The free range egg sector is seeking to reform supply contracts between farmers and packers after lawyers found terms of agreements are grossly imbalanced in favour of buyers.
A team of legal experts from Birketts LLP examined contracts provided by producers and found numerous areas requiring improvement.
They include pricing and payment terms – which vary massively between agreements – and termination which, in some cases, is weighted entirely towards packers.
The British Free Range Egg Producers Association (BFREPA) chief executive Robert Gooch has opened up a dialog with 41 packers outlining the organisation’s areas of concern and asking for feedback.
Following consultation, BFREPA will deliver on its pledge to draw up model contracts which will be available to its members to enable them to secure fairer terms when negotiating with customers.
Robert Gooch said: “Producers have a right to a fair contract which gives them confidence to continue to invest in their businesses and produce a great product.
“Our findings are that contracts are very one sided in favour of the buyer, which is to be expected when it is the packer offering the terms.
“Our end game is to arm free range producers with a model contract which stands up to legal scrutiny. This can be used as a barometer for fairness when producers are offered contracts in the future.”
The consultation will close in February when work will begin on drawing up the model contracts.
Areas of improvement
Birketts LLP found most agreements include similar key provisions spanning important areas such as quality standards, compliance with regulation and exclusivity of supply.
But it has recommended areas for improvement, including:
• Exclusivity – agreements were found to be quite onerous in terms of the obligations being placed on producers. Strict terms are imposed.
• Codes of practice – one set of agreed codes and regulations would be better than the current variation of terms shown from one agreement to another.
• Pricing and payment – title to the eggs passing to the buyer on collection was seen as very one-sided and would be improved being held by the producer until payment has been received. Payment terms vary from two weeks to one month and there is a lack of consistency on price.
• Grading– how eggs are graded and priced is solely at the discretion of the buyer. The producer should have the right to agree the grading and prices of the eggs it supplies.
• Indemnities – producers are asked to provide a number of warranties to the buyer and also to indemnify against certain aspects of the eggs, and for breach of contract. It is considered that buyers should be required to do the same.
• Duration and termination – contracts vary in terms of the length of the notice period. The rights of each party to terminate the agreement should be consistent in any agreement entered into – at the moment it is not.