Author: jonkingsman

1/ The media is blaming climate change for the cocoa deficit. But aren’t there other reasons, such as El Nino, disease, lack of land tenure, periods of low prices and a lack of investment in the fields?

The predicted global deficit of 400,000 mt, or 10 per cent of global production, is as large as we have ever seen, but the climate change story is nonsense in cocoa. I’m seriously concerned about climate change in coffee, but it has nothing to do with the problems in cocoa.

El Nino has had a minor impact on the Ecuador crop due to excess rainfall, but we’re talking about a loss of 50,000 mt. El Nino doesn’t explain the problems in West Africa; they result from long-term issues.

Following a price increase, the production area in Ivory Coast and Ghana significantly expanded in 2008-10. However, these trees are now relatively old, and their yields have declined.

The Swollen Shoot Virus is a more significant factor. The disease decimated the crop in Ghana in the 1960s and 1970s, reducing production by 50 per cent at a time when Ghana was the world’s largest producer of cocoa. The Ghanaians are trying to control the current outbreak. Ivory Coast is doing nothing.

We first identified the Swollen Shoot Virus in the Ivory Coast in 2008. It spreads slowly, and once it infects a tree, it will kill it within 5 to 10 years. There is no way to prevent it other than by cutting out infected trees, burning them, and replanting. Ivory Coast has reached a tipping point. We estimate that 25 to 30 per cent of the country’s farms are infected, but it may be more.

When a farmer sees his yields declining, he cuts down the trees and moves on to a different crop or replants with cocoa. The problem is that the disease will infect the new seedlings if you replant without burning the affected trees.

Prices have been stable for the last 10 or 12 years, and with the benefit of hindsight, they’ve been too low. Farm prices need to rise above $3,000 per mt to encourage farmers to invest in fertiliser, tree pruning, or planting new areas.

Farmers in Ivory Coast and Ghana still receive less than $2,000 per mt because the farm price was set at the start of the crop year last October. Ghana and the Ivory Coast should send a signal to their farmers by significantly increasing the price of the mid-crop, which starts in April. Otherwise, farmers will only begin receiving higher prices from October onwards and will only respond once they receive the higher price. The time lags are long in cocoa.

2/ Can anything be done short term?

A new tree takes about three years to produce fruit and 5 to 7 years to reach full maturity. The short-term answer is to invest in better farm care (pruning) and fertiliser use.

Fertiliser use has fallen in the Ivory Coast and Ghana over the last two years because of the high fertiliser price after Russia invaded Ukraine.

We’re seeing the first signs of the Ghanaian government trying to improve yields for the 24/25 crop. They plan to prune trees, spray against disease, and distribute fertiliser. It could be beneficial if they get their act together over the next 3 to 6 months. But the best incentive to better farm care would be to pay the farmers more.

If everything is done correctly at the right time, yields could increase by 30 to 40 per cent. The problem is that the window for applying fertiliser is when the rains return from March to June. Anything later than that will not impact the main crop. You might impact the next mid-crop, but it is much smaller.

Both countries have a central marketing board that fixes the price. The boards sell forward, and this sets the farmer’s price. That’s one of the problems. The 30 per cent drop in production this year has surprised both countries; they found themselves oversold. The governments of Ivory Coast and Ghana never default, but they roll forward the contracts. They’ve had to roll forward low-price sales from last year into next year. It means that they are well sold for 24/25 without being able to take advantage of the higher world prices.

Ghana and Ivory Coast account for 65 per cent of world production and are not yet passing on the higher prices to farmers.

3/ Swiss chocolate manufacturers were in the news last night saying they won’t increase prices this year. How will the market match demand and supply? Will there be shortages?

Many chocolate manufacturers have forward price cover and wouldn’t usually pass on today’s cocoa prices until the back end of this year. Still, they have other ways of mitigating against price rises.

They could reduce the amount of cocoa in their chocolate or promote filled bars with fillings such as wafers or fruit and nuts. They could still sell the same volume but use less cocoa. We will probably also see some shrinkflation.

Cocoa demand is price inelastic. It’s a recession-proof snack – a luxury but a low-price one. One way or another, we’ve got to reduce the amount of cocoa we consume. The easiest way of doing that is to price chocolate higher than alternatives such as snack food, cereal bars, etc.

The only comparable situation was 1977, when the world ran out of cocoa. The price spiked to a record high of $5,000 per mt in New York. If you apply the US Bureau of Labour Inflation Statistics back to 1977, $5,000 then equals $25,000 now.

4/What’s behind the explosive move in cocoa this year? Is it speculation?

The chickens are coming home to roost. I remember attending an industry event last November and was surprised at how complacent people were. Some felt that cocoa may move to $4,000 per mt, but no more. They thought it was a weather issue and not a structural one. They have probably revised their views this year.

Some physical cocoa users may be forced to buy back their short-term hedges due to margin stress.

The funds have been long cocoa for quite some time but have significantly reduced their positions since the market took off this year. Managed funds are pretty much out of cocoa. You can’t blame hedge funds for squeezing the market. They’ve been doing the opposite.

5/ Three companies, Barry Callebaut, Cargill, and Olam grind two-thirds of the world’s cocoa beans. I have seen suggestions that they control the market and are behind the price rise.

I don’t think they do. Even with this reasonably high concentration, they are price takers rather than price makers. If you look at Barry Callebaut’s share price, for example, you will see that it has fallen significantly in the past twelve months. It should have rocketed if they were controlling the market.

© Commodity Conversations® 2024

Steve Wateridge is the senior coffee and cocoa analyst for Tropical Research Services.

You recently took over as CEO of Agflow. What’s the biggest challenge you have faced so far?

We’ve had several challenges.

One was to revamp our pricing strategy. It was the first thing I identified. CEOs have different backgrounds, but I consider myself a marketing person. I like to sell things. I believe I am sensitive to understanding what clients will be satisfied with. I won’t relent until they are.

I saw that our churn rate was too high, not because the product wasn’t right, but because our pricing was skewed.

I said, let’s look at how we could do our pricing. We need to be entirely transparent about our pricing model because pricing should not depend on who the client is. You can’t charge different people different prices for the same product.  We revised the pricing model, fragmenting everything by product and commodity. If you are looking at soybean meal and only want tenders and quotes, you should pay for that. You shouldn’t pay for the entire platform if you’re not using it.

We also had to improve our customer relations. I told the team we must be the Four Seasons of customer care. I recommended they read a great book, Four Seasons: The Story of a Business Philosophy, by Isadore Sharp, the hotel chain’s founder. He understood that a happy customer brings in more customers.

You may have an issue with a product or a product that flops. It’s what happens in business. We don’t live in a fairy tale. But we must communicate correctly with our clients, listen to them, and understand their needs.

We have adapted our approach and have had excellent feedback. We have cut our churn rate by half. We have improved our ease of conversion and shortened the timeline to close.

There have been some tough choices, and we have had to let some people go, but the team must fit correctly. It’s like a football team. Sometimes, it’s not about having only star players. You need players who can play together.

On the personal side, it has been challenging to understand what is essential in the data and what isn’t. It has taken me at least 4 to 6 months to fully understand when people were telling me something had potential when it didn’t.

Businesspeople often invest heavily in marketing the wrong product and ignore a more profitable product that is quietly selling itself. You must identify and focus on the right products. We’re in that phase now.

What is your elevator speech for the company?

You may have heard about some of our competitors, but we have a completely different methodology and are in a blue ocean of our own. We work with a network of more than 150 contributors and can give you a view of what the market is doing at a particular time and place for a specific commodity. Our methodology is our differentiator—it differentiates us from our competitors.

We are not analysts, and we stay as impartial as possible. However, our AI-powered market intelligence chatbot arm drives rapid insights from our database.

Okay, so you’re an accumulator of data which you distribute. I recently interviewed Vosbor and CM Navigator. Are they doing the same thing?

Every company is a little bit different. I don’t think we are competing because the idea driving these companies comes from a different place.

CM Navigator was initially a facilitator for the group and their clients, but it is not, at its core, a technology company. We will compete in certain areas but have the upper hand in the number of commodities. If we go down to the subclass of the subclass, we’re covering about 280 commodities.

Vosbor is different. They are less a data provider than a digital exchange for physical commodities.

How is Agflow using AI now, and how will you use it in the future?

We use AI to parse the data as we receive it, and we have automatic outlier detection. Our technology speeds up the process so that the client gets the data as soon as it arrives.

For the last year and a half, we have been working on a new project, which we will probably launch as Agflow AI. It’s a chatbot, like Chat GPT, that can prompt reports within our database. Our clients can access the reports we aggregate, but instead of reading them all, they will be able to ask the chat box a specific question. We will limit it to our database to ensure it doesn’t hallucinate. It will tell you where it got the information and won’t give you an answer if it doesn’t have the information.

It’s a massive win for us because we see that we will be able to leverage AI in a reliant, constant, and scalable way. We are now linking our entire quotes database to it.

I see a world where clients will have an app and be able to ask questions. We are working to be ready for that. However, the commodities industry is not as fast-paced as some other industries. Clients still ask for an Excel sheet emailed to them every day. We can still do that.

AI isn’t going to give us data; our methodology is still going to do that. AI will help us acquire, clean, and deliver the data to our clients.

Instead of working your way through a table with different origins, delivery months, qualities, and price quotes, AI will do the work for you, and the chat box will answer immediately. It will take time to be 100 per cent reliable, but we will get there.

What do you see as your growth drivers?

I believe price discovery will drive our business forward. Working with many contributors and looking at many bids and offers gives us an edge.  We do not assess our prices in a journalistic way. These are the actual market prices, with an algorithm to create the forward curves. It is a different methodology.

Our basic model is yearly subscriptions. We also have a data services arm that offers consulting services to help small or midsize firms create internal systems to drive insights from their data. We then add in our data. We have had two mandates so far, but it’s not something that we see as a significant lever of growth. We view it as another service that we offer.

We see many new applications for our data. We currently have about 75 clients, including some of the ABCDs, and there is still a large pool of potential clients for our existing services. Our clients, ranging from FMCG companies to hedge funds, are extremely fond of our data because they use it to build the best models.

By the end of Q2 next year, we expect to be in profitable waters. We are close to achieving right now.

© Commodity Conversations®2024

Sacha will present at the Grain Com 24 Conference in Geneva on 14-16 May 2024

The first time I met Robin was in 1982, just after S&W Berisfords, the parent company of J H Rayner, had bought British Sugar. Robin hosted sugar traders to a buffet lunch to celebrate the purchase, and I remember briefly chatting with him. I also remember that they had put enormous sugar beets on the lunch tables. It was the first time that I had ever seen sugar beet.

“Ephraim Margulies was the head trader at J H Rayner,” Robin told me. “But he was more interested in cocoa than sugar. Everyone called him ‘Old Man Marg’. He was a hard taskmaster. When he took over British Sugar, the then chairman was heard to say: “The next time he comes round here, we will switch off the lifts so that the bugger has a heart attack climbing the stairs”.

“I remember once,” Robin continued, “Our little sugar team were bullish, and we went to see Marg to ask him to extend our trading limit. He said, “So you think this market’s got a bottom, do you?” “And we all said, “Yes, that’s it. It’s at the bottom.” And he replied, “The only bottoms I’ve ever seen had holes in them.” He was completely right. The market then collapsed. He was very, very clever.”

“I had joined Rayner in 1980,” he said. “It was a bitter experience which drove me to drink. I drank to celebrate success and to drown the pain of failure. I returned to Sucden after five years, but Sucden had changed out of all recognition. And so had I. I had become an alcoholic. It was a hard-drinking atmosphere in London at that time. I don’t know how we all survived. I only did, thanks to Alcoholics Anonymous.

“But why did you leave Sucden in the first place?” I asked. “You had been there for eight successful years.”

“It was a pure misunderstanding,” he replied. “Maurice Varsano had started trading coffee and moved me to the new coffee desk. He viewed it as a promotion. I viewed it as a demotion. I wanted to stay in sugar and left to go to JH Rayner in London.”

“And you went back to Sucden in 1985?” I suggested.

“Yes,” he replied. “Maurice had died, and his son Serge had taken over. It was all about Cuba and Russia. Serge had a genuine relationship with Mr. Krivenko from Prodintorg in Russia and Mr. Lezcano in Cuba. They liked each other, and they trusted each other.

“Serge was never a speculator. He didn’t like speculating, so he let us do it almost as a hobby. Sucden made money by doing big deals. We gave the Russians what they wanted: the safety of knowing they would get enough sugar to supply their domestic demand. We gave Cuba finance that kept them stumbling on.”

” Colt Bagley, previously head trader at Cargill and Philipp Brothers, started physical brokerage in 1990,” he said. “He came to Paris, and we had lunch. One of the head traders asked him who he had the best relationships with as a trader.

“He said, “What do you mean? We didn’t have relationships. If we were cheaper, we sold. If we were more expensive, we didn’t.”

“No, no,” she replied. “That’s not how it works. Trading works through friendship. We genuinely became friends with the Russians.”

“I left Sucden in 1992,” Robin continued. “I set up Czarnikow Rionda with Danny Gutman. We resurrected the name. It’s a sombre story. We quickly made a lot of money. We thought we were clever, and then we were foolish.

“We lent money to Brazilian mills against future supply, but they didn’t supply. We bought put options from a Chinese company, but they failed to honour the contracts when the market collapsed. Czarnikow Rionda went into bankruptcy in 2000, and I downgraded to becoming an analyst.”

“But didn’t you trade for yourself at one stage as an independent?” I asked.

“I sold my house in London and speculated with the proceeds. I learnt a useful lesson: I am a bad speculator. Robert Kuok once said that good speculators are born, not made. It is a question of character. To be a good speculator, you must be quick to change your mind. You must not be married to your opinions. Vain people don’t make good speculators, and I’m rather vain. I think I’m right, and the market’s wrong. Humble people make good speculators. Maurice Varsano always used to say that sugar is a school of humility.

Marex approached me, and I joined as a trader,” he continued. “I proved for a second time that I was a bad speculator. But they kept me on as an analyst. Once I’d sold my house in London, I was practically destitute. I made much more money from houses than I ever did out of sugar.”

It made me think of my grandfather on my mother’s side. One of my earliest memories was catching a bus with my mother every Wednesday to Hastings, where her father and mother lived in a one-bedroom flat above a newsagent.

My mother’s parents were constantly moving, and she attended sixteen schools before she was sixteen. She lived in cities as diverse as Buenos Aires and Buffalo in New York and used to tell me stories about living in vast houses with maids, cooks, and chauffeurs one day and the next day having to share a bed with her sisters when they moved the next day. Her parents were married in Manaus, Brazil, and he (and his father) made and lost fortunes in the rubber trade.

My great-grandfather was a sea captain. San Francisco awarded him the freedom of the city when he turned his ship’s hoses on the fires that sprung up after the great earthquake in 1906. Her father finally lost all his money when the Argentinian leader Peron threw the British out of the country and nationalised the British-owned railways after the Second World War. My grandfather had put all his money into the railways and a British project to build the Buenos Aires underground system.

That’s all I know – and, unfortunately, all I will know – about him. Even so, I still considered him a role model. When I left university, I had a choice between two careers: banking and commodity trading. I chose the latter because I thought it would be more exciting: I liked the idea of alternating between rags and riches, but I would have hated the reality of it. It seems that this was what Robin had done throughout his career.

“When I started at Cargill,” I told him, “they put me on the futures desk in Minneapolis, managing big positions. Everyone talked about beating the market, but I quickly learned it wasn’t about beating the market. It was about beating my emotions.”

“Right,” he said. “And with one addition: a good speculator regards the market as his friend, something he loves. I used to regard the market as my enemy. I wanted to prove that it was wrong and that I was right. It was the wrong approach.”

“What advice would you give somebody wanting to become a speculator?” I asked.

“Find out quickly if you have the right character,” he replied. “And if you don’t, get out quick. There is nothing sadder than seeing intelligent, hardworking people losing money and being swept aside by some brash young idiot who makes money. So don’t fight that you may not be a good speculator. Learn about yourself.”

I always felt that the job satisfaction of being a trader was terrible. If you get the market right, you either get out too early or too late, or you don’t have a large enough position. And if you get it wrong, then you lose money. Robin agreed.

“It’s just awful,” he told me. “When my son left university, he was looking around, unable to decide about a career. I said, “Why don’t you do my job?”  And he said you must be crazy. You come home green every night.”

“What’s the difference between being an analyst and a trader?” I asked.

“You don’t have to pay for your mistakes if you’re an analyst. You merely have to say you got it wrong, that you’re very sorry about last week’s report, and then move on. The two emotions, greed and fear, that drive markets apply much less to analysts. You are not as emotional as an analyst. You look at the market in a more cold-blooded way and weigh it up more rationally.”

Listening to Robin, I realised he and I have a similar trajectory. I started as a trader and became a broker and then an analyst.

“It’s a bit like teaching,” Robin said. “Those who can’t do, teach. And those that can’t teach, teach teachers.”

“Now that you are an analyst and not a trader,” I asked Robin, “Would you recommend your son today to go into commodity business as an analyst?”

“I think it helps to have been a trader if you want to be an analyst,” he replied. “It is almost better if you’ve been a bad speculator because you can probably understand better what works. It would condemn him to ten years of misery, losing money as a speculator before entering that calm haven of analysis.”

“But do you think you must have traded sugar to be a good analyst?” I insisted.

“It certainly helps,” he replied. “The only thing that matters is what will push the price up and down. And if you’ve been a trader, you instinctively know it’s the money. You follow the money. An analyst tends to get involved in intellectual conjectures and likes to prove a point or looks at it from an economic point of view.”

“How did you get into commodities in the first place?” I asked him.

“I studied Russian and French at Oxford,” he replied, ” I was a Trotskyist by the time I left. I wanted to get to know the working class and got a job in a factory in Leeds, where I learnt that the working class didn’t like me, and I didn’t like them. I decided to get a proper job, and my father helped me get one in the City in vegetable oil brokerage. My father was a diplomat.

“I wanted to use my language skills and applied for a job with Sucden in Paris. At the time, the sugar trade houses never traded with each other – they concentrated on brokering government-to-government deals between exporters and importers. Vegetable oils were more about trading – and the various trade houses traded with each other. I had the bright idea that this could be applied to sugar. I went to Paris for an interview and got the job.

My daughter, Charlotte, recently interviewed Robin for her ECRUU podcast and asked him to describe a typical workday as an analyst.

“I don’t want to,” he told her. “I’d get the sack.”

© Commodity Conversations ® 2024

Click here to listen to Charlotte’s ECRUU podcast with Robin

This is an excerpt from my new book, Commodity Professionals—The People Behind the Trade, now available on Amazon.

I recently caught up with Anders Valentin Vogt and Mads Frank Markussen, two young Danes who look so similar they could be brothers. By some strange coincidence, they share the same birthday, although Anders is a year older than Frank.

Anders and Frank work within the Copenhagen Merchants Group – CM Group, a second-generation family-owned company involved in commodity brokerage and trading, shipping, logistics, terminals, production, and market intelligence. Anders heads the newly established entity CM Navigator, and Frank works as a freight trader in Navi Merchants.

Anders has been with the group for over eight years, working initially in the Agri and Biomass (wood pellets) markets. His roots in agriculture run far back, having grown up on a farm.

Frank was a freight trader for ten years, most notably in Denmark with DS NORDEN but also with Louis Dreyfus in Switzerland, where, incidentally, he read the Sugar Trading Manual (now, unfortunately, out of print).

CM Navigator is a subscription platform with S&D analysis, trade flows, physical prices (nominal and actual bids & offers), and dry bulk freight rates. Its freight calculator runs 360,000 freight rates, updated daily (approximately 30.000 voyages 12 months forward). Navi Merchants is a shipowner and charterer that trades freight, taking market positions, mostly on European trades and primarily in European short sea routes.

I began the interview by asking the duo if the two entities were legally separate and what the relationships and synergies between the two were.

“They are separate entities,” Anders explained, “But owned by the family company. There are 78 companies in the group, some wholly owned, others co-owned with, for example, Bunge, Viterra or USTC group. There are a lot of synergies between the different entities.”

I asked him how he generated 360,000 freight rates. It seemed an incredible number.

“We have a team of programmers, economists and mathematicians who produce them via our proprietary models,” he told me. “We realized that advantages in computing technology meant that what had previously been done by hand could now be done faster by computers.”

“We looked at all the theoretical ways you can calculate a freight rate on every commodity from coaster to capesize,” he continued. “We built a model incorporating them all. Then we used our contacts to validate the inputs for, for example, marine insurance, speed versus fuel consumption, and our grain knowledge to build a database of grain tradeflows. We add live data that we buy externally – and update every two hours – for, for example, carbon or fuel prices.

“As we are physically present in freight and grain, we can feed the machine with what is happening in the spot markets, which means we are as close to reality as possible.”

I asked him if a client could charter a ship or trade an FFA (Forward Freight Agreement) on the platform.

“Currently, you cannot trade anything on CM Navigator,” he replied. “However, if you want to charter a vessel, we can put you in contact with the right person within the group.”

As well as freight, CM Navigator tracks trade flows on ten cereals – wheat, corn, barley, durum, wheat, triticale, oats, rye, rapeseed, and peas – and is currently adding soybeans and soy meal. I asked Anders if the platform tracked every vessel by commodity.

“We distinguish between tradeflows and vessel lineups,” he answered. “We aggregate import/export volumes by country. On the lineups, we’re strongest in the Baltic Sea on wheat and barley.”

“Do you do containers or only bulk?” I asked.

“Only dry bulk. It is our specialization and our expertise. Container freight rates are challenging as the top nine carriers control 83 per cent of capacity. In dry bulk, the largest three companies don’t even control ten per cent of the ships.”

So far, I have been talking mainly with Anders, but I also had some general freight questions for Frank.

“For our non-specialist readers,” I asked him, “Could you explain how the FFA market works – and can you charter a vessel on a basis against an FFA?”

“The FFA markets work the same way as other derivative markets – FFAs are swaps cleared via exchanges with brokers acting as go-betweens. Freight sellers like ourselves can lay off their flat price risk via FFAs; in that sense, it is similar to basis trading in many other markets. The main difference between FFAs and wheat futures is that the MATIF or CBOT settles through physical delivery, while FFAs are financially settled based on an index of global routes.

“It makes FFAs more volatile than other futures because you cannot take delivery of ships against an FFA, forcing physical and derivatives to converge. If I am not mistaken, the FFA market is one of the world’s most volatile derivatives in percentage swings.”

“Are hedge funds active in the FFA market?” I asked.

“Yes, very much. I would love for you to interview some hedge funds that have entered FFA markets in recent years,” Frank replied. “My gut feeling is they put too much money into a relatively illiquid market. The ensuing volatility means shipowners and freight traders must constantly revise their bids and offers as customers buy an all-inclusive price, not a premium to a financial product. It is, of course, an opportunity for the smart traders!”

“Can you charter a vessel on a basis against an FFA?” I asked.

“Yes,” he replied. “You can charter a ship on index-linked pricing, the same index that FFAs settle on. It is a popular way for traders who want to add physical presence without incurring huge flat price risks. It has other risks, though. There is no free lunch.”

“How far out can you charter a vessel on a voyage basis?”

“The best thing about global dry bulk freight markets,” he answered, “Is that as long as all laws are adhered to, there are no rules. You can contract whatever you want.”

“One model we operate here in Navi Merchants is for dry bulk freight customers looking to hedge their forward freight exposure. They need the flexibility not offered by traditional voyage contracts, so  they can get a financial stake as a silent partner in a one-year time charter where Navi Merchants commercially manages the ship, and we split the profits/loss.”

Do traders usually charter vessels on a Time Charter or Voyage basis?

“Large traders focus on time charter as they need flexibility. Smaller traders usually do voyage charters because they do not have the skill set to run a fleet and because it reduces their risk, as voyage freight is an all-inclusive price.”

How big an issue is counterparty and default risk – and how do you manage it?

“It is an integral part of any trading company, commodities or shipping. Effective management involves rigorous risk assessment. Staying informed about market conditions is vital, and diversifying customer portfolios helps spread risk. Strong contractual safeguards are essential, while continuous monitoring of counterparties is crucial.“

“Do you use AI in your programming, and how do you see it changing your freight world? I asked.

“I will leave the freight trading part to Frank, Anders replied. “But in a  CM Navigator context, we rely on old-fashioned fundamental analysis. We see the potential for AI to increase the accuracy of lineups and S&D forecasts using satellite imagery.

“However, AI could significantly impact market dynamics regarding the speed with which the markets react to disruptive events and capture opportunities. It may give the bigger trade houses an advantage or introduce new players into the industry, shaking things up a little, as in other industries.”

“I am part of a network in the Danish Technical University,” Frank told me, “where we try to combine business knowledge with students and academics, funded primarily by Maersk Foundation”.

“Ships operate under the constraints of physics,” he continued, “making them suitable for modelling and optimization. Whether it’s engine performance, hull design, or port logistics, AI-driven solutions are on the horizon.

“Some shipowners are exploring AI-driven trading models, and companies like Cargill use systematic trading models to generate trade recommendations. While these models exist, their effectiveness can vary widely. However, AI’s current limitations in price prediction shouldn’t overshadow the fact that humans also have limitations. While top traders excel, not everyone in the shipping industry consistently makes profits. The future likely involves a combination of human expertise and AI.”

“What does the future look like for the freight trading sector?” I asked.

“I think the next step is consolidation – amongst shipowners, freight traders and data providers,” Frank replied. “We are already seeing consolidation among major players in the freight trading sector, driven by the desire to achieve economies of scale, improve operational efficiency, and enhance their ability to weather market volatility. You need serious IT, data subscriptions and human resources to compete with the best.”

I couldn’t interview two Millennium-generation Danes without asking them about diversity and sustainability.

“Diversity is on our agenda,” Anders told me. “Diversity of ethnicity and nationality comes naturally in a global industry. However, when it comes to gender, it is not so easy, especially within these traditionally male-dominated industries like tech, commodity trading, and shipping. For example, last time we advertised for a software developer, 1 of 20 were female. In CM Navigator, we are a team of five nationalities based in three offices with around 40 per cent women.”

“Sustainability is essential,” he continued. “Customers must have it, and they ask for it to be free. We calculate carbon costs and emissions on the freight along with every freight rate. We aim to combine our data into a full carbon data solution.”

Do Danes have shipping in their blood,” I asked. “Are you modern Vikings?

“There’s certainly a unique connection between Denmark and the shipping industry, Frank replied. “What struck me in Switzerland was that very few locals seemed interested in pursuing careers in shipping or commodities. In Denmark, it’s a different story altogether. Shipping, especially through companies like Maersk, is a matter of national pride.”

“You could say maritime traditions run deep in our veins,” he added. “My family has ties to the industry – my parents were part of the Maersk family when they met.”

“You mention Switzerland,” I retorted, “But a Swiss company, MSC, is currently the world’s largest shipping company, just ahead of Maersk.”

“That’s true,” he replied. “But MSC has a Danish CEO!”

“Last question,” I said. “Tell me one thing about you that isn’t on your LinkedIn profiles.”

“I did amateur car racing when I was younger,” Anders confided. “I have a racing simulator at home. My girlfriend hates it, but she can also see that I don’t watch football games or anything, so that’s my thing. And then she gets some quiet time when I sit there because I’ll focus on that for a couple of hours, and then she has everything to herself.”

“And you?” I asked Frank.

“I love Lego,” he replied. “And somehow, my son also loves Legos. It probably helps I give him Lego sets for every occasion. We do a lot of Lego together. My daughter has also taken to Legos but prefers to use them as dolls and likes changing their hair and clothes.”

“Lego is a Danish company with a Danish CEO,” I replied.  “Thank you, both, for your time and input.”

© Commodity Conversations® 2024

This is an excerpt from my new book, Commodity Professionals—The People Behind the Trade, now available on Amazon.

By Corinna Olearo,

Head of Commodity Research & Price Risk Management, Nestlé

Please note that this article is intended to be descriptive of historical events and the content should not be interpreted as projections of future outcomes. All opinions expressed are solely my own and do not reflect the views of my employer.

The turbulence that defined the commodity markets between 2020 and 2022, where many markets reached their highest levels in a decade or even surpassed historical peaks, now appears to be a distant memory. However, two markets stand out as exceptions to this trend: the price of robusta coffee is currently at its highest level in 30 years, and the cost of cocoa has reached unprecedented levels.

A return to normality

The factors contributing to exceptional commodity supply and demand shocks in 2020-2022 have gradually diminished, resulting in a noticeable market decline over the past 18 months.

The global pandemic has ended, as has the supply chain congestion caused by various lockdown measures. According to the USDA, trade from the Black Sea region, which accounts for 30% of global grain exports, has nearly returned to pre-Russian invasion levels in Ukraine. Despite ongoing geopolitical conflicts, global trade has demonstrated resilience, even in the face of the recent crisis in the Red Sea region.

Expectations of a robust economic recovery in China following the COVID-19 pandemic have disappointed, leading to limited imports of raw materials, particularly metals, by the world’s largest commodity importer. Moderate economic growth in Europe and mild winters experienced in 2023 and 2024 have also contributed to lower prices for energy and energy-intensive materials, such as fertilizers.

Currently, the prices of cereals, vegetable oils, natural gas, and metals have fallen close to the average of the last ten years after peaking in 2022. Even the prices of those commodities required for the energy transition, lithium and nickel, are well off the 2022 peak.

Even price volatility has returned to historical levels after a record high in 2022.

Given that the main macro-factors that previously drove sustained and general growth in commodity prices have faded away, what is happening to the coffee and cocoa markets?

The coffee and cocoa market

Robusta coffee prices have been rising steadily since the beginning of 2023, reaching their highest levels since 1995 in January 2024. Arabica coffee is also at historically high levels, although 30% lower than its peak in 2022.

The current dynamics in the robusta coffee market can be attributed to the elevated prices of Arabica coffee, which have widened the structural price difference between the two types of coffee. Over the past three years, the cost of robusta has averaged $2,000 per metric ton less than Arabica, resulting in a gap of $3,500, compared to an average of $1,450 over the previous ten years.

This significant price disparity and reduced purchasing power in countries heavily affected by inflation have shifted demand towards more affordable coffee options. Vietnam, Indonesia, and Brazil have not been able to meet this increased demand with a sufficient increase in production, leading to an imbalance between supply and demand.

In the cocoa market, on the other hand, a decrease in production triggered the rise in quotations to record levels in New York and London. Ivory Coast and Ghana production (70% of world production) was limited by unfavourable climatic events, the reduction of fertiliser use due to high prices in 2021-22, the spread of a virus affecting cocoa bean trees, the low yield of plantations in Ghana due to the general advanced age of the trees.

The resulting supply and demand imbalance for three consecutive seasons triggered the run-up in quotations, which have risen 150% since early 2023 and 50% in the last two months.

Commodities are historically characterized by unexpected shocks in demand or supply, which market dynamics usually correct in the short or long term. However, this period may be relatively more prolonged in the case of cocoa. The supply response to high prices is slower than for crops such as cereals, which are sown every season.

Cocoa trees are replanted about every 25 years, and producing their first fruits takes 5-6 years. Production is mainly concentrated in West Africa, where the government sets farm-gate prices at the beginning of each season. Farmers have not yet felt the price increase since October, limiting investments for the next harvest.

A Conversation with Nicko Debenham 

Good morning, Nicko, and welcome to Commodity Conversations. Please tell me a little about yourself.

I come from a horse racing family, and all the children went into racing. In those days, the best place to go was the US; it was good money and easier than in the UK or Ireland.

I broke my collarbone in the US, came back to the UK to repair it, and met my wife in London. I took her back to the US, and we got engaged there, much to the horror of both her parents and mine. My future father-in-law decided to take me under his wing. He told me I should own horses, not be paid to ride them.

He had worked as an expat in Nigeria for 35 years, and my wife was brought up in Lagos until she was twelve. He sent me to Nigeria in 1986. That’s how I moved from horses to cocoa.

I went to work for his best friend, Chief Bakare, in Ondo State at the heart of Nigeria’s cocoa production. It was a chaotic period because the government had privatised the cocoa board under an IMF structural adjustment program.

The Bakare family began trading, buying cocoa and selling it to Europe. They built a processing factory. I worked for them for about six years and learned an enormous amount. I then moved to an old-fashioned London trade house, trading everything from tallow, gum Arabic, and sesame seed. I brought cocoa to them and set up a business in Nigeria and Cameroon. The company owner wanted to sell the cocoa business to Anthony Ward, who was setting up Amajaro. I was unhappy because I said it was my cocoa business and I should have a share in the new enterprise.

I left and set up my own business, originating cocoa from Nigeria, Cameroon, Ghana, and the Ivory Coast. It worked well for five years, but it was the era of bank consolidation, and my bank facilities dried up. My capital base was too small. I went to work for Armajaro, staying there for twelve years.

My role at Amajaro was to set up traceable supply chains across Africa, Asia, and Latin America, mainly Ecuador and Peru. We ended up with an excellent trading book. By the time I left to join Barry Callebaut in 2014, 85 per cent of our cocoa was sustainable – and we were the largest trade house in cocoa.

I worked for Barry Callebaut for eight and a half years as head of sustainability, with a mandate to turn the company from a laggard to a leader in sustainability. We created a strategy called Forever Chocolate. We committed to getting 500,000 cocoa farmers out of poverty, being carbon and forest-positive, 100 per cent sustainable, and eradicating child labour in our supply chain by 2025. So, they have one year left.

I stayed with Barry Callebaut till December 2021, when I set up my own company, Sustainability Solutions.

What does Sustainability Solutions do?

I work for government entities to help Ghanaians and Ivorians raise the cocoa price to a level that generates meaningful value for farmers. To solve child labour and deforestation, you must first solve smallholder poverty.

I also work for commercial companies on sustainability, helping them comply with all the new regulations and build a social value strategy.

Could you tell me about these new regulations?

There is a saying that Americans invent, Chinese copy, and Europeans regulate. Europe is a printing machine of new regulations.

We have recently had CSRD, the Corporate Sustainability Reporting Directive. We now have EURD, the European Union Deforestation Regulation. The next one is the biggie, the CSDDD, or the Corporate Sustainability Due Diligence Directive.

What is the difference between the EUDR and the CSDDD?

The EUDR regulation covers seven commodities: soy, cattle, palm oil, timber, cocoa, coffee, and rubber. It targets deforestation, but other forms of illegality have been sneaked into the regulation.

CSDDD means that companies must perform due diligence on everything in their supply chains and prove they have done so. We expect the CSDDD to be passed as a directive in 2024 and transposed into national law by the Member States by 2027.

When does the EUDR come into force?

It’s already in force. It entered into force on 29 July 2023, with an 18-month preparation period before its application on 30 December 2024. It relates to deforestation generated since 31 December 2020.

The EUDR uses the FAO’s definition of forest, which is half a hectare with a 10 percent cover of five metres of trees or higher. If a forest existed before December 2020 and no longer exists, then that’s deforestation.

A recent news article on Reuters suggested that EUDR will lock Ethiopian coffee out of the EU market. Do you agree?

I disagree.

Among the seven commodities, cocoa and coffee present the most significant challenges as they rely most on the EU market. More than 60 per cent of global cocoa production enters the EU, much of which is processed and reexported. The figure for coffee is between 25 and 30 per cent. The statistics for palm and soy are less than 10 per cent. Europeans can choose where they buy their palm or soy, making it easier to conform to the regulations.

If traders want to ensure that their coffee and cocoa are not devalued—if they want to bring them into the EU—they must comply with the regulation.

Can the cocoa sector comply?

Cocoa is a product consumed by children in rich countries and grown by children in poor countries, often in abject poverty. It is an incredible product that everyone loves, but it is emotive because of poverty and child labour. In addition, Ivory Coast and Ghana have seen massive deforestation over the last 20 to 30 years.

NGOs and the media have targeted chocolate brands on these issues for 25 years. The brands and the supply chain companies have had to stand and defend themselves. They have developed sustainable supply chains, collected data, and done the due diligence.

Consequently, the cocoa companies look at EUDR and say, “Yeah, it’s a bit of a pain, but we can do this.”

What about coffee?

The coffee industry has thrown up its arms in horror. “It’s impossible,” they say. “It can’t be done. Our supply chain is unique.”

I’m sorry, but how is coffee different from cocoa? Okay, coffee has washing stations. You have collection stations in cocoa, and you must still clean and dry the cocoa. It’s the same.

The EU is simply asking for the sector to collect data. To do that, you download an application on your smartphone and survey the farm. While there, you ask the farmer about other forms of possible illegality. You make sure you understand the risk of that farmer not having the right to farm that land, illegally using his children on the farm, not paying labour, using forced labour, or having other issues with labour rights. It’s not that difficult. You then follow the coffee up the supply chain. It’s perfectly possible.

I started digital traceability at Amajaro in 2007. When I left in 2014, we had 80,000 farmers on a database supplying Lindt and Sprungli with 45,000 tonnes a year with barcoding on every batch.

Ethiopia says they can’t do it. It’s not that they can’t do it. They can do it. It isn’t easy and requires investment and resources. That’s the issue.

Starbucks, Nespresso and Nestlé do it already, don’t they?

Correct. If some companies can do it, why can’t everyone? It’s perfectly possible.

Does EUDR favour big companies? Will small or medium companies say, “Oh, this will be way too expensive for us. We don’t have the footprint to do it.”

Every company has a mix of direct and third-party supply. A direct supply is where you are closely engaged with your co-op or aggregator and have access to farmer data. You support the farms and have impact programs around certification, productivity, deforestation, etc.

Indirect supply is buying from a third-party shipper, often because you cannot operate inside the origin country, as in Ethiopia for coffee or Cameroun for cocoa. These guys need to be supported with logistics, software, and training.

If I’m correct and there’s a two-tier market, traders will be incentivised to take the necessary steps to achieve that higher end of the two-tier market. That’s the motivation. Most people view it as an opportunity, but some are digging their heels in. They haven’t yet seen the light.

But they need to see the light. EUDR is a stalking horse for CSDDD. If people dig their heels in on EUDR, CSDDD will be an anchor around their ankles.

How much does traceability and due diligence increase cost – and who pays for it?

We put the cost for collecting and managing the data at between $10 and $15 per tonne of cocoa bean equivalent product. It’s similar in coffee.

There is the additional potential cost of the remedial activities required to mitigate any risk of deforestation or other illegality. You may need to invest in raising awareness around child labour and deforestation.

Another potential cost is preserving your product’s traceability. If you deal in both compliant and non-compliant products, you will need to segregate the two in the warehouse, which means a less efficient use of your warehousing space. Remember, EUDR doesn’t allow for mass balance—you must maintain the product’s identity all along the chain.

But it is worth it. A conforming product should trade at a premium exceeding the cost of establishing its conformity.

How can you ensure that the cocoa you buy from a compliant farm comes from that farm?

When you perform due diligence, you must do a reasonable calculation on the volume that is coming from the farm. If it’s a four-hectare farm and the average productivity in that region is 500 kilos a hectare, you’ll start getting anxious if that farmer supplies four tonnes.

The challenge is that you don’t necessarily learn that until a significant portion of the season has passed. Farmers never deliver their entire production in one go. They generally deliver 6 to 12 times a year. You need a digital system totting up the total as the farmer delivers.

You can rely on your aggregator to keep everything honest, but it’s often the aggregator causing the problem. A farmer rarely takes cocoa from another farmer to sell as their own, but the aggregator might add illegal cocoa to a batch of legal cocoa.

The EUDR will stop that from happening because traders will have to prove that they have established that there’s no – or a negligible – risk of deforestation or other forms of illegality. If you don’t even know where it’s coming from, how can you say you’ve done your due diligence?

I understand that in the Ivory Coast, children older than twelve sometimes can’t attend school because their parents don’t have the required registration document. And if they can’t go to school, they work for their parents on the farm.

Sadly, national child labour monitoring and remediation systems are not solving the problems. The solution would be for governments to establish rural infrastructure development with schools, electricity, water, and registration of every rural resident, including their children.

In the absence of government action, companies undertake remediation activities. A company may pay for birth certificates for unregistered children so that they can attend school.

Other companies may supply school kits; a child can’t go to school without a school uniform or rucksack. I mean, who the hell decided that? You’re telling me I can’t bring my child to school just because they don’t have the right coloured shirt or pair of shorts. It’s ridiculous, but that’s what you’re up against.

Farmers need a living income that allows them to pay their workers, send their children to school and attain grades that give them a choice in the future.

The only way you’ll get there is for farmers to have a decent income and for communities to have electricity, water, and communications with schools, health centres, etc. The first thing you’ve got to solve is income, but the second is rural infrastructure.

There is progress, but it might slow if people focus only on due diligence. The danger with EUDR is that money goes into due diligence rather than dealing with the root causes.

Derek Chambers – the famous cocoa trader – told me cocoa farmers were just as poor or even poorer when he retired than when he started his career 40 years earlier.

I would agree with him.

The cocoa price is at a historic high, but it doesn’t help Ghana or the Ivory Coast because they sell their crop a year in advance. The farms still have low prices from the previous selling that they did. They will get better prices next crop.

The challenge we all face is that if you optimise the outcome from a farm – and achieve the capacity and capability of trees on that farm – you should be able to double or triple its production. If farmers did that, the world cocoa price would be not even half what it is today; it would be a quarter.

NGOs and governments want to help farmers increase productivity and yield, which drives the price down. Every complex problem has a simple solution that doesn’t work.

That’s precisely where I’m coming from. It’s about transforming the agricultural policy in a country to obtain a more balanced mix of crops. It’s as much about teaching farmers not to grow cocoa as it is about teaching farmers to grow cocoa. But it needs to be backed by government policy.

Neither Ghana nor the Ivory Coast are self-sufficient in food. Maybe their governments should use the tax from cocoa exports to subsidise the production of vegetables, chicken, pork, etc.

You mentioned that Ghana and Ivory Coast have already been severely deforested. Is the EUDR too little, too late?

No, I don’t think it is. It is essential to protect whatever is left. Countries like Cameroon have a lot of forests to preserve.

What worries me about the regulation is how the EU will implement it.

Why?

There’s lots of noise now, but there could be a mystic silence once the regulation is applied. We’re all blindfolded, standing up against the wall, wondering which one of us is going to get shot. But what if no gun goes off, no one is shot, and everyone carries on as usual?

It is what happened with the US Tariff Act. In 2017, Congress amended Section 307 to prohibit the imports of any product mined, produced, or manufactured wholly or in part by forced or child labour. In the seven years since then, no “withhold and release order” has been issued for cocoa.

What is a hold and release order?

If US Customs suspect your cocoa comes from farms that use forced or child labour, they can withhold it until you prove it didn’t. The burden of proof reverses; you are guilty until you can prove you’re innocent.

In the beginning, everyone made sure that the cocoa going into the US was certified as sustainable and that they could ensure traceability. But then time passes. And it’s like, is that certified? No, never mind, give it a go. Nothing’s happened to anyone yet, so it probably won’t happen now.

Why hasn’t it been enforced?

The US Customs Board of Protection, CBP, is tasked with implementation. However, I don’t believe CBP has the capacity, funding, or resources to do so.

Will the EU do any better?

Each Member State must appoint a National Competent Authority, an NCA, to implement the EUDR. I don’t believe they will have the capacity or the capability to do it.

There is a historical precedent. The EUTR, European Union Timber Regulation, was adopted in December 2010 and came into force in March 2013. It prohibits imports of illegally harvested timber or timber products and requires operators to exercise due diligence to ensure that their timber and timber products comply. The EU appointed NCAs to implement the regulation.

When I asked one NCA about their resources, they told me they have three full-time and two part-time employees to cover all seven commodities. They’re supposed to inspect nine per cent of all relevant products entering their border from high-risk countries, three per cent from standard-risk countries, and one per cent from low-risk countries. There is not a chance in hell that will happen if you’ve only got five people in a country’s NCA.

Some countries may be stricter about implementation than others. Won’t cocoa and other commodities enter the EU via less strict countries?

We are already hearing about different interpretations of the regulation. To clarify matters, the EU has published FAQs. There are 90 or so of them, subdivided into different sections.

One NCA told me they would use EUDR as a window against human rights infringements. Remember, the regulation doesn’t just cover deforestation; it also includes other forms of illegality according to the national laws in the country of production. But then another NCA said they would only focus on deforestation.

If the EU rules that a trade house hasn’t respected national laws at origin, does the trade house have a right of appeal, and to whom do they appeal?

It’s unclear whether you have the right to appeal, but it would be to the National Competent Authority if you do.

Deforestation will have different interpretations depending on which mapping technology you use and how accurate it is. It will cause arguments where the software shows an area as deforested, but a trader will say it’s not deforested and that they have checked it on the ground – it’s just a bit of tree pruning.

Is it a problem that coffee and cocoa both grow under forest canopy?

It is a huge problem. It’s easier in coffee because it’s less under canopy. I don’t think anyone has succeeded in distinguishing between cocoa and shade trees using satellite imagery. We tried it at Armajaro, but the satellite couldn’t differentiate between the two, and the software couldn’t learn what was a cocoa tree and what wasn’t.

There will also be problems with corrupted data – data that has been wrongly inputted.

You must have checks on the ground.

One trader I talked with believes the EU will delay the legislation.

EUDR is a European Parliamentary regulation agreed upon under a trialogue of the Council, the Commission, and the Parliament. They agree on the wording and the timelines, which are then published, translated, and entered into force. A parliamentary vote would be required to delay it, but it won’t happen.

However, the EU is delaying the risk categorisation of the origin countries/regions. As I mentioned, the EUDR calls for origin countries/regions to be categorised as high, low, or standard risk. The NCAs must inspect one per cent of regulated commodity imports from low-risk countries, three per cent from standard-risk countries and nine per cent from high-risk countries.

The EU recently announced that it will temporarily categorise each country/region as standard. This means that NCAs will be obliged to inspect three per cent of all regulated commodity imports regardless of origin. This does not change what companies need to do; it only changes the likelihood of being inspected by an NCA.

Do you have any final messages for traders and food companies?

First, if you’re a brand company and cocoa is your core raw material, you must be stupid if you haven’t learned that you’re handling a hand grenade with the pin out. Cocoa has everything there is that can go wrong. Child and enslaved labour, deforestation, abject poverty, and even potential corruption are all wrapped up in a parcel of cocoa. And that’s why I say, for God’s sake, don’t let go of that pin. Run your business correctly, do your due diligence and do what you should do.

Use digital technology to understand and engage with your supply chains and capacity. Work with your supply chain partners. There is a massive opportunity if you do that.

We are moving to a world where people need to pay a fair price for a product which provides a livelihood for the people who produce it. Is it a human right to be paid a fair price or get a fair income for doing a job? It’s going to be a debate, and it’s going to happen. Historically, with all these issues, the companies that lent into it and tackled it first came out of it best.

Lean into it, identify how you can make a difference and tell the great stories around it. It’s what I call proud marketing.

Thank you, Nicko, for your time and input.

For more information on EUDR, please click here.

© Commodity Conversations ® 2024

This is part of a series I will include in my next book, Commodity Professionals – The People Behind The Trade.

I learned as a trader that when estimating counterparty risk, I should beware of any company with the word `global` in its name. Therefore, I was sceptical when David Brandes, the co-founder and CEO of Planetary, contacted me on LinkedIn after reading two of my books, the Sugar Casino and The New Merchants of Grain. Global is one level, but Planetary is on a whole new scale.

My first question for David was, “Why – on Earth – did you call your company Planetary?”

“The company name has nothing to do with our ambition to go global,” David explained. “I founded the company in a previous life to invest in various start-ups and markets, but always with a planet-positive approach. Planetary health is the underlying concept behind Planetary. It is important to me and guides my every action. I knew that whatever I’d be doing, the name Planetary would fit well in any industry.

“The name has more to do with a promise to contribute to planetary health rather than to conquer the global production industry,” he added. “The name ‘Planetary’ suits the company well.”

“Imagine you are in an elevator – or lift – at a venture capital conference with a potential investor,” I said. “What is your elevator pitch?”

“How many floors do I have?” he asked.

“Let’s say the conference is in Manhattan, and you took the slow elevator, not the express one,” I said. “Take a deep breath.”

“Petrochemicals, factory farming, and agricultural monocropping are depleting our planet’s natural resources,” he started. “Agriculture produces over 20 per cent of global CO2 emissions and uses 30 per cent of the planet’s water. With the world’s population growing and biodiversity under threat, we must find an alternative and sustainable solution to produce foods, materials, and other commodity products.

“Using biotechnology, we can disrupt conventional methods and produce up to 60 per cent of agricultural commodities in a more sustainable planet-positive way. Planetary will power the bioeconomy by operating a global network of fermentation facilities, following the first success case in Switzerland.

“We enable the sustainable production of foods and materials from mycelium and precision fermentation while leveraging control bioprocess technologies and associated A.I. to drive down production costs. We can produce food, plastics, cosmetic agents, and other products at a fraction of the economic impact of conventional production. What’s more, fermentation allows the production of these materials almost anywhere using locally available feedstock and waste streams.

“A network of regional production facilities, integrated with the local socio-economic fabric, can drastically reduce supply dependencies and food scarcity. The same is true for systemically relevant materials. The shift to a “bioeconomy” will have a healing effect on global carbon emissions, water use, and habitat destruction.”

“Okay, good pitch,” I replied. You can breathe now! “Next question – what attracted you to the sugar business?

“I come from the food industry,” he told me. “I was a chief commercial officer for the internet operations of Migros, a Swiss supermarket chain, but left to cofound the cell-based meat brand Peace of Meat. The company took a medical application process and transferred it to the food sector. I successfully exited the company and saw an opportunity around microbial fermentation. Microbial cells are more straightforward to cultivate and scale than animal cells.

“I started the company with limited technical knowledge. I studied sciences, but I’m the business counterpart in our founding team along with Ian Morrison, a former professor of bioprocess engineering at EPFL and HEIA-FR. He is the Chairman, CSO, and co-founder.

“We got together, and I asked him, “Okay, so where do we now build our first factory? I’m the business guy. I want to build something, right? Let’s acquire the capital. Let’s build it.”

“He explained that these microorganisms consume carbohydrates to grow, and building a facility in colocation with the feedstock would make sense. Sucre Suisse (Swiss Sugar) owns two sugar beet factories in Switzerland – one in Aarberg and another in Frauenfeld. We approached them two and a half years ago and have since formulated a business model that incentivizes both parties. It’s the bioprocess that dictated the partnership.”

“When will the first plant be operating,” I asked. “And will you use sugar or beet pulp as your input?”

“We expect the first plant in Aarberg to operate in Summer 2024,” he answered. “This is the first generation, and we will work with sugar and related side streams such as molasses. Looking forward, we would like to use more waste streams. Carbohydrates don’t necessarily have to come from sugar, but the ones that do are the purest.”

“How does the bioprocess work?” I asked. “Please explain it as simply as possible,” I added.

“Aerobic fermentation is the metabolic process by which microbes metabolize sugars via fermentation in the presence of oxygen in large steel vessels called bioreactors.

“The microorganisms that reproduce through this process either yield the desired ingredient or are themselves the ingredient, as is the case with mycoprotein, which grows in a protein-rich biomass. We can then process this into various food and material applications.

“Depending on the technology, some microorganisms need DNA to be inserted to produce specific compounds, like whey proteins or lipids. Other organisms, like the one we are working with at our first production site in Switzerland, don’t need to be genetically modified at all. After the growth cycle, we separate and purify the product, usually turning it into a dried powder or wet biomass.”

“Where are you getting the funding?” I asked. “Do you have any backing from sugar groups?

“Our first funding came from venture capital,” David answered. “We raised $8 million in the seed round – the largest for food tech in Switzerland. We have since added around the same amount of non-dilutive funding, including support from the Canton of Bern. Also, Swiss Sugar is supporting the first plant installation. We will communicate more about our partnership during the Dubai Sugar Conference.”

“Are you going to wait to see if the first plant works before building more?” I asked.”

“You can’t build a plant in a day. It’s a long process. We have already produced mycoprotein and precision-fermented compounds at industrial fermentation volumes through external capacity. Our plant will go live this summer.  It would be unrealistic to install other equipment before then. We want real in-house production data before constructing the next facility, but we have an extremely high conviction that the process works. We’re not starting from zero.”

“What sort of tonnage in sugar equivalent will the plant use yearly?” I asked. “Is it something that the sugar industry should be slotting into their supply and demand statistics?

“Anywhere between 10,000 and 100,000 mt sugar equivalent per year per plant,” he replied. “Now, tell me if that’s a lot or not.”

“If you build many of these plants, it’s significant,” I replied.

“And don’t forget,” he added, “The whole bioeconomy might require as much as one billion mt of carbohydrates per year by 2035.”

David had mentioned earlier the possibility of using biomass rather than sugar as feedstock. There was a significant investment in the early 2000s into producing second-generation ethanol from bagasse. It didn’t work well, and I was interested in why David thought he would succeed where others had failed.

“Whilst feedstock is important,” he explained, “You must also look at the product’s value. The fuel industry is margin-compressed, low-value, and hyper-competitive. We’re talking about a differentiated higher-value product, an alternative protein that can be sold at anywhere between $6-10 per kilogram at 24 per cent dry matter. So, 100 per cent dry matter would be four times as much. You are under less margin compression with protein than with fuel.”

I wanted to talk further about economics. The sugar price has doubled from ten to twenty cents in the last four years. “Can the process be economical at these sugar prices?” I asked.

“We have done our calculations with a sugar price of 700 Swiss Francs per mt,” he replied. “That’s $800 per mt or 36 c/lb. That price delivers a fully loaded product margin, including overheads of just over 50 per cent. So, on the margin side, there’s still room for additional price increases and inflation.

“Energy is another big factor,” he continued. “I’m assuming that energy and sugar will face more southwards pressure in 2024. But then, who knows? There is still space for price increases on the production factors.”

“Can you use corn or other sugars?” I asked. “In Brazil, they’re increasingly making ethanol from corn.”

“The standard process for microprotein and precision fermentation uses glucose, which also comes from corn,” he told me. “Corn-based sugar is even easier than beet-based sugar. We will have higher efficiencies there.

“Does the world need extra protein?” I asked. “And aren’t there better and cheaper sources of plant-based protein?

“The answer to your first question is a clear yes, given the rising population and the growth of the middle classes. You probably don’t need more protein in Switzerland or some parts of the U.S., but on a global level, yes.

“I would also like to talk about the quality aspect of mycoprotein,” he said. “The protein digestibility–corrected amino acid (PDCAAS) score measures protein quality for human nutrition. Milk and eggs have a PDCAAS of 1.0, meaning they provide 100% (or more) of all the amino acids required in the diet.  Protein from yellow peas has a PDCAAS of 0.64, which means you must supplement it with additional amino acids in the diet. Our mycoprotein has a PDCAAS score of 0.96, even higher than beef.

“Our technology has significant merits in quality, sustainability, taste and local production.”

“How are you enjoying your time in sugar so far?” I asked.

“The food tech sector feeds on big promises and vision to drive investment. But in sugar, you hear real stories, for example, about the impact of climate and policy on production. You’re working with a commodity that is essential from a nutritional perspective. Sugar and the agricultural industry are closer to my nature than the hyped start-up environment. I am looking forward to the Dubai and Geneva conferences.”

“What three key messages will you deliver in Dubai and Geneva?” I asked.

“One: The bioeconomy is a business that will need one billion mt of carbohydrates per year. That is more than five times the total global sugar production today. Synergies with the bioeconomy should rank high on any carbohydrate producer’s agenda. Sugar itself is a bittersweet business that suffers harmful media exposure. There is an opportunity to turn that negativity into a beautiful story about the net positive effect on the planet of phasing out both the livestock and the fossil fuel production industry.

“Two: We discussed foods and proteins but didn’t discuss materials such as bioplastics and cosmetics. There are challenges in biofuels because of their low price point, but McKinsey estimates that up to 60 per cent of all physical matter could be produced using biological processes. We can use carbohydrates and turn them into planet-positive products.

“Three: There is an opportunity and a genuine mutually symbiotic business case in building collocated production infrastructure with existing industrial players such as sugar refineries.

“The third one is the big one,” I replied. “If you were only going to choose one, I would emphasize that one.” I was nearly at the end of my questions.

“Tell me one thing about yourself that is not on your LinkedIn profile,” I said.

“I can tell you lots of things,” he answered. “I have six younger siblings, was born in Japan, and can still count to 100 in Japanese.”

“Anything else,” I asked.

“I am a Marine Biologist by training. I once GPS-tagged whale sharks for a living.”

“You should fit in well in Dubai and Geneva,” I replied, “Although the delegates there will already be wearing name tags.”

For further reading, see:

Precision Fermentation Perfected: Fermentation 101 – TurtleTree

Biomass fermentation: the most flexible alt protein technology? – Bright Green Partners

What is fermentation for alternative proteins? | Resource guide | GFI

Planetary website

© Commodity Conversations ® 2024

Good morning, Florence, and welcome to Commodity Conversations. Please tell me about your role as Secretary General at SUISSENÉGOCE.

My role is to promote Switzerland’s shipping and commodity trading sector by working with local and federal authorities and communicating on the industry. Another critical role of the Association is to educate the next generation by providing training courses to prepare young people and adults for entering the industry.

We do not engage in commodity trading. My team comprises individuals with expertise in communications, politics, government, human resources, and training courses.

From your LinkedIn profile, I see that you spent five years at the Swiss Embassy in Washington, two years with the Swiss Consulate in Germany, and 11 years with the Geneva government in public affairs. You joined SUISSENÉGOCE in February 2020. What attracted you to the position?

The challenge.

When I worked in Public Affairs for the Canton of Geneva, my job was to defend Geneva’s interests in Bern. The position was challenging. Geneva is far from Bern geographically and mentally; we are often more “French” than Swiss.

I always thought that if I should do the same job in the private sector, it would have to be in a challenging industry.

What did you learn in your previous roles that’s helping you now?

Many things. The most important is to engage with people throughout the entire chain of command. While the big boss makes the final decisions, others prepare the documents to be decided upon. No, sorry, let me rephrase that. They are the ones who draft the regulations and advise their ministers or superiors. You cannot effectively influence anything if you only interact with ministers and directors. You must also work with the individuals who do the actual work.

What has surprised you the most since you’ve been with SUISSENÉGOCE?

When the executive board interviewed me for the position, I told them that I had worked as a lobbyist for the Canton of Geneva, promoting the Geneva economy. However, I never encountered anything from the shipping and commodity sector on my desk.

While preparing for the interview, I Googled the names of the companies whose directors were interviewing me. I didn’t know one name.

I thought, “Why doesn’t such a significant industry communicate? Why isn’t anyone in government or authority aware of the added value of all these companies?”

Since my first day in this position, it has continued to surprise me how little people know about an industry that is essential to everyone’s everyday life.

Why does the shipping and trading sector need SUISSENÉGOCE?

The Executive Board has assigned the Association three missions.

The first is to monitor regulations, maintain communication with the authorities, and promote the sector’s interests.

Swiss politicians don’t usually interact with individual companies; they meet with associations. SUISSENÉGOCE plays a vital role by liaising between politicians and merchants, addressing any challenges members may have.

Second, the Association plays a significant role in education and training. There are many shipping and commodity trading houses in Switzerland, and they are not here only because of the banks. They are also here for a well-qualified and multilingual workforce.

It is partially thanks to the Master of Science degree in commodity trading offered at the University of Geneva and the educational and training services provided by SUISSENÉGOCE. The Association holds the EDUCA label, a Swiss standard for adult education. It means that the government can send us unemployed individuals for training. Thanks to our courses, we take pride in helping unemployed people secure employment in the trading industry.

Third, there is our role in communication. When interacting with the media, the Association speaks on behalf of the entire industry rather than a specific company. If journalists have questions about a company, we tell them to call that company. We will never answer anything related to a particular company.

Do you spend more time defending the sector or promoting it?

Proactively promoting the industry is a crucial aspect of the Association’s mission. I tell our members to avoid being defensive in their communications and adopt a more proactive approach. We must demonstrate the value that commodity merchants add.

People listen to the dogs that bark the loudest. It’s a challenge to counter misinformation. Brandolini’s law, also known as the bullshit asymmetry principle, emphasises the effort required to debunk misinformation compared to the relative ease of creating it. Refuting misinformation can be time-consuming and resource-intensive, making it challenging to address an issue effectively.

People have moved on by the time you have corrected the information; it’s too late. That’s why it is more important to promote the industry.

What advice would you give to your members?

Communicate, communicate, communicate, promote the sector, promote the industry. Explain the use and the necessity of what you do for everybody in everyday life.

Always be willing to talk to the media and always tell the truth, even if you may be unable to tell journalists everything.

In June 2023, you changed the organisation’s name from STSA, Swiss Trading and Shipping Association, to SUISSENÉGOCE. Why?

I didn’t like the fact that STSA was an acronym. The Association has existed for over ten years, but no one outside the industry knew what STSA meant.

The Association’s mission is to interact outside the industry – with the authorities and the public. A name easily understood by a wider audience is essential for fulfilling this job.

Aren’t you worried that the new name – as it is in French – excludes the Swiss-German part of Switzerland?

It doesn’t exclude it at all. German-speaking companies were part of the working group that chose the new name. They preferred the name in French rather than in German.

The French have a variety of words for a commodity trader: Marchand, Négociant, and Commerçant. The Germans have only one word for a commodity trader, Rohstoffhändler, which carries a somewhat pejorative connotation.

When I started at Cargill long ago, my first business card showed me as a merchant, not a trader.

So, let’s go back to the fundamentals.

Commodity trading companies add increased value when events occur, such as droughts, floods, or war. These times often coincide with higher food prices, resulting in heightened criticism of the sector. How do you communicate during these periods?

The past few years have been characterised by volatile markets due to factors such as insecurity, wars, and sanctions. Countries have shown a willingness to secure their supply of commodities by purchasing them in advance. Additionally, wars have disrupted supply chains and contributed to market instability and inflation. These challenging times have highlighted the expertise of commodity merchants in navigating these complex situations. We were never short of coffee, wheat, gas, or electricity.

Climate change has also impacted commodity markets, leading to reduced crops and higher prices. Price increases are primarily driven by scarcity rather than increased profits for merchants. Higher crop prices can also lead to higher financing and operating costs for merchants, potentially reducing their margins.

Don’t forget that wheat prices rose after the Russian invasion of Ukraine, but they have since fallen. Wheat is now cheaper than it was before the war. However, if you go to the store or bakery, bread is still as expensive as it was when prices were raised just after the beginning of the war.

How do sustainability and human rights add to your workload? Do you have specific challenges in communicating on them?

It is essential that Swiss companies, or companies located in Switzerland, adhere to Swiss laws and regulations.

In 2020, the Swiss population voted in favour of the Responsible Business Initiative (RBI). The ordonnance came into force in 2022 and requires that companies provide reports on child labour and metals and minerals originating from conflict zones.

Over the past three years, the Association has organised training courses and workshops where we invited the Swiss government to explain what they expected from the companies.

I’m concerned about SMEs (Small and Medium Enterprises); they do not have the workforce to implement all regulations that the government requests in their business. They do their best to monitor their supply chain, and the Association tries to support them as much as we can. Large multinationals do not have this problem; they have teams of ESG and CSR officers.

It is challenging for SMEs to comply with all the new EU and Swiss regulations, but they have no choice. The banks do due diligence to ensure that their clients are compliant and do not finance non-compliant companies.

Meeting these new regulations involves a significant investment in time and money for SMEs. I would like the authorities to be aware of this.

Do you know if Swiss companies must comply with the European Deforestation Regulations, the EUDR? It’s a big issue in Europe.

Non-EU companies – including Swiss – do not have a choice if they want to import coffee, cocoa, palm oil, soya beans, timber, etc into EU countries. They must comply with this new regulation. The question is how Switzerland will react to maintain its competitiveness in the Swiss economy.

How are the Russian sanctions impacting Swiss companies? Are commodity companies moving to Dubai as a result?

As I mentioned, our member companies in Switzerland must follow the rules. If a company wants to continue to trade Russian oil or other sanctioned goods, it must move outside of Switzerland.

Women comprise about one-third of the Swiss agricultural commodity supply chain workforce. How can commodity trading companies attract more women to the sector?

We would all like to see more women in the commodity industry, but not only in HR, communication and ESG.

In September, at the last intake of the Geneva master’s program, 40 per cent of the students were female—the more girls in the class, the more women in the industry.

We must show girls that the commodity trading industry is open to women; it will take time, but we will succeed.

Is there anything that you would like to add?

We have talked about trading, but I want to talk about shipping.

In all the recent crises, whether wars or pandemics, we forget the seafarers. Swiss companies operate 22 per cent of the world’s vessel fleet. There are two million seafarers in the world. It means that Swiss companies employ 400,000 seafarers. It’s a lot.

The seafarers work all year round, bringing us everything we need. They transport over 90 per cent of the goods and commodities traded internationally. They are under attack from pirates. Hostile countries take them hostage.

We can support seafarers by talking about them and reminding people that without them, they wouldn’t have the cup of coffee they drink in front of their computers. They wouldn’t even have a laptop or the clothes they wear. The cotton would still be sitting in a warehouse somewhere.

Journalists have been calling us recently about the attacks on shipping in the Red Sea, worried that they will cause delays and make things more expensive. But what about the seafarers? No one is interested in talking about their safety and well-being.

Can you tell me something about yourself that isn’t on your LinkedIn profile?

I’m a happy and proud mum of a twelve-year-old son who is doing very well at school, thanks in large part to the support and dedication of his grandparents.

Thank you, Florence, for your time and comments.

© Commodity Conversations ® 2024

This is an excerpt from my new book, Commodity Professionals—The People Behind the Trade, now available on Amazon.

I first met Bea when she joined our Brazilian office as a trainee ethanol broker and analyst. Born and raised in Santos, the biggest port in South America, Bea, in true Brazilian fashion, grew up near the beach.

She relocated to our head office in Lausanne in 2009, where she joined our rapidly expanding biofuels desk. After four months there, she resigned to move to Montreal, Canada, for personal reasons. We didn’t want to lose her and took what at that time was a brave decision to ask her to stay with the company and work from home.

She remained with us as an analyst after Platts acquired the company in 2012 and moved back to Brazil with them in late 2017. She is now one of the company’s leading biofuels analysts and manages a three-person analytical team spread across the globe.

Although biofuels account for only five per cent of world road transportation fuel, they consume a significant quantity of the world’s crops – more than 40 per cent of US corn production and 50 per cent of European rapeseed production. They play, therefore, an integral role in the ag-supply chain.

But that is not why I wanted to reconnect with Bea. I had recently stumbled across one of her posts on LinkedIn and was intrigued to read that she wasn’t posting about biofuels but about mental health. I asked her over a Zoom call why she had become interested in the subject.

“It’s a tricky one,” she replied. “It’s between, ‘Do I hide away or talk about it and expose my vulnerabilities?’ I took the decision a while back to talk about it. In that way, I chose to use my personal power to impact and create community power.

“I battled with depression for a good part of my life as a teenager and young adult,” she continued. “People don’t speak about depression as society tends to class it as a weakness. You don’t hear people talking about it at all, right? But my own experience shows the more I let myself be vulnerable, the more I talked about it, the more I could develop as a person and a professional.

“I’m not saying,” she said, “that we need to be sharing everything about ourselves in places that are not meant for that, but the more I allowed myself to be human, the more I developed. And as I developed, I realised that I could use my voice as an advocate to eradicate the stigma of mental health issues.”

As part of my book project, I have interviewed more than 50 ag-supply-chain specialists over the past year. It has been a joy and a privilege to share their experiences and enthusiasm for their roles, especially among the younger generation.

However, I am sad to write that one or two of the people I interviewed were exhausted – not thriving, merely striving to survive. They tried to be positive and enthusiastic, but I saw they were making a great effort to be. I thought of Stevie Smith’s poem, “Not waving but drowning.”

“Burnout is a big issue everywhere,” Bea told me. “It is an illusion to think we can be high-performance people all the time, both at work and home, with our family and friends.

“I have learned that vulnerability and resilience go hand in hand,” she explained. “The more I allow myself to be human, open, and curious to deal with the complexities of life, the more grit I develop. My North Star is the idea that we can all be role models in our day-to-day interactions, contributing to a better world, one action, word, and thought at a time.

“I feel privileged to use my voice and story to amplify the importance of normalising discussions and creating safe spaces to address these topics.

“Being in the corporate space for the past ten years, in a high-pressure environment, has taught me many things, particularly after dealing with burnout myself. Having lived this experience, one of the key things I learnt is that the perception of our self-worth can be distorted by overly identifying with our professional selves. It is linked to burnout. Exploring a more holistic, conscious approach to well-being and life-work balance can help individuals flourish and escape this ‘enmeshed’ state.”

I asked Bea what she meant by ‘enmeshed’ state.

“Enmeshment” is a psychological term,” she explained, “to describe a situation where the boundaries between people become blurred, and individual identities lose importance.

“I recently read appalling stats,” she continued, “that 69 per cent of people say their manager has more impact on their mental health than their therapist or their doctor—and it’s equal to the impact of their partner. Another study shows that 70 per cent of employees said that their work defines their sense of purpose.

“It can be particularly challenging at work when your reputation becomes your identity. It’s dangerous because you forget who you are, your values, and what you want. When I coach, I see many people who don’t know their values anymore and don’t know who they are.

“They need to recharge, but they don’t know how. It can be simple, right? It can be anything. It could be going for a hike and looking at the ocean. It could be dancing. But knowing who you are outside of work and what lights you up is important. Linking your personality and identity to your job can be dangerous, but it’s a common problem.”

I suggested to Bea that it’s a more common problem for men than women, particularly when men reach retirement age. I have friends whose entire identity, status, and social life have been built around their jobs. They lose all three when they stop working.

“It happens to any gender,” Bea argued. “I can see that retirement might be more challenging for men than women when related to losing your core identity. However, women have an additional problem because they are under pressure to perform at work and at home. Most household duties and responsibilities still tend to fall on women.  Gender equity must start at home. I feel women suffer more than men because they have that added pressure to be the best at work and home. They must also be the best caretakers for their kids, partners, and older family members.

“Research shows, for example, that women do a lot of unpaid work just supporting their colleagues mentally, which men don’t usually do. That can also be tricky.”

I asked Bea what advice she would give to a team leader to ensure the mental well-being of their team. What things should a team leader watch out for in terms of burnout?

“As you know,” she told me, “I have only recently taken on a leadership position. It’s very new to me, and I’m still learning. I try to be a role model. I know workload expectations can be unrealistic, particularly in a fast-paced corporate environment and industry like biofuels. So, I insist on telling my team that taking time out and having more than just their work is essential.

“As a leader, I try to walk the talk,” she continued. “What are you doing as a leader? Are you showing your team that you take care of your mental well-being? If you do, it will hopefully have a trickle-down effect.

“I try to make sure that people are comfortable telling me as their boss – or their peers – if they’re not feeling well – that a meeting is not essential or that a piece of work can wait another day. I tell them they should prioritise their well-being, which is essential to sustain high performance.”

I explained to Bea that all this is relatively new – and quite alien – to me. Growing up, my father always told my brothers and me, “Business before pleasure.” His words have stayed with me over the years. I am of a post-war generation where a man’s principal role was to provide for his family and ensure economic well-being.

I told Bea that I felt that, at least in Europe, mental well-being is now more critical than economic well-being.

“Generation Z, the 20-to-35-year age group,” she explained, “has different priorities to previous generations. Younger people do not necessarily want to earn more money but want a better lifestyle. And most important, they want to feel that they’re working for a company that shares their ethics and vision and does good in the world.

“Managers and leaders have this power to shift culture. I have the luck and privilege of working for a company that recognises the importance of well-being in the workplace,” she added.

“Retaining the workforce has become a priority,” she explained. “The younger generation is not necessarily concerned with working 9 to 5 and having a stable job and salary. They want more from life. Of course, it is a privileged cut of people who can take that decision, but I see it across the groups I interact with.”

Bea’s LinkedIn profile showed that she was a WINS (Women’s Initiative for Networking and Success) Global Board Leader. I asked what that involved.

“Its vision is for an equitable world,” she told me, “Where women have healthy representation, role models, and recognition across all levels at S&P Global, cultivating an environment that enables everyone to reach their fullest potential.

“It focuses on networking and support, career growth, retention and access to opportunities,” she continued. “It is S&P Global’s oldest and largest people resource group with over 6,000 members. We will commemorate its 20^th anniversary in 2024. I currently serve as Global Engagement Leader, connecting the almost 30 regional networks which are the driving force behind WINS efforts.”

I was coming to the end of my time, but I wondered to what extent Covid and working from home had changed people’s attitudes to work.

“Did Covid make people realise there is life outside the office?” I asked her. “And was it positive on people’s mental health?”

“I think there was a decline in people’s mental health during Covid,” she replied. “Being in isolation, having to rethink everything, how you carried on, meant you had to reinvent yourself in many ways.

“On the plus side, working from home gives you the liberty to control your time, be flexible and know when you must do a little more or a little less. This liberty is not something that people will quickly give up. You can see how research shows the workforce has been telling companies that flexibility is a priority.

“We should also return to diversity and inclusion,” she continued. “Working from home is terrific for me as a parent. It gives me the flexibility to have quality time with my daughter. It has done wonders for my mental health. And research shows that flexibility is also necessary when addressing the gender pay gap.

“But there is another reason. Letting people know they can be in charge of their time and are trusted to do the work they must do is fantastic. It’s invaluable. It’s empowering.”

“Are you currently working from home in Santos?” I asked her.

“Yes, yes,” she replied. “I go to the office occasionally, but my team is not there and works remotely or hybrid. I go to the office if we have conferences, meetings, or client engagements. But I prefer to work from home. I have been a complete virtual worker since 2009.  But I must intentionally contact colleagues and stay connected even though I’m not attending the office.”

“That’s it,” I told her. “Those are all my questions.”

“Aren’t you going to ask me what advice I would give to my 18-year-old self?” she asked me. “You ask everyone else!”

“Okay. What advice would you give your 18-year-old self?”

“Meditate and cultivate deep self-awareness,” she replied. “It will transform your life and your relationship with the world.”

“It sounds like good advice for everyone,” I told her, “Not just 18-year-olds”.

© Commodity Conversations ® 2024

This is an excerpt from my new book, Commodity Professionals—The People Behind the Trade, now available on Amazon.