The Role of Contracts in the Organic Supply Chain: 2004 and 2007

Organic food products are excellent candidates for contract production and marketing because they are produced using a distinct process and are in high demand. This report summarizes survey data on contracting in the organic sector, addressing the extent of contracting, the rationale for using contracts, and contract design for select commodities. The central survey data were collected from certified organic handlers (intermediaries)in the United States who marketed and procured organic products in 2004 and 2007. Contracting is widespread in the organic sector, and, in 2007, firms used contracts most frequently to secure organic products essential to their business and to source products in short supply. Large firms were more likely to use contracts for procurement, and these firms contracted for a larger share of their procurement needs. Nearly all contracts required suppliers to provide evidence of organic certification. Firms using contracts rarely assisted suppliers with obtaining organic certification or the transition to organic. Most contracts include provisions regarding quality, and quality verification was an essential component of these contracts. Prices were determined in a variety of ways and, in some cases, depended on delivered quality.