Commodity Conversations Weekly Press Summary

EU member states are unlikely to ratify the EU-Mercosur trade agreement following Brazil’s decision to open up sugarcane farming in the Amazon, according to an EU official talking to the Financial Times. Even cane industry sources complained that the policy would only benefit a fraction of growers and that the 44 million ha of degraded land was more than enough to expand planting. 

The Brazilian President may also be looking at scrapping the 2008 soy moratorium, an agreement under which traders committed not to buy soy from Amazon cleared land. The agriculture minister said that the moratorium was ‘absurd,’ echoing earlier comments by the President that existing laws were sufficient to protect the Amazon. The oilseed crushers’ organisation Abiove, on the other hand, said it would stick to the moratorium. 

There is a concern that the African Swine Fever and the ensuing surge in Chinese demand for Brazilian beef are also threatening the Amazon. Brazil’s meatpacking group JBS, for one, reported a 6% increase in its last quarterly profits thanks to the higher prices and stronger demand from Asia. And the meat trade between Brazil and China is expected to continue growing. Earlier this month, China approved 25 more meatpacking plants in Brazil for exports, bringing the total to 89. Some cities in the US, meanwhile, have suggested boycotting meat from companies linked to Amazon deforestation. 

This comes as data from Brazil’s space agency released this week showed that Amazon deforestation in the twelve months to July was up 30% on year and at a decade high. Brazil’s environment minister recognised that this was an issue and said they were using satellite data and the army to enforce existing rules. 

In northern India, the government has started fining farmers found burning crop residues, which is being blamed for the toxic air pollution. An estimated 23 million mt of crop residue from 80,000sq km of farmland is burnt in the north of the country every year. An analysis on the BBC explained that agricultural laws in the states of Punjab and Haryana force farmers to plant in June, instead of April, to take advantage of the monsoon rain and reduce the use of groundwater. The shorter window before the next crop, combined with the high costs of machines required to pick up the stubble, push farmers to burn their fields to prepare for the next crop. An analyst suggested that India will need to go through a second technological ‘green revolution’ involving machinery to fight the current pollution crisis. 

A month after the French constitutional court maintained legislation that would ban palm oil as a biofuel feedstock by January 2020, the National Assembly passed an amendment that delayed the end of tax incentives on palm oil biofuels to 2026 to give producers more time to adapt. In the meantime, major producers in Malaysia and Indonesia set up the Council of Palm Oil Producing Countries (CPOPC) to defend the image of palm oil. Malaysia also pledged to meet the new EU food standards for palm oil by 2021, as food consumption still accounts for 70% of global palm oil demand.  

China’s swine fever outbreak might be much worse than initially expected. The CFO of ADM said the group had seen some benefits on its crush margins but added that the full impact of the disease has not been felt yet. China might lose 20 million mt of pork to the outbreak, twice the initial estimate, which has led to a surge in exports of animal protein from countries around the world, such as Canada, the EU and Brazil. 

Louis Dreyfus (LDC) announced more changes in management this week, with the departure of the COO, a new head of risk and compliance and changes to the board of directors. The group reported a 45% drop in profit during the first half of the year and the CEO said things were unlikely to improve before 2020. 

The agriculture industry has not gone through a wave of consolidation and megamergers as some expected despite a thin-margin environment. A director at ADM said this was partly because consolidation can be a very complicated process while potential targets are limited. The trade war is also making it harder to make long-term plans and accurately assess the value of assets. Instead, the industry has been collaborating through joint ventures to minimise cost. For example, ADM, Cargill, Bunge, LDC, Glencore and Cofco are all working together to track shipping transactions using blockchain technology. 

In Turkey, finally, the Internet-famous chef Nusret Gokce, more widely known as Salt Bae for his extravagant (and salty) meat dishes, is reportedly looking to sell a stake in the Istanbul-based Nusret Gokce steakhouse. This could value the company at over USD 1 billion.

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Commodity Conversations Weekly Press Summary

Trade houses are getting increasingly involved – and competitive – in helping their clients use their ingredients for new products or to reformulate existing ones. Cargill, for instance, opened a new Culinary Experience Hub at its R&D center in Belgium. An official from ADM’s Wild Flavours branch said the group was also working on helping companies formulate products and bringing them to market fast enough to capitalise on new trends. The new products tend to have an increasingly short life span, he said. In Thailand, ADM’s Human Nutrition is launching a plant-based high protein drink as an alternative to dairy. 

Tate & Lyle, too, opened a new headquarters in Brazil’s Sao Paulo to help customers in South America with product formulations. The company wants to capitalise on upcoming legislation in Peru and Chile that will require clearer labels on packaging. The company reported adjusted operating profits of GBP 183 million (USD 234 million) for the Apr-Sep period, up 3% on year, thanks to a good performance from speciality ingredients and a 43% growth in natural sweetener sales

One ingredient that Nestle is trying to cash in on is microalgae – it is vegan, healthy and has a low carbon footprint. The company has partnered with the Dutch ingredients group Corbion to incorporate microalgae-based ingredients into plant-based products whilst maintaining a palatable taste. 

The craze for plant-based alternatives is far from over, with Burger King announcing the Rebel Whopper burger, its biggest product launch in Europe. The vegetarian burger will be the same price as its meat alternative, unlike in the US where it is usually more expensive. Its other plant-based burger, the Impossible Whopper, was one of the chain’s most successful launches. 

Food supplements were among the most popular products sold during Alibaba’s Singles’ Day this week, which saw a record CNY 268 billion (USD 38 billion) in sales, six times more than Black Friday sales in the US. Local analysts pointed out, however, that the sales growth dropped to a 5-year low of 26% as Chinese consumers are reducing their spending amid a slowing economy. 

Mondelez, meanwhile, is looking at capitalising on current health trends by increasing the share of so-called “portion-controlled packs” by 2025 to 20%, from 15% currently. These are packs with 200 calories or less. A survey it commissioned found that people, especially Millennials, were increasingly snacking throughout the day instead of eating bigger meals. At the same time, however, the company continues to see demand for more indulgent snacks.

The Business for Inclusive Growth (B4IG) had its first board meeting this week. The coalition includes giants such as Unilever and Mars and more recently Michelin. It has raised USD 1.4 billion for its initiatives that focus on fighting inequality, such as supporting small farmers to boost yields. The CEO of Danone, which is leading the initiative, said companies needed to change the way they do business. The head of Olam took it one step further and argued that businesses must stop blaming governments and the lack of regulation. He called on food companies to make their ecological footprint public as a starting point for real change to happen. 

One company walking the talk is McDonald’s, analysts said. The group will be buying enough renewable energy in Texas to power some 2,500 stores and reduce emissions by 700,000mt of greenhouse gas. This is part of their target to reduce emissions by 36% by 2030. In India, meanwhile, Nestle said it had collected and disposed of enough plastic to make its KitKat and Maggi brands plastic-neutral by the end of the year. 

Last but not least, Wilmar International saw a net profit of USD 447 million in the Jun-Sep quarter, up from USD 406 million last year and beating market expectations thanks to a 24% growth in its tropical oil business. It also benefited from discontinued operations in Brazil while the sugar division saw a pre-tax profit of USD 80 million, up 9% on year. Louis Dreyfus’ Brazilian sugarcane business Biosev didn’t do so well. The company reported a loss of BRL 304 million (USD 73 million) in the last quarter, nearly twice as high as in the same period last year, due in part to BRL 339 million (USD 81 million) spent on servicing its debt which was affected by the weaker Real.

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Commodity Conversations Weekly Press Summary

The Brazilian President repealed a decree which prevented sugarcane cultivation in sensitive areas such as the Amazon or Pantanal. Researchers warned that this could harm the chances of exporting cane products like ethanol to the EU or Japan where the environmental footprint is closely monitored. The sugar industry had previously lobbied against the move but recently suggested that deforestation concerns would be handled by new policies, such as the Forest Code and RenovaBio.

Experts estimate that 80% of the forest fires in Brazil are started to make space for cattle ranches, despite the fact that the three largest meatpackers pledged to only buy cattle from deforestation-free areas. As a result, journalists are now reporting cases of “cattle laundering”, where farmers move cows around to remove links to illegally deforested land.

Despite the strong rise in deforestation, Brazil emitted only 0.3% more greenhouse gases in 2018 when compared to 2017 thanks to the growth in clean energy sources such as ethanol and wind power. Nonetheless, some areas are witnessing dense smog and pollution because of the fire. In New Delhi, crop burning is one of the major reasons why the smog problem became so bad planes could not land and schools were closed. Ethanol, and other advanced biofuels produced from crop waste, could be a good solution to address the pollution, although the lack of funding is seen as a major obstacle. 

Conservation International said it would accelerate its program to plant cocoa plantations and other trees to restore some of the burnt Amazon areas. Commodity groups such as Olam and Mondelez pledged to pay a premium for the cocoa collected under the program. The cocoa grown in the Ivory Coast and Ghana, meanwhile, has recently become more expensive as the price for next season will include a Living Income Differential (LID) premium. Switzerland’s Barry Callebaut said it would pass on the premium to its customers, adding that most other players would probably do the same as the two countries account for 70% of the supply. 

Indonesia attempted to stop deforestation by banning new palm oil plantations for three years last September. However, the Roundtable on Sustainable Palm Oil (RSPO) said it was impossible to measure the success of the ban because of a lack of transparency. 

A study conducted by Maersk and Lloyds Register identified alcohols like ethanol and methanol as some of the most promising renewable fuels to help the maritime industry reduce their emissions, along with biomethane and ammonia. The COO of Maersk commented that most of the innovation will have to come from growing the production of these fuels to commercial scale. Maersk Tankers recently announced a partnership with Cargill and Mitsui to study ship decarbonisation. 

Nestle announced that 70% of its car fleet in Mexico used hybrid engines to reduce their carbon footprint, and that they were struggling to reach 100% only because of a lack of hybrid trucks and vans. Nestle, along with Pepsi and Coca-Cola, has been moving towards using aluminium cans to address concerns about the mounting plastic pollution. But the Coca-Cola CEO argued that the most environmentally-friendly solution in the long-run was actually to collect and recycle more plastic bottles. The group will not look to a strategic shift away from plastic, he added. 

Investors have been encouraging sustainable firms for years but a new breed of investors is now looking at going a step further by shorting companies with a lack of sustainable credentials, something Bloomberg dubbed “The Green Short”. Morphic Asset Management, for one, is short on Coca-Cola Amatil, an Australian bottler, because it is not doing enough for the environment and to tackle the obesity crisis. 

An in-depth analysis by Politico suggested a reason why the food industry is having a hard time dealing with a rise in obesity and diabetes: the US government has been shrinking the amount of money it invests in nutrition research. As a result, the science on what is healthy food is inconsistent and even contradictory at times. Experts are calling for the creation of a National Institute of Nutrition to help the sector focus on healthier foods. 

Finally this week, we recommend watching this montage of Australian farmers reacting to the recent heavy rain in New South Wales. While 100mm fell over the past weekend, some experts warn that more rain will be needed to fully recover from the drought.

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Commodity Conversations Weekly Press Summary

The global demand for livestock and feed is expected to recover in 2020 when China will have gone through 5-months production worth of meat in cold storage – a direct result of the African Swine Fever (AFS) culling. The analysis by S&P Global Ratings argued that this will help the bottom line of trade houses which have been hurt by the AFS as well as the US-China trade war, especially companies with strong exposure to US origination. In the absence of any major consolidation, agricultural trading groups are expected to continue to look at divesting unprofitable assets, as is already the case for Bunge and ADM for their sugar and ethanol business units. 

BP and Bunge are still waiting for antitrust approvals from three countries, including China, for their joint venture which they hope to finalise this year. Bunge reported a loss of USD 1.5 billion for the third quarter, compared to a profit of USD 365 million the previous year. This includes a USD 1.7 billion charge following the merger of its Brazilian sugarcane business with BP. Good results in South America and in its edible oil segment were insufficient to offset the damages caused by the ongoing US-China trade conflict. In the hope of a resolution in the conflict and higher prices, US farmers have been withholding crops, especially soybeans. The CEO forecast that annual earnings would drop as much as 20% compared to last year. 

Another country where farmers are holding on to their crop is Argentina where producers are eagerly waiting for the newly elected President to explain his policies on agriculture, especially exports. There is a concern that he will increase taxes on grain exports and even bring back export quota limits. Farmers told Reuters that a return to these populist measures would hurt revenues, adding that the last time quotas were implemented wheat and corn planting collapsed. Some say the country could implement a dual exchange rate to help agriculture exports compete thanks to a weaker currency. 

In neighbouring Brazil, Cargill is pushing for the soybean industry to capture more of the value chain and focus on exporting processed products such as meal and soy oil. The call was echoed by the country’s vegetable oil association which pointed out that, ironically, the share of soybean exports stood at 81% of soybean products exported in 2017, compared to 13% back in 1981, when 87% of exports was in the form of meal. In Europe, meanwhile, Cargill announced it was putting USD 35 million in a product line to produce soluble fibres which can reduce sugar content in confectionery products by 30% without affecting the taste or texture. 

Olam Cocoa launched its Cocoa Compass initiative this week which sets targets aligned with UN Sustainable Development Goals. Among the commitments, Olam is aiming to eradicate child labour and deforestation by 2030. It will also work towards improving farmers’ incomes and has agreed to pay the Living Income Differential (LID) premium of USD 400/mt on 100,000mt of cocoa it bought from Ghana and the Ivory Coast. In the US, meanwhile, several industry groups, including Coca-Cola, are warning that the Ninth Circuit Court’s decision to hold Nestle liable for slavery in cocoa plantations in Ivory Coast could actually discourage companies from trying to tackle the issue.

A Greenpeace plastic waste collecting initiative in two areas in Thailand found that most of the waste came from single-use plastic from food packaging and that close to 20% of it was produced by five multinationals: Coca-Cola, Nestle, Ajinomoto, Mondelez, and Unilever. Italy is trying to deal with the issue by proposing to tax plastic in its 2020 budget at a rate of around USD 1/kg. A source told Reuters that the tax, if approved, would bring in over USD 1 billion and would help offset a cut in income tax. Unsurprisingly, beverage companies are opposing the proposal saying it would hurt their bottling operations, especially considering that the budget also includes a sugar tax. 

On the subject of bottling, The Guardian reported this week that conservation groups continue their fight to stop Nestle from accessing water in California’s Strawberry Creek. They accuse the group of depleting water levels and hardly paying for it while selling the bottled water at a profit. At the heart of the fight is a debate about who should control freshwater supply on public land, with Nestle’s former CEO arguing that it needs to be privatised. 

An analyst at Forrester Research forecast that the global food delivery market will likely go through major consolidation in 2020. Although the largest firms managed to raise significant funds in 2019, none reported a profit. Uber, DoorDash and Amazon are seen as the most likely to make acquisitions in the market. 

As China is busy eating through its stocks of meat, Russia quietly became Europe’s biggest importer of cows. This is the direct result of Russia’s policy to modernise its dairy sector, incentivised by the ban on imports of foreign dairy products. As of 2018, the country was 20% shy of being self-sufficient, mainly because a third of milk consumption is still supplied by low-yielding household cows. By 2027, however, Russia hopes to export to China and other Asian countries.

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Commodity Conversations Weekly Press Summary

Nestle reported a 3.7% growth in organic sales over the first three quarters of the financial year.  Strong global Purina PetCare sales and demand for Starbucks products in North America helped offset disappointing sales for beverages, especially in the water segment. As a result, the CEO said Nestle Waters was being restructured so that it could be managed locally, instead of globally as is currently the case. The restructure should help identify consumer trends and higher-margin products amid an increasingly competitive market. 

The focus on increasing the group’s “local responsiveness” will take place across all segments thanks to a new strategy and business unit, the CEO said, adding that “In a period of rapid change in our industry, it will be more important than ever to recognize key trends early and to act on them fast.” Nestle will be looking actively to acquire more businesses aligned with this new strategy, the group said. It may also spend USD 20 billion in 2020-22 in share buybacks, thanks in part to the USD 10 billion generated from the sale of its skincare business earlier this month. Looking forward, a company official forecast that the world population will have to reduce its consumption of sugar, salt and meat to switch to vegetables and cereals as a result of the limited resources combined with the obesity epidemic. 

Danone lowered its 2019 growth forecast slightly after disappointing quarterly results in part due to cool summer temperatures in Europe which led to lower sales in its Waters Europe segment. Overall, however, sales grew 3.7% in the quarter, up from 3% last year, thanks to a strong growth in the specialised and early-life nutrition units which grew by 10%, mostly driven by the demand from China. 

The group’s investment arm, Danone Manifesto Ventures, bought a minority shareholding in organic plant-based food company Forager Project. This is part of its goal to increase revenue from plant-based products to USD 5.7 billion by 2025, from USD 1.9 billion currently. In Asia, meanwhile, the company launched a ‘One Person, One Voice, One Share’ initiative which aims to get employees involved in the Danone 2030 roadmap – designed to be in line with the UN’s Sustainable Development Goals.

Cargill launched a new platform, Feeding Intelligence, to help keep ranchers on top of the information, news and technology that impact their business. The group is streamlining its animal feed business in the US, resulting in the closure of two plants in New York in North Carolina. On the other hand, it will invest USD 225 million to expand and upgrade its soybean crushing assets in Ohio. 

In India, Cargill successfully removed 225mt of annual plastic packaging by replacing paper labels with mould-labeling on its edible oil bottles and reformulating the plastic it uses so that 90% of it is recyclable. On the sweetener side, Cargill announced that it was able to make the first liquid ingredient stevia. Stevia previously could not be used to make a concentrate, which limited its ability to function in beverages and energy drinks. 

Olam is in the process of acquiring the California-based almond company Hughson Nut Inc (HNI) as part of its aim to have a vertically integrated almond supply chain and add to its existing businesses in Australia and Vietnam. In Nigeria, meanwhile, shareholders gave the green light to Olam’s offer to buy the remaining shares in Dangote Flour Mills for USD 331 million. Olam also announced it has been granted a USD 1.5 billion revolving credit facility in addition to the USD 525 million sustainability loan it secured earlier this month. 

In Brazil, the agriculture minister said that COFCO was planning on investing in four sugar mills in the country. She urged the group to also invest in railway and ports to ease export logistics. 

In an unusual twist, Cote d’Ivoire and Ghana are threatening to scrap existing sustainability certification programs for cocoa if buyers don’t contract next year’s crop at a premium of USD 400/mt over October 2020 futures. Sources quoted by Bloomberg say that while most buyers have, in theory, accepted the premium many have yet to contract the crop as they don’t know how to hedge that premium. The West African countries call the premium a “living income differential” (LID) to offset the collapse in world prices and argue that it is more effective in helping farmers than sustainability certification premiums. However, some have pointed out that the LID, too, has failed to be passed on to farmers. Regardless, Nigeria and Cameroon are looking to follow suit while Peru could impose a minimum price. 

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Commodity Conversations Weekly Press Summary

Commodity prices initially bounced when the US announced that it had reached a partial trade deal with China, although they eventually dropped back down once it emerged that it might take five-weeks for an agreement to be drafted. China reportedly agreed to double its import of US agricultural products and review some of its currency and intellectual property laws. However, an analyst called the trade targets “meaningless” until a proper breakthrough is announced, while a Chinese trader mentioned that trade negotiations were always one Tweet away from breaking down. 

China has already started to increase the amount of US goods it imports, according to trade officials. Nevertheless, the country might be looking to buy more US products simply because the supply in other countries such as Brazil is starting to tighten, making US origins cheaper. Moreover, China has been very active in investing to improve Brazil’s export infrastructure so it is unlikely to completely switch to other import origins. 

In the EU, the trade chief announced that the bloc will subsidise olive growers to help them deal with US tariffs. Under the plan, companies will receive money to buy and store excess olive oil. EU officials mentioned that the focus remained on finding a solution with the US to remove duties and address concerns around Airbus. 

Indonesia and Malaysia plan to challenge the EU’s decision to phase out the use of palm oil as a renewable fuel at the WTO, while they warn that they will also limit European imports in retaliation. In response, a member of the EU Parliament said he was confident the WTO would agree with the EU’s environmental concerns. He also clarified that palm oil will still be allowed as a fuel feedstock although it will not be recognised in the Renewable Energy Directive II (RED II).

A French court announced a similar ruling as it maintained a law that would exclude palm oil from tax advantages in 2020 despite an appeal by Total. The group recently spent EUR 300 million to convert its La Mede refinery to process palm oil and warned that it will not be competitive if it has to use local rapeseed instead. 

Palm oil producers who are certified as sustainable complain that large food companies refuse to pay a premium and that they mostly buy certified palm oil for European markets. Nestle revealed that 56% of the palm oil in EU goods was sustainable, compared to just 4% in India and 0% in China. In response, the Roundtable on Sustainable Palm Oil (RSPO) announced that members, including Nestle and Unilever, will now face fines unless they increase the proportion of sustainable purchases by 15% every year. 

Meanwhile, India reportedly threatened to tax Malaysian palm oil in response to a comment by the Malaysian Prime Minister who criticised India’s Kashmir policies. A Malaysian minister said the country might import more raw sugar from India in order to ease trade relations.

The Mercosur bloc is planning to hold trade talks with Vietnam, Indonesia, South Korea and Singapore, according to Brazil’s trade minister. Mercosur also includes Uruguay, Paraguay and Argentina. Separately, Brazil’s space agency revealed that deforestation rates slowed in September but were still 96% above the same month last year. In the first nine months of the year, forest destruction was 93% higher, although the start of the rainy season should slow down burn rates. 

Environmentalists criticised large food companies in the UK for still using soya beans sourced from deforested regions in Brazil. Although 23 brands, including many fast-food chains, signed the Cerrado Manifesto in 2017, the pledge was not signed by Cargill who is responsible for a large portion of the UK’s soya imports. The firm argued that boycotting an area simply moved the problem somewhere else or left more room for other buyers. And a Brazilian official noted that boycotts could prevent sustainable economic development and make the problem worse. 

The CEO of Mondelez commented that food makers need to distinguish between consumer trends and actual purchasing behaviours. He argued that taste and not health will continue to be the main driver of purchases because of the “difference between what people say and what they do”. McDonald’s and Campbell Soup made similar remarks as their attempts to sell healthier products failed. KFC is another example and reportedly spent USD 8 million to make oven-grilled products, although consumers kept buying deep-fried food. 

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Commodity Conversations Weekly Press Summary

Another major commodity group, this time Louis Dreyfus, reported lower results because of global trade tensions and the African Swine Fever in China, along with the bad spring weather in the US Midwest. The CEO said the situation will remain difficult for the second half of the year and will only improve in 2020. Nonetheless, the firm paid USD 428 million in dividends for the first half of the year, the highest since 2014, as the chairwoman is reportedly looking to repay loans she took to buyout minority shareholders. 

China could have lost up to half of its pig herd to swine fever and the Vice Premier has set a target to return to a normal herd size as early as next year. In the meantime, the country is facing a shortage of 10 million mt of pork, more than the global trade supply. To deal with the shortage, a local pig farmer imported 906 breeding pigs from Denmark, the first pig imports this year. And a breeder in Nanning is looking to raise pigs that weigh up to 500kg, compared to the usual weight of around 125kg. 

US producers are also looking to take advantage of the surge in Chinese pork demand. To that end, JBS USA announced that it will remove ractopamine from its pig supply. Ractopamine is a growth drug banned in China and the EU. A US competitor, Smithfield Foods, has already dropped the additive to export to China while Tyson Foods said it was considering a similar move. 

Global trade is due to see another wave of protectionism as the WTO ruled that the US could impose duties worth USD 7.5 billion on EU products in response to the EU support of Airbus. The US will levy a 25% duty on EU food goods starting on October 18, but an EU official said the US seemed uninterested in finding a way to avoid the tariffs. Food firms in the US warned that this could have significant repercussions on their businesses. A cheese importer said he was stocking up with USD 15 million worth of Italians cheeses ahead of the duties. 

A Dutch-based company, DSM, published some potentially good news for both the environment and meat lovers. It developed a new feed that can reduce the amount of methane emitted by cows by up to 30%. The feed, called Bovaer, could be available in late 2020. Cows are responsible for a third of the methane emitted in the US but experts highlight two common misconceptions: the methane comes from burps, not farts, and the natural gas infrastructure still emits more methane. 

A new evaluation of published research also tried to correct a misconception by arguing that there was not enough evidence to support the claim that eating red meat can have a negative health impact. Researchers analysed past observational studies and concluded that the impact of eating red meat was very small and not supported by strong evidence. Health experts were quick to criticise the paper and some argued that nutritional research can not be held to the same standards as medical research. A professor highlighted that years of studies consistently found a negative health impact. And the press revealed that the lead researcher had failed to properly disclose his past ties to an industry group

Ireland revealed that the average sugar content in drinks dropped to 23g in 2019, compared to 31g before a sugar tax was introduced in 2015. Nonetheless, the government noted that some of the decrease was offset by larger container size and the growth in energy drink sales. Similarly, the UK said the sugar content in soft drinks dropped 28.8% since the introduction of a sugar tax in 2017, although the total consumption of sugar gained 2.6% between 2015 and 2018. Public Health England explained that the overall increase in sales of sweet products was enough to offset the drop in sugar content. 

Nonetheless, PepsiCo’s said a good performance from its low-sugar and bubbly sparkling water brands will help with revenue growth in 2019. And Coca-Cola announced that it will launch its energy drink in the US, as it noted that sales in the sector have been increasing while regular soft drink consumption has been steadily declining. Separately, Coca-Cola unveiled a new bottle that uses recycled marine plastics. The plastic was collected in the Mediterranean sea and is used for 25% of the bottle packaging. 

Two very unusual products were unveiled this week. Glenlivet launched whisky cocktails contained in a seaweed-based skin that dissolves in the mouth. And Aleph Farms announced that it has successfully grown lab-meat using cow sells, on the International Space Station

The Glenlivet

Commodity Conversations Weekly Press Summary

Cargill saw its net earnings drop 10% on year to USD 915 million for the quarter ending in August as good protein demand was not enough to offset the disruptions caused by the trade war and the African Swine Flu. Cargill said it was re-organising its animal nutrition business to focus on animal health and wellness. The company is also working on its ecommerce platform to better liaise with its customers and to simplify transactions. For instance, the platform should help Cargill communicate more effectively on issues including new tariffs due to the trade war. The company has also set up a new Land Use and Forest Protection Advisory Panel to scale up efforts against deforestation. In Brazil, it wants to set up a start-up accelerator to finance ideas to solve the deforestation challenge. 

Nestle said it wouldn’t meet its 2020 deforestation goals. It now targets 90% of its commodities to be “deforestation-free,” up from 77% in 2019. On the other hand, it denied claims by the  Rainforest Action Network that it had sourced palm oil from illegal suppliers in Indonesia. Nestle pointed out that 100% of its palm oil supply chain was closely checked using satellites. The group’s senior vice president said he would welcome increasing government regulation to create more of a level playing field among stakeholders. For example, Nestle just inaugurated a 28,000 photovoltaic solar plant at its Al Maha site in Dubai as part of its target of zero net emissions by 2050. Separately, Nestle has bought a minority stake in Before Brands, a company that makes products with allergens designed to prevent allergies from developing in young children. 

Louis Dreyfus and China’s Luckin Coffee announced a plan to jointly produce and distribute juices in China, on top of their plan to set up a coffee roasting plant. Commentators pointed out that the venture helped Luckin compete with Starbucks in the Chinese market on the one hand, and was part of LDC’s strategy to do more food processing, on the other. 

ADM is going to make yet another by-product from corn. It has tied up with Korean group LG Chem to make a sustainable corn-based acrylic acid used in polymers which can then be used in products such as diapers. A company official said the group was already making some 30 products from corn kernel. At the same time, ADM reportedly set up a company called Vantage Corn Processors under which it will incorporate its ethanol plants by the end of the year. 

Olam has echoed a proposal by a famous economist that industry stakeholders in the coffee market get together to create a global fund to subsidise farmers in times of low coffee prices, as is currently the case. Olam’s head of coffee argued that, because coffee is mostly grown in poor countries, farmers usually don’t benefit from subsidies when prices fall below the cost of production. He suggested the fund could also help growers develop more sustainable practices. Nestle pointed out that, at the current pace of global warming, it might be impossible to grow coffee by 2050. In the US, retailers The Kroger and Albertsons announced they were joining the Sustainable Coffee Challenge to do their bit in helping what Fair Trade USA called a “pricing crisis” in the coffee market. 

There’s been progress in the cocoa sector, meanwhile. For one, Cargill’s cocoa and chocolate business announced it was extending its partnership with the International Finance Corporation for a sustainable supply chain in West Africa, Indonesia and Brazil. Barry Callebaut said it would soon launch its WholeFruit Chocolate, a product that is made entirely from the cacao fruit, including parts that are usually thrown away. This is part of a plan to use only sustainable ingredients by 2025. Similarly, Nestle said it had started using the usually discarded cocoa plant fruit as a sweetener. Interestingly, Nestle also launched KitKat bars that will cost USD 17/bar as part of its premium range of chocolate products. 

Plant-based meat continued to gain traction last week as Impossible Foods received a United Nations Global Climate Action Award in recognition of its contribution to the fight against climate change. The Spoon noted that in September alone, at least six new plant-based burgers had been launched in the US. Similarly, IKEA is trying to make a vegan version of its signature meatballs.

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Commodity Conversations Weekly Press Summary

The drop in soy demand caused by the African Swine Fever outbreak in China will mean that COFCO will source less soy from Brazil this year, although the director said he hoped the group will be able to compensate by boosting corn exports. He noted that Brazil holds great potential for agricultural expansion that will be key to expand future food production. The state-controlled company said it will continue to invest in the country, although very cautiously. COFCO has already spent USD 4 billion in acquisitions recently, which enabled it to quickly grow in Brazil’s grains, oilseeds, sugar, coffee and cotton sectors. 

Argentina overtook Brazil as the largest beef exporter to China as beef sales more than doubled in the first seven months of the year. The overall protein demand has surged following the sharp drop in the local pig population. The swine fever has also impacted the supply of edible oils in China, which are produced during the processing of soybeans used to feed pigs. The country doubled its import of palm oil in August compared to last year in order to compensate. Palm oil is also replacing the beans that would have been imported from the US. 

In Indonesia, the state-owned PTPN III  – one of the largest land-owners in SouthEast Asia – said it raised USD 640 million to finance its capital and expand activities in palm oil, rubber, tea and sugarcane. The group manages 1.18 million ha of palm oil plantations. Meanwhile, the Center for International Forestry Research revealed that the deforestation rate related to palm oil on the island of Borneo has steadily been declining since 2012, mainly because of low palm oil prices and government moratorium on new plantations. The center unveiled a new tool, called Borneo Atlas, which lets anyone track deforestation on the island and the companies responsible.

Some 87 companies around the world have now agreed to join the UN’s Global Compact and align their operations to limit global temperature rise to 1.5°C. Unilever was one of the first groups to follow the pledge announced back in June, which now also includes Danone, Nestle, Novozymes, Royal DSM and Natura. Many of these companies also launched the One Planet Business for Biodiversity ahead of the UN Climate Action Summit in NY, highlighting the risks attached to the loss of biodiversity. Two-thirds of the world’s crop production is based on only nine plants: sugarcane, corn, rice, wheat, potatoes, soybeans, palm oil fruit, sugar beet and cassava. 

Similarly, Harvard joined the Cool Food Pledge and will work to reduce its greenhouse gas emissions related to food by 25% by 2030. Nonetheless, students note that the University still refuses to divest from fossil fuel investments, as the University President argues that the USD 39 billion endowment was not a tool for social change. The endowment has also tried to diversify from the risks of conventional stocks by investing in direct agriculture holdings across the world. The process was seen by many as a failure and the total value of the investments was written down from USD 4 billion to USD 2.9 billion. 

Some experts speaking at the UN summit attempted to defend the role global food trade can play in fighting climate change by disputing the idea that importing food always leads to more carbon emissions. Buying locally produced food only makes sense when the produce is in season, and driving a long distance to buy goods could emit more carbon than air freighting fresh produce from across the world, according to the Hoffmann Centre for Sustainable Resource Economy. A recent survey showed that people were also confused about how and why almost a third of all food produced is wasted. Food waste was not as much of a factor for a majority of people when dining out, while people said their biggest reason to limit waste was to save money. 

Farmers in the US highlighted that barley is particularly vulnerable to sudden weather changes, such as drought, heat or floods, which means climate change could potentially threaten our beer supply. To anticipate the issue, beer makers created the Brewery Climate Declaration and are testing other small grains such as winter barley, wheat rye or rice to ensure that future generations can also drink good beer. 

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Commodity Conversations Weekly Press Summary

Unilever and Nestle have been talking this week about their commitment to being carbon neutral by 2030 for the former and 2050 for the latter. Nestle is giving itself two years to plan how to do it and figure out how much it will cost. An energy expert warned that the task would be difficult – and costly – in part because there was no standardised way of measuring emissions. However, Unilever said it had managed to switch to only using renewable electricity across all its operations in North America, Africa, Asia, Europe and Latin America at a net-zero cost.

As part of its strategy, Nestle said it would sign the “Business Ambition for 1.5°C” which is a global initiative focusing on fighting climate change. The CEO explained that they were working on reducing the group’s environmental footprint by using environmentally friendly ingredients, working with farmers to reduce carbon emissions as well as developing reusable or recycled packaging. It has already set up an Institute of Packaging Sciences to find sustainable packaging options. “Our vision is a world in which none of our packaging ends up in landfill or as litter,” he said. In the US, meanwhile, the group is downsizing its workforce as it transitions away from direct store delivery to using warehouses. 

McDonald’s is approaching the packaging challenge differently. It decided to test out different packaging options and get feedback from consumers via its plastic-free restaurants in Germany and Canada. The idea is to see what works before it can be implemented globally. 

Going back to Unilever, the group has been accused by a Mexican organisation of falling short of its commitment to fortify its corn flour products with vitamins and minerals as is required by law. The group registered USD 190 million in sales in fortified food last year, ranking second in the global Access to Nutrition Index. Analysts say that this specific food and beverage sector is expected to grow 24% within 5 years. In Greece, Unilever is working with the WWF on a pilot project to reduce food waste at three hotels. Customers are given notes urging them to carefully consider how much food they put on their plates during buffet meals. The hotels have also tried to reduce the availability of buffets in favour or meals that need to be ordered. 

Meanwhile, a blockchain-enabled sustainability and traceability project started by WWF Australia and BCG Digital Ventures’ managed to raise USD 5.8 million in funding. The idea behind OpenSC is to use technology to identify and earmark sustainable supply chains and then help customers learn about them. An official involved explained that this would not replace certifications but aims to help bridge the gap between customers and producers. 

Cargill announced it was exiting asset management and selling its share in CarVal Investors, explaining that it wanted to focus on businesses where it was more actively involved. Cargill and Maersk Tankers are pooling together some of their Medium Range (MR) fleet, combining the former’s trading expertise with the latter’s digital capabilities to become more flexible and efficient. In India, Cargill opened a USD 10 million 60,000mt corn silo in Karnataka, its first foray into bulk storage in the country. 

In the US, Cargill is upping its marketing efforts on beef packaging to highlight the meat’s protein level after the group identified that other meat products advertised their protein content better, leading consumers to believe that beef had less protein than it did. In New York, meanwhile, local residents are protesting Cargill’s use of seismic testing ahead of an expansion of a salt mine near Cayuga Lake. The residents are concerned about the effects on local wildlife as well as possible contamination of the lake water but Cargill argued that the seismic testing was used specifically to identify and prevent environmental damage. 

Bunge is acquiring 30% of Brazil’s agricultural group Agrofel as part of its plan to increase origination from farmers, especially soybeans. The group, which has 450,000mt in storage capacity, originates about 1 million mt of grains annually. In Asia, meanwhile, Olam was granted a USD 525 million loan linked to sustainability Key Performance Indicators. The funds will be used to finance their current loans. 

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