Category: ECRUU weekly

The growing implications of the Wuhan coronavirus in China make it very unlikely that the country will be able to meet its commitment to double the purchase of US agricultural products under the Phase One trade deal. Analysts, who were already sceptical about the targets before the virus outbreak, say that demand in the country, which is effectively shut down, will drop significantly. 

China’s industrial and agricultural supply chain is also likely to be affected given the importance of the river port in Wuhan. Industry experts have been trying to draw comparisons with the SARS outbreak in 2002 and point out that the country’s supply chain is now much more integrated and depends hugely on river freight. Basically, investors expect the situation is likely to get worse.  

In the US, the President has moved on to his next big goal: reforming the WTO – which he considers to be another “worst trade deal ever.” He said he had talked with the WTO chief in Davos about making “dramatic” changes in the organisation. Bloomberg argued that the strategy the US has been using so far to renegotiate trade deals may not work in a multilateral organisation like the WTO. 

The head of the WTO, for his part, cautioned that changes would probably take a long time to happen but he welcomed the approach. The EU Agriculture Commissioner, meanwhile, urged the US Agriculture Secretary to uphold the WTO to protect farmers from trade disputes. The US Agriculture Secretary responded by saying that EU farmers were running the risk of becoming uncompetitive on a global scale because of the ban on gene-editing technology and other limiting regulations. 

Cargill is concerned about the lack of agricultural purchases from China, warning that US farmers were struggling as the Asian giant had kept most import tariffs in place. In Indonesia, the company complained that conflicting regulations, as well as patchy implementation, were making it difficult to compete. It called on the government to make sure it implements regulations fairly among all stakeholders. Back in the US, Cargill increased the production capacity of its Iowa animal health products plant and invested in cultivated meat company Memphis Meats Inc. The start-up, which raised USD 161 million in funding, will be focusing on commercialising cultivated meat. The CEO, meanwhile, said that Cargill had no plans to go public but was looking at selling assets. 

Glencore is reportedly poised to take over Argentina’s agricultural giant Vicentin. Sources told Reuters that a sale would save the group, which has some USD 1.3 billion in debt, from declaring bankruptcy. Experts warned that bankruptcy could cause a social and economic crisis, including for its main creditor the National Bank. Vicentin already sold to Glencore part of its shares in Renova, the joint venture they have together. However, with such high debt, it will be difficult to value the company which may have to be nationalised. The crisis in the country’s grain sector is growing with farmers threatening to withhold grains sales in protest against the increase in export taxes. 

Louis Dreyfus is tying up with China’s Donlink to build a USD 1 billion food industrial park near the Nansha port in China. The park will include plants that make aquaculture, bioenergy as well as grains trading, Louis Dreyfus said. The trading group also received a USD 100 million loan from the European Bank for Reconstruction and Development, part of which will be used to improve the integration of small cotton farmers in its supply chain. 

Nestle bought pancreatic enzyme companies Zenpep and Viokace this week. The CEO said the acquisitions were part of a plan to grow the group’s medical nutrition offerings, a segment that is growing faster than mainstream food. Analysts said this could be the sign of a return for Nestle into the business of prescription medicines, a market it exited in 2019. Otherwise, Nestle announced it was partnering with Burcon and Merit on developing plant-based alternatives to meat and dairy. This comes at the time when Tyson Foods, which also invested in Memphis Meat Inc, announced a new Coalition for Global Protein, a multi-stakeholder initiative for the sustainable production of protein. 

For those worried about food becoming too bland and healthy, a director at Diana Food argued that indulgence and taste will always remain the main criteria in the snacks industry and that bakery products will never be viewed as healthy. Nonetheless, she noted that some products could be seen as healthier than others.

This summary was produced by ECRUU

Nestle will be investing CHF 2 billion (USD 2.1 billion) to find a solution to plastic waste, including using food-grade recycled plastics and reducing single-use plastics. However, the CEO said that the food industry would have to continue using plastic, and that recycling plastic in a way that was safe to use for food was a big challenge. As such, they will focus on finding ways to ensure that the plastic can be “infinitely recyclable” so it doesn’t end up as waste in landfills or nature. 

Similarly, Coca-Cola said it would not scrap single-use plastics for the time being as it would alienate consumers. The head of sustainability explained that plastic bottles were easy to carry and to close and that switching to cans or glass would actually push the group’s carbon footprint up. Similar to Nestle, the company is aiming for what it calls a “circular economy” and to have at least half of its packaging made from recycled waste by 2030. In France, half of a EUR 1 billion (USD 1.1 billion) investment will be used to increase the amount of recycling, as well as switch from using plastic in the secondary packing to using cardboard. Coca-Cola also said it would spend USD 11 million to clean up several rivers around the world, as well as educate locals about reducing waste. 

In the UK, ASDA is testing out the option of letting shoppers refill containers for things like pasta, cereals and coffee as well as setting up a machine where customers can drop cans and plastic bottles. It is working with Unilever and Kellogg on the project which, if successful, could be rolled out to more shops later in the year. 

Environmentalists had mixed reactions to the announcements by Nestle and Coca-Cola. Greenpeace, for one, said that recycling was not the ultimate solution. Food and drinks manufacturers must stop relying on plastic altogether, it said. They are also sceptical of clean up plans. In the same vein, China is banning the use of plastic bags this year in main cities and in the rest of the country by 2022, with the exception of fresh products which can still be sold in plastic bags up until 2025. 

BlackRock announced sustainability would officially be part of their investment strategy from now onwards. The CEO said that sustainability made business sense, with US investments into sustainable funds quadrupling in 2019. Analysts argue this is significant, as the fund, which manages some USD 7 trillion, has finally caved in after being ranked one of the companies with the worst voting records on climate issues.

Olam announced it is reorganising its business units into two separate groups – global agribusiness and food ingredients. Commodities such as cocoa, coffee, nuts and dairy will come under the latter, Olam Food Ingredients, while grains, oil and feed will be included in Olam Global Agri. Both groups, which could eventually go through an initial public offering, will be headed by Olam International. The CEO explained that the aim was to be able to capture growth in new, trending markets while leveraging on the existing capabilities of the Agri group. As part of the restructure, Olam sold its Californian onion and garlic facility to investment group Mesirow Financial in December 2019. It also sold part of its shares in Arise, a Special Economic Zone in Gabon. 

COFCO, which expects a record operating profit for 2019, is expanding operations in Russia and other countries under the Belt and Road project. The group has been restructuring its grain business, which included the departure of the head of grains, and strengthened its international presence in 2019. The chairman explained that the government’s directions have been to ‘go global,’ all the while ensuring food security and reducing poverty in China. As such, COFCO has been using e-commerce platforms and cooperative-type businesses to help farmers. Technology has been key to helping Chinese farmers make more money without having to move to the city. For instance, farmers are increasingly using video platform apps to create a direct link with buyers and show them where the product is from, with payments also being done through the apps. Alibaba-owned giant e-commerce app Taobao has even been training farmers on how to livestream. 

Plant-based meat company Quorn announced it would start disclosing the CO2 footprint on some of its products as well as include a comparative graph so that shoppers can understand the environmental implications of what they eat. The company also wants to come up with a “Recommended Daily Allowance” equivalent for CO2 consumption, instead of just for calories. 

Talking of calories, the US Department of Agriculture has some good news. It found that the method used to calculate calories – which is 200 years old – often leads to the actual calorie content being overestimated. Their study on whole nuts found that nuts are harder to digest than initially thought, which leads to less fat being absorbed and therefore fewer calories. 

This summary was produced by ECRUU

The US and China signed a phase one trade deal on January 15 but Politico suggested that the full details might not be published until later. Experts say China does not want to expose itself by announcing to the market how much exactly it will buy, especially since the country is expected to base its purchases on prices. Overall, market participants are doubtful that China will meet its commitment to ramping up the purchase of US products to USD 80 billion over the next two years.

The USD 80 billion target seemed more unlikely as China reportedly decided to postpone its plan to mandate a 10% ethanol blend in the fuel supply in 2020. The country cited dwindling corn stocks and the limited domestic production capacity as the main reasons, while analysts said the move was to avoid depending on US imports. 

Trade relations between India and Malaysia remain strained since the Malaysian Prime Minister criticised India’s Kashmir policy back in October. Reuters reported that the government has unofficially instructed Indian importers to stop buying palm oil from Malaysia and that most traders now pay a premium to import from Indonesia instead. 

Malaysia faced more bad news as the Roundtable of Sustainable Palm Oil (RSPO) suspended the certification of plantations owned by FGV Holdings. A previous suspension was lifted in August but the RSPO said that concerns over forced labour had not been addressed after an inspection in October. 

The US Supreme Court is asking the White House whether it should hear an appeal by Nestle and Cargill over a 2005 case accusing them of complicity in child slavery on cocoa farms in the Ivory Coast. In the appeal, Cargill argues that the plaintiffs failed to show that decisions taken in the US could be linked to the injuries suffered. The Supreme Court decision would potentially give companies “a broader shield from lawsuits by victims of overseas atrocities”, according to Bloomberg. 

The Consumer Brands Association (CBA) officially launched in the US. A journalist said it was a sign of the diminishing relevance of the 100-year old Grocery Manufacturers Association (GMA) and the “symbolic end of the Big Food era”. The new lobbying group was born out of disagreements in the GMA and is designed to be consumer-focused.

Another pesticide produced by Bayer, called thiacloprid, was targeted by lawmakers in the EU who refused to extend its authorisation beyond April 30, 2020. The European Commission ruled that it was having a dangerous impact on groundwater quality, along with human and insect health. On the other hand, a spokesperson for Bayer insisted that the company, and many farmers, still believed in the future and safety of glyphosate. Nonetheless, she mentioned that the group would spend USD 6.7 billion over 10 years to find an alternative as a total of 42,000 people had sued the group as of October. 

In France, a plan to quickly phase out glyphosate and other phytosanitary products, called the Ecophyto plan, is being challenged by a strong demand from farmers, the lack of alternatives and a lack of alignment with neighbouring countries. The government revealed that glyphosate sales jumped 10% in 2018 and that it had delayed its Ecophyto plan several times since it was launched in 2008.

Still in France, the agricultural cooperative Limagrain announced plans to cultivate legumes such as peas, beans and chickpeas to cash in on the booming demand for plant-based products. However, Greenpeace USA highlighted that the growing effort to replace plastics with plant-based alternatives might just produce more single-use items and increase the demand for valuable environmental resources. A full life-cycle analysis noted that plant-based packaging alternatives actually have a 10-100 times larger impact on the environment than plastic, depending on the plant feedstock used. 

One of the best solutions to our climate crisis, according to a columnist at The Guardian, is to completely stop farming and to produce all of our food from unicellular life in laboratories. Switching to farmfree food, as he calls it, will address water concerns, the soil quality crisis, make food healthier and save both the planet and humans. A piece in Civil Eats, however, was quick to come to the defence of farming by making the point that farmers are actually some of the most important protectors of the planet as they help society understand how ecosystems work. He argues that for farmers – unlike for most people – a “pristine environment” is not an abstraction but something they actively endeavor to create. 

This summary was produced by ECRUU

Global chocolate makers have asked the European Union to make cocoa importers liable for environmental and human rights abuses in their supply chain. They say that the current voluntary measures aren’t working and that existing certification systems have failed as cocoa production, especially in West Africa, continues to cause deforestation and use child labour. Similarly, in the US, the Cocoa Merchants’ Association of America warned that customs had the right to stop cocoa imports if they suspected forced labour was involved. 

The big chocolate producers say they are in favour of the so-called ‘cocoa cartel’ whereby Ivory Coast and Ghana, which represent two-thirds of global supply, are making buyers pay a USD 400/mt premium, the equivalent of 16% of the current price. Both Hershey and Mars said it was important to help improve the livelihoods of the farmers, even though this will probably translate into higher prices. 

The world of coffee is also about to be shaken. The Vietnamese group Intimex, which exports a third of Vietnam’s robusta beans, announced a plan to use 30-40% of its green robusta beans to make instant coffee, from 10% currently. The aim is to cash in on fast-growing coffee consumption in Asia and is expected to affect the likes of Nestle and Olam who buy green beans for their domestic coffee plants. 

In the US, another milk giant has filed for bankruptcy. Texas-based Borden Dairy said the milk business was struggling in the face of higher costs and competition from plant-based alternatives. Changing eating habits, notably scrapping the breakfast cereal bowl, have led to US per capita milk consumption dropping by 40% between 1996 and 2018. The trade war with China has made matters worse by causing a 50% drop in US dairy exports to China in 2019. Borden pointed out that almost 2,800 dairy farms had closed in the last year and a half, while USDA data shows 20,000 licensed dairy farms went out of business in the last 10 years. 

Australia’s dairy and livestock industries are also set to go through a crisis with the fires raging through southern Australia, with current estimates suggesting that 12% of the sheep flock and 9% of the cattle herd would be affected. Farmers, who were already suffering from years of drought, are struggling to source feed which has become increasingly expensive. Dairy farmers are urging supermarkets to raise the milk price to help them cope, warning of a milk shortage ahead. Olam said its Australia operations had not been affected, however. 

Cargill saw profits grow 19% in its latest Q2 results, having successfully anticipated a rise in meat protein demand from China as a result of the African Swine Fever. The CEO said that the group’s strategy of divesting from non-core businesses was also paying off. Similarly, Bunge sold its Brazilian mayonnaise and margarine production assets to JBS for USD 155 million as it continues to focus on core businesses. In the US, Bunge sold its 25% stake in an Iowa-based ethanol producer.

ADM bought plant-based ingredients manufacturer Brazil’s Yerbalatina Phytoactives this week to cash in on the growing trends for plant-based and natural alternatives combined with a growing demand for health supplements. The group also opened an animal nutrition technology centre in the US state of Illinois with an aim to test ingredients in pet food and aquaculture and bring them to market as fast as possible. 

Meanwhile, corporate documents showed that Margarita Louis-Dreyfus pledged her stake in the company to get the loan she needed to buy the 16.6% stake from family members earlier last year. Commentators pointed out that this means Credit Suisse could gain ownership of the company should she fail to repay the loan. 

Nestle sold 60% of Herta to Casa Tarradellas as part of a Joint Venture which will see Nestle leaving the meat part to be managed by Casa Tarradellas while Nestle continues to handle the vegetarian side of the business. The company bought back some 225 million shares for USD 21 billion, with another USD 21 billion buyback planned by the end of 2022. 

The head of Dunkin Donut warned sceptics that the plant-based meat craze was here to stay. While Domino’s Pizza is testing the fake meat on its pizzas, Wells Fargo forecasts the market would triple over the next decade. So much so, in fact, that the shares of plant-based burger company Impossible Foods shot up after the group announced it had stopped chasing a deal to supply McDonald’s because of insufficient production capacity. 

Interestingly, however, data analysed by The Washington Post showed that if you calculate greenhouse gas (GHG) emissions by calorie instead of by weight broccoli actually emits more GHG than meat such as chicken or pork.

This summary was produced by ECRUU

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.

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.

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.

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.

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. 

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.