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Countries that aim to damage each other’s trade by raising tariffs and trade barriers against one other, are described as being in a trade war.

Beggar-thy-neighbour policies, such as retaliatory tariffs and punitive quotas, are typical of trade wars. So are competitive currency devaluations, and subsidised exports aimed at undercutting the rival country in other markets. Acrimonious breakdowns in trade negotiations, and complaints to the World Trade Organisation (WTO), are all part of the political theatre of trade wars. Outright bans on financial transactions, investments and the movement of goods and services across borders, sometimes known as sanctions, can also be imposed in extreme circumstances.

Causes of trade wars

Trade wars usually arise when one nation decides that the benefits of cheaper imports are outweighed by the economic and political costs. Industries with a powerful political lobby can stir up the conditions for a trade war, in the hope of preventing cheap imports from gaining market share. Sometimes the importing country has sectors that it wants to protect from foreign competition for strategic or national security reasons, such as key technology businesses.

The perception that trade partners are gaining a disproportionate advantage from freer trade, at the expense of the importing country, is a symptom of impending trade war. Sometimes trade wars escalate slowly, when negotiations are accompanied by incremental rises in tariffs to increase political pressure.

Dumping

In general, the chances of a trade war are heightened by the existence of longstanding trade imbalances. For example, some countries choose to subsidise goods for export at below production cost, which is known as dumping. Over time, the countries that buy these goods tend to experience de-industrialisation. This is because their domestic manufacturers cannot compete on price, or security of supply, with the dumped imports. De-industrialisation creates political tensions that usually move in favour of raising tariffs and trade barriers.

Consequences of trade wars

In most circumstances, trade wars suppress trade flows and global GDP growth; in other words, they are bad for wealth creation overall. Because importers tend to pass on the higher cost of tariffs (which is a tax on imports) to consumers, trade wars can also be inflationary, causing higher prices. Trade wars usually have wider political repercussions, affecting freedom of movement, for example, and technology sharing.

Winners and losers

While trade wars tend to be negative for consumers and global commerce, they can nevertheless be beneficial for individual nations or protected sectors, especially if wider political objectives are taken into consideration. ‘Winning’ a trade war – or extracting concessions by threatening a trade war – largely depends on the relative importance of international trade to each nation’s economy, and to the interests of those in power. The more that a trade war hurts you domestically, the greater the chances are that you are going to make concessions to the other side. For this reason, retaliatory tariffs are often targeted at industries that lie within the constituency of individual politicians who may be decisive in negotiations. However, some politicians do prefer to foment full-blown diplomatic crises, rather than admit defeat at the negotiating table.

Law of the jungle

Historically, the WTO has been largely ineffective as an enforcer of international norms and rules. China, the U.S. and the EU generally deal with trade issues on a bilateral basis, applying the ‘law of the jungle’, which is to say that they negotiate on the basis of raw power, and who has greater leverage, rather than submitting to arbitration or a legal judgement, for example.

Trade war risk management

Until recently, the post-war consensus has been that trade wars are worth avoiding, for both diplomatic and economic reasons. But as the risk of trade war grows, international traders of soft commodities and secondary raw materials are having to embrace modern risk management software that helps them navigate these uncertainties and protect their margins.

A tax that is applied to the import of goods is known as a tariff. Customs duties, as tariffs are also known, are paid by the importer to their home government. However, the cost of the tariff is usually passed on to the consumer of the end product in the form of higher prices.

Ad valorem tariff

Tariffs can be calculated in different ways. The most common method is an ‘ad valorem’ tariff which is levied as a fixed percentage of the value of the imported goods. If imported whisky is subject to an ad valorem tariff of 20%, a bottle of $100 single malt whisky will attract duty of $20, while a $50 bottle of blended whisky will be taxed just $10.

Specific tariff

Specific tariffs, by contrast, are a ‘per-unit’ duty that is charged as a fixed amount on each imported good. The number of units being imported is what counts for a specific tariff. If there is a $10 specific tariff on imports of solar panels from China, for example, the tax paid will be $10 per panel, regardless of whether they are valued at $2,000 or $200 each.

Tariff rate quota (TRQ)

Tariffs that vary according to the quantity of a particular good being imported, are known as tariff rate quotas (TRQ). The rate of a tariff quota generally rises steeply once the ‘within quota quantity’ threshold has been reached. So for example, a country might allow the importation of 500 light aircraft at a tariff rate of 10%. However, any light aircraft imported above this threshold would be subject to 30% duty.

Mixed and compound tariffs

In some cases, countries such as India have taken a mixed tariff approach where they apply either an ad valorem tariff or a specific tariff on an imported good, based on which calculation brings in the most (or least) revenue. Pakistan has used compound tariffs, where both an ad valorem and a specific tariff are levied on the same imported good, then added together to reach a total. Tariffs can also be applied to exports, although these are rare.

Rules of origin

Calculating a tariff can be complicated when an imported good is made up of inputs from more than one country. For example, bottles of olive oil imported from Italy may derive from olives that were grown in both Morocco and the EU, for which different tariffs rules might apply. This is why many exporters of soft commodities need a certificate of origin document to accompany their shipments (as well as a phytosanitary certificate for example), enabling Customs authorities to calculate the relevant duty.

What are tariffs for?

Tariffs, like all taxes, are a way of raising revenue for government. In most advanced economies, however, tariffs are primarily a tool of industrial policy. Tariffs can be targeted to protect domestic sectors of the economy by effectively raising the cost of imported goods that compete in that market. If an overseas government is unfairly subsidising its export industries to undercut competitors and grab market share in a process known as ‘dumping’, tariffs can legitimately be used in retaliation.

Trade disputes

Sometimes, the threat of tariffs – or their imposition – is used as a negotiating tactic to obtain various political objectives, especially if the counter-party relies heavily on doing business with the country threatening tariffs. Unsurprisingly therefore, tariffs are often subject to international disputes that organisations like the World Trade Organisation (WTO) try to regulate. Frequently however, the WTO’s rulings have been ignored or flouted by the likes of the U.S., the EU, and China.

Protectionism

At the beginning of the industrial revolution, Great Britain applied high tariffs to enable its fledgling iron, steel and cotton-weaving industries, powered by new technologies, to develop into globally dominant exporters, while being protected from foreign competition. The success of this strategy, which came to be known as protectionism, was subsequently copied by the U.S., Germany, and China when they too industrialised their economies and sought to grow their markets overseas.

Free trade

Free trade policies favour the absence of restrictions on imports and exports, implying low or no tariffs. Post-war consensus has favoured free trade as an engine of global economic growth, although attitudes may be changing.

Large-scale subsidies for export manufacturing in China and elsewhere have raised geo-political tensions. De-industrialisation in some high-deficit countries, and persistent surpluses at the expense of domestic consumption in nations such as South Korea and Germany, have caused trade imbalances. The risk is that a correction may come in the form of greater protectionism and beggar-thy-neighbour policies; in other words, trade war.

Technologies that help businesses navigate the operational and strategic uncertainties that can cost them money, are known as risk management software.

Operational risks

For traders of secondary raw materials and soft commodities, or indeed any business that relies on global supply chains, operational risks are a daily challenge. Logistical mishaps and documentation errors can cause costly delays. Compliance issues, contaminated material and underweight loads can lead to claims and penalties. Cumulatively, operational risks erode profit margins and undermine competitiveness – which risk management software tries to prevent through automation and process optimisation, for example.

Strategic risks

Strategic risks tend to be bigger-ticket items associated with market and currency volatility; financial hazards such as access to credit; and geopolitical events such as armed conflict and trade wars. Strategic risk also encompasses missed opportunities (opportunity costs) where businesses forego higher revenue and growth because their capital and time are invested in less profitable activities. Risk management software tries to help improve traders’ strategic decisions and outcomes by providing them with better data insights and context – and timely alerts.

Modern vs. traditional risk management

Traditionally, risk management has been unstructured. Traders make judgements based on their client relationships, lessons learned and subjective interpretations of economic indicators. Assessing dangers and opportunities in this way isn’t always logical or aligned with a company’s objectives. The advent of risk management software, however, enables a more pro-active and organised approach to reading a dynamic situation, following agreed rules. Used in tandem with modern methodologies, risk management software can make dealmaking more agile, profitable and resilient in the face of shocks.

Risk methodologies

Risk management software solutions work best when staff adopt a structured approach to uncertainties, with procedures for identifying risks, assessing them, and monitoring them. These steps enable the business to plan how to avert unnecessary risks, and mitigate the impact of risks that are either worth taking because of the potential upside – or are, to some extent, unavoidable.

CTRM software

In recent years, specialised commodity trading and risk management (CTRM) technologies have evolved that leverage AI and live data to navigate the volatile and uncertain world of physical commodities. Modern CTRM software assists trading in soft commodities like grains and nuts, and secondary raw materials such as scrap paper and waste plastic. ETRM software meanwhile helps energy traders that deal in oil, coal and tyre-derived fuel, for example.

Future of risk management

Modern physical commodity trading systems are increasingly adopting a networked approach to trading risks. When international buyers and sellers of commodities adopt smart contracts and electronic bills of lading, inefficiencies caused by paper documentation can be eliminated. This brings the benefits of greater transparency to all trade participants, enhancing trust and reducing many of the operational costs and uncertainties that the global commerce community sometimes views as inevitable.

Grey swans, black swans

Many small and medium sized traders don’t have a plan for grey swan events. These are high impact events that are to some extent predictable, but happen very seldom, such as the Covid pandemic. Large corporate organisations are usually obliged to develop contingency plans for grey swan risks that address ‘known unknowns’.

Black swan events, by contrast, are ‘unknown unknowns’ that lie beyond normal expectations and are therefore much harder to prepare for, such as the 9/11 terror attack. Even in the most dramatic circumstances, though, having an agile, tech-enabled approach to risk is likely to improve a trader’s chances of weathering the storm.

The UK and EU have arrangements with the United States and Canada that enable certain plants and plant products such as almonds and wheat flour to be imported with reduced controls, so long as pre-export checks (PEC) are performed in the country of origin.

Almonds from California

In the United States, PEC certification applies to direct shipments from California, bound for the EU, of bulk and unprocessed almonds classified under HS codes 0802 11 (inshell) and 0802 12 (shelled). The PEC concession enables testing for aflatoxin – a toxin produced by mould that can grow on almonds – to be undertaken in the country of origin by an approved laboratory. The PEC certification includes a description of the consignment, the United States Department of Agriculture (USDA) attestation, and an aflatoxin certificate.

Since January 2024, Great Britain (not Northern Ireland) requires a separate GB-PEC certificate for almond shipments to the UK. Northern Ireland continues to accept the EU’s PEC certificate. PEC concessions are set out in Annex II to the Commission Implementing Regulation (EU) 2015/949. In Great Britain, the provisions of assimilated Regulation (EU) 2017/625 (Article 73) apply.

Canadian wheat and wheat flour

In Canada, PEC concessions apply to the examination and testing of ochratoxin A levels in wheat (HS code 1001) and wheat flour (HS code 1101 00) that are destined for the UK and EU. Like aflatoxin, ochratoxin A is a type of mycotoxin that can be dangerous to humans and animals. It is found in foods including cereals, preserved meat, and fresh and dried fruit.

To qualify for reduced checks, consignments must be accompanied by a sampling and analysis report from an approved laboratory in Canada, and a certificate that is completed, verified and signed by the Canadian Grain Commission. An identity code needs to be included on the certificate, on the report, and on each individual bag or packaging form.

Pre-export checks are not mandatory

Consignments without the certificate and laboratory report required by PEC can still be imported, but do not qualify for reduced checks. This increases the likelihood of examination and sampling to check compliance with British or EU standards. A properly completed PEC certificate download, by contrast, can ensure that consignments are subject to less than 1% controls at the EU and GB borders.

Imports to the UK and EU of plant-based soft commodities that do not qualify for PEC concessions often need to be accompanied by a range of official documentation, including a phytosanitary certificate, to gain customs clearance. Some high risk food and feed of non-animal origin (HRFNAO) also require pre-notification before arrival at the port of entry.

The main EU customs form used in international trade is the single administrative document (SAD), whose UK equivalent is HMRC Form C88. It provides proof of authorisation to import or export for the country of destination, and enables traders and agents to comply with customs regulations. It also tracks the movement of goods through customs.

Once a consignment has been cleared, the SAD serves as evidence that a customs declaration has been properly made. It also serves as a tax declaration document for paying taxes and duties, and as a transport document, helping to expedite goods shipments.

What information goes on a single administrative document?

A SAD describes the goods being imported or exported, along with their HS commodity code, their quantity and value, their origin and destination, and their customs procedure code, which determines how customs will deal with the consignment’s entry into the country. Codes entered in the SAD’s various document fields need to align and connect with one another, at risk of penalties and delays, so guidelines should be closely followed.

Digital communication and SAD

Traders can electronically share the information contained in a SAD by using freight forwarder or advanced CTRM software that connects to customs digital systems such as HMRC’s Customs Declaration Service (CDS), formerly CHIEF. Manually completed SAD documents are also accepted. Customs allocate a master reference number (MRN) to each single administrative document when they record the status of the accompanying goods. Status indicates whether the consignment been cleared, rejected, or if queries have been raised.

Who needs to complete a SAD?

Traders don’t need to use a SAD for movements of goods within the EU, unless the goods are of non-EU origin. A SAD is required for trade with third countries however. When goods are transported through several countries before reaching their destination, a SAD must be filed in each transit country.

HMRC Form C88 and Form C79

HMRC Form C88 needs to be completed by anyone who imports goods from non-EU countries into Great Britain, or exports them from Great Britain to non-EU countries. The information it provides enables customs officials to assess and collect the correct amount of import duty, VAT, and other taxes. Reclaiming VAT paid on imported goods from outside the EU requires another document, Form 79. This form provides evidence of the VAT paid on imported goods, and cannot be used for customs clearance purposes.

8 copies of SAD

SAD Copy 1 and Copy 2 remain at the office of departure, for control and statistical purposes respectively. Copy 3 is for the consignor or exporter, although it may be retained by the community transit principal. Copy 4 is for the customs authorities in the destination state. It provides evidence that the goods are in free circulation or not, and indicates whether customs duty is payable.

Copy 5 is returned from the office of destination, to the customs authorities in the state of despatch, providing evidence that the goods reached their destination intact. This copy is also used for the return of goods. Copy 6 serves as the customs import declaration on arrival in the state of destination. Copy 7 is the statistical copy of the import declaration for the state of destination. Copy 8 is retained by the importer or the importer’s agent.

Certain plants and plant products need a phytosanitary certificate to prove that they have been officially inspected, are free from dangerous pests and diseases, and meet the requirements to enter the UK or EU. Phytosanitary (plant health) certificates are issued by the exporting country’s plant health authority, which may also require samples for laboratory testing or for growing season inspections.

Plant passport

Once imported plants and plant products have entered the EU, phytosanitary certificates can be replaced by a plant passport, so long as they are listed in Annex XIII and XIV of Regulation (EU) 2019/2072. This includes objects such as fuel wood. A similar plant passport is used to move plants and certain regulated wood within Great Britain, to the Isle of Man, or to the Channel Islands. These include all plants for planting; some seeds; seed potatoes; wood and wood products; and isolated bark.

UK plant passports can be self-issued, subject to authorisation by the Animal and Plant Health Agency (APHA) or the Forestry Commission, depending on the goods.

Customs checks

When soft commodities such as agricultural products are imported, customs agents check the commercial seal, and will sometimes perform a physical inspection as part of the clearance process. They also require sight of official documents, such as an aflatoxin certificate in the case of certain nuts and dried fruit. Customs requirements for phytosanitary certification tend to depend on the type of material being moved, where it comes from, and perceptions of risk.

Country-specific formats for certificates are common. Certificates often need to be written in a certain language, using particular units of measurement. Countries also have their own rules on how long a certificate remains valid before it expires. These details need to be verified before arranging for the import or export of plants or plant-based products. Failure to do so risks delays or fines.

EU exemptions

Absent the risk of spreading harmful organisms, no phytosanitary certificate is needed for imports into the EU of pineapple, banana, coconut, durian and dates. This exemption also applies to plants, plant products or other objects grown, produced, or used in the frontier zone between the EU and the non-EU country; and plants, plant products and other objects in transit through EU territory.

The UK exempts pineapple, bananas, coconut, durian, grain and plant products – such as fruit and vegetables – ‘that have been processed and packaged to the point that they no longer pose a biosecurity risk’. Exemptions also applies to composite products such as nut and seed butters containing processed fruit or vegetables.

GB re-export certificate

Re-export (otherwise known as re-forwarding) is when goods are imported into a country and then exported to another country. Plant health inspectors will only issue a re-forwarding certificate if they are confident that the goods meet the destination country’s import requirements. This may involve a further inspection if stipulated by the destination country’s rules, or in cases where the goods have been exposed to a risk of infestation or contamination after being imported. It is best to check with the destination country’s plant health authority before importing goods to Great Britain that are meant to be re-exported, to ensure compliance.

The original phytosanitary certificate, or certified copies, should accompany the goods being re-exported. Applications for a re-forwarding certificate can be made using the plant health export service for England and Wales, SASA in Scotland, or plant and tree health in Northern Ireland.

Letters of authorisation, and bans

A letter of authorisation is needed for plants, plant products or other objects for trials or scientific and educational purposes, or for work on varietal selections, that are entering the EU and Great Britain. Some high risk plants, plant products and commodities are either provisionally or permanently prohibited for import due to an inherent pest and disease risk.

End-of-life tyres that are shredded and used as a supplementary energy source for industry, are known as tyre derived fuel (TDF).

How is tyre derived fuel made?

Specialised machinery is used to shred or process whole end-of-life tyres into TDF. Typically, the first step is debeading, which removes steel bead from the tyres. The second step is primary shredding, where the rubber is cut into large pieces. The third step is secondary shredding, where machines reduce the shred into chips, which can range in size from 25mm to 450mm. The chips can be reduced further by grinding, depending on what they are being used for.

Gas derived from pyrolysis

When TDF is subjected to very high temperatures (up to 2,000 degrees centigrade) in the absence of oxygen, in a process known as pyrolysis, the tyre chips disintegrate. This creates gas (along with other outputs such as carbon black) that can then be recovered and used as an additional fuel source. Sometimes the gas is piped back in to fuel the pyrolysis plant itself.

How sustainable is TDF?

Disposing of the natural and synthetic rubbers (polymers) contained in end-of-life tyres (ELT), along with steel reinforcement, oils, silica, fibres, and chemicals such as sulphur and zinc oxide, present a significant environmental challenge. While the steel wire contained in tyres is usually recycled, most tyre materials are not biodegradable. ELTs can be processed into crumb rubber for use in playground surfaces and rubberised asphalt. The market for this is small, however, relative to the enormous global supply of scrap tyres.

Beneficial use

TDF is classified as ‘beneficial use‘ because it is a secondary material that replaces virgin materials in a way that provides a functional benefit, meets product specifications, and does not pose concerns to human health or the environment – according the United States Environmental Protection Agency.

In other words, TDF – while not environmentally ideal – is preferable to traditional disposal options. Firstly, this is because TDF emits less carbon than burning coal, natural gas and petroleum coke. Secondly, it diverts scrap tyres from landfill or stockpiling, which carry the risk of tyre fires and pollutants leaching into the soil.

A third benefit of TDF is that it requires tyres to be shredded. This helps limit the quantities of whole waste tyres being sent to low and middle income countries (LMICs) as feedstock for highly polluting batch pyrolysis plants.

Industrial uses of tyre derived fuel

Traditionally, the cement industry has burned scrap tyres to fuel kilns that make clinker, a primary component of portland cement. Cement grade TDF is a high volume, lower price fuel that retains steel in the 60mm square shred as it benefits the chemical process. In recent years, TDF has been used in power plants for electricity generation, thereby reducing reliance on conventional fossil fuels. Other industries that require high-temperature heat, such as metal processing and glass manufacturing, also use TDF as a supplementary energy source.

Growing markets for TDF

The versatility of TDF as an alternative to coal, and stricter regulations on waste management and carbon emissions in wealthier countries, have created an international market for tyre shred. Regions such as North America, Europe, and parts of Asia, all have a large domestic supply of ELTs to deal with. Meanwhile, countries such as Japan have invested in modern, continuous pyrolysis plants to turn both domestic and imported tyres into fuel for power generation.

Owners, occupiers or operators of a waste facility can use Form 1 download to seek authorisation from their State Pollution Control Board (SPCB) to collect, receive, treat, transport, store, recycle or dispose of hazardous waste. Form 1 is also used for facilities that generate, utilise, re-use, recover, pre-process, or co-process hazardous and other waste.

Form 1 is the first of twelve hazardous waste forms that importers, exporters, transporters and recyclers can use to comply with India’s Hazardous Waste Management Rules (HWMR) 2016. The applicant needs to provide the name and address of the unit, the year of commissioning and start of production, the location of the activity, and details that include the type and quantities of hazardous waste generated, methods of storage, facility capacity, and how many shifts are worked.

Renewals

To renew an authorisation, previous authorisation numbers and dates are needed, along with copies of annual returns from the previous three years, and compliance reports regarding Prior Environmental Clearance, where applicable.

Emergency response plan

A Form 1 submission should be accompanied by a copy of the Emergency Response Plan (ERP). The ERP addresses procedures for dealing with emergency situations such as spillage, release, or fire, as specified by Central Pollution Control Board (CPCB) guidelines. The ERP sets out measures to contain and control incidents, and protect people, environment and property. It details arrangements for training staff, procedures for informing the relevant authorities and emergency services, and providing assistance with off-site mitigatory action. It also lists the safety equipment and resources available.

Form 1 also requires a declaration by the applicant to comply with all provisions, ‘including the scope of submitting bank guarantee’, in the event of a spillage, leakage or fire when handling the waste.

Hazardous waste generators

Hazardous waste generators fill in Part B of the form. This requires descriptions of the products and by-products manufactured; the process being used; and the provision of environmental safeguards and environmental facilities. Details are needed on the mode of management of waste, such as how waste is utilised within the plant. If the waste is not being utilised, the form needs to describe what happens to it.

Treatment, storage and disposal operators

Part C is compiled by treatment, storage and disposal facility operators. It requires a layout map of the site, along with information on storage capacity, and how the waste is safely stored. It includes treatment processes and capacities; secured landfills; incineration, if any; leachate collection and treatment systems; and fire fighting systems. An environmental management plan, including monitoring and arrangements for the transportation of waste from generators, should be added, along with a copy of prior environmental clearance.

Recyclers, processors and users

Part D is filled by recyclers, pre-processors, co-processors, or users of hazardous or other wastes. Required information includes the nature and quantity of different wastes received annually from domestic and imported sources; arrangements for transportation of waste to the facility; and installed capacity as registered with the District Industries Centre, or another authorised government agency.

This section also requires information on secured waste storage and capacity details; a process description and process flow sheet; equipment used; and inputs and outputs. Examples of the inputs and outputs include input wastes, chemicals, products, by-products, waste generated, emissions, and waste water.

Lastly, information is needed on the end users of products or by-products; pollution control systems, such as an effluent treatment plants and scrubbers; the mode of disposal of waste; and occupational health and safety measures. If the facility been set up in line with CPCB guidelines, the form should be accompanied by a report on guidelines compliance.

Importing certain soft commodities into the UK and EU requires an aflatoxin certificate to comply with regulations and ensure that the goods are safe for consumption. Some high-risk foods also require pre-notification before the shipment arrives at a British port of entry.

The aflatoxin certificate needs to be completed and submitted by an approved laboratory. It records the levels of aflatoxin found in the sample, along with details of the test method and the product analysed.

What is aflatoxin?

Aflatoxins are poisonous chemicals produced by some moulds that grow on staple crops such as maize, peanuts, coffee, wheat, rice, chili peppers, sesame seeds, and sunflower seeds. When mycotoxin contaminated commodities enter the general food supply, either directly or through animal feedstock, humans can be exposed to aflatoxins. This presents a particular risk to children, and has been linked to liver cancer, immune suppression and gastro-intestinal disturbances.

Acceptable levels of aflatoxin differ between regulators, and also depend on the type of food item being imported.

UK rules for imports of nuts, figs and dried fruits

Nuts, figs, and dried fruits – as well as products made from them – are subject to special import conditions when entering the UK. They can only enter through approved ports or airports. Due to contamination risk by aflatoxins, special conditions apply to the import of peanuts to the UK from Brazil, China, Egypt, Ghana and India. Special conditions also apply to hazelnuts and pistachios shipped from Turkey; pistachios from Iran; and Brazil nuts from Brazil. Shipments need to be accompanied by both a certificate of analysis, and a health certificate from the competent authority of the country of origin.

Peanut imports from the USA

Consignments from the United States of peanuts, and products derived from peanuts, should be accompanied by a certificate signed by an official of the United States Department of Agriculture (USDA), stating that the consignment complies with maximum levels of aflatoxins. It should also provide results of the sampling and analysis carried out. A similar requirement applies for aflatoxins and ochratoxin A testing of pistachios destined for the EU.

PEC certificate

An aflatoxin analysis certificate is part of the Almond Board of California’s pre-export check (PEC) certification for shipments to the EU. A PEC certificate download is not mandatory, but ensures that consignments are subject to less than 1% controls at the EU border. Since January 2024, Great Britain (not Northern Ireland) requires a separate GB-PEC certificate for almond shipments to the UK. Northern Ireland continues to accept the EU’s PEC certificate.

In the United States, PEC certification only applies to direct shipments from California to the EU of bulk and unprocessed products classified under Harmonised Tariff Codes 0802.11 (inshell) and 0802.12 (shelled). The PEC certification includes a description of the consignment, and the USDA attestation. In Canada, PEC concessions apply to the examination and testing of Ochratoxin A levels in wheat (CN code 1001) and wheat flour (CN code 1101 00) that are destined for the UK and EU.

Pre-notification for UK imports

Authorities in Great Britain need to be pre-notified before certain high risk food and feed of non-animal origin (HRFNAO) are imported, both from the EU and from outside the EU. Notification is required at least one working day before the HRFNAO is expected to arrive at the point of entry. The online portal, Import of Products, Animals, Food and Feed System (IPAFFS), can be used by importers and importer agents to do this.

Who monitors aflatoxin?

In the UK, the Food Standards Agency (FSA) advises enforcement authorities and food business operators on sampling and analysis relating to alfatoxins. In the EU, the European Food Safety Authority (EFSA) provides scientific advice and risk assessments on aflatoxins to guide regulatory measures. In America, the Food and Drug Administration (FDA) and the Agricultural Marketing Service in the U.S. Department of Agriculture, share responsibility for sampling and analysing foodstuffs for aflatoxins.

Commodities that are grown, such as coffee, wheat and nuts, are known as soft commodities to distinguish them from hard commodities, such as oil or gold, which are generally extracted from the ground. Secondary raw materials such as waste paper and scrap metal are a third category of tradable commodity, deriving from the reuse of materials.

How are soft commodities traded?

Traditionally, physical trading takes place between two parties who agree to exchange a good, such as almonds, for cash. When a transaction doesn’t involve a regulated exchange, it is known as ‘over-the-counter’, enabling the price to be kept private.

Futures markets

Soft commodities like cotton, cocoa, soybeans and livestock can also be traded on global exchanges such as the Intercontinental Exchange (ICE), the Chicago Board of Trade (CBOT) and the New York Mercantile Exchange (NYMEX). This can be done by spot trading, which refers to a commodity that is bought or sold at a live price, for immediate delivery.

However, these markets also trade in contracts known as financial derivatives. A futures contract, for example, is an agreement to buy or sell a certain quantity of a commodity, at a certain price, at some date in the future. Its value depends on the price (forward price) of the underlying commodity when the contract was made. But when the futures contract is bought or sold, it acquires a notional value which may be higher or lower depending on prevailing market prices.

What are futures for?

Farmers, and businesses that rely on farming products, use futures markets to hedge against risks such as volatile prices. So for example, a baker might buy wheat futures to ensure they get a supply of wheat at a known price over the next year. A farmer might enter into a futures contract to lock in a price for their wheat so they can plan ahead for the next year’s crop. Speculators and investors, meanwhile, buy and sell those futures contracts on the exchange to profit from price fluctuations, and to diversify their investment portfolios as a way of managing their own risks.

Why are soft commodity prices volatile?

All commodity prices fluctuate over time, but soft commodity prices can be especially volatile. Changes in the weather, crop disease, or disruptions to logistics that affect delivery of a farmer’s goods to market, all impact on price. The cost of transportation, which is linked to oil prices, and demand-side factors such as changing consumer preferences, can also cause soft commodity prices to rise or fall.

CTRM software

Because soft commodity prices are so volatile and unpredictable, traders in the physical market use commodity trading and risk management technologies (CTRM software) to protect their profit margins. These specialised enterprise softwares help traders and brokers to optimise deal-making and manage the complex logistics of shifting commodities from one part of the world to another. Modern CTRM technologies can also manage chain of custody, where the origin of a shipment of cocoa, for example, needs to be traced for compliance purposes.