When grain is traded internationally, the Grain and Feed Trade Association (GAFTA) typically is involved in the transaction. It is estimated that around 80% of all grain traded internationally is shipped on GAFTA standard form of contracts.
The London, England-based international trade association, which has offices in Geneva, Switzerland; Kiev, Ukraine; Beijing, China; and Singapore, represents companies in 98 countries that trade in agricultural commodities, spices and general produce. GAFTA promotes free trade in agricultural commodities and works with international governments to promote the reduction of tariffs and the removal of non-tariff barriers to trade, as well as a science- and evidence-based approach to international trade policy and regulatory decision making.
GAFTA’s Arbitration Service is based on English law, and the association also runs training and education courses, manages approved registers for technical trade services and provides trade policy information, and networking opportunities for members.
GAFTA was founded in 1878, when the London Corn Trade Association (LCTA) was established by members of the corn trade to protect their interests. The LCTA sought to achieve this through the adoption of standard forms of contract, drawn up by the association, with any disputes arising out of these contracts being settled by arbitration rather than legislation. Disputes were referred to London and conducted under English Law.
In 1906, a group of traders broke away from the LCTA and formed a new, more specialized association, the London Cattle Food Trade Association (LCFTA), for those trading in vegetable proteins used as animal feedstuffs. In 1965, the LCFTA dropped “London” from its title, reflecting growing internationalization. In 1969, merger talks commenced between the LCTA and CFTA. The outcome of these merger talks was the formation of a new joint association, GAFTA, in 1971. Since its founding, GAFTA has expanded its original role as a contract issuing body to include a range of other member services.
In June, World Grain spoke with GAFTA President Swithun Still about the organization’s mission as well as its increasingly important role in a world where trade tensions are mounting.
WG: How many members does GAFTA have and what are the benefits of membership?
STILL: GAFTA has over 1,883 member organizations and we are championing our target of reaching 2,000 members by the end of 2020. Members of GAFTA agree to abide by a set of rules and to respect the principle: “My Word is My Bond.” We want GAFTA membership to be a hallmark of good business practice. GAFTA members get significant discounts on GAFTA services and access to exclusive content such as the bi-monthly Gaftaworld magazine and the defaulters list. https://www.gafta.com/Membership
WG: How many arbitration cases does GAFTA hear in a given year? Is that a number that has trended one way or another in recent years?
STILL: Last year GAFTA received 526 claims for arbitration, and the year before 984. Arbitration trends often reflect geo-political changes and market volatility. GAFTA compiles annual statistics on its arbitration so we can identify which contracts and which commodities are the ones most commonly disputed. These are published in our annual report each year.
WG: If someone encounters a trade dispute, what steps must they take to get a hearing before a GAFTA arbitrator?
STILL: If you wish to claim arbitration at GAFTA, you first need to serve a notice on your counterparty and then serve a notice on GAFTA and nominate an arbitrator. There is no fee for lodging a claim. GAFTA has a pool of over 75 arbitrators and you can find an online directory of all our arbitrators on GAFTA’s website: https://www.gafta.com/Membership-Directory/arbitrators
WG: Can anyone with a legal background become a GAFTA arbitrator? Are there certain qualifications that are required?
STILL: GAFTA’s arbitration is “for the trade, by the trade.” The majority of our arbitrators are trade professionals, not lawyers — indeed lawyers in private practice are not allowed to become GAFTA arbitrators until they retire. All GAFTA arbitrators need to have a minimum of 10 years’ experience in the trade — this does not have to be in “trading” — and we have several arbitrators, for example, with experience in technical roles such as superintendents. Aspiring arbitrators then either must take GAFTA’s online Distance Learning Program or take our four “face-to-face” courses. If they pass these, they then need to pass GAFTA’s Arbitrator Exam.
WG: What are the most important factors impacting global grain trade today?
STILL: There are a number of important factors, namely:
- Geo-political uncertainty
- Increased regulatory compliance issues, including financial regulation
- Changing consumer demand and preferences
- Increased global population growth coupled with climate change
- Opportunities presented by technology (example: electronic trading) coupled with political nervousness of new technology (example: gene editing)
- Increased role of regulators affecting many aspects of trade and supply chains plus role of international sanctions
- Labeling requirements on food, increased pressures for traceability throughout the supply chain
- Increasingly complex and legalized environment for arbitration.
WG: How is the sudden swing toward protectionism in many parts of the world impacting the grain trade? What can be done to offset those unsettling developments?
STILL: GAFTA promotes free trade in agricultural commodities and works with international governments to promote the reduction of tariffs and the removal of non-tariff barriers to trade, as well as a science and evidence-based approach to international trade policy and regulatory decision making. For this reason, GAFTA supports multilateral agreements and recognizes the indispensable role played by the World Trade Organization (WTO) in facilitating and safeguarding trade and in giving a sense of predictability and certainty for business to operate, backed by a credible dispute settlement system to resolve trade disputes.
Global trade rules ensure a level playing field, promoting open and free trade. Furthermore, in many areas the WTO rules set out the basic principles but leave the details to each member country and those details, particularly rules relating to health, safety and the environment, vary a lot from one country to another.
The international standard-setting bodies such as Codex Alimentarius, IPPC and OIE are recognized by WTO under the Agreement on the Application of Sanitary and Phytosanitary Measures (SPS Agreement). GAFTA works in close conjunction with Codex and the IPPC, and these bodies, who have access to the best scientific, technical and government advice, are the most appropriate bodies for agreeing sanitary and phytosanitary standards. All governments should support and work with these international bodies, as well as all the international technical standard-setting bodies, that provide references for world trade.
WG: How has the rise of the Black Sea region as a major player in grain production and trade impacting the industry?
STILL: The rise in importance of the Black Sea as a major player is undeniable and the impact of large exportable surpluses has been significant for competing origins, notably in wheat from Russia and corn from Ukraine.
It’s not a coincidence that the United States has recently had its lowest planted area for winter wheat in over 100 years. The economics of wheat production in many areas of the United States are no longer attractive given high land and input costs. The continuing dominance of Russia as a wheat exporter will depend on the “known unknowns” of weather and politics. Australia has been losing market share in Asia due to cheaper supplies from the Black Sea. The United States has been losing market share to Russia in some of its previously captive markets, including Mexico and Nigeria. France has seen a loss of market share in many markets in West Africa and it seems that their main buyer, Algeria, is actively considering amending the terms of their governmental tenders to allow for Black Sea wheat to be offered.
The grain trade always adapts to supply and demand and this will not change.
WG: Where is the next part of the world where grain production/exports could emerge?
STILL: Besides the Black Sea, there is still potential for increased production and exports from South America (especially if there is no resolution in the ongoing trade war between the United States and China) and in Africa.
WG: Is there hope for Africa, with all its land and natural resources, to one day play a bigger role in the grain supply equation?
STILL: There is huge potential for countries in Africa to play a bigger role in the grain (and pulses) supply equation. This will require greater political co-operation, long-term investments in irrigation projects as well as access to the best technologies in order to improve yields. GAFTA held a seminar in Nairobi, Kenya, on July 3 to raise awareness and understanding of the role of GAFTA contracts in international trade and the importance of recognizing the New York Convention on the Enforcement of Foreign Arbitral awards.