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T H E P R I M E R U S P A R A D I G M
William Mason and Brittany Brent Smith represent clients in a
range of legal matters, including contract drafting and negotiation,
technology transfer, business organizations, agriculture and alternate
energy supply. This article was written with the assistance of Ashley
Trotto, a 2013 graduate of The University of Tennessee College of
Law. Part I of the article was published in the Winter 2013 edition of
this publication, which is available at primerus.com.
Kennerly, Montgomery & Finley, P.C.
550 Main Street, Fourth Floor
Knoxville, Tennessee 37902
865.546.7311 Phone
865.524.1773 Fax
wemason@kmfpc.com
bbrent@kmfpc.com
www.kmfpc.com
William Mason
Brittany Brent Smith
As important as technology advancement
and biorefinery business formation are
to the future of the biofuels industry,
success is also wholly dependent on
enormous quantities of biomass being
produced by America's farmers. The
purpose of this article is to further
thinking and discussion on the essential
terms of biomass supply arrangements
among all parties farmers, biorefinery
owners, seed suppliers, feedstock
supply companies, bankers, lawyers and
public officials. Many interests must be
balanced:
Contracts for energy crop supply must
be competitive and fair to farmers in
the short- and long-term to attract
the required quantities and quality
of switchgrass, miscanthus, sorghum,
agricultural residues and other
energy crops.
Biomass conversion facilities are
dependent on reliable and uniform
feedstock, and supply arrangements
must address those requirements over
the life of the facility.
Bankers and investors providing
biomass conversion project financing
demand assurance of feedstock
supply for the life of the project, and
agricultural contract arrangements
must provide confidence in the
availability of feedstock for the long-
term.
Mother Nature dictates requirements
and introduces uncontrollable
variables into all parties' contract
expectations. Supply contracts will
fail unless they: take account of
drought, storm or other acts of God;
are adapted to realistic agricultural,
capital and labor input cycles, as
well as requirements for planting,
cultivating and harvesting; and fit the
particulars of the specified crop.
1
Traditional agricultural contracts
include agreements between farmers
and those that purchase or market the
farmers' crops, agreements between
producers and suppliers, and agreements
concerning land use. Two common forms
of agricultural contracts, elements of
each, common contractual clauses,
and state statute considerations are
summarized below.
Cooperative Marketing
Contracts
Agricultural cooperatives are a method
by which farmers and purchasers work
together to accomplish their respective
goals. To meet these goals, a cooperative
may enter into marketing contracts
requiring its member-farmers to sell a
specified portion of the member's crop or
a specified crop produced from identified
acreage exclusively to the cooperative.
Marketing contracts under a cooperative
structure may, in some cases, be limited
in duration by state statute. For example,
Tennessee mandates that marketing
contracts under a cooperative structure
may not exceed ten year terms.
2
Under a cooperative marketing
contract, the member retains title to the
crop until delivery, at which point title
passes to the cooperative.
3
Therefore,
the member has control of production
decisions and assumes production-
Agricultural Contract Clauses for Supplying
Energy Crops to the Biofuels Industry: Part II
North America