| ||Adversity in Alberta’s agricultural economy has resulted in an increase in the number of farm business arrangements along with an increase in the complexity of these arrangements. Many producers are finding themselves in foreign territory for the first time in their farming careers. They are having to find additional pasture, send their cows out to be custom fed, rent additional cropland to spread machinery costs or rent hay land to put up feed. Even something as straight forward as hiring a custom operator can result in a new and challenging experience for a farm manager. All of these involve contractual agreements, either verbal or written.
Problems and disagreements can arise with any business arrangement. They seem to be proportional to both the term of the agreement and the amount of money involved. The longer the terms and the greater the financial consideration, the more likely problems will arise. By and far, the greatest reason for dispute in a farm business arrangement is the failure to document the initial agreement. Memories fade and self-interests soon override the original intent of the agreement. During times of stress, as we are currently seeing in agriculture, disputes become more prevalent. A written agreement helps prevent, or at least minimizes the scope of a dispute.
While sample agreement templates exist, farm managers should realize that every business arrangement carries its own set of unique circumstances. Both parties to any agreement should study sample material and then draft a document that closely meets their needs. A process does exist to help arrive at a mutually beneficial business arrangement. This involves determining:
Some specific issues will also arise depending on the type of production involved. For example, in the case of a contract for over wintering cows, an evaluation of the average body condition score of the cows going in and coming out of the feeding period should be determined and agreed upon. Specialized contracts have been developed to accommodate this. With land rental, consideration for crop residues has to be addressed as well land condition at the end of the lease. Increasingly, disputes over government payments occur so distribution of support payments is becoming an integral part of all farming agreements regardless of the type of production involved.
- the length of the contract
- options for contract renewal
- price, rent or fees
- payment schedules
- performance expectations
- production requirements
- equipment and building requirements
- a means to resolve disagreements
Developing a fair and equitable agreement is often an iterative process. In other words, the parties may go back and forth a number of times negotiating changes and additions to their agreement until they finally arrive at a mutually satisfying arrangement. It is a good idea to have an agreement vetted by a third party to determine if anything has been overlooked. While it may seem time consuming, the development of sound and functional business arrangement will be worth the effort considering that conflict resolution can be even more time consuming. The following is a list of resources that producers can use to help develop their written agreements.
Management Considerations in Agricultural Contracting
Finding Common Ground
Leasing Cropland in Alberta
Negotiating Cow Lease Arrangements
Basic Design of a Lease Agreement for Custom Feeding Cows
Prepared by Ted Nibourg, Ag - Centre, Alberta Agriculture and Rural Development