Benefits Of Long Term Agreements

Of course, satellite farm approaches are not the only way for buyers and producers to partner to implement a TLC. It is possible that existing third-party aggregators to coordinate the current short-term or plant-based purchasing process between producers and buyers may also be able to switch to a LTC with a commercial buyer. Although the additional costs associated with these businesses, including a “medium-sized man” between the buyer and the producer, are borne, some of the benefits of LTCs are likely to be paid to the producer. One commodity that would serve as an example is coffee, where some buyers have set up LTCs with roasters, which also act as aggregators. The expectations that the roaster will meet several initiatives with its manufacturers, such as technical training and access to certification, are included in the roaster contract. Not to mention that one of the main advantages of a good relationship with your client is that they recommend your agency to your colleagues: the first step to convince a client that a longer contract term would be beneficial is to discuss it during the proposal phase and – if chosen to make a presentation to the main client representatives – to present the benefits. For most companies, building strong, mutually beneficial long-term relationships with strategic management of supplier relationships is a decisive step towards improving performance throughout the supply chain, improving cost-effectiveness and allowing the company to grow and develop. A surprising remark about Hortifruti`s suppliers is how heterogeneous they are – their main distinguishing features are not easily visible. For example, the size of the producer is relatively insignificant. In Costa Rica, the average farm size for Hortifruti suppliers is nine hectares. It is not a large producer, and many were much smaller. It was found that some farmers had no land at all, but that they fulfilled their hortifruti obligations with regard to rental property.

Even if they do not have land, they could find financial intermediaries willing to grant them loans that are based on nothing but rental real estate and an ongoing contract and relationship with their purchaser. It should be noted that in addition to access to credit, there are other equally important benefits for producers, including training in pesticides, food security and marketing. Imagine they have COMPUTERS. Most financial institutions need guarantees, but it is not necessarily a country. An LTC or an oral contract with a buyer such as Hortifruti, an exceptionally strong and well-known company, is often enough to make a producer solvent, at least for working capital financing (Norton, 2017). Of course, the opposite also applies to a supplier, so many suppliers will commit to adopting more modest and/or more flexible pricing models for long-term contracts in order to reduce their risk and risk.