In our previous article, Supply Chain Disruptions: Legal Strategies for Managing Risks in Agribusiness, we explored the unique challenges that make agricultural supply chains particularly susceptible to shocks, from climatic events to regulatory changes. Building on that foundation, this article focuses on practical legal strategies to manage these risks through robust contractual frameworks.
Force Majeure
The first major branch in the contractual decision tree concerns force majeure – the mechanism by which a party is excused from performance when extraordinary events beyond its control make performance impossible. Generic force majeure clauses rarely suffice in agribusiness. Courts interpret these clauses narrowly, often refusing to excuse performance for events not specifically enumerated. Thus, a generic 'act of God' reference may not cover a pest infestation, contamination scare, or export ban unless those are explicitly mentioned.
A robust agribusiness force majeure clause must expressly list the events most relevant to the commodity and region. Climatic triggers should be detailed: not just adverse weather, but “drought, excessive rainfall, flooding, frost, or heatwaves”, defined by local meteorological data. Biological events should name specific diseases – for example, 'avian influenza' in a poultry contract or 'foot-and-mouth disease' in a cattle export agreement – and broader categories like 'plant pathogen outbreak' or 'pest infestation'. Contamination events, such as pesticide residue exceedances, listeria or E. coli detection, and other food safety breaches that can lead to border rejection should be specified. For South African contracts, triggers should include load-shedding or power outages exceeding Stage 4 for more than 72 consecutive hours affecting cold storage or processing facilities; social unrest or protest action blocking major transport routes for more than 48 hours; and rand depreciation exceeding 15% against the US Dollar within any 30 days for export contracts. Disease-specific triggers should reference South African conditions: 'foot-and-mouth disease outbreaks resulting in Department of Agriculture movement restrictions,' or 'detection of citrus black spot resulting in EU market suspension.'
Infrastructure and policy events should also be listed: 'closure of ports or transport corridors due to strike, blockade, or government order,' 'shortages of critical agricultural inputs such as fertiliser or seed due to embargo or trade restriction', and 'imposition of export bans, quotas, or trade sanctions affecting the commodity'.
Listing events is only part of the exercise. The clause should also impose duties on the party invoking force majeure. These include a duty to notify the counterparty within three to five business days and provide evidence of the event. There should also be a duty to mitigate effects, such as sourcing from alternative suppliers, rerouting shipments, or substituting similar commodities. Without such duties, force majeure clauses can be abused as a convenient escape route from inconvenient obligations.
Finally, the clause should set a maximum suspension period, after which either party may terminate the contract. This prevents indefinite limbo and allows parties to reallocate resources.
Tailoring force majeure clause in this way aligns contractual protection with actual, observed risks in the agricultural value chain.
Material adverse change clause for economic shocks
Force majeure addresses impossibility; material adverse change (MAC) clauses address impracticability. A MAC clause is warranted if circumstances may not prevent performance outright but make it commercially or operationally unsustainable.
MAC clauses allow a party to withdraw from or renegotiate a contract if unforeseen changes materially alter the value or feasibility of the deal. In agribusiness, this is particularly useful in long-term supply contracts, where shifts in input costs, regulatory frameworks, or market prices can be severe. Triggers must be objective, specific, and verifiable to avoid disputes.
Examples of agricultural MAC triggers include: a fertiliser price increase of more than 30% compared to the contract baseline, as measured by a recognised index such as the Producer Price Index; a reduction in yield of more than 40%, verified by the Agricultural Research Council or provincial Department of Agriculture; the rand weakening by more than 20% against the US Dollar for export contracts; or the removal of agricultural subsidies or imposition of new taxes that increase production costs by more than 15%, as confirmed by National Treasury announcements.
Such clauses serve as a pressure valve, allowing contracts to adapt to economic realities and incentivising parties to monitor market conditions collaboratively.
Deciding on take or pay or grow or pay commitments
After considering force majeure and MAC clauses, the next decision is whether the supply chain requires mechanisms to stabilise commercial expectations for both sides. This is where 'take or pay' and 'grow or pay' clauses come into play.
Under a 'take or pay' arrangement, the buyer commits to pay for a minimum volume of goods, whether or not they physically take delivery. This guarantees revenue for the producer and discourages the buyer from over-committing to volumes they do not genuinely intend to use. Conversely, under a 'grow or pay' arrangement, the producer (often the farmer) commits to supplying a minimum agreed volume; if they fail to meet it for reasons not excused by force majeure, they must compensate the buyer for the shortfall.
Agribusiness is uniquely suited to these clauses because supply and demand cycles are often rigid. For instance, a milling operation processing wheat or sugarcane needs steady throughput; sudden supply drops halt production and cause significant economic loss. Similarly, a poultry processor may invest in packaging, cold storage, and marketing campaigns months ahead; any drop in supply can cascade through the sales cycle.
Clauses must account for legitimate uncertainties. A wheat farmer failing due to unseasonal frost is excused by force majeure, but mismanagement, neglected pest control, or planting fewer hectares triggers liquidated damages.
Similarly, a 'take or pay' clause in a fruit export contract ensures farmers receive guaranteed income from an overseas retailer even if the retailer later reduces its marketing push and declines to take all the fruit shipped. The buyer in that case would still pay the agreed volume, either taking delivery or allowing the farmers to sell the surplus elsewhere while retaining the payment.
These clauses stabilise cash flows, reduce speculative contracting, and encourage realistic commitments, particularly in long-term offtake agreements, processing contracts, and vertically integrated supply chains where upstream and downstream investments are significant.
Allocating risks with precision
Once obligations are stabilised through clauses like force majeure, MAC, and take or pay/grow or pay, parties must decide who bears which risks.
Agribusiness supply contracts that fail to deal explicitly with risk allocation often find themselves mired in disputes. The reason is simple – when unexpected costs or losses arise, each side naturally assumes the other should absorb them. Clear risk allocation clauses avoid this by expressly stating which party bears the financial, operational, or regulatory risk for specified events.
In agriculture, such risks include fluctuations in input costs, yield shortfalls, transport delays, currency volatility (for export contracts), and compliance costs associated with changing regulatory standards. For example, in a grain export agreement, the parties might agree that the supplier bears the risk of modest fertiliser price increases – say, up to 15% over the baseline – but that any increase above this threshold is split equally. Similarly, the buyer might bear the risk of increased freight costs beyond 10% above contract assumptions, especially if their delivery requirements dictate premium transport modes.
For perishables, risk allocation can extend to spoilage. A berry exporter might agree to bear the risk of product spoilage until the goods are loaded on the vessel at the port (FOB terms), while the importer assumes risk thereafter. If the importer insists on certain transport conditions – for example, airfreight to meet a promotional window – they may also agree to bear the associated cost increases.
By making these allocations explicit, the contract removes ambiguity and sets expectations from the outset. This not only limits disputes but also supports commercial planning where each party knows precisely which contingencies to insure against and which cost variations to absorb in their pricing models.
Building in operational flexibility
Even with the best risk allocation, agriculture remains unpredictable. Thus, the decision often arises whether to build in clauses that provide operational flexibility without undermining the certainty established in earlier provisions.
One such clause is the flexible delivery term. Instead of fixed delivery dates, the contract might provide for delivery within 30 days after harvest or within a window of 15 days before or after the estimated delivery date. This accounts for variability in harvest timing due to weather and other factors. Similarly, fallback logistics provisions can prevent deadlock if a preferred route becomes unavailable. In the South African context, delivery windows should account for seasonal labour availability, particularly during harvest periods when competition for transport and labour is intense. Fallback provisions should specifically address Transnet rail delays and alternative road transport options, including cross-border routes through neighbouring countries if applicable.
Split performance clauses can also be invaluable. This allows partial fulfilment when full performance becomes impracticable. For example, if a maize farmer cannot supply the full contracted quantity due to pest damage, the clause might allow the delivery of the remaining quantity supplemented with a substitute crop like sorghum, with an agreed price adjustment. This approach keeps the commercial relationship intact rather than forcing termination.
Supplier replacement rights offer another safeguard. A buyer may reserve the right to procure goods from alternative suppliers if the primary supplier cannot deliver the agreed volumes or quality, with the right to recover any cost difference. This prevents supply chain collapse and ensures the buyer’s commitments to its own customers can still be met.
Lastly, performance guarantees (in the form of bank guarantees, insurance bonds, or parent company guarantees) add a layer of security, particularly in cross-border transactions or when dealing with financially weaker suppliers. Step-in rights, allowing the buyer to temporarily take over operations to fulfil urgent deliveries, can also be considered in vertically integrated arrangements.
Enforcement and dispute resolution mechanisms
Dispute resolution is often overlooked until a problem arises. In agribusiness, where perishable goods and seasonal cycles mean that time is of the essence, traditional court proceedings can be too slow to be commercially useful.
Contracts should consider expedited arbitration or expert determination for urgent disputes, particularly those involving quality assessments or time-sensitive deliveries. Industry-specific arbitration bodies or mediators familiar with agricultural operations can bring valuable expertise and speed.
The governing law should be chosen with care, ideally one with established jurisprudence on agricultural contracts and familiarity with relevant international conventions. For South African agribusiness contracts, South African law provides a well-developed framework, particularly given the established precedents in commodity trading disputes. For cross-border contracts, parties should consider the enforcement implications in destination countries and ensure compliance with the Recognition and Enforcement of Foreign Arbitral Awards Act. The choice of arbitration seat should account for South Africa's membership in international arbitration conventions and the expertise available through institutions such as the Arbitration Foundation of Southern Africa.
Finally, it is worth considering a multi-tiered dispute resolution clause: negotiation, then mediation, then arbitration. This allows for commercial solutions before formal proceedings escalate costs and damage relationships.
From reactive to proactive contracting
Agribusiness will never be free from disruption. Droughts will come, markets will swing, policies will shift. The difference between a resilient supply chain and one that collapses often lies in contract design.
By following a structured decision-making process – starting with a thorough risk mapping, moving through tailored force majeure clauses, MAC provisions, take or pay/grow or pay commitments, precise risk allocation, operational flexibility, and robust dispute resolution – parties create agreements that encourage collaboration, incentivise realistic commitments, and provide clear roadmaps for navigating crises. This systematic approach is particularly crucial in the South African context, where agricultural supply chains must navigate not only traditional farming risks but also infrastructure constraints, regulatory complexity, and the broader economic challenges facing the country. By following this decision tree methodology, South African agribusiness participants can create contracts that are both legally robust and commercially practical.
In doing so, agribusiness contracts become not just legal formalities but operational tools – tools that protect livelihoods, preserve commercial relationships, and keep the flow of food, fibre, and agricultural products moving even in the most challenging times. For South African agribusiness, where the sector contributes significantly to employment, export earnings, and food security, well-structured supply chain agreements are not merely commercial necessities but essential infrastructure for economic stability and growth.
