New law offers farmers more contract protectionThe growing number of Iowa farmers producing commodities under contract now have additional protection under a new state law. Changes in the Iowa contract law approved by the legislature last spring provide two new forms of protection for farmers holding such contracts.The first major change, according to state assistant attorney general Steve Reno, is that such production contracts may not include confidentiality clauses. In the past, violations of confidentiality clauses could void the agreement if the farmer shared any information about the contract, such as the amount of payment, with others. "Confidentiality clauses worked for the benefit of the contracting company but gave farmers little or no flexibility to compare prices or terms," Reno explains. "Without that information, farmers are unable to make good business decisions. Now they can fully discuss contracts before they enter into them." The new law also makes null and void both confidentiality clauses in existing contracts and waiver provisions that make any part of the contract confidential. The Iowa Attorney General's office is responsible for enforcing the law. The second major change in the law is a contract grower's ability to file a lien for his or her services under a production contract. The lien would give contract growers secured status--the opportunity to recover more assets owed to them--if the contract-holder files for bankruptcy. The way Reno explains it, the new lien law "puts farmers at the front of the line," ahead of banks and previously filed security interests. Historically, secured creditors have recovered more than 75 percent of the amounts owed them in bankruptcy proceedings, compared to less than 10 percent for unsecured creditors. The lien law, however, specifically exempts contracts for production of grain for seed. Contracts to produce specialty grains can be protected by a lien. Since July, the Attorney General's Office has hosted more than two dozen meetings throughout the state about the changes. "It was surprising the relatively small number of farmers who came to these meetings," Reno said, "but they were very well attended by bankers, who want to protect the farmer's interests in many of these contract situations." Liens are filed with the Secretary of State's Office on new, simplified forms written specifically for custom cattle feeders and contract grain producers. The filing fee for each turn of animals or crops planted under contract is $10. The one-page forms have instructions on how to complete them. They can be found at the Iowa Secretary of State's Office web page (under Business Services/Forms), at http://www.sos.state.ia.us. Producers also may contact the Iowa Secretary of State, Second Floor Hoover Building, Des Moines, IA 50319, (515) 281-5204. Ask for the "Registration of Lien" form, specifying whether it is for a contract grain producer or custom cattle feedlot. Return to Spring 2000 Leopold Letter index |