PROMOTING INTERNATIONAL TRADE FOR ITS s3. · PDF fileGAFTA WORLD PROMOTING INTERNATIONAL TRADE FOR ITS MEMBERS Issue 182 February 2010 The Grain and Feed Trade Association Our

GAFTA WORLD

P R O M O T I N G I N T E R N A T I O N A L T R A D E F O R I T S M E M B E R S

Issue 182 February 2010

The Grain and Feed Trade Association

Our key concerns centre around the difficult position of US and Eurozoneconsumers. Consumer confidence remains low and for good reasons. Therecession has been brutal in terms of jobs lost, while the recovery has so farproven a jobless one. Wage growth as a result will be subdued in the nearfuture. Equity markets have rebounded and home prices are on their way upagain, but both are still down substantially from their peaks – as a result thenegative wealth effects remain a net drag on consumer spending. What’smore, a shaken financial sector is only providing credit under strict conditions.

Our baseline scenario for 2010 is one of a timid global recovery. That’snothing short of disappointing by the elevated standards of 2002-2007. Yetit should not be mistaken for a boring time in the financial markets. The stateof emergency is over. Policymakers now have to decide on an exit strategytowards a normal accommodative stance. For several of the major centralbanks this translates into rate hikes from emergency lows, plus abolishingunconventional policies. If history is any guide, they will struggle to get thetiming right. Large upside risks in both the short and long end ofthe curve loom as a result, with a classic pattern ofbearish flattening emerging. Moderate inflationwill return in 2010, but if policymakers gettheir timing wrong we may be facingsubstantially higher readings in theyears that follow.

Liquidity will remainrelatively ample byhistorical standards, buthigher rates don’taugur well for equitymarkets. In the FXmarkets we expectthe USD to show acyclical recoveryagainst other majorcurrencies throughout

much of 2010. Meanwhile credit markets’ strong performance in 2009 hasleft a much steeper hill to climb from here on.

“A muted recovery and only gradual monetary tighteningcould see modest further narrowing of credit spreads”

The quasi-disappearance of the leveraged bid, the higher cost of capital andallowances of tail risk are likely to constrain the spread tightening in a newworld that includes heightened government regulation, lower consumptionand slower growth.

The world’s major grains and oilseeds markets enter 2010 in a more stableposition than the previous couple of seasons. Price volatility has moderatedsomewhat and world stock levels have recovered to more comfortable levelsdue to favourable seasonal conditions in most growing regions. SouthAmerican production looks set to recover in 2010 while Chinese and Indiandemand growth is expected to remain robust. We expect prices to reflect

these comfortable fundamental levels in 2010, however as alwaysweather developments, government food security

policies and the flow of investor money will likelyplay an important role.

Jan Lambregts is Global Head ofFinancial Markets Research at

Rabobank, and Luke Chandleris Director of Agri Markets

Research. Rabobank Tradeand Commodity Financeoffer total chainsolutions to commoditytrading businesses,and is committed tohelping clients makethe right choices andmanage their risksand profitability.

By Jan Lambregts and Luke Chandler, Rabobank International

An economic recovery is clearly underway, but it is shaping up to be a disappointing one. Restocking, fiscal largesse and monetary stimulus are fuelling the rebound. Ultimately,however, these forces won’t be able to cover up the lack of a sustainable growth driver as we progress further in 2010.

JAN LAMBREGTS LUKE CHANDLER

“Timid” EconomicRecovery for 2010

China's economy looks set to recover

P A G E 2

Contents

GAFTAWORLD IGPA NEWS

4 El Nino in 2010 – What Can We Expect?

5 Oilseeds – Supply and Demand Issues

Special Feature6-7 Crop Shortfall Coverage –

A Means of Managing Production Volatility

8 Copenhagen Agreement Limited – But Progress Made on Forestry and Agriculture

China Continues to Restrict Australian and Canadian Imports of Canola

9 GAFTA’s DistanceLearning Programme

First Course fromUpdated CPDP Syllabus Held in Rotterdam

10 In The Penalty AreaDuring Extra Time?

11 New Members

News in Brief

12 Forthcoming GAFTA Training Courses and Events

REMINDER: EURegulation on High RiskFood and Feed in Force As outlined in previous editions ofGAFTAWORLD, increased controls onimports of certain food and feed fromthird countries (Regulation 669/2009)entered into force on 25th January 2010.The high risk list of products includesgroundnuts, spices, fruits, chilli andbasmati rice. Other cereals are notincluded. Consultations are ongoing atthe moment on implementing guidelineswith regard to some technical aspectssuch as CN codes and guidelines for theCommon Entry Document. GAFTA willcontinue to raise the fact that there are nocriteria for de-listing products withgovernment, and ask that such provisionsbe included in the Commission’s technicalguidelines. Lists of Designated EntryPoints across the EU will be madeavailable on the relevant website bycompetent authorities.

Reminder: EU SecurityAmendment to Customs CodeThe Security Amendment to the Customs Code (Regulation 648/2005 and1875/2006) requires member states to introduce security systemscapable of handling a number of new initiatives as a response to theincreased focus on global security internationally. The amendment aims toensure an equivalent level of protection through customs controls for allgoods, and is to provide traders and business with an internationalquality mark to demonstrate they operate a secure supply chain.

Operators who comply with all the criteria will be granted “AuthorisedEconomic Operator” (AEO) status, which has been in place since 1st July2009. This status will facilitate customs controls relating to security and safetyat entry to, and departure from, Community territory. Traders must submit pre-arrival information, in the form of an Entry Summary Declaration (ESD) tocustoms administrations, at the first point of entry into the EU. This system(Import Control System) was introduced from 1st July 2009 but there is noobligation to lodge an ESD until 1st January 2011 - though some countries willhave systems operating already to ensure that systems are working. For example,the UK has set a target date of 2nd November 2010 to implement ICS.

Discussion on mutual recognition with third country systems is underway. Thetransitional period for customs authorities to extend processing of AEOapplications expired on the 31st December and the new deadline for issuing adecision on AEO is 120 calendar days and 60 calendar days in duly justifiedcircumstances. This has now been in operation across the EU since 1st January.Any further developments will be reported by GAFTA’s Policy Department.

Guar Gum – EU Regulation onImports from India ImminentThe European Commission introduced in May 2008 specialimport provisions (Decision 2008/352/EC) on guar gumoriginating in or consigned from India due to contaminationrisks by pentachlorophenol and dioxins.

High levels of pentachlorophenol and dioxins were found incertain batches of guar gum originating in or consigned fromIndia, and imported into the EU, in July 2007. The Decisionwas issued following a mission to India by the EU’s Food andVeterinary Office (FVO) which concluded that inadequatecontrols were in place. It requires that each consignment ofguar gum and compound feedingstuffs and foodstuffs containingat least 10% guar gum originating in or consigned from India,has to be accompanied by an original analytical report,demonstrating that the product does not contain more than0.01 mg/kg pentachlorophenol (PCP). The competentauthorities in the member states have to sample and analyseconsignments of these products with a frequency of 5 % inorder to verify that the level of 0.01 mg/kg PCP is not exceeded.

Since January 2008, only one non-compliant consignment hasbeen reported through the Rapid Alert System for Feed andFood (RASFF). A follow-up inspection mission of the FVO tookplace in India in October 2009 to assess the control measures

put in place by the Indian authorities, which concluded thatthere are inadequate controls in place to ensure that thiscontamination does not occur again. The FVO found PCP testresults of up to 1.5 mg/kg, compared with a limit of 0.01 mg/kg.

The findings indicated that the contamination of guar gum withPCP cannot be regarded as an isolated incident and that onlyeffective analysis by the approved private laboratory hasprevented contaminated product being further exported to theEuropean Union. There has been no improvement in the controlsystem and no significant reduction in the risks associated.

Following these findings, it was proposed to replace Decision2008/352/EC by a Regulation requiring that eachconsignment of guar gum or feed and food containing at least10 % guar gum, originating in or consigned from India haveto be accompanied by an official certificate issued on thebasis of the results of an official control (sampling andanalysis). At least 5 % of the consignments have to becontrolled at import by the competent authorities of theimporting member state. Member states agreed in principlewith the proposed provisions, and the new Regulation isexpected to go for a vote on 8th February, to enter into forceby April 2010. GAFTA will continue to follow developments onthis issue.

Guar gum is added to some dairy and baked foodsfor texture, shelf life and greater resilience

P A G E 3

GAFTAWORLD CONTRACT NEWS

Forthcoming Changesto GAFTA Contract 100GAFTA will shortly be releasing a range of amendments to its much-used contract forms. Among the mostsignificant of these will be the new version of GAFTA 100, the form that has, until now, governed CIF contracts.Traders have grown used to using GAFTA 100 for amended “C” term contracts, to cover sales on CIFFO, C&F andC&FFO terms. To reflect this, the new GAFTA 100 will apply to all these terms and traders will have to take care to ensure they know the changes and amend the form to suit each contract they conclude.

Many readers will be familiar with the basics of the terms that the newform will cover. In short, these are as follows:

• CIF: the sellers organise freight and arrange insurance; both elements feature in the price paid for the goods. The sellers pay for discharge costs to the ship’s rail and the buyers pay them beyond the ship’s rail.

• CIFFO: as for CIF, except that the buyers meet all discharge costs.• C&F: the sellers organise the freight but not the insurance, which is

the buyers’ responsibility. Discharge costs are the same as they are under a CIF sale.

• C&FFO: as for C&F, except that the buyers meet all the discharge costs.

The new GAFTA 100 reflects the commercial differences between thesesimilar contract terms and the provisions of the contract form allow aneasy selection between them. The changes to the form, and their impacton the parties’ responsibilities under the Contract, are as follows:

Clause 3 – Price and Destination. This clause now providesalternatives to permit the parties readily to choose between CIF, CIFFO,C&F and C&FFO terms.

Clause 9 – Nomination of Vessel(s) for ContractsConcluded on C&F / C&FFO Terms. This clause requires thesellers to nominate the intended carrying vessel to the buyers by a dateagreed between the parties or, at the latest, before the commencement ofloading. The seller must ensure that the nominated vessel complies withthe Institute Classification Clause and other requirements set out in thecontract. The purpose of this clause, which only applies to C&F andC&FFO terms, is to permit the buyers to insure the goods.

The sellers can substitute a nominated vessel, but the new vessel mustcomply with the clause. That means the substitution must be madebefore loading commences, or else insurance cover would becompromised.

Clause 10 – Appropriation. Previously, the form required notice ofappropriation to give the “approximate” weight shipped. The new formrequires the notice to state the “presumed” weight shipped. This is anattempt to make the language of the contract more precise, since thenotice, coming as it does after the issue of the bill of lading, need not beapproximated but can contain a specified weight presumed to be correcton the basis of the bill of lading.

Clause 13 – Discharge. This clause is now divided between CIF andC&F terms and the Free Out versions of these. For CIF and C&F trades,discharge is to take place as fast as the vessel can deliver in accordancewith the custom of the port. The sellers pay the costs of discharge fromthe holds to the ship’s rail and the buyers pay the costs from the ship’srail onwards.

For CIFFO and C&FFO trades, the costs of discharge are for the buyers’account. There are now detailed laytime and demurrage provisions,incorporating the Charterparty rate for these. A common problem isalso addressed in this clause: where the carrying vessel is on timecharter, so that demurrage is not payable to the vessel owner, the dailyrate of hire is to be taken as the demurrage rate for the purposes of thesale and purchase contract. At a stroke, this should eliminate a sourceof disputes between buyers and sellers over demurrage claims where thecarrying vessel is on time charter.

Clause 17 – Insurance. As you would expect, this clause is nowdivided to provide for sellers to insure for CIF and CIFFO terms and forbuyers to insure for C&F and C&FFO contracts.

Clause 19 – Force Majeure, Strikes Etc. There are smallchanges to this clause: previously, if an extension to the shipment periodwas needed after a force majeure notice was served, the shipper was toserve a further force majeure notice no later than two business days afterthe end of the contractual shipment period, specifying the port(s) ofloading from which the goods were intended to be shipped. Anyshipments effected after the contract period of shipment were then limitedto those nominated ports. In the new contract form, that notice must beserved no later than the last day of the contract period of shipment.Since the proper service of notices in a force majeure situation can becritical, it is important to have this change in mind.

As always, the parties are free to alter the standard terms of the GAFTAform as they wish. However, the trade should be aware that, from theeffective date of the new forms, a contract that simply incorporates“GAFTA 100” will have the effect of incorporating the new terms and notthe old ones. That could affect the rights and obligations of the parties.Care is needed to ensure that both parties appreciate the terms to whichthey are potentially agreeing when they make their trades and themessage to the trade is to look out for news of the publication dates forthe new forms, likely to be during the spring of this year.

By Andrew Meads, Hill Dickinson LLP

Andrew Meads

P A G E 4

GAFTAWORLD TRADE NEWS

Over the last few months, this second El Nino ‘pulse’, as part of the broaderEl Nino-La Nina-El Nino pattern, has gained in both strength and intensity.After the first El Nino phase in this extended cycle (2006/07), the patternshifted very strongly towards the La Nina, where it remained for the betterpart of a year. Instead of progressing towards a neutral state, readers shouldrecall from last year that we experienced another transition from La Ninaconditions, where the equatorial Pacific surface waters exhibit coldertemperature anomalies, back to El Nino conditions.Accompanying this transition is a global weather drivingpattern where warmer Pacific surface wateranomalies and stronger westerly winds prevailed.As we look at the current picture, surfacewaters remain warm across the central andsouthern Pacific, as well as in the SouthernAtlantic.

Further, the Southern OscillationIndex, which represents a pressuredifferential between locations inDarwin and Tahiti has been innegative phase for three months.There is also a sizeable mass ofsubsurface warm water in theeastern Pacific, and once that warmpool surfaces near the westerncoastline of South America, this willhelp in keeping El Nino conditions inplace for another 60-90 days at aminimum. These are typical El Ninofeatures, and highlight the potential for El Ninoto drive much of the pattern in both northern andsouthern hemispheres, at least through the first half of2010.

An El Nino can mean different things to different origins. In this short article Iwill highlight a few key regions. One of the first locations where the potentialfor an unfavourable pattern exists is in the Australia/Asia-Pacific region.In 2009, many of the wheat regions across Australia that were hardest hit bysevere drought in the prior year showed some signs of improvement. Rainfallpicked up in spots, and satellite vegetative indices conveyed an improvingsituation. However, no two El Nino events are exactly alike, and if we take aprobabilistic approach to our longer range outlook, as the westerly windanomalies persist and draw the warm moist water and air eastward acrossthe Pacific, this will generate a moisture deficit for the Australia and Asia-Pacific regions. As such, we can expect a higher tendency for prolonged dryconditions to emerge through mid year.

Another area where we have some concern this year is across India. It iswell documented that the annual Indian Monsoon of 2009 was less thanoptimal. Some rains did emerge during the tail end of the season, but formany crops the moisture came too late to make much of a difference forproduction purposes. In fact, some of the moisture led to harvestimpediments in the south. Looking at the potential for the 2010 Monsoon, it isstill early, but if a rebound in precipitation totals is expected, we do not

expect this to occur until the 2011 season. A warmer and drierpattern is likely to develop and persist through the

July/August timeframe, so while some areas in thesouthern Indian coastal regions may see year over

year improvement, the forecast as a whole is fora weak Monsoon once again. Also, surface

vegetation indices via satellite are indicatinglow soil moisture and higher potentialvegetative stress in many of the oilseedgrowing areas at the start of the year.As the domestic supply situation forwheat and oilseeds is not favourable,this could lead to additional price andsupply strain later in 2010.

“....the forecast as a whole isfor a weak Monsoon once

again”

Not all El Nino news is bad, however. Oneregion where the outlook is favourable is in

South America, particularly in southern Braziland Argentina. While these regions are experiencing

a precipitation pattern that is on the high side, the 60-90day pattern looks to settle into one where the rainfall distribution

evens out, and weekly totals with a milder temperature profile will bebeneficial for corn (filling to maturing) and soybeans (flowering-podding)ahead of harvest, as well as early planting conditions for southernhemisphere winter wheat.

“One region where the outlook is favourable is in SouthAmerica, particularly in southern Brazil and Argentina”

Weather will surely not be the only factor driving prices across thegrains/oilseeds/softs complex in 2010. But at the start of the year, it isimportant to at least know where the risks and opportunities might lie, ratherthan reacting when the news is in the market.

El Nino in 2010– What Can We Expect?

By Michael Ferrari, PhD, Vice President, Commodity Research, Weather Trends International, USAMichael Ferrari

Monsoon Palace in Udaipur,Rajasthan, India, built in 1884 to

watch for monsoon clouds

We follow up the El Nino discussion from the October 2009 issue of GAFTAWORLD with an update for the global weather pattern, and its influenceacross the primary agricultural origins, at the start of 2010.

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Soybeans largely dominate oilseed markets in any year, thanks to the hugeamount of soybeans produced and used per annum. Soybeans account for60% of total oilseeds produced in the world and is – thanks to the by-products soyameal and soya oil - the most widely used oilseed globally.Production in 2009/10 is seen at a record of 253M tonnes, more than 40Mtonnes above the previous season’s output, pushing overall world oilseedoutput to a projected record of 432M tonnes. The US, Argentina and Brazilare the largest soya producers with South American supplies becomingavailable in the early part of the calendar year and the US crop in the latterpart. Last season’s South American crop fell short of expectations, with inparticular Argentine output more than 30% lower compared to 2007/08.This had significant supply and demand implications for the second half of2008/09 and the first half of 2009/10.

With Brazil and Argentina major soya exporters, last season’s supply shortfallplaced more emphasis on US supplies to fulfil global export demand. Inparticular China emerged as the major buyer of US soybeans. China’s buyingspree exceeded expectations and provided support to prices throughout mostof 2009. It also contributed to the depletion of US soybean stocks to less than4M tonnes at the end of 2008/09, making the harvested record US crop ofan estimated 91.5M tonnes in autumn 2009 very necessary. China purchased18.7M tonnes of soybeans from the USA in 2008/09 and about 13M tonnes(committed, but 6.9M tonnes outstanding sales) during Sept/Dec 2009.

All this supported oilseeds markets throughout most of 2009 with CBOTsoybean futures prices reaching a peak in summer 2009. More recentlythough, soya markets have developed a pattern of rallying and collapsing,reflecting the fact that the so far bullish sentiment is fading. Argentine andBrazilian farmers have planted more soybeans for 2009/10, encouraged bygood margins and comparatively favourable sowing conditions. The first newcrop soybeans have been harvested in the north of Brazil, but the mainharvest will gather pace in Feb/Mar and in Argentina in Mar/Apr. Givenrecent relatively good growing conditions, the likelihood of a record2009/10 South American soybean crop has increased. Brazilian estimatesrange between 63 - 65M tonnes (57M tonnes in 2008/09) while Argentinecrop estimates are seen between 48 - 53M tonnes (32M tonnes).

If these projections prove to be true, world soya supplies would be more thanreplenished and stocks rebuilt to the highest level since 2006/07. It will alsomean increased competition for export markets (especially for the USA) in thesecond half of 2009/10. Although this may paint a rather ‘bearish’ picturefor the second half of the season, there are signs of underlying support in therapeseed, sunseed and palm oil markets.

Price movements on the EU rapeseed markets have been less volatile recentlythan those for soya. The world harvested an estimated 59.4M tonnes thisseason, with the EU accounting for a record 21M tonnes and Canada forabout 12M tonnes. While the Canadian canola market had to deal withvarious set-backs recently - discovery of salmonella bacteria in canola mealthis year; Chinese restriction on imports of canola seed with blackleg disease- the EU rapeseed market continues to see underlying support from an

expanding biodiesel industry. Higher biodiesel usage mandates for 2010 inmany member states are expected to increase the demand for rape oil andthus rapeseed. Rapeseed and its by-products have also seen higher demandgiven the scarcity of soya supplies early in the season, and may benefit fromreduced sunseed supplies in the second half of 2009/10. Sunseed crops arelower in main producers and exporters Russia and Ukraine this season, whilethe Argentine crop is now also seen down on last year’s very low crop.Supplies have reportedly become tight, and sun oil prices (fob) have risenclose to $1,000/t, a rise of more than $100/t since early November 2009.

There are also reports that palm oil output in major producer and exporterMalaysia may be lower later in the season, following the replanting of treesand resulting drop in yields. Palm oil, which is obtained from the palm fruitand not considered an oilseed, accounts for more than 30% of globalvegetable production and consumption.

Mid-way through the 2009/10 season, the bullish-domineering soya supplyand demand issues seen until recently seem to give way to a more bearishmarket sentiment and more importance is again given to the fundamentals ofother oilseeds markets.

Heike Hintze-Gharres is an Agricultural Economist with 16 years experiencein market analysis. Heike previously worked with the Home-Grown CerealsAuthority (HGCA) as Manager of the Market Analysis Team. Heike is agraduate of Goettingen University, Germany, and is currently working as anAgricultural Consultant for UK, French and German organisations on avariety of market information projects.

P A G E 5

GAFTAWORLD TRADE NEWS

Oilseeds – Supplyand Demand IssuesBy Heike Hintze-Gharres

Heike Hintze-Gharres

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A tight global soybean supply situation has supported oilseeds marketsthroughout most of 2009. However, current favourable growingconditions for South American soybeans promise ample soya supplies inthe next months, putting a question mark on near-term price outlook.

Crop Shortfall Coverage- A Means of ManagingProduction Volatility

P A G E 6

Major agricultural players have vast experience in managing risk, ranging from currency and price risk hedging to insuring against property andliability claims. However, earnings in some segments are subject to volatility, making it difficult to produce a steady return on equity. Extremeweather conditions like droughts, floods or frosts, as well as pests and diseases, can severely impact production levels and earnings for allstakeholders in the supply chain. Bernard Belk and Roman Hohl from Swiss Re review the impact of droughts on Australian wheat and Braziliansoybean yields and explain the functioning and the benefits of crop shortfall coverage.

Australia: Impact of Drought on WheatAustralia is a leading grain producer with a roughly 15% average shareof global wheat exports. Four major Bulk Handling Companies (BHCs)play an important role in transporting and storing grain. The opening ofthe export market in 2008 has led to increased competition andunderlined the need for solid risk management.

Australian BHCs, as well as many of their peers around the world, havea high fixed cost structure. Revenues are highly correlated to the volumeof grain throughputs. Poor harvests in drought years mean that theplanned throughput capacity is not fully used. The result is lower thanexpected profit and cash flows. Australia has experienced severaldroughts in the past decade with large regional variability. The situationwas particularly severe in southern Australia in 2006/2007 when wheatproduction fell by 60% and in western Australia in 2002/2003 whenwheat production was halved.

According to leading experts, droughts are likely to increase in severityand frequency in the future, possibly further accentuating productionvolatility in Australia.

Brazil: Impact of Drought on SoybeansBrazil is the number two soybean producer after the United States ofAmerica with roughly 55M tonnes produced annually. Prospects for thefuture growth of Brazil’s grain sector remain promising. According to theUS Department of Agriculture, the country could become the singledominant soybean producer towards the end of the new decade, with anannual output of around 90M tonnes. However, growth is dependent onseveral factors, including long-term upward price trends driven by globaldemand, increased domestic consumption supported by rising per capitaincome, and more investments in infrastructure including transporting,storing and processing facilities.

Agribusiness is, by nature, a capital intensive business. It is estimatedthat at least USD 50,000 per tonne of daily crush capacity are currently

GAFTAWORLD SPECIAL FEATURE

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The Nova Mutum soybean crushing plant, owned by GAFTA member,Bunge, is the most modern crushing plant in Brazil, and illustrates theinvestment required in modern processing facilities.

By Bernard Belk and Roman Hohl, Swiss Re

Source: USDA

P A G E 7

needed to build a new hexane soybean crushing plant. The replacementvalue of the current Brazilian 143,000 tonnes per day crushing capacityis estimated at USD 8 billion. Since the profitability of crushing plantsdepends heavily on stable throughput volumes, increased volatility inoutputs under current climate change impact scenarios could have majorfinancial consequences.

Low production levels in the Brazilian soybean sector are mainly causedby severe droughts. In 2004, for instance, the effect of drought insouthern Brazil, coupled with the occurrence of Asian rust disease,reduced yields by 30% compared to the previous year and 12%compared to the ten year average at that point in time. It is noteworthythat approximately 40% of the national soybean production is located insouthern Brazil. An even more drastic drought in 2005 reduced yields insouthern Brazil by another 27% compared to 2004 levels with thehighest reduction at 60% in Rio Grande do Sul. 2008 soybean productionwas 7% lower compared to the previous year, again due to a drought.

Production Shortfalls Can Affect the Whole Agricultural Supply ChainCorporate farmers may default on forward sales contracts if they cannotdeliver the pre-agreed amount of agricultural commodities. As a result,they may be unable to pay back their production loans and/or mayneed to liquidate assets.

Bulk handling companies and raw material processors may not be ableto use their infrastructure at full capacity. In this instance, they are likelyto face a reduction in operational revenues. In severe cases, they mightbecome unable to cover fixed costs.

Traders may need to make up for producers’ production shortfalls bypurchasing additional commodities at high spot market prices. Input suppliers and farm equipment manufacturers may suffer areduction in sales volume, as producers cannot afford investments inimproved technology.

Financial institutions, and those input suppliers that pre-financed inputsupplies, may face an increased number of growers who default on theircredits.

Crop Shortfall CoverStakeholders throughout the agriculture supply chain can manageearnings and cash flow volatility due to low production levels resultingfrom extreme weather conditions by purchasing a crop shortfallinsurance policy (see box). Crop shortfall covers can help to cover fixedcosts, compensate against increased costs to procure additionalcommodities at spot prices, and/or protect gross margins. Additionally,the covers can contribute to a lower cost of equity, weighted averagecost of capital and improved credit ratings, thereby reducing cost ofcapital. These metrics increase shareholder value and confidence forboth financing institutions and investors focusing on state-of-the-art riskmanagement. This insurance solution also reduces opportunity costs bymaking the accumulation of funds necessary to invest in new operationsmore predictable.

Crop Shortfall CoverCrop shortfall insurance is based upon production statistics (area planted and yield) as measured and reported by government entities or industryassociations. Alternatively, production can be quantified by independent inspectors at delivery points, or through third-party audits. The insuredproduction is defined by the market share of a corporation for different crops and regions. The crop shortfall cover pays out if the actualproduction is below a pre-defined trigger, which is typically set as a percentage of the insured production. Usually, each unit of productionshortfall is indemnified by a pre-agreed amount. In selective cases, volume contingent price hedging structures can be developed reflecting theactual market price. The payout pattern of a crop shortfall insurance contract essentially mirrors a put option on grain volume. To lower long-termplanning uncertainty, covers can be structured in multi-year contracts.

Swiss Re is a leading and highly diversified global reinsurer. The company operates through offices in more than 20 countries. Founded in Zurich,Switzerland, in 1863, Swiss Re offers financial services products that enable risk-taking essential to enterprise and progress.

Swiss Re is committed to supporting the agribusiness industry by providing innovative risk transfer solutions tailored to the specific needs of its clients,whether they be banks/financial institutions, input suppliers, corporate farming operations, traders, logistics companies or processors in key markets.Contact details for the authors of this article are: [email protected] (++41 79 401 8023) and [email protected](++41 43 285 3160).

GAFTAWORLD SPECIAL FEATURE

InputSuppliers

SeedsFertilisers

PlantProtection

Machineries

CorporateFarming

Co-operatives

Inlandtraders

MarketingBoards

Source: Swiss Re

RoadRail

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MillersCrushersIndustrial

Grain Users

Trading Co’sMarketing

Boards

ElevatorsOceanFreightOther

ServiceProviders

InlandTradingProduction

InlandLogistics

InternationalTrading

InternationalLogistics

GrainProcessors

Financial Institutions / other lenders

P A G E 8

Copenhagen Agreement Limited– But Progress Made on Forestry and Agriculture

China Continues to Restrict Australian and Canadian Imports of Canola

GAFTAWORLD TRADE NEWS

After ten days of negotiations led by the UN, world leaders (a record 119 of them) were unableto reach a meaningful agreement with regard to reducing greenhouse gas emissions at the ClimateChange Conference in December. The final accord merely acknowledged the challenge of climatechange and recognised that the increase in the global temperature should be below 2 degreesCelsius, and that deep cuts in global emissions should be made to ensure this limit on temperatureincrease. Developed and developing countries have been given until 31st January to specify theirexact commitments under the final accord (which means greenhouse gas emission reductions fordeveloped countries and mitigation action for developing countries).

Finance for Forestry Initiatives AgreedDespite the problems in reaching a globalaccord, progress was made in some areas,notably with regard to forestry and agriculture.The so-called “REDD-plus” initiative (ReducingEmissions from Deforestation and ForestDegradation in Developing Countries; with the“plus” referring to the role of conservation,sustainable management of forests andenhancement of forest carbon stocks indeveloping countries) was mobilised by theCopenhagen Agreement, with commitment toprovide “substantial” finance to reduce emissionsfrom deforestation and forest degradation.Finance for much of the REDD-plus programmewill be channelled through a new fund, theCopenhagen Green Climate Fund, which is beingestablished to “support projects, programmes,policies and other activities in developingcountries related to mitigation, adaptation,capacity-building, technology development andtransfer.” An initial promise of $10 billion peryear for the next three years has been promisedby developed countries for REDD-plus.

Role of Agriculture in Combating Climate ChangeA further development during the Conference wasa pledge by 21 countries to provide $150 billionto a Global Research Alliance on AgriculturalGreenhouse Gases. This aims to quantify in moredetail the positive, mitigating effects ofagricultural activities, and to look at ways inwhich food security can be improved on a globalscale, while helping to limit greenhouse gasemissions. This new initiative could be very usefulto developing countries, who may eventually beable to use agricultural activities to earn carboncredits from the developed world. Participatingcountries are due to meet to carry this projectforward in New Zealand in March.

While some important steps still need to be takenby the large powers to move forward on theCopenhagen deal, some of the small steps,represented by “REDD-plus” and the GlobalResearch Alliance represent true progress andwere welcomed by many observers andgovernment representatives at Copenhagen. Thenext full UN Conference on the issue will takeplace on 29th November in Mexico. If other small,

important steps are made over the course offorthcoming months, the long-term outlook for ameaningful UN climate deal may not seem asdistant as it did in December. For GAFTA members,policy with regard to renewable energy and fuel,as well as transport and processing of rawmaterials, still has no international deal guidingnational policies, but most governments remaincommitted to reducing greenhouse gas emissions,and with appropriate fora for internationaldiscussions, a breakthrough with regard to aglobal deal to tackle climate change is possible.

Canola exporters in Australia and Canadacontinue to express concern over China’s newcontrols on canola imports. Since November, thequarantine authorities in China have requiredimporters to apply for import permits beforesigning contracts, and also have requiredcertificates from the exporting countries assuringthat cargoes have been tested for blacklegdisease. Where blackleg disease has been found,consignments can only be shipped to specifiedports in China, all of which are located awayfrom the country’s canola growing region. For the2010 crop however, the Chinese authorities statethat shipments from the two countries must carrycertificates assuring they are free of blacklegdisease.

Blackleg (Leptosphaeria maculans) is a diseasecaused by a fungus that can kill the canola plant.While it is already found in China, the Chineseauthorities state that they are concerned importsare carrying a more virulent strain of the diseasethan is currently present in the Chinese crop.

While there has been high-level discussion on theissue between China and Canada, in whichSinograin did commit to increasing purchases ofCanadian canola oil by 200,000 tonnes to350,000 tonnes in 2010, shipments of canolaseeds have been badly hampered in recentmonths, with exporters reporting long delays inthe issuance of import permits. The President ofthe Canola Council of Canada stated in mid-

January that Canada had sold 2.87M tonnes ofcanola seed, worth $1.3 billion to China in2008/09, and stressed that continued supportfrom the Canadian government was required torestore this trade.

Demonstrators supporting forestconservation in Copenhagen

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099/00 00/01 01/02 07/08 08/09 09/1002/03 03/04 04/05 05/06 06/07

China’s Canola Imports 1999/00 to 2009/10(M tonnes)

Source: USDA

GAFTA’s DistanceLearning Programme

First Course fromUpdated CPDP SyllabusHeld in Rotterdam

P A G E 9

2009 was once again a successful year for the DLP programme. There were 115students participating in the programme which consists of 6 different modules. Wewould like to congratulate the following students on completing their final module:

Jock Benham Graincorp Operations Ltd Australia

Simon Clancy Graincorp Operations Ltd Australia

John Daskalakis Soya Hellas SA Greece

Rory Donnelly Comex McKinnon Ltd Ireland

Geraldine Gonzales Graincorp Operations Ltd Australia

Ole Houe Graincorp Operations Ltd Australia

Saad Shamin Khan Rainbow International FZCO United Arab Emirates

Robertas Lapinskas UAB Agrorodeo Lithuania

Dirk Maes Fortis Corporate Insurance United States of America

Dionissis Panaortou Soya Hellas SA Greece

Milan Shah Virani Food Products Ltd UK

Georgia Simatou Dimitriaki SA Greece

Amit Chaudhry Alsaeed Trading Company Ltd Republic of Yemen

Nina Foerster Bunge Handelsgesellschaft mbH Germany

Ivan Ivanoff Inspectorate (Suisse) SA Switzerland

Maria Reinitz Gavilon, LLC United States of America

Yuliya Zhelyazkova Louis Dreyfus Commodities Switzerland

These students have now successfully completed both the Grade 1 and Grade 2 stages ofGAFTA’s Continuing Professional Development Programme and are entitled to sit theGAFTA Trade Diploma.

Amit Chaudhry, one of the students who completed the programme, had this to say:‘Many thanks for your comments & advises on answer sheet which is very well noted andI must congratulate you to design this program which has such a great learning.’

Another student, Mr Rory Donnelly, also commented on the programme: ‘ I have justcompleted the 6 Modules of the DLP and thoroughly enjoyed it. The course is highlyinformative, giving all the contractual relevant information you need from a very userfriendly system. The case studies are not only extremely practical but great fun. I wouldrecommend anyone to take the time to complete the Modules – the knowledge gained isinvaluable. I will now go on and complete the Trade Diploma ! ‘

A further 31 students started the DLP programme in January 2010. Start dates for moduleone later in the year are as follows:

1 April 2010 1 June 20102 September 2010 2 November 2010

Should you or a colleague be interested in participating in this programme please visit theGAFTA website to complete a form, or email [email protected] for any enquiries.

The GAFTA CPD Programme was off to another goodstart in January 2010 with the sell-out Grade 2 course“Shipping the Goods”, which took place in Rotterdam,the Netherlands on 11th to 13th January.

This was the first course from the newly updated CPDP(Continuing Professional Development Programme)Syllabus, published during the last quarter of 2009.The “Shipping the Goods” course was sponsored byReed Smith and saw 47 delegates attend from allaround the world. Topics given during the three daysincluded “Identifying the parties involved in movinggoods by sea and the different contractualrelationships”, “Liability of a ship owner as a commoncarrier”, “The Hague Visby Rules”, “Freight forwardersand liability for damaged goods”, “The framework ofvoyage charters” and “The end of the carryingvoyage”.

On the evening of 12th January delegates were invitedto a formal course dinner held at the Hilton Rotterdam.The feedback received by the secretariat indicates thatthis course was enjoyed, and the content muchappreciated, by all that attended.

GAFTAWORLD NEWS

GAFTA will be holding the Examination for the GAFTATrade Diploma, GAFTA Maritime Arbitrators’ Examand GAFTA Superintendents’ Exam on the followingdates: 3rd May, 2nd August and 1st November.

If you have any enquiries on any of GAFTA’s courses or eventsplease contact us on [email protected] [email protected]

Exam Dates

P A G E 1 0

GAFTAWORLD CONTRACT NEWS

There has been much recent discussion of recoverable damages following late redelivery of a vessel, and parties are increasingly seeking to providefor that in negotiated charterparty terms. The decision in Lansat Shipping Co Ltd v Glencore Grain BV (25 March 2009) is a reminder that provisionswhose key rationale is deterrence and which stipulate disproportionate payments will be disallowed as penalty clauses.

The court considered an appeal against an award concerning a clause in anamended NYPE charterparty between Lansat Shipping Co Ltd (“Owners”)and Glencore Grain BV (“Charterers”).

Owners let their vessel “Paragon” under a time charterparty for three to fivemonths, and Charterers redelivered just over six days late. It is establishedthat if orders are accepted for a final voyage which proves to engage thevessel beyond the latest permissible redelivery date, an owner should be paidfor the extra time at the market rate. Thus the normal measure is the marketrate for the length of the overrun. However, by clause 101 this charterpartysought to alter that, as follows:

“Charterers hereby undertake the obligation/responsibility to make thoroughinvestigations and every arrangement in order to ensure that the last voyageof this Charter will in no way exceed the maximum period under this CharterParty. If, however, Charterers fail to comply with this obligation and the lastvoyage will exceed the maximum period, should the market rise above theCharter Party rate in the meantime, it is hereby agreed that the charter hirewill be adjusted to reflect the prevailing market level from the 30th day prior tothe maximum period date until actual redelivery of the vessel to the Owners”.

Owners therefore claimed the market rate from 30 days before the latestpossible redelivery date to the actual redelivery date, which yielded anadditional US$471,603.32, a sum more than four and a half times thenormal measure. On a preliminary issue the tribunal and the appeal courthad to consider if this was unenforceable as a penalty. To be valid, such aprovision must be a genuine pre-estimate of loss or damage, andcompensation for the innocent party’s loss – rather than deterrence frombreaking the contract – must be its primary purpose. These considerationsmust be examined when the contract is made, not on the occasion of breach.

Owners argued that clause 101 was valid because it prescribed damages forif the Charterers breached the contract by ordering an illegitimate lastvoyage. (A last voyage order is not legitimate if the charterer orders theemployment of the vessel which cannot reasonably be expected to beperformed by the latest date the charterer is obliged to redeliver it. If such anorder is given, the owners can choose whether to comply - they are notbound to.)

Seeking to distinguish this from a claim for damages for late redelivery,Owners urged that loss consequent on what proved to have been anillegitimate last voyage should be calculated from when the order to performit was given, since any overrun showed that Owners had been deprived ofthe opportunity to re-fix in the market at a point earlier than the latestpossible redelivery date - the giving of an order that an owner might haverefused, but did not for lack of logistic information usually entirely in acharterer’s domain. Such loss was not the normal measure for late delivery.Owners relied on evidence that the average voyage duration for a vessel likethe “Paragon” was 60 days, submitting that as 30 days was half that this wasdemonstrably a genuine pre-estimate of loss.

Charterers responded that the purpose of the clause was to provide a remedyfor late redelivery, not compensation for performing an illegitimate lastvoyage. Further, Owners did not have to accept an illegitimate last order, butif they did the result would be no different - late redelivery and the same loss.Therefore, clause 101 was not a genuine pre-estimate, but a penalty.

The court said that the relevant question was what loss has been caused toOwners by the breach, and a claim for damages for failure to redeliver ontime and one for overrun following an illegitimate last voyage wereindistinguishable. If Owners accepted an illegitimate last voyage order, theirrecoverable loss was the vessel’s market-rate earnings not from when theorder was given but simply for the extra period if overrun happened. Ownerswho performed an illegitimate last voyage had not lost the opportunity of anearlier redelivery, since either they had by choice let that opportunity go or itwas not one they ever had, as a charterer is not obliged to redeliver beforethe last permissible date.

So the court ruled that the main function of clause 101 was to deterCharterers from breaching their obligation to redeliver the vessel on time,and as such was a penalty, and also adopted the reasoning of the tribunalthat the clause allowed recovery of an “unconscionable” amount (such alsobeing payable, for example, if the vessel was redelivered a mere one hourlate) and so did not constitute a genuine pre-estimate of damage.

Rebecca Maddison ([email protected])and Stephanie Belcourt ([email protected])are London-based trainee solicitors in the Marine, Trade and EnergyGroup at Hill Dickinson LLP

Rebecca Maddison Stephanie Belcourt

In The Penalty AreaDuring Extra Time?

By Rebecca Maddison andStephanie Belcourt, Hill Dickinson LLP

P A G E 1 1

Category A

Affinity Petcare S.A.Pl Xavier Cugat, 2, Ed. D-3Sant Cugat del Voues 08174, SpainTel: +34 83 492 7000Fax: +34 93 492 7001E-mail: [email protected]: Mr. Jaume Cifuentes

Afgri Trading (Pty) Ltd.267 B West Street, Old Momentum Building1st Floor, Centurion, South AfricaTel: +27 12 643 8000Fax: +27 86 638 1121E-mail: [email protected]: Mr. Hubert Jarlet

Biocore B.V.Bronsweg 22b, Lelystad 8222 RBThe NetherlandsTel: +31 320 29 0029Fax: +31 320 29 0021E-mail: [email protected]: Mr A.E.M. Vilsleren

Euromills – Trade a.s.Pekarsha 592/1, 155 00 Praha 5Czech RepublicTel: +420 251 175 211Fax: +420 251 175 212E-mail: [email protected]: Mr. Robert Daduliak

JSC “Agrochema”Ruklos 12C, LT – 55198 YonavaLithuaniaTel: +370 349 56142Fax: +370 349 20552E-mail: [email protected]: Mr. Saulius Gabsevicius

SAS Millenis Development3, allee des Tanneurs, Nantes 44000, FranceTel: +332 4089 1188Fax: +332 4089 1191E-mail: [email protected]: Mr. Francois Barbier

Category B

Actava Trading Ltd.5 - 7 St. Helen's PlaceLondon EC3A 6AU, UKTel: +44 20 7036 0330Fax: +44 20 7036 0331E-mail: [email protected]: Mr. Gregory Souris

Agence Commerciale Van Welden Buyse 2 rue Honore LabandeMonaco 98000, MonacoTel: +37 79 777 5829 Fax: + 37 79 999 8856E-mail: [email protected]: Rita Van Welden Buyse

Napoli Marine S.A.Via Bagutti 5, 6900 LuganoSwitzerlandTel: +41 91 822 5300Fax: +41 91 822 55522E-mail: [email protected]: Mr. Schiano Moriello Antonio

Category C

International Control Bureau S.R.L.Constanta Port, Berth 33Pavilion Administrativ900 900 Constanta, RomaniaTel: +40 341 41 2526Fax: +40 341 41 2525E-mail: [email protected] Manager: Mr. Eugen Costescu

POLCARGO - International Superintendentsand Testing Services Co., Ltd.13B Wladyslawa StreetGdansk 80-547, PolandTel: +48 58 343 1091Fax: +48 58 343 1093E-mail: [email protected]: Ms Elzbieta Sliwowska

The Vietnam Superintendence and InspectionJoint Stock Company - VINACONTROL54 Tran Nhan Tong StreetNguyen Du wardHai Ba Trung district, HanoiVietnamTel: +84 4 3943 3840Fax: +84 4 3943 3844E-mail: [email protected] Director: Mr. Ha Thi Hong Thuy

Category J

DDP Fumigacao Ltda995 Nestor Victor St.Joao Gualberto DistrictParanagua - PR, 83203-540BrazilTel: +55 41 3420 5500Fax: +55 41 3420 5508E-mail: [email protected]:Mr. Sergio Nivaldo Correa Sampaio

SANITEC – A Division of SGSBelgium N.V.Keetberglaan 4 – Haven 1091B-9120 Melsele, BelgiumTel: +32 3 570 9765Fax: +32 3 575 0889E-mail: [email protected] Business Unit Manager: Mr. Johan Pype

NEWS IN BRIEF • NEWS IN BRIEF • NEWS IN BRIEF • NEWS IN BRIEF • NEWS IN BRIEF • NEWS IN BRIEF

GAFTAWORLD NEW MEMBERS

Turkey – State of GMO Legislation Unclear Since the lastGAFTAWORLD, the State Council in Turkey rejected the new GMOlegislation in early December. It is unclear at the moment if thelegislation has been reinstated after the Ministry of Agricultureappealed a court decision which rejected the law restricting marketaccess to products containing GMOs. It is understood thatreimplementation has been delayed for the moment as goods arestill entering the country, but this could change at any time.

EU Cereals Intervention Rules Published The EU Commission published Regulation 1272/2009 revising EU grain intervention rules on 29th December 2009.The regulation will apply for cereals other than rice from 1st July, and for rice from 1st September. Public intervention is applicable for common wheat, durumwheat, barley, maize, sorghum and paddy rice, though buying-in at a fixed price (the current system) will now only be applicable for up to 3M tonnes of commonwheat. Limits for other cereals have been set at 0 tonnes. Buying-in for other cereals and common wheat, once the 3M tonne threshold has been reached, will takeplace via a tendering process, the rules for which are laid out in the Regulation. Full details of the Regulation are given in GAFTA Circular AM 2010/07.

Brazil Approves a New GM Soya Event The 129th plenary session of the CTNBio/Ministry of Science and Technology committee in Brazil approved a GM soya eventon 10th December with commercialisation expected in 2011. It is also assumed thatplantings will take place beforehand for seed multiplication. The GM transformationevent was developed by BASF/Embrapa and the event name is “CV127”, which istolerant of imidazoline-based herbicides. This GM event has been under scientific foodand feed assessment in the EU since the beginning of the year, but is not currentlyauthorised for use in member states.

This Grade 1, 3-day course will provide delegates with a mixture of lectures,discussion and case studies, to be carried out individually in some cases, and ingroups in others. The theme of the first day will be “Formation of ContractualObligations”, with the second day covering “Fulfilling Contractual Obligations”and the third “Freight, Loading and Discharge Risks”, which includes anintroduction to arbitration and ends with a mock arbitration for delegates toexperience the issues that can arise. The course is a good opportunity for newindividuals to the trade, as well as those who would like to refresh theirknowledge base. GAFTA is offering 10 CPD points to all delegates whosuccessfully complete this course.

BANGKOK, Thailand- Trade Foundation Course, 1-3 March, 2010

CAIRO, Egypt - Grade 2 - Formation and Fulfilmentof Contractual Obligations, 29-31 March, 2010 This is a 3-day course covering the essential rights of the partiesand the duties incumbent upon them when agreeing to specificcontract terms. The first day will cover “Formation & Key Terms”and “The Goods”. On day two “The Goods” will be continuedalong with “Payment for the Goods”. The final day willconcentrate on “Insuring the Goods”. 25 CPD Points will beawarded to delegates successfully attending this course.

LONDON, UK - Trade Foundation Course, 18-23 April, 2010This is the traditional 5-day Grade 1 course, which is always a popular GAFTA course. Places arelimited and to secure your place, please submit your booking form to us. Places are allocated on a“first come-first served” basis. As with all the other Grade 1 courses that GAFTA holds, this course isperfect for any newcomers to the industry along with those that wish to refresh their knowledge.

Forthcoming GAFTA Training Courses

P R O M O T I N G I N T E R N A T I O N A L T R A D E F O R I T S M E M B E R S

Gafta House, 6 Chapel Place, Rivington Street, London, EC2A 3SH UKT: +44 20 7814 9666 • F: +44 20 7814 8383E: [email protected] • www.gafta.comRegistered in England, Company no. 1006456

GAFTA EVENTS

GAFTA Young Persons DinnerAmsterdam, Netherlands,7 May, 2010

GAFTA will hold a Young Persons Dinner atthe “SupperClub” in the heart of Amsterdamon Friday 7th May. The Dinner is for youngermembers of the trade. It will be a little lessformal than the Annual GAFTA Dinner held inLondon each year, and promises to be anexciting event. The full details of the YoungPersons dinner are posted on the GAFTAweb-site.

GAFTA Annual DinnerLondon, UK, 8 June, 2010

GAFTA’s Annual Dinner will take place onTuesday 8th June at the London Hilton on ParkLane. As in previous years, sponsorship of thedinner and advertising within the Dinner’s“Programme and Menu” will be available toeveryone. Places at the dinner will be limitedthis year, so to ensure your place please bookyour dinner tickets early.

Full details of both GAFTA Dinners, alongwith opportunities for sponsorship andadvertising, are to be released shortly.

amsterdamfriday7th May 2010

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dinner at the supperclub

GAFTA Yearbook 2010– Opportunity to Advertise

Members are reminded of theopportunity provided by GAFTA’s

Yearbook to advertise theirbusinesses in a publication that is

used regularly by over 1,200organisations worldwide. Special

rates are offered to GAFTAmembers, offering a cost-effectivemethod of promoting your services

to all the key members of thegrain, feed, spices and general

produce trades.

To secure your place on any of the GAFTA Training Courses, please complete and return to usyour booking form. Please visit : http://www.gafta.com/index.php?page=Eventsfor all the current GAFTA training circulars and booking forms.

If you have any enquiries on any of GAFTA’s courses or events please contact us [email protected] or [email protected]