Insights and updates from our agricultural team
Grain Contracts & Force Majeure
In difficult years we are asked about the options available to farmers who cannot fulfil the deliveries they have agreed in forward grain contracts. Below we take a look at the provisions of the Agricultural Industries Confederation Ltd (AIC) 1/16 home grown grain and pulses contract, used widely in the industry. A copy of the contract is available here.
The force majeure clause is not the only part of the AIC contract that comes into play when yields on the farm crash due to adverse weather. The whole agreement needs to be read to see how everything fits together and what courses of action may be open to producers.
Features of the AIC home grown grain/pulses first producer contracts (AIC 1/16)
- The contract is a contract to sell or deliver, rather than a contract to produce. The crop does not have to be produced on your own farm as long as it is produced in the UK. (This leaves you free, and perhaps obliged, to source from other farms to meet your delivery commitments.)
- Each delivery is treated as a separate contract. In other words, one period’s delivery may be cancelled without penalty if the clause is engaged, rather than whole contract amount.
- Quantity tolerances may apply (+/- 5% versus the contracted amount or 15 tonnes, whichever is less). Check whether your delivery commitments were described as “About X tonnes”.
- The ‘force majeure’ events are expressly listed. They are not examples, but Acts of God are in the list. See below for further comment.
- Notice needs to be served if you want to rely on the force majeure clause, and for each delivery affected.
- The initial focus of the force majeure clause is to give you time to perform your contract – you may have up to 60 days to get the combine repaired, to solve power issues or to source crop from other farms.
- You are only ‘excused’ from your contractual obligation if delivery is still impossible after the time extensions set out in the clause or if your buyer agrees to earlier cancellation.
- Your buyer may require evidence demonstrating why delivery was delayed or impossible.
- If you are unable to rely on the force majeure clause and you default on delivery, your buyer can – following notice – buy against the default, with you being required to make good their loss.
- The contract is only valid if it is issued by member or licensee of AIC. Lack of membership/licence does not necessarily mean there is no contract in place, but it is likely to mean that the terms are different or less certain than those expressly set out in the AIC 1/16 contract. (Watch out for contracts which incorporate the AIC 1/16 terms by reference.)
Force majeure clause
The force majeure clause in the AIC 1/16 contract is narrow, and not inclusive: the events listed are not examples of force majeure, they are the grounds on which a notice can be served and deliveries delayed or cancelled without penalty. The grounds do include any “Act of God”. The key question is whether the prolonged hot, dry weather we have experienced this year falls into the definition of “Act of God”. Our view is that it does not, whereas a single, severe and exceptional incident affecting crops may do, depending on the kind of incident and its extent.
Even if your reliance on force majeure is accepted by your buyer, the AIC clause only serves – initially – to delay your performance by up to 60 days, giving you time to source from elsewhere to meet your delivery commitment. The failure of your own crop due to an Act of God may not be accepted by your buyer as sufficient grounds. They will argue that you can/could have source(d) crops from elsewhere in the UK, particularly if they have been able to find alternative suppliers.
The best course of action in almost all circumstances is to contact your buyer as soon as you know there is a problem and see what scope there is for agreement.