Trading is a people business

A conversation with Ito van Lanschot

Ito van Lanschot is a business developer, strategist, investor, leader, risk and commodity expert. He is founder and managing director of TRADESPARENT BV, (formerly named Commodity Services & Solutions) which is today a leader in commodity data and solutions.

Previously Ito was CEO of BayWa Agri Supply and Trade, President and COO of Reliant Energy Europe and CEO of Nidera where he was directly responsible for the international trading and processing business and operations for the grain and oilseeds complex, freight, energy business and the development and implementation of its global risk group.

You left Nidera 4 years before COFCO acquired a 51 percent stake. While you were CEO, had you already started to look for an equity partner for Nidera?

Indeed, as the company had grown tremendously, and financing became an issue—how do we finance future expansion? Markets were volatile and prices were rising; high prices mean that you need more trade finance. Banks were willing to lend, but they increasingly looked at Nidera’s solvency ratio. Equity was important, and we needed more equity. We started to look around for equity partners to take a 10 to 15 percent in the company

Why did the families decide to sell the whole company rather than the initial 10 or 15 percent?

I left Nidera in 2010 so I was not involved in the transaction. I can only speak from what I have heard second-hand. While our initial intention had been to find an equity partner, the families also wanted a strategic partner to help grow the business. They found that strategic partner in COFCO.

COFCO was interested in acquiring the origination assets that Nidera had in Argentina and Brazil. Nidera was interested in COFCO as a strategic partner. The 51 / 49 percent deal that they eventually agreed was in line with that logic. The idea was that Nidera’s managers would continue to run Nidera with an assist from COFCO.

Nidera posted its first loss in five years in 2015 after a rogue trader incurred losses of around $200 million in the biofuels market. How did that happen, and why didn’t risk management controls catch it earlier?

I was the last CEO of Nidera who had a trading and risk management experience. A financial manager took over after me, and ultimately a gentleman from Unilever. As often seen in the various trading industries, it is difficult to manage traders, you can have the best governance structure and control systems, but you always have to keep your eyes open for anything that looks out of the ordinary. So, I believe it is easier for an experienced trader to understand and to know what is not right. It takes a trader to catch a trader.

Do you think there is still a role for small trading houses in today’s market?

You have to be highly specialized to operate in a trading market. With the strength of the farmer and the strength of the consumer, the trader has to have a very defined role and to add value. I find it hard to believe that the smaller traders can add value unless they have something really unique in their product offering. And the markets are so transparent that this is unlikely.

The large guys are struggling as well. Our whole industry is going through a period that is similar to the time after the Great Grain Robbery of the 1970s. It was difficult to make money in the 1980s and 1990s, and it is difficult to make money now.

What are the greatest risks or challenges that the trading houses face today?

The biggest risk a manager has is in taking decisions on reports based on incomplete or incorrect information. It is a real struggle for companies to collect the correct data in these fast moving and complex markets. Senior management needs to drive this effort and embrace technology themselves, and not leave it to their IT-staff alone.

In the past, trading companies had margins, so they could get away with taking the odd bad decision; everyone makes bad decisions from time to time. But today there are practically no margins in the business, and you are punished immediately for a bad decision.

Thank you, Ito, for your time and insights.

© Commodity Conversations ®

This is a brief extract of a conversation from my new book Out of the Shadows – The New Merchants of Grain available on Amazon

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