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Annex 7: relationship, obligations and rights of the FLO members

The relationship, obligations and rights of the Fair Trade Labelling Initiatives members of FLO-International and of the organizations inscribed in the FLO-International Coffee Producers' register:

FLO-INTERNATIONAL CONDITIONS FOR THE PURCHASE OF COFFEE

(Annex 2 to the Agreement)

1. In any commercial document this set of conditions will be referred to as the "FLO-International Conditions".

2. Only organizations of small coffee producers inscribed in the FLO-International Coffee Producers' Register (FLO-CR) will be entitled to sell green or processed coffee to be marketed under one of the Fair Trade labels promoted by the signatories to the FLO-CR.

3. Buyers and sellers will procure to establish a long term and stable relationship in which the rights and interests of both are mutually respected. Buyer and seller will sign contractual agreements for the first part of the season and a letter of intent for the rest of the season, to be confirmed by purchase contracts as the harvest progresses, which stipulate basic conditions such as: volume, quality, procedures to establish differentials and fix prices, shipment schedules, etc.

4. All other customary conditions applicable to any international transaction will apply, such as the conditions of the European Contract of Coffee, latest edition (hereinafter to be referred to as ECC-conditions), unless overruled by any of the special FLO-International conditions as specified herein.

5. All buyers functioning in the FLO system use international standards when they fix prices and consider to include "price fixation at seller's call" (against the relevant position of the futures market) into their policy.

6. Price fixation, once effected and confirmed, cannot be changed, neither by the buyer nor by the seller.

7. For Arabicas the New York "C" contract shall be the basis of calculation. The price shall be established in US$-cents per pound, plus or minus the prevailing differential for the relevant quality, basis F.O.B. origin, net shipped weight.
For Robustas, the London "LCE" contract shall be the basis of calculation. The price shall be established in US-dollars per metric tonne, plus or minus the prevailing differential for the relevant quality, basis F.O.B. origin, net shipped weight.
When by legal regulation, all coffee has to be passed through the auction, importer and exporter will agree upon a reasonable margin for the exporter to cover his costs.

8. Over the under '7' established prices, there shall be a fixed premium of 5 US$-cents per pound

9. For certified organic or biological coffee with officially recognized certification, that will be sold as such under the mark of one of the marking organizations signatory to the agreement governing FLO-CR of which these FLO-International conditions form part, an additional premium of 15 US$-cents per pound green coffee will be due, on top of the FLO-International price as determined under points 7 and 8.

10. To protect the producers, minimum prices have been defined which overrule FLO-International prices as defined under 7 and 8 when these are lower than the relevant minimum price. The minimum prices vary according to the type and origin of the coffee. The next minimum prices, including quality differentials, the fixed FLO-International premium of 5 US$-cents per pound and the organic premium of 15 US$-cents per pound, apply: (all prices in US$-cents per pound F.O.B. port of origin)

11. Payment shall be net cash against a full set of documents on first presentation. The documents to be presented will be those stipulated in the contract and the ones customary in the coffee trade

12. Pre-financing:

• In the case of contracts with fixed prices the buyer shall make available up to 60% of the contract value, on the request of the seller.
• In the case of unfixed prices the buyer shall make available up to 60% of the estimated contract value on request of the seller, as long as buyer and seller agree upon a mechanism that guarantees the contract value(s) will cover the pre-financing, e.g. by a 'stop/loss' clause. In the absence of such a mechanism, seller is entitled only to request pre-financing of up to 60% of the FLO-International minimum price.
• Pre-finance must allow producer organizations access to cash to buy from their members. The payment instruments(cash, L/C Red Clause, etc.) will be arranged in the contract, by mutual agreement.
• In principle the pre-finance is meant for the first-level organizations, but in practice it is linked to the contracting parties (the sellers and the buyers). If the exporter is not a member of the register he will receive the pre-finance, but beforehand the exporter and the FLO-CR partner organization have to agree upon the handling of the pre-financing money and the fulfilment of the contract.
• In case of several shipments the spread of the pre-finance must be fixed in the contracts. It is not always necessary to pre-finance the whole amount before the first shipment. Pre-finance must be adapted to the real needs of the producer organization.
• If an importer requires the extension of the shipment schedule beyond the limits of sound commercial practice of the producer organization (three months after the harvest), the real costs of storage, interest and insurance must be covered (by the importer) in the terms of the contract. This rule is not applicable for those organizations in whose respective countries exist specific export regulations which make the above unworkable.

13. In case of dispute, parties are held to inform the involved marking organization signatory to the agreement governing the FLO-CR, of which these FLO-International conditions form part. If possible, mentioned marking organization will work out a settlement proposal to be presented to both parties. If this settlement proposal is not acceptable to either of the parties, the dispute will be submitted to arbitration according to the ECC conditions, latest edition.