10 tips for organising your export of grains, pulses and oilseeds to Europe

When organising your export to Europe, it is important to understand the purchase contract with your buyer and check all aspects of your export, such as payment terms, export documents and proper packaging for your product. The better you prepare and document your export, the more you will protect your business against failures or claims.

1. Understand the contract with your buyer

When negotiating with potential buyers, you must carefully read their purchase conditions. As a supplier, you are at risk when you do not fully understand the contract and its consequences or when you unintentionally enter a contract. It is essential that you can trust the company you are dealing with and understand the commitment you are making.

Check your contract

Check if the contract is in line with your previous agreements, at least on the following details:

• Price
• Terms of delivery (Incoterm)
• Delivery date or period
• Product specifications such as required grain quality or grade
• Quantity or tonnage and tolerances
• Packing details
• Fees and/or charges applicable
• Payment terms
• Default procedures
• Dispute resolution procedure
• Reference to general terms and conditions

Do not sign, confirm or verbally agree with a contract that is unclear or incomplete. Read additional recommendations in ‘Managing Risk in Grain Contracts: A Grower’s Guide’, published by the Australian Grain Growers.

Spread your risks

Risk management is always the best way to avoid losses. It is best to sell your grains, pulses or oilseeds to different buyers. You can combine your sales to well-known and larger importers with the smaller, higher-priced shipments to lesser-known buyers.

Use credit reports to do your ‘due diligence’ and check the risk profile of your buyer. Credit insurance companies as well as credit rating agencies such as Dun&Bradstreet or Graydon can provide insights in the creditworthiness of your buyer. When the risk of non-payment seems to be high, you can opt for insurance (see information below on export insurance).

Select standard contracts or parts thereof defined by GAFTA

Most agricultural commodity trade contracts are based on standard forms established by trade associations. For example, contracts by GAFTA (The Grain and Feed Trade Association) are estimated to be responsible for 80% of the 180 million tonnes of cereals traded annually worldwide, as well as a significant share of the world’s trade in feeding stuffs and pulses.

These standard contracts generally cover quality grading and delivery terms. They also provide protection, advice with regards to insurance and to appropriate payment, and include an arbitration clause and provisions in case of default. Example contracts are:

• General Feeding stuffs in bags
• General contract for grain in bulk (FOB)
• Contract for pulses for human consumption in bulk or bags (FOB)
• FOB Contract for Thai rice in bags or bulk

If you cannot find your specific product within the GAFTA standard contract forms, use one of the contracts as an example to create or review your own contract.

Use your rights as a supplier

When doing business with large, dominant buyers, you can invoke your rights as a supplier. The European Commission has introduced Directive 2019/633 on unfair trading practices in business-to-business relationships in the agricultural and food supply chain. This directive aims to protect small and medium-sized suppliers in the food supply chain from unfair trade practices imposed by economically stronger buyers. It protects farmers, processors, distributors, producer organisations as well as suppliers from outside the European Union.

The directive will prohibit a number of practices or only allow them when unambiguously agreed upon. Among the practices that will be prohibited are, for example:

• Payments later than 30 days
• Last-minute order cancellations 
• Refusal to enter into a written contract
• Unilateral contract changes
• Transferring the costs of examining customer complaints to the supplier

2. Use payment terms that are acceptable for you and your client

Payment terms will vary according to the supplier-client relations and products involved. Commonly used payment terms in the trade of grains, pulses and oilseeds are Cash against documents (CAD) and Letters of Credit (L/C). Using acceptable payment terms for you and your client is important to maintain business going while minimising risk.

Open account selling

If you are dealing with a low-value commodity (such as soybean or wheat), documentary credit can be relatively expensive and therefore not always the preferred option. You can distinguish yourself as an exporter by using an open account, but this comes with higher risks and is only recommended for trusted trade relations – and when your financial situation allows for it. The advantage of open account is that it saves you and your buyer the administrative costs of an intermediate bank.

Advance and post-payment

Alternatively, you can work with partial payments before, during and/or after shipment. A final payment for the goods on arrival, instead of the documents, is common for valuable ingredients with high quality requirements such as organic chia, sesame, quinoa, amaranth or buckwheat. Buyers of special and high-end ingredients will often check on quality and residues after arrival, before making the final payment.

Letter of credit

If you choose to ask for a Letter of Credit, you must understand the costs and the meaning of a Letter of Credit, including its process. You can take into account some of the tips provided in ‘Documentary Risk in Commodity Trade’ by the United Nations:

1. Make sure the letter of credit matches all the other documents, such as the invoice and packing list;
2. Carefully assess the credit-worthiness of your buyer using your bank or external services;
3. Carefully review the letter of credit to make sure that all the details and conditions can be met (type of credit, schedules of shipment, expiry date, quality and quantity of goods, packaging and documentation);
4. Consider a foreign exchange contract to cover currency risks if the letter of credit is in a foreign currency;
5. Be aware of the importance of dates and schedule. Tight timing can result in delivery problems on your side, while long-term expiry dates require too much of your buyer’s credit lines;
6. Insist that the payment documents on any letter of credit are negotiated and reviewed in your own country;
7. Always ask the buyer which bank will open the letter of credit and ask your bank (advising bank) whether they are willing to confirm a letter of credit from the specified opening bank with the specified amount.

Make sure that the bank involved with your European client is reputable. Among the best trade finance providers in Europe are BNP Paribas (Best bank for trade finance), Rabobank (Best bank for commodity finance), and Commerz bank (Best regional bank for Western Europe).

3. Keep close ties with logistical service providers

Since the outbreak of the COVID-19 pandemic, international trade and logistics have been greatly disrupted. This means it has become more difficult to organise shipments efficiently. Lack of container availability, shipment delays and high freight costs are part of the new reality.

Especially the trade from Asia (China) to Europe and the United States has been impacted. But freight rates have increased worldwide. In the current situation you have to be a good planner and keep close ties with logistical service providers or forwarder. You must secure your container in time. You can find information on freight rates and the latest logistical developments on Freightos or World Freight Rates.

In relation to your obligations with your buyer, you must be honest about your capacity. If you cannot meet your agreement due to logistical issues, it is best to find a solution together with your buyer. If you want to be on the safe side, you can choose to export only EXW or FOB (see the chapter below about Adjusting your pricing to the Incoterm).

4. Choose your export insurance according to your type of business

Export insurance helps you to reduce your economical risks in international trade. The type and usefulness of your insurance depends on the specific risks of your export. If you have a high risk in terms of shipping and payment terms, export credit insurance is highly recommended. The higher the value of your product or the riskier your trade partner or country, the more sense it makes to use export credit insurance and additional insurances such as cargo or currency insurance.

Shop around

Remember that insurances often do not cover 100% of your potential loss and their policy costs can make your product more expensive. It is important to understand the limitations of insurance policies and shop around when you need one. For the export of grains, pulses and oilseeds, export credit insurance is among the most common insurances.

Export credit insurance

Export credit insurance is highly recommended for open account business deals. Without a bank guarantee such as a Letter of Credit (L/C), you are exposed to higher financial risks. An export credit insurance protects you against non-payment or default by an importer, for example due to insolvency. Moreover, it not only provides you with peace of mind, but also improves your access to working capital.

For products such as grains, pulses and oilseeds, you will use short-term insurance (repayment period up to one year), and you can choose between a single and multiple buyer policy. A single buyer policy is useful to insure only one debtor or a one-off risk. Multi-buyer policies can be more convenient when you have regular shipments to several clients and you are using a pay-as-you-go service.

Well-known export credit insurance companies are Atradius, Coface and Euler Hermes. Their insurance rates depend on your annual turnover, history in claims and the risk profile of your buyer.

Checklist:

1. Do a credit check with your buyer before considering an export credit insurance, so you know the risks you are facing with the buyer in question. Insurance companies sometimes also request the submission of a credit report and financial statements.
2. Compare the advantage of Credit Insurance opposed to a L/C. Read about the differences between Credit Insurance and Export Letter of Credit described by Global Trade Risk Management Strategies LLC.
3. Find export credit agencies in your region through the members of The International Credit Insurance & Surety Association (ICISA)
4. Carefully review the terms and conditions of your insurance policy, because each policy has its limitations. If needed, ask an intermediary for advice.

Marine and cargo insurance

Whereas marine insurance only covers the liability of a maritime transportation company, a cargo insurance is used to protect your shipment of products throughout its entire journey to a customer.

Cargo insurance is recommended, especially when potential cargo loss will have a large impact on your business. Depending on the shipping agreement with your buyer (see incoterms further down), the cargo insurance is either your or your buyer’s responsibility.

Currency insurance

Most of your contracts with European buyers will be in Euros or US Dollars. The risk of conversion loss in the commodity trade is minimal due to its speed of trade. But if you work with long-range buying contracts or expect currency risks, you can opt for a currency insurance against conversion loss. Alternatively, you can explore the option of working with forward exchange contracts.

Product liability insurance

For grains and ingredients with high requirements, you can consider a product liability insurance in case your product does not comply with the legal standards. However, compensation is subject to your practices and the efforts you have taken to comply with the standards.

Seller's interest or contingency insurance

Insufficient coverage for product damage or loss by your buyer may affect you as an exporter. You can increase your control over the level of insurance of your trading partner and ensure the payment of your goods by adding a seller’s interest or contingency insurance. This insurance is less common than export credit insurance.

5. Check your export documents and import tariffs

In the export of grains, pulses and oilseeds, preferential tariffs can influence your competitive position in Europe. Additionally, you must master the basics of custom procedures, including flawless export documentation.

Double check your export documents

Familiarise yourself with customs procedures in Europe and always check your part of the export documents needed for customs clearance. A small mistake in the documents can result in serious delays. Find a trusted and recognised freight forwarder in your country, using the Freightos guide How to Choose a Freight Forwarder. Make sure your documents are well made and complete, such as:

• Transport documents (Bill of Lading, packing list)
• Commercial Invoice (read how to prepare a commercial export invoice)
• Documentary proof of origin / certificate of origin
• Inspections Certificates (Health or plant health certificates)

Find your import tariff in the TARIC database

For many grains, pulses and oilseeds, there is an import tariff of 0%, especially for developing countries and those countries with specific trade agreements. But there may be some exceptions for large commodities that are also produced in Europe, such as wheat, maize and rice. Import tariffs can be flexible and vary according to internal demand, which is the case for maize. Use the TARIC database and Access2Markets provide further information about the tariffs for your product and origin, as well as tariff quotas or other restrictive trade barriers.

Find out if there are tariff rate quotas for your product

For several cereals such as wheat, barley, rice and maize, the European Union has set trade measures such as quotas to regulate the market. There are preferential and autonomous tariff quotas.

Table 1: Types of quotas

Preferential tariff quotas:	This type of quota means that a predetermined volume of goods originating in a specified country can be imported into the European Union at a favourable rate of duty.
Autonomous tariff quotas:	These quotas can be opened in some economic sectors to stimulate competition inside the EU, mainly for raw materials and semi-finished goods that are not sufficiently available in the European Union.

For example, a favourable trade agreement with Ukraine and expanding quotas for wheat, maize and barley have improved Ukraine’s competitive position.

For some agricultural products, your buyer must have an import licence. These licences allow the European authorities to monitor trade flows and administer tariff quotas and safeguard measures.

6. Only export clean and well-stored products

During warehousing and transport you must make sure that grain products are kept dry and well ventilated. This is especially important with hygroscopic or moist-absorbing grains or coming from a warm and humid climate. You must only export products that are clean and have been well stored. This will help to make sure your products arrive without mould or infestation by bacteria or insects such as weevils.

Shippers may require the cargo to be fumigated, but check beforehand if your buyer agrees with this – for example, fumigants are generally not allowed for organic products.

7. Adjust your pricing to the Incoterm

International trade uses Common International Commercial Terms or Incoterms (see figure 1). The Incoterms for grains, pulses and oilseeds are Free on Board (FOB) and Cost Insurance Freight (CIF). The Incoterm 2010 Delivered At Terminal (DAT) has been renamed Delivered at Place Unloaded (DPU) in the renewed Incoterms 2020. Each Incoterm has different responsibilities, transfer of ownership and costs. All of these must be taken into account when calculating your price.

Bulk grain and oilseeds are sometimes sold ex-farm to licensed elevators or warehouses. This is because of the presence of international buyers in farming countries.

Figure 1: Incoterms 2010 chart of responsibility

Source: Hjhjhj0000, CC BY-SA 4.0, via Wikimedia Commons

8. Adjust your packaging to the product and sales channel

Use proper packaging for the product you are shipping and the sales channel that it is destined for. Many commodity grains such as wheat, soybean, maize and rice are often shipped in large quantities in bulk carriers and are shipped to very large buyers. Other more specific products, such as low-volume or high-value food ingredients, are shipped in bags in containers.

Grains in bags occupy 8 to 10% more space than bulk commodities and each bag must be labelled, but it is still the most common packaging for the distribution of specialty ingredients. Your main packaging options for grains, pulses and oilseeds are:

• Bulk carrier (no packaging; only large commodities)
• Big bags or bulk bags (up to a tonne for large users)
• Woven polypropylene bags (for example 25kg)
• Kraft paper bags (often used for organic products)

The preferred packaging depends mainly on your buyer, but there is always room to differentiate and adjust your packaging to ensure the quality and efficiency of your product.

9. Use support organisations to learn about best export practices

There are a number of international organisations that you can use for organising your export. These organisations provide information about the technical aspects of organising your shipment, explain the rules for entering the European market or provide services such as export training.

• GAFTA is the international trade organisation for agricultural commodities providing contracts, arbitration, trade assurance and policy, as well as events and training in commodity shipping and making contracts.
• International Trade Centre (ITC) is a development agency for sustainable trade with publications, such as Model Contracts for Small Firms, and an SME Trade Academy that provides online courses (some are free of charge), including international transport and logistics.
• Access2Markets is a guide to the import rules and taxes for the market of the European Union.
• International Chamber of Commerce (ICC) has worldwide offices and offers arbitration, export learning tools and information about incoterms.
• BMT Cargo Handbook offers an information database on the transportation of cargoes, including grains and seeds, set up by marine consultancy and surveying company BMT Netherlands B.V.
• Container Handbook provides cargo loss prevention information from German marine insurers.
• Food and Agriculture Organization of the United Nations (FAO) has published a list of product standards in the Codex Alimentarius that you can use as guidance when exporting a number of grains, pulses and oilseeds.

10. Document your quality process and protect yourself against claims

Product testing and control are always part of the trade in grains, pulses and oilseeds. But when you are involved in organic ingredients or grains destined for health market channels, expect your product to be tested rigorously by your buyer - especially in northern European markets. A quality claim is easily made, and it often concerns excessive pesticide residue.

Although you cannot avoid quality issues completely, you can protect yourself as much as possible by maintaining a proper and well-documented procedure. One of the things to remember is that organic products have a zero-tolerance for pesticide residues, but testing methods and precision often vary between different laboratories. This means that prior testing may indicate your product is okay, while the test outcome of the laboratory of your buyer may be different.

Follow the recommended steps below to defend your product quality and deal with quality claims:

1. Avoid cross-contamination by keeping your storage well organised with separated product lots.
2. Use recognised sampling and inspection companies (for example SGS, Bureau Veritas or Intertek).
3. Use European laboratories such as Eurofins, Groen Agro Control, TLR International laboratories or, even better, the same laboratory as your client.
4. Collect counter samples of each lot you export and preferably keep these for as long as the product’s shelf life.
5. Make sure the samples match the same lot that you are shipping.
6. Include the technical product data with your quotation and shipment.
7. Use traceability codes - Find the criteria and traceability requirements in the FAO Food traceability guidance or in the overview of the ITC Traceability in food and agricultural products.
8. Ask written confirmation of your buyer with their acceptance of product quality on arrival.
9. If a quality issue occurs, take the claim seriously and look for a solution together with your buyer.
10. Maintain a network of brokers and traders, so you always have an alternative sales channel for rejected products (as long as food or feed safety is guaranteed).

ICI Business carried out this study on behalf of CBI.