Contract farming is a long-standing coordination mechanism in Brazilian agribusiness. Contracts are widely adopted for several commodities, including poultry, hogs, citrus and tobacco, among others. They often involve large numbers of small- and medium-sized farmers.

From the legal standpoint, the practice of contract farming in the country has been covered by the general provisions on contractual matters of the Civil Code, but it also observes norms of other typified contract legislations, when appropriate.

The new law was enacted on May, 2016, following a process of discussions and negotiations in parliament that started in April, 1998. The motivation behind its proposal was mostly to protect the interests of farmers involved in agricultural contracts.

The Brazilian Law No. 13.288 of 16^th May 2016:

•  “…deals with vertical integration contracts in agriculture, livestock, forestry and aquaculture,
•  …establishes general obligations and responsibilities for integrated producers and integrating companies,
• institutes transparency mechanisms in contractual relations, and
• creates national (contractual) integration forums and Commissions to Monitor, Develop and Conciliate (contractual) Integration, respecting already existing structures”.

The Law explicitly excludes contracts already regulated by legislation on cooperatives and does not cover simple forward delivery contracts under pre-agreed prices. It applies more directly to contracts whereby inputs and services are provided to farmers by the contracting firm (resource provision). It also makes it clear that contract farming does not constitute a labour relation between farmers and/or their employees and buyers, as this issue has been a frequent source of judicial disputes.

The law mandates contractors to prepare detailed pre-contractual information documents that should be presented to farmers interested in joining a contract farming operation. It also requires that all contracts are written and requires contractual clarity in all clauses.

In general, most of the clauses and principles of this Law are not very new. However, two relevant innovations can be identified:

• The mandatory establishment of farmer-buyer ¨monitoring, development and conciliation” commissions in each contract farming operation (the CADECs);
• The creation of national integration fora (the FONIAGROs) for each of the different agrifood chains where contract farming is practiced. These, in particular, will have among their attributions to establish methodologies for the calculation of “reference values for the remuneration of farmers” in the different agrifood chains, which in turn should be adopted by the CADECs.

What will be the actual impact of this Law remains still an open issue. Contract farming practitioners believe that the law will mostly have a neutral effect on the way agrifood contractual relations function, as the Law essentially prescribes good practices that are already adopted by most contract farming operations in the country. Regarding CADECs, though they may not exist in the same format and modus operandi prescribed by the Law, instances for farmer representatives and company managers to regularly meet, negotiate and resolve eventual grievances are not uncommon.

Skepticism remains also on FONIAGRO’s task to create methodologies for the calculation of reference values for farmers’ remuneration as this seems to be of difficult implementation in practice because:

• There is wide heterogeneity between contractual agreements;
• Under the principle of freedom to contract, remuneration conditions can be freely established among parties.

In sum, actual impacts of the new Brazilian contract farming Law will depend on the way the operational aspects are regulated by the Brazilian Congress.