  Arbitration agreements 215 (b)  Institutional versus ad hoc arbitration 215 (c)  Procedural guarantees 216 (d)  Arbitration and interim relief 216

1.  A binding (adjudicatory) dispute resolution 214

2.  Organising arbitration proceedings 215

(a)  Arbitration agreements 215 (b)  Institutional versus ad hoc arbitration 215 (c)  Procedural guarantees 216 (d)  Arbitration and interim relief 216 (e)  Outcome of arbitration proceedings 217

III.  Judicial dispute resolution 217

A. Access to justice 217

B. Jurisdiction grounds 218

1.  Domestic contracts 218

2.  International contracts 219

IV.  Enforcement of settlements or decisions resolving a dispute 219

1.  Enforcement by public authorities 219

2.  Private enforcement mechanisms 220

INDEX 221PREFACE

I. Overview and purpose

1. The UNIDROIT/FAO/IFAD Legal Guide on Contract Farming is primarily addressed to the parties to a contract farming relationship, i.e. producers and contractors. It provides advice and guidance on the entire relationship, from negotiation to conc lusion, including performance and possible breach or termin ation of the contract. The Guide provides a description of common contract terms and a discussion of legal issues and critical problems that may arise under various practical situations, illustrating how they may be treated under different legal systems. In so doing, the Guide aims to promote a better understanding of the legal implications of contract terms and practices. It intends to promote more stable and balanced relationships and to as sist parties in designing and implementing sound contracts, thereby generally contributing to building a conducive environment for contract farming. While the Guide does not intend to promote one form of contract over others, it can serve as key reference material for parties assessing their legal position and the options available to them during contract negotiations and performance, thereby securing their position in the supply chain, and helping to maximise thei r negotiating position in financial and economic terms.

2. The Guide does not interfere with mandatory domestic rules; nor does it intend to provide a model for, or encourage the adoption of, special

negotiations and performance, thereby securing their position in the supply chain, and helping to maximise thei r negotiating position in financial and economic terms.

2. The Guide does not interfere with mandatory domestic rules; nor does it intend to provide a model for, or encourage the adoption of, special legislation. It is, however, acknowledged that, to the extent that the Guide identifies problems and highlights possible workable and fair solutions, it could also provide useful information for policymakers considering the adoption of regulatory or legislative prov isions dealing directly or indirectly with agricultural production contracts. The Guide could be recognised as a reference for good practice by reflecting a minimum internationally accepted standard of practice in contract dealing.

3. The Guide intends to provide practical assistance to international organisations and bilateral cooperation agencies as well as non-governmental organisations and farmers’ organisations engaged in strategies and capacitybuilding programmes in support of contract farming, especially in developing countries. The Guide could also be useful for professional organisations,xvi Preface

judges, arbitrators, legislators, and perhaps even more importantly, for mediators, because it promotes cooperative dispute resolution. In addition, the Guide should be useful as a basis fo r developing educational tools in the context of training programmes addressed to producers in specific countries or sectors. Investing in agriculture and food systems can produce multiplier effects for complementary sectors (such as the service or manufacturing industries), thus further contributing to food security and nutrition, and overall economic development. The Guide is therefore not only seen as a development tool assisting small producers but it may also be a catalyst in improving the socio-economics of rural, agri cultural communities. Although primarily focused on legal considerations in th e negotiation of agricultural production contracts, the Guide also lays the groundwork for the consideration of policy aspects, particularly in the broader areas of agricultural investment and microfinancing. Mindful of the importance of making the Guide as accessible as possible to the intended users, the sponsor organisations will develop implementation documents and guidance instruments ready to be used in practical operations.

II. Approach and how to use the Guide

aspects, particularly in the broader areas of agricultural investment and microfinancing. Mindful of the importance of making the Guide as accessible as possible to the intended users, the sponsor organisations will develop implementation documents and guidance instruments ready to be used in practical operations.

II. Approach and how to use the Guide

4. The Guide recognises that contra ct farming may be seen under an economic approach as describing a supp ly chain management system which potentially includes several stages, from production through processing and marketing to final consumption. Contra ct farming, as a system, involves an exchange of goods, services and financ e, and aims at higher efficiency through better coordination, lower costs and chain alignment. Systems rely on various legal patterns linking the several participants who are often subject to common standards applicable to and influencing each segment of the chain.

5. The Guide deals with a wide range of agricultural production contracts, from straightforward transactions betw een a contractor and an individual producer or group of producers to more complex transactions with direct or indirect involvement of third partie s, such as government agencies, development aid and certification schemes. Comments that assume a certain level of complexity should not be under stood as a suggestion that this is the norm for all agricultural production contracts.

6. Moreover, the Guide focuses on the particular bilateral relationship between the agricultural producer and the contractor seeking to obtain a designated product, based on an “agricultural production contract”. Under such a contract, the producer undertakes to produce and deliver agricultural commodities in accordance with the contractor’s specifications. The contractor, in turn, undertakes to acquire the product for a price and generallyUNIDROIT/FAO/IFAD Legal Guide on Contract Farming xvii

has some degree of involvement in production activities through, for example, the supply of inputs and provision of technical advice. Other parties may participate in the producti on contract itself, and in sofar as the internal obligations and remedies of the producer and the contractor may be affected, multilateral contracts or bilateral contracts built around the main relationship will be considered. While recognising the interconnection between the

participate in the producti on contract itself, and in sofar as the internal obligations and remedies of the producer and the contractor may be affected, multilateral contracts or bilateral contracts built around the main relationship will be considered. While recognising the interconnection between the different chain segments, a global supply chain legal analysis is, however, beyond the Guide’s scope.

7. The legal discussion and analysis presented in the Guide build upon a concrete approach based on references to practical operations and contract practices. Mandato