Rice contracts may be negotiated and agreed up to twelve months or more ahead of the time for shipment. This means buyers and sellers have taken a view on what the forward market price will be when the time comes for the contract to be performed. It is expected that every contract will be fulfilled on the terms agreed irrespective of any rise or fall in the market price.

1. Digital Re-print - May | June 2012
Rice and contract terms
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2. FEATURE
Rice and contract terms
by Pamela Kirby Johnson OBE, Director General,
The Grain and Feed Trade Association (Gafta)
R
ice contracts may be negotiated tectonic shifts in their economies where senting the goods should be tendered and
and agreed up to twelve months prices have dramatically risen or fallen; never- how payment should be made, with useful
or more ahead of the time for theless by the time of performance contracts codes of practice to give guidance.
shipment. This means buyers and sellers still have to be fulfilled. Letters of credit are
have taken a view on what the forward mostly used to secure payment for goods. Specification factors
market price will be when the time comes When letters of credit are not opened in Clear, quality specifications are crucial
for the contract to be performed. It is time or their terms are not in accordance and based on a number of factors. For
expected that every contract will be with banking or contract requirements it is sellers it is the anticipated harvest or what
fulfilled on the terms agreed irrespective of a breach of the contract and will probably is available for that season’s shipments. For
any rise or fall in the market price. give rise to a dispute. Gafta contracts contain buyers it is the needs of their customer or
instructions on how the documents repre- final consumer, not forgetting the legislation
Most transactions start with either an
email or telephone call between sellers and
buyers by one of them making an offer,
GTAS STANDARD
with an acceptance of that offer and their
agreement on the price. When these three
elements, offer, acceptance and price, are International Standard of Best Practice
agreed a contract is made. (Chapter 65 ISO)
However, as Groucho Marx said, a verbal
contract is not worth the paper it’s written
on. Clearly it is not good business practice Modules of Codes of Practice
to leave the arrangements for fulfilling a
complex transaction to a telephone call or
to an email exchange. So the parties, or their
Bulk Analysis & Inspection Trading & Fumigation &
brokers, will follow up a deal with a written Storage
Transport
Testing & Sampling
Brokerage
Merchanting Pest Control
contract confirmation. This confirmation of
the contract should identify key terms such
Gafta
as price, the delivery or shipment period and Contract Gafta
Approved
detailed quality specifications. Gafta Negotiation Fumigators
Analysts
Approved
Superinten
Letters of credit Twice dents
Along with the price and quality terms, Yearly Ring
the time for delivery or shipment is probably Tests
the most important factor which traders
will bear in mind when negotiating a deal.
Any stipulation as to time for performance Modules of Codes of Practice
is generally thought to be at the heart of a
contract and it is not unusual to hear the
comment ‘time is of the essence’.
All Gafta
Likewise, payment for the goods is obvi- Gafta Gafta
Contracts & Gafta
ously crucial and generally speaking it will Methods Sampling
Arbitration Qualified
of Analysis Rules No.
depend upon the relationship between sell- No. 130 124
Rules No. Arbitrators
ers and buyers as to whether any credit 125
terms are agreed. Countries have witnessed
22 | may - June 2012 Grain &feed millinG technoloGy

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4. FEATURE
buyers have to comply with in the country of the European Union it is unlawful to import importers, they are all traders of the vast
destination on import, which will often differ rice of a GM event that the European movement in rice being transported around
from that of the exporting country. Food Standards Agency has not approved. the globe, and who rely on the standard
Most rice is described simply in contracts There have been cases where rice has been Gafta CIF or FOB contracts. These standard
as either Basmati, Long, Fragrant, Paddy, checked by customs officials when imported, terms will give instructions to the buyers and
Husked, Milled, Parboiled or Glutinous Rice. seized and in some cases destroyed if com- sellers on the next steps in fulfilling the trans-
Some rice crops are handled and trans- prising wholly or partially an unapproved action and provide protection in certain cir-
ported in vast bulk tonnages and that implies GM event. Currently for feed imports there cumstances. They will also show who carries
that the harvest from one producer is is an EU low level presence tolerance of 0.1 the risks and responsibilities for the goods
similar enough to that from any other, to percent, but this does not apply to food. At at any given time. Good contract terms will
be sold via a common grading and distribu- the time of writing this article representation alleviate many risks parties face and this is a
tion system. On the other
hand depending on the
rice variety or origin, for
some rice it will be neces- “Rice contracts may be negotiated and agreed up
sary to maintain its identity,
for it to be segregated and to twelve months or more ahead of the time for
labelled specific to origin
or quality.
Depending on the
shipment. This means buyers and sellers have taken a
origin or rice variety, the
parties will negotiate the view on what the forward market price will be when
classification of rice and
the quality specifica- the time comes for the contract to be performed”
tions on each and every
transaction, concentrating
on moisture content and
maximum percentages of
foreign or damaged grains
which must not be present.
Moreover, in accordance with the Gafta is being made to the European Commission reason so many companies incorporate in
terms there is an over-riding requirement to adopt this ‘technical solution’ for food. their contract confirmations reference to the
that the rice is guaranteed to be in good Unfortunately, many countries’ citizens still Gafta standard terms and conditions.
condition and of satisfactory quality at the react adversely to GMO and it becomes a Gafta contract forms provide continuity
time of shipment, with the promise that the political and emotive issue. Our representa- of purpose and operational consistency of
goods must be fit for all purposes for which tion on this matter is that decisions and the way trade is customarily done and com-
goods of the kind in question are commonly approval processes should be based on sci- plement the essential elements of the trade
supplied, that is for human consumption. ence based policies and evidence. by setting down the means and methods by
During the negotiation of a contract buy- which a contract is to be performed by the
ers may also seek additional guarantees with The Gafta standard parties. These standard contracts provide a
regard to limits of undesirable substances Many of the other contract terms will not framework on which the parties may rely to
or pesticides levels depending on their own be the subject of detailed discussion by the supply rice from country of origin to country
national legislation in the country of import. parties at the time of negotiation as they rely of consumption. When choosing to incorpo-
on the knowledge that they will be covered rate a Gafta form of contract in their own
The GM issue by the appropriate Gafta standard contract individual contract terms, the parties should
Genetically Modified (GM) rice poses terms. Whether the buyers and sellers are have uppermost in minds the means and
a major issue for many countries, be they specialists in milling or food processing, mode of transport and choose a contract
exporters or importers. For example, in together with the shippers, exporters and appropriate for the carriage of goods by sea,
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5. FEATURE
by road or rail, in bulk or bags, or in contain- Otherwise, if a party fails to fulfill his obliga- cedure to facilitate the parties in settling their
ers, as the situation warrants. tions they will be in breach of the contract differences to find a resolution and reach a
A trader will need to know where he terms. settlement.
stands either on having to deliver the goods If a party is in breach of the contract the All the contracts’ clauses provide a wide
or being in a position to receive the goods. default clause comes into play and provides range of measures to ensure the smooth
What happens if ships do not arrive on time the formula to compensate the innocent party trade from origin to destination. The standard
due to shipping vagaries? Then the contract for that failure. Depending on the precise contracts Gafta provides are the standard
terms allow the possibility of an extension nature of the breach damages are calculated terms which are almost entirely in place for
of time to be claimed for a few days, with on the basis of the difference between the commercial, financial and legal purposes, to
payment of allowances to compensate for contract price and the market price, on the be adopted by two parties, a willing buyer
the delay. But then any breach of an obliga- day of default, on the mean contract quantity. and a willing seller, to form the basis of their
tion regarding shipment and delivery means a The intention being to put the innocent party individual transactions.
breach of a condition of the contract, which in the financial position they would have However, there are additional demands
could give rise to the innocent party having enjoyed had the contract been fulfilled. made outside of the contract terms by con-
the right to reject. sumers and retailers who need assurances on
Beyond contracts the safety of their food. For these purposes
‘Force majeure’: unforeseen To accompany contracts there are a GTAS, the Gafta Trade Assurance Scheme,
circumstances number of useful rules, guides and codes of was introduced to help demonstrate an all
The agricultural trade has felt the impact practice. Incorporated into the contracts are year round good practice and due diligence
more than most of changing weather pat- weighing rules so that goods are weighed by for food safety. GTAS aims to provide, within
terns. We have witnessed droughts, fire and the same methods worldwide and likewise one complete HACCP based trading scheme,
floods, in various countries in just a few years. there are rules for taking and testing samples the best professional practices which are
These major changes to what is thought to which apply both at load ports at origin and designed to maintain consumer confidence
be traditional weather patterns have resulted discharge ports. for the delivery of safe food.
in loss of crops and variations in quality. What There will of course be difficulties and dis-
happens then when there is an impediment putes from time to time and the most popular Future challenges
to shipping such as strikes, floods or fire method chosen by parties for the settlement Looking to the future, there are emerging
often referred to as ‘force majeure’? In those of their disputes is through arbitration. When issues where parties need to have assurance
circumstances the contract will allow a period parties enter into a contract incorporating a on the social conditions in countries of origin
of time for the impediment to end and for reference to the terms and conditions of a and also in relation to the environment.
the parties to continue with the fulfillment of Gafta contract form they have agreed that Environmental challenges are many and var-
the contract. their disputes will be heard and determined ied, and consumers are keen to know that
On occasion contracts may have to be by arbitrators in accordance with the Gafta they are supplied from sustainable sources.
cancelled where a government imposes an Arbitration Rules. The object of arbitration When any future biotechnology, social and
export ban, and where there is no fault is to obtain the fair resolution of disputes by environmental demands are made the mecha-
in those circumstances by the exporter, an impartial tribunal comprising commercial nism needed by the trade on how to meet
there would be no breach of the contract. people who will deal with the case without the challenges can be addressed within the
unnecessary delay or framework of the Gafta Trade Assurance
expense. Scheme. In essence GTAS is the standard of
Arbitrators have best practice for all trade operations.
to be familiar with the The theory of comparative advantage,
operations in the com- common sense and experience all tell us trade
modity markets; have is good for economic growth. Trade helps all
knowledge of the basic areas of major concern today, including social
principles of contracts and environmental standards. The association
and; also understand the started over 130 years ago with the aim to
legal principles underly- promote free trade internationally and this still
ing contracts, carriage applies today with Gafta continuing to seek an
and insurance contracts ever better trading environment.
and letters of credit.
Arbitrators are acting
in a judicial capacity to
About the author: More inforMation:
ensure that they meet
Pamela Kirby Johnson OBE is Director General of Gafta, The Grain the basic requirements Pamela Kirby Johnson OBE,
and Feed Trade Association, which represents international trade in of justice and must act Director General, Gafta
agricultural products and general produce. She is responsible for the with fairness and Tel: +44 2078 149666
four Gafta offices, in London, Beijing, Kiev and Geneva. Mrs. Kirby impartiality towards Fax: +44 2078 148383
Johnson through her representation of Gafta at many international both the parties. Website: www.gafta.com
forums and training programmes is widely recognised as an expert on
a variety of trade issues, which include quality assurance, standards Mediation
of best practice for all trade operations, contractual and dispute Although not
resolution issues, in promoting Gafta’s prime aim for an free and often used, media-
open market. tion is an alter-
native dispute
Mrs. Kirby Johnson was made an OBE in 2002. She is also the resolution pro-
Secretary of the International Federation of Essential Oils and
Aroma Trades and Director of the Federation of Commodity
Associations.
24 | may - June 2012 Grain &feed millinG technoloGy

6. FEATURE
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Grain &feed millinG technoloGy may - June 2012 | 25
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