Good morning, Petya, and welcome to Commodity Conversations. Could you please tell me a little about yourself?
I was born and raised in Sofia, Bulgaria. After earning my bachelor’s degree, I completed an MBA with SDA Bocconi in Milan, focusing on international business. I then moved to Belgium, beginning my career with DHL, working in logistics.
In 2009, I joined Cargill in Belgium as a trade execution operator – what people used to call forwarding. Operators ensure the correct execution of contracts. The function involves coordinating the various links in the supply chain from vessel nominations, supervision etc. and ensuring that the documents are in order.
Remember that commodity traders don’t trade commodities; they trade documents! Buyers pay for their goods before they receive them – often weeks before they receive them!
In 2010 I relocated to Geneva, Switzerland. In 2011, Cargill acquired the Australian Wheat Board, and I moved to Melbourne, Australia, where I spent two years working on merging the trade execution functions for the two companies.
I returned to Geneva in 2013, where I worked myself up to become the global head of execution for the Cargill agricultural supply chain.
How did Covantis come about?
As I moved into management positions, I found that my biggest challenge was to attract and retain talent. People would join the team and quickly master and manage the routine work. They got bored and moved on to more exciting parts of the business, like trading, analytics, or IT.
I increasingly tried to digitalize the trade execution function. I became passionate about the potential for new technologies, such as Blockchain or Artificial Intelligence, to take over the routine part of trade execution. I knew we had to modernize the sector and make it more attractive to the younger generation.
I also knew we couldn’t just do it on our own. Digitalization had to be a cross-industry initiative, pulling together like-minded professionals from other trading organizations.
All trading companies are spending a lot of effort and investments in innovation and IT – but we knew we couldn’t do the job alone. The industry is interconnected. It is a complex ecosystem that includes banks, supervision companies, agents, vessel owners, governmental organizations, and chambers of commerce. These participants work together to ensure that the supply chain operates smoothly and efficiently.
We wanted to create a project that was “by the industry, for the industry.” So, in 2018, we joined forces with ADM, Bunge, and Louis Dreyfus Company to start working on the project. COFCO and Viterra (then Glencore Agri) joined shortly afterwards, and Marubeni joined in 2022.
Our initial challenge was deciding on which sections of the value chain to focus. Should we start with farming and move through to retail, or should we narrow the scope? Should we concentrate on grains and oilseeds or broaden the range of commodities? Should we focus on origination – and if so, in what geographies?
As you can imagine, setting up an organization that at that time brought together six of the world’s largest agricultural trading companies, we had to ensure that we would be 100 per cent compliant with international anti-trust legislation.
We worked this all out, and, in 2020 – in the middle of Covid – we set up Covantis SA as a legal entity in Geneva, co-owned by its six founding members. It was effectively a technology start-up.
As I mentioned, I was part of the project team from day one and one of the initiators of the idea. I applied for the position of CEO, and I was selected.
I am excited and passionate about both my role and the company. I have a fabulous board of directors, including G-J van den Akker, an Independent Board Advisor.
Could you give me your Covantis elevator pitch – how would you explain what you do in a few sentences?
Covantis aims to accelerate global trade transformation by solving industry challenges through technology. Our vision is to create a fair, trusted platform that brings better efficiency, transparency, and information exchange for everyone working to feed the world.
How many employees do you have?
We partnered with Consensys, an external supplier who initially developed the software for our network platform. Our original idea was to have a relatively small in-house team. In 2020, there were 18 of us: the leadership team, product development, commercial, training and onboarding. We were a core group of experts, setting the direction for our vision, strategy, and scope.
We always knew that we would gradually move our software development in-house. To be a high-performing tech company, you must build the bench and knowledge inside the company to create a legacy and leverage these capabilities to expand to new processes and scope.
We started working with our partner Consensys in 2021 to see how we could develop the necessary capabilities in-house, and we are now pretty much an entirely in-house organization.
We are a team of sixty people, although we plan to increase that number by a little, perhaps to seventy.
Covantis is incorporated in Geneva, where we have considerable commodity trading talent locally, but it is challenging to find software engineers or specific product design and development roles here.
In 2022 we established a wholly-owned subsidiary in Bulgaria. We have an engaged team in Ukraine who continues to deliver high-quality work despite the war. We have people in Romania, Poland, Germany, Spain, the UK, the Netherlands, Malta, Italy, and Brazil.
We partner with an outside organization to provide global customer support to our users, and we have service providers who help us adjust to the workload.
What is the most challenging part of managing your teams?
We are a remote organization that has been scaling up very fast. We have attracted fantastic talent, but the commodity trading industry knowledge and challenges are new to most newcomers. We need to constantly invest our time in learning and development and stay up to date on the latest industry trends.
What about managing the different geographies and cultures?
It has been challenging, particularly with Covid. We recently held our first face-to-face meeting since 2020, where an important discussion point was how to build a high-performance organization when everyone works remotely. It is standard in the IT sector for people to work from home or shared offices, but they must be connected, collaborate and be up to date on the product direction and strategy.
In preparation for this conversation, I watched a webinar from this time last year. At that time, you said that your biggest challenge was to choose whether to concentrate on building the network or the platform. How did you resolve that?
We are still working on it. It is a well-known complex problem for early-day network start-ups, with no easy solution.
Can you explain that?
Our value depends on our network. We lose value if participants are absent from our platform. We have spent a significant amount of our time and energy building the network. A trade house cannot use the platform to execute a trade if its counterparty is not on it. Successful networks are considered those that have at least 80 per cent of the market participants using the platform.
It will be challenging to get to 100 per cent. Some people will always want to continue doing things as they have done in the past, but we have successfully onboarded most of the trading companies in the markets where we are live.
You cannot build a network if you offer a limited scope of capabilities. You must start with a minimum viable product, get feedback, and then consistently, quickly, and incrementally improve the value proposition. It is what we call continuous delivery or continuous iterations. We must be careful not to spend time building something our clients don’t need or want. It is why continual feedback is essential.
Building the network goes hand in hand with building the capabilities.
At the same time, we must plan our product roadmap and backlog well. Each time we introduce new functionality, our clients want more. They say, “What you are doing is great, but I also want this and this – and I want it now!”
Can you give an example?
To increase the value for our clients and enable them to communicate and exchange information with companies that are not on the platform, we developed a capability that allows traders to communicate, send and receive data, documents, and instructions in a structured way to non-platform participants. It was complex to develop, but it added considerable value. We are consistently working to improve its functionality.
I saw on your website that the number of legal entities and teams active in the Covantis platform grew by 73 per cent in 2022 and now totals 130. Where are they mainly based?
In 2021, we launched our service in Brazil, focussing on the export market from Brazil. Most of those initial participants were in Brazil.
In 2022, we launched our services in the USA and Canada, onboarding exporters and charterers from those countries.
Now our network consists of entities from all over the world acting in different roles – Fob exporters, Fob/Fob traders, Charterers, and CFR Buyers. Covid has slowed our network expansion, but we are now also focussing on building capabilities for CFR (Cost and Freight) buyers, many of whom are in Asia.
Covantis executed 519 million mt on the platform in 2022, its second year of operation – an increase of 246 per cent versus 2021. What has driven this increase?
As I mentioned, when we first started, we were only active in the export of soybeans from Brazil. We now cover grain and oilseed exports from Brazil, US, and Canada. It has significantly increased our volumes. We will soon be launching Argentina, our fourth origin.
The 519 million mt figure includes the exported cargoes plus the FOB/FOB (Free on Board) inter-trade transactions before the cargo was loaded onto a vessel.
Your website says that your platform executed 74 per cent of Brazilian and 50 per cent of US bulk exports of grain and oilseeds in 2022. Those are significant percentages. How do you calculate them?
We look at how much each country exports and then calculate what percentage of those exports went through our platform. We call this an “adoption share.”
It is indeed a significant adoption number.
How do you define “executed”?
“Executed” refers to the contractual volume nominated to be shipped on a vessel. The ship’s charterer typically sends the nomination to the seller. In some situations, there may be multiple commodity forward purchases and sales where goods are bought for forward delivery and sold through a series of subsequent buyers. It is what we call “strings”. As the network of Covantis continuously expands, many of these contracts can be executed from start to end, i.e. from the first seller/shipper in the chain to the end buyer at the destination.
Why have you not included sugar or palm oil so far – and when will you add them?
We are working with the major players to launch bulk sugar exports from Brazil, hopefully in the second quarter of this year. Palm oil involves an entirely different network of participants which we hope to start covering in 2024-2025.
We aim to cover all bulk agricultural commodities within the next three years. Once we have succeeded, we will look at non-agricultural commodities, not necessarily in bulk.
What are your most significant identified risks? What keeps you awake at night?
The first is the risk of cyberattacks to which any tech company is exposed. We must be exigent and put a lot of effort into security. The first question anyone asks is, “How can I be sure that you will protect my data from other platform users and from outside the platform?”
The second is reliability. There are financial and legal implications if our system goes down if, for example, a Notice of Readiness goes missing. Our platform must be 100 per cent reliable.
Can Covantis add value in terms of traceability?
We can add value by making the document flow more transparent. It helps visibility regarding environmental and social sustainability certificates.
However, most end-buyers want to trace their agricultural inputs back to the farm while our system starts at the loading port. One possible solution might be to partner with someone who already covers the flow from farm to port.
Does Covantis have a role in finance and payments? Does its transparency facilitate commodity trade finance?
Absolutely, yes – and that role will grow!
Most of the international trade in agricultural commodities is conducted under UK law. In October last year, the UK officially introduced into parliament “The Electronic Trade Documents Bill”, which enshrines the idea that electronic trade documents such as bills of lading, warehouse receipts, and promissory notes are capable of being “possessed” and exchanged. Once passed, the bill will provide the legal basis to transition to a digital trade document environment and will likely provoke other jurisdictions to follow suit. We are considering allowing our clients to present electronic documents to the banks for payment and discharge the cargo.
How does Covantis generate revenue – and how do you measure the return on investment for your shareholders?
We charge all participants – including our shareholders – a fee for using our platform depending on their role, the volumes they transact and the value they can extract.
We have been modest in our pricing to encourage adoption. We want to make Covantis the industry standard, but that will take time.
The investment to date has been significant, and our revenues are not yet providing a return on that investment. Building the infrastructure and the network is a front-end load investment that will pay off over the next few years. We believe that our shareholders will see a good return on their investments in terms of money and cost reduction (from using the platform).
ADM, Bunge, Cargill, COFCO, Louis Dreyfus Company, and Viterra are founding members. Marubeni joined in 2022. Have other companies asked to become shareholders – and how would you react if they did?
We are not exclusive to having discussions with other interested investors, especially if there is a strategic fit.
I know that competition is ferocious between the big trading companies, but this is not the general belief among the public. How do you manage the optics of having seven trade houses “controlling” the food supply chain through Covantis?
“Controlling” is not the right word. We use “equal ownership” instead. Covantis is independent of its shareholders, with its own governance, organization and decision-making structure. Covantis is established on a type of governance known as a “shifting alliance model”, where no shareholder can veto strategic business decisions. Our mission is to build a fair and trusted platform.
Covantis was never intended for the exclusive benefit of the large commodity trading houses. It is for all the actors in the value chain, no matter their size or geographic location.
One of the main reasons why the competition and anti-trust authorities gave us approval was that no one has access to data other than their own. There is no sharing of information stored on Covantis, nor can Covantis JV be used as a forum for the prohibited information exchange between shareholders.
We do not favour – or privilege – shareholders above other users, including in our pricing approach.
That’s it, Petya! Thank you for your time and input!
© Commodity Conversations® 2023