The parties’ obligations under the contract are intrinsically related to
how the parties intend to allocate and compensate for risks. Conceptually,
when parties draft a contract and include obligations that bear upon one party
or the other, they are also allocating risks that will fall upon one party or the
other. The main risks to which the parties are exposed during the contract’s
life can be divided into two broad categories: (a) “production risk”, that is, the
risk of loss or shortfall of production by expected or unforeseen events that
arise during production; and (b) “commercial risk”, that is, the risk that the
produce’s actual market value upon delivery or marketing may be lower or
higher than the price the parties’ anticipated when they set the price or the
formula for its calculation.