Commodity Trade - Assignment Example

Commodity trade2 Question one-Objectives of the international commodity trade association FOSFA FOSFA is a unique, professional, contractual, and arbitral trade association. It promotes world trade of oil seeds, edible groundnuts, and fats. Its main objectives are • To represent the interests of its members to the government departments, authorities, and international and national organizations, • To monitor and take action on the procedures concerning national and international legislation, which are likely to have impacts on the fats and oils trades thus affecting contract terms, • To ensure there is a regular newsletter to keep members up-to-date on trade development and key policies, activities of the association, and forthcoming events, • To devote attention to the protection of the society and environment by adopting modernized measures to ensure that all waste produced processed according to existing legal regulations. Question two-International cocoa trade Types of cocoa production Cocoa produced in tropical or semitropical areas. Such climates found in Asia, Africa, and Latin America who form the principal producers of cocoa. The types of cocoa production are small-scale or large-scale production. An estimated 70% of world cocoa production comes from small-scale farmers. The number of small-scale farmers estimated to be 2.5 million with a yield of about 350kg per hectare. In this case, every farmer owns around 3 hectares (Interfax, 2011). Only 30% of cocoa production comes from large-scale farming. The leading countries in cocoa are West African countries as Ghana, Côte D’Ivoire, and Indonesia, forming 70% of the total coffee production. The other 30% collectively come from Asia, Latin America, Nigeria, Brazil, Cameroon, Malaysia, and Ecuador. By-products of cocoa The principal by-product of cocoa is chocolate. However, cocoa is processed to produce many other products such as Bergenfield cocoa powders, Bergenfield coffee cacao nibs, cafiesa cocoa products, chocolate covertures, dried fruit, edible nuts, and seed flour. Other products include organic cocoa products such as spices, extracts and emulsifiers, sugars, stevia, and sweeteners. Some toppings, sauces, drops, snacks, and cold pickings are by-products of cocoa. Consumption patterns Demand level determines consumption pattern, and the volume of cocoa processed each year judges the demand. Two-thirds of all cocoa, ground in the chocolate consuming countries, where, the US is the world’s largest consumer of chocolate. The consumption level followed decreasingly: by Germany, United Kingdom, and France, Russian Federation, Japan and Brazil. International transportation and trade on the markets. The Cocoa Producers Alliance (CPA) eliminates international transportation of 10% of the cocoa production due to low-grade cocoa. Markets have agreed to destroy non-quality cocoa. This is made possible by introducing levies on farmers and exporters to finance the destruction plan and compensate growers for their losses. Only quality cocoa products transported internationally and traded. Question three- standard clauses Odd day clause- A clause that states that any month containing an odd number of days, the middle day recognized as belonging to both halves of the month. Arbitration clause- Any misunderstanding arising out of the contract referred to court of arbitration in London, or elsewhere (as agreed) in accordance to the rules of arbitration (Interfax, 2011). The appeal of the trade organizations takes effect at the date of the contract and of which both parties deemed to be cognizant. International conventions clause- it is a clause holding tree rules: The uniform law on sales and the uniform law on formation given by the uniform law on international sales act, shall not apply to the contract. The United Nations convention on contracts for the international sale of goods of 1980 shall not apply in the contract. The United Nations convention on the limitation period in the international sale of goods of 1974 and amending protocol of 1980 shall not apply. Force majeure clause If sellers are prevented from loading goods on board buyers’ ship, or should buyers be prevented from taking delivery because of strikes, fire, riots, or any cause comprehended in the force majeure, the contract delivery period is extended by 21 days beyond the termination of the force majeure event. Superintendent’s clause With reference to the contract to superintendents, surveyors or representatives remain superintendent members of the trade organization. The superintendent membership should be used everywhere unless the contact, or a national law needs use of government identification. The membership may not apply in any other agencies not recognized by the trade organization. It is also not applicable where a member superintendent available at the ports concerned. Domicile clause A clause stating that a contract constructed, valid, and performed in England is governed in all respects, by English law. Any dispute arising because of language submitted for arbitration in accordance to rules of the federation. Question four- key elements of risk All forms of risk, whether speculative or hazard risks, comprise four common elements; context, action, conditions, and consequences. Context involves the background or environment where the risk evaluated. It defines actions relevant to that situation and provides the lens through which all consequences evaluated. Without setting an appropriate context, one cannot determine which actions, conditions, or consequences to include in risk analysis, and management activities. Context thus forms the foundation for all risk management activities. Action is the occurrence that triggers risk. A combination of the active component of risk, and one or more conditions lead to the presence a risk. All forms of risk triggered by an action; without the action, there is no possibility of risk. Conditions define the prevailing states that lead to risks. A collection of conditions triggers actions, which result in the production of a set of consequences. Consequences are the final element of risk. They are the potential results and effects brought about by an action combined with some given conditions. When risk is present, there is a probability for loss. Depending on the circumstances, there might also be a probability for gain, which is the speculative risk (Interfax, 2011). A buyer or seller bound to the four elements of risks discussed. Any action of buying or selling, in conjunction with a condition, results into a consequence (gains or losses). This consequence leads to a context or uncertainty. Question five- long-term factors considered by investors in light of rising fuel costs. Cost-Price Index Inflation is the key subject in determining the CPI. Inflation causes the value of the dollar to decrease, thus, price of fuel or cost of goods and services increase. The appropriate measure of inflation is the Consumer Price Index (CPI). CPI of various commodities results from a monthly survey by the U.S. Bureau of Labor Statistics. The CPI meant to do a comparison of the prevailing market price and the past market prices on stuff i.e. housing, food, transportation, and apparel. Before making an investment, consider the CPI of commodities of interest. Four-percentage inflation annually drives the value of a dollar down to $0.44 in 20years (Interfax, 2011). Inflation also works against your investments, so, if one can calculate the return on an investment, consideration of the interest rate received, the real rate of return determined by figuring in the effects of inflation needs consideration before deciding to invest. Stocks Outpace Inflation over Time In 10, 20, 30 years, or more, stock provide the best potential for returns that exceed inflation. However, past performance does not guarantee future results. However, stocks provide higher returns than other asset classes over a long period. This should be considered before investing. Diversification, Total annual returns for stock and bonds One could consider a stock mutual fund, which offers the benefit of professional management. Examples include IRAs, and other variable annuities that enable one to have a choice of various investment portfolios before investing. Question six- impact of China’s role on the dry bulk trades industries China has a significance role in the bulk carrier market. Chinese dry bulk import volumes have doubled in three years, accounting for 94% of the growth of the dry bulk trade during that Period. Ship-owners celebrate China’s membership of the global shipping club as their earnings have tripled. China now accounts for 19% of the dry bulk trade and 8% of total sea trade just after Japan and North America. It thus forms the core partner in the bulk trades industries. Question seven- measures to secure purchases, and reduce your risks- rubber market The initial step in reducing risk in the rubber market is analyzing risk qualitatively and quantitatively. Qualitative risk analysis considers two measures; the possibility of an event taking place and the likely loss should the event occurs. Qualitative risk analysis is an approach where a number of interrelated elements used. The elements include treat, vulnerabilities, and controls. Threats are things that can go wrong e.g. fire or fraud (Interfax, 2011). Vulnerabilities are things that prone a system to attacks by threat, and Controls, are the countermeasures for vulnerabilities. Thus, the measures to secure purchases, and reduce your risks- rubber market include eliminating the event that triggers the risk, implementing contingency plans, reducing vulnerability, reducing the potentiality of impacts, and keen monitoring of the of the likely occurrence of the trigger. Question eight- significance of the trade in Brazil (A‘BRIC’ nation) Brazil is an agricultural producer interested in EU agricultural liberalization. In 2005, Brazil represented 80% of MERCOSUR GDP leading to a bi-regional Association Agreement for free-trade area. MERCOSUR (Mercado Común del Sur) is a Common Market of the Southern Cone, composed of Brazil, Argentina, Paraguay, and Uruguay. It promotes free trade and the fluid movement of goods, peoples, and currency. MERCOSUR has enabled Brazil become an enormous market of 190 million people. Brazilian goods and services markets enjoy a high level of protection. They enjoy protection from the barriers to trade of a tariff and a non-tariff barrier nature in transport and ports. Brazil’s has a main interest is the EU’s agricultural liberalization. It is a highly efficient agricultural producer expected to gain largely from the EU’s liberalization. Agricultural products as coffee, cocoa, and sugar to the EU account for 41% of Brazilian exports while only 10% come from other countries. The EU in return grants tariff preferences in agriculture and other goods as bio-fuels and ethanol, where Brazil is the beneficiary. Brazil is by far the world’s most prominent producer of fuels made from plants. It has the greatest potential worldwide for affordable bio-fuels. In addition, Brazil’s sugarcane culture gives biomass that enhances production of ethanol while the soybeans used to make fuel oils. Reference Interfax, 2011, Russia & CIS Business & Financial Newswire, pp1-1, 1p. Read More