Commodity Conversations Weekly Press Summary

Brazil’s agriculture minister said the government was looking into ways to incentivise the financing of sustainable agriculture. She said that there were currently no interest-free loans for sustainable producers and that reaching out to small farmers was a challenge. Some banks are trying to step into that space, with Itau BBA saying its loan portfolio for the agricultural sector had increased to BRL 37 billion (USD 6.6 billion) in the first half of 2020, from BRL 30 million (USD 5.3 billion) for the whole of 2019. 

Taking a different approach, analysts at HSBC warned investors about Brazilian meat giant JBS after some funds dropped the company from their portfolio. They said that the group had no ways – and didn’t plan to set up systems – to ensure that its supply chain did not contribute to deforesting the Amazon. Nonetheless, HSBC still recommended buying JBS stocks, hoping that a plan to list on the New York Stock Exchange would force it to improve on governance. 

Commodity trading financing is going through a crisis, on the other hand. Several banks, such as ABN Amro, announced they were exiting the field while others are “reviewing” the situation, such as BNP Paribas and Rabobank. Banks have been trying to offset low and negative margins with higher volumes, taking increasing risks, which has been compounded with tougher regulations. This is paving the way to more expensive financing which could benefit bigger players by squeezing out the smaller ones, some say. But this could also lead to more expensive food down the line.  

In India, meanwhile, ICICI Bank is now using satellite images of farms to make financing decisions for the country’s millions of small farmers. The new system is also helping reduce costs by replacing the thousands of officers sent to visit farms before loans are granted. 

Unilever is working with Orbital Insight on a pilot program using geolocation and artificial intelligence to improve transparency in its supply chain and specifically the so-called “first mile.” It is starting with several palm oil mills in Indonesia and soy mills in Brazil to see where they really get their supply from by monitoring the real-time movements of trucks. A Unilever official explained that the “first mile” had presented a significant challenge, especially considering that almost half of Indonesia’s palm is supplied by small farmers. 

It is because it is so difficult to monitor supply chains that Olam created its AtSource sustainability platform back in 2018 and is now making it available for its customers. The group has some 3,500 “boots-on-the-ground” to collect the information. AtSource’s CEO explained that challenges vary from one supply chain to the other. In cocoa, for instance, there is a big focus on providing farmers with a sustainable income. In dairy, the priority is animal welfare while in Cote d’Ivoire, child labour is a major concern. They have to develop metrics for each of these requirements, he said. 

Companies are also struggling to choose which sustainability commitments and initiatives to choose from, given the multitude of options available. The Lobbying group Business for Nature noted a surge in big companies’ willingness to step up their commitments to protect nature, after decades of lackluster interest. The head of a large British supermarket chain said that customers were asking for it, but he added that more demanding government policies would help turn commitments to real action. 

One country which is stepping up its game is the UK. The government is looking into new regulations to eradicate deforestation from the supply chain of big groups such as supermarkets and fashion companies. The plan put forth, which is currently in consultation, would require these companies to prove the origins of products such as soy and cocoa, but also leather and paper, showing that these did not involve deforestation. 

As such, businesses across segments are starting to see the benefits of working together. A sustainable sourcing specialist working with fashion conglomerate Kering said that fashion and agriculture were completely interconnected as things like leather, wool and cotton come from the same places our food comes from. By working together, these industries could multiply their sustainability impact. 

On the subject of joint efforts, the alcohol industry is looking into cashing in on the health trend. The FitVine Wine, for one, is marketed as a “low-sugar, keto-friendly wine.” If this doesn’t sound too appetising, don’t worry, because a group of Finnish researchers said they have finally found a cure for hangovers. The study wasn’t easy to do, apparently, with some participants who couldn’t cope with the amount of alcohol that had to be ingested while others just wanted more. 

This summary was produced by ECRUU

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