Job G. Rietkerk

BayWa Agri Supply & Trade

Possible defaults in terms of global trends in trading and the risks of conflicts

The BayWa Group

BayWa Agri Supply & Trade 2

Agrar Energy

Agri Supply &

TradeAgri

ServicesFruit Building MaterialsConventional

EnergyBayWa r.e.

BayWa

Building Materials

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BayWa Agri Supply & TradeEuropean Presence

BayWa Agri Supply & Trade

Cefetra SpA / Rome:Italian trading company dedicated to supply and to service.

ItalyCefetra Iberica SL / Madrid:Spanish trading company dedicated to the customer supply and agri-services business

Spain / Portugal

BayWa Agrarhandel (BAH) / Steimbke

Germany

BayWa Agrar Erzeugnisse (BAE) / Munich

Evergrain / Hamburg: International Malting Barley Supply & Trade company

BMTI – BayWa Marketing and Trading International

Establishment of an International Trading Desk:Group Portfolio AnalysisGlobal Portfolio Optimization BookPhysical Market TradingDirecting Ukraine and Russia

Cefetra BV / Rotterdam: Major importer of grains and animal feed raw materials in the UK and Ireland.

Cefetra Ltd.

BayWa Agro Polska:Input business

Cefetra Polska / Gdynia:Grain origination and import of proteins.

Poland

Expand existing market position and gain access to new markets and major ports

Hungary, Romania, Serbia, Bulgaria

Cefetra Kft. / Budapest:Trade, Import and Distribute Agricultural commodities

Hungary

BayWa Agri Romania / Bucharest:Romanian origination & trading team

Romania

Cefetra BV / Rotterdam: Sourcing of raw material, management of logistics and customer supply chain mgmt.

Cefetra BeNeLux

Expand existing market position and improve distribution network within the country.

France

BayWa Agri Supply & TradeGlobal Presence

BayWa Agri Supply & Trade 4

BayWa Agri Argentina / Buenos Aires:•Representative office in Buenos Argentina. •Strengthening trade flows coming from South America

Argentina

• Representative for the Australia / Pacific region.• Managing business development efforts in

Australia & Asia

Australia

BMTI RUS / Moscow:•BMTI subsidiary based in Moscow, Russia •Sourcing and trading company focused on sourcing Russian Grains for MENA distribution.

Russia

BMTI Ukraine / Kieve:•BMTI subsidiary based in Moscow, Russia •Sourcing and trading company focused on sourcing Russian Grains for MENA distribution.

Ukraine

BayWa Agri Supply & TradeVolume Overview per Main Product Group

BayWa Agri Supply & Trade 5

48% 29% 23%

GRAINS SOYA CO-PRODUCTS

Milling Grains

Feed Grains

Malting Grains

Soybeans

Soybean Meal

Soybean Hulls

Oilseeds

Oilseed Meal

Co-Products

In total the BayWa Agri Supply & Trade (BAST) Group trades over 34 million tonnes of Grains & Oilseeds.

Grains form the largest part of the portfolio, due to the group’s European footprint.

In addition, BAST is the largest independent soybean meal importer in Europe, through the Cefetra subsidiaries.

Global Risks: effects on trading

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The Top Five Global Risks of Highest Concern for the Next 18 Months and 10 Years

Source: Global Risks Perception Survey 2015, World Economic Forum.

Global trends in trading: economic sanctions

Global trends in trading: economic sanctions

“Sanctions are viewed as a lower-cost, lower-risk, middle course of action between diplomacy and war”

• Objective is to coerce, deter, punish, or shame entities that endanger EU/US/UN interests or violate international norms of behavior.

• Sanctions are used to advance a range of foreign policy goals, including counterterrorism, counter narcotics, nonproliferation, democracy and human rights promotion, conflict resolution, and, most recently, cyber security.

• Impact on commodity trading is limited: export of agricultural commodities (“foodstuff”) is exempted but controls are still in place with respect to dealings with Designated Parties or DPs (persons, entities, companies, bodies, organizations included in any of the EU designated party lists).

• The export of agri commodities is de facto affected by sanctioned financial service providers.

Global trends in trading: economic sanctions

• This means that the supply of food and other humanitarian supplies is often paid for through other methods than bank-to-bank wire transfers, L/C, CAD, or other common payment instruments for international trading. Examples of alternative payment methods are:

• set off

• payment through third party intermediaries (often trading companies located elsewhere)

• payment from banks located in other countries (e.g., Turkish or UAE banks)

• Many parties want to include sanctions compliance clauses in the relevant contracts. New optional GAFTA sanction clause (per 1/3/2016):

“Seller and Buyer shall comply with all binding resolutions, trade, economic and/or financial sanctions and/or embargoes applicable to performance by that party of its obligations under this contract”

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Global trends in trading: defaults

GAFTA: since September 2014: 89 % increase in first tier arbitration procedures to over 380 cases. There is no analyses available as to the nature of the claims but possible reasons include:

• Weak agri commodity markets; trade is at the low point of the cycle; reports of the ABCD’s: outlook is very poor;

• Less appetite to settle disputes commercially;• Insufficient knowledge on execution and contracts resulting in

e.g. premature declarations leading to: ‘repudiation of contract’; • Introduction of “Prevention of Shipment” clause per 1/6/2014

instead of separate Prohibition, Force majeure and Strikes clauses which includes now also ‘acts of terrorism’;

• Increased operational risks;• GAFTA default clause: Bunge SA v Nidera BV; • More disputes on quantum or: what is the default price as per the

GAFTA default clause?

Dealing with Common Issues :

Seller’s failure/refusal to deliver

Binding certificates of quality at loading

Ship-shore discrepancies

In-transit loss / contamination

Non payment by Buyer

Failure to open and/or non contractual L/C

Late vessel arrival

Absence of effective shipping instructions

Absence of documentary instructions

As Buyer or SellerPassing of title and risk Bills of lading – when to obtain/relinquish possessionSafe berth/port warrantiesIncidence of import/export taxes, licences etcTime limits for claimsStrings and back to back positionsInsolvency of counterpartyForce Majeure/Prohibition/Strikes

As BUYER As SELLER

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Global trends: Operational Risks 1

Global trends: Operational Risks 2

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Global trends: developments in contract law

Anticipatory breach:

An anticipatory breach occurs when, before performance is due under the contract, one party informs the other party (whether verbally, in writing, or by conduct) that it will not perform the contract in some essential respect.

Remedies:

• Continue with the contract and claim damages

• Terminate the contract and claim damages

NB: Anticipatory repudiation has to be accepted before it bites

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Global trends: developments in contract law

Repudiatory breach:

A repudiatory breach is a breach of contract that is sufficiently serious to entitle the innocent party to treat the contract as terminated with immediate effect.

Remedies:

• Withhold payment / reject documents / reject goods

• Terminate contract and claim damages

• A wrongful claim that the other party has repudiated the contract is of itself a repudiation

• The contract will not end automatically – the innocent party must choose to treat all future obligations as discharged

• OR: Continue with the contract and claim damages

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BUNGE

NIDERA

• Sale of 25,000 Russian milling wheat FOB Novorossysisk

• Delivery 23-30 August• 5 August - Nidera nominated vessel. • Same day, Russian Govt imposed temporary

export ban between 15 August and 31 December.• Market moved dramatically – US$3m mark to

market difference – Bunge wanted out of deal• 9 August, Bunge cancelled contract for prohibition• 11 August, Nidera accepted Bunge’s purported

cancellation as an anticipatory repudiation, which they accepted.

• Nidera claimed US$3m, difference contract v market as at 11/8 in accordance with GAFTA default clause

• Two arbitration tribunals and two courts found for Nidera

• Supreme Court ruled in favor of Bunge but created some uncertainty

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BUNGE

NIDERA

• The GAFTA default clause provides a mechanical formula for the assessment of losses in case of a party’s default: contract v. market price, but:

• general common law principles for the assessment of damages are not excluded.

• No loss or failure to mitigate, means: the innocent party may no longer be entitled to an award of damages, however:(i) this case regarded an anticipatory breach and other type of breach may lead to different outcome;(ii) only two common law principles on damages were tested.

• Exclusion of consequential losses commonplace

Best Practices in breach/default scenario

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• Identify the breach

• Consider how important the term breached is (condition? Warranty?)

• Does party in breach have ‘right to cure’ (i.e. try again to perform correctly)?

• Yes – reject ‘wrong’ performance, do not terminate but wait and see

• No – you may terminate contract/this installment

• What remedies are available? What is the market doing?

• Determine how to proceed (continue / terminate) in consultation with trader, operations, legal and do not waive rights / affirm contract in meantime

• Spot or term deal?

• Immediately consider time limits

• 4 eye principle for calling default

• Set up correct paper trail of messages/evidence on breach/mitigation

Global trends: marine cargo, storage and charterer’s liability insurance cover

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• Insurance industry faced quite a number of misappropriation claims > USD 100 mio (Indonesia, Russia and China).

• Insurance cover becomes more difficult and therefore more expensive due to disadvantageous loss ratio’s: declaration based premium and high own risk.

• Insurance companies focus on storage of commodities:

• location of storage more and more important (flooding, earthquakes, civil unrest);

• quality and quantity control of stored goods by an independent surveyor;

• the weighing equipment must be calibrated on a yearly basis by an independent inspection institute;

• checks on the quality and quantity of the product in store at least every 30 days during the period of storage;

• technical inspection of facilities by insurers are common place;

• the financial condition of the storage facility needs to be checked.

ContactBayWa Agrar International BV / Cefetra BVAttn. Mr. Job G. RietkerkBoompjes 403011 XB RoterdamNetherlands

Tel: +31 (0)10 2018000

www.Cefetra.com