Hilary Muza 
THIS is the first of a two-part series focusing on grower contracts in the tobacco industry. In the first part, I will deal with the most pertinent provisions that a grower contract should include.
The second instalment will explain how tobacco contractors can recover their dues in foreign currency as opposed to local currency. With the spread of small-holder farming in Zimbabwe, the need to find smart ways of commercialising the large tracts of land available for tobacco farming in the country and the numerous farmers on hand to work the land has taken centre stage.
One strategy that has developed over time is implementing agricultural contracts. Consumer preferences drive proliferation of agricultural contracts because consumers are now after specific qualities
In tobacco farming, cigarette production requires a specific blend of tobaccos, particularly narrowly defined grades of flue-cured and burley tobacco in order to produce flavour-specific blends for high quality cigarettes.
For tobacco growers to make a profit from this unsatisfied demand, the obligations between the contractors and growers need to be clearly outlined. Oftentimes, the difference between making a profit or a loss on a tobacco grower’s contract lies in the details negotiated in the grower contract.
It is critical for tobacco contractors to avoid situations where they fail to make a profit because the terms of the grower contract either do not address a pertinent issue or are not explicit enough to provide sufficient protection. Below are a few important clauses to be mindful of.
The quality provision
The quality of tobacco harvested determines the contractor’s capacity to make a profit. It is therefore critical to focus on the quality of the product above all else. Quality provisions must address issues such as the minimum stalk positions required by the contractor. A stalk position pertains to various portions of the plant which can be harvested. A typical tobacco plant has five stalk positions. They are the primings, lugs, cutters, leaf and tips. A tobacco contract must specify which portion of the plant the contractor requires and the condition it is expected to be in. This provision is usually influenced by the kind of product the contractor has in mind.
The quantity provision
A tobacco grower must know exactly how much product they must produce in order to satisfy the contractor’s needs. This becomes important for planning purposes as the outstanding product becomes an asset in the hands of the contractor to use for other strategic purposes, including securing additional financing.
Insurance clause
In order to hedge against loss, the contractor must make it obligatory for a grower to take out insurance. If this is not done, the grower will bear the brunt of any loss that may be suffered on account of weather, fire or any other unforeseen calamity. If the grower cannot harvest a crop, the contractor cannot recover their investment for that season. An insurance clause ensures the contractor gets paid regardless.
Tobacco farming is a technical exercise that requires a lot of skill.
Marketing clause
Tobacco contractors want to limit the grower’s ability to sell the harvest to persons other than the contractor. A marketing clause is important in this regard because it functions to make the contractor the only entity to whom the grower can sell product.
Incentive clause
Tobacco farming is a technical exercise that requires a lot of skill. The size of yield harvested by farmers depends largely on the techniques employed in growing the crop. Tobacco contractors will do well to introduce an incentive clause that rewards the grower for producing a harvest that meets and surpasses the agreed quality and quantity of tobacco contracted for. The contractor wins either way, if they are getting more quality product than bargained for.
Source of funds clause
Tobacco contractors often seek offshore funding to finance grower contracts. It is important to make it clear from the onset that the funds used in financing grower agreements constitute a foreign obligation. Having such a clause in a grower agreement hedges against a grower raising a defence that a contractor is not entitled to recovering its dues in foreign currency.
I will elaborate more on this point in the next piece, but it is important to note that a source of funds clause can play a key role in preventing litigation in recovering debts. It also strengthens the contractor’s case significantly should litigation be unavoidable.
Dispute resolution clause
Contracts can tend to be broad and non-specific when it comes to outlining how disputes between the parties should be resolved. A good clause serves to quell any dispute amicably as a point of departure, before resorting to more adversarial means of resolution. It must be kept in mind that contractors and growers have a continuing relationship and often enter into subsequent contracts for new tobacco growing seasons, while outstanding contracts remain unfulfilled.
Dispute resolution clauses must therefore, serve a dual function. Firstly, they must attempt to lead the parties away from litigation, which is often long drawn out and expensive. Secondly, they must ensure that they guarantee the contractor the fastest and most effective means of collecting debts should litigation be unavoidable. The clauses I highlight herein are by no means exhaustive as all the factors to be taken into account are too broad to be dealt with in one piece. I merely provided a guideline of certain considerations that must exercise tobacco contractors’ minds when they enter into grower contracts.
In part two of this series, I will address how tobacco contractors can maximise their debt collection exercises and recoup what they are owed in foreign currency.
Muza is an admitted legal practitioner. He writes in his personal capacity and is reachable at hilarykmuza@gmail.com and on 0719 042 628.
