Food Barley Procurement Using Production Contracts

The drought of 2021 has emphasized the need for barley buyers to be proactive in securing barley supplies. The malting and brewing industry has utilized direct contract programs with barley growers as a mechanism to maintain a reliable source of supply. Contract programs also apply to food barley, which often includes waxy hull-less types of barley that are not typically produced on the open market.

Barley has transitioned from a commodity crop that is traded to an ingredient crop that is procured. Consequently, food barley buyers work with directly with barley growers to secure a source of supply via production contracts.

The production (procurement) contract between the buyer and the grower serves two primary functions. First, it outlines the legal obligations of each party with regard to the purchase and supply of the barley. Second, it serves as a communication tool to assist the parties in working together to meet the specifications of the buyer. In short, the barley grower is essentially a supplier of barley as an ingredient to the buyer.

Components of a food barley production contract include but are not limited to the following: 1) identification of the parties to the contract (i. e. the buyer and seller [grower]); 2) quantity of food barley to be produced (in bushels or tons); 3) the price the buyer will pay the grower for the production (in dollars per bushel, dollars per hundred weight, or dollars per ton); 4) the location and time of delivery of the harvested barley to the buyer; 5) a force majeure (Act of God) clause which releases the grower from the contract in the event the barley production fails due to a force beyond the control of the grower (such as drought, hail, flooding, etc.); 6) specifications of the food barley (e. g. moisture content, bulk density, mycotoxin levels, protein, plump kernel percentage, etc.); 7) best management practices to be performed by the grower (e. g. planting date, planting rate, soil fertilizers for plant nutrition, pesticide use, harvest timing, and storage); 8) any discounts to the price in the event contract specifications are not met; and 9) a clause indicating how any contract disputes between the buyer and seller (grower) will be handled in the event of a disagreement.

Production contracts provide a mechanism in which barley buyers can work directly with barley growers to procure a source of supply for food barley ingredient utilization. Barley, and particularly barley for food ingredient applications, is typically not produced on the open market, as growers require a price and market outlet in order to produce the crop.