Policy Considerations and Regulation of Contracts (Carolyn Dimitri, USDA, Organizer) READING THE FINE PRINT IN AGRICULTURAL CONTRACTS:CONVENTIONAL CONTRACT CLAUSES, RISKS AND RETURNS RACHAEL E. GOODHUE AND SANDRA HOFFMANN One distinguishing feature of ongoing struc- tural change in agriculture is increasing vertical coordination between agricultural producers and processors, much of which has come through agricultural production and marketing contracts. Agricultural economists, extension agents, legal aid groups, and others have sought to provide farmers with infor- mation that enables them to make informed decisions regarding contract use. While all sensible advice begins with suggesting that a farmer consult his or her attorney and ac- countant before signing, numerous outreach publications provide information regarding specific contract provisions. (See, for example, Holman, Feuz, and Baltensperger 2006; Kunkel and Larison 2006; Office of the Illinois Attorney General 2005.) In contrast to the relatively comprehensive analysis in such outreach efforts, agricultural economists’ theoretical analyses of specific agricultural contract provisions have tended to focus on contractual provisions regarding com- pensation, and, to some extent, on input provi- sion. When comparing the average theoretical model to an actual agricultural contract, there are pages of the contract that do not appear in the model at all. Much of the material omitted in theoreti- cal analyses of agricultural contracts is “boil- erplate.” Boilerplate is standardized contract terms that are used in multiple contacts. These Rachael Goodhue is associate professor in the Department of Agricultural and Resource Economics, University of California, Davis, and a member of the Giannini Foundation of Agricultural Economics. Sandra Hoffman is fellow, Resources for the Future. This article was presented in a principal paper session at the AAEA annual meeting (Long Beach, CA, July 2006). The arti- cles in these sessions are not subjected to the journal’s standard refereeing process. terms are usually not subject to bargaining and typically are presented on a “take it or leave it” basis (Farnsworth 2001). Boilerplate reduces risk for the drafting party in several ways: economies of scale allow greater care and expertise to used in drafting, boilerplate typically states which states’ law will apply, and boilerplate reduces uncertainty about ju- dicial interpretation by using language already tested in that state’s courts. But boilerplate can work to the disadvantage of the other party. To an extent constrained by competition and law, boilerplate will usually be drafted to the advan- tage of the drafter (Farnsworth 2001). The non- drafting party is usually relatively unfamiliar with the form and may have little opportunity to review it thoroughly. Boilerplate has been characterized as “at least formulaic, probably legalistic, and possibly unfair” (Bast 1994). Most people know boilerplate from con- sumer sales contracts. But it is also used in contracts between large, sophisticated commercial parties, such as auto manufac- turers and parts suppliers (Ben-Shahar and White 2006). And it plays a prominent role in agricultural contracts. We discuss four types of boilerplate provisions and their implications for farmers’ returns and risks: the treatment of farmers as merchants, arbitration and mediation clauses, warranties, and legal and regulatory compliance clauses. We then ex- plore potentially fruitful directions for future research. Our discussion draws on the law and economics literature regarding boilerplate. Due to space limitations, we do not examine other related work, some of which will be addressed elsewhere in this session. We motivate our discussion with examples of boilerplate provisions from specific agri- cultural contracts. We limit our examples to Amer. J. Agr. Econ. 88 (Number 5, 2006): 1237–1243 Copyright 2006 American Agricultural Economics Association