AGRICULTURE

UNIDROIT WORK AND INSTRUMENTS IN THE AREA OF AGRICULTURE

UNIDROIT contributes to global efforts to address the objectives of food security. Several instruments adopted by UNIDROIT over the last few decades dealing with International Commercial Contracts and trade financing (in particular Leasing and Factoring) are relevant in the areas of agricultural production, trade and investment. In 2010, acknowledging the importance of this particular sector, the UNIDROIT General Assembly decided to include aspects of the private law of agricultural development in the Work Programme of the Institute. Since then, UNIDROIT has developed a line of work specifically devoted to the crucial role private law can play in agricultural development, and it established partnerships with other intergovernmental organisations to leverage synergies and develop joint projects.

In particular, UNIDROIT has engaged in the preparation of rules to promote an enabling legal environment and best practices in contract farming relationships and in agricultural land investment contracts, and to facilitate the acquisition of high-value equipment for agricultural production.

Most recently, UNIDROIT has commenced work to develop legislative guidance on warehouse receipts to facilitate access to finance, especially for smallholders and small and medium-sized enterprises in the agricultural sector. In addition, under the 2020-2022 Work Programme, UNIDROIT established a new Working Group for the preparation of a guide on legal structure of agricultural enterprises which aims at addressing the challenges and opportunities of different legal instruments such as contracts, corporations and cooperatives to coordinate the activities of economic actors.

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The UNIDROIT/FAO/IFAD Legal Guide on Contract Farming intends to promote good practices between farmers and buyers of agricultural commodities by enhancing knowledge and awareness of the legal regime applicable to contract farming operations.

The practice of producing under a contract is used for a broad array of agricultural commodities in many countries of the world and is growing significantly in developing countries. Contract farming does not disrupt farmers’ rights over the land and under enabling conditions may deliver substantial economic and social benefits to the parties and the community.

One key element of the success of contract farming arrangements is the capacity of the parties to build stable, commercially sound and fair relationships, based on clear commitments and mutual compliance and supported by an enabling legal framework.

The Guide has proven to be a useful tool and reference point for a broad range of users involved in contract farming practice, policy design, legal reform and capacity-building. It can help creating a favourable, equitable and sustainable environment for contract farming.

Useful link: FAO’s Contract Farming Resource Centre

Continuing its collaboration with Rome-based international organisation in the field of agricultural development, UNIDROIT and IFAD recently launched, in September 2021, an international instrument on Agricultural Land Investment Contracts (ALIC Legal Guide) for use by legal counsel working on the leasing of agricultural land, whether from a State, local community or private party perspective. The instrument – developed by a Working Group of renowned experts, representatives of international Organisations and stakeholders builds upon the UNIDROIT-FAO-IFAD Legal Guide on Contract Farming and the UNIDROIT Principles of International Commercial Contracts. The ALIC Legal Guide does not to endorse large-scale land acquisitions and has been developed to raise awareness about alternative investment models. In acknowledging that land acquisitions continue to occur, however, the instrument aims at ensuring that leases of agricultural land are done responsibly and that stakeholders’ rights, including those of legitimate tenure right holders are protected and respected in a way that is fully consistent with principles and internationally accepted standards for the promotion of secure tenure rights, equitable access to land and responsible agricultural investment, as reflected in the VGGT, the CFS-RAI Principles and the UN Guiding Principles on Business and Human Rights.

Information regarding the background on the ALIC Legal Guide, including Working Group meeting summaries and documentation is provided here.

As a natural follow-up from the Legal Guide on Contract Farming (finalised in 2015) and the Legal Guide on Agricultural Land Investment Contracts (finalised in 2020), the Legal Structure of Agricultural Enterprises (LSAE) is the most recent project of the tripartite partnership between the International Institute for the Unification of Private Law (UNIDROIT), the Food and Agriculture Organization of the United Nations (FAO) and the International Fund for Agricultural Development (IFAD).

The LSAE project was selected by the UNIDROIT Governing Council, at its 98th session (Rome, 8-10 May 2019) and approved by the General Assembly at its 78th  session (Rome, 12 December 2019) to be developed during the 2020-2022 Work Programme.

More information on the background, scope and Working Group of the UNIDROIT/FAO/IFAD LSAE project is provided here.

The Cape Town Convention together with its various Protocols is designed to bring significant economic benefits to countries at all stages of economic development. In developing countries, the Cape Town Convention lowers the cost of finance for mobile equipment that has previously been unavailable or available only at a relatively high cost.

In the agriculture sphere, the Mining, Agriculture and Construction (MAC) Protocol to the Cape Town Convention facilitates the financing and acquisition of high value agricultural equipment. The MAC Protocol establishes an international legal regime for the creation, enforcement, registration and priority of security interests in such categories of equipment.

In the area of agriculture, the Protocol will allow agriculture and farming enterprises to acquire equipment (for example, tractors, harvesters, seeders, sprayers etc) they would otherwise be unable to acquire and thus permit them to optimise their activity. It will also allow producers of equipment to export to markets that without the MAC Protocol would remain closed to them.

The MAC Protocol is predicted to have an annual global economic impact of $23 billion USD in developing countries and $7 billion USD in developed countries. A 2018 independent economic assessment of the MAC Protocol is available here.

For more information on the Cape Town Convention and MAC Protocol, access the Secured Transactions Portal

Introduction      Diplomatic Conference      Background      Study Group Negotiations      Committee of Governmental Experts

In 2020, UNIDROIT in partnership with the United Nations Commission on International Trade Law (UNCITRAL) started a joint project to develop a Model Law on Warehouse Receipts. Warehouse receipts are understood as documents – in paper or electronic form – issued by warehouse operators that state the ownership of a commodity and may be traded or used as collateral to obtain credit. This instrument drastically enhances the possibility, especially of small businesses in the agricultural sector. A supportive legal framework is widely regarded as a prerequisite for a well-functioning warehouse receipt system.

Accordingly, the UNIDROIT/UNCITRAL Model Law will consist of a set of black letter rules and is conceived as a standalone instrument for adoption by States seeking to reform their national legislation. Importantly, the Model Law will contemplate the issuance and transfer of electronic warehouse receipts, including through the use of electronic platforms and distributed ledger technology systems, and thereby allow stakeholders to seize the opportunities offered by new technologies.

The Model Law is being prepared by a group of leading experts in the field, representing different legal systems and geographical regions. The relevant intergovernmental organisations active in the field – among others, the World Bank Group and FAO –, as well as public and private sector stakeholders representing are actively participating in the project.

Further information on this project and its current status can be found at the dedicated project page here.

Introduction Background of the projectWorking Group sessions and current status