Multi-season Contracts

Procurement Low Ambition Downstream supply chain actors Off-taker

Definition

Multi-season contracts are contractual agreements between buyers and producers that extend over multiple harvest seasons or years, that are typically agreed before production begins, detailing which resources or services the farmers will receive in return for their produce. By reducing market risks and fostering trust, these contracts enable producers to plan ahead, access credit, and make forward-looking investments in their operations, similarly, it provides supply stability and predictability for buyers. Such arrangements support long-term collaboration and enhance resilience in the supply chain and may function as a vital enabler for the long-term investments required for transitioning to environmental farming practices.

Lead Actors

Downstream supply chain actors; Off-taker

Target Demographics

Agri-SMEs; Farmer Organisations; Farmers

Objectives addressed

Farmer related

Strengthen income stability: Multi-season contracts can improve farmers' income stability by guaranteeing a consistent buyer (and sometimes price) over multiple growing cycles, reducing the risk of market fluctuations.

Increase farmer income: Multi-season contracts can increase incomes by improving farmers' ability to make larger and longer term investments in their farms which in turns leads to higher income.

Increase climate resilience: Multi-season contracts can increase climate resilience by enabling farmers to make larger and longer term investments to support their adaptive capacity in the event of adverse climate events.

Boost access to finance: Multi-season contracts can be used to reduce farmers' credit risk as it provides a guarantee to farmers on expected income over a period of time, thereby increasing the probability of loan repayment. Allowing the farmers to have better access to financing from a financial institution.

Improve market access: Multi-season contracts improve farmers' market access by providing predictable demand and encouraging investment in future quality and production capacity.

Business related

Lower credit losses: Multi-season contracts can reduce buyers' credit losses by fostering reliable supply relationships and enhancing farmers' financial stability, which in turn lowers farmers' risk of default on pre-financed services or inputs.

Reduce side-selling: Multi-season contracts can improve buyers' supply security by fostering longer-term relationships with their farmers, building trust and closer collaboration through long-term commitments and thereby ensuring consistent, predictable access to quality produce over multiple harvests.

Address sourcing needs: Multi-season contracts support buyers in meeting their sourcing needs by ensuring supply stability and predictability through consistent access to quality produce over multiple harvests, and fostering long-term collaboration with farmers.

Attract investment: Multi-season contracts can improve buyer's risk profile for investors by ensuring long-term supply stability and predictability through consistent access to the required produce over multiple harvests. Companies with long-term suppliers are often viewed positively by investors.

Improve sourcing efficiency: Multi-season contracts can improve buyers' sourcing efficiency by enabling accurate volume and timing predictions, streamlining logistics, and reducing quality losses through farmers' adherence to agreed practices and investments in quality production.

Contexts Best Suited to

Tight supply chains: where the number of buyers is limited.
Tree crops: where the chances of farmers switching to other crops are low.
Crops with predictable demand: where a multi-season predictability is demanded downstream.

Key Risks

Market volatility: Lower upstream market demand can affect the buyers ability to comply with the contract, delay payments, or renegotiate terms, leaving farmers financially vulnerable.
Price volatility when contracted price is fixed: If market prices rise significantly above the agreed contract price, farmers may feel locked into a less profitable deal, leading to dissatisfaction and potential contract breaches.