Earlier this summer, the Department for International Trade launched a mentoring scheme in partnership with AHDB and the NFU with the aim of matching an experienced exporter with a farmer or food producer keen to explore export markets for their produce. For many businesses seeking to take advantage of this scheme, this could be the first time they have considered exporting.
Our list of top ten commercial contract tips below is a good starting point for discussion with your mentor.
- Territory: which markets do you want to target? This will probably require some research as some countries will be a better fit for your produce than others. You also need to keep an eye on the list of countries with which the UK has concluded trade deals.
- Agent / distributor: you’ll need to appoint someone with the local knowledge, networks and commercial standing to help you market your produce successfully in your chosen market(s). An agent will actively seek out customers and negotiate contracts with them, on your behalf, in return for a commission. Alternatively, a distributor will buy your produce in order to resell it in your chosen territory so they, rather than you, will have the contractual relationship with the customer. Both approaches have pros and cons and your particular circumstances will help to decide which is best for you.
- Logistics / transport: decide whether you want to be directly responsible for exporting your produce or whether you prefer to leave that to your agent or distributor (having checked who is liable for the cost of transport). Alternatively, you could employ the services of a third party logistics provider.
- Incoterms: negotiating the various elements involved in international sales of produce is both expensive and time consuming. There are several default positions you could adopt (these are called “Incoterms”) and your decision as to which set of Incoterms to use will rest on who has most bargaining power and who wants to accept responsibility for what.
- Branding and marketing: how much control you want over the marketing and branding of your goods will help you to decide if an agent or a distributor would be preferable. The latter is likely to want to co-brand your goods – or completely rebrand given that they will have an established reputation on their own account in your chosen territory. The same applies to marketing – you need to decide how much direct control you want to retain.
- Commission / pricing: given that agents are remunerated via commission payments, you will need to decide what rate you can – or want to – pay. With a distributor, you’ll need to decide what price you want to charge so that you are both able to make a profit. You will also need to decide on payment terms.
- Currently fluctuation: you will need to agree with your agent or distributor who will bear the risk of any currency fluctuation. One solution is to agree the degree of risk, within specified parameters, you are prepared to take.
- Minimum sales targets: you can incentivise your agent / distributor to maximise sales by imposing minimum sales targets which, once reached, enables you to increase commission payments or lower prices.
- Exclusivity: an exclusive agreement with an agent or distributor gives them an added incentive to perform and removes competition. However, it does mean that you are entirely dependent on them doing a good job which is where minimum sales targets come into their own.
- Governance: putting a governance structure in place helps to keep the relationship on track. You can appoint a designated representative to deal with the day to day administration of the relationship, as well as requiring regular reports on sales and marketing and any issues arising.
Conclusion
Exporting your produce for the first time is a big step. Being aware of what exporting entails is the first stage of the decision-making process – and this is something you can talk through with your mentor. Once you’ve made the decision to take the plunge, we can help you put the building blocks of a successful exporting business in place.
