Category: Blog

Swithun Still is an old friend. I included an interview with him in my Commodity Conversations book, An Introduction to Trading in Agricultural Commodities, and he kindly wrote the preface to The New Merchants of Grain.

I was due to meet him for lunch on a Monday at La Maison d’Igor, his favourite restaurant in Morges, Switzerland. It is a forty-five-minute cycle ride along the lake shore from my hometown of Lausanne. I knew Swithun would also want to cycle to our meeting, but a massive storm over the weekend had transformed Lake Leman into an ocean; white-crested waves were still crashing onto the shore. We compared notes during the morning and decided that I should take the train instead.

But then the sun came out, and I went on my bike. It was a fun ride as the storm had, in places, washed away the lake path, and I found myself cycling through foot-deep lake water. I got to the restaurant just as Swithun arrived on his bike.

Once at our table, I was disappointed that our waiter wasn’t called Igor. He explained that the restaurant and hotel were named after Igor Stravinsky, who had lived there for a few years at the beginning of the last century. “And, no,” he added, “the food is not Russian. We don’t serve caviar.” I was relieved; it was my turn to pay.

Swithun was President of Gafta, the Grain & Feed Trade Association, in 2019. The Association traces its history back to 1878 and has several roles, including education and training. Grain traders initially set it up to promote standard contract forms and provide an arbitration mechanism to settle disputes arising from these contracts. As much as 80 per cent of the global grain trade now transacts under Gafta terms and conditions.

I wanted to talk to Swithun about arbitration. He is one of Gafta’s seventy-five (or so) qualified arbitrators. I wanted him to explain the role of arbitration when things go wrong. Perhaps more importantly, how should counterparties avoid things going wrong in the first place? We had agreed that he would speak to me in a personal capacity.

He had brought along a Gafta brochure showing the scope of their arbitration service. Between October 2020 and September 2021, Gafta’s arbitration department received 310 claims. Over that period, Gafta ruled awarded nearly four million euros under 125 rules and just over one million dollars under 126 rules. Arbitration is big business.

“Gafta 125 arbitration rules are used for most dispute resolution under Gafta terms and are heard by three arbitrators”, Swithun explained. Gafta 126 Rules are for minor claims requiring expedited arbitration and involving parties agreeing to a Sole arbitrator. Both have the right of appeal, in which case Gafta will appoint a Board of Appeal consisting of five qualified arbitrators”.

“There are generally three exchanges at the first tier. There are first the claim submissions, then the reply submissions by the Respondent. The Claimant then replies to the defence’s submissions. The Claimant will always have the last bite of the cherry.

“What frequently happens in complex cases is that there are rejoinder submissions and clarifications as to what’s gone on. If the Claimant introduces new evidence in his reply to the defence, then the Respondent will frequently ask for the opportunity to respond to those new bits of evidence.

“It usually takes about three and a half months between claim submissions and the finalisation of closing of submissions. In the best-case scenario, the arbitration ruling takes four months, but more often, six.

“The arbitrators then assess any award, or quantum as it’s called. The claimant may claim an amount, but the respondent will inevitably argue with the amount or say there’s no valid claim. The arbitrators then convene over email and video conference to decide the merits of the arguments.

“All contracts under Gafta terms are as per English law, so the juridical seat of the arbitration is the law of England and Wales. It’s not British law because there is no such thing. It is thus not Scottish law but the law of England and Wales.

“Sometimes, companies dispute the jurisdiction or deny they traded on Gafta terms, even if they have traded under Gafta terms previously. Sometimes, there are Preliminary awards made over jurisdiction or other matters such as Time Bar, where the Respondent might argue that too much time has elapsed for the claim to be valid.”

Our non-Igor waiter brought us our pumpkin soup. It was delicious, even if it could have been a bit hotter. I asked Swithun what the most common reasons counterparties ended up in arbitration.

“They usually occur,” he told me, “When someone defaults because the market price has moved between when the contract is agreed and when it is executed. If the price goes up, the seller may think twice about performing their contract – or try to find some way out of the contract. If the price goes down, the buyer thinks twice.

“It is especially true if the counterparties are not first-class buyers or sellers. If there’s a price differential for a seller and he doesn’t care too much for his reputation, he’ll walk away and resell the goods.  He knows it will go to arbitration, but it might take a year between the first tier and the Appeal. If the Award is defaulted, the defaulting party might simply liquidate his company, and the Claimant might be chasing shadows when seeking to enforce.”

“There have been quite a lot of arbitrations in the last year due to force majeure because of the war in Ukraine,” Swithun continued. “There can be various reasons behind force majeure cases – and it is not always on the supplier side.”

I asked him how a buyer could claim force majeure.

“Lots of reasons, such as export bans, war, strikes, extreme weather, or so-called Acts of God”, he replied. “Since the start of the war, traders of Ukrainian grain have declared Force Majeure because of the war, FOB Buyers or CIF sellers have found it difficult or impossible to charter a vessel willing to go to the loading ports. There have also been cases where a vessel started loading but could not finish, or finished but could not sail.”

“Is there a list of companies that have not honoured an arbitration ruling?” I asked.

“Yes, there is a list,” he answered. “Gafta posts arbitration awards on their website and circulates them to members after the council meetings held three times a year – in January, June, and October. All members know when a company is a defaulter.

“Smaller companies may continue to trade with a defaulter, but multinationals won’t. It’s a no-go.

“And before you ask the question,” Swithun continued, I don’t know how many companies are on the list. I do know that many companies on the list are defunct. They disappear and often reappear with a new name, like a phoenix from the flames.

“The system can be ineffective if you’re up against someone who’s not acting in good faith in the first place. They’re going to do everything not to respect the award.”

The waiter bought us our main courses: chicken for Swithun and baked cauliflower for me. Swithun asked me why I didn’t eat meat, but before I could reply, he told me that he had asked his twelve-year-old nephew the same question. He answered, “I like animals. I don’t want to eat them.”

“Sounds like a good enough reason,” I replied.  My baked cauliflower was as delicious as the soup but also lukewarm. Shame.

Swithun told me he entered the grain trade in 1999 and did the Gafta Foundation Course in 2001. It is a week-long residential course where you learn the rudiments of contract types like CIF and FOB, and Gafta procedures and all the various elements of the grain trade, such as superintendents and fumigation. In 2006, as its first student, he started a six-module two-year online course, Gafta’s Distance Learning Programme. He then took a trade diploma exam, and Gafta invited him to become an arbitrator in 2008.

“You must have ten years’ experience to be an arbitrator,” he added. “I had just passed the cusp of 10 years. At the time of my appointment, I was GAFTA’s youngest-ever arbitrator.

“I thought it would be an interesting second career – a paid hobby – and it was. I found – and still find – it fascinating to learn from the mistakes of others and see the things that can happen when simple mistakes are made.”

“What sort of mistakes?” I asked.

“An example would be not giving notices on time – or not asking for an extension on a shipment period when a vessel is delayed.”

Swithun finished his chicken and looked at his phone, checking the time. I could feel that he was busy and that his attention was wandering.

“How do you find the time to be an arbitrator when you have a full-time job?” I asked him.

“It’s a dilemma,” he replied. “I didn’t take on many arbitrations when I was working full-time at Solaris, maybe one or two a year. But earlier this year, I was in a hiatus professionally and did several. I’m now trading again; fitting them in during the day is impossible. I do my arbitration work in the evenings and weekends.

“I think it’s possible to do four or five arbitrations a year – maybe six at a push – if you are prepared to work evenings and weekends. It’s challenging because you don’t know how much work each one will involve before you accept them. Some arbitrations are open and shut cases; others are more complex.

“The other tricky thing is that it can take some time between my appointment as an arbitrator and seeing the first submissions. Arbitrations can be like London buses. None will come for a while, and then lots will all turn up at the same time.”

Our waiter asked us if we would like dessert, and I was surprised when Swithun said yes, tempted by pain perdu and baked apple. “But bring the coffee at the same time,” he told the waiter. I knew my time was running out, but I had one last question, perhaps the most important one: What would he advise people to be careful about to avoid ending up in arbitration?

“Know your counterparty,” he replied, “be it the seller or the buyer.  Be aware that if you’re buying from a supplier that is not first-class – or deemed to be first-class – you have a significant and often unhedgable risk if the market moves. Many counterparties don’t hedge their transactions and can sometimes find they can’t perform if the market moves against them.

“One case I had was when a company defaulted on the purchase of wheat, claiming that the market price had dropped so much that they would have gone bust if they had executed their purchase. They called it “economic force majeure.” We had to explain to them that there was no such thing – and suggested that maybe they should have hedged their purchase.

“If you’ve sold something and the market plummets, your buyers may try to find a way to extricate themselves from the contract – by hook or by crook, by fair means or foul.”

Outside, the weather was still foul, and the wind had picked up. I took the road, rather than the lake path, back to Lausanne.

© Commodity Conversations ® 2023

Tessa leads the coffee work at IDH, developing strategy, aligning the different country teams and programs, and managing the global accounts.

She approached me a couple of months back to talk about cocoa. She felt there were similarities between the coffee and cocoa supply chains, but that cocoa was a step ahead on issues like farmers’ income and deforestation. I didn’t want to talk about cocoa. I had started writing a book about it but found the politics too challenging. I asked her instead if she could chat about IDH and coffee.

But first, I had a couple of issues to resolve.

Tessa is a shareholder in Herenboeren, an organization that brings together groups of interested people to build cooperative farms. She is a member of a 20-hectare farm on the outskirts of her hometown of Rotterdam. It is similar in size to the smallholding on which I grew up (and which I described in The New Merchants of Grain). My father could never make the farm pay, and I didn’t see how she could. That was my first issue.

“The farm is close to my heart. I am passionate about it”.

The cooperative’s 200 shareholders employ someone to farm the land for them. She admitted that she has learned a lot since they began and that they produced little in the first three years.

“I don’t understand how we expect farmers to farm when we put so much risk on their shoulders,” she said. “I understand why it leads to a business model where you go for intensive production rather than the diversified model we’re trying to do.”

My father had done the same, moving into intensive pig production. He couldn’t make that pay either.

I suggested the problem is that the price of food is too low as it does not cover the environmental and social costs of production. Consumers do not pay environmental costs like deforestation, social costs such as child labour, or healthcare costs from obesity or poor diet.

“I am aware that I can afford to pay more for my food and that other people might not be able to afford to,” Tessa admitted. “We must also remember the amount of labour you need to farm. We all work on the farm. It’s unpaid labour. Without that labour, we don’t have the farm.”

Herenboeren’s website promotes eating food produced near home, which I have an issue with. Transport contributes less than 5 per cent of the food supply chain’s greenhouse gas emissions. I suggested we could do more good by importing more of our food from Africa or South America, where many people depend on agriculture for their living.

Tessa looks at the issue from a different angle.

“The big benefit of eating food produced close to home is the connection you build with the food production system,” she told me, “Learning from that, understanding how much effort goes into producing food and therefore not wasting as much. It also encourages me to eat more seasonally and cook more creatively.”

“I think the drive should not be around eating locally,” she continued. “It should be around understanding that our food production system doesn’t consider the externalities. That’s what we need to change, and there are multiple ways of doing that – and this is one way.”

I hadn’t finished with my issues. I had a third one. The farm also raises cattle, pigs, and chickens. I asked Tessa how she could justify that in environmental terms.

“I would argue that a diversified farm includes livestock,” she said. “We have a 20-hectare farm. We use around 3 ha for vegetables and fruits; the rest is for grazing. We have two cows per hectare because that’s what a hectare can support. “You can produce beef in an environmentally friendly way, but at a much lower threshold than I would have expected.

“We try to have 250 chickens,” she admitted, “with the idea that they graze in the orchard and eat insects. It’s a natural system. The problem is we only have 70 chickens left because we also have foxes and birds of prey. We no longer keep the chickens in the orchard as they don’t survive there. There is an ideal picture of how livestock and crop production can work together, and then there’s reality.”

I wanted now to turn to IDH. I have known IDH for some years and am a fan. The organization is firmly grounded in the reality – not the theory – of food production.

Tessa explained that IDH is a not-for-profit organization financed by multiple governments and donors like the Bill & Melinda Gates Foundation. Its stated aim is to transform markets. IDH doesn’t implement projects on the ground. Instead, it works in coalitions with the private sector or public-private partnerships to drive change. IDH views its strength as collaborative– bringing people together – rather than in advocacy.

Better jobs, better incomes, better environments

“It’s big, right,” Tessa told me. “Better jobs, better incomes, better environments. We try to find the interlinkages. Farmers can double their incomes by cutting down the forest, but that’s not necessarily what we want to advocate. Or we can say that farmers should invest in climate-neutral production, but how can they do that if they don’t have the money even to eat?”

Tessa and her team are working on a project to map the value and the risk in the coffee supply chain, tracking coffee from Brazil, Colombia, Vietnam, and Ethiopia to the German market, the largest in the EU.

They’ve defined the five stages of the value chain as production, farm to export, import to roasting, roasting, and retailing. They have mapped the value within each stage and their cost, taxes, and margin profiles. They also looked at coffee formats – roast and ground, whole beans, and capsules – and the difference between private labels and national brands.  They have also considered the difference between consumer-facing certifications, voluntary business-to-business standards, and conventional coffee at the retail level.

“We wanted to see whether there is enough value in the supply chain to provide everybody with a decent livelihood.

“We have not finalized the study yet,” she admitted, “but I can share that it’s not as simple as we thought. You might think there is all this value at the end of the supply chain; we just need to pay farmers more. This is not the case. It depends on the type of product and the retail channel.

“What is clear is that even if we create more value,” she added, “we don’t yet have the mechanism to bring it back to the farmer.”

I told her that raising farm incomes by increasing production through more land, better crop varieties or fertilizer can drive prices down and do more harm than good. It can lead to increased deforestation, but if it increases production, it can push prices lower. It can be counterproductive. It has been happening in cocoa for many years. It’s not happening now, but you can have unexpected and undesired effects.

I suggested that part of the problem is that we want to raise farm incomes long-term, but the market price depends on short-term supply and demand.

Tessa told me that it is easier to do in supply chains like coffee, where there is a potential for quality differentiation. The larger roasters like Nespresso are building long-term relationships with their suppliers, emphasizing quality and supply security over price. Protecting their brand means they must make 100 per cent sure there’s no child labour or environmental damage in their supply chain.

“I tell my friends that if they want to have a relative certainty that things are progressing,” she told me. “Their best bet is Nespresso. Or if you are out of home, Starbucks. There are good models in your local store, but you must ask the right questions and choose carefully. Some amazing quality coffees don’t take farmers’ incomes into account. Nespresso and Starbucks have done a great job, but there’s typically more value in their supply chains than in your seven-in-the-morning, I-just-need-to-wake-up coffee.”

Sourcing based on relationship more than price

“Over time, we’re going to see more sourcing based on relationship more than price,” she told me. “Traders may now focus on the short term, but legislation will push traders to create greater visibility within their supply chains – and that allows for a vehicle to transfer more value.”

I harbour a perhaps naïve view that coffee is more a victim of climate change than the culprit. I asked Tessa if she agreed.

She did. “Climate change is a bigger threat to coffee than coffee is to climate change, “she told me. “But I am a bit hesitant. I am concerned that coffee is driving climate change in some big producers such as Brazil and Vietnam – through input-intensive farming systems, where the quantity of fertilizers and agrochemicals used impact water quality and biodiversity.”

I asked her if the EU deforestation legislation would help. I wanted to know whether it might adversely affect smallholders and favour the large producers, resulting in increased production in Vietnam and Brazil further driving deforestation. “Might it have the opposite effect than the one desired?” I asked her.

“I think there is a real risk,” she replied. “Some small producers may be excluded from the EU market in the short term when there will be a drive towards compliance rather than mitigation. It potentially leads to roasters and traders readjusting their origins and redirecting non-compliant supply to non-EU markets.

“If you take a country like Uganda,” she continued, “About 70 per cent of their production is indirectly sourced. Farmers in some areas sell a couple of kilos per day. There is a middleman, a guy on a bike who goes around and puts those couple of kilos into the bag. You lose your traceability straight away. The bag goes to a village where other guys with bikes bring the coffee to a factory, which does the quality checks and then pays for it. Trying to build traceability into that system is not easy.

“The other context is Brazil: you have large farmers, large farms, easy to trace. You have Vietnam, small farms, but typically quite visible and relatively easy to trace. Let’s buy more from Brazil, let’s buy more from Vietnam. And that might be the short-term implication, meaning there is no positive impact on deforestation rates and a negative impact on the smallholders.

“I hope that in the long term, the EU legislation leads to more visibility within the supply chain, making it easier for the sector to address the systemic issues. But I’m worried it will favour big companies, producers, and traders that can map their supply chains. It may drive the smaller traders and producers out of business or to other, lower priced markets.”

Before joining IDH, Tessa worked in the private sector with Unilever’s Ben & Jerry in the quality department in a factory. I asked her about her experience there.

“I learned a lot there.” she told me, “Most importantly, I learned how difficult it is to do things. It is much easier to sit outside and tell people what to do.

“My job now is great, right?” she continued. “I can sit on the sidelines and tell people they must improve farmer incomes, but it’s incredibly complex to achieve. Saying this is what you must do is very different than being on the inside and trying to change it there.

Her comments made me think about that great quote, sometimes attributed to Einstein and sometimes to the US baseball player Yogi Berra, “In theory, there is no difference between theory and practice. In practice, there is.”

Tessa has a degree in anthropology and an MSC in sustainable development. She told me that the MSc taught her to think about cost-benefit analysis in environmental issues.

“It helped me a lot,” she explained, “On a personal level, I learned more working in the Ben & Jerry’s factory. It shaped me more than the Master’s, which was relatively within my comfort zone. I would advise people to step outside their comfort zones to move beyond theory to practice. It will make a difference.”

My time was nearly up, but I had two more questions.

“What advice would you give to your 18-year-old self?” I asked.

“You don’t have to conquer the world tomorrow,” she replied. “You can listen a bit more, learn more, take your time, you’ll get there”.

I then asked her if her 18-year-old self would have listened to that advice.

“No way,” she answered. “No, never.”

© Commodity Conversations ® 2023

Two years ago, at the end of 2021, I fractured my cervicals while on a skiing holiday in France. I found myself paralysed from the neck down.

The first responder on the slopes probably saved my life by immediately placing me in a neck brace. A helicopter flew me to a local hospital, where I spent a week in intensive care. An ambulance then transported me back to Switzerland, where a duo of surgeons pinned my neck back together again. It took nearly one year of physiotherapy for me to recover fully. Still, thanks to the professionalism of everyone along the supply chain – from ski slope to home – I made a complete recovery.

One night, lying in bed in a Swiss hospital, unable to sleep, I counted the number of professionals who contributed to my recovery. There was Gilles, the first responder, the helicopter pilot, the surgeons, the various different types of nurses, administrators, cleaners, cooks, managers, and accountants. I counted more than thirty professions in total. They had all played an important role so far. Later, I would add Eric, my physiotherapist.

I told a friend my happy (in the end) story over lunch. He commented that there are more professions in the agricultural supply chain – bringing food from the field to your home – that were involved in my journey from paralysis to recovery.

Together, we began to count them off; within a few minutes, we had reached more than thirty – excluding all those involved in growing and harvesting the crop in the first place. We were both amazed that there were so many.

When people think about the agricultural supply, they concentrate on the role of traders. Few think about the people who organise moving the crop to a port, inspect its quality, elevate it onto a vessel, charter a ship, organise port logistics, insure and finance it, ensure its documents are fit for payment, manage the price risk, unload and process the cargo at destination, and account and audit the process.

To that, you must add the market analysts, price reporters, sustainability experts, HR and PR professionals, lawyers and arbitrators (for when things go wrong), NGOs, journalists, and procurement specialists who keep the big food companies supplied. (Don’t forget the CEOs responsible for the whole process.) Not all those professions are unique to the food supply chain, but they all play a vital role. The system would grind them to a halt without them.

“You should write their stories,” my friend told me.

I thought over his suggestion. My background is in the sugar and biofuels markets, and, in my previous books, I have enormously enjoyed expanding my horizons to the grains, oilseeds, and coffee markets. But I have always focused on the merchants who trade those commodities, never on the support personnel who make the supply chain work. I didn’t know anything, for example, about container logistics, arbitration, or HR.

The more I thought about the project, the more challenging it seemed. I realised it would be a long journey of discovery into unknown fields and professions. (Little did I realise just how long the journey would be!)

“You should write their stories,” my friend insisted, “because people have little idea how food ends up on their plates and all the people who make it happen. And when they do have some idea, they are often critical.”

His comments reminded me of a conversation I once had with a friend’s wife – a retired nurse – over dinner. She accused me of “getting between the farmer and the consumer – driving down prices for the farmer and driving up prices for the consumer.”

At no stage would anyone claim that the more than thirty professions in my medical recovery had pushed up the price of my treatment or pushed down the revenue of the doctors – or that they were “getting between the doctor and the patient.”

I wondered why people are so critical of the supply chain that brings food to their table but rarely critical of the supply chain that brings people from sickness to health. People love doctors and nurses but hate (maybe that is too strong a word) agriculture commodity merchants, even though they are equally essential in feeding and keeping us healthy.

Perhaps it is because most of us now live in cities but still want to feel connected to the countryside and begrudge the agribusinesses who weaken that connection. Maybe it is because people do not understand how the food supply chain works. (As with all my books, I hope this latest addition will help correct that.)

Farming is by far the toughest part of the food supply chain. Despite growing up on a farm (a smallholding), I do not feel qualified to write about agriculture itself. I will leave it to others. Instead, I will start my journey after the harvest.

I hope you enjoy reading about it as I did writing about it.

This is a brief extract from my forthcoming book, Commodity Professionals – The People Behind the (Ag) Trade

PS I have interviewed more than fifty professionals for this book, but I still have another dozen to interview. My journey is approaching its destination, but I still have some way to go. So please be patient. In the meantime, I would like to say an enormous “thank you” to everyone who has so far contributed their time and expertise to the project and to those who continue to do so.

PPS I tried and failed to find the source of the image that I used in this blog. I apologise (and congratulate you) if you created it and ask if you could contact me so that I can credit you – and retrospectively ask your permission to use it.

© Commodity Conversations ® 2023

Around one-third of people who work in the agriculture commodity supply chain are women, but few are seafarers.

Jan Dieleman, President of Cargill’s Ocean Transportation business, told me that females make up only 2-3 per cent of the global ship workforce. He explained that Cargill tries to increase that percentage, “but it’s a complex issue. Ships’ facilities can be basic, and crews can be away from home for extended periods, which makes things more challenging.”

A 2021 survey by the IMO (International Maritime Organization) found that the percentage of women in the shipping industry is 29 per cent worldwide, but nearly all are on land.

Maryana Yarmolenko Stober, the President of the Swiss Chapter of WISTA (Women in International Shipping and Trading), told me that a quarter of the women in the agricultural supply chain in Switzerland hold senior leadership positions.  Being a landlocked country, however, none of those positions are aboard ships.

In the US, in 2020, there were 15,465 females in a total shipborne workforce of 210,000 merchant mariners – just above 7 per cent of the total. Unfortunately, very few held leadership positions.  Among those 15,465 female merchant mariners, 4,729 had a credential endorsed as “Master”, and only 149 held a certification endorsed as “Master Unlimited Any gross tons”, effectively certified to command ships of any size globally.

In short, in 2020, only 149 US female captains could command a ship globally out of a US merchant marine workforce of 210,000.

I managed to track down one of them: Captain Alexandra Hagerty, who has spent the last 13 years as a mariner.

In a 2021 interview posted on her website, Captain Hagerty explained why she took to the seas.

“I fell in love with sailing when I worked as a sailing instructor for physically disabled children when I was nineteen. It was an amazing experience getting them on the water, some of them for the first time. I realized how exciting it was to be on the water, with its inherent sense of adventure and a means to travel the globe. I wanted to experience more.”

Being a mariner involves sacrifice.

“Some of the greatest challenges in this career are the sacrifices you make. You miss special engagements, ceremonies, conferences, and many family and friends events. Sometimes, you are forgotten and lose touch with the communities and networks you once had on shore because you are gone for months. You come back ashore and realize that you have changed so much; your perspective has changed as you have navigated around the globe. It takes time to re-enter yourself into a community that has been continuing without you.

“Loneliness is a huge challenge, and this industry is not for everyone. You must have grit and integrity to wake up every day, work 12-15 hour days for months, and realize you will reap the rewards upon signing off. This lifestyle is premised upon delayed gratification. If you can’t play the “long game” shipping out for months at a time, this isn’t for you!

“I have been challenged in the past as a woman. However, being physically active and motivated helps break some of these stigmas. I also am not afraid to speak up and over someone if they are trying to cut me off in a conversation or confront someone if there is an issue.”

There are significant rewards.

“Sometimes the greatest reward, strangely enough, is having the regular comforts you expect to have daily on land taken away from you for an extended period, and when you come back from sea, you appreciate them so much more.

“On some ships, you are constantly moving and working. However, the hard work pays you back in vacation time. What 21-year-old graduating with a four-year degree can make six figures in six months of work and have six months of vacation a year while obtaining excellent medical and retirement benefits? An American Merchant Marine Officer!”

Money is not the only reward.

“I will never forget seeing the Northern Lights (Aurora Borealis) coming out in Iceland, and it felt like it was engulfing our vessel in a greenish spiritual light. It was stunning, and the pictures from that evening of the Arctic Circle will never do justice to watching its movement across the sky.

“I also remember watching flying fish fly the length of a swimming pool off the coast of the Northern Marianas Islands and blue-footed boobies landing on the vessel while transiting through the Panama Canal. It was amazing talking to a Panama Canal Pilot and fellow graduate from our school who brought local coffee and Panama Canal Pilot hats to my crew as we transited the canal, talking with him about local customs.

“Meeting a 75-year-old Japanese pilot in the Naikai Sea (Inland Sea) who told me that age is just a number. He started his career as a pilot at 55 after working 20 years as a Ship Captain. He was so inspirational and kind.”

Charity Work

Captain Hagerty has sailed and commanded many types of vessels, including MV Africa Mercy with Mercy ships. I asked her over Skype what had prompted her to volunteer and what she learned.

“I realized there was an opportunity for people in seagoing professions to give back – pro bono work. I had heard of doctors and lawyers doing pro bono work, but I didn’t know I could volunteer as a captain and give back to the world. It was like, wow, there’s an opportunity to take my skill sets to a different level and give back.

I was also attracted by the challenge of getting a ship underway that hadn’t moved in two years due to COVID.

“The ship had to leave Africa in 2019 due to the COVID pandemic, and thousands of Africans held on to their ID cards, hoping and praying every day that the ship would return. It was a fantastic experience to be the captain of a ship that brought 14 pallets of medical supplies and 450 crew from around the world to Africa.

“The weather was perfect; we didn’t encounter any storms. It was strange. It was as if the seas were ready for us, and everything was meant to be. I was so happy to be asked to be the first female captain of this hospital ship. It was the only job where I wasn’t paid, but it was the best job I have ever had.”

Captains Without Borders

It was during this voyage that Captain Hagerty had the idea of Captains Without Borders, when she started thinking about how she could help seafarers while at the same time alleviating the shortage of them. She realized that with women making up less than one per cent of ship’s officers, the sector was not tapping into 50 per cent of the world population.

“If you look back 100 years,” she told me, “people never imagined that women could become professional lawyers and doctors, but 50 per cent of doctors and lawyers are now women.

“My idea was to break down barriers and give young people from disadvantaged backgrounds – women or people from different castes, societies, or countries where seafaring is not a typical job or career – the opportunity to go to school and join the maritime industry.

“We’re now seeing a huge change where doors are finally opening for a new plethora of people to enter the sector. I see more young women getting into it than ever before.

“I also thought about the war in Ukraine. I was a Vice President of the American Council of Master Mariners and IFSMA, the International Federation of Shipmasters Association. With ISMA, we worked with the Ukrainian Seafarers Union to help Ukrainian seafarers stranded worldwide. Some of them ended up being on my ship.

We also gave seven scholarships to young cadets at the Ukrainian Maritime Academy to finish their studies. They started crying when we told them; they were so happy and excited to have a scholarship. Half of them were women.

Finally, in the 2021 interview, the interviewer asked Captain Hagerty the same question I always ask interviewees: what advice would she give to a young person contemplating a career in the maritime industry, especially a girl? She replied,

“This career is not for the faint of heart or someone that wants to stay home or local. This career is for someone who is flexible, ready to be delayed on the other side of the world because of possibly international relations or a pandemic and can handle the consequences.

“High school girls interested in this career must be okay with being physically active 10-12 hours a day.

“This will never be the 9-5 job unless you want something shoreside. Most graduates work on average for 3-5 years at sea and then move shoreside. However, for those who want to move up the ladder, I encourage them because there is a big difference in responsibility from Second Mate to Chief Mate and from Chief Mate to Captain.

“Responsibilities change and gain complexity, and your day-to-day problem-solving skills must grow and adapt as you advance in rank and position.”

Captain Hagerty was VP of international relations at CAMM (Council of American Master Mariners). She is now a maritime expert witness pursuing an executive MBA at MIT.; you can contact her through her website.

This is a brief extract from my upcoming book, Commodity Professionals – The People Behind the Trade.

© Commodity Conversations ® 2023

Good morning, Nick, and welcome to Commodity Conversations. Could you tell me a little about yourself?

My name is Nick Tsiolis. I’m the founder and CEO of Farmers Keeper, based in Chicago. We help US farmers manage price risk when selling their physical grain. We offer them margin-free hedging structures derived from futures and options, giving them flexibility regarding where they eventually deliver their cash grain.

Our team manages the execution of price risk to physical delivery and settlement for over 1,000 farmers from North Dakota down to Mississippi, and all over the “I” states of Illinois, Iowa, and Indiana. We are not a physical elevator but work with over 1,000 grain elevator operations, processors, feedlot operators, merchandisers, and ethanol producers.

What did you do before setting up Farmers Keeper?

I was in the supply chain industry with CH Robinson, the world’s largest supply chain consultant. I dealt with Fortune 500 CPG companies down to mom-and-pop operations moving freight across the planet.

I got involved in the grain industry, working with commodity brokerages, and helping farmers hedge their futures and options risk without using paper financial products.

I met many farmers across the country and realized that to get margin-free finance, they had to commit delivery ahead of time to sell their physical grain to a particular elevator. But when the time came for them to deliver their grain, that elevator might not offer the best physical basis. I saw an opportunity for them to hedge their outright price risk ahead of time and lock in the basis later.

I launched the company about four years ago.

You work with a thousand farmers and a thousand grain elevators. Are you happy with your progress so far?

I am. I own the company outright. We are not looking for investor dollars. We are a profitable company that adds value to our customers. We are growing our customer base, and our brand recognition has shot through the roof in the past year.

We give out information on cash grain marketing via social media and the American agriculture news media – free information about how basis works and how the global supply and demand markets dictate what happens to local prices.

What is your biggest challenge?

I don’t have enough resources on my team to keep up with all the farmers that reach out to us, to vet them and give them access to what we’re doing.

Our challenge is to scale our model and still give each farmer a personalized white glove service. As we expand and bring on new farmers, I want to continue giving every one of those farmers one point of contact.

How big is your team?

There are five of us.

Are you hiring?

Yes. As a matter of fact, I sent out one offer this morning.

Where does your revenue come from?

We charge a fee per bushel when farmers transact through us—the cost ranges between corn, soybeans, and wheat – our core products.

We advise a handful of customers on their local markets, but it’s a separate business line and not our core model.

How does your core model work?

We leverage the same clearing firms that the grain elevators use to hedge their grain when they directly purchase from farmers, except we don’t take delivery of the grain.

We marry up the futures contract with a physical sale, just like grain elevators do when contracting grain, sometimes years out. However, we leave the delivery component of that futures contract open. It allows the farmer to choose later where to deliver his physical grain.

The average US farmer delivers to four different grain elevators. There can be an enormous variation between the bids that each offers. We allow our farmers to deliver their physical grain to the elevator that provides the highest price at delivery. They don’t have to decide ahead of time.

We help farmers hedge some of their price risk ahead of time through the clearing firms in the same way the elevators do, without putting up margin money.

We leave the delivery component open. When a farmer decides when they want to sell their grain, we help them with our analytics and our local market knowledge.

Do you only lock in the basis at delivery?

About 70 to 80 per cent of the time, our farmers lock in the basis one month before delivery. The rest of the time, farmers will lock in their basis earlier, depending on the market opportunities that arise.

Leaving it to the last month doesn’t necessarily give you the best price, but we offer our farmers the option to lock in their basis at any time up to delivery.

So, you act as a marketing agency for their physical grain and as an introductory broker to the exchange members – the clearing firms – who handle the futures and options. Is that correct?

Yes.

Who is the counterparty?

The clearing member is the counterparty on the futures and options element, and the elevator is the counterparty on the farmer’s sale of physical grain.

If the market moves higher, the clearing member must post variation margins with the clearing house. Do the farmers pay the variation margins?

The clearing firm pays those variation margins. But the bit you are missing is that the farmer sells the equivalent quantity of physical grain to the clearing firm at the same time as he hedges the futures. The clearing firm hedges that purchase from the farmers and creates an offsetting futures position on the exchange. When the farmer eventually sells his physical grain to an elevator, the clearing member exchanges their futures with the elevator.

Isn’t there a risk that a farmer sells grain he doesn’t have?

We do due diligence on every farmer we deal with and submit an onboarding application – like a credit application – on the farmer to the clearing firm.

We vet the farmer regarding their acreage, average yield, crop insurance, grain storage capacity, how they market their grain today, what grain elevators they deliver to, and finally, their corporate structure.

Under the existing system, if a farmer sells to an elevator, the elevator will give them margin-free pricing. But if the farmer wants to keep a choice of where they sell it to, they will have to hedge futures in their account. That is your advantage over the existing system. Is that correct?

Correct. We want farmers to understand their available options and how to perform one of the most complex parts of their job: selling their grain. We don’t take positions in markets. We enable farmers to take their own margin-free positions with the flexibility of basis delivery to any elevator.

I understood from earlier that you don’t have any competitors.

We’re a hybrid between two well-established industries: grain elevators and commodity brokerages. We view elevators as partners because we carry the hedge for them from farm to elevator. We’re a conduit for grain flowing from farm to elevator. The elevators see us as a source for the millions of bushels we manage and can route to them if they want.

In that sense, you’re a client of the elevators.

Yes. We are also a client of the clearing firms.

I read recently that US farmers have been building storage capacity on their farms and taking business away from the existing silo operators like the ABCD+ companies. Why have they done this, and is it working for them?

On this side of the pond, we don’t say silos, we say grain bins.

Before the 1990s, we had a decentralized model in the United States: a cooperative model where small farms pooled their resources, built centralized grain storage, and then, as a group via the cooperative’s corporate entity, sell the grain to a grain processor (like an ethanol plant).

As yields have increased and farms have gotten larger, they’ve attained the economies of scale to build their own on-farm storage. Now they’re vertically integrating into their own merchandising operation equipped with logistics capabilities to ship grain further afield towards end-users.

Do farmers deliver grain to the elevator, or does the elevator collect it from the farm?

The farmer transports the grain to the elevator. They may hire a trucking company, but as the farms get bigger, they often run trucking companies themselves, renting out the trucks during the off-season.

Is the cooperative structure in the USA disappearing?

It’s a complex subject in the grain world because grain co-ops have played an essential role in the community for so long. The farmers owned them, and they provided a lot of value.
They were – and still are – pillars of many communities. So, there’s a lot of loyalty from the farmer’s perspective.

The cooperative model will face challenges to stand alongside the new vertically integrated farms that don’t need grain storage, trucking capacity, or help with merchandising.

Farms are getting bigger; they’re becoming more vertically integrated; they’re taking more control of their businesses and becoming more formalized in a corporate structure.

How are farmers adapting to these changes?

There is a lot of anxiety in the countryside about how out-of-town land speculators and wealthy individuals buy and rent farmland back to farmers. That anxiety comes from two places.

First, it’s taking away local control of that production land. The farmer is losing the ownership that, in many cases, has been passed down for generations. In that sense, farming risks going the same way as local restaurants and retail stores have already gone, bought out by large corporate chains.

Second, should one person or one entity have that much control over such a wide swath of land? What are they doing with that resource – are they looking after the land correctly?

Thanks, Nick, for your time and input.

© Commodity Conversations ® 2023

A Conversation with Maryana Yarmolenko Stober

Good morning, Maryana, and welcome to Commodity Conversations. Thank you for taking time out of your vacation to talk with me. First, tell me a little bit about yourself.

I’m a lawyer with ADM in Rolle, Switzerland.

I come from a small city in the Ternopil Region, Ukraine, and I did my first university degree at the Ivan Franko National University in Lviv. I did my law degree at Lund University in Sweden and then worked in a law firm in Ukraine before joining ADM in Switzerland 13 years ago. I have been working at ADM’s EMEA headquarters in Rolle since then.

What does your current role entail?

I cover various interesting corporate legal issues: M&A, joint ventures, competition, commercial and trade. I manage a team and am the lead lawyer for one of our business units.

Can you give an example of the type of issues you deal with?

As part of my job, I manage legal and trade matters for our leadership team in Ukraine. As you might imagine, the past year and a half has been challenging for me personally and in business. We have had to deal with things we never handled before, from evacuating our people to advising on the rights of refugees in different countries.

We have had to manage our legal issues in Ukraine from a distance, supporting the team members there to find new export routes. We have put in place internal policies on bomb shelters during an attack. All this is entirely new and challenging.

In addition, we have handled Western European matters resulting from the invasion: force majeures and supply chain disruptions. We had to be agile and fast-moving.

I can imagine it’s been quite emotional for you to deal with these professional problems while being Ukrainian.

It’s still emotional, but being Ukrainian gives me insights and knowledge and helps me assess the situation quickly. This inside knowledge of the language, legislation, and culture helps. It is an advantage.

Did you work for ADM in Ukraine before moving to Switzerland?

I worked for ADM for one year in Ukraine on secondment from a Ukrainian law firm, but ADM first employed me directly in Switzerland.

What prompted you to become a lawyer for an agricultural company? Do you have a history of agriculture in the family?

No, not at all. Both my parents are doctors.

I understood that Ukraine plays a significant role in the global agricultural business, and my knowledge and experience could contribute to that. I never specifically wanted to work for an agricultural company; it just happened, and I enjoy it very much.

And why did you become a lawyer?

I was always interested in law. Although I first planned to be a doctor, the legal profession makes you independent much earlier than a doctor. Being a lawyer gave me more international opportunities.

What’s the most challenging thing about your job as a corporate lawyer?

To keep updated and follow the rapidly changing regulatory environment. It’s not only sanctions but also the changing laws on disclosure, sustainability, food, feed, and fuel. On the one hand, we must keep current on these changing regulatory requirements and react before they become valid. On the other hand, we must understand the company’s strategy and how legal requirements can influence strategic decisions. We must keep ahead of things.

What keeps you awake at night?

I sleep well; nothing keeps me awake at night. I try to structure my life so that nothing keeps me awake at night. It is my goal. I must think about my work, family, projects, and hobbies during the day so that when I go to bed, I don’t think about anything anymore.

Let’s move now to WISTA. Could you tell me how and why you became President of WISTA Switzerland?

WISTA stands for the Women’s International Shipping and Trading Association. I am president of the Swiss Chapter. WISTA is in over 50 countries and has over 5,000 members globally.

I joined WISTA when I moved to Switzerland and was looking for a professional network. But WISTA is not just a networking organization but an organization with a purpose. When the opportunity arose, I decided to run for president and was elected. I am now in my second term.

I enjoy my role as president. It has taught me a lot about leading a team, approaching issues, and delivering projects with purpose.

What does your role entail?

I work together with the board on strategy. What is our goal, and what will we do this year or maybe in the next couple of years to reach our goal?

I have a public relations function, promoting our association within the sector and communicating with our members.

Are your members individuals or corporations?

Our individual members pay membership fees of CHF 300 per year. More corporations are now joining us as part of their goal to support women in leadership. We have some of the biggest trading houses as members.

We have around 100 members, and our chapter is probably as large as those in larger countries like France, Germany, or Norway.

Now let’s move on to the PWC report on the number of women in the Swiss shipping and trading sector. What prompted you to commission the study?

Together with the board, we agreed that we had to do something more than just networking. We had to make our organization bigger and more impactful.

I searched the Internet and found no benchmark for women in shipping and commodities in Switzerland. The country is a crucial commodity trading hub, and all the commodity trading companies in Switzerland talk about gender equality and the promotion of women to leadership roles. But where were the numbers?

What did the study find?

It found that, on average, women compose about a third of Switzerland’s total shipping and commodity trading workforce and hold around a quarter of senior leadership positions. These are slightly higher than global numbers and suggest the industry is above the Swiss average and ahead of other sectors.

Do you think those figures are representative of the whole sector? And if they are, are you satisfied with them?

It’s a question we discussed in the report. These figures are almost too good to be true. I’m not saying they are incorrect – they are correct. However, we saw that the companies that participated in the survey were those that were most interested in gender equality.

The survey included questions from employees and employers, but it was challenging to get feedback from employers—only companies devoted to the topic filled in the employer side. We will have another project with PWC later this year to dive deeper into the numbers.

If these numbers are correct, are you satisfied with a third of the workforce and a quarter of the senior leadership positions? Or would you aim for 50 / 50?

We would like to aim for higher.

An earlier survey by the IMO (International Maritime Organisation) found that the percentage of women in the shipping industry is 29% worldwide. That number includes seafarers and women on board vessels where there are fewer women than men. Most of the shipping and commodity trading jobs in Switzerland are office jobs. We see no reason why more women could not be in these jobs. So yes, we would like this number to be higher, more than 33% and much closer to 50%.

Did the study cover just French-speaking Switzerland, or was it the whole of Switzerland?

The whole of Switzerland.

PWC didn’t look at pay. Is this something you’re looking at or will look at in the future?

We didn’t look at it for two reasons. First, pay is a sensitive and confidential issue in Switzerland. We felt we would get even fewer responses if we asked direct questions about pay. Second, new legislation in Switzerland will require companies to self-audit and report on pay equality between genders.

However, we did ask about the different perceptions of gender equality. We asked, for example, whether employees felt that women in their workplace were promoted at the same rate as men, were paid the same as men, were given equal opportunities for development and had equal decision-making power.

Individuals, not HR departments, answered these questions, and the perceptions differed between men and women. Only a third of women considered they were paid the same as men at their workplace, but two-thirds of men felt women were. On the perception level, most men thought that employers treated women equally to men in pay and promotions, but most women disagreed.

The PWC survey found a low employee awareness of diversity and inclusion priorities in their companies. I suspect things are changing, but are they changing fast enough?

Things are changing. It’s easier to have a career as a professional woman in this industry than ten or 15 years ago, but it’s not equal yet. Things are changing, but the speed with which they are changing is not good enough. Too slow.

The PWC report mentioned a World Economic Forum estimate that if we continue at the current pace, it will take more than 100 years to close the gender gap.

Many women in our sector work in support functions like operations, HR, and communications; there are few women traders. Why do you think that is?

Women can do trading jobs exactly like men can do them.  At WISTA, we refer to several studies that find that women are not risk-averse; they just tend to face consequences when they take risks.

Modern trading is more around teamwork and networking than in the past. There is less room to make independent risky decisions. Trading has become more structured, meaning women can easily enter trading roles.

Historically, trading was seen as a job that required you to be plugged in all the time – on weekends, evenings, and vacations. Men have more possibilities to do this than women.

Since COVID, trading companies have started to give their employees more flexibility. It’s OK to work from home; it’s almost OK to work part-time, and it’s also OK to switch off during vacation. I believe we will see more women traders with this new normal.

Working from home has become customary since COVID. Companies will lose good people if they are unwilling to give this flexibility.

Now a question close to my heart – something I’m struggling with now. I find it challenging to get women to interview for this project while men ask me to interview them. I don’t understand why men should be so keen and women so shy. Can you help me with that?*

It’s interesting. Maybe it’s because you want to interview people in senior or mid-level positions, where only a quarter are women.

We run a series of events called Sharing is Caring, where we invite a woman CEO, or a senior woman, to talk about her career, achievements, and how she got there. We have had four or five such events in the last twelve months, but it is challenging to find a woman CEO. There aren’t that many of them.

I understand that you struggle to find women for the interviews because we also find it challenging to identify senior women for our events. It’s not that women don’t want to come and share their experiences with other women. They do want to come. We never have a problem when somebody says no, but we have trouble finding them.

In your case, it is also maybe because of how society works – and the education in the last 50 years or so – that women tend to pass on opportunities. Women may feel they must be 100% ready for the interview – to be perfect, more perfect than men. It’s something we talk about a lot at WISTA. Women may feel they don’t have the time to prepare and pass on the opportunity, while men would just take it even if they are not ready.

What new projects are you planning in WISTA to promote the association and women in general in the sector?

As I mentioned, we will dive deeper into the numbers with PwC. We are also working on a virtual reality movie about a woman’s role and her experience on the trading floor. We will invite guests, including men, to put on a virtual reality headset, watch the movie and play the role of a woman in virtual reality on a trading floor.

 What would your 19-year-old self think of you now?

I think she would think I have done well. I think she would be impressed even if she didn’t become a doctor.

What advice would you give to your 19-year-old self?

I would advise her to be braver and bolder than I was – to have the courage to seize opportunities.

What are you most proud of in your life so far?

Proud? Well, I’m proud of my family, husband, and daughter. I am proud of the work we do in WISTA. Incredibly proud. I think we are changing the world a little bit.

I am also proud that my husband and I, along with several friends, have started a charitable foundation in Sweden to send medical equipment and supplies to Ukraine.

How do you envisage your career moving on from here?

I like my legal work, so I would like to develop in this area, to move to the general counsel or the top legal position. But I also see myself moving to a business role. WISTA has taught me that when you have a project or an idea you are passionate about and know how to execute it, you can do great things.

Thank you, Maryana, for your time and input.

© Commodity Conversations® 2023

If you are a woman involved in the agricultural supply chain – and would like to be interviewed for this project – please let me know via either the comment button or LinkedIn.

A Conversation with Joe Brooker

Good morning, Joe, and welcome to Commodity Conversations. Could you tell me about your career so far?

I started in commodities as a market analyst for ADM, then moved on to ED&F Man and Platts. I have been with Stable since 2019. Somewhere in the middle, I took a year out to travel. I wanted to travel before settling down. My wife and I expect our first baby later this year.

Congratulations on the new baby! I hope it all goes well. Could you please tell me about Stable?

Our CEO, Rich Counsell, the son of a UK farmer, founded Stable in 2016. He realised that hedging price risk was a complex, risky, and intimidating experience for businesses more interested in safety than speculation. He also realised that the futures markets provide an inadequate hedging mechanism for many agricultural products.

He looked at an insurance model and how insurance companies price contracts through actuarial data science – and wondered if the model would work in hedging agricultural products. He got in touch with the universities of Liverpool, Harvard and Lisbon and built out an academic bank of research. In 2019, the company launched ten products working with farmers in the UK.

That was when I joined the company. My job was to build out our suite of reference prices for expansion into the US and expand from our farming customer base. We contacted food businesses, manufacturers, and processors active in markets with an inadequate hedging mechanism – any market with a significant basis with the existing futures contract or where there was no futures contract. There are a lot of them!

We now have over 500 prices on our platform and offer hedging for protein cuts (beef, pork, and chicken), organic grains, lentils, pulses, fruit, and vegetables.

What was the most challenging contract to write?

We have written contracts for a Californian guacamole manufacturer. It was challenging for our risk managers because avocados are highly perishable, and storage is limited. Most avocados come from Mexico, and the manufacturer relies on a narrow supply chain. It is sensitive to any kind of demand shift, supply shortfalls, or changes in customs regulations; prices can double in a week. It is challenging, not only for the algorithm but also for our underwriters.

What’s your business model?

Stable works between businesses and reinsurers to offer a solution, essentially put and call option contracts across 6 to 18 months.

Within that, we must pay our pricing partners – the PRAs, Price Reporting Agencies. We’re already working with FastMarkets and Mintec and are continually expanding. We pay them a percentage of the premium.

So Stable takes on some of these risks and transfers the rest to the insurance companies?

This year we became a fully-fledged insurer in Bermuda. It’s a big step, as you might imagine. The reinsurance companies take 95 per cent of the risk, with Stable taking 5 per cent, using capital from our last round of funding when we raised $60m

How does the insurance company evaluate the risk, and how do they cover it?

Stable sources the deals worldwide and prices the risk; we share in the annual performance of the portfolio.

Can you give me an example?

A US construction company came to us to hedge its lumber exposure. We agreed, and as part of our partnership with RISI, now part of Fastmarkets, a publisher of lumber prices, we offered them some call options on lumber prices. Lumber prices had recently exploded following the COVID-19 pandemic, but they had since retraced. There had recently been a hurricane, but we studied the correlation between hurricanes and lumber prices – which showed minimal correlation – and put a price on the risk.

After our work in lumber, we have expanded to the paper and plastics packaging market.

If I understand correctly, insurance companies take on these risks but don’t hedge them. They just say, “We’re going to win on some and lose on the others.” Is that what they’re doing?

Exactly.

Our data science team in London has built an algorithm that prices the initial premium based on historical volatility using traditional options pricing methods.

The data science team prices risk mathematically, but we also have an underwriting team, including economists and quants. We then add commodity market knowledge, working with market experts. For example, we have an expert for each of the fruit and veg, nuts, dairy, proteins, and grains markets. We ask our market experts for their opinion. You could call it a quantitative and qualitative approach.

We’re building out an almost trading mindset alongside our panel of reinsurers. We assess each type of risk individually and ask how it will fit in our portfolio.

How do you build a diversified risk book?

We offer a broad range of products across puts and calls; it helps to balance the portfolio. We also diversify our risk geographically, with imminent expansion to Europe to balance our presence in the US and Australia. We’ve got US risks across hundreds of different markets, and there’s time diversification within that.

Is it a new business for the reinsurers?

Yes, it is a new venture. Some already have exposure to energy products, but agriculture is a new risk for them – none ever had exposure to avocados! The more niche we become – and the further removed from the markets correlated with futures contracts – the more diversifying we become for the reinsurers.

The insurers think about diversifying their risks and see Stable’s risk pool as one aspect among their different books.

Do you hedge in the futures markets?

We don’t. As our energy and petrochemicals book expands, that may change, but there’s no good futures hedge for fruits, vegetables, and organic grains.

Do you work with trading companies?

No, we only work with companies that have genuine physical exposure. It takes away the portion of the market that wants to trade rather than insure its risks.

Do you work with multiple reinsurance companies? If you only work with one, there’s a risk that they have a significant loss one year, decide they don’t want to do it anymore, and then your business model is ruined.

We began as a Lloyd’s cover holder but now have a panel of five or six reinsurers. We are a regulated insurer ourselves.

Have you considered working with hedge funds as well as insurance companies?

Perhaps in the future, but Reinsurers will always be the most important component of our capital pool.

Some of these markets are small and specialised. How do you deal with that?

There are a couple of things that we can do to mitigate risk. We always look at the market size and the competition within that market. Some of these markets are oligopolies.

We also look at how the prices are reported for that market. The crucial thing is to understand who the contributors are to the price used as the settlement mechanism.

We are not so concerned about the mandated markets. The US pork and beef markets are under livestock mandatory reporting. Every US slaughterhouse that sources over 150,000 head must publish the price they sell every cut of pork or beef in the morning and the afternoon – a fantastic plethora of data.

We have built a grading system for published prices. We work with BDO*, which helps PRAs comply with IOSCO, the International Organization of Securities Commissions, to ensure that their price reporting is regular, transparent, and traceable. IOSCO shores up methodologies to prevent any form of manipulation.

We work primarily with IOSCO-compliant PRAs as they have the paper trail to understand how they report prices.

We also have a strenuous onboarding process to ensure we’re working with people genuinely trying to hedge their physical exposure and not just trying to trade with us.

It’s a minor revolution for people to hedge their avocados, proteins, and organic grains without using the futures markets. An organic barley producer might previously have hedged in wheat on the MATIF, but now they would come and hedge with you. Is that a fair statement?

Yes, that is correct. We want to help businesses reduce basis risk and offer liquidity against the price they are exposed to. Our aim is not to take business away from the futures contracts. They are there to serve a real need and are effective. However, many new futures contracts don’t get the liquidity they need. It’s a massive logistical effort to simultaneously get the buyers, sellers, and speculators. It takes time to build up. We aim to sit alongside the futures markets and supplement the existing risk management tools. We aim to offer market participants a hedge where it previously has not existed.

Do you offer risk management tools on a basis against the futures, or do you only work with outright prices?

It’s all outright now. We may look at options against a basis.

Do you only offer option contracts?

Yes.

What about counterparty risk? Some potential clients may be concerned that you’re too small and you might not be able to honour the contract if there’s a big market move. Is that an issue?

Our reinsurers (with colossal balance sheets) set our precise risk limits, so we operate very clearly within those boundaries. We also limit our loss on any contract by selling call-and-put spreads, not outright options, so our potential losses are limited, especially with such a diversified book.

Ahh, I had missed that. You sell options spreads, not outright options. It limits your potential loss on any deal. *

Correct.

Do you sometimes have to educate your clients on risk management?

Our commercial team comes from risk management consulting firms, food businesses, and trading companies. Our people know how risk works. They do a lot of listening and are highly knowledgeable.

Education is crucial. We’ve held various workshops to help our clients understand their risks so that we can work out the most suitable products for them.

It’s often a question of language and terminology. Hedging can sound more complex than it is, so we work hard to simplify it all in terms of structure, language, and user experience.

How do you see the business developing?

We have recently launched into the US Sugar, US energy (biodiesel, ULSD, methanol), and packaging (paper, plastic). We will enter many other markets in the coming months.

The opportunities to help businesses with unmanaged commodity price volatility are enormous and, in some ways, overwhelming!

Thanks, Joe, for your time and input.

Notes

BDO is an acronym for Binder Dijker Otte, an international public accounting, tax, consulting, and business advisory network. It takes the PRAs through the IOSCO compliance process. IOSCO validates and certifies the PRAs’ processes, shoring up methodologies to prevent manipulation.

A call option spread is where you buy one strike price and sell a higher one. Buying a call option gives you the right but not the obligation to purchase at the strike price. When you sell a call option, you must sell at the strike price if the option buyer demands it. By selling a call spread, Stable limits its payout to the difference between the higher and lower strike prices. The same works the other way around when they sell put options to a producer to protect them against a price fall. For a fuller explanation of options trading, please see my book Commodity Conversations – An Introduction to Trading in Agricultural Commodities.

© Commodity Conversations ® 2023

A Conversation with Saurabh Goyal

Good morning, Saurabh, and welcome to Commodity Conversations. I am keen to learn more about AI’s impact on the supply chain for agricultural commodities.

Good morning, Jonathan. Thank you for inviting me to your platform. We are all in a learning phase, but I am happy to share everything we have learned.

First, please tell our readers about yourself. I see that you studied at the Indian Institute of Technology.

Yes, I did a course in mechanical engineering, after which I worked as a programmer with Tata Consulting Services before doing an MBA in marketing and finance. I then worked as a program manager for the New York Mellon Bank, where I developed some trading systems. Later, I worked for Accenture Capital Markets and Prudential Asset Management. In both positions, I worked in development and implementation roles, managing trading systems for financial instruments.

Olam International hired me in 2009 as their head of CTRM – Commodities Trading and Risk Management Systems – where I developed trading systems for physical commodities. I was with Olam for eight years, working in almost all aspects of commodity trading operations, including supply chain and risk management, hedging and trade finance. We developed many of their in-house operations systems for cocoa, cotton, coffee, sugar, and grains.

What made you leave Olam and start your own company?

As Olam grew, the company replaced their in-house systems with SAP. I was initially involved in SAP implementation, but I quickly realised that SAP was more complicated, expensive, and challenging to implement than our in-house systems. That realisation gave me confidence that there was a market for small and medium-sized commodity traders – like Olam 20 years ago – who could not afford to implement SAP or develop an in-house solution.

Some companies provide front-office applications for order and risk management. Still, few give end-to-end solutions, including the front office and hedging, operations, accounting, middle and back-office activities, trade, and finance.

We founded Phlo Systems in 2016 to provide an end-to-end, easy-to-use, fully custom-built solution – something built on-cloud for consumption on-cloud.

We do almost everything from order management to sustainability. Our latest project is to help companies manage the traceability required under the new EU deforestation rules.

We are around 30 people. Thirteen are in the UK. The remaining are in India, Ukraine, Bulgaria and Ghana, West Africa. Our smallest client pays $150 monthly, and our largest pays $15,000 monthly.

Do you work with Blockchain?

We were initially optimistic about Blockchain, but after one year of working on it, we realised it was not a solution and stopped.

Many people gave up on Blockchain after investing significant time and money. Blockchain was designed specifically for Bitcoin; it is the technology behind it. Our biggest mistake was to think we could separate Blockchain from cryptocurrency.

The only place where Blockchain will work is cryptocurrency. It is the only use case for it. Taking the technology that drives cryptocurrency and using it for something else does not work. It is like trying to fit a square peg in a round hole.

Do you use AI?

We began using AI three or four years ago. We used it for scanning documents like bills of lading, invoices, packing lists, and origin certificates and then auto-filling forms in the system. It saved someone manually filling them. We used an AI technology called Amazon Textract, but every time the format of a document changed, you had to make changes in the system setup – and it was not 100% reliable. It made mistakes in reading the data and importing it into the system. As a result, we were cautious about including traditional AI in our applications.

Chat GPT and Open AI have made things 100 times better. We now feed all our documents to Chat GPT through the back-end APIs (Application Programming Interfaces).

Is it more reliable?

It has so far provided 100% reliability and accuracy in reading the data from the documents and importing it into our application.

It is an example of how generative AI has completely changed the landscape. You previously had to put a lot of investment and effort into integrating traditional AI into your systems, but with Chat GPT, all that hard work is gone. You apply basic software engineering to integrate Chat GPT and ensure the process flow works fine. Chat GPT provides the intelligence to read, interpret, and structure the data, leaving us free to focus on the engineering part.

Some might say that our enthusiasm for AI is like what we initially had for Blockchain, but it isn’t. With Chat GPT, we are already reaping the benefits.

Will Chat GPT be transformative for our business?

I believe so. We are now looking at many different use cases where we can start using Open AI and similar models.

User support is one obvious application. No matter how wonderful your system is, you must provide client support, especially regarding ERP (Enterprise Resource Planning). Our scalability as an organisation was dependent on being able to hire resource people to give that service to our customers. Chat GPT can automate most client support functions, leaving human interaction only for critical use cases.

So, you are using AI for CRM (customer relationship management) and document processing. Anything else?

Absolutely! Much, much more. I just gave you examples of traditional use cases where Open AI is a game-changer because it does the job 100 times better.

But there are 100 other use cases which were earlier not even possible. For example, we have a customs module where an international trader can make a customs declaration without using a customs broker, an agent, or a freight forwarder.

So far, we have only done it for the UK. All the information you need to make a UK customs declaration is available on the HMRC website. We have extracted that information and trained Open AI to do the work. The trader explains the scenarios, for example, importing animal products from Germany to the UK, and the system guides them step by step. Our clients appreciate this kind of functionality.

Is it something that you could repeat in other countries?

We are working on it for the Netherlands. The module should be ready by the end of this year.

Is language a problem?

No, but it’s a good question. Chat GPT was trained only in English, and no one expected it to understand any other language. No one intended it to be fluent in different languages, but it read foreign language documents during the training process and taught itself.

We have done a proof of concept for a Polish freight forwarder who wants to use Chat GPT to process their documents, many in Polish and Italian. We thought the system would fail, but Chat GPT could interpret them 100% correctly.

Language from an AI perspective is not a problem. However, language from a user interface perspective is. We’ll have to change our system to display other languages, but it should not be a problem.

Okay, that’s a perfect example of how you’re implementing AI. Do you have other examples?

One useful plugin converts a natural language question into a structured one that the database understands.

In our application, for example, the user can ask a question like, “List my ten top customers last month, based on the number of transactions, but only the customers exporting from the UK into Germany.” It is a complicated query, and you can make it even more complex by saying that you’re looking for customers dealing with robusta coffee or organic grains. We have developed a plugin to take this query in English, map it to your database structure, convert the English query into SQL (Structured Query Language) and provide you with the answer. We are still in the proof-of-concept stage, but it is reasonably accurate.

Do you have to pay to use Chat GPT?

Chat GPT has a free-of-charge open interface and another with an internet connection and several 3^rd party plugins that costs $20 per month. It gives better results.

The problem with the open-ended interface is that you interact with the Chat GPT model and the data within that model. You can’t do anything beyond that. In the customs example, Chat GPT will not function correctly as some customs information sits behind a firewall on the HMRC website, and you need to enter your username and password to get it.

Similarly, Chat GPT will not be able to access your in-house database. However, Open AI offers you back-end APIs through which you can connect your data and allow access.

Are you worried about allowing Chat GPT access to your data? Isn’t there a data protection issue here?

These large language models allow you to protect your IP (Intellectual Property). You don’t provide Chat GP with raw data; you first convert it into vectors – a matrix of numbers.

When you ask Chat GPT a question, it converts it from text format into a vector using “embeddings”. Embeddings are the science behind all these language models. Chat GPT uses nearly 20 billion parameters to convert a question into a vector. It then compares it to all the other vectors it has stored, looking for the closest match and coming up with an answer. Chat GPT doesn’t understand words; it understands the numbers and vectors created from words.

You can provide Chat GPT with your raw data to process, or you can convert it first into vectors. The Chat GPT model is open because it discloses the embeddings you need to convert your data. You can apply these embeddings to your data, transforming it into a vector format before sending it to Chat GPT. It then sends a vector back as a response. It doesn’t get to know the raw data behind the vector.

There may be a counterargument that Chat GPT can apply reverse engineering on the vector and return to the original data, but that process is computationally heavy. If Chat GPT started to do that, it would need an enormous amount of hardware. It’s not computationally feasible for them to do it.

I can’t imagine Chat GPT letting you do all that for £20 per month. Or are they?

No, the API connectivity charges are based on the number of tokens we send to it in each question, but the pricing is not exorbitant. We spend less than £500 per month as of now. It will be an issue if Open AI increases its pricing, but there are other large language models. Open AI is not the only game in the town. There are many different models, and some are free of cost. They are not as good as Open AI but are catching up.

Meta, the company behind Facebook, has released an open-source model and pledged never to turn it into a commercial venture. But then Open AI started as an open-source model before Microsoft converted it into a commercial model when they realised its massive potential.

You never know what’s going to happen in the future. Open AI is currently reaping all the benefits. But there is a consensus in the development community that an open-source model will prevail in the long run. And it won’t be Open AI.

How will AI transform the agricultural commodity trading business?

It is a difficult question to answer. As software developers, we see that it is transformative in developing and providing our systems to our users. GPT is excellent with the English language, but it is ten times better with software programming languages.

Microsoft owns Open AI and GitHub, an online repository for code. We suspect that Microsoft trained Open AI on the software code stored on GitHub. It has made Open AI an excellent programmer. It generates perfect code in any language you want. It is also suitable for testing your code, finding bugs and issues, et cetera. It has made the software development process five or six times faster than without it. So, it is transformative for us as a software development business.

I believe that Chat GPT will transform the way users consume software. Users currently consume software in a form-like interface, entering and saving the information. It’s a data-driven approach.

In a few years, we will see conversation-driven user interfaces. You will tell the system what you want to do. For example, you will tell it that you have received a new contract to supply a commodity to a customer. It is lying in my email. Can you please check and store it in your system?” And the system would be able to do that.

Will AI make some professions redundant?

The politically correct answer is, “No, it won’t. It will help professionals do their jobs better, remove the mundane tasks and empower workers to focus on higher-level thinking.”

The correct answer, however, is, “Yes, AI will make some professions redundant. We’re already seeing it. Shares in Chegg, the biggest tuition-assistant company in the US, lost more than 40% within six months of Chat GPT launching. The company connected kids to different teachers, helping them with their homework, but Chat GPT does a better job than many teachers.

UK schools have banned children from using Chat GPT. I think it is a shame. You can’t stop technology; you must use it correctly rather than prohibiting it.

Chat GPT was supposed to be a purely language model; it was not supposed to solve mathematical questions. However, it solves mathematical questions by breaking down any question into logical steps. Some people still think Chat GPT is just a stochastic parrot, but it is not. It is much more than that.

So, Chat GP wasn’t supposed to understand non-English languages or solve mathematical problems, but it does. Were there any other surprises?

Yes, but they were not all positive; some were negative. Hallucination is the most negative. It is when Chat GP gives you a wrong answer with confidence. No one expected it to do that, but it does.

Should we be afraid of AI?

I don’t think so. AI doesn’t have an agency; it will not suddenly wake up at night and start thinking for itself. It is a program residing on a system, waiting for you to ask it a question. When you ask a question, it looks back into all its learning and provides an answer. It is not fundamentally designed to think for itself.

The doomsday scenarios are not applicable here. What is possible is a wrong actor will use it for destructive purposes. Safeguards are in place, but you can trick Chat GPT into answering a question it has been told not to answer.

What is the difference between AI and machine learning programs?

With machine learning, you train a machine for specific data and context-driven tasks. AI is not dependent on any particular use case. A machine learning program trained to do one thing couldn’t teach itself languages or maths.

Could AI learn to trade on the futures markets for speculating or hedging?

Electronic and high-frequency trading, identifying micro patterns and then acting on those patterns, have been in existence for many years. Companies have made fortunes using the technology. But their success has depended not only on their mathematics and algorithms but also on their better connectivity to the exchanges and some information-based edge.

Trading companies tend not to try to identify ultra-short-term trends but look at a broader horizon based on supply and demand imbalances.

 Chat GPT will not revolutionise short-term trading because short-term traders analyse real-time tick-by-tick data; it is not Chat GPT’s model. Short-term trading will continue to rely on statistical probabilistic models already out there. It’s a mature industry.

Chat GPT may be better suited to longer-term trading, looking at supply-demand imbalances – crop and weather reports and the like – and then taking a direction-based strategy. I think it can work.

Thank you, Saurabh, for your time and input.

© Commodity Conversations ® 2023

A Conversation with Raphaelle Hemmerlin, Chief Innovation Officer for Sucafina. 

Good morning, Raphaelle, and welcome to Commodity Conversations. First, could you tell me a little about your career so far? 

I’m French and have been in the commodity business for twenty years.

When I was young, I always wanted to do something where I would speak different languages.  I found a course on transport and logistics in an international school based in Paris and began my career with Bolloré, one of the largest French forwarding companies. I enjoyed it, but they did not pay me much, and I was keen to progress.

In 2006, when I was 22, I visited Geneva and said, “Oh, this is a great place to live, and the salaries are much higher than in France!”

I interviewed with Sucafina and joined the company as a logistics officer, overseeing East African export logistics. Five years later, the company appointed me to a position as senior logistic coordinator.

I felt the company at that time lacked vision, and there was little opportunity for me to grow in my career. I decided to widen my horizons and joined BNP Paribas in their commodity trade finance department. I spent three years with them in their front office, discovering the world of soft commodity finance. It was a tremendous experience, and I built a great network, but I didn’t like the bank’s environment. It excluded all aspects of entrepreneurship.

I had kept in touch with Sucafina, who, during this time, had developed a vision, a culture, and a growth strategy. I came back to them. I have gone from senior logistics coordination to heading group logistics and operational efficiency in the ten years since then. I have been responsible for technology and innovation for the past six months.

What does your current role entail?

It mainly entails project coordination. Sucafina fosters entrepreneurship as one of the company’s core values. We don’t have a single person leading innovation. Every employee comes up with ideas, and my job is to implement those ideas.

I love it, as we have an immense capacity for brainstorming, trying, failing, and learning. We have an escalation guide and an organization that can bet on the ideas with the most potential at the group level. My role is to bring project management together, align the strategy in the innovation pilots, meet with partners, decide whether to invest in start-ups and lead the teams that can scale from piloting to implementation.

You mentioned that you invest in start-ups. Would these be external to Sucafina?

Both external and internal. I don’t do the financial analysis and due diligence, but we invest in start-ups external to Sucafina. We have also taken an internally generated idea, scaled it, and spun it off as a start-up.

Could you describe Sucafina to people that don’t know the company? 

Sucafina is a family-owned coffee merchant which aims to be the world’s leading sustainable farm-to-roaster coffee company.

How does your experience in logistics and finance help you in your current role? 

My experience has given me a 360° view of coffee and soft commodities. It helps me listen to people in the supply chain and understand their needs, dependencies, and pain points. My network allows me to discuss ideas, leverage and scale them.

Working with the bank expanded my network. It helps to have counterparties with whom you can brainstorm – to say, “Hey, I have this idea; what do you think on your side? Is it a pain point for you? Shall we try it together?”

Logistics present an immense opportunity for innovation. Many people are still doing things the way they always did them. The number of actors in the chain is crazy – from the people loading the trucks, stuffing the containers, processing the customs forms, signing the bill of lading etc. There are so many steps.  Having this experience helps me to speak the language and understand a project.

Is it usual for companies to have a designated head of innovation? 

The head of a research department could potentially have the same role, but I haven’t seen that specific title in any commodities trading company. It’s new even for Sucafina; the company created the position just six months ago.

But I stress that I don’t aim to be the person who is doing the innovation. My objective is to be the enabler for the company’s innovation strategy. My role is to create value for our clients, our suppliers, and our ecosystem in general.

It is slightly different in logistics because of my background in them. I have a pool of opportunities for innovation that I pilot and develop with the team. I’m deeply involved in all the innovations, ideas, proposals, and pilots that touch the logistics aspect of the company. But in other areas of innovation, I am more involved with finding the winners and scaling them up.

Do you find resistance within the company from people who say, “We’ve always done it this way; why should we change?”

We can find resistance to change, sometimes because of a fear of the unknown, sometimes because people are too busy.

But even when people were busy with Covid, we still managed to implement and scale innovation in document handling. Even though there was freight squeeze, COVID, and many other issues, the team managed to pilot, validate, and implement a tool that enabled us, together with custom brokers and trucking companies, to create digital documents in ten different origins of the group.

I recently interviewed the CEO of Covantis. Are you involved in Covantis? 

No. Covantis tackles soft commodities from a grain perspective. Grains move mainly in breakbulk, whereas coffee moves in containers. You might imagine these are the same, but the processes and actors differ. We use Cargoo, a different platform. It is better suited to our needs.

Cargoo was my first experience of leading innovation at Sucafina, starting in 2017 when the platform was at its beginning. We wanted to innovate in the sector and supported Cargoo as a partner. It was an amazing experience.

But document handling is not the only area for innovation in logistics.  There are many more.

Such as smart containers?  

Smart containers help when you need help. They can make a difference in specific cases, for example, in the case of theft. You don’t need smart containers when everything goes well. Their use case is rather limited, but they don’t cost much. You gain a lot of data, but we have not yet learned how to compute and leverage that data. We are working on it.

Are you duplicating Farmer Connect with your smart containers? 

For the sea voyage, potentially, yes.

But the Farmer Connect story is different. Farmer Connect is the spin-off of an idea from Dave Behrends, Sucafina’s head of trading. I participated in it from the very beginning.

The use case is to provide farm-to-roaster traceability. Farmer Connect puts the miles before and after the container into a tangible form. You can attach information about the farmers, soil analysis, deforestation, and carbon emissions. Smart containers just tell you if your goods are inside the container and what happens to them while they are in it.

I read you moved Vietnamese coffee to Europe in breakbulk at one stage. It was innovation going in reverse. How did it work out?

It worked out well, but, as you say, it was going back to how merchants transported coffee 50-70 years ago.

There was a freight squeeze at the time, and instead of paying $1,000 to ship a container from Asia to Europe, we were suddenly paying $13,000 per container. It didn’t make sense for a low-margin business like coffee. We decided to try breakbulk whilst ensuring we maintained food safety and traceability. We had to relearn everything. It was stressful, but we learned a lot. We could do it again if the situation arises.

Innovation covers so many different things. Could you give some examples of where you’re currently innovating along the supply chain?

We are working on waste and water management in coffee washing stations to reduce carbon emissions and create value for farmers.  We operate two pilot plants that take the water, clean it, and reuse it in a closed cycle. Up until today, it was not something you could do in coffee. Usually, you use the water, clean it, and then dump it.  Having a closed cycle reduces water consumption. We are currently trying to perfect the technology and, once we do, will introduce it across all our origins.

We are also working on the way we dry coffee beans. You’ve perhaps seen coffee being dried in the sun on tables. It’s what they do in Africa, but most other origins dry the coffee in machines that use a lot of energy. We are currently testing using electricity from solar panels to power the devices and then recycling the generated heat.

Otherwise, we are currently talking with companies about bean-free coffee. It’s an interesting debate. Bean-free coffee could have potential. It could reduce coffee’s carbon footprint. It could bring new flavours. But at Sucafina, we are very attached to the farm and the farmer. So, this is the kind of innovation where we want to learn and be informed, to know what is happening, what the consumer appetite is for it, and how it could benefit the environment.

Some companies buy carbon offsets to meet consumer demand for carbon-free coffee. Carbon offsets have fallen out of favour recently. Is carbon-free coffee possible without carbon offsets? 

End to end, I don’t think so. However, you can reduce emissions and create carbon insets.

We start by choosing the right variety of seeds to grow trees that need less water and give farmers better yields. We then look to see if we have good regenerative agriculture practices. If you combine both with soil analysis, multi-crops around the coffee, and reduced water consumption during processing, then, potentially, we can think of having a carbon footprint close to zero. I don’t dare say it would be zero, but it can be close to zero. I think it’s possible.

For the rest of the chain, you’re dependent on the partners. You depend on your trucking company, shipping line company, and logistic distributor. Can Sucafina be the driver of change? No, standalone, we cannot. Can we use offsets to reduce those parts of the chain where we cannot go to zero? Yes, if it’s beneficial, let’s do it.

What about green financing – is it still a thing?

It’s still there, but it doesn’t mean lower interest rates. It doesn’t work like that. What happens is you link borrowing conditions to certain environmental and social goals. We get reduced interest rates and return them directly through investment in sustainability projects.

It’s a positive cycle. It’s a way to incentive the industry to change and to achieve goals, but at some point, it becomes the standard.  Today, you’re super happy when you meet specified objectives, but once you reach them, they become the baseline.

In other words, the banks won’t finance you unless you meet certain sustainability criteria. 

Exactly. The trend is in this direction.

Of the different things Sucafina does regarding innovation, which is the one you’re most proud of? 

I’m most proud of Farmer Connect. I love that it’s a data-driven innovation where you give the benefits back to the farmers. It is a start-up whose purpose is to improve farmer incomes by allowing them to monetize their data and be at the centre of traceability.

I’m super proud of how we have transformed logistics at Sucafina. My son was in the office last week, and I kept him busy archiving documents. I laughed because all the documents were dated from 2006 to 2017, but none after 2017. It was a huge change in how people worked, sending 2,000 emails daily, printing every contract, putting them on the file, scanning documents, and presenting them to the bank.

We went from so much paper to no paper. And that, for me, is a carbon opportunity. But it’s more about how people have managed to change their way of working. It makes me super proud.

I am proud of a project we are working on connecting Sucafina with the warehouse keeper. Warehousing is a huge deal in coffee. We store coffee all along the supply chain. We exchange information with warehouses all over the world.

Sucafina is willing to invest and assign people to an idea where we know we will repeatedly fail, but we will keep trying until it works. There are not many companies that allow you to do that. It’s not a huge budget, but it is a significant investment. I wouldn’t be free to do that in another company.

Sucafina drives innovation, but how do you spread it through the industry?

Innovation cannot just be company- or person-driven. A company or a person can play a leadership role – that’s what we want to do at Sucafina – but innovation must be embraced and shared at a wider level. We need to think about how to support people who are not equipped – or do not have the time – to innovate.

How can we help people who are working hard to feed their families but don’t have the time to think about changing how they work? And how can we help companies to be more willing to try and fail? The fear of failure is sometimes bigger than the opportunity to win.

How might artificial intelligence change the business? 

We already use AI at Sucafina with machine learning for our trading model. AI is a powerful assistant enabling us to make better trading decisions. AI helps in other fields like invoicing, market research, PowerPoint presentations or blog updates. It helps us go faster in the cycle of trying and failing or trying and delivering. I have a chatbot I use to compose technical specifications. I have used it with some developers to see how AI can create user code to develop a tool.

AI has a variety of use cases. We must learn and adapt while keeping our people and our strategy relevant. As with every disruption, be aware, learn, and don’t be scared to embrace it.

Innovation is not just limited to companies; it’s also personal. You recently studied at the THNK School of Creative Leadership. What motivated you to do that, and what did you get out of it? 

I joined the experience from May to October last year, partly on-site and partly remote. It was amazing.

Why did I do it? I wanted to do an executive course to help me participate in decision-making and strategy. After twenty years in my career, I wanted to learn new skills and recognize where I had a shortfall.

What did I gain? I gained confidence that I could be different in how I engaged in leadership. It brought me a frame of thinking around change management.

It’s an executive creative school. It’s about incorporating art, feeling, emotion, and your dreams into your business functions. It spoke to me. I’m a romantic person. I cry at the cinema. But I am not like that at work. I’m not emotionally driven at work. It’s funny. I realized that if I linked the two, I would get the best of me and the best from the people I work with. So, embedding stories, reframing, and peer coaching supports me and the innovation culture within the company. It also helps the way people engage with their ideas.

I’d like to move on to women in commodities. I think you recently won an award for your role in the commodity sector. Is that correct? 

WISTA, the Women’s International Shipping and Trading Association, nominated me. I joined WISTA’s Swiss chapter in 2016 as a member and became Treasurer and Vice President. I’m no longer on the board but remain a member. The nomination came from a commodity networking company WISTA partnered with to promote women in commodities.

Why are there so few women in commodities? 

There are many women in shipping and trading, but they are more in procurement, operations, accounting, and human resources. Few are traders.

I think it’s about creating the pipeline. Trading has a reputation for being male-dominated. It’s a bias we have, but that bias is breaking down on both sides. Women are gaining more confidence. I see it at Sucafina, where we are getting close to 50/50 in our Geneva office. We have a pipeline to take female employees into management positions.

Awareness is important, confidence is important, and the world has changed. Work from anywhere. Work with parental leave, work with whatever you want to do in your life. It’s more normal now. It’s going to take time. It will get there.

So, you are optimistic? 

I’m an optimistic person. I’m confident about this because I can see it coming.

Thank you, Raphaelle, for your time and input. 

© Commodity Conversations ® 2023

This is part of the Commodity Professionals – The People Behind the Trade series.

Good morning, Michael, and welcome to Commodity Conversations.  Please tell me a little about Fixkraft – is it a private company?

Fixkraft is a compound animal feed manufacturer founded in 1971. We are Austria’s second largest feed producer in volume – and the largest privately-owned one. We are proud of being in private ownership. It feels more like a family than a big organisation. We’re close to our five owners, the sons of the founding fathers, and they’re close to the business, to the industry. It makes working here quite nice.

Our facilities are in Enns, a port on the river Danube with railway access and close to a highway.

How did you get into the business?

That’s an amusing story. I attended a tourism school, so I know how to cook, but I always wanted to do something internationally. In 2010, I worked for six months in Ukraine as an intern in Donetsk, where I learned Russian. When I returned to Austria, I looked for a job and applied to VA Intertrading, an Austrian grain trading company. They were looking for a Russian-speaking trader, and I started with them as a junior trader in Russian origination.

 I also used to study Arabic; although I don’t speak it, I can read it. In my first months with the company, I participated in a business trip to Morocco, even though I didn’t know anything. The company had a client in Casablanca purchasing around a million tonnes of corn every year. He asked me what I thought of the market. I managed to give him an answer, but I thought, “Wow, it’s nice that he asked me.” In other industries, they look at you, see that you’re new and have no clue, and then talk to the older guys with more experience. But no, he genuinely wanted my opinion.

The company then sent me to Algeria to try to open some markets. I also worked with Iran on grains and oilseeds. As you know, commodity trading is about contracts, and you don’t see the physical grains. I thought getting a little bit closer to the goods would be nice, so after three years, I moved to an Austrian apple juice concentrate manufacturer, buying apples in Poland, Hungary, Romania, and Ukraine. It was interesting but different to the grain business. There was no forward business, no futures, nothing. If you offered a reasonable price, the trucks turned up at your plant. If your prices were too low, they went to your competitor.  It made it linear. I missed the grains business, so in 2019, when the opportunity came up with Fixkraft, I grabbed it.

 How do the different types of animal feed vary? Is pig feed different from cattle feed, for example?

Yes, absolutely, both in terms of nutrients and legal requirements.

There are different legal requirements depending on the type of animal feed. For example, you can use GM soybeans for pigs but not poultry. Most of our feed goes to poultry, where we cannot use GMOs. For cattle, on the other hand, we are restricted to European-origin meals. I can buy Brazilian non-GM feed for poultry but must purchase European non-GM soymeal for cattle.

It is diverse. Non-GM European-origin meals would work for everything, but they are the most expensive option. You could use non-GM European soybean meal for pig feed, but you wouldn’t sell a kilo because it would be too expensive.

We use Danube-soy-certified soymeal for laying hens. They require meals exclusively grown in Europe. And then we also use some high-protein, mid-protein GM and non-GM soy, depending on price. The price plays a role here. We use eight, maybe nine, different types of soya in our production.

And you must separate them all.

Yes, we must keep them separate.

Is your objective to obtain the right mix of carbohydrates and proteins at the best possible price, or is it more complicated than that?

There is the legal side I have already mentioned, but there are some further issues, such as the permitted level of toxins. We need to track them, particularly in corn.

Some farmers believe that they can do on the farm what we do in a compound feed factory by mixing their homegrown grains with soya. It does work. I’m not saying it’s wrong, but they do not have the analysis. It’s a natural product, and corn has different humidity and starch levels.

Our customers often require specific feeds for their animals. There are so many factors in raising livestock. It’s not just feed; it’s also the water and the heating. We have harsh winters here in Austria, and with high energy prices, farmers may reduce the heating, which can affect livestock growth.

We also look at the amino acids in the soya. We use synthetic amino acids to make the feed more easily digestible for the animals.  And there it becomes a kind of rocket science.

Do you have computer programs that help you? Is it something that artificial intelligence could help you with in the future?

To a certain extent, yes. We do have a computer program that gives you the best mix for the best price. You enter the costs and the products available, and you press Start. It then shows you the cheapest combination for each breed of animal. However, there are certain aspects that the computer program does not measure. For example, we add sugar beet pulp pellets or apple pomace to our cattle feed. Neither calculates financially, but it is hard to quantify how much taste is worth.

Artificial intelligence will struggle with customer needs. If one of our customers has a problem, we visit them and try to find a solution together. Sometimes it’s obvious, like increasing the heating or changing the air filter; sometimes, it is more complicated, and we may call a veterinarian to help.

For cattle, we also need to analyse the farmer’s grass. If the grass is dark green, it will have a lot of protein, and we can lower the protein in the compound feed. We must analyse the corn for pig feed if the farmer uses his own corn.

How many inputs would go into feed for dairy cattle – five, ten?

Much more! And as I mentioned, we work with our clients to get the proper feed for them. We also do niche feed products, for example, for deer.

How do you hedge your inputs and sales? Do you use futures, OTCs, or physicals?

My favourite hedge is when we buy the raw material and sell the compound immediately. In most cases, it is not possible.

How I hedge depends on the product. There are some products where I feel comfortable working with futures. Matif wheat correlates well with feed wheat, especially regarding new crops.

It is more complicated for corn. Many German producers use Matif wheat to hedge their corn. They say it works for them. I have had bad experiences with Matif corn futures due to a lack of liquidity.

Sometimes, I do physical hedges on corn. I buy corn delivered on a barge to my factory and sell it elsewhere.

Soya bean meal is more complicated. In the last two years, you have had a poor correlation between Chicago and non-GM soy; you could lose a lot of money. If the euro/dollar exchange rate is stable, it’s easier for GM soy because I can hedge it on the CBOT. I prefer to keep my hedges in euros, so I use physicals to hedge, buying a delivered physical barge and selling the same quantity in the port.

Do some trade houses offer OTCs and hedging platforms?

They do, but I prefer to do the hedging myself.

Do you sometimes buy full cargoes of soybeans?

We are unfortunately too small for that. Our trading business is not that big. We sometimes buy a part cargo, maybe a hold of 5,000 tonnes, but it would be the maximum.

How has the Russian invasion of Ukraine impacted your business?

My job was easy when I first started with Fixkraft. Things started to get messy regarding availability when the Covid pandemic hit in 2020. Nobody knew whether the trade flows would continue or the borders would close.

In January 2022, I told one of my colleagues that the pandemic was over and we would enter a calm period again. The Russians invaded Ukraine a month later, and I realised the pandemic had just been a warmup. All hell broke loose. Price volatility exploded, and you couldn’t buy anything. Suppliers didn’t know if they could deliver. Nobody was selling.

We had three contracts that specified Ukrainian origin. Our suppliers could have claimed force majeur because of the war. But everyone delivered. They executed the contracts even though they were at a lower price than the market. They said, “Please understand it’s not easy, but we will deliver.”

One supplier told me he couldn’t find truck drivers. He had the cargo in Ukraine but said males between 18 and 60 could not leave the country. Somehow, he found a guy who was 62 years old. They pulled him back from retirement, got him in a truck, and three days later, he delivered the cargo. These guys value their business relationships. I will not forget that. But I had never seen anything like it regarding volatility and market movements.

Did any of your supply chains break? Was there ever any risk that farm animals wouldn’t get enough to eat?

Many of our customers called us to ask if we could deliver. And we said, “Yes, we can.”

We had a temporary challenge with mono-calcium phosphate. A raw material for mono calcium phosphate is only produced in Russia, and our supplier had his account frozen and couldn’t deliver. We found other suppliers at a higher price. The market worked; we all managed, and the trade continued.

Do you buy some of your inputs on long-term contracts, or do you buy mostly spot?

We do buy some products, for example, salt, on an annual basis, but we mostly buy up to a few months forward.

I imagine that you buy in volume and sell piecemeal. Does that mean that you hold significant stocks?

Our storage is relatively small for the volume we are producing. I would prefer more storage, and I hope my CEO reads this interview. We do not hold extensive stock.

How many countries do you buy products from?

The market is global, and it’s a matter of how you define the origin. Our GM beans become soybean meal when crushed in Germany or Netherlands. But the beans are from the US and Brazil. They are not of European origin.

We do not use palm oil, so we don’t import from Indonesia or Malaysia. We get amino acids and vitamins from China, which we buy from traders because we are not yet big enough to ship from mainland China. So, the goods might come from China, but our partners are German, Italian, Spanish, and Swiss trading companies.

Indian soybean meal occasionally finds its way to Europe. We get phosphates from Russia and Morocco.

I would say we have business partners in about 30 countries. It is a truly global business.

Will the recent EU legislation on deforestation affect your business, particularly for Brazilian soymeal?

I think the legislation is a good step, but it will be challenging for the trade houses to trace soybeans back to the field and certify they are deforestation-free. I do not originate and import beans into Europe. My trade house suppliers will be the ones who must bear the weight of the new legislation.

We implemented traceability in our supply chain a few years back. We know which farmers get which goods, and we can trace each truckload back to a particular supplier.

Have biofuels complicated your business or increased the price of your inputs?

They are a price determination issue. They have increased price volatility but have not impacted our physical supplies. Molasses might be an exception as it is often difficult to find.

In Austria, we need to import corn for feed because the citric acid and starch sectors consume the equivalent of our domestic production. A while back, there was a political discussion about whether to reduce industrial consumption by law. Some favoured it, while others said it would be too big an intervention into the free market. From an ethical point of view, I would prefer it if the country prioritised human consumption, then animal feed, then ethanol and industrial use. But it is complicated.

I’m beginning to understand that you have so many different inputs you can easily find a substitute in the case of a shortage or price spike in one of them. It effectively means that the supply chain for animal feed is very flexible.

That’s true to a certain extent. Some inputs substitute well based on relative prices. If wheat is cheaper than corn, you use more wheat.

But there are limits. For corn-fed chickens, 50 per cent of the feed must come from corn. Some of our feed comes with unique ingredients like sugar beet pulp pellets. We can’t replace them.

You can substitute sunflower meal with rapeseed meal, but to obtain a high protein feed, you need soymeal. You cannot reach the required amount of protein with a rapeseed meal.

There are some inputs you cannot substitute, like vitamins or phosphate.

The Netherlands is working to reduce their livestock numbers to meet their GHG emission targets. Do you see the same thing happening in other EU countries?

In general, we see meat consumption declining, although it will only have a limited impact on animal feed demand. However, it could result in a consolidation of the animal feed industry in Austria.

I see opportunities in terms of quality rather than quantity. For example, we have developed cattle feed that reduces the cattle’s methane emissions. It’s an excellent product.

Also, for animal welfare reasons, there is a trend towards slower-growing breeds, especially poultry. There is also a trend for animals to spend more time outside, where they grow more slowly. They need feeding for a longer time.

What is the greatest challenge in your business?

Probably, my biggest challenge is to keep our production running. We have customers who need daily deliveries. My worst-case situation would be if we were forced to halt production due to flooding, low water levels, border closures etc.

My second most significant challenge is price. Our target is not to always have the lowest price but to always have a lower price than our competitors.

My third challenge is maintaining the quality of our feedstocks. However, we have long-term relations with our suppliers and trust them. We keep open communications with them and work together to solve quality issues.

You mentioned the water levels. Could you supply your port on the Danube when water levels fell last year?

We had problems upstream. Downstream, where the water levels are always higher, it was still somehow possible.

One upstream supplier usually ships 1,000 tonnes per barge but had to reduce each load to 400 or 600 tonnes. We managed to get corn deliveries from Hungary and Serbia with barges carrying 800 tonnes. We have good water levels now and are receiving shipments of max. 1600 tonnes.

I always try to diversify my purchasing to have cargo on barges and trucks in case of low water or flooding.

How do you see the business developing over the next few years?

As I mentioned earlier, reducing greenhouse gas emissions, mainly methane, will lead to a consolidation in our industry. The overall market will not grow, but the smaller players will exit.

I also expect energy sources to change. We already use some solar panels in our production and reuse the heat from our machines.

Thank you, Michael, for your time and input.

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This is part of a series Commodity Professionals – The People Behind the Trade