Provide sufficient benefits of forward supply for processors/exporters and incentives for producers for year-round contracts. Situation whereby, fixed price contracts are only Processors/exporters secure back-back contracts Timing and dates of fixed price 10 attractive to processors during seasons when supply is with their customers Stretch, 2015 forward contracts limited. Promote value chain relationships for all year-round supply with producer groups Encourage the development of finance products based on forward contracts Situation whereby the processor/exporter due any number of factors including but not limited to; insufficient Contract clauses to cater for these circumstances. procurement planning, processing plant operational Inability for processor/exporter to challenges including staff availability, cash flow, Inclusion of roll over of contract provision subject to take delivery of forward Industry 11 machinery/ship breakdowns, animal and health agreement contracted sheep on specified Source compliance challenges, sourcing of stock at lower prices Dispute resolution and arbitration process dates. on spot and alternative markets, disruption or Force Majeure clauses in contract design cancellation or product specification changes of orders to end customers. Credit insurance Situation whereby, the parties to the contract may not Payment risk by counter party receive payment as and when due. This could be due to Credit check, banker opinion Industry 12 due to insolvency, legal action or contract disputes, financial events, counter party Source Counter party due diligence checklist financial cash flow challenges. insolvency Dispute resolution and arbitration Effective contract and agreement design, rules and Grain Trade Having effective independent documentation will assist in managing this issue. Situation whereby, the contracting parties may have Australia and objective contract dispute An independent dispute resolution and arbitration 13 disputes or challenges surrounding their contractual Stretch, 2015 resolution and arbitration service will assist to mitigate this issue if they arise. agreements due many factors. Industry process. Examples, include, Grain Trade Australia and Source Australian Disputes Centre Need to consider that supply has also been removed from the spot market. The theory that cash prices would be impacted Focus on profit margin not on price. Emmett, 1992 Lower cash prices if increased 14 negatively due to the removal of a buyer (demand) from Industry Focus on longer term alignment benefits for forward contracts are used. the spot market Source producer, processor and customer. Forward contracts would/ should never be 100% of the market.
10 Timing and dates of fixed price forward contracts Situation whereby, fixed price contracts are only attractive to processors during seasons when supply is limited. Provide sufficient benefits of forward supply for processors/exporters and incentives for producers for year-round contracts. Processors/exporters secure back-back contracts with their customers Promote value chain relationships for all year-round supply with producer groups Encourage the development of finance products based on forward contracts Stretch, 2015 11 Inability for processor/exporter to take delivery of forward contracted sheep on specified dates. Situation whereby the processor/exporter due any number of factors including but not limited to; insufficient procurement planning, processing plant operational challenges including staff availability, cash flow, machinery/ship breakdowns, animal and health compliance challenges, sourcing of stock at lower prices on spot and alternative markets, disruption or cancellation or product specification changes of orders to end customers. Contract clauses to cater for these circumstances. Inclusion of roll over of contract provision subject to agreement Dispute resolution and arbitration process Force Majeure clauses in contract design Industry Source 12 Payment risk by counter party due to insolvency, legal action or financial cash flow challenges. Situation whereby, the parties to the contract may not receive payment as and when due. This could be due to contract disputes, financial events, counter party insolvency Credit insurance Credit check, banker opinion Counter party due diligence checklist Dispute resolution and arbitration Industry Source 13 Having effective independent and objective contract dispute resolution and arbitration process. Situation whereby, the contracting parties may have disputes or challenges surrounding their contractual agreements due many factors. Effective contract and agreement design, rules and documentation will assist in managing this issue. An independent dispute resolution and arbitration service will assist to mitigate this issue if they arise. Examples, include, Grain Trade Australia and Australian Disputes Centre Grain Trade Australia Stretch, 2015 Industry Source 14 Lower cash prices if increased forward contracts are used. The theory that cash prices would be impacted negatively due to the removal of a buyer (demand) from the spot market Need to consider that supply has also been removed from the spot market. Focus on profit margin not on price. Focus on longer term alignment benefits for producer, processor and customer. Forward contracts would/ should never be 100% of the market. Emmett, 1992 Industry Source
AEC%20DPIRD%20Sheep%20Forward%20Contracts%20v3.0_0.docx