Commodity Conversations Weekly Press Summary

Louis Dreyfus has finalised the acquisition of Chinese oilseed crushing business Sinarmas Natural Resources Foodstuff Technology and its plant in the port of Tianjin. The CEO said it was part of the strategy to focus on China and its growing domestic demand. 

ADM has been going through several waves of restructuring – the latest announced last month – as it tries to cope with a changing and more competitive environment. Meanwhile ADM’s office in Germany is facing a routine audit which may force the company to pay higher taxes. 

Bunge is having difficulty in selling its sugar trading unit with potential buyers finding the USD 75 million targeted value too high. Nordzucker and Wilmar have reportedly looked at the business. This lack of interest may make it harder for Bunge to sell its sugar milling segment, which could be valued at USD 1-2 billion.

Cargill will switch to a controlled-atmospheric stunning (CAS) system at its chicken processing facility in Ontario instead of electric stunning. The company explained this was part of the efforts to meet growing consumer concern for animal welfare and a more humane way of slaughtering animals, adding that the less stress the chicken experience the better the meat tastes.

Cargill is also helping McDonald’s find a way to feed chicken with insects and seaweed instead of soy, as part of the restaurant’s pledge to support forests. They found that chickens digest the insects better than vegetable protein which also makes them healthier.

The Parma Ham Consortium in Italy has denied allegations of poor animal welfare at several breeding farms after videos were made public by activists. The director of the organisation added that they were working on improving traceability and had put together guidelines with the Research Centre on Animal Production. A UK-based animal welfare organisation pointed out, however, that animal processing companies had the challenge of finding the right balance between taking care of animals but providing cheap meat.

Nestle has won the right to increase the groundwater extraction rate in Michigan from 250 gal per minute to 400 gal for its Ice Mountain Natural Spring Water plant which was recently expanded. The move angered environmentalists but the Michigan Department of Environmental Quality said it had reviewed the case carefully before granting the permit. Environmentalists argued that Nestle was able to get the water for free and only paid a USD 200 annual permit. In Brazil, meanwhile, Nestle decided to sell its water business – which includes the Sao Lourenço and Petropolis brands and three factories – to local company Grupo Edson Queiroz.

The soaring price of vanilla, which we mentioned in last week’s report, is leading to crop theft and deforestation in Madagascar – the world’s main vanilla producer. An investigation by The Guardian found that protected forest land was being cleared to plant vanilla as locals try to take advantage of the sky-high prices. The investigation also found that while vanilla prices have risen after a cyclone destroyed a big part of the crop last year, the price has also been inflated by speculators who are using vanilla sales to launder money made from logging and illegally exporting rosewood to China.

After much deliberation, a court in Los Angeles ruled that coffee sellers in California will have to put a cancer warning label on the coffee. The whole thing started after an organisation sued several coffee companies – including giant Starbuck – accusing them of not warning consumers about the presence of a chemical considered carcinogenic. Although the ruling only applies to California the label may eventually appear on a national level because it would cost too much to tailor packaging to one state only.

A report by NAFTA’s Commission for Environmental Cooperation found that food wastage in Canada is among the highest in the world. The estimated 396kg of food wasted per capita could cost as much as CAD 30 billion and create 21 million mt of greenhouse gas emissions. While a big part is lost before it reaches the consumer, people throw away around 170kg/year. The organisation called on consumers, as well as food industry stakeholders to intervene to reduce the waste.

In the UK, FareShare is asking people to sign a petition that would request the government to set up a GBP 15 million fund to help reduce waste by redistributing it to the hungry. The charity said this would help remove the burden from farmers and producers who currently have to bear the cost of moving the surplus around. An estimated 270,00mt of edible food is in surplus every year, out of which only 17,000mt is redistributed.

Report produced by ECRUU

Commodity Conversations Weekly Press Summary

Olam has secured a three-year green loan facility of USD 500 million from a consortium of 15 lenders led by ING Bank. Olam will pay a lower interest on the credit line, which is Asia’s first green consortium loan, if it achieves targets of improvement in over 50 environmental, social and governance parameters every year. 

Nestle launched new Milkybar Wowsomes chocolate in the UK and Ireland which has 30% less sugar thanks to a new technology that reduces the sugar content without altering the sweetness level.

Talking of sweetness, in Brazil, a bill in the Senate proposes to allow cane cultivation in Amazon to produce ethanol. Green groups and UNICA, which represents the country’s cane sector, opposed the move, arguing that it would make Brazil’s ability to meet the Paris pact goals harder.  UNICA added that it would hurt the image of the sugar and ethanol industry in the global market.

The price of vanilla has skyrocketed to a high of USD 600/kg, making it more expensive than silver, after a cyclone last year hit Madagascar – which produces 80% of the world’s vanilla. Bakeries and ice cream makers the world over have had to increase their prices  or resort to using substitutes. Only 1% of vanilla extract which is used in food comes from the real plant, however, the rest is made from vanillin molecules found in coal tar, petroleum and wood.

Several NGOs have called on investors, consumers, supermarkets and the meat processing industry to put pressure on soy traders to improve the traceability of their soy supply chain. This follows the release of a new report which shows massive deforestation of the Gran Chaco region in Argentina and Paraguay, deforestation which is blamed on soybean demand. The NGOs conceded that some trade houses had implemented the Brazilian Soy Moratorium to improve sustainability but argued this was limited to the Brazilian Amazon.

Environmental groups in the EU are concerned that the common agriculture policy (CAP) which is up for renewal next year will continue to subsidise large industrial farms and practices that are leading to the decimation of wildlife. Recent studies showed that the population of farmland birds dropped by over half in the past 30 years in Europe, while the number of insects is also dropping because of pesticides.

Leading conservation BirdLife Europe, however, said that the EU was in a “state of denial” regarding the effect of farming on wildlife. There is also talk that EU subsidies for wildlife-friendly farming would be cut after the European Court of Auditors published a report saying they were ineffective.

But there are efforts which show that well managed commercial farming is not necessarily destructive. BirdLife Netherlands has been working with Dutch dairy farmers to develop products that are friendly to the birds, as well as make some changes – such as cutting the fields later in the year – to avoid affecting the wildlife.

The loss of fertile soil as a result of unsustainable farming is putting some 3.2 billion people at risk, the equivalent of 2/5th of the global population, according to a report by IPBES. The study warns that 50-700 million people could be displaced by 2050 due to pollution and climate change as land degradation increases. 

Using blockchain technology in agriculture is expected to help improve traceability within the supply chain. It could help crack down on the amount of fake organic food as well as speed up payments. The head of JPMorgan has said he regretted saying earlier that Bitcoin was a “fraud,” admitting that cryptocurrency was going to change the business. The bank is building its own blockchain solution – Quorum.

Another way of solving degrading land would be to eat more plant-based foods instead of using them to feed animals we then eat. Scientists have called this “opportunity food loss” or the cost of choosing a particular alternative over better options. Looking at the US, they found that growing plant-based food for human’s direct consumption could feed an additional 350 million people.

Over ¾ of ads in sports sponsorships promote unhealthy food in the US, according to a new study. In the UK only 1.2% of food advertising promotes vegetables. Celebrity chef Jamie Oliver is working with ad agencies to start a campaign to change how people perceive vegetables.  This has worked in the past. The Popeye cartoon, which encouraged eating spinach, reportedly pushed sales up by 30% in the 1930s.

This report was produced by ECRUU

Commodity Conversations Weekly Press Summary

At this week’s Financial Times Commodities Global Summit leaders of agricultural trade houses warned that their traditional business model is over. The head of Cargill’s agricultural supply chain said that the margins in trading grains have disappeared with the markets becoming more transparent and farmers more powerful and aware. ADM’s head of global trade agreed, saying the group was now focusing on adding value through “destination marketing” while other companies, like Cargill, work on offering more services to farmers.

ADM announced it was restructuring into four units: carbohydrate solutions, nutrition, oilseeds and origination, in a bid to separate its grain-trading segment from the other businesses. The trading will be part of the origination segment while the wheat milling and corn processing units will go under the carbohydrates solutions segment.

The CEO of Louis Dreyfus said the company was adapting to the demands of the millennial generation, a generation which, he said, drives consumption trends and which wants environmental friendly food. The organic market has a huge potential, with an annual growth expected at 14% by 2021, he added. The group is also looking to improve its supply chain as well as to focus on areas of strong demand, such as China.

Louis Dreyfus reported a net income of USD 317 million in 2017, up 4% on year mainly thanks to the sale of the metals unit, while its agriculture business’ s profit dropped 16% to USD 224 million. 

Cargill has acquired the Colombian company Pollos El Bucaneroas as a part of its plan to double its Central American poultry business. The group said it aims to invest USD 300-500 million up to 2022 to increase its market presence.

In Canada, the company announced that its pilot project on beet sustainability was a success and could be scaled up to produce higher volumes of sustainable certified beef. Cargill explained that the three-month project showed it was possible to trace sustainability across the entire supply chain, as required by the Certified Sustainable Beef Framework established by the Canadian Roundtable for Sustainable Beef (CRSB).

Separately, Cargill said it was looking to sell its three cargo ships and work only as a charterer. It owns three capsesizers in partnership with Mitsui.

Olam sold its 50% stake in the investment holding company Nauvu to Wilmar, which already owned the other 50%.

As part of its effort to produce locally, Nestle has commissioned a new Cremora (coffee creamer) line in Zimbabwe, a move which should help the country save USD 2 million in imports. The company will also continue to expand production capacity to export in regional markets.

The US State Department has launched a project to fight forced labour across the world by creating a registry for workers using blockchain technology. Coca Cola will be partnering in the venture, following increasing pressure to improve standards, especially in sugarcane producing countries.

The UK government is planning to introduce a bill this year which aims to restore the soil’s fertility levels throughout the country by 2030 – the first bill of its kind. Data suggests that the country’s soil fertility could be close to gone within the next 30-40 years because of industrial farming. The farm minister argued the focus should be on designing local solutions as large scale compliance programs don’t work.

In a recent report, the WWF warned that unless people make a conscious effort to eat more sustainably, climate change would have a drastic impact on what we will be able to eat. In 30 years, the quintessential British ‘fish & chips’ may have to use anchovies instead of cod, whose population is dropping due to warming oceans. The taste of meat may change too as traditional feed will become less available. Cutting back on meat, fish and dairy all contribute towards eating more sustainably, the WWF said.

Along the same lines, a study found that the 20% of Americans who have diets with the highest calorie intake and animal based food consumption were responsible for almost half of the country’s diet-related greenhouse emissions. If that 20% group changed their eating habits in line with the average US diet US emissions  would drop significantly – almost 10% of the reductions needed to meet the Paris accord targets.

McDonald’s franchises and suppliers are planning to cut greenhouse emissions by over a third by 2030, the first restaurant company to do so. The CEO explained that beef production was among its biggest source of greenhouse emissions but that some of its suppliers were also working on reducing their carbon footprint.

When asked by Greenpeace to list the name of their palm oil providers, a few food and beverage manufacturers failed to provide an answer. The firms, part of the Consumer Goods Forum (CGF), pledged to reach ‘no deforestation, no peat, no exploitation’ (NDPE) by 2020, but Greenpeace argued it was impossible to assess the success without the proper information.

In the UK, a farmer survey, conducted by Feeback, found that pressure from supermarkets was a major drive in farm waste. Farmers reported that they wasted about 16% of their crop because of the strict cosmetic requirements which they say have effectively normalised overproduction. The report noticed some encouraging actions, such as Tesco’s “wonky fruit and veg” isle.

Still in the UK, the government has invited suggestions on ways to reduce plastic waste, and it mentioned a GBP 0.25 (USD 0.35) tax on disposable coffee cups, as well as a landfill tax. And with Easter approaching, a survey by Which? found that packaging, on an average, accounts for 25% of the weight of Easter eggs, hitting a high of 36.4% in the worst case.

This report has been produced by ECRUU – Commodity Media Monitoring

 

Commodity Conversations Weekly Press Summary

Acquisition talks between ADM and Bunge have ended after over a month of negotiations as both companies could not come to an agreement. Sources say the talks were slow as the two companies were concerned about potential regulatory issues . In addition, JP Morgan had previously warned that an ADM acquisition would not necessarily be economically rational, taking into account Bunge’s 2017 revenues, the challenges faced by the sector, and ADM’s debt.

The big four ABCD companies all reported significant growth in the amount of grain they exported from Brazil in 2017, generally thanks to a recovery from the 2016 drought and a bumper crop. COFCO, in particular, was able to boost its grain exports by 327% thanks to its acquisitions of Nidera NV and Noble Agri, along with its access to China’s soy market, while ADM was able to increase exports by 140% thanks to its upgraded port terminals. A corn farmer in Mato Grosso said that the competition among the four firms was good news for farmers as it pushed up prices.

COFCO is keen to tie up with competitors in its efforts to feed China. The group’s president said that while the company still hoped to become one of the ABCDs in the long term, it conceded that it still had a lot to learn about the world markets and that it would rather partner with than compete against the other big tradehouses.

The Louis Dreyfus family hedge fund Sierentz has launched a new agricultural commodities trading firm – Sierentz Global Merchants. The group, which just hired  a senior execution expert from LDC, will focus on grain exports from the Black Sea.

Bunge announced that it will offer US farmers a premium for their corn crop during the three year period that it takes for them to achieve official organic certification, in a move the company hopes will encourage and help more farmers make the transition.

Cargill launched a website, fedbytrade.com, to highlight the importance of maintaining good trade relations and urge the US to avoid imposing protectionist measures. The company said the US imposing steel and aluminium tariffs could antagonise China and other trade partners into retaliatory tariffs on agricultural products. In any case, economists say there is little historical data to prove that higher tariffs can decrease the trade deficit. They argue the US should focus instead on reducing its fiscal deficit.

Olam has invested USD 1 billion in Nigeria ever since it set up in the country 26 years ago. A company official said the goal was to turn Nigeria into Africa’s agricultural hub. Investments include a rice mill and plantation which is on its way to become the biggest rice farm on the continent, as well as investments in poultry and animal feed, among many others.

Wilmar is teaming up with the Malaysian Palm Oil Certification Council (MPOCC) to help all farmers achieve a sustainable certification by the end of 2019, which Wilmar says will help it meet consumer demand, while helping smallholders achieve higher yields and income. More than half of all mills in the country should benefit from the project. In India, meanwhile, the company increased its shareholding in Shree Renuka Sugars to a controlling 39% from 27% previously.

Cocoa exporters in the Ivory Coast, such as Ferrero, Cargill or Olam, could be affected by a government drive to lower the production of cocoa from about 2 million mt to 1.7-1.8 million mt, in an attempt to stop a supply glut from depressing prices. The government is uprooting cocoa plantations and blocking companies like Nestle and Mars from distributing hybrid seeds.

In the UK, the sugar levy on sweet beverages has already been hailed a success, even though it will only be implemented in April. Many beverage companies have anticipated the sugar levy and fewer drinks will be taxed than initially expected. The government expects now to only raise half the money it had initially forecast. AG Barr and Britvic estimate 99% and 94% of their respective products won’t be taxed. Coca-Cola, too, is catering to low-sugar beverages demand from consumers by reformulating Fanta and Sprite in the UK. The company’s sales volume in the low- or no-calories variants account for 35%. The original Coke, on the other hand, has not been reformulated which means it will become more expensive.

Nestlé said it was the industry’s responsibility to improve public health. The head of the UK & Ireland operations said it was working very hard to reformulate its products and make them healthier. The company has already reduced sugar by 10% in its confectionery brands, removing 2.6 billion teaspoons of sugar.

Similarly, General Mills and the Kellogg Co. is working to make its supply chain more transparent. The group’s head of sustainability explained this was key to building customer trust, especially when it comes to packaged food. Its strategy focuses on investing at origin as well as working closely with partners such as ADM and Cargill to improve sustainable sourcing. It hopes to source all its US wheat sustainably by 2020, from 36% in 2016.

The EU announced that it was investigating the VAT tax waiver the UK extended to commodity derivatives transactions in spot, futures and options contracts. The UK was granted the authorisation to extend a VAT waiver on some commodity deals in 1977, but the EU is alleging that the government extended the waiver beyond the intended limit and that this is creating unfair competition for other EU exchanges.

The EU is considering a new law which would force retailers to reveal their profits as a part of efforts to bring transparency in the food chain business and provide more profits to farmers. Lawmakers said they expected strong opposition from the food sector, but insisted they were committed to passing a proposition they hope to publish in May.

The winner of 2017 Africa Food prize highlighted that climate change is posing a threat to key staple crops and food security globally as increasing temperatures have lowered yields.  He highlighted the need to develop a new system to feed the growing demand without harming the environment.

In California, the new buzz word is “regenerative agriculture” – a type of farming designed to rebuild topsoil as well as to encourage biodiversity. The Regenerative Organic Alliance is working on putting together a certification system built on the USDA’s organic certification. And a campaign has been launched in the state to support a law that proposes to ban the sale of pork veal and egg produced from caged animals. The petition has collected 200,000 signatures so far and a campaigner said he was confident they could reach the required 365,000 signatures by the May 1 deadline.

Did you know that Britons throw away 25 million slices of bread every day? The organisation Love Food Hate Waste has started a campaign suggesting people freeze bread, and toast it when they want to eat it, to significantly reduce that waste.

This news summary has been produced by ECRUU

Commodity Conversations Weekly Press Summary

Sources say that ADM has approached an Asia-based company to create a consortium to buy Bunge in a attempt to bypass anti-trust regulation and to stand a bigger chance against potentially competing bidders. There seem to be further signs that Bunge is preparing for a takeover. First, SEC filings show that higher level executives at Bunge received USD 3.2 million in stocks last week. Second, investment group Continental Grain has reportedly increased its stake in Bunge to over 1% to push the company to sell itself. Meanwhile, Ontario Teachers Pension Plan Board, which manages over USD 7.5 billion, also increased its stake in Bunge.  

Bunge has completed its acquisition of 70% of premium quality oil producers IOI Loders Croklaan. Bunge’s CEO said that value-added food and ingredients segment make now to 35-40% of the group’s portfolio

ADM has acquired 50% of Russia’s largest food and beverage producer Aston’s starch and sweeteners business – including two wet corn mills. This is the most recent of a string of investments and acquisitions of corn plants in the rest of the world. ADM forecast high fructose corn syrup and glucose and dextrose consumption will rise by 6% and 9.1% respectively by 2020.

Cargill and MV Cargo’s grain terminal in Yuzhne, Ukraine, is nearing completion and should be finished by the middle of the year. With a 5 million mt capacity, it will handle 10% of the country’s grain exports.

COFCO has created a “global asset management organisation” which will manage operating assets. The group has also reorganised its top executives as it pursues a policy of global growth. A company representative said COFCO now had a “solid organisational structure” that will allow them to continue to grow.

The Chinese government announced it was stepping up efforts to fight soil pollution, caused in part by fertiliser and pesticide contamination, amid increasing worries that crops are being grown in contaminated fields. As part of the plan, 6.67 million ha of land will be converted into forests. By 2020, 90% of the contaminated farmland (estimated at 3.33 million ha in a 2013 survey) should be safe to grow food again.

Soil pollution is not China’s only problem. Experts say the government’s plan towards the Camel Economy – an economy with lower water consumption – are moving much too slow. With close to 80% of the country’s water reserves in the South, the 12 provinces in the North – home to 38% of agriculture and 41% of its population – suffer from water shortage. To significantly reduce water consumption the government might have to increase the price of water and give up on plans to become self-sufficient in food, given that 62% of the water resources go into agriculture.  

Local media reports that the first part of China’s South-to-North water diversion project – which consists of 1,432 km of mainly open water canals – has already helped millions of people since its inception in 2014. Some 13% of the diverted water can be used for agriculture.

Environmental and social groups have opposed the project, but the government has already moved on to the next phase. It continues to work on its ‘air corridor‘ which would divert water by evaporating it and then controlling its journey in the air through atmospheric interference. The Tianhe Project, which means “water in the sky”  will eventually transfer 5 billion cu m of water per year.

Water shortages might be closer to home that you suspect. A quarter of the world’s 500 biggest cities are already facing water supply issues, and the top 11 cities most likely to run out of water include Sao Paulo, London, Tokyo and Miami.

Still on the subject of water, several fact-checking websites have debunked a story, first published in a Brazilian blog, that Coca-Cola and Nestle were in talks with the Brazilian government to privatise the Guarani Aquifer. The news caused someone to start an online petition against it, which was eventually removed after it became clear this was fake news.   

What is real news, on the hand, is that Coca-Cola is launching an alcoholic drink, the first time in the history of the company. The alcopop will be launched in Japan, where the “Chu-Hi” (canned drinks with alcohol) market is thriving. The alcohol content is expected to be between 3-8%, which means it will compete with the beer segment. The company said this was an experiment which would probably only stay in Japan but was also a sign that the company is exploring new opportunities amid falling fizzy drink sales.

Following the UK Labour party’s proposal to ban selling drinks with a high sugar content to under 16s, Coca-Cola announced it was changing its existing kids education program and looking into new ways to contribute to the younger community. It will scrap its Real Business Challenge designed for children as well as Coca-Cola’s factories tours.

On the other hand, Nestle is investing CAD 51.5 million (USD 39.69 million) to expand its ice-cream plant to 60 million L in Canada. The plant is not able to keep up with demand, the company said.

Unilever has launched Growing Roots in the US. Every purchase will go towards funding and supporting urban farming throughout the country. Interestingly, the initiative was started by Unilever employees.

Lego announced that it has started using sugarcane-based polyethylene supplied by Brazil’s Braskem to make some of its elements at its Danish plant. In the UK, Deliveroo said it will now encourage manufacturers to switch to sustainable plastic packaging, such as sugarcane boxes.

The UK has only 63 small scale local abattoirs left, down from 96 a decade ago. A recent report by the Sustainable Food Trust found that the bigger abattoirs are squeezing the smaller ones out and making them unprofitable, in part because of the current ill-adapted legislation. The trust suggests setting up mobile abattoirs, something which is already working in Canada and New Zealand.

Big data is working to help eradicate malnutrition. A new map has been published showing child growth over the last 15 years in 5km by 5km scale maps of African countries. While the map shows improvement in some areas, it also shows that none of the African countries will meet the United Nations goal to end childhood malnutrition by 2030. The good news, however, is that the detailing of this map will help governments target the right areas.

Finally a Los Angeles fast food chain is experimenting replacing workers with robots. Click here to see a robot flipping burgers.

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Commodity Conversations -Weekly Press Summary

Market talk had suggested that by taking over Bunge ADM is looking to make  a come back in the sugarcane sector in Brazil, acquiring its 21 million mt of cane crushing capacity in the country. (ADM sold its lone mill in Brazil in 2016.) Several sources have now said, however, that ADM is instead focusing on Bunge’s soybean crushing operations in Argentina. Not only is ADM the only major trade house not to have such assets there, but the plants and elevators are ideally located next to the deep port of Parana, giving it easy access to the rest of the world.

Meanwhile, ADM and Cargill will team up to manage a soybean crushing plant in Egypt, supplying beans and commercialising soymeal and oil domestically. The plant, currently under expansion, should reduce the need for Egypt to import meal.

Separately, Cargill has been working with Precision BioSciences and succeeded in cutting down the saturated fat levels in canola oil by 35% to 4.5%.

Olam reported a 159.3% higher net profit of SGD 265.1 million (USD 201.16 million) during Oct-Dec 2017, thanks in part to the sale of its sugar refining business in Indonesia. Excluding “one-time factors,” the company reported a 7.2% increase in earnings, although that was capped by a disappointing coffee crop from South and Central America.

Danone France is planning to go completely organic by 2025. It will give financial support of EUR 5 million (USD 6.1 million) to 2,300 farmers this year to help them adopt organic farming. The group plans to do this through a crowdfunding platform that will allow the general public to lend money at a rate of 2-4%. The platform will also allow farmers to ask for donations, giving in exchange products such as honey.

An Abiove economist has said it will take over 20 years for Brazil to modernise its railway system, roads and waterways and that the country’s poor logistics, especially the bad roads, are slowing the growth of agriculture exports. This could be an issue as the country is expected to export as much corn as the US by 2040, from just 25% currently. In the short term, however, investments by China will help improve the infrastructure.

In the US, several leading food companies such as B&G Foods Inc, General Mills and Tyson Foods said they are considering a price hike to offset rising transportation expenses. A host of factors like rising global crude prices, rail and road companies not expanding capacity and a scarcity of drivers have driven up transportation costs.

Meanwhile, the USDA has asked the government to create a separate immigration route for farm workers to reduce problems linked to labour shortage.

However, the need for field labour could be significantly reduced in the medium term. UK-company Hands Free Hectare has successfully harvested two crops (wheat and barley) without anyone having to go into the field.

The world is expected to consume more and more dairy products rich in fat. A food industry advisor explained that the dairy industry, along with a flurry of studies published over the last few years, have successfully convinced consumers that dairy-fat is not, after all, bad for you. A USDA report forecast this shift will continue to boost demand for butter and cream, which should support prices for full fat dairy. The price of butter rallied to EUR 6,500/mt in September, from EUR 2,350/mt six months before.

However, this is coming at a high environmental cost. The WWF is calling on the Netherlands – the world’s fifth largest exporter of dairy products in the world – to reduce it’s cow population by 40% over the next 10 years. The 1.8 million cows produce so much dung that farmers are having to dump it illegally, contaminating groundwater and air.

While the USDA noted an oversupply of skim milk powder which is often used in infant formula, Danone announced it was doubling the capacity at its New Zealand infant formula plant. The company said its main export market continues to be Australia, but it wants to capture growing demand from China.

An investigation by The Guardian and Save the Children showed that formula milk companies have been using various methods to encourage women in the poorest strata of the Philippines to choose formula milk over breastfeeding. Four companies – including Nestle – were found to be deliberately misleading mothers in hospitals and other forums.

The UK is facing a meat safety crisis. An investigation conducted by the Guardian and Bureau of Investigative Journalism found that two-thirds of audited plants broke food safety rules. The Food Safety Authority has set up a national review of meat processing plants, but there is concern that part of the problem is within the existing monitoring system.

A similar investigation in the US found government records which showed that 47 plants had breached safety standards by, for example, using meat from sick and contaminated animals. Overall, Americans are 10 times more likely to fall sick from food poisoning that people in the UK, according to the organisation Sustain. Campaigners are worried that the situation could get worse if the government accepts a proposal – currently under consideration – to increase the speed at which pigs can be slaughtered.

NGOs are putting pressure on the EU to step up its efforts to eliminate deforestation from the agricultural supply chains. This follows a report published last week which showed that the world’s trading system continue to be major contributors to deforestation – something many stakeholders had committed to work against. The report suggests a focus on palm oil and cocoa. However, sources say the EU’s action plan on deforestation in agriculture, which was due this year, is likely to be delayed.

Using data from fishing cargoes, scientists have found that industrial fishing is being carried out in over half of our planet’s oceans. Put into perspective, fishing pollutes four times more than agriculture even though it represents only 1.2% of human’s global caloric production. Over 85% of the fishing in high seas is conducted by just five countries: China, Spain, Taiwan, Japan, and South Korea. You can check out the map here.

Millenials are the biggest contributors to Australia’s weekly AUD 76.4 million food waste. A recent report found that households with the most millenials tended to waste more, which could also be the result of buying fresher food and cooking more at home.  A similar study conducted last year by Sainsbury in the UK also found that the younger generator wasted more food. It argued that lack of planning and an attitude of “living to eat” rather than “eating to live” was to blame.

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Commodity Conversations Weekly Press Summary

 

Glencore Agri reported a 7% increase in earnings last year to USD 631 million (excluding the “depreciation charge”). Glencore’s CEO said this was pretty good given the market conditions and compared to struggling competitors. He added that the group continued to look for potential acquisitions – although nothing specific has been identified yet.  

The market is expecting ADM will have to issue equity if it wants to buy Bunge. Fitch Ratings argued that a debt-only deal would likely affect the company’s access to cheap credit. Moody’s on the other hand said that – at an estimated USD 16 billion – Bunge is too expensive.

Unilever announced it would make public its entire palm oil supply chain – which includes 1,400 mills and 300 direct suppliers. This is part of their effort to become more transparent, and to help the palm oil industry become more sustainable.

Palm oil producer Sime Darby said it had put its expansion plans in Liberia on hold as it waits to see whether the Roundtable on Sustainable Palm Oil (RSPO) adopts new rules on deforestation. A company official explained that greenfield expansion in Southeast Asia has become difficult as governments don’t want to be seen allowing deforestation. Producers have been looking to expand production in West Africa to feed fast growing global demand but an ambitious ruling by the RSPO could also make expansion in Africa difficult.

Olam, which received last month the Roundtable on Sustainable Palm Oil (RSPO) certification for its palm oil mill and concessions in Gabon, is planning to use 50,000ha to expand its palm oil plantations (as well as rubber). However, it is only developing on grasslands at the moment because of the uncertainty over the deforestation rules.

After reporting disappointing quarterly results last week, Kraft Heinz recognised that changing consumer tastes and a shift from processed food to more natural options are a challenge. A piece in the Wall Street Journal argues that the group’s strategy to drive profits through acquisitions and cost cutting may not be enough, and that the company needs to generate more sales. A branding expert explained that consumers seek out products that “look handmade.”

This could explain why Kraft Heinz’ meat business is losing market share, while sales of processed meats in the US dropped from USD 21.9 billion in 2015 to USD 21.3 billion last year.  In a bid to tackle the problem, one of the plants has started repackaging in a way that highlights the natural ingredients, and has launched an antibiotic-free meat. The CEO also said the group was open to acquisitions.

Kraft Heinz are not the only facing this issue. More and more investors are calling on to companies such as Amazon’s Whole Foods and Costco to respond to shifting consumer demand. A report supported by some 57 investors representing USD 2.4 trillion in investment forecast that the plant-based protein diet is expected to reach USD 5.2 billion within the next 2 years.  

Similarly, a survey conducted by Cargill in December showed that consumers want to eat meat that has been fed with natural additives and supplements, the same kind of supplements that they themselves consume. The head of the group’s premix and nutrition explained animal health, sustainability and well being were increasingly important for consumers.

As a result, meat producers want labels to become clearer. The US Cattlemen’s Association has written to the USDA to spell out the difference between cell-cultured meat, or clean meat, and traditional beef.

Nestle announced a USD 14 million investment at one of its factories in Thailand so that it can produce a higher quality coffee with less sugar. Nescafe Gold Crema, as it is called, was launched at the same time in Thailand and Western Europe. Although Thais tend to have a sweet tooth, health concerns are driving the shift to black coffee.

Rabobank expects the wine industry will see further consolidation, especially in light of the difficult year many producers are going through. Growing regions in California, France, Italy, Spain and Argentina have all seen bad weather which has, in some areas, badly affected the grapes. The price of bulk wine on the VinEx exchange is already up 17% from 6 months ago.

The wine market will also have to adjust to changing consumer concerns. A recent report forecast that the growth in wine consumption in the US is expected to slow, in part because millennials are more “frugal.”

Amazon’s Whole Foods business is helping premium food producers reach consumers. The head of natural organic food company Hain Celestial said its sales have increased significantly in the last quarter, while its costs have dropped, thanks to sales via Amazon. He explained that consumers are moving away from shops and sourcing most of their needs online. In a bid to compete, one of the US’ biggest grocery chains, Albertsons, is planning to buy Rite Aid which would widen its reach to 4,900 locations in the country.

On the other hand, Amazon was told it had to pay a penalty USD 1.2 million for  unlicensed imported pesticide in the US. Although the selling was done by third parties, the Environment Protection Agency argued the products were going through Amazon’s warehouses. The company committed to crackdown on illegal pesticides.  

Finally, NPR started a video series called “Planet Money Shorts” and the first episode tells the surprising tale of how Germany’s duty on frozen US chicken imports led to the boom of the US auto industry. Watch it here.

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Costa Rica announced last week that it will lift the ban on planting robusta coffee as climate change is making it harder to produce the more fragile arabica crop. This is a general trend in the region. Central American robusta will likely displace Brazilian and Vietnamese origins into the US. But even with this switch, Olam forecast the world will not produce enough robusta in 2017/18 – for the second year in a row.

In the longer term, a study published last year forecast that arabica area would drop by 50% globally by 2050 because of rising temperatures and a switch to the cheaper robusta alternative. For premium-brand companies like Whittard of Chelsea it is a problem as robusta does not provide the same taste experience. Some producers are working on crossbreeding arabica but any genetic modification is expected to face consumer backlash.

Following the recent volatility in equities, fund money could be moving out of equities into commodity markets. Several analysts argue that inflation and higher interest rates will push traders to look at commodities that tend to be perceived as “inflation-proof.” Others are quick to point out, however, that agriculture commodities are suffering from oversupply.

After revealing disappointing Q4 results and its worst annual profits since 2009, Bunge announced it was exiting sugar trading, adding that some parties had expressed interest in buying its sugar trading business. Bunge’s CEO explained the aim was to focus on the group’s “core”, namely agribusiness, grains and oilseeds. He added that sugar margins had been unable to cover costs for a few years. In addition to selling its sugar assets, the group is also looking at selling its share in their renewable oils joint venture. 

The fundamental fund CC+ – which focused on coffee and cocoa – closed at the end of last year, joining a number of other similar funds such as Jamison Capital Partners and Astenbeck Commodities Fund II which also closed in 2017. The head of CC+, known as “Chocfinger” for his knowledge of the cocoa market, said he could not compete with computer trading, which he accused of distorting prices. Commodities broker Marex Spectron argued that fundamental analysis was now a “waste of time.”

In the US, Republican senators from grain states are trying to remove the disadvantage to private grain traders following the 20% tax rebate mooted for farmers selling their crop to farmer cooperatives. Private grain operators are seeing fewer contracts as farmers wait to see what happens, and big grain trading companies are even looking at setting up cooperatives. Ethanol producer Green Plains has already incorporated a cooperative in Kansas, and ADM is looking for alternatives in case a solution cannot be found.

Nestle acquired a majority stake in superfood producer Terrafertil. The company, based in Ecuador, operates in seven countries and fits Nestle’s aim to diversify into plant-based and healthy foods. The group is facing some issues after a consumer filed a lawsuit in the US accusing the group of using cocoa from Ivory Coast which has been produced using child and slave labour. Nestle is also hitting back at accusations that it is using more water than allowed in California’s San Bernardino National Forest.

A debate in the Dutch poultry sector is highlighting two conflicting facets of sustainable food production: environmental impact and animal welfare. The industry has been moving towards larger living spaces for chicken, along with slower growing strains, which has in turn increased the environmental footprint. Making eggs from battery-caged chicken was banned in the EU in 2012, but commentators noted these eggs actually have the lowest carbon footprint.

And in an attempt to make fish farms more environmentally friendly, companies are looking at insects to replace the fish meal they usually feed salmon. Dutch-based Protix developed an insect-based feed made from the larvae of black soldier flies, which was approved by the EU in 2017. The firm tested the feed for four years and said the fish tasted exactly the same, while the salmon, who are famously picky eaters, reportedly enjoy the insect feed.

Consumers are apparently more worried about the impact of genetically-modified (GM) crops on the environment than on their health, according to a German survey, which was trying to assess where the resistance to GM came from.

Meanwhile, a trade spat between China and the US has grown to include agricultural products. Chinese importers are reportedly looking to lower their purchases from the US, as the Chinese government is expected to retaliate against the US decision to impose a tariff on solar panels and washing machines. Chinese traders are not taking delivery of US corn, and are looking at Australia and Brazil for sorghum and soybeans, respectively, instead of the US.

While some were celebrating the opportunity to expand their export markets, the UAE environment minister told a conference on farm innovation that the global supply chain has made every country susceptible to food insecurity and is also posing a challenge to the Middle East where the rising population is putting pressure on the ability of the countries to provide food to their people.

Penn State University is looking at a novel way to address the food insecurity issue: recycling human waste to make food. Through anaerobic digestion, scientist are growing a type of microbe from methane gas that consists of 52% protein and 36% fat. The end product, dubbed microbial goo, might need to be mixed with conventional food to make it taste better, and if that doesn’t sound appetising, don’t worry, it’s designed for astronauts who might spend months travelling to Mars.

Another, perhaps more popular, method of improving food security has also been making headlines: the effort to reduce food waste. The Italian Agriculture Minister said a 2016 law, which pushes firms to donate food instead of wasting it, has so far provided food for more than 1.5 million people. A Swedish University found that only seven products accounted for 50% of the food waste costs incurred by retailers, namely bananas, apples, tomatoes, salad, sweet peppers, pears and grapes. Aldi announced this week that it will join the Champions 12.3 coalition which aims to half the retail and consumer per capita food waste levels by 2030. Nonetheless, most of the food is wasted by households, not retailers, as highlighted by the Love Food Hate Waste campaign which has been going for more than 10 years.

And if you are still hungry for more agriculture related news, we recommend the Netflix “Rotten” documentary series. Instead of focusing on what it thinks you should not eat, like most food documentaries seem to do, it investigates allegations of crime in the food industry, such as the smuggling of adulterated honey, or the trade war between the biggest US and Chinese garlic producers.

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Sources say that ADM and Bunge could announce a merger by the end of this week. They warned, however, that the agreement could still be derailed – especially if other parties are interested in bidding for the group. Bloomberg writes the move could be the “biggest shake-up in a generation” and many analysts forecast this is likely to be only the beginning of a “reshuffling” of the ABCDs.

Fitch Ratings argues Cargill’s lower leverage and higher cash flow put it in a strong position compared to its competitors, especially in terms of M&A. It suggests that Cargill could pick up some of the more niche and higher margins assets that Bunge might have to sell in the case of a takeover by ADM.

COFCO is looking at buying logistic facilities – including warehouses – inside Brazil’s Mato Grosso. The head of the South American operations said they want to buy directly from the farmer instead of going through other groups. COFCO exported 7 million mt of soybean from Brazil in 2017, up from 2.4 million mt the previous year, making it the third biggest exporter behind Bunge and Marubeni. Over 50% of China’s soybean imports now come from Brazil, a demand which is expected to continue growing. In January alone, Brazil’s soybean exports jumped 70% on year.

After prolonged regulatory delays, the EU has approved imports of DuPont Pioneer’s Plenish soybeans. With Monsanto’s Vistive Gold soybeans also expected to be completely commercialised this year, farmers in the US are planning to scale up the planting of these GM varieties of high oleic soybeans. These beans produce oil with lower saturated fat and trans-fats and capture a premium of USD 40-50c/bushel. A market expert forecast that high oleic soybeans will become the fourth-largest grain and oilseed crop in the US within the next 10 years.

In other trade news, the Chinese commerce ministry announced last week that it will investigate US sorghum imports under its anti-subsidy rules. Sorghum is used as a feedstock for ethanol and animal feed, and sources mentioned that producers might switch to corn to limit the risk of an unstable sorghum supply. The US is expected to export about 260 million bushels of sorghum to China in 2017/18.

The UAE’s Al Khaleej Sugar Refinery has signed a deal with the Egyptian government to build a USD 1 billion beet factory which could be fully operational by February 2021. The 77,000ha complex will eventually have the capacity to produce up to 900,000mt of sugar from locally grown beet, as well as to grow wheat and corn and refine 900,000mt of raw sugar in the off-season. The aim is to supply the deficit domestic market and to export to other African countries.

Olam is building a cocoa powder manufacturing plant near Chicago which should be operational by the middle of the year. The cocoa for the plant will be sourced from Africa, Asia and South America, although Cargill pointed out West Africa is becoming  an increasingly big supplier to the cocoa world market, mainly because farmers elsewhere are switching to other crops.

However, a representative of the Ghana Cocoa Board complained that global cocoa prices had collapsed from USD 3,100/mt to USD 1,800/mt in less than a year, and that this was hurting producers. To try and boost the domestic industry, Ghana’s Cocoa Processing Company is looking at setting up a cocoa manufacturing group in the country so that it can process the local raw cocoa beans for the domestic market.

The pace at which cocoa plantations have spread in the region has attracted the attention of environmentalists, especially in Ivory Coast where plantations are causing deforestation. Cargill was one of the global buyers which, last November, committed to sourcing zero cocoa from newly deforested land by 2030.

Following the likes of Cargill and Wilmar, and amid a consumer backlash, Nestle has decided to stop sourcing palm oil from Guatemalan producer REPSA. Nestle said the producer has failed to implement its action plan to deal with allegations that it was violating workers’ rights and hurting the environment. Nestle has also stopped buying palm oil from the IOI Group following it’s suspension from the Roundtable on Sustainable Palm Oil (RSPO).

Meanwhile, Cargill is working on reducing maritime pollution. The company has tied up with four NGOs to help improve sustainability and accountability in the shipping industry.

Mars wants to increase its scientific transparency by publishing research standards and disclosing sponsorships. Its public affairs vice-president said the goal is to avoid linking research funds to defined outcomes, and to attempt to regain consumers’ trust.

New research found that 50% of the UK’s food consumption is now “ultra-processed,” making the country the biggest processed food consumer in Europe. Germany followed closely with over 46% while France has just 14% of processed food consumption.

Finally, shoppers in the UK spent GBP 8.6 billion (USD 12.1 billion) to buy their groceries online last year, up from GBP 8.1 billion (USD 11.4 billion) the previous year. They expect their food to be delivered faster and faster. An article written by the BBC argues that “Time wars really are the new price wars.” More outlets, including Amazon, offer to deliver groceries within the same day, and in some cases within an hour. However, this is coming at a high cost, both financial and environmental, due to the additional packaging required.

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Coffee company Keurig Green Mountain, owned by JAB Holding, has purchased soft drinks manufacturer Dr Pepper Snapple for USD 21 billion. Analysts said the move came as a surprise, given that consumers seem to be moving away from sugary drinks. The group has made USD 58 billion worth of acquisitions over the last six years.  Bloomberg suggested that one of the reasons the coffee company is so successful is because it pays its suppliers  almost one year after purchasing beans, a move that cuts out trade houses and improves cash flow.

Bunge has bought two US-based corn flour mills valued at USD 75 million from Mexican corn miller Grupo Minsa. An official said the move would boost its Food & Ingredients business and help grow the company in other regions. However, market commentators argued the strategy behind the acquisition could be linked to the recent ADM takeover bid.

In the  soybean market Brazil is taking an increasing share of the Chinese import market. Customs data showed that 57% of Chinese soybean imports came from Brazil last year, up from 35% 10 years ago while US origin dropped to 31% from 38% in the period. This is partly because US farmers prefer high-yielding varieties which have lower protein levels while Chinese buyers want protein to feed their livestock. US soybean exports to China are expected to struggle further after the Chinese government announced last week tougher sanctions for importers who don’t follow the rules on GMO crops.

Canada has been exporting more barley to China, taking market share from Australia. Australia’s barley harvest was affected by a drought this year, but more farmers could switch to growing the crop instead of wheat. While demand for Australian wheat has been affected by competition from the Black Sea, world barley prices are now on par with milling wheat prices, compared to a 10-12% discount just a year ago. China’s barley needs should continue growing fast to feed livestock, as the government is encouraging corn to be used for its ethanol.

To become more competitive on the world market, Canada is accelerating the building of a grain terminal at Port Metro Vancouver in the hope to have it opened in 2019. This is the port’s first new grain terminal in 50 years.

The Russian government, meanwhile, said it wants to develop flour production capacity to help absorb the bumper wheat crop and create value addition. The agriculture minister wants the country to continue being a significant wheat producer as well as to encourage a shift in domestic consumption towards higher quality wheat.

Cargill is looking to hire data scientists to build an artificial intelligence that can use the company’s data to boost profits. An official said they hoped machine learning would help reduce human error and make better decisions. Cargill’s decision to take a minority stake in Cainthus is another sign that advanced technology is at the centre’s of the group’s strategy. The Irish startup has developed a facial recognition technology for cows to improve farm efficiency and help the animal’s well being.

This week, apart from announcing a new potato starch production line in Denmark with its partner AKV Langholt, and unveiling its first fish feed plant in India, Cargill has also said it is investing USD 25 million in Puris Proteins, a plant-based food manufacturer and North America’s biggest producer of pea protein. Cargill said Puris will help them meet the world’s growing protein demand whilst keeping in mind shifting consumer concerns, or what it calls being ‘label-friendly’.

Separately, Cargill is also working on reducing waste. The company said it will be giving USD 1.5 million to Brazilian non-profit organisation Gastromotiva whose focus is to help the poor and marginalised while reducing food waste through things like vocational training. This is part of what has been called the Social Gastronomy Movement.  

ADM, meanwhile, opened a state-of-the-art centre in Singapore to develop new flavours and ingredients for the health-conscious Southeast Asian customers. Similarly, a bakery innovation centre was opened in Kentucky, USA, in a bid to meet growing demand for vegetable-based, non-GMO and organic options in the fats and oils arena.

With the aim of developing a more sustainable palm oil supply chain, Unilever has joined up with PT Perkebunan Nusantara (PTPN) to help Indonesian mills and farmers manufacture palm oil in line with zero deforestation norms. It will provide resources, funds, and technical assistance. Unilever also announced support for the Cerrado Manifesto which aims to stop deforestation of the Brazilian region. Efforts are paying off – a recent report by CDP and McKinsey found that Unilever was among the companies with the greenest supply chain.

In India, meanwhile, Unilever will invest USD 3 million in grocery delivery start-up Milkbasket.

It the UK, Nestle will launch a premium chocolate bar which is already present in other European countries, moving into the gourmet market and rivalling Lindt. “Premium chocolate is one of the fastest growing areas in confectionery,” the company said. Separately, Nestle Waters North America announced it was investing in its spring and sparkling water portfolio, adding ten new flavours, as well as new packaging designs.

Coca-Cola announced it would launch three new drink brands before the UK sugar tax is rolled out on April 1. The tax, combined with slow sales, have put pressure on the group which plans to close a UK factory and distribution centre to reduce costs and boost efficiency. Britvic is going through a similar process and will close its Norwich factory.

Another unintended repercussion of the war on sugar has been a tequila shortage. Demand for agave, which is also used as an alternative sweetener, has been growing. The price has skyrocketed as a result. This should boost planting, but Reuters reports it could take as long as 2020 for there to be sufficient supply.

Sugar is not the only one to be struggling with bad press. Coffee shops in California could be required by law to warn customers of the risks linking coffee and cancer. Some argue that exposure to acrylamide, which appears during the roasting process, could be a source of cancer.  

While more brands are voicing their commitment to becoming healthier and more sustainable, a report by Kin&Co warned that too many companies are  announcing intentions before implementation, hurting the brand image. An example could be the public outcry that followed when a customer complained that a UK Tesco store did not allow him to use his own container at the deli counter. In its defence, Tesco said it would work to reduce plastic packing, but not at the cost of hygiene.

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