Tuesday, December 5, 2023

Don’t risk it with ‘handshake’ agreements

Avatar photo
A new and improved iteration of that Forage Trading Agreement is now available for farmers – just in time for the upcoming maize growing season. 
Stock photos for Dairy NZ, in Morrinsville and Hamilton, on Wednesday 23 January 2008. Photo: Stephen Barker/Barker Photography, for King Street Advertising.
Reading Time: 3 minutes

Unfortunately, a handshake isn’t worth what it used to be – and that puts everyone’s business at risk. 

That’s why Federated Farmers and Rural Contractors New Zealand have worked together on a gold standard forage contract to safeguard everyone’s business interests against volatile fuel and fertilizer prices. 

A new and improved iteration of that Forage Trading Agreement is now available for farmers – just in time for the upcoming maize growing season. 

“This contract gives growers, harvesters, and purchasers an agile contract that can address spikes in the cost of those two key inputs to ensure nobody finds themselves unfairly out of pocket,” Federated Farmers arable chair David Birkett says.

While the massive jumps in prices for fuel and fertiliser that occurred in 2022 have settled back to an extent, disruption from the war in Ukraine, wider geopolitical tensions, and news last month that oil prices are edging towards $US100 a barrel, all add uncertainty and risk. 

On top of that, El Niño weather brings the prospect of a dry and very windy summer, which could lead to feed shortages if pasture is fried.

Federated Farmers and Rural Contractors NZ continue to contract NZX to develop and regularly update fuel and fertiliser cost reference indices. 

Armed with that independent data available to members through both organisation’s websites, growers and contractors can take advantage of the flexibility of the Forage Trading contract to select what costs they want to move, and at what rate. 

“It doesn’t tell either party to the contract how to price, as everyone has their own cost model and pricing model. The template provided with the agreement is a guide to assist with being able to calculate the change in price,” Birkett said. 

One improvement to the 2022 version is a cut to length.

“Some of the feedback we got last year was that it was too long; some people put it in the ‘too hard’ basket because there was too much fine print and explanatory notes.”

The 2023 contract is only five pages – less than half that of the 2022 model – but it still covers off all the essentials, as well as that all-important adjustment schedule and space for parties to write in other agreed additional terms.

One Federated Farmers maize grower member who didn’t use one of the new contracts last year told us he was out of pocket when a farmer who had ordered 150 tonnes fronted up at the March harvest and only agreed to take 100 tonnes.  Grass growth had been better than anticipated and he didn’t want the expense of the other 50 tonnes.

A handshake agreement, when conditions and input variables aren’t too much out of whack, are usually fine. 

But not so many years ago when the dairy payout slumped to $3.50/kg, more than a few grazing contractors and graziers went under because some dairy farmers didn’t pay them or were really late with payments. 

Laura Sanford, Federated Farmers national sales and engagement manager, said that kind of volatile situation may be here again and growers, contactors – and buyers – deserve a formal agreement that can, if push really comes to shove, be litigated.

“Our contracts have been developed with advice from Norris, Ward & McKinnon. From a legal standpoint it can be litigated, which means that if that farmer or contractor wants to take that other party to court, they have a contractually binding legal document.”

It offers protection for both sides and makes sure everyone is getting a fair deal.

Sanford poses the potential for that dry summer that some forecasters are predicting. It’s not so hard to imagine that as very dry conditions persist, particularly in the top and east of the North Island, maize prices could be pushed up considerably.

“You end up with a real price-gouging market. But if farmers have our forage trading agreement in place, they’ll at least be able to do their budgets with some certainty. They’re not going to be at the tail end of the market trying to find feed and goodness know what price if we head into drought,” Sanford said.

“So, it’s of benefit for the farmer to get it locked in, do the budget on scenarios including the floating percentage based on NZX indices. They should then be able to work out what that means for the top price they’d end up paying for the maize, or whatever forage they need.”

This is a great contract option for farmers and contractors because there is only one fee of $815 + gst for non-members and you can print it off and use it as many times as you like that year. Federated Farmers members can purchase this contract at the reduced rate of $215 + gst and Rural Contractors NZ members for $250 plus gst.

Federated Farmers, New Zealand’s leading independent rural advocacy organisation, has established a news and insights partnership with AgriHQ, the country’s leading rural publisher, to give the farmers of New Zealand a more informed, united and stronger voice. Feds news and commentary appears each week in its own section of the Farmers Weekly print edition and online.

People are also reading