The Daily Dirt

Using Forward Contracts to Procure Local Foods

This is the seventh webinar in a series hosted by the USDA Farm to School Program focused on using a forward contract to procure local foods in schools. See this and other archived webinars (and sign up for upcoming webinars) here.

A forward contract is any contract established in advance of when a product is delivered, and establishes the product’s price and delivery date. Many of the contracts schools have with vendors already are forward contracts. This type of contract as it relates to farm to school usually refers to a contract or agreement between a school/school district and a farmer in advance of the growing season.

When using a forward contract to procure local food, it’s important to remember that these contracts are almost no different than any other solicitation and all rules and regulations for any contract still apply. It also must be competitively procured just like any other formal or informal contract.

So what are the benefits of using a forward contract?

  • They help ensure a future supply of local products, bringing security to the school
  • They help ensure a future market for local products, bringing security to the farm
  • They help a farm plan the growing season based on what will be purchased
  • They help a school plan menus based on what will be available
  • They help guarantee a school can purchase a product that could be unavailable if the school doesn’t ask for it ahead of time (i.e.: large quantities of a product, frozen berries delivered in the winter, storage crops long after they are harvested, etc.)

When contracting to buy food products in advance, there is a possible risk of supply issues; it’s always possible that the harvest won’t be what was expected. While this is inconvenient for the school, it is a risk for the farm. A forward contract can therefore include flexibility in case circumstances change, and money should not change hands until the product is delivered.

There are two types of forward contracts as they relate to farm to school:

1.)   A contract between a school district, a distributor, and a farm (in which case the distributor was already competitively procured by the district)

2.)   A contract between a school district and a farm directly (which is procured through an informal or formal bid)

A forward contract general includes the items listed below. See an example of a full forward contract from Oregon’s Willamette Farm and Food Coalition here.

  • Parties entering into the contract
  • Intention of party members to buy or sell a particular item
  • Product name
  • Total estimated quantity to be delivered
  • Estimated time the product will be ripe
  • Time the product will be delivered (depending on the item, the delivery time could be similar to the estimated time of ripeness, but not necessarily)
  • Packing requirements (box, grade, loose pack, bulk, etc.)
  • Postharvest handling practices (washed, chopped, etc. prior to delivery)
  • Any other product specifications
  • Cost per unit paid to farm
  • Cost per unit paid by school district (these costs are the same if the contract is directly between a district and a farm, but will be different if the district is also paying a distributor for delivery)
  • Payment terms and processes
  • Timeline of tasks to be completed by whom and when (best to be as specific as possible)

Forward contracts can, but don’t have to be, legally binding. Non-legally binding forward contracts or agreements require a certain amount of trust between the parties, but also mean that no one is liable if something doesn’t work. It is important to document who has agreed to do what when, but these agreements are still not an absolute guarantee.

Forward contracts are good tools no matter what type of local procurement your school district is doing. They help to build positive business relationships between schools and farms, guaranteeing the grower a market and the school district a product it knows it wants. They allow farms and schools to both plan ahead, and can help a farm to school program grow.

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