By Jeff Murphy,
February 8, 2018
WARRENSBURG, MO – Contract disputes between crop producers and the companies that
purchase grain can often lead to litigation and can prove costly and time-consuming
as farmers and grain companies try to maximize their profit margins. With help from
grant funding, researchers from the University of Central Missouri and Kent State
University in New Philadelphia, Ohio, are seeking to determine the leading cause of
contract disputes while also finding a way to predict the probability of a dispute
arising between the two parties.
The research is being conducted by Sankalp Sharma, assistant professor of agribusiness
at Kent State, and Anil Giri, assistant professor of agriculture-agribusiness management
at UCM. They have received a combined grant totaling $17,000 from Purdue University,
West Lafayette, Ind., to conduct a Relational Trust in Agribusiness study. Funding
comes from Purdue’s Center for Food and Agricultural Business, with work scheduled
to be completed by Aug. 1, 2018.
Giri believes the findings of this research will benefit small- and medium-size scale
farmers. As he noted, “Small and medium producers will benefit from a better understanding
of future and forward commodity contracts. Furthermore, the findings should also help
increase trust between local producers and elevator owners.”
Giri and Sharma’s working relationship dates back to graduate school at the University
of Nebraska-Lincoln. They have collaborated over the years on several projects, many
of them research papers.
“We have a weekly conference call where we discuss research ideas and about life,”
Giri said. “Last October, when we saw the RFP (request for proposals) from Purdue
we started brainstorming ideas and this project was a result of subsequent conversations
on the topic.”
Their research problem notes that crop producers and grain companies rely on forward
and futures contracts for marketing and risk management. Producers, under a forward
cash contract, sell a quantity of grain for a pre-determined price to be delivered
at a specific date. Futures contracts are similar but contract sizes are standardized.
The price for the grain also is determined on a commodity exchange.
Under both scenarios, defaults can occur as either party seeks to maximize profits,
and this can result in legal ramifications for the defaulting party. Giri and Sharma
discovered that there were 450 contract disputes related to post-contract losses that
came before the National Grain & Feed Association’s arbitration committee between
the years 2000 and 2016. Most of these cases related to the quality of grain, payment
date and delivery location, as well as reduced prices to the producer due to quality
differences.
Giri and Sharma are investigating the probability of a dispute arising between the
buyer and seller of a commodity-forward contract. They are surveying grain companies
and producers to determine the leading cause of disputes.
They believe that by knowing the probability of a dispute, it will provide a foundation
in which policy makers, grain companies and producers can begin to establish a better
legal framework for commodity contracts. This should ultimately help to reduce transaction
costs and lower the cost of production.
Giri said study results will be posted online and will be shared with Farm Bureau
organizations in Missouri and Ohio which have members assisting in the survey. Results
also will be made available to others interested parties.
The research being conducted by the UCM faculty member in partnership with a colleague
from Ohio State is just one example of what state-funded colleges and universities
do to serve agriculture, business, government and education in Missouri and beyond.
