What Should Be in a Co-Packing Agreement?

Most food businesses today rely on co-packers to scale their production favorably. They outsource packaging, storage, and logistics services to a co-packer, also called a contract packager, which agrees on a specific price to provide all those duties.  

While co-packing is one of the vital steps for a growing food enterprise, getting into a partnership with a co-packer is the first thing to do. However, just like any business partnership, hiring co-packing services from a reliable service provider will require you to make a co-packing agreement. It’s a legal agreement between the food business and co-packer, which covers the conditions they both agree upon for building the partnership. 

Now, what’s a co-packing agreement, and what does it include? If you are a food business, looking forward to entering into a partnership with a co-packer, we have explained everything here for you.

While there’s no hard and fast rule regarding the formulation of a co-packing agreement, we will explain here the crucial terms and provisions you should include in it. However, you ensure your agreement adheres to the necessary legal mandates to make it abiding to both parties.

Take a look! 

What is a Co-Packing Agreement?

A co-packing agreement is the foundation of a long-term and stable partnership with a co-packer. For food businesses, who are considering outsourcing their packaging duties to co-packer companies, agreeing is the first step. 

If you want to know the right definition of a co-packing agreement, here it is:

“Co-packing agreement is a lawful contract or agreement between a food business and a co-packer that covers the ownership, terms and conditions, scope, duties, and potential risks of the partnerships. Under the agreement, none of the parties are allowed to take or execute any decisions without prior approval of the other.”

This contract is essential for co-packing companies as well as food businesses to avoid confusion in the long run. Also, it ensures clarity between them regarding their rights, duties, and obligations in the food manufacturing process.

What Does A Co-Packing Agreement Comprises?

Given the need for a co-packing agreement between a co-packer and a food business, it is obvious that it will include several inclusive provisions and elements agreeable to both parties.

Let’s discuss them. 

1. Key Terms of a Co-Packing Agreement

A food business owner considers this agreement a huge investment because it assures the reliability of the co-packer services. In other words, it gives you peace of mind and ensures that all the packaging responsibilities will be delivered on time, helping you scale faster.

• Trade Secrets

The first thing to incorporate in a co-packing agreement is the product formula or more specifically, the trade secrets. Every food manufacturer has a unique product formula, which they keep confidential. So, it is a kind of intellectual property, and sharing it with the public illicitly is prohibited by the company’s people. For this reason, include an NDA (Non-disclosure agreement) in your contract.

However, knowing the food formula is essential for the co-packer companies to understand the type of packaging materials, the shape and size of packages to manufacture, and suitable storage conditions. This clarifies why the agreement includes the product formula, i.e., for the food co-packing company to understand the packaging needs. Sharing the formula in writing also demonstrates how methodical you are as a food company in sharing your trade secrets.

• Intellectual Property

Apart from the product formula, there are several other intellectual property rights related to your food manufacturing that you need to protect. Being in a partnership with a third-party company, you have the right to maintain full ownership of certain processes and decisions in package manufacturing.

Similarly, the food co-packer also has certain intellectual property rights and that should be a part of the contract.
Also, changes in any of the proprietorships following the agreement should be included in the contract.

• List of Suppliers

Needless to say, a prime reason for food recalls is the use of ingredients that are unknown allergens. That is why food co-packing companies are provided with an approved list of suppliers, which assures to provide ingredients that do not cause adulteration of the food products.

The agreement thus should mention the restricted set of suppliers, known for providing quality ingredients and packaging materials. The co-packer food company must agree and order their ingredients from those suppliers.

• Quality Assurance process

Food businesses mostly worry about maintaining their product quality and integrity, especially when it is handled by a third-party co-packing company. They need to primarily ensure two things – the product specifications or formula is well preserved after the packaging, and the packaging quality is great for maintaining the freshness of the product.

For instance, salinity, pH concentration, and viscosity are prime aspects of a food product that need to be maintained with superior packaging construction.

The co-packing agreement, therefore, needs to have a quality assurance aspect, stating the product specifications and criteria for quality packaging and storage for the co-packing food companies.

• Food safety

Food safety is the top concern for manufacturers that they need to ensure before trusting the food co-packing companies. Thus, your co-packer agreement must ascertain your involvement in the food safety maintenance procedures followed by the co-packing company.

With safety assurance conditions mentioned in the contract, it means you as a food business are allowed to inspect and audit the stages of packaging and storage.

Also, it gives you full permission to the production facilities and permission to access the safety documentation regarding the packaging of products.

• Insurance

Lastly, the co-packing agreement must include liability insurance terms, under which your food business gets the right for product recalls. This term is essential to ensure you can demand a return of the food products from the food co-packing company if they do not meet the specific safety and quality standards.

Along with liability insurance, the agreement also includes a vendor agreement, under which the co-packing company is required to package and deliver the goods in proper conditions.

2. Additional lawful provisions included in a co-packing agreement

Apart from the primary legal provisions of a food co-packing agreement, certain provisions apply to any kind of business contract. Hence, those are a part of the food co-packing agreement too!

• Term of contract

This is, of course, the term or tenure of the co-packing agreement and must mention the date from which the arrangement should be effective to both parties.

The term or tenure of the arrangement can vary at any time, from a few months to 1 year, 2 years, or 5 years.

Many times, the co-packing agreement includes a renewal clause! Under that, the terms of the contract will extend if the services of the food co-packing company meet the expected standards.

This part of the contract agreement also includes the termination clause, which specifies the time each party has before they close the contract.

• Ethical guidelines or necessary code of conduct

A part of the co-packing agreement is about ethical conditions. You and your co-packer should be clear about the ethical practices they should follow to prevent product mishaps and any harm to the customers and employees.

Usually, this part of the agreement comprises fair compensation of employees, health and safety concerns of employees, anti-discrimination, and environmental factors. Abiding these ethical codes of conduct is essential to ensure that both parties have fair production and storage processes.

• Relevant local legislation and regulations

Every business in the USA has to abide by a set of laws that specifically apply to its region or province. The co-packing agreement should also mention the set of laws and regulations applicable to your location. 
In case your business operations are not specified to one single location, you and your co-packer have to agree on a location and move ahead with the agreement.

How Co-Packing Agreements Can Be Rewarding for Your Food Businesses?

• A contract packing or co-packing agreement constitutes the legal arrangement between both a food business and a co-packing company. While it helps prevent the safety and quality risks of your food product, there are several ways contract packaging is beneficial for your business.
• It protects your businesses as well as your contract packager, ensuring that none of you go beyond the scope of work and duties, behave unethically, and terminate the agreement abruptly.
• It helps both parties avoid unnecessary confusion regarding the conditions of the partnership or resolve a dispute quickly, in case it arrives.
• The co-packing agreement works as a legitimate tool for your food business to audit the packaging materials, manufacturing processes, and storage conditions of the co-packing company whenever you want.
• Food processing involves unique risks concerning the health and safety of the consumers. From using safe ingredients to ensuring quality packaging materials, maintaining proper storage conditions avoiding distribution risks, a co-packing agreement ensures all these. To put it simply, the agreement helps you avoid all forms of food manufacturing.
• Lastly, signing a co-packing agreement lets the food businesses and co-packers develop a good professional relationship based on solid trust. Good partnerships or supportive collaborations are the key to successful businesses.

Ready for a Co-Packing Agreement with a Reliable Co-packer? Choose Fresh Ideas!

Co-packing services have become a necessity for food businesses of all types to scale their manufacturing while optimizing costs. But, as a food business, you are assigning a significant part of your production process to a third party i.e., a co-packing company.

As a result, you need to ensure at every step that the partnership is reliable and works well to guarantee the quality and safety of your food products. A co-packing agreement is a legal arrangement between you and your contract packer that holds the fundamental conditions and terms of your partnership.

While avoiding conflicts and risks between both parties, the agreement enables manufacturers to build distinct and trustworthy relationships with their food co-packers and accelerate production effectively.

Finding a suitable co-packer for your business that meets your specific conditions regarding packaging materials and raw material sourcing is no easy job! If you are planning to enter into a partnership with a co-packing company for your butter manufacturing business, look no further than Fresh Ideas!

We are a top-notch butter co-packing company in the USA, having years of experience in offering innovative and safe packages for your products. Rely on our expertise if you want distinctive and quality packages to bring freshness and tweaks to the range of your products!