A conversation with Kiran Wadhwana
Good morning, Kiran. How would you describe what you do?
I am an origin broker active in the Indian export market for physical sugar. I act as a middleman between a mill wanting to sell physical sugar for exports and a trader looking to export that sugar. I earn a commission on any trades that I put together.
Why do traders need origin brokers in addition to their own local offices?
When you have your own office, people move in and out, getting promoted or changing firms. It means that most relationships are with the company and not with the individual – and they could be weaker as a result. An origin broker builds up personal relationships with suppliers over a long period.
Origin brokers will have a detailed understanding of what is happening in their procurement areas regarding crop prospects and industrial processing capacity. For example, have any mills increased capacity or added a refining end?
As an origin broker, I keep my ear to the ground, and with my long-term relationships, I can get a good feel of the moves and trends in the local market – perhaps better than if a company has its own office.
There is also the issue of counterparty risk. As an origin broker, I must know the financial condition of clients. I must evaluate the risk that they may default on a contract if the market moves against them.
Do traders pay for you to bring the offers and put the trade together, or do they pay you for your market information?
It is a good question. The answer is probably ‘both’. In addition to broking, I also double up as a consultant for both local mills and international trading companies. Some take me on a retainer. I help domestic mills understand the world market and help international traders understand the local market.
I send out a weekly report that covers crop progress, government policy, industrial capacities, and trading issues. I also cover ethanol policy; it is critical to the sugar market.
Government policy is probably the toughest. It is also critical. India’s government can’t just look at one commodity. It must look at the total domestic food supply. We have such a vast population it would be impossible for other countries to supply our needs.
You could say that I am a bridge between the domestic and international markets, with information flowing in both directions.
Who pays you on a brokerage deal?
I structure my business such that the sellers, rather than the buyers, pay the commission. That may or not be the same for other brokers.
I usually charge 50 rupees per tonne, but some brokers charge double that.
Are there lots of origin brokers in India for sugar?
Yes. India has a large domestic sugar market. Last year we exported about 12 million tonnes, while the domestic market is 27 million. Most brokers only work in the domestic market, although some double up and do exports. A domestic broker may not understand the export market. I am probably one of the few who works exclusively in the export market. I don’t do any domestic broking.
There are probably 15-20 brokers active in the export market.
There is a thin line in India between a broker and a trader. One day someone may be broking, and the subsequent day trading. I think I am the only one who only does broking. I do not trade.
Could you describe a typical day?
I am lucky to have worked from home for the past 20 years, and there is no distinction between home and office life. It may sound good – and it is – even if it means that I work all the time!
I get up at around 5 am, do my morning exercises, and then read the overnight futures, physical market, and analytical reports. I use this quiet time to check recent trades’ logistical and execution details. I also do any administrative tasks that need to be done.
At around 8 am, I receive the overnight reports from New York. By then, my Indian clients have begun to contact me on WhatsApp, asking questions, exchanging market information, looking to buy or sell physical sugar, or checking on execution issues. I used to do everything by telephone, but it has now moved to WhatsApp.
European clients wake up at around 2 pm my time. It starts to get busy as they are either looking for sugar or trying to keep abreast of any policy developments that may have occurred overnight in India. That goes on until around 7 pm, when the New York futures market becomes more active. I advise some Indian clients on pricing their export sales on the futures exchange. The moves in flat price can also generate new physical business.
My day ends around 8.30 pm. It sounds like a long day, but I don’t have to commute. The line between home and office is, well, thin. I am a few years from retirement, and I don’t have to put as much effort into my business to get the same result as I used to. I like that.
What skills and experience do you need to be an origin broker?
An essential skill is getting on with people and managing relationships with clients. To do that I think that you must like people and social interaction. You must also be prepared to accept ‘no’ as an answer and realise that markets can be calm for extended periods.
Working in India, I must keep a keen eye on government policy. We have a new policy every year. I try to understand the workings of domestic politics and anticipate what policy may be and how it might affect the markets.
Perhaps experience is more important than any skill set. Over my career, I have been a farmer, a miller, a trader, a futures broker, and a consultant. It has allowed me to understand both domestic and international markets.
My grandfather started the family in the sugar business and founded the company ITC – International Trading Company – under which I still operate. He was a trader, but now I only do broking and consulting.
Tell me about your time as a farmer and mill owner.
When I finished my MBA in the US in 1985, my father said, “Well, you have been educated in the best universities in the world. I will buy a sugar mill, and you will run it for me!”
The mill came with the 4,000-acre farm, and I became one of India’s largest sugarcane growers. I learned the business from the ground up, even if I was a gentleman farmer.
So, you were not in the field with a machete cutting the cane?
I went to the fields in a jeep but didn’t have a machete!
Out of all the hats you have worn, which is the one that has taught you the most?
My time as a gentleman farmer and miller helped me enormously. If I had not had that experience, I would not have such a good understanding of the underlying issues in the market – nor would I have been able to have such a good relationship with the mills. You can only understand the psychology of a farmer if you have been a farmer. The same applies to milling. I did both for more than 20 years.
What happened to the farm?
It is still there but under litigation with the government. The Urban Land Ceiling Act, passed in 1976, limits the amount of land a farmer can hold is 75 acres unless the farm is mechanised. Our farm is mechanised, but we are still fighting the issue in the courts. Local people have encroached on the land. It is still in our name, but local people live there and farm it.
The farm has an issue with water. The local government has diverted the farm’s water supply to urban areas as the population has grown.
The farm has become more of a liability than anything else.
What about the mill?
It is still there, but it has been closed for 20 years. We built a school in the factory area that we run along with two other schools we opened in local villages – a total of 1,400 students from nursery to year twelve.
We also built a religious temple on the mill site for the local population.
Which is the hardest job in your supply chain?
Farming is by far the hardest. It is the most complex and risky part of the sugar supply chain. Although Indian farmers receive a fixed price for their cane, many other factors can affect their crops: climate, weather, and insect infestations (sometimes from neighbouring farms).
New technology may make farming more accessible, but it remains risky and complex. Sitting here in an air-conditioned office is far easier than being out there in the fields.
What is the worst thing about your job?
When people default on a contract.
There are two types of defaults. The first can result from an adverse market move; for example, if a mill sells you sugar at one price, the market price increases, and the mill sells the same sugar at a higher price to another buyer. Knowing your client and helping them manage their sales can reduce counterparty risk from adverse market moves.
The second type of default can occur because of a change in government policy, for example, if the government restricts exports.
I find the second the most stressful. It can result in huge losses for both millers and traders.
Is government policy – and changes in government policy – the biggest challenge you face?
Government policy is OK. Policy changes – or the delays in announcing policy – cause problems. Mills need to sell their sugar three months in advance, but the government thinks that once they reveal the policy, the mills can export the next day. It doesn’t work like that. Mills are industrial units that must plan at least six months ahead.
Do you need different skills as a broker compared to being a trader?
The trader looks at a deal in terms of what it means for his bottom line – how he can make money from it. A broker aims for a win-win for both sides. When I sell sugar for a mill, I need to understand the miller’s costs, their concerns and what other options they have. But I also know that the trader must make money, or they won’t do the business. I tell the trader he must leave some money on the table for the mill, or he won’t return to you next time – and vice versa.
I am constantly looking to achieve a balance – that’s what makes you a proper independent broker.
When I was broking, I found that I was always trying to keep people happy. Broking suited my personality as I tend to avoid conflict. Traders often find themselves in a conflictual situation where they must fight for their margin. Does that apply to you as well?
Very much so! I work to bring people together. I avoid conflict.
Conflict avoidance is not just a question of personality. It makes sense from a business perspective. The only raw material I have is my time. I must use it wisely. If you get into a conflict, you waste too much time trying to solve a problem rather than doing any productive work. So, if you can nip a conflict in the bud – not let it develop – you will have more time to do more deals while keeping your existing customers happy.
Your brother works as a trader for a trade house. It is interesting that in the same family, we have two brothers, one a trader and the other a broker. How does your brother’s character differ from yours – and how do your skillsets compare?
My brother is more of a risk-taker than I am. He has a higher appetite for risk.
As a trader, he may do business with a financially weak mill and take a chance on the counterparty to get a good deal. That is something I would fear doing. I prefer to have a financially strong counterparty and not get into a conflict over contract performance.
My brother doesn’t look at the physical volume of the business he does but rather the profitability of each trade he does. I have a fixed commission per tonne, and I will try to maximise volume while simultaneously ensuring that the counterparties are strong and that there is no risk of default.
Is your brother braver than you?
He takes risks that I wouldn’t be willing to take. It is also a question of age. As you grow older, you become more risk averse. I am 5-6 years older than him.
How does that affect your ego?
Markets have a way of beating the ego out of you, whether you are a broker, analyst, or trader! We can all get things wrong. Humility is an asset. No one is always correct, and, in your career, you will get things wrong.
What is your favourite thing about what you do?
Making money!
And your second favourite thing?
I am constantly learning. I learn something new every day. I learn from my clients and from people who ask me questions. My clients teach me everything.
I love to train younger people. When I teach them, I learn from them.
What advice would you give to a young person starting in the business?
Understand what drives production! If you don’t understand production, you will never understand your market.
Last question – what would your 20-year-old self think of you now?
Funnily enough, I recently asked myself that same question.
My 20-year-old-self would never have imagined the path I followed. I was in the US when I was twenty, finishing my undergraduate course in Houston, Texas, and applying for an MBA at the University of Michigan, ANN ARBOR.
There were six of us from India on the MBA course. Four stayed in the US and two, including me, came back to India. I keep in touch with the four who remained in the US. They are all successful and certainly have more money than I have. So, if you judge success purely on money, they are all more successful than me.
Religion plays an integral part in my life. As I mentioned, we built a temple on the site of our mill, and I am a trustee of the Akshardham temple in Delphi – the biggest Hindu temple in the world.
The guru who built the temple, Pramukh Swami Maharaj, always said, “In the joy of others, I find my own.” I have applied that motto in both my private and business life.
So, when it comes to life quality and philosophy, I am satisfied with – and proud of – the life I have led. I think my 20-year-old-self would be too!
Thank you, Kiran, for your time and input.
This conversation is part of the Commodity Professions – The People Behind the Trade series.
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