A conversation with Robert Kuok

Robert Kuok’s memoirs have been released this week in Malaysia, and six extracts have been published in The South China Morning Post. The first can be found here. The book is not yet available on Amazon

Born in October 1923 in Johor Baru Malaysia, Robert Kuok (or RK as he is known) is a major figure in the world of sugar and has been nicknamed “The King of Sugar”. He has been an extraordinarily successful businessman and apart from sugar and commodities (Wilmar), he is best known as the founder of the Shangri La Hotel chain. Like many successful Asian businessmen, he is media-shy and rarely gives interviews.

I had the honour and the pleasure to converse with RK over three days in 2015. I published a small part of that conversation in my book The Sugar Casino. The Financial Times in turn published some extracts. If you haven’t yet read my book The Sugar Casino (shame on you), here is a taster:

RK welcomed me and apologised for his terrible cold and cough. He had caught it on a recent trip to London where he had been visiting the latest addition to his hotel chain, the Shangri La in the Shard Building. I started by trying to explain my book project but he seemed distracted by his telephone.

“I see I have four messages but I don’t know if they are important”, he said. “Ah yes, last night’s sugar market close.”

“You are not still trading the sugar market?” I asked, astonished.

“I watch the market every day” he replied. “I started in 1955 and this “topping up” takes seconds; if I stop I can never get on to it again. I still trade the sugar market for my claret money; so that I can afford Petrus 1989. Otherwise you would be mad to buy it. But if you are winning at the sugar casino; then why not continue? And the days I lose money, I look sadly at my wine and I tell myself, “Tonight you don’t deserve it”. I open the bottle and drink only one glass as a punishment to myself for trading badly.”

I did a quick sum in my head. RK had started in the Rice Department with Mitsubishi in 1942, the year the Japanese Army occupied Singapore and Malaya. That meant that he had been in the commodity markets for 72 years and trading sugar for 60 years; that had to be a record. I shared my mental arithmetic with him and he smiled.

“Have the markets changed much since you first started?” I asked.

“No,” he replied. “The change has mainly been the speed of information dissemination or gathering, but you have to adapt to that. So my trading volume today is one per cent of what it was. I used to trade 4,000 lots (200,000 tons) in one go; now I trade 40 lots (2,000 tons). Today I am 40 lots long, but my trading pays for the Petrus!” he said with a laugh.

“In early autumn 1963 the sugar market went against you and you almost went broke,” I prompted.

“I had enough cash, thank God, to meet margins. In the autumn of 1963 Hurricane Flora hit Cuba and the market rallied; I was saved. August that year was very difficult. But somehow I can always manage. I was 40 years old and at my best. Although it worried me I never felt like jumping off a building. Still, the position was large for me, maybe 250,000 tons of sugar, part physical sugar and part futures – a huge position for me. Anyway the market turned around. I took some profit and then more profit.”

“How did you know when to take profits?” I asked. “I find the biggest difficulty about trading is knowing when to take profits”.

“Not knowing when to take a profit is the Achilles’ heel for a trader. Take profits! Don’t wait. If you have a profit you have to take it. If you wait it will be your downfall. Also, have the wisdom to realise that you can’t take it in one go or you destroy the market for the balance. If you are a big trader it takes ten, twenty, thirty days to unload, depending on how big your footstep is.

“If you are a big trader you had better start even if you are in minus territory if the market is going up. You are long and you have been suffering: a big minus, a small minus, and then a negligible minus. At that point start liquidating. Even if you sell only 3% you still have 97% to go. You have to shed weight. Waiting to take profits is dangerous.

“What about taking losses?” I asked.

“Well,” RK replied with a sigh. “It is wonderful to take losses when you have profits under your belt. So you need some luck to build up some profits first. You have to start on the right leg. And everything, including quantity must be according to your size.

“In 1963 I took a big position,” he continued. “I was very confident. I felt that sugar was worth more than it was.

“But you know with sugar there is always over production. It is like my hotel business. I don’t know why I go into feast and famine businesses. As soon as you make money in hotels every Dick, Tom and Harry builds a hotel and then there is oversupply. And then you all cry for seven to eight years before you start to make a bit of money.

“The early 1960s were wonderful for me in the sugar market. I was hunting in a lake just teeming with salmon trout. There were only three or five predators; these sharks could eat their fill. I would swim past them and they weren’t even interested in me. Today you go to the same lake: there are giant crocodiles, giant sharks. There is not enough fish to feed these giant predators. You have to think twice before swimming in the lake.

“A lot of traders are arrogant”, I ventured. “They have big positions and have to convince themselves that they are right and therefore have to convince other people that they are right.”

“You have to be humble because you are never always right. You don’t need to convince anyone. You can trade as a very humble man.”

“Is speculation and risk taking an integral part of all life?” I asked.

“An emphatic yes!” RK replied. “When you get into your car and leave your home you are taking a risk. In the modern world there is no back-to-back trading where you can make a simple margin on a physical sugar transaction. Those days are long gone. Those opportunities when they come are like golfing holes in one. I have been playing golf since 1947 and I have never scored a hole in one. So where there is no back to back trading it means you have to lift a leg: you have to sell before you buy or buy before you sell. You have to take a risk. But you can still make good money trading.”

“Are you a businessman who started as a trader or are you a trader who applied your trading skills to business?” I asked.

“I have been asking myself that question for the past 50 years. Let’s take soccer as a parallel. You can train someone to play football but you never produce a Pele, a Ronaldo or a Messi. You have to have natural verve. We are not born equal. You either have that attribute in you, call it genius if you like, but of course different degrees of genius, and then circumstance or fate gives you the playground to exercise your skills. If you are born in the wrong community and your parents force you into the armed forces, well then how do you become a trader? But traders are born, not taught.”

“Footballers often have particular styles, as do traders”, I prompted. “What is your style?”

“When you play poker the secret is to never let the other players guess your next move. I can play a contrarian game but I can also flow with the current. I even involve superstition. In my early days I would look at a fellow trader to see if he had a lucky glow on his forehead. If he did I would spend more time with him that day.”

“Commodity trading is based on trust,” I said. “You have to start a relationship offering trust. But what do you do when someone abuses that trust?”

“Well that is just too bad. You just have to cut your losses; you have no other choice. If you want, you can keep that person as a friend but do so at arm’s length; no more business dealings. But it is better to just cut the cord and part company. If you bear a grudge you are just hurting yourself; you are not hurting the other person. It is like throwing good money after bad. Keep your wits, keep your humour and if you are a good man, luck will come your way again. You will see another opportunity and you will grasp it. I have always believed that.

“But business is about taking and not just giving. I came up the hard school. In an arena where no holds are barred you have to win. Giving is for my charity side.

“I have a simple motto in life: everything single material thing that I have in life can be traded. It is for sale. It is a question of, when, where, to whom and price. The first three are more important. If you like a person the price becomes unimportant.

“Business is quite a game but at the end you want to use your money to help those that need help. We have a very good charitable foundation that is opening the darkened skies above a little more than thirty poor and backward villages in China and adding.”

“Finally, Robert,” I asked. “What advice would you give to someone starting out in business today?

“I would tell them to go east and make their fortune. What you are seeing in China is still only the beginning.”


An interview with Swithun Still

Good morning Swithun, could you tell us a little bit about your company Solaris?

We are essentially focused on milling wheat and corn. For the past two seasons Solaris has been the largest trader of Russian corn. Compared to Ukraine, Russia is not a big exporter of corn; this season Russia will export just over five million tonnes compared to Ukraine with eighteen million.

However, Russia is a powerhouse for wheat. It was the largest exporter of wheat in the world last season. Russia is a veritable focal point for wheat prices worldwide. People really look to see the price at which Russian 12.5 percent protein wheat is trading to help them set wheat prices in other parts of the world.

We did a large programme of corn into Asia last year, namely South Korea and Vietnam. Russian corn has a huge competitive advantage in terms of quality. There is a smaller percentage of damaged kernels (often under 2% as opposed to the contractual maximum of 5%) and a similarly low percentage of broken kernels. Most important of all: it is all non-genetically modified (non-GMO), which is ironic as we are one of the largest traders of non-GMO corn in the world and are based in the same small town as Monsanto, who manufacture GM corn seeds.

The biggest challenge for Russian agriculture is the extremes of temperature – very hot in the summer and very cold in the winter. Agriculture is very weather dependent. The majority of production is winter wheat, which is sown in September-October and harvested in July. Acreage is split 50/50 between winter and spring wheat but the yield and therefore the production is higher for winter wheat. Spring wheat is sown in areas that are too cold for winter wheat. The earth is too hard for farmers to get the seeds into the ground and even if they could plant the stuff it would just die. The winter temperatures go as low as minus 30 or minus 40 degrees Centigrade in Siberia.

Are your deals based on flat price or are you hedged somehow?

Almost all of our transactions are traded flat price. We hedge some of our exposure with derivative contracts: futures or options that are traded on exchanges such as Chicago, Kansas, LIFFE or MATIF, or through ‘Over the Counter’ or “OTC” contracts with brokers in London & Chicago. We also hedge our currency exposure as we buy often in roubles, but sell in US dollars or Euros.

The correlation between Chicago and Black Sea wheat is not actually sufficient to be a good hedge. Some put the correlation at 25 percent. Russian 12.5 percent milling wheat is closer to the wheat quality traded in Kansas City, rather than the soft red wheat that is traded on Chicago. Soft red wheat is an inferior quality, low protein biscuit or even feed wheat – as indeed is MATIF – with only 11 percent protein and few milling specifications.

Nonetheless we tend to hedge on Chicago because it is more liquid than Kansas. We have also been instrumental in getting a new product off the ground, which is called a Black Sea swap, which is a non deliverable derivative based on the price of Russian 12.5% normalised to a parity of FOB Novorossisk. Brokers use the benchmark pricing of PLATTS to price this market and counterparties are approved on the same basis as counterparties in any cash traded business with the broker checking with both buyer and seller that they are approved counterparts. There is some interest to have this product cleared by an exchange and given that Russian milling wheat prices have become such a benchmark for global trade I predict that this will only be a matter of time before it comes to fruition.

However the best hedge for Russian wheat is…. Russian wheat! We prefer to hedge ourselves on the physical markets rather than the futures markets.

How does that work?

We generally only sell forward two to three months, so a lot of the trades we do are relatively spot, meaning that they will be executed within four to six weeks from the date concluded. A lot of our positions are backed up or hedged by our Russian partners or other suppliers. We buy from them on a FOB basis and often convert the sales into CIFFO and take on both the risks and rewards of providing such a service to our clients.

We often hedge our sales of Russian corn, which is a relatively illiquid market, by buying Ukrainian corn. So we might sell Russian corn for shipment in September and buy Ukrainian corn as hedge for delivery in October. Then when we finally cover our sale of Russian corn we sell out the Ukrainian corn that we bought as a hedge. We do this to reduce our risk exposure on movements in the flat price.

We are effectively trading the differentials between different qualities, geographies and different shipments. We try to be relatively cautious in taking large long or short positions on the market and we will always monitor our position limits and the amount of risk that we are taking. We try to keep risks within pre-defined limits – limits that are relatively conservative. This summer we will be implementing a new software system that tracks our positions and can calculate our profit and loss; our value-at-risk (VAR), issue invoices and keep track of our inventories.

This is not the sort of image that most people have of commodity trading, but it is what most traders do – at least physical traders. We are not big speculators. You can easily lose a huge amount of money if you go off and take flat price positions – and then fall in love with them!

How do you think commodity markets are going to change over the next few years?

There is going to be further consolidation – for better or worse. Certain big trading companies want to increase their global footprint and secure their positions as suppliers of food commodities from different origins.

There is a lot of competition in the agri-markets and trading companies are looking at ways to add value to their operations. One way is through owning processing or logistical assets, or even land. ADM for example loses money now on trading but makes it on processing. Glencore Ags recently said that less than fifteen percent of their profits come from trading, while the rest comes from assets. I think that is the future for the bigger players. They need these huge assets.

So traders are moving towards owning assets while maintaining a global trading presence at origin and destination.

Would you recommend young people to go into the commodity business?

One hundred per cent – yes! It is a fascinating industry to be involved in. It is a real business – real grain moving from real farmers to produce real food such as bread and pasta. It is not a bunch of people sitting around a computer screen betting on price moves.

What advice would you give to some one just starting?

Learn and listen and talk to as many people as you can in the business. Try to get some work experience and of course join GAFTA so as to learn about the trade by taking a course such as the Foundation Course or the Distance Learning Programme (DLP).

Thank you Swithun for your time.

The full version of this interview appears in my new book Commodity Conversations, available now on Amazon

Certification and consolidation

Over the past couple of decades, voluntary sustainability standards (VSS) have taken on increasing importance in working to ensure that agriculture, and agricultural supply chains, are environmentally and socially sustainable.

The International Trade Centre, which tracks 465 eco-labels in 199 countries and 25 industries, recently published a report, “Social and Environmental Standards – From Fragmentation to Coordination”. The authors highlighted 239 voluntary standards operating in 90 agricultural markets, many of them over-lapping.

Cocoa producers in Cote d’Ivoire now contend with up to ten different standards. Coffee producers in Honduras have nine standards. Tea producers in China have thirteen. Soy producers in Brazil face 21 voluntary standards.

As the report authors write, different buyers use different standards and, in many cases, their own proprietary, non-transparent auditing scheme. This leaves their suppliers struggling to comply with several voluntary standards at the same time. The associated audit processes can quickly push up costs, both in time and money. Competition between standards can also result in what the authors call “a race to the bottom”, where producers or buyers may be tempted to choose the most lenient standard.

It has been shown that consumers trust eco-labels more than they trust brand sustainability claims. This increasingly translates into a business opportunity, especially with Millennials and Generation Z. However, too many standards can also confuse consumers and undermine their trust in the whole system.

And on the production side, it is a bit tough to ask a farmer to go through a whole new audit process just because he wants to grow soy this year rather than sugarcane.

A reduction in the number of voluntary standards would:

  • Reduce audit costs along the supply chain
  • Enable more small-scale producers to become certified.
  • Empower buyers to ensure that what they source is environmentally and socially sustainable.
  • Give more credibility to the certifying agencies and reduce their costs through economies of scale across different commodities and geographies.
  • Increase transparency and make it easier for civil society to “call out” any bad actors
  • Create brand company clarity in marketing
  • Reduce hidden transaction costs
  • Allow certification organizations to focus more on supporting their stakeholders
  • Allow value chain partners to focus more resources on improvement rather than multi-standard compliance

This is obviously a case of “less is more”. The sector is ripe for consolidation. But how do we get from where we are now to where we want to go?

The report authors suggest that a first step would be to get the various standard-setting organizations to talk with each other to explore ways of aligning standards, audit procedures and management structures.  Benchmarking and mutual recognition of standards would be an important part of that process. Stacked audits to combine key different elements of standards/company specific audits into one audit would reduce the reporting burden.

The authors also suggest that international organizations and conventions could play a key role. They rightly point out that within the sector social sustainability is less fragmented than environmental sustainability. This is largely because most schemes follow the International Labour Organization (ILO) Conventions on child and forced labour, employment, and working conditions. Although there are numerous international conventions on environmental protection, there is less of an international consensus on environmental issues.

The authors therefore suggest the development of core, universally applicable environmental criteria. Companies are increasingly pledging to go deforestation free and this could be expanded to cover key international environmental conventions, as well as the United Nations’ Sustainability Development Goals.

These are all good suggestions.

The idea of companies working together would be unthinkable in the commercial sector; anyone who tried would be hauled up in front of the competition authorities, and accused of forming a cartel. However certification agencies are mostly non-for-profit organisations. Their goals, by definition, are not to make a profit, or to increase their share prices.  Non-for-profits are not interested in market share; they are interested in “the greater good”.

Working together, whether in the form of partnerships, shared standards, benchmarking or outright mergers should therefore not only be possible, it should be welcomed. Working together would help the certification agencies to better achieve their goals, and make the world a better place.

The views expressed in this blog are my own and do not necessarily represent those of Bonsucro.

Sugar Awareness Week

The lobby group Action on Sugar has been promoting Sugar Awareness Week on their @actiononsugar Twitter feed. One post, below, caught my attention.

It is difficult to know how much sugar billions of people across the globe are really consuming. On a country basis you can take production plus imports minus exports, but you don’t know how much sugar has been wasted, or added to or subtracted from stocks. It is even harder on a global basis where cross-border sugar trade flows can be difficult to track.

Having said that, the UN’s FAO estimates world sugar consumption in 1987 at 102 million tonnes. That year  world population reached 5 billion people, which equates to a per capita sugar consumption of 20.4 kilos . Thirty years later, the world’s population has reached 7.6 billion people and world sugar consumption has topped 180 million tonnes. So using the FAO’s figures that equates to a per capita sugar consumption of 24 kilos per person, an increase of 18 percent over thirty years.

Possably as a result of the group’s lobbying efforts, two of Europe’s leading magazines featured sugar on their covers this week. France’s Le Point promised to tell readers “The Truth About Sugar” while Germany’s Focus wanted to inform their readers of the difference between “good” sugars that come in the form of natural products, and “evil” sugars that the food industry adds to their processed products.

As part of Le Point’s crusade for the truth the magazine included a graphic that showed that per capita sugar consumption had risen from 16 kilos per person in 1960 to 25.5 kilos in 2016. Unlike the statistics on Action for Sugar’s Twitter feed, these figures are more or less correct. World sugar production in 1960 stood at 55 million tons while world population stood at 3 billion people, which gives a per capita consumption of 18 kilos. As for 2016, the FAO’s figures suggest a  per capita number of 24 kilos, but that is close enough.

What Le Point fails to point out is that if you exclude the low-income countries of China, India and Pakistan the average global per capita sugar consumption hasn’t changed from what it was in 1960 – 25 kilos per head. Per capita sugar consumption in the USA in 1960 was around 55 kilos per head.

At the recent Platts-Kingsman Conference (no longer anything to do with me) in Miami, the American Sugar Alliance, a pro-sugar lobby group, presented the following graph showing US sugar consumption correlated against US obesity rates.  As you can see, obesity rates have been rising while sugar consumption has fallen.

If you add in high fructose corn sweeteners, the picture changes somewhat, but not dramatically.

In their presentation the ASA highlighted the fact that Americans are consuming 374 more calories per day now than they were 34 years ago. The following graph breaks down where those extra calories are coming from.

Going back to Le Point, the magazine published the following graphic in their anti-sugar piece. It purports to show a correlation between world sugar production and obesity. The correlations look impressive, but they would have looked less impressive if they had taken the increase in population into account.

All this prompted me to revisit one of my favourite websites where I managed to produce the following graphic. It clearly shows how the decline in per capita consumption of corn sweeteners in the US has resulted in a reduction in the number of pedestrians killed by motor vehicles. So that at least is good news.

It is not clear who first coined the phrase, “There are three kinds of lies: lies, damned lies, and statistics.” In his book “The Persuaders – The Hidden Industry that wants to change your mind“, the author James Garvey explains that the practice of public relations is “rarely intended to inform the population about the intricacies of an issue and is more often calculated to circumvent critical thinking.

Well said!

Butter up, oranges squeezed

After years of building up herds that produce low-fat milk, the world’s dairy industry is now struggling to meet a surge in demand for cream and butter. Butter prices have more than doubled over the past year, but heavy stocks of (low-fat) milk powder are pressuring milk prices. It could take years for the sector to adjust.


There is a saying in the commodity markets that demand is the backdrop against which changes in supply play out. Demand for most food products tends to increase by a small, but predictable, percentage each year, roughly in line with increases in population and income.

The supply of agricultural products, on the other hand, can vary significantly from one year to another. Weather is nearly always the most important factor driving supply. Price comes a close second—both the price of the commodity itself (with a time lag), and the price of alternative, competing crops. Crop diseases and pest infections can from time to time also be important drivers.

However, as I wrote last week, the demand for a particular foodstuff can sometimes change dramatically in response to the publication of new scientific—or pseudo-scientific—research. When that happens, the demand shift is almost certainly amplified through both traditional and social media. The traditional media in particular like new scientific studies that go against conventional wisdom. The most recent—and most dramatic—example is the way consumers no longer believe that both animal and vegetable fat makes you fat. Conventional wisdom now blames fructose, whether in sugar or in fruit juices, for the obesity epidemic.

Nutritional scientists—and lobbyists—will doubtless argue until the cows come home whether it is fat or fructose that is making people fat. While they argue, dairy farmers struggle to sell their stocks of low-fat milk but are unable to meet the increased demand for the high-fat milk that is needed for butter and cream. Meanwhile, Florida’s orange growers struggle with a collapse in US demand for orange juice. Butter consumption in the United States is up 7-8 percent this year; orange juice consumption is down 5-7 percent over the same period—and down nearly 45 percent over the past twelve years.

Dairy farmers and orange growers have not only had to deal with dramatic shifts in demand; they have also had to cope with bad weather. It has reportedly been too wet in New Zealand and too dry in Europe to produce quality feed for dairy cows. (Both phenomena have been blamed on climate change.)

Meanwhile Hurricane Irma hit Florida’s orange groves hard this year, further lowering production that had already been decimated by greening disease. A solution has now been found for greening disease (by inserting a spinach gene into the tree), but it will take years for the new orange trees to mature. Growers are rightly worried that on current trends there won’t be enough demand to absorb supply once they do.

It will also take years for the dairy sector to beef up supply to meet the demand for high-fat milk. Most herds now consist of Holstein cows, a breed that produces large quantities of low-fat milk, perfect to meet the global growth in demand for milk powder for products such as infant formula in developing countries, particularly China. Farmers are now replacing those Holstein cows with Jersey cows that produce higher-fat milk, but it is a slow process. In the meantime, butter prices continue to rise.

But why are there actual shortages of butter in some areas of Europe—even ironically in Normandy, the heart of France’s dairy industry? Why isn’t price rationing demand? The answer is that supermarkets have been reluctant to pass on to their consumers the increase in butter prices. As a result they have refused to pay current prices, and European producers have found better buyers in export markets in China and, strangely enough, in New Zealand.

Consumer trends can have a real impact on demand for different commodities. It takes time for supply to adjust and by the time it does, there is always a danger that the science will have moved on.

French toast anyone?

Still, a man hears what he wants to hearAnd disregards the rest.              Simon & Garfunkel The Boxer 1969

When we had our first baby nearly thirty years ago, we were told to always put her face down in her cot to sleep. Eighteen months later, when we had our second, the nurses at the maternity told us never to put him face down to sleep, but always on his side. Two years later we had our third child; we were firmly told to always put him on his back to sleep, never on his side (because he could roll over), and never face down (because he could suffocate). By the time our fourth child was born we were back to square one. The nurses at the maternity firmly told us to always put him face down to sleep. (I don’t know the current recommendations.)

Marketing can play a role as well. When our first baby was born we bought standard paper nappies (diapers). By the second child we had a choice between boys’ nappies (in a blue box) and girls’ nappies (in a pink box). By our fourth child the nappy company was massively marketing a new breakthrough: “Unisex” nappies!

Food—what is healthy and what isn’t—is subject to even stronger trends (and fads).

I can remember as a young teenager being sent out by my mother to search the local shops for grapefruit. A “study” at that time had found that certain compounds in grapefruit burned body fat; eating it regularly could promote fat loss. My mother, along with half of the UK population, started to eat half a grapefruit before every meal. Within a couple of weeks there wasn’t a single grapefruit left in the country. Supply couldn’t keep up with the sudden spike in demand.

It may be that the water in grapefruit helps you feel full, and then you eat less. But if you’re hoping that grapefruit will melt fat, you’re going to be disappointed.

Back in 2014, two enterprising German journalists carried out a “scientific” study that “proved” that eating chocolate helps you to lose weight. The whole thing was a hoax, but they managed to get the study published in a scientific journal, and sent out press releases to all the media. Within a week it was on the front page of all the newspapers. None of those newspapers verified the story or checked on how vigorous and exhaustive the study was; they based their stories entirely on the press release.

In 1984 the US government published the results of what Time magazine described as “the broadest and most expensive research project in medical history”. The Time story introduced cholesterol to the world and was accompanied by its infamous cover photo of bacon and eggs. The study behind the article is now considered to be seriously flawed, but it led to millions of people around the world changing to a low-fat diet.

Thirty years later, Time put butter on their front cover, telling their readers, “Scientists labeled fat the enemy. Why they were wrong.” However, the study highlighted in the article also appears to be seriously flawed. The Harvard School of Public Health wrote,

“What the headlines miss is that in a meta-analysis such as this, there is no specific comparison (i.e. butter vs. olive oil), so the default comparison becomes butter vs. the rest of the diet. That means butter is being compared to a largely unhealthy mix of refined grains, soda, other sources of sugar, potatoes, and red meat…Here is the most important takeaway from this study not making headlines: Butter, a concentrated source of saturated fat, is still a worse choice than sources of healthy unsaturated fats such as extra virgin olive, soybean, or canola oils.”

An article published last week in the Journal of the American Medical Association (JAMA) adds to the criticism by arguing that many published meta-analyses have combined the findings of studies that differ in important ways, mixing apples and oranges—“and sometimes “apples, lice, and killer whales”—yielding meaningless conclusions.” Far from increasing statistical power, these meta-studies are reducing it or causing real correlations to disappear.

One of the meta-analyses they discuss was the 2014 study examining the connection between saturated fat and coronary artery disease. The authors of that study combined data from vegetarians in Oxford with meat eaters in Sweden, diluting its results with what probably amounts to a big false-negative.

In an article earlier this week, New Food Economy argues, “Journals are mostly interested in studies with new and striking results—results that go against the conventional wisdom, even if that wisdom is correct. Add in the influence of industry and you get a situation where the published research turns one-sided.

New Food Economy went on to explain that according to a US lawsuit filed in early 2016 (that was dismissed), the egg industry funded 29 percent of studies on dietary cholesterol in 1992—but 92 percent in 2013. It seems to be working. Not only is butter back, eggs are too!

Next week: The great butter shortage—how can the food industry cope with sudden demand shifts?

Turn off your screens

It has been Olympic Week here in Lausanne where all the local sports clubs set up stands in and around the Olympic Museum to introduce new sports to young people. The event has been going on, I think, for nearly thirty years now and coincides each year with the school’s half-term holidays. Nearly forty clubs/sports are represented, and nearly seven thousand children took part, in the week.

I took Monday and Thursday off from whatever else I had to do, and helped man the rowing club’s stand. We had borrowed six rowing machines from the club and set up a system where we first showed the kids to use the machines correctly—or at least without hurting themselves, and  then let them “race” themselves or their friends over five hundred metres.

On each of the two days, we introduced nearly three hundred kids, aged between eight and fourteen, to the sport. They had a great time, as indeed did I. It was wonderful to see them all so enthusiastic—and competitive.

Out of the three hundred or so kids that passed through the stand each day, there were perhaps three, or maybe four, who were over-weight. Certainly none were obese. I say that because this week the world “celebrated” World Obesity Day.

The day coincided with a report issued by Imperial College London and the World Health Organisation which showed that childhood obesity rates in the world’s children and adolescents increased from less than 1 percent (equivalent to five million girls and six million boys) in 1975 to nearly 6 percent in girls (50 million) and nearly 8 percent in boys (74 million) in 2016. Combined, the number of obese five to nineteen year olds rose more than tenfold globally, from 11 million in 1975 to 124 million in 2016.

The lead author of the report, Professor Majid Ezzati, of Imperial’s School of Public Health, said, “These worrying trends reflect the impact of food marketing and policies across the globe, with healthy nutritious foods too expensive for poor families and communities. The trend predicts a generation of children and adolescents growing up obese and at greater risk of diseases, like diabetes. We need ways to make healthy, nutritious food more available at home and school, especially in poor families and communities, and regulations and taxes to protect children from unhealthy foods.”

Dr Fiona Bull, from the WHO, took a more nuanced stance, saying, “countries should aim particularly to reduce consumption of cheap, ultra-processed, calorie dense, nutrient poor foods.” However, she added, “they should also reduce the time children spend on screen-based and sedentary leisure activities by promoting greater participation in physical activity through active recreation and sports.”

This is not the first time that the WHO has called for measures to promote active lifestyles. They write on their website, “the fundamental cause of childhood overweight and obesity is an energy imbalance between calories consumed and calories expended. Global increases in childhood overweight and obesity are attributable to a number of factors including:

  • A global shift in diet towards increased intake of energy-dense foods that are high in fat and sugars but low in vitamins, minerals and other healthy micronutrients;
  • A trend towards decreased physical activity levels due to the increasingly sedentary nature of many forms of recreation time, changing modes of transportation, and increasing urbanization.

Back in 2014, the Institute of Economic Affairs drew attention to the energy expenditure side of the equation, writing that, ‘Only 18 per cent of adults report doing any moderate or vigorous physical activity at work while 63 per cent never climb stairs at work and 40 per cent spend no time walking at work. Outside of work, 63 per cent report spending less than ten minutes a day walking and 53 per cent do no sports or exercise whatsoever.’

Last week also saw the controversy continue over sugar taxes, with Chicago abandoning theirs, and arguments in the press both for and against. It is an emotive issue but while everyone argues about the food intake side, let’s not forget the energy expenditure side of the equation.

So this weekend, turn off your screens, go outside, and take your kids with you.

The Sixth Extinction

The Guardian newspaper voted the Sixth Extinction: An Unnatural History, by the award winning journalist Elizabeth Kolbertthe best non-fiction book of all time. It isn’t, but it is still worth reading.

Life has existed on our planet for around four billion years but mass extinctions seem to have taken place on our earth every twenty-six million years or so. Although everyone (more or less) agrees that a meteor strike caused the fifth mass extinction (of the dinosaurs, amongst others), geologists disagree as to what caused the others. Perhaps other meteor strikes; perhaps natural climate change.

Pretty much everyone, however, agrees that mankind is the cause of the sixth mass extinction that we are currently living in a geological era that geologists call the “Anthropocene”. Ms Kolbert writes,

The Anthropocene is usually said to have begun with the industrial revolution, or perhaps even later, with the explosive growth in population that followed World War II. … But the megafauna extinction suggests otherwise. Before humans emerged on the scene, being large and slow to reproduce was a highly successful strategy, and outsized creatures dominated the planet. Then in what amounts to a geologic instant, this strategy became a loser’s game. And so it remains today, which is why elephants and bears and big cats are in so much trouble…Though it might be nice to imagine there once was a time when man lived in harmony with nature, it’s not clear that he ever really did.

Man destroys biodiversity in three ways: first by eating it; second, by encroaching on—and stealing—its territory; and third by accident–spreading alien species or bacteria. Ms Kolbert writes,

“During any given twenty-four hour period, it is estimated that ten thousand different species are being moved around the world in ballast water. Thus a single supertanker (or for that matter a jet passenger) can undo millions of years of geographic separation.”

Meanwhile, the tsunami that struck Japan in 2011 has carried almost 300 species of sea life  across the Pacific Ocean to the west coast of the United States. In what could be the longest maritime migration ever recorded, an estimated one million creatures – including crustaceans, sea slugs and sea worms – made the 7,725km journey on a flotilla of tsunami debris.

Introducing alien species (including bacteria) into new areas can quickly wipe out native fauna that have no historical resistance. Ms Kolbert gives two examples -frogs in Central America and bats in North America – but there are millions of others. This process began one hundred and twenty thousand years ago when Homo Sapiens began its migration out of Africa, (arguably) wiping out the Neanderthals on the way (after mating with them first).

The process of extinction has been going on for so long now it seems all but inevitable that it will continue until the only animals that will be left on the planet will be the ones that we eat—or the ones that we can marvel or laugh at in zoos, or on YouTube. Looked at in this way, you might be tempted to think that the forces behind this are so powerful that we are powerless to stop it.

And if you think this mass extinction is not your fault, Ms Kolbert has this to say,

If you want to think about why humans are so dangerous to other species, you can picture a poacher in Africa carrying an AK-47 or a logger in the Amazon gripping an axe, or better still, you can picture yourself, holding a book on your lap.

And in case you think that it doesn’t matter if the world loses a few species of fogs or bats, Ms Kolbert adds,

The anthropologist Richard leaky has warned that Homo Sapiens might not only be the agent of the sixth extinction, but also risks being one of its victims.

So we are all doomed; we will take the world’s biodiversity with us. And there is nothing we can do about it.

But wait a minute; aren’t we already doing something about it?

Just this month, a convention came into force to prevent the transfer of potentially invasive species in ballast water, one of the many problems that Ms Kolbert wrote about in her book. Ballast water must now be treated before it is unloaded into a new location, so that any micro-organisms or other small marine species are destroyed.

Last month, the International Union for Conservation of Nature (IUCN) – the global standard for assessing extinction risk – announced that the conservation status of the snow leopard  has been improved from “endangered” to “vulnerable”. The species still faces serious threats from poaching and habitat destruction, but at least it is a step in the right direction.

Perhaps even more optimistically, last month saw the 30th anniversary of the signing of the Montreal Protocol for the preservation of the earth’s ozone layer. Thanks to the treaty, over 98% of ozone-depleting substances have been phased out globally to date. Without the treaty, the hole in the Antarctic ozone would have been 40% larger in 2013. And what’s more, the global health and economic benefits of the treaty are expected to amount to US$2.2 trillion, as a result of averted damages to agriculture, fisheries and materials.

Charles Darwin once wrote, In the long history of humankind, those who learned to collaborate and improvise most effectively have prevailed.

The Montreal Treaty is an example of what mankind can do when we work together. The Paris Agreement is another. We can fix this!

Image courtesy of Pixabay

The risk in brands

Last week Nestlé, the world’s biggest food packaging company—and by far the world’s biggest retail coffee company—paid a rumoured $425 million for a 68% stake in Blue Bottle Coffee Co, a specialist, single-origin coffee company. There is probably little that Blue Bottle can teach Nestlé about how to make coffee, so I guess that Nestlé is paying for the brand.

Nestlé is not only the biggest coffee company, it is also one of the world’s biggest manager of brands—they currently own more than 2,000 of them. Nestlé probably know even more about brand management than they do about making a good cup of coffee. But as the NY Times pointed out in July, traditional brands are under pressure as more people buy their groceries online. Sales of classic brands have plateaued, and small start-ups are grabbing market share, leaving companies like Nestlé struggling to adjust. Hence their purchase of Blue Bottle Coffee Co.

Blue Bottle was founded in 2002 by a former professional clarinet player, and has a strong following among customers concerned about where their coffee comes from, and its impact on the environment and human rights. The company optimistically argues that that being taken over by Nestlé won’t change a thing.

In an article on the acquisition, the Guardian newspaper quoted a customer—a yoga instructor—at one of Blue Bottle’s branches in Manhattan as saying, “Where you buy anything right now – especially now – is part of a large point of view around how conscious you want to be about your impact on the world. Nestlé is not an ethical company.”

Although it is not explicit in the article, the yoga instructor appeared to be referring to a time in the 1970s when Nestlé was selling powdered baby formula to developing countries. There was nothing wrong with the milk powder; the problem was the unhealthy water that mothers mixed with it. But Nestlé was obviously not without blame.

Having said that, I would take issue with the claim that Nestlé is not an ethical company. Although there is always room for improvement, the company is an industry leader in terms of sustainable supply chains, human rights and living wages for the farmers that feed us. As in most big companies, the people that run Nestlé are not faceless individuals but human beings that want to make the world a better place for their children.

The price that Nestlé paid for Blue Bottle clearly shows how important it is for the big companies to remain “brand relevant”—to move with the times and reach out to younger consumers. But it also highlights that the money in the agricultural supply chain lies firmly with the retail brands.

However, the yoga teacher’s comments show how easily brands can become damaged and lose value—and how long what is perceived as unethical behaviour stays in people’s minds. The milk powder controversy occurred almost half a century ago, but it is still recent enough to discourage a potential customer from consuming Nestlé’s coffee.

Even if brands are “where the money is” in the food supply chain, the risks involved in protecting the brand probably justify the returns. Brand managers are now the guardians of a food company’s value; they increasing feel under siege from a civil society that views them as “easy targets”.

Three recent examples highlight how quickly brands can become damaged goods. The first is Bell Pottinger, which was ironically one of the world’s top public relations companies. Caught up in claims that it stirred up racial tension in South Africa, the company is now fighting for survival. Clients have deserted them and the company might soon cease to exist as a result of the scandal.

The second example involves smallholder encroachment on tropical rainforest and national parks in Ivory Coast and Ghana. Mighty Earth, an NGO, claims (almost certainly correctly) that “dirty” (unsustainable and/or illegal) cocoa is finding its way into the supply chains of Mars, Nestle, Hershey’s, Godiva, and other major chocolate companies. The brands were quick to respond.

The third example is a recent New York Times article that blames Nestlé (again) and the other processed food companies for increased obesity in Brazil.

Negative media coverage such as this can cause significant damage to brands, and take decades to recover.

The fact that brands have become so valuable—and capture so much of the value in today’s food chains—is not great news for farmers and commodity merchandisers faced with meagre profit margins. But at the same time the value that is inherent in those brands increases the leverage that civil society has over the big food companies. And to the extent that this encourages the food companies to be even more ethical and sustainable, it is probably good news for the planet.

Bunge makes its move

Bunge hit the news this week when the company announced that it was buying 70 per cent of IOI Loders Croklaan BV from IOI Corp for close to one billion dollars. Loders Croklaan BV is one of the leading global suppliers of specialty oils and fats to the processed food industry. It has manufacturing operations in the Netherlands, the US, Malaysia and Canada.

Malaysia’s IOI Group bought Loders from Unilever in November 2002. Since then, the unit has grown from three to seven processing plants and earnings have quadrupled. According to a filing with the Malaysian Stock Exchange, IOI Group will record a gain of about 2.5 billion ringgit ($595 million) from the sale.

Bunge Ltd said that it was buying the stake as part of a strategy to invest in higher-margin businesses such as food ingredients and natural flavourings. The company denied that the purchase was a defensive move against being taken over themselves.

A couple of weeks back I wrote about the various strategies that different trade houses are following in an attempt to improve margins: Glencore is concentrating on logistics, Cargill on processing, and ADM on ingredients. I added, rather cheekily, that Dreyfus is trying a little bit of everything while Bunge was wondering whether they might be worth more as part of a bigger organisation.

The fact that Bunge’ share price fell on the Loders announcement seemingly confirmed that the stock market had been wondering the same thing. However, there was also a suggestion that the fall in the share price might have at least been partly related to the fact that Bunge was increasing their exposure to palm oil.

Some investors may be worried about the worsening economics of the industry. Palm oil stocks are soon forecast to top two million tonnes, and crude palm oil prices are down twelve per cent so far this year. Perhaps more importantly, palm oil is the one commodity that everyone loves to hate.

In 2016 the Round Table for Sustainable Palm Oil (RSPO) temporarily excluded IOI Group from membership over concerns regarding its palm oil purchases from third party suppliers. The issue attracted a lot of media attention at the time and all the major food companies cancelled their purchase contracts with the group. (Cargill held out for a while, arguing that they could make more of an impact by continuing to work with the supplier, but in the end they also caved in under media pressure.)

The RSPO reinstated IOI Group in August 2016 and the food companies slowly and reluctantly resumed sourcing their palm oil from them. In a statement at the time Unilever said, “We are pleased to see the progress IOI has made so far, in particular, on third party suppliers, independent verifications, and increased transparency.”

Greenpeace, one of the more aggressive civil society operators, said that over the years IOI has produced “a string of commitments about ending the destruction (of forests), but none of them were properly implemented and failed to make a difference on the ground.” However, they added that losing big customers “put IOI under enormous pressure and was instrumental in bringing about (a) change in direction”.

As you might expect there was considerably more media coverage when the RSPO excluded IOI Group from membership than when they let them back in. This is partly standard media bias: bad news sells more advertising than good news. But it also standard civil society bias: bad news (about evil companies destroying rain forests) encourages more donations than good news (about companies working to protect them).

Bunge’s purchase of Loders reduces the chances that they will be taken over themselves, and it is understandable that the stock market was disappointed by the news. However, it is not certain that a bidder would have in any case placed a high value on the company given its exposure to the Brazilian sugarcane sector at a time of low prices for both sugar and energy.

By making this move Bunge has done two things. First, they have increased their exposure to the world’s lowest cost—but most controversial—vegetable oil. Second, they have taken a strategic step along the path from trading to processing, and from commodities to ingredients. These moves are risky, but so often in business the biggest risk is not to move at all.