The four ABCDs – ADM, Bunge, Cargill and Louis Dreyfus – all reported that the US-China trade dispute had hurt their bottom line in 2018 despite some initial optimism. Bunge’s agribusiness reported a gross profit of USD 203 million in the fourth quarter, down from USD 238 million last year, and a net loss available to shareholders, mostly because of the truce in the US-China dispute which devalued its Brazilian soybean stocks. Similarly, Wilmar reported a 50% fall on year in net profit during the quarter, at USD 201 million, mostly due to losses in its sugar segment. Regardless, the CEO said the company might look at expanding its sugar business this year, such as buying Olam’s two sugar mills in India if the price was right. Olam, meanwhile, announced that it has purchased the largest cocoa processor in Indonesia, BT Cocoa, to help it integrate its cocoa supply chain.
Looking forward, volatility could remain high next year despite the recent US-China truce. A survey revealed that most US firms expect the situation to stay the same or deteriorate further. Analysts also suggested that the enforcement of any trade agreement could create more uncertainties. But while volatility used to be perceived as an opportunity to increase profits the trade houses’ performance suggests this is not necessarily the case.
Slowing demand growth and increasing transparency are also making it harder for traders to make money. A grains broker argued that “agriculture, in general, is doing a phenomenal job of producing goods, but unfortunately demand is relatively slow.” A hedge fund manager added that to survive, traders are either going to have to reposition themselves in the supply chain or move to riskier, less transparent markets.
On the brighter side, the shift from meat to vegetable protein is expected to change world trade flows and create new opportunities. Contrary to the huge volumes of grains traded globally, pulses, for the moment, are eaten mainly where they are produced but this could soon change.
Talking of grains, the USDA noted that Russia will take the lead as the world’s largest wheat exporter this year, after doubling output over the last 10 years. New wheat varieties, better harvesting technology and improvements in port and rail infrastructure have allowed Russian wheat to compete with US origin even in Mexico.
The share price of Kraft Heinz dropped 27% last week, wiping out close to USD 16 billion in market value, following a series of bad news such as an asset write-down and an SEC subpoena. Analysts said Kraft Heinz might be facing an existential crisis as it has failed to adapt to changing consumer tastes and stagnating sales. Some market commentators noted a pattern where large EU firms such as Nestle, Unilever and Danone, have so far been successful in staying relevant. Nestle, for one, has just released an organic version of Nescafé Gold in the UK.
However, researchers note that large corporations are failing to make their core brands more environmentally friendly, which is just as important as encouraging innovative start-ups. Nonetheless, the CDP research firm ranked Danone and Nestle as the top two companies most involved in addressing climate change, out of 16 major consumer brands. The last position went to Kraft Heinz.
A new FAO report highlighted that our food system is destroying biodiversity, which in turn is putting our whole food supply at risk. The head of the WWF said he was optimistic that humans could find long-term solutions, through changing diets, technology, and reduced waste but solutions might not be as obvious as they seem. This crop scientist argued that the boom of “ugly” fruits and vegetable shops in the US is not helping reduce waste – as farmers would otherwise plough them back into their fields or fed them to animals. A better solution, she adds, would be to move away from open-field farming towards much more efficient greenhouses. Similarly, after trying to live sustainably for a week, this VICE journalist said individual efforts to live sustainably won’t matter much unless large corporations and government took measures too.
In Africa, a think tank published a report warning food investors of the risk of legal disputes over land ownership. It pointed to recent policies in Liberia and Sierra Leone which potentially exposes agricultural producers to challenges by local populations claiming ownership of the land. The solution, the report says, is to develop long-term relations with locals.
Finally, in Sudan, exporters of gum arabic have been able to survive political unrest and US sanctions thanks to strong international demand. That’s because gum arabic, which is extracted from the acacia tree, is an essential ingredient in soft drinks. So much so that the US had exempted it from its sanctions. Sudan exported 60% of world supplies of gum arabic in 2018.
This summary was produced by ECRUU
