A conversation with Jean-Luc Bohbot

Good morning, Jean-Luc. What is Wilmar’s position now in the sugar business?

We are the only global, fully integrated sugar company involved all along the supply chain. We produce sugar from both cane and beet. We are refiners, traders, distributors, and we have our brands.

We have 24 mills worldwide: eight in Australia, seven in India, seven in Morocco, and two in Myanmar. We process about 21 million tonnes of cane and 6 million tonnes of beet globally per year. All that adds up to an annual sugar production of approximately 3.5 million tonnes.

In addition to our cane and beet mills, we also have nine refineries: two in Indonesia; two in Australia; one in New Zealand; two in India; one in Saudi Arabia; one in Morocco – in total, about six million tonnes of refining capacity.

Without double-counting, we have an annual trading volume of around 16 million tonnes. In terms of distribution, retail and the food industry, we do about 3.5 million tonnes. We manage various consumer brands, for example, Chelsea in New Zealand, CSA in Australia, Madhur in India, Gazelle, and others in Morocco.

Our business model is to have our assets and trading fully integrated, where trading contributes to the asset performance using the assets’ ‘captive’ volumes.

Which countries have the most significant impact on the sugar price?

Two countries drive the price on the supply side. Brazil is the first, with about 60 per cent of the world export market. India is the second, with big swings in production and exports and a hefty dose of politics. India always has the potential to destabilize market equilibrium in one direction or another.

China drives the price on the demand side. It is the world’s biggest importer of sugar, and domestic demand continues to grow. It’s not just sugar. China is a major importer of grains and soybeans. These commodities, along with sugar, are of strategic importance to the country. China operates a system of strategic reserves. It often makes it difficult to predict whether they will meet domestic demand, or part of domestic demand, by running down stocks or through imports.

What are the other price drivers?

The world is going through an energy revolution of decarbonization, transiting from fossil to renewable fuels. We are just at the beginning of this revolution.

Developing countries face a more significant challenge than developed countries. Not only do they have to manage existing demand, but they must also manage two-digit growth in energy demand. It is an important issue for them. To reduce GHG emissions, they must react strongly and quickly. Bioenergy could play a growing role in the range of options offered to control footprint emissions.

Today, sugar is highly correlated to energy – particularly crude oil – due to the link in Brazil and, increasingly, in India. Brazil can swing 30 to 70 per cent of the sugar or ethanol ratio production – that’s a lot of sugar! Ethanol can also play a key role in hydrogen as an energy source. It could also be used in jet fuel.

This energy revolution will impact all agricultural commodities, and there will be increasing convergence between agriculture and energy – green energy.

At the same time, climate change is making the weather increasingly unstable and unpredictable. This year, we have drought across the Americas, frosts in Southern Brazil and floods in Europe. I can’t say for sure that climate change is producing these dramatic weather shocks, but I feel that they are a foretaste of what is to come.

Agricultural commodities, whether sugar or soybeans, depend too heavily on a few countries to produce them; weather shocks in these few countries have a multiplier effect on production and price.

Are you worried that electric vehicles (EVs) might negatively impact ethanol demand?

Not really.

Leaving aside deforestation, Brazil is one of the least polluting countries globally, thanks to hydroelectric power, ethanol, and bagasse. Ethanol produces 70 per cent less CO2 than gasoline. Brazil is a world leader in terms of GHG emissions from transport. Why would Brazil change its energy matrix to include EVs, considering the investment they would need to build the charging infrastructure?

EVs are a solution for Europe and the US – countries that can afford to invest massively in the necessary charging infrastructure or for local cars in highly polluted big cities like in China. Many countries don’t have the capital to build the required charging infrastructure. It will lead to a backlash against EVs and a slowdown in demand growth. EVs are great for people in rich countries who don’t drive long distances or remain within a specific range of their homes or offices.

Ecologists like EVs, but the GHG footprint of EVs depends on how you produce the electricity. India produces over 70 per cent of its electricity from coal. About 20 per cent of the lifetime GHG footprint of an electric car occurs during its manufacture. When, on top of that, you use coal electricity, your final GHG footprint is not a positive contribution. It is no surprise that India is making a significant move towards ethanol.

In China, coal provides most of the electricity. It is fossil fuel electricity, not green electricity. EVs won’t help China or India significantly transition from fossil fuels; instead, they will keep them in place. Natural gas is 50 per cent less polluting than coal but is still 20 to 30 per cent more polluting than ethanol. The transition in developing countries will be towards a mix of solutions, but with ethanol playing a more prominent role.

There is also a question of how long it will take to replace the existing fleet with EVs. The average car in India is 15 years old. It will take years for the country to move to EVs, and the world can’t wait that long. We need an urgent solution. Ethanol is a cheap and immediate option for developing countries to reduce their CO2 emissions from road transport.

 Thank you, Jean-Luc, for your time and input.

This is a short extract from Commodity Crops & The Merchants Who Trade Them available on Amazon.

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