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Promoting international trade

Issue 197 / August 2012


PAGE 1 I Gaftaworld August 2012
Harvest reports from
Russia and Ukraine
Russia harvest report
(Efko-Trade LLC, Rostov-on Don, Russia)
In the crop year 2011/12 Russia and the Black Sea region have rebuilt
their role as important suppliers of agricultural commodities to the
world market. However, starting from April 2012 main grain
production areas in the northern hemisphere have been developing
under very adverse weather conditions which have cut projected grain
yields dramatically and have led to decreasing crop volumes in the
USA as well as in Ukraine, Russia and Kazakhstan.
Beginning August 2012 Russian crop estimates for total grain output
are between 75M and 78M tonnes, including 42-44M tonnes of wheat
and 15-16M tonnes of barley. These numbers are well below the 2011
total grain crop of 94M tonnes and have resulted in rapid market and
price changes. World wheat prices have jumped more than 50 percent
and corn prices more than 45 percent since mid-June.
Challenging market developments are requiring farmers, traders and
consumers to improve competition practices, to forecast and manage
risks as well as to manage logistic costs. Government regulation and
interference may of course be a major influential factor.
Despite current market circumstances, we believe that Russia has got a
wheat exportable surplus of around 7-10M tonnes in the crop year
2012/13 and will remain an active exporting country in the Black Sea
region. The region itself will strengthen its role in the long-term
supplying world food markets while world grain consumers will further
rely on stable Russian grain exports.
Ukraine harvest report
(Toepfer Group)
World grain production prospects have deteriorated with the severe
drought in the US and a below-average wheat crop in Russia. Ukraine
also suffered from poor growing conditions, as dry and hot autumn
weather provided for poor planting conditions for winter grain, and
record low temperatures in February have led to substantial winterkill
of wheat and barley in the south of the country.
However, relatively stable weather conditions in western Ukraine and
improving farming practices led to a wheat crop that may turn out to
be well above the worst expectations. Harvest results point to a wheat
production of 13-14M tonnes. This is below the 22M tonnes harvested
in 2011 but well above most analysts estimates in June. The yields
reported for barley though are disappointing, confirming USDAs
estimate of a crop as low as 6-6.5M tonnes.
For the second year in a row, corn will provide for the difference.
Farmers planted a record large area of 4.3-4.5M ha. New varieties and
modern farming practices are resulting in higher and more stable
yields. Thus, despite the less than optimal weather conditions this year,
Ukraine should harvest a record corn crop of about 17M to 20M tonnes
depending on the rainfall in August. Total grain production should
reach 40-44M tonnes. This is well below the 55M tonnes harvested in
2011, but would still be the 6th largest crop in Ukrainian history.
Harvest results point to a wheat production of 13-14M
tonnes. This is below the 22M tonnes harvested in
2011 but well above most analysts estimates in June.
The northern hemisphere harvest has been progressing in recent weeks, following problematic weather conditions
for crops in many of the main producing countries. More information on yields and quality will be known very
soon, but Gafta members have supplied information on harvest progress to date (early August) in the Black Sea
region and Europe. Reports from France, Germany and UK can be found on page 5.
C O N T E N T S
The Contract
The parties entered into a contract to sell FOB Kohsichang 22,000
tonnes of rice, with shipment to take place during April to 7th May
2008. All other terms and conditions of the contract were to be as
per Gafta 120.
The Facts
On 8th May, the day after the expiry of the contractual
shipment/delivery period, the Buyers wrote to the Sellers stating they
had not booked the carrying vessel as the Sellers had not confirmed
that the cargo was ready. As a gesture of goodwill, but without
prejudice to their rights, the Buyers said they were ready to extend
the delivery period by 21 days, subject to confirmation within two
days that the goods were ready. Failing this, they would hold the
Sellers in default. Shortly after, the Buyers solicitors wrote to the
Sellers to say that despite clear indication that you are in breach
of contract, [buyers] hereby give you notice under clause 7 of Gafta
Form No 119 that they require the delivery period to be extended
by an additional period of 30 days. A response was required
within 7 days, otherwise the Sellers would be held in default.
Was the Buyers message of 8 May a valid claim for an extension?
Clause 7 of Gafta 120 (in common with other Gafta standard form
contracts) permits a buyer to unilaterally claim an extension of the
delivery period by an additional period not exceeding 21
consecutive days, provided they serve a valid notice. The Court
accepted that the notice had to be clear as to both the fact that an
extension was being claimed and as to its duration.
After analysing the exchanges, the Court agreed with the Gafta
Board of Appeal that the Buyers message of 8th May had not validly
claimed an extension, for the following reasons:
1. It stated that they were ready to extend the delivery period, not that
they were doing so, i.e. it was conditional upon the Sellers response.
2. That this was a proposal was further supported by the reference to
it being a gesture of goodwill and without prejudice to our right.
3. If an extension of the delivery period had been claimed, this
would have affirmed the contract and there could be no question
of the Buyers being able to rely on their "right" with regard to
alleged breaches.
4. The Buyers argument that they were referring to the right to treat
the Sellers as being in default of the extended delivery period
also failed. If the delivery period had effectively been extended,
the Sellers could not be treated as being in default in two days
time, as even in the absence of confirmation of load readiness,
the Sellers would still have had 19 days of the extended delivery
period to perform and could not be in default.
5. Buyers were offering the Sellers a choice.
6. The Board of Appeal had come to the same conclusion.
7. The effect of combining these matters in the terms used was to
make the extension conditional upon the Sellers confirming the
readiness of the cargo. This never happened so there was no
valid claim for an extension.
With regard to the message sent by the Buyers solicitors, they had
made the fatal error of going on to require Sellers to confirm their
intention to ship the cargo within 7 days, failing which they would
be held in default. The judges conclusion was that it was unclear
whether the message claimed an extension regardless of the Sellers
requested response.
Lessons to be learned
The Buyers in this case were seeking to vary the contract rather than
claim an extension under Gafta terms. The moral of this tale for the
parties seeking to claim an extension is that they should read the
contract to make sure that any notice sent is clear, and contains all
the ingredients necessary to be effective.
Promoting international trade Contracts & Arbitration
PAGE 2 I Gaftaworld August 2012
In PEC Limited v Thai Maparn Trading Co Limited [2011] the English Commercial Court gave
judgment on an appeal against a Gafta Board of Appeal award, which had considered amongst
other things, whether a buyers claim for an extension under a FOB contract was valid. Claims for
extensions will be familiar to many Gafta members and the result emphasised yet again the
importance of getting such matters right as US$14,520,000 turned on the outcome.
By Eurof LLoyd-Lewis, Partner, Marine and
International Trade, Clyde & Co
When is an extension
not an extension?
3 General Produce and Spices
4 RIO+20
5 EU Harvest Reports
6-7 Special Feature: Freight Markets
8 New Brazilian Forest Code
9 Gafta News
10-11 New Members
12 2012 European Commodities Exchange
General Produce & Spices
International Good Hygiene
Practice for Spices
Codex is currently working to revise the Code of Hygienic
Practice for Spices and Dried Aromatic Plants (1995). The US
delegation is taking the lead with an electronic working group
of members preparing the draft revision which will be
submitted to Codex for general circulation by 10th September
2012. Gafta has observer status within Codex should general
produce members wish to send comments for inclusion later in
the process. Please inform tradepolicy@gafta.com of your
interest in this matter.
Amendments to the
EU high risk list of food
and feed published
The latest revision of the EUs high risk list of food and feed
imports of non animal origin applies from 1st July 2012. The key
changes in Annex 1, which affect nutmeg and mace from
Indonesia, yardlong beans from Dominican Republic, capsicum,
dried fruit, nutmeg, mace and
ginger from India and capsicum
from Peru, were detailed in a
members circular dated 19th June
2012 (AM/2012/162).
Gafta will keep members
informed of proposed changes in
the next revision expected to take
effect on 1st October 2012.
Gafta International
Pulse Committee
Gafta's newly formed International Pulse Committee met on
7th June and discussed issues of importance to the global trade
in pulses, the scope of products concerned, prohibitions on
exports, import tariffs, global phytosanitary legislation and
enforcement. The committee also looked at relevant Gafta
contracts 23, 24, 25, 88 and 89 and underlined their preference
for mediation over arbitration (see article below). More
involvement in this committee from France, Turkey and
Argentina would be considered. Please contact
tradepolicy@gafta.com should you wish to be involved.
EU officially sets limits for
Ochratoxin A (OTA) in spices
The EU Commission published Regulation 594/2012 setting
maximum limits for OTA in certain foodstuffs. This regulation
shall enter into force on the twentieth day after publication on
6th July with the exception of
maximum limits for spices which
shall apply from 1st July 2012. Full
details of this regulation, which
affects imports of capsicum species,
pepper, nutmeg, turmeric, ginger
and mixtures of spices, as well as
wheat gluten, were given in a
members circular dated 6th July
(AM/2012/187).
Simple Disputes Arbitration Rules No. 126
By Milan Shah, Chairman, Gafta International Pulse Committee
Gafta is recognised globally for the pre-eminent contracts and arbitration service it offers the commodities trade. The Gafta No 125
Arbitration Rules are often found to be incorporated by reference into Gafta trading contracts. The rules envisage a three person first
tier tribunal and five person appeal board, although this can be varied by the mutual agreement of the parties. Such a process is
well suited to the many complex disputes that tend to find their way to arbitration.
However, sometimes a less costly and swifter process is required and
Gafta has accommodated this for many years by its Gafta No 126
Simple Disputes Arbitration Rules. These rules have several salient
features:-
a single tier process with no Gafta appeal;
a sole Gafta Qualified Arbitrator;
7 business days for each party to lodge claim, defence and reply
submissions;
an award with brief reasons;
a target of 7 days to produce the award from the arbitration or oral
hearing date.
Such a process can clearly yield substantial cost and time savings to
the parties, whilst still drawing on the expertise and experience of
Gaftas arbitration panel. Typically, once a simple dispute has been
identified, the parties might agree that Gafta No 126 is more
appropriate than the contractually agreed Gafta No 125. The
arbitration agreement is varied from that in the original contract using
a template form found in Gafta No 126.
In some trades involving smaller transaction values, such as the
containerised trade in pulses or other general produce, it may be
prudent to incorporate Gafta No 126 into the trading contract from
the outset, so that all disputes follow this process.
Gafta offers a range of dispute resolution options to the trading
parties, who must choose the most appropriate for their requirements.
Gaftaworld August 2012 I PAGE 3
A two year process agreed UN text on trade and food price volatility within the food
security section, plus a brief additional section specifically calling for greater trade
liberalisation and conclusion of the Doha round.
Having represented the World Farmers Organisation through the negotiating process, it
was a pleasure to see strong emphasis in the agriculture section on issues that can help
farmers address food security and hunger. These include:
Reaffirmation of the commitment to present and future generations to enhance
access to adequate, safe and nutritious food
Increasing access to credit and other financial services, markets and secure land tenure
Focusing investment on sustainable agriculture practices, rural infrastructure, storage
capacities and related technologies, cooperatives and value chains
Enhancing agricultural research extension services and training to improving
agricultural productivity and sustainability
Empowering farmers, fishers and foresters to choose among diverse methods of
achieving sustainable agricultural production
Significantly reducing post-harvest and other food losses and waste throughout the
food supply chain
Enhancing resilience to climate change and natural disasters
For agriculture, Rio+20 culminated in the launch of the UN Secretary Generals new
Zero Hunger Challenge which caps a long effort to get a focus on food and nutritional
security. Ban Ki Moon said: Zero hunger would boost economic growth, reduce
poverty and safeguard the environment. It would foster peace and stability.
The Zero Hunger Challenge has five main objectives: to achieve 100 per cent access to
adequate food all year round; to end malnutrition in pregnancy and early childhood; to
make all food systems sustainable; to increase growth in the productivity and income of
smallholders, particularly women; and to achieve a zero rate of food waste. Agriculture
is unmistakably back at the top of the agenda.
Promoting international trade Trade Update
PAGE 4 I Gaftaworld August 2012
RIO+20
By Robynne Anderson, Emerging Ag Inc (robynne@emergingag.com)
You may have seen the media coverage suggesting Rio+20 just settled
and showed no ambition. However, the needs of farmers and the
importance of agriculture are well reflected in the final outcomes.
UN Secretary-General Ban Ki-Moon, Brazilian President Dilma Rousseff and Under-
Secretary-General Muhammad Shaaban at the plenary session of the UN Rio+20
Conference on Sustainable Development
Pavilion hosting
exhibits on
sustainable
development
during Rio+20
Selected clauses*
from Rio
Food security and nutrition and
sustainable agriculture
115. We reaffirm the important work and inclusive
nature of the Committee on World Food Security
(CFS), including through its role in facilitating
country-initiated assessments on sustainable food
production and food security, and we encourage
countries to give due consideration to implementing
the CFS Voluntary Guidelines on the Responsible
Governance of Tenure of Land, Fisheries and Forests
in the Context of National Food Security. We take
note of the on-going discussions on responsible
agricultural investment in the framework of the CFS,
as well as the Principles for Responsible Agricultural
Investment (PRAI).
116. We stress the need to address the root causes of
excessive food price volatility, including its structural
causes, at all levels, and the need to manage the
risks linked to high and excessively volatile prices in
agriculture commodities and their consequences for
global food security and nutrition, as well as for
smallholder farmers and poor urban dwellers.
117. We underline the importance of timely,
accurate and transparent information in helping to
address excessive food price volatility, and in this
regard takes note of the Agricultural Market
Information System hosted by the Food and
Agriculture Organization of the United Nations and
urges the participating international organizations,
private sector actors and Governments to ensure the
public dissemination of timely and quality food
market information products.
118. We reaffirm that a universal, rules-based, open,
non-discriminatory and equitable multilateral
trading system will promote agricultural and rural
development in developing countries and contribute
to world food security. We urge national, regional
and international strategies to promote the
participation of farmers, especially smallholder
farmers, including women, in community, domestic,
regional and international markets.
Trade
281. We reaffirm that international trade is an
engine for development and sustained economic
growth, and also reaffirm the critical role that a
universal, rules-based, open, non-discriminatory and
equitable multilateral trading system, as well as
meaningful trade liberalization, can play in
stimulating economic growth and development
worldwide, thereby benefiting all countries at all
stages of development, as they advance towards
sustainable development.
282. We urge the Members of the WTO to redouble
their efforts to achieve an ambitious, balanced and
development-oriented conclusion to the Doha
Development Agenda, while respecting the
principles of transparency, inclusiveness and
consensual decision-making, with a view to
strengthen the multilateral trading system.
*Some have been abbreviated here
Trade News
Gaftaworld August 2012 I PAGE 5
Even if harvest is not yet over, we expect a rather bumper 2012
French cereal crop. As far as quality is concerned, the situation is
better than feared but not excellent either. After a very cold winter
which led to winter wheat and barley acreage losses, there were
concerns about the possibilities of a new drought at the start of
spring. However, since April the weather has been fine, and expected
yields are on the high side. For wheat, yields more than compensated
for the lower acreage (affected by winter frosts); France could harvest
up to 3M tonnes more than in 2011. For the time being and
unsurprisingly, humidity is slightly higher than last year, protein
content a bit lower, but nothing really troublesome.
We expect spring barley production to be 2M tonnes higher than last
year with satisfactory malting quality, and a larger winter barley crop
too. The situation for durum wheat is more mixed; production is seen
higher but poor quality could affect a significant part of it. There is
still some time before the maize harvest, but pollination has occured
in good conditions and acreage seems to be up; on the other hand
one has to remember that last years summer weather conditions
were close to ideal; all in all, we expect at least the same production
as in 2011. Overall, the French harvest could be 6M tonnes more, or
about 10 % higher, than in 2011.
By Francois Luguenot, InVivo Group
France harvest report
The winter barley harvest in Germany is almost finished. 2012 yields
are in line with the long-term average of 6.3 tonnes per hectare, 10%
higher compared to 2011. Harvest results show above average
quality, with test weights ranging between 60 and 65 kg/hl. The
spring barley harvest is around 20% complete. The majority of
harvested spring barley will be used for feeding this year. Winter
wheat suffered from the cold winter, so that acreage needed to be
reseeded. Many farmers switched to feed barley varieties on that
acreage. Overall, the barley harvest should range between 9.8M and
10.0M tonnes, compared to 8.7M tonnes in 2011.
The 2012 wheat crop should increase to around 23.0M tonnes
(22.7M in 2011). By 3rd August, approximately 30% of German
winter wheat had been harvested. Wheat yields are slightly above the
long-term average of 7.3 tonnes per hectare, but significantly up from
the 2011 yields. 2012 wheat quality will also be above the long-term
average and much better compared to 2011. The majority of the
wheat has reached milling wheat standard. Test weight is above 77-
78 kg/hl so far. The majority has falling numbers between 250 and
350 seconds. Only the protein content is lower, due to the very big
kernels harvested this year.
Harvest weather so far this year is much better than that in 2011.
Much drier weather should support the harvest progress and the
wheat harvest should be in full swing in early August. The long-term
weather forecast should support the harvest progress. Therefore, no
real yield losses are expected over the next few weeks due to
unfavourable weather conditions.
By Bernhard Chilla, Manager Economics/Research, Viterra Germany GmbH
Germany harvest report
As we go to press the UK harvest is nowhere near as advanced as
many would have expected, or hoped for, with first cuts of winter
barley and rapeseed only starting towards the end of July and wheat
probably another 7 to 10 days from starting. Indications from early
cuts are mixed, and very much area dependent. For winter barley it
seems that yields are better than expected given the recent weather
but still look to be coming in just below the 5-year average and there
are growing concerns about specific weight due to the past few
months heavy rainfall across the country. However there are
encouraging signs in early nitrogen levels for the malting barley
which have been averaging 1.65-1.70.
Looking ahead at the expectations for wheat, there are concerns of
increased cases of fusarium fungus due to the heavy rains; also, the
lower than average sunlight received by the UK during the past few
months has meant less photosynthesis for the crop. Many are now
expecting a sub 15M tonne crop this season as yields have
deteriorated in the last few months, but this should still leave around
1.5M tonnes of wheat for export. As well as lower yields there are
concerns on the protein content of the UK wheat crop which has
forced some to take coverage of alternative milling wheat origins,
with some decent volumes of German milling wheat reported.
The rapeseed harvest has only just begun and it looks like the average
yield will be in line with expectations at 3.5 tonnes per hectare, but
quality is very mixed.
By Scott Wellcome, Seaboard Overseas Limited
UK harvest report
International grain traders have always had a heavy dependence on
shipping but there has been a continuous ebb and flow in their ability
to influence its cost. During the last three decades we have seen a
progressive reduction, from around 35% to less than 15%, in grains
share of the major bulk trades, as the growth rate in iron ore and coal
movements consistently outpaced that of grain.
However, whilst this resulted in a growing influence of the industrial
sector in setting the overall level of the dry bulk market, for much of
the 1980s and even the 1990s there nonetheless remained a
significant degree of correlation between short term freight rate
movements and fluctuating volumes of grain shipments, both within
and between years. This was because the grain trades continued to
be the principal driver of market volatility.
However, in the early years of the new millennium, explosive growth
of the iron ore trades on the back of rapidly rising Chinese import
demand changed the rules of the game because the inflow of the
Capesize bulk carriers needed to carry these cargoes was very
constrained. This ushered in the era of supercharged freight rates,
which rose to previously unthinkable levels. Timecharter rates were
stratospheric (figure 1), with extreme consequences for the grain
trades.
Yet the extreme market tightness driving the boom had nothing to do
with any development in the grain trades. Between 2003 and 2008
there was a very high degree of correlation between the Capesize
sector, which carries iron ore and coal and the entire sub-Cape fleet,
on which the grain trades depend, so the relationship between freight
market movements and the grain trades was much weakened within
any year, and became to all intents and purposes, non-existent
between years.
The freight market super cycle peaked in mid-2008, and has been in
long-term retreat ever since, as fleet growth has now been
consistently outpacing cargo growth for nearly four years. The 12
month moving average of BDI returned to pre-2003 levels in the
second half of 2011, and continues to weaken as the fleet surplus
grows. The effect of these changes has been to partly realign the ebb
and flow of the grain trades within any one year with ocean freight.
The correlation between Cape and the sub-Cape sectors has, for the
time being, broken down, although the longer term market cycle
continues to be driven by the overall balance between the supply of
ships and demand side growth.
Supply of ships
There are three key trends affecting the dry bulk fleet:
The Fleet is growing ... rapidly
Figure 2, shows how the expansion of the fleet has picked up since
2003, but changed gear since 2008. Initially the expansion was
concentrated in the Capesize fleet, but subsequently the sub-Cape
fleet has seen a rapid increase in its growth rate. Overall in 2011 the
fleet grew by nearly 15% on the previous year, and the trend so far in
2012 is just as robust despite an increase in scrapping. It is important
to remember that the impact of fleet growth on freight markets is
lagged. While the full force of newbuilding deliveries is working
through into the Cape market, supply side pressure is still mounting in
the sub-Cape trades. This is good news for the grain trades.
The Fleet is diversifying
Within each sector of the fleet there is a wide range of ship designs
being delivered, with an underlying trend for ships to grow bigger in
each category. There are, in effect, two new fleets of ship rapidly
emerging: very large ore carriers and a diversified fleet of Post-
Promoting international trade Special feature
PAGE 6 I Gaftaworld August 2012
Weak markets, high freight:
A new era for dry bulk shipping?
By Peter Kerr-Dineen, Joint Chairman, Howe Robinson & Co Ltd
There has been a close relationship between the grain trades and the ocean freight market for many thousands
of years, and looking at the next phase of its development, it seems to me, we stand on the brink of change.
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Timecharter Stratospheric Figure 1
Special feature
Gaftaworld August 2012 I PAGE 7
Panamax ships of between 80,000-120,000 dwt. However there
remains blue water between the bigger Post-Panamax ships and the
170,000 dwt Cape designs which underlies the breakdown in
correlation between Capes and sub-Cape markets.
The Fleet is Modernising
Such was the squeeze on markets caused by constricted supply and
strong underlying demand in the years since 2003 that scrapping
activity was virtually put on hold as all ships which could float were
pressed into service, and maintained in service, regardless of their
age. However, as tonnage surpluses began to develop in 2011, there
has been a quantum leap in demolition across the sectors. At last
there is a sufficient flow of newbuildings, and a sufficient surplus of
shipping, to permit and spur a sustained programme of scrapping.
Demand
Perhaps surprisingly, in light of the current problems in the world
economy, at least for the time being, we currently expect trade
volumes to reach all time highs in 2012 in almost every key sector of
dry bulk trade. Overall, in the absence of significant macroeconomic
dislocation in the second half of 2012, but not withstanding the
generally weak global environment, we are looking for overall
volume growth in dry bulk trade of around 7%. Furthermore, market
imbalances continue to grow and strong seasonality continues to
influence markets within the year. So, despite the difficulties affecting
some OECD countries, and a slow down in the rate of expansion of
many emerging nations, China included, demand for dry bulk raw
material remains robust.
Nonetheless, the fleet is currently expanding faster than demand is
growing, and the freight markets are weakening as a result. Taking
into account all the other factors that impact on the raw data our
overall supply:demand balance (prior to scrapping) suggests overall
effective fleet growth measured by cargo carrying capacity of 13.7%
and adjusted cargo growth of 7.3% leading to a further growth in the
fleet surplus of 6.4% for 2012.
Consequences for the grain trade
There are three obvious consequences stemming from fleet change:
1. The fleet is growing at a faster pace than demand which will
result in year on year market weakness.
2. The fleet is diversifying, presenting grain traders with a greatly
increased choice of vessel designs and sizes. There is a clear
trend towards building bigger ships in all key areas of the
fleet, and an increasing emphasis on maximising fuel
efficiency. The rapid growth of the Post-Panamax fleet reflects
radical change. The grain trades have been cautious in
embracing this change but already around 19% of spot market
fixtures of these ships are for grain trading.
3. The fleet is modernising. The reduced necessity to charter
older vessels will result in insurance savings and enhanced
operational efficiency.
So far as market changes are concerned, the grain freight markets will
no longer be driven to the same extent by developments in the big
ship mineral trades but, in a return to the status quo ante, the grain
trades will instead increasingly drive the sub-Cape markets because:
The correlation between the Cape and the sub-Cape sector is
broken
In the sub-Cape sector, on a time adjusted basis, the grain
trades are the dominant commodity
The seasonality of the sub-Cape sector is driven by the grain trades
So, on the face of it, this is all as good news for the grain trades as it
is bad news for shipowners. But the bad news is that timecharter
earnings and freight are two different things and the key difference is
oil. While the long-term cycle in timecharter earnings is down,
unfortunately the long-term trend in oil and hence bunker prices is
up. As a result freight rates are today considerably higher than they
were in the past, when timecharter rates were at todays levels. In the
future it is perfectly conceivable that freight rates may increase as a
result of bunker price changes, even though timecharter hires
actually reduce.
Going forward, grain traders and freight operators looking for
forward cover, need to remember that they currently have much
greater exposure in terms of risk to the oil market than they do to the
timecharter market. This trend is likely to be further boosted by an
assortment of new developments including new sulphur emission
regulations and new IMO regulations, which together with market
developments, will lead to the rolling out of a new generation of
fuel efficient ships ... at a price. The grain trades need to remain
abreast of all these developments, and be alert to the implications
of what may become a fleet which, in response to adverse markets,
steams ever slower.
The growing correlation between sub-Cape timecharter
cycle and seasonality of grain trades mean grain trades have
greater visibility over short-term market movement and
should use it to hedge freight risk
Be flexible on size of stems to maximise the diverse
advantages of a diversifying fleet (including the ability it
gives to minimise fuel costs per ton of cargo carried)
Recognise that the bunker element in freight is up to twice or
more that of timecharter hire element, and adjust your
hedging strategies accordingly
Be alert to the prospect and consequences of ever slower
steaming
This article is adapted from a speech given by Peter Kerr-Dineen at the
2012 IGC Conference on 7th June, 2012.
Conclusions
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0
3
2
0
0
4
2
0
0
5
2
0
0
6
2
0
0
7
2
0
0
8
2
0
0
9
2
0
1
0
2
0
1
1
2
0
1
2
*
160
140
120
100
80
60
40
20
0
8,000
7,000
6,000
5,000
4,000
3,000
2,000
1,000
0
2012* Scheduled Deliveries vs YTD BGI
M
i
l
l
i
o
n

D
w
t
Handysize
Handymix
Panamax
Post Panamax
Capesize
VLOC
BDI
B
D
I

I
n
d
e
x
The Fleet is Growing Rapidly
Annual Fleet Deliveries vs BCI
Figure 2
Taking into account all the other factors that
impact on the raw data our overall supply:
demand balance......suggests.........further growth
in the fleet surplus of 6.4% for 2012.
PAGE 8 I Gaftaworld August 2012
The Forest Code will guarantee the maintenance of the forest assets of
Brazilian rural properties, with little impact on soy production, an
activity that is already developed respecting the requirements related
to Areas of Permanent Preservation (APP) and Legal Reserves (RL).
These lands that are at the margins of water streams or at the top of
mountains are responsible for maintaining biodiversity on the farms
and their conservation is totally borne by Brazilian farmers (Figure 1).
The private conservation areas, added to the public conservation
units and Indians territories, cover 61% of Brazilian territory.
Half of these preserved areas is on private properties, which reinforces
the importance of the debate on the need to pay for environmental
services. This thesis was embraced by ABIOVE long before discussion
on the new Forest Code. In our assessment, it is imperative that a
mechanism be approved to pay for environmental services.
Brazil has improved its environmental governance significantly
during the last five years, and this is a guarantee for enforcing the
new Code. The governance system includes on-line identification of
deforestation and fires by using satellite images; identification of the
owner through Rural Environment Registrations [Cadastro Ambiental
Rural (CAR)]; broad legislation with penalties; coordinated
inspection; and an increase in the number of conservation units
under state control.
Non-compliance with the Forest Code and other laws and regulations
will lead to severe penalties. Illegal deforestation will be immediately
identified, and it is impossible to erase the satellite images that
evidence such activities. Serious irregularities will lead to the
embargo of properties, which inhibits performing any economic
activity, including selling the farm.
The national Rural Environment Registration (CAR) and
the Environmental Regularisation Program (PRA) are the
two important novelties of the Forest Code. CAR will be a
powerful tool for the environmental bodies to manage the
use and occupation of soil. Before the new Code, some
state governments (eg Mato Grosso and Par) had already
implemented their rural registration systems. Now the
registrations are mandatory for all rural properties at a
national level. Monitoring and inspections can be made
by satellite images, which together with CAR, will allow
total control of the existing forest reserves in Brazilian
rural properties.
The Code maintains the same strictness as to the size
(percentage) of the Legal Reserve areas (80% in the
Amazon Biome, 35% in the Cerrado and 20% in the rest
of Brazil). The reserve is mandatory in all private Brazilian
properties, and its function is to preserve local biodiversity. No
amnesty is granted to those that deforested illegally, and although
some NGOs are announcing that deforestation will increase, this is
not true for the following reasons:
for properties whose Legal Reserve areas were irregularly deforested
before July 2008, the owner must sign a commitment instrument
to a) restore the deforested areas, or b) permit their natural
regeneration, or c) compensate (by one of the specified actions).
where Legal Reserve areas were irregularly deforested after July
2008, the activities must be suspended and restoration of the
Legal Reserve area must be carried out by 25th May 2014.
non-compliance with regard to the restoration of Legal Reserves
shall imply fines and total embargo of the property.
producers shall maintain riparian vegetation with specified
margins for rivers, lakes and lagoons.
producers shall maintain native vegetation on mountain tops and
on slopes with declivity above 45 degrees.
There are also strict rules on the restoration of Areas of Permanent
Preservation (depending on whether they were opened before or after
2008). During the last five years, with governance improvements, the
Amazon Biome deforestation has dropped significantly. In 2010-2011,
the lowest rates of deforestation were registered in the last 23 years.
The new Forest Code is an important step that must be recognised, as
well as the fact that Brazilian rural producers are environmental service
providers and must be duly compensated. Brazilian private properties
are involved in conservation of the biodiversity and in reducing
carbon emissions by maintaining native vegetation and apply the best
production practices, such as zero till and integration of cultures.
Promoting international trade Trade News
New Brazilian Forest Code permits
conciliating food production with
environmental conservation
The new Forest Code (Law 12651 of May 25, 2012) represents an important step
forward for Brazilian society and an example for other countries. At a time when
there is a need to produce more food in a sustainable way, this legislation provides
important tools with respect to organising land use, bringing clear rules and more
legal security to the rural producer, after over 15 years of the temporary legislation.
By Carlo Lovatelli, President of ABIOVE (Brazilian Association
of Vegetable Oil Industries)
Areas of Permanent
Preservation (APP):
along the margins of
rivers and hilltops
Legal Reserve (RL):
native vegetation
must be preserved
on 20% to 80%
depending on the
biome
Figure 1 - Brazilian farms -
Environmental legislation
guarantees that large areas of
private land are preserved
Gafta arbitration service has the advantage of Arbitration Rules
No.125 and a comprehensive Gafta Code of Practice. Therefore
many procedures are already in place at the start of a case,
nevertheless arbitrators still have to intervene and manage the
process. Gafta arbitrators see occasions when parties solicitors are
engaging in letter wars with their dialogue being sent to the
arbitrators for information. In discussion arbitrators took the view that
if there was no direct request to them, in those circumstances they
could intervene and say they only want to see the correspondence
which involves applications to them directly.
If a timetable is not followed, or urgent applications made, the
arbitrators should be receptive quickly. Work to a timetable with
deadlines, preferably fixed dates. In cases of unnecessary delays and
repeated extensions of time, when giving an order arbitrators could
usefully notify the parties that they expect the deadline to be
observed and will be reluctant to extend time in the future.
The question of the use of electronic devices during hearings was
discussed and while recognising the advantages of this means of
communications generally, most arbitrators were of the view that
recording hearings and communicating with others outside the
hearing room was undesirable. This could be tackled on a case by
case basis as the tribunal requires.
Note: If Gafta members have any suggestions for future Master
Classes we shall be pleased to hear from you. Please email
events@gafta.com.
Trade Foundation Course
Gafta ran a five day Grade 1 Trade Foundation Course at
the Royal Holloway University of London in Egham,
United Kingdom on 17th to 22nd June 2012.
The course was well attended, with 60 delegates from 15 different
countries around the world including United Arab Emirates,
Netherlands, Hungary and Canada. The speakers came from a range
of companies throughout the industry including the SGS Group,
FCStone, Reed Smith and NYSE Liffe. There was also a number of
Gafta Qualified Arbitrators who contributed greatly to the course. The
course offered students a broad introduction to all aspects of the trade
and tackled all aspects of the training programme at an introductory level.
Over five days participants learnt about the following:
Formation of contractual obligations
Freight loading, fulfilling contractual obligations
Dispute resolution
Managing risk
The majority of delegates indicated that they enjoyed the course and
have planned to meet up again to complete future Gafta courses.
For those members with an interest in arbitration the Master Class by David Owen QC
on Friday 6th July, was an excellent opportunity to hear his approach to case
management in an increasingly globalised field, which is also increasingly competitive
with much higher stakes for parties and more sophisticated arguments for arbitrators
to address. Commercial judges see their role as managing a case successfully and
likewise an effective arbitration needs good case management which must be fair.
Arbitrators, when making orders, have to see that they are reasonable for parties to
comply with and in 'fairness' give enough reasons for their actions.
Arbitration Master Class
led by David Owen QC
The third International Grains Conference, held by the Russian Grain
Union in conjunction with Gafta, the IGC and the International
Industrial Academy, will take place on 20th to 22nd November
2012 at the International Industrial Academy in Moscow, Russia.
A full agenda of topics for discussion has been prepared. These
topics include developments in the world grain markets as well as
in-depth discussion on the future for the Russian grain sector.
Innovations in technology and new tools with regard to the
financing of production and trade will also be discussed as well as
risk management for grain businesses.
Associated with the Conference will be a trade exhibition for
manufacturers of equipment and products of grain processing.
Registration for the Conference is available on the website of the
Russian Grain Union: www.grun.ru
Third International Grains Conference: Grain Industry in the 21st Century
20-22 November, 2012 - Moscow, Russia
David Owen QC
Gafta News
Gaftaworld August 2012 I PAGE 9
Delegates at the June Trade Foundation Course
Category A
Acembex - Comercio
E Servicos, Lda
Rua Manuel Pinto de Azevedo, 272
3o andar, 4100-320 Porto, Portugal
T: +351 22615 6000
F: +351 22615 6099
E: info@acembex.pt
www.acembex.pt
Contact: Mr. Brian Smith
Agro Resources S.A.M.
57 Rue Grimaldi, Le Panorama Bloc A-B
98000, Monaco
T: +377 9325 7950
F: +377 9325 7958
E: info@agroresources.mc
Contact: Mr. Zameer Zahr
AgroTrace S.A.
Geneva Business Center 12,
av. des Morgines
1213 Petit-Lancy (GE),
Switzerland
T: +41 22 870 9880
F: +41 22 870 0006
E: info@agrotrace.eu
www.agrotrace.eu
Contact: Mr. Jochen Koester
Agrozan Commodities DMCC
Suite 1206, Saba Tower - 1
Jumeirah Lakes Towers, PO Box 191418
Dubai, United Arab Emirates
T: +971 4 449 4020
F: +971 4 449 4021
E: m.asim@agrozan.com
Contact: Mr. Okan Ozan Ozturk
East Grain FZCO
Office 910 and 911, Le Solarium
Dubai Silicon Oasis, Dubai
United Arab Emirates
T: +971 4 326 7272
F: +971 4 326 7373
E: cfo@eastgrain.ae
Contact: Mr. Abubakar Said
Salim Bakhresa
La Cooperative Agricole COPAG
BP 1001, 83 200 Ait Iazza
Taroudant, Morocco
T: +212 528 559 900 - 09
F: +212 528 536 284
E: elhaij@copag.ma
Contact: Mr. Mohamed El Haij
MOI International
(Singapore) Pte Ltd
5 International Business Park
#05-00 Mewah Building
609914, Singapore
T: +65 6829 5091
E: cedriclin@mewahgroup.com
www.mewahgroup.com
Contact: Mr. Cedric Lin Shunda
National Food Authority (NFA)
Sugar Regulatory Bldg.
North Avenue, Diliman
Quezon City, Philippines
T: +632 9200652
F: +632 9200651
E: afcasino@gmail.com
www.afa.gov.ph
Contact: Mr. Carlito G. Co
Phoenix Commodities Pvt. Ltd.
Akara Building, 24 De Castro Street,
Road Town, Tortola,
British Virgin Islands
T: +662 266 7240
F: +662 266 7247
E: ramendar@pclworld.net
Contact: Mr. Gaurav Dhawan
Private Joint Stock Company
Technological Agricultural
Company United (PJSC TAKO)
Lesi Ukrainky 15A, App. 7
Kiev 01133, Ukraine
T: +38 067 407 6959
F: +38 044 238 6119
E: office@taco.ua
www.taco.ua
Contact: Mr. Yury Puchinkin
Soyuz Commodities S.A.
Boulevard de Grancy, 1
Lausanne 1006, Switzerland
T: +41 21 321 6000
F: +41 21 321 6010
E: pb@soyuzcom.ch
Contact: Mr. Peter Biermann
Tampieri S.p.A.
Via Granarolo 177/3, Faenza
Ravenna 48018, Italy
T: +390 546 645411
F: +390 546 46763
E: tampieri@tampieri.com
www.tampieri.com
Contact: Mr. Adriano Tampieri
Category B
ACT Ltd.
65, G.M. Dimitrov bldv. entr. B
Ap. 16, Sofia, 1700, Bulgaria
T: +359 2 416 2293
F: +359 2 418 4683
E: office@eisiti.eu
www.eisiti.eu
Contact: Mr. Stefan Petrov Urilski
HB Agrotrade SA
84, route de Frontenex
1208 Geneva, Switzerland
T: +41 22 707 1919
F: +41 22 736 7384
E: h.b.agrotrade@deckpoint.ch
Contact: Mr. Hassan S. Boubess
Mega Grain Trading Co. (P) Ltd.
403A, Prabhat Kiran Building, Rajindra Place,
N. Delhi, 110008, India
T: +91 11 2571 9897
F: +91 11 4506 2162
E: ndhawan@megagrain.com
Contact: Mr. Neeraj Dhawan
Teekay International/Teekay
and Dannyy International
Villa 148, El Merage City, New Cairo,
El Tagamoaa, El Khames, Egypt
T: +201 223 127929
F: +20 22 240 3826
E: Teekay@link.net
Contact: Mr. Atef Tadros
Category C
Alfa International Inspection and
Surveying Services Ltd. Sti.
Camiserif Mahallesi 5244 , Sokak No: 4,
Akdeniz, Mersin, Turkey
T: +90 324 238 6382
F: +90 324 238 6392
E: info@alfasurvey.com
www.alfasurvey.com
Contact: Mr. Mete Onal
Alfred H. Knight-Ukraine Limited
2/4 Voikova Street, 73001 Kherson, Ukraine
T: +380 552 424390
F: +380 552 424390
E: ahk.ukraine@ahkgroup.com
www.ahkgroup.com
Contact: Mr.Vitalii Gaponenko
Dalcontrol Sp. z o.o.
ul. Rotterdamska 4, 81-337 Gdynia, Poland
T: +48 785 882 861
F: +48 58 627 4870
E: dalcontrol@02.pl
www.dalcontrol.pl
Contact: Mr. Kamil Wegrecki
Eurocontrol Inspection JSC
109/25 Le Quoc Hung St. Ward 12, Dist 4
Ho Chi Minh City, Vietnam
T: +84 8 3943 3729
F: +84 8 3943 5759
E: euc@eurocontrol.com.vn
www.eurocontrol.com.vn
Contact: Mr. Nguyen Hoai Tam
Luxcontrol GmbH
Sternstrasse 108, Hamburg, 20357, Germany
T: +49 40 378 6710
F: +49 40 3786 7199
E: info@luxcontrol.de
www.luxcontrol.de
Contact: Mrs. Elna Bonnemann
Private Enterprise GSP-Services
3/7, Vitse-admirala Zhukova lane
off. 4, Odessa, 65026, Ukraine
T: +380 4873 42099
F: +380 4823 71408
E: office@gsp-ukraine.com
www.gsp.ua
Contact: Mr.Vadim Brusentsov
Promoting international trade New Members
PAGE 10 I Gaftaworld August 2012
Portugal
Philippines
British Virgin Islands
Ukraine
Switzerland
Italy
Bulgaria
Switzerland
Monaco
Switzerland
UAE
UAE
Morocco
Singapore
India
Egypt
Turkey
Ukraine
Poland
Vietnam
Germany
Ukraine
Tankoil Group
43, Victor Ammanweel Str.
Somouha, Alexandria, Egypt
T: +203 427 5600
F: +203 426 2226
E: ayman.tatawy@tankoilgroup.com
www.tankoilgroup.com
Contact: Mr. Ayman El Tatawy
Category D
Mr Anthony Hall-Jones
Dormston Manor, Inkberrow
Worcester WR7 4JT, UK
T: +44 1386 792 223
F: +44 1386 793 643
E: tonyhalljones@gmail.com
Category E
Mr Raymond Pilling
P.O. Box 3208, Blantyre
Malawi, Southern Africa
T: +265 160 9017
F: +44 872 110 4453
E: admin@rg-associates.co.za
www.rg-associates.co.za
Category F
FSBI Leningrad Interregional
Veterinary Laboratory
Moskovskoe shosse, d.15
Saint Petersburg 196158, Russia
T: +7 921 869 5041
E: general@vetlab.spb.ru
Contact: Mr. Zhanna Bargman
Category G
Budtechengineering LTD
2a, Morekhodnaya Str.
Nikolayev, Ukraine
T: +380 512 580753
F: +380 512 769875
E: btiltdmanaget@gmail.com
www.bti-ukraine.com
Contact: Mr. Denis Kovalchuk
Dale Stevens LLP
St. Mary Abchurch House, 123 Cannon Street
London EC4N 5AU, UK
T: +44 207 929 3897
F: +44 207 929 3170
E: law@dalestevens.com
Contact: Mr. Michael Dale
Davies Battersby
St Michael's Rectory, St Michael's Alley,
Cornhill, London EC3V 9DS, UK
T: +44 207 621 1090
F: +44 207 621 1040
E: patrick@daviesbattersby.com
www.daviesbattersby.com
Contact: Mr. Patrick Battersby
Penlaw SELARL
23 rue d'Anjou, Paris 75008, France
T: +331 4451 5970
F: +331 4451 5971
E: h.page@penlaw.fr
Contact: Mr. Henry Page
Category J
Agrica Ukraine Ltd.
73-B, Rizhskaya str, of 32
Kiev, 04060, Ukraine
T: +380 503 120272
E: 3120272@gmail.com
Contact: Mr. Sergiy Moroz
Bul Agro Control 1 Ltd.
29 Str. Nezavisinost BH. A Ap 2
Dobrich, Bulgaria
T: +359 886 902414
F: +359 586 02752
E: bulagrocontrol1@abv.bg
www.bulagrocontrol.bg
Contact: Mr. Daniel Vasilev
Fumicom Ukraine Ltd.
82-A, Turgenevskaya str., of. 42
Kiev 04050, Ukraine
T: +380 5064 17929
E: fumicom.limited@gmail.com
Contact: Ms. Tatyana Moroz
PE Vermex
1, Bazovaya str. 67806 u.t.c. Avangard
Ovidiopol district
Odessa Region, Ukraine
T: +38 048 738 4938
F: +38 048 738 4939
E: office@vermex.com.ua
Contact: Mr. Sergiy Sergeyev
SGS Romania SA
38, Calea Seriban Voda
Bucharest, 040212, Romania
T: +40 213 354683
F: +40 213 354619
E: claudiu.iancu@sgs.com
www.sgs.com
Contact: Mr. Claudiu Iancu
STOMI Limited
Liability Company
Office 37, 94/1 Sorokarichia
zhovtnya, Kiev 03040, Ukraine
T: +38 044 599 9923
F: +38 044 2530033
E: os_vv@ukr.net
Contact: Mr. Valery Osmiekhin
V.E.T.A. LLC
off. 28, 3/5 Uspensky Lane
65045 Odessa, Ukraine
T: +38 048 716 5906
F: +38 048 716 5906
E: office@veta.biz
Category K
GEDCO
1033 Bay Street, Suite 212
Toronto, Ontario
M5S 3A5, Canada
T: +1 416 961 1777
F: +1 416 961 3936
E: gedco@gedco.ca
Contact: Ms. Reda Iman
New Members
Gaftaworld August 2012 I PAGE 11
Egypt Ukraine
Bulgaria
Ukraine
Ukraine
Romania
Ukraine
Ukraine
Canada
UK
Malawi
Russia
Ukraine
UK
UK
France
Gafta moves
office in Geneva
Since early June, Gafta has
relocated its Geneva office. We are
now situated beside the Kempinski
Hotel and have meeting rooms and
wi-fi facilities available to members.
Our new address is:
8, Rue de la Cloche,
1201 Geneva, Switzerland
T: +41 (0) 22 732 45 77
F: +41 (0) 22 732 45 79
Email: Geneva@gafta.com
Russias government
ratifies WTO
accession protocol
Following ratification of the
accession protocol by its President,
Russia is due to become a fully
fledged member of the WTO on
22nd August. Meanwhile, in
Washington, USA, trade officials are
pressing for the urgent approval of
permanent normal trade relations
with Russia (by lifting an out of date
provision on the application of
import tariffs for Russian goods) to
avoid any potential complications
on Russias accession to the WTO.
According to a World Bank study,
the boost to growth that Russia may
expect from joining the WTO could
be 3.3 percent over the medium
term and as much as 11 percent in
the long run. Some further details
on the agricultural provisions
relating to Russias WTO accession
were in an article in the February
2012 edition of Gaftaworld.
PAGE 12 I Gaftaworld August 2012
Exchange Day - Friday 5th October, 2012
The European Commodity Exchange will be held at the Edinburgh
International Conference Centre (EICC) on Friday 5th October 2012.
The ECE is an essential annual event for the grain trade, providing a
face to face opportunity to meet all interests in the grain trade; bringing
people together and getting them talking.
Tickets are priced at a rate of GBP 185.00 (plus VAT)
Exchange Day Lunch
Whilst networking during the Exchange Day, take some time out to
relax and have lunch at the Sheraton Grand Hotel, located next door to
the EICC. Lunch includes wine, beer and soft drinks.
Tickets GBP 55.00 (plus VAT)
To book any of the above, please
contact us at ece2012@gafta.com
Registered in England & Wales with liability limited by guarantee under Company no. 1006456 I VAT Registration No. GB 243 8967 24
9 Lincoln's Inn Fields I London I WC2A 3BP I United Kingdom I
T: +44 (0) 20 7814 9666 I F: +44 (0) 20 7814 8383 I E: post@gafta.com I W: gafta.com
The Grain and Feed Trade Association
Promoting international trade
Join us in Edinburgh for the 2012
European Commodities Exchange
Edinburgh, the capital of Scotland is situated on Scotlands East Coast on the south side of the Firth Of Forth. Home of
the Scottish Parliament, Edinburgh is enriched with culture, fine architecture and hosts one of the most prestigious
universities in the United Kingdom, The University of Edinburgh.
Gala Dinner
On 4th October the Gala Dinner will be held in the Grand Gallery at the
National Museum of Scotland.
A Welcome Reception will be hosted within the Hawthornden Court and
the Kingdom of the Scots where guests can relax with a drink and
canaps whilst exploring the cultural and political history of Scotland.
An exciting evening amongst unique Scottish history is planned in this
venue, with traditional Scottish entertainment including the Red Hot
Chilli Pipers, a string duo and a harp. To end the evenings festivities,
each table of guests will be presented with a bottle of 150 year old
Scottish Malt Whisky to enjoy.
Tickets GBP 140.00 (plus VAT)
Social Tours Accompanying Persons
Whilst visiting Edinburgh for the ECE, you must explore the city and its
culture. Various tours have been arranged, including:
Edinburgh City Tour a half day panoramic tour of the city. Fully
guided, you will visit the historic Old Town including the famous
Edinburgh Castle. The tour will continue to the Palace of Holyrood
House, the official residence in Scotland of Her Majesty The Queen.
Price GBP 65.00 (plus VAT).
Advertising and Sponsorship
Raise the profile of your company by taking sponsorship at the Gala Dinner
or even the Exchange Day itself. These are just a few other alternatives:-
Cocktail Party / Gala Dinner / Entertainment Sponsor / Coffee Area
If you prefer to advertise, then the Exchange Directory would be the
perfect solution. Both Whole and Half page adverts are on offer and
prices start from GBP500.00 (plus VAT).
Exhibition Booths and Meeting Desks
A few exhibition booths are still available at the 2012 European Commodities
Exchange day. As standard all booths will include basic fixtures and
fittings. Any other size, equipment or service is available by request only.
During the Exchange day there will be on offer a limited number of
Business desks. These can be purchased using the on-line system at a
rate of GBP450.00 (plus VAT).

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