The FT Commodities Global Summit last week in Lausanne once again attracted many of the top players in the industry. The conference has established itself as the “must-go-to” commodity event of the year; it is the only event that I know of where you can get a genuine feel of what is occurring in the wider markets. But not only that, it is the only commodity conference I know of without a single PowerPoint presentation! Paradise!
This year’s event was entitled “Natural Resources in Transition”, and was, as expected, largely focused on the extractive industries: oil and gas, and metals. Electric vehicles were at the centre of the debate, and the effect that they would have on the demand for oil, lithium, cobalt and copper. Just a few years ago, people were discussing when oil production would peak; now the debate is about when demand will peak. The consensus at the conference was that demand will stop growing sometime around 2035, but there was some disagreement as to whether it would then decline or stabilize.
But then consensus is often wrong. At last year’s summit there was a consensus that the supply of cobalt would not keep pace with its demand from battery manufacturers; everyone at that time was bullish on cobalt prices. This year, there was a consensus that, given the right price incentives, supply is far more elastic than you would expect.
Most of the unexpected cobalt production has apparently come from artisanal mining in the DRC, unfortunately the type of mining with the worst safety conditions and greatest prevalence of child labour.
Slowing growth in oil demand is encouraging the trading companies to look more closely at renewable energy sources, and I was surprised to hear biofuels being discussed in a positive light—the first time for many years. With the current agricultural surpluses and low prices, biofuels are once again profitable and, because they help maintain farm incomes, are once again finding favour with politicians. I don’t want to be a pessimist, but that will probably only last until the next spike in food prices. The food versus fuel debate has not gone away; it is only on hold.
In addition to a keynote speech by Johnny Chi, the Chairman of COFCO International, there were three key panels on food and agriculture. The first, a “Leaders’ Debate, was with Ian McIntosh, CEO of LDC, Chris Mahoney, CEO of Glencore Agriculture, and Stefano Rettore, Head of Origination, Trading and Operations at ADM. The discussion was more upbeat than in a similar panel last year; margins have obviously improved, undoubtedly helped by the market disruption caused by the trade war between the US and China.
The main point of disaccord on the panel was the right strategy to follow in response to what appear to be structurally declining margins. As LDC has made clear over the past year, the company is looking to diversify beyond straight trading to become a food company with an integrated supply chain. Similarly, ADM has made a big push over the past years into food ingredients and flavours. Glencore, however, believes their money is better spent on trying to increase efficiency in the portion of the supply chain in which they already operate, rather than seek margins in related businesses.
The second agricultural panel was on Blockchain, and what it could bring to the trading industry. The answer appears to be improved efficiency and security, and lower costs—but no revolution. Also, it was made clear that Blockchain will take time to put into place; it is better to go slowly and get it right rather than rush it and mess it up. All of the major trading companies are cooperating on the project.
The third agricultural panel was on The Future of Food. The panel asked itself the question, “What does the consumer want?” The answer, it seems, is, “It’s complicated.”
There was agreement that environmental sustainability and human rights are now central to the food supply chain; they are no longer a “nice to have, if possible.” However it is not easy to build a truly sustainable and traceable supply chain. It is also expensive, and someone has to pay. Unfortunately that “someone” is rarely the consumer; it is more likely to be the farmer and the trader. (Even so, it still has to be done.)
Apart from a demand for sustainability and the respect for human rights, the future of food is a swirling mass of different trends and beliefs, beliefs that are now held with almost religious fervour. There is an old saying that “you are what you eat”, but you could now add, “you eat what you believe.”
My takeaway was that the future of food is twofold. It is first “flexitarian”, with meatless Mondays and a greater concern for animal welfare. And second, and perhaps somewhat contradictory, the trend will continue for diets to contain more protein and fewer carbohydrates. So no respite then for the sugar industry.