What is in this article?:
- There should be at least eight essential components in a wine grape purchase agreement, from the grower perspective including: identifying what is traded, agreement terms, method of price determination, payment terms, quality standards, inspection and adjustments, viticultue practices (farm plan), and harvest and delivery details.
Eight essential components
DiBuduo and Bitter say there should be at least eight essential components in a wine grape buyer-grower agreement. These include:
One – precisely identify what is traded
The contract should clearly state purchase specifications - the varietal, acreage, and locations from which sourced, specific appellation (if any), and if a limit exists on the purchased/produced tonnage.
“If a crop comes up short in tonnage (due to weather for example), the contract should state if the grower is responsible to find grapes from another source to make up the difference,” Bitter said.
A contract should clearly state whether the winery will purchase all the tonnage from a specified number of acres (with or without limitation), or whether the purchase is strictly based on certain tonnage total, not acreage.
If the agreement is tonnage based, DiBuduo says growers should consider the maximum vineyard production potential over the length of the contract so that any crop overage is not paid at a secondary (lower) price.
Longer contracts should address potential long-term issues. For example, if a vineyard becomes unproductive or non economical due to disease, yield, or if production prices escalate while the market price does not, the contract should state whether the grower can graft the vineyard to another variety, or remove and replant the vineyard.
Two – agreement terms
The contract should state the specific years of the agreement – one-year or multi-years (2013-2015, for example).
A contract can be an ‘evergreen’ agreement where the contract is continuous from year-to-year until one party wants out. The evergreen should be worded precisely so both parties understand how to terminate the agreement.
“Usually an evergreen agreement ends because one party is unhappy,” Bitter said.
In most evergreen clauses, the agreement is honored for one full crop year after the termination notice is given. This gives both parties time to replace the tonnage or replace the buyer.
Three – method of price determination
A grape contract should include either a fixed price or a negotiated price.
For a fixed price, state the price for the length of the contract. For a negotiated price, a price per ton minimum may be stated over the contract period.
“In the current wine grape market, growers tend to have more financial success with a negotiated price which has increase opportunities built into it,” DiBuduo said.
Negotiated contracts are common with large wineries. Wineries can offer to pay a higher price to the grower depending on the wine grape market.
“Even though the winery price can be higher than the minimum it may not be as high as the grower thinks it should be based on other sales,” DiBuduo said. “The buyer may be in control based on the verbiage in the contract.”
The grape price is often tied to the National Agricultural Statistics Service’s crush report – a price index of sorts – where growers are paid according to the average district price in a pricing district.
Whatever price tool is utilized, get it in writing. Remember to have a remedy clause in the event a price cannot be agreed upon.