Grain contracts are in the media again, and with many areas in Saskatchewan experiencing drought conditions, there is a concern that many farmers will suffer a repeat of 2021, highlighting a longstanding problem with contracts.
For many Saskatchewan grain farmers, this isn’t news. Over the past few years, farmers have been raising concerns around the lack of transparency grain purchase contract terms and conditions. These concerns were exacerbated by the drought in 2021.
In response to these concerns, APAS has been advocating for more balance into grain contracts by improving clarity of terms and conditions to help create greater transparency and accountability for both buyers and sellers.
After the 2021 drought, APAS and SaskCrops hired Mercantile Consulting Venture Inc. to create a report to identify the common issues experienced by farmers, plus potential solutions. The full report was released in July 2022 and is available on the APAS website.
The report validates the concerns raised by Saskatchewan farmers when it comes to their comfort with grain contract terms and conditions. Specific concerns focused on four areas: lack of transparency in calculating buyout and administrative fees, settlement costs, timing of buyouts, and inconsistency in handling contract shortfalls.
While many producers showed an interest in standardizing grain contracts and standard contract resolution procedures, many are also questioning the use of forward contracts as they are now written due to the lack of transparency and added risk.
For example, contract terms should not transfer an unfair amount of risk – in terms of grain handling, transportation, and market risk, to farmers. The report outlines several examples of these risks being reallocated through contracts, including how railcar availability can impact farmers through expanded or delayed delivery windows, even though farmers are not involved in those commercial negotiations.
Grain contracts are important business tools to facilitate transportation and sales, as well as to manage market and price risk. Improving contracts to enhance efficiency and transparency is not only positive for grain farmers, but also buyers and the entire industry. Therefore, APAS believes this issue should continue to be a top priority for our industry and for the Canadian Grain Commission (CGC).
The CGC has a role in bringing buyers and sellers together to facilitate a process to address these issues. The CGC can assist in adopting a standardized contract that is fair and balanced to both parties, educating producers about contracts, as well as facilitating contract disputes.
APAS has met with the Western Grain Elevator Association (WGEA) to discuss contract concerns following the release of the report last year. Going forward, we need to initiate discussions with stakeholders and government bodies to move this issue and our recommendations forward.
This isn’t about shifting production risk from farmers to grain companies. Instead, we want to clearly define contract terms and conditions, so farmers better understand their responsibilities, clarify timelines, and know their options available when either party is unable to fulfill a contract.
An efficient grain supply chain depends on trust and cooperation between all partners along the value chain. More consistency, transparency and accountability in grain contracts will benefit the entire industry by smoothing product flow while helping to ensure farmers and grain buyers can capture international market opportunities.
