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Almost $45 million has been lost to the Australian grain production sector over recent years, due to a range of trader insolvencies.
Grain farmers are exposed to significant losses when traders become insolvent, and contracts only afford protection from losses to the extent that counter-party risk is managed.
GrainGrowers Industry Engagement manager Laureta Wallace said the guide provided practical advice on how farmers could limit their exposure to counter-party risk and the fallout from trader insolvencies.
“Growers can go a long way to mitigating contract counter-party risk by implementing a number of straight forward tactics in both their contracting and their wider marketing activities.”
Wallace said the when selling grain at busy times such as harvest, it was not uncommon for growers to unknowingly expose themselves to potentially costly risks.
“Farmers are most exposed to contract risk when they don’t fully understand the contract they are entering into; enter into a contract unintentionally or – which often happens –in pursuit of a price advantage contract not fully investigating potential counter-party risk,” she said.
“Being aware of what constitutes a contract; when ownership or title to grain actually passes; the intricacies of payments terms and carrying out adequate due diligence are all important parts of managing risk.”
Since the first release of the guide in 2014, changes have been made to the protections afforded to farmers when contracting.
As of November 12, small businesses, of which most farming operations qualify as, are protected by the Australian Consumer Law's unfair contract provisions.
“The changes recognise the market power imbalance that may exist in business-to-business transactions, for example between a grain farm business and a grain trader,” Wallace said.
The Guide also outlines the process of register a grower's interest in grain that has been delivered but not yet paid for on the Personal Properties Securities Register (PPSR).
The Managing Risk in Grain Contracts – A Grower’s Guide is available for free download at www.graingrowers.com.au.
