Your Career in Commodities

In their excellent and must-read book, The World for Sale, Javier Blas and Jack Farchy have pulled together what the FT calls ‘rollicking yarns’ from the last fifty years of commodity trading. The authors have written the book like a spy thriller. James Bond (in the form of Vitol’s Ian Taylor) braves missile attacks to provide oil to fuel the Arab Spring. The evil genius Blofeld (in the form of Marc Rich) manipulates markets, breaks sanctions and trades with the enemy.

Ian Taylor and Marc Rich have sadly passed away, which makes me wonder to what extent the book reflects the current reality of commodity trading. When the world of trading is trying to increase diversity, what impact will the book have on a young person, particularly a young woman, thinking of a career in the business? Would it be like a young person joining the CIA or MI6 searching for heroic derring-do, only to discover that modern-day spying is more about computer-based data management?

The question, therefore, is: ‘If you read The World for Sale, would you be disappointed if you joined the world of commodities?’ My answer is: ‘It won’t be what you expect, but you won’t be disappointed.’

Commodity trading has always been about data – what we used to call ‘statistics’ or ‘supply and demand analysis’ – which commodity professionals use to predict future price behaviour. The weather is probably the most critical variable in agricultural commodities, but there are many others, politics and government intervention being high on the list.

Making sense of all this data –  bringing all the various elements together to form a compelling picture – is like doing a jigsaw puzzle on the deck of a yacht in a Force 8 gale. There will always be missing pieces, and you will have to make difficult decisions without full information.

You will spend a lot of time on that yacht if you join a financial institution as a ‘paper’ trader. Your work will be almost 100 per cent analysis, but you will quickly get used to being buffeted around by the gales that regularly sweep through the markets. Although I prefer physical commodity trading, you will have a challenging and rewarding career as a paper trader. You will also be adding value in terms of market liquidity and price discovery.

Physical commodity merchandising is about sustainable and efficient supply chain management. You can define it as ‘transforming commodities in space (geography), time (storage) and form (processing)’.

As you move your particular commodity along the supply chain, you will discover market inefficiencies and mispricing. These could, for example, make your corn worth more as ethanol than animal feed. You could find that it is cheaper to supply your Chinese wheat buyers from the US than Australia.

Most market inefficiencies occur when poor crops or government interference disrupt supply chains. The Trump trade wars with China meant that Brazilian soy suddenly increased in value compared to US soy. Russian export taxes on grain suddenly made other origins more competitive.

You may do all your analysis and discover that the market is not mispricing the various differentials but is mispricing the entire supply and demand for a commodity. When that happens, the flat (outright) price will move. This occurred during the super cycle of the 2000s when the world underestimated Chinese demand (for everything) while overestimating the world’s ability to supply it.

As you merchandise your physical commodity, you might, if you are lucky, earn a tiny margin at each stage of the supply chain. However, you will be more likely to make your living as a commodity trader by taking advantage of small market inefficiencies – mispricing – all along the supply chain. By doing so, you will not only make a profit; you will also make the market more efficient, ensuring that it sends the correct price signals to market participants. This is especially true for the flat price. Futures markets reflect the future: prices move in advance of a shortage or surplus, solving the problem before it happens.

As well as making your supply chain efficient, you will also have to make it economically, environmentally and socially sustainable. Your customers will demand nothing less, even if, unfortunately, they won’t pay you extra for it. Sustainability is now a ‘given’. In achieving this, you will find yourself working alongside – rather than in conflict with – NGOs, certification agencies and other not-for-profit foundations.

As I discovered when I wrote my book about coffee, you may also find that you are using your supply chain in reverse, helping NGOs to implement and effect change at the origin.

As well as managing the traceability of your supply chain, you will also have to manage the risks in it. You can hedge some of your price risks on the derivative markets, but most differentials are impossible to hedge. The skills you learn will enable you to trade those differentials successfully.

You will also have to manage counterparty risk – a client defaulting on you – and country risk – a government changing the rules on you. You may also have to deal with fraud, drug traffickers and other possible criminal activity.

A senior official from Olam recently told me that the health and safety of employees is the number one risk that his company faces – and that cybersecurity is number two.  You will have to deal with both.

You won’t be able to merchandise commodities if you don’t have suppliers and customers. The people you will deal with will probably be from different countries; you will have to become accustomed to dealing with people from other races, cultures and creeds. Many of these people will become your friends.

Meeting and interacting with clients was always the most enriching part of my life as a commodity trader. One week I could be wandering in the cane fields in Brazil, Thailand or India. The next, I could be walking the streets of Manhattan visiting hedge fund managers.

You will also have to work in a team. The movies depict James Bond as a lone wolf who saves the world single-handedly, but he would not work alone in real life. The best teams are diversified, with people of different skillsets, of different genders, and from other races and backgrounds. Commodity trading is a global business, and you will soon lose any prejudices that you may still be carrying around with you.

Finally, if you want an idea of what to expect from a career in commodity trading, you couldn’t do better than to watch this video interview of Dave Berhends, one of the world’s top coffee traders.

In their review of the World for Sale, The Times writes that commodity traders are the true Masters of the Universe. Fortunately, that is not true, but our business is still a great one to be involved in – especially if you are a woman.

Image by Peggy und Marco Lachmann-Anke from Pixabay

© Commodity Conversations ® 2021

Commodity Conversations Weekly Press Summary

The US is on track to export record amounts of corn and soybeans in 2020/21, although it has come a long way since it was considered as the “world’s breadbasket” in the mid-20th century. The US was able to dominate global grain exports thanks to a technological advantage but competition from other countries surged along with high commodity prices, a strong US Dollar and failed US crops in 2010 and 2012. For example, the US’ share of global corn exports has dropped to about 25%, compared to almost 50% three decades ago.

A lot of the competition came from South America, Canada, Australia and Russia. However, a new contender could further upend global trade flows: China. The country’s latest five-year plan unveiled a project to set up industrial farms in large agricultural belts to boost output and reduce food insecurity. The ambition comes as China was forced to import record amounts of food in 2020 because of the damage caused by the African Swine Fever, along with geopolitical considerations created by the coronavirus pandemic. 

The US lost its position as the world’s largest exporter of soybean to Brazil three years ago and Brazil is now the largest exporter of beef and chicken as well. A recent government study found that the country fed 10% of the world’s population. Nevertheless, mounting concerns over deforestation are shining a negative light on food sourced in Brazil. A coalition of French NGOs filed a lawsuit against the Casino supermarket for selling meat tied to deforestation in the Amazon. Casino owns the largest retail stores in Colombia and Brazil and has been criticised for its supply deals with JBS.

Major commodity traders announced that a blockchain platform called Covantis was now operational. The platform simplifies, through digitalisation, the transactions of agricultural products, starting with bulk shipment from Brazil. The goal is to add more countries and execution processes later on. Covantis was spearheaded by ADM, Bunge, Cargill, Cofco, Louis Dreyfus and Viterra.

The UN launched its most comprehensive report of food waste this week, called the Food Waste Index Report 2021. The report showed that consumers and restaurants wasted 17% of their food supply, while the total food waste reaches 33% when including producers and suppliers. Researchers calculated that wasted food was responsible for 8-10% of global carbon emissions. Somewhat surprisingly, the amount of wasted food does not seem to vary across different countries. 

The World Economic Forum highlighted that some good progress to reduce waste has already been made by retailers thanks to technology and a focus on resource efficiency. The Internet of Things (IoT) can be a great way to check on products and has already helped reduce waste through better temperature monitoring. Another, perhaps less cutting edge solution, is being trialed in Singapore: using wasted food to feed black fly larvae. The amount of food wasted in Singapore grew 20% over the past decade and some food is difficult to recycle. The black fly, however, can actually eat all types of foods and can then be used as feed or fertiliser. 

The EU announced that it will look to impose a mandatory origin label to more food products as part of its Farm to Fork (F2F) platform. Environmentalists and lawmakers welcomed the decision and suggested that it would allow consumers to focus on purchasing more sustainable products. On the other hand, some experts warned against associating origin labels with sustainability as a shorter supply chain does not necessarily equate to a more sustainable product. Moreover, the concept mixes up many different goals, like supporting local farmers and ensuring quality. 

Some EU consumers have expressed concern that Canada’s buttergate scandal would spread through Europe via butter imports. Consumers in Canada started complaining that their butter was now harder to spread and some suggested this was because of the use of palm oil as a feed. In response, Canadian producers said no changes had been made in their feed, as it added that using palm oil was a common and benign practice used all over the world. Nonetheless, the EU’s milk traders association Eucolait reassured consumers that the bloc does not import butter from Canada

Another food scandal made headlines this week concerning the theft of sunken beers. Artisanal beer brewers in Argentina attached 700L of beer to a sunken ship 20 metres underwater to experiment with beer making under pressure. Unfortunately, just one day before the barrels were due to be retrieved, unknown divers stole the whole load. The brewer was disappointed, especially as he explained that the liquid needed to be mixed first, and what was stolen was “a lukewarm, gasless liquor that would be very difficult to drink.”

This summary was produced by ECRUU

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A woman in coffee

 

To celebrate International Women’s Day, we post a blog that Shirin Moayyad, the founder of Sweet Bean Coffee, wrote in 2019 when she was first setting up her business. Next week, I will talk more with her about women in coffee. The following week, I will look at what we can all do to encourage more women into the world of commodity trading. Here is Shirin’s story:

I have now worked for nearly 30 years in coffee. I am at long last the founder and owner of my own coffee business. I have been in charge of a coffee farm in the remote Highlands of Papua New Guinea, where I also managed a roasting and exporting company. I travelled the world buying coffees for Peet’s. I guided National Geographic’s film crew through the coffee fields of Ethiopia and Colombia. I’ve had a long and varied coffee career, taking advantage of every opportunity to expand my knowledge, further my skills and experience as much as possible. And yet, it still comes as a surprise when I face gender discrimination.

Last week my partner and I dismantled a 33-year-old kitchen we’d purchased online to refurbish for my new roastery’s cupping lab. Armed with crowbars, hatchet, saws and a mountain of tools, we set to. Mid-morning, the homeowner invited us in for a coffee break and began asking about our plans: why we needed this kitchen, what we planned to do with it etc. Eyes widening with interest, he asked a whole series of questions. Where they concerned construction and refurbishment, my partner answered. Where it had to do with coffee, Didier directed the gentleman to me, saying, “Shirin is the coffee in this equation; she’s the one to answer that.” Kindly though he was, the gentleman only looked at me briefly, then immediately turned back to Didier, as if in subconscious denial that I, a woman, could be the business owner, the authority, or the one who knew the answers on coffee.

Don’t get me wrong. I am in awe of my partner’s abilities. I think it’s nothing short of miraculous, all the things he is capable of doing. I don’t know how to sand and spackle a wall. I don’t know how to wield a crowbar or saw through a granite counter. My mother did. But I don’t. She grew up in privation in WWII, Germany. Where you had to know how to do everything. My dad was the poet, the dreamer, the aesthetic; my mum was the doer, the powerhouse who made it all happen. She got shit done. She is, I realise, the person who most influenced who I am today.

Still, coming back to kitchen dismantling day. I found myself astounded by the gentleman’s assumption that it had to be Didier who knew coffee; he was the authority simply because he is a man. Maybe once upon a time in my career, this wouldn’t have struck me so much. But now, some 30 years on, it comes down as being just ludicrous.

It was 20 years ago in Singapore when I first found myself frustrated by the blatant discrimination of these assumptions. I was head of coffee, roaster and buyer for a 28-shop chain when I hired a mate of mine from Australia to come roast. He was a lovely bloke; a tall, amiable guy, very competent and a big help to me. But he was my employee, my hire, my direct report. And I lived the same frustration there, of facing implicit assumptions that he was boss, and I was just some little sidekick, an assistant perhaps. Inevitably, his authority was sought, his opinions solicited, the assumption made that he was The Man. It wasn’t his fault, mind, it just was that way. And I was young enough not to be too irritated. But now, some 30 years on….

There was that origin trip once when we were a group of coffee professionals on a bus, headed out to a farm visit. A chap sat next to me and proceeded to soliloquise on his extensive coffee experience, all the marvellous things he’d achieved at origin. I wasn’t sure when he found time to breathe, he was so enthralled with recounting his own achievements. I forgot what topic it was that prompted me to interject mildly how yes, I had also found XYZ issue on the 98-acre coffee farm that I managed in the remote mountains of Papua New Guinea. There was a moment of silence when my words broke through the waterfall of his monologue, and his face went blank. Dumbstruck. Silent. I watched the virtual cogwheels turning as he struggled to compute the information he had just heard. In the event, it was clearly too much for him to compute since, after that brief respite, he went right back to blathering on about his record of achievements. Sigh. It wasn’t yet 30 years then, but it was starting to irritate me.

My mum isn’t the only one to have inspired me over the years. There are others: women in coffee the world over who have been there in one form or another as I learned this path.

Erna Knutsen was one such wonder. I was travelling to California on a trade mission to represent Papua New Guinea – because, by then, I was managing a coffee roasting company there that had achieved considerable export success. My colleagues at home told me to contact Erna as she was the US importer of our finest estate coffee and would look after me. And indeed, she did. Erna invited me to her cupping table whilst evaluating a quality claim on a pricey auction lot Kenyan. Erna was the woman who coined the phrase speciality coffee, the grande dame of our industry who broke the glass ceiling and brazened her way to a place at the cupping table. She was awesome. And here, without knowing anything about me, she allowed me to cup alongside her. I trembled at the honour.

Later that afternoon, I experienced the true flamboyance of this trailblazing woman. She’d booked us a table at San Francisco’s Boulevard Restaurant…a place so fancy to my Papua New Guinean bush eyes, I couldn’t help but be impressed. And there she was, sporting a leopard skin pantsuit, through her cat-eye spectacles calling the handsome young server “darling” and drinking some mighty strong cocktails over lunch. Her self-confidence allowed her a flamboyance I could only dream of.

Today’s earthly embodiment of the virtue of grace though would have to be the inimitable Sunalini Menon, an extraordinary woman I consider to be both a mentor and one of the world’s greatest coffee cuppers. I first witnessed her quiet self-assurance and profound knowledge of coffee at work in Singapore when I moved there from Papua New Guinea. Two gentlemen were trying to sell me coffee from Yunnan, China, which was coming on as an origin. “As good as a Costa Rican hard bean,” they blustered loudly. Sunalini happened to be cupping with and coaching me that afternoon, but they clearly didn’t know her and assumed she was just another woman who could be hoodwinked and bullied.

As we started to cup their samples, Sunalini gently probed them with questions on the varieties they had planted. Was it a first or second-generation cross as the Catimor cup was clearly coming through? Perhaps the parenting might have been from XYZ stock as that taste was in the finish, didn’t they think? And where had the progenitor plant material come from as it tasted rather more along the lines of IMN than XYZ, didn’t they think?

With every softly spoken question, her deference combined with her indisputable empirical knowledge of what she was cupping put the gentlemen further on the back foot. I watched their posture literally move from forward-leaning, imposing, nearly bullying to quiet, defensive, and ultimately defeated. The lids came down over their eyes, their body language shut down, they were silenced. It was a prize-winning performance, the likes of which I have not since seen. Never once did Sunalini raise her voice or humiliate. Instead, with soft-spoken words underpinned by the undisputed certainty of her palate and her knowledge, she whipped them. Always immaculately clad in the bright and decorative costumes of her native India, Sunalini’s personal and professional elegance is an inspiring beacon to other women in coffee.

Let me end by drawing a parallel that might help the reader hear my point of view. I have a dear friend, Phyllis, an African American coffee professional. Some years ago, I reflected on the fact that while I could sympathise with her fight and certainly try to empathise with the discrimination an African American experiences, still I could never fully feel it. Why? Quite simply, because I’ve never lived it myself, I haven’t walked in those shoes. It hasn’t been my experience in life, and as much as I sympathise, I cannot live that experience the way Phyllis has.

By the same token, although I’m certain that while my many male colleagues and friends in coffee all sympathise, they cannot know in full what I feel because they’ve never lived it. They’ve never experienced this through this lens. Through the lens whereby, after some 30 years in the industry, a man would still turn his back on a woman and direct his questions at a fellow man with arguably nil experience in coffee.

If I look at the cumulative lessons I’ve learned from the women I admire, what it boils down to is this:

  1. Know and love your subject matter because nobody can question that kind of integrity, and you will live with its certitude.
  2. Believe in yourself and don’t listen to the noise of others. You know your worth; the monkey chatter of others should wash over you and not stick.
  3. Don’t be afraid to have your style. From Erna to Sunalini and every other icon in the world of women in coffee, with the knowledge they have, style is an adornment, a cloak that embellishes their individuality and worth.

Note: these reflections are simply that and no more. And I dedicate them equally to the man I love, as to all my many coffee sisters. And most particularly to my mum, the woman who could do everything.

I also want to thank all my male colleagues for the huge support they give to women in coffee. The world is indeed changing, and there are several men out there – you know who you are – who I look up to every bit as much as I do to the likes of Erna or Sunalini.

Commodity Conversations Weekly Press Summary

Japan passed a new law aimed at halving the cost of food waste by 2030, compared with 2000. The country spends an estimated USD 19 million every year disposing of food waste, the third-highest per capita cost in Asia. Supermarkets are deploying robots and artificial intelligence to scan products on arrival and in-store to help them spot anything that has been damaged or that is going bad. The supermarket chain Lawson said that disposing of food waste was the group’s biggest cost after labour and that it would reduce stocks by a third to meet the targets.

Japanese consumers are known to be demanding, and many food manufacturers in the country discard products that are just one third through to the expiry period. The e-commerce company Kuradashi said, however, that things were changing with the pandemic; consumers are becoming more price-sensitive. Membership to its discounted unsold foods platform more than doubled since 2019 while sales were up 2.5 times. Kuradashi is also leveraging its platform for food banks and helps reduce the amount of food waste that needs to be incinerated, lowering CO2 emissions in the process. 

The explosion in online grocery shopping in China is pushing e-commerce companies like Alibaba to get actively involved in agriculture. Over USD 150 billion worth of agricultural products were sold on Alibaba platforms in the last eight years but an analysis by Bloomberg explains the government has been cracking down on monopolies in e-commerce platforms. Instead, it is calling on tech giants to invest in smart agriculture for which they can avail large government subsidies. Investments so far include smart poultry bracelets, irrigation sensors and artificial intelligence to help with planting. Thus, instead of being under the government’s radar, Alibaba received praise for contributing to reducing rural poverty. 

Greenpeace released its latest grocery chains’ plastic use ranking but complained that most groups did not disclose any information on their plastic usage. Greenpeace did commend Costco for making some improvements, including its target of reducing Styrofoam use. 

Coca-Cola, which often features at the top of worst plastic polluters’ lists, announced it would launch its first paper bottle on a trial basis in Hungary. The bottle, developed with Paboco, still has some recyclable plastic but the aim is to eventually be completely plastic-free. The trick, one of the company officials said, is to mould the bottle in a single piece and avoid joints. Otherwise, it breaks under pressure, especially with fizzy drinks. It took Paboco seven years to develop this bottle. 

In the US, Coca-Cola will be launching bottles entirely made from recycled PET (rPET), except for the label and cap. This should help the group reduce its consumption of new plastic by 20% in North America compared to 2018. In order to ensure a sufficient supply of rPET, Coke is adding messaging on bottles to encourage consumers to recycle the bottle. It is also switching the colouring of some bottles, such as Sprite, to transparent bottles as most coloured PET can’t be recycled. Bioplastics News argued that it didn’t make sense to try and develop a paper bottle when PET bottled can be completely recycled. This is especially so if the paper bottles require to cut down more trees, it added. 

Still in the US, the consumer group Center for Science in the Public Interest (CSPI) has asked the Federal Trade Commission to look into the so-called “trade promotions” system in supermarkets. CSPI said that food giants like Coca-Cola and Mars spend USD 50 billion annually to secure prime spots in aisles, a practice which, it argues, is anti-competitive and encourages the consumption of unhealthy foods. 

Third-party delivery service DoorDash, which went public last December, reported a 225% increase in Q4 2020 sales to USD 970 million. However, the group’s net loss is widening, at USD 312 million, from USD 134 million a year prior. The situation is expected to get worse with lockdown measures easing. It hopes to get around this with an expansion in grocery deliveries. Domino’s, which reported an 11% growth in sales in Q4, said it had never made money from delivering pizza – only on the pizza itself. As such, the CEO doubts the business soundness of third-party delivery apps. Instead, Domino’s is going in the other direction by reducing its delivery area and increasing the number of stores.  

According to a report by the LA Times, there has been a surge in scams involving third party delivery apps and restaurants. The scams include fraudulent credit cards as well as refund requests on the basis that the food was never delivered. One restaurateur said a customer bought USD 730 worth of food in one go via a third-party app. The customer picked up the food and then disputed the charges. Delivery services mostly take the side of customers, leaving the restaurants to foot the bill, the report said. And if that wasn’t bad enough for restaurants that have been reeling under the pandemic, there has also been a surge in the theft of outdoor heating lamps. With more restaurants forced to offer outdoor seating areas, heating lamps are worth a lot on the secondary market. 

This summary was produced by ECRUU

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Corruption in Commodity Trading

 

I haven’t yet received my pre-ordered copy of The World for Sale by Javier Blass and Jack Farchy, but it has already spurred some headlines about corruption in the world of commodity trading. The story that attracted the most attention concerns a former Glencore mining executive who admitted to the book’s authors that in 2003 he flew around the world with bags of cash to be paid in bribes to government officials.

The authors rightly point out that, although unethical and immoral, it was both legal and even tax-deductible in 2003 for Swiss companies like Glencore to pay ‘commissions’. The Swiss government has thankfully rectified that sad state of affairs, and Glencore has banned using local agents, the intermediaries they used to facilitate corruption.

Glencore started life as Marc Rich & Co, led by a brilliant but flawed trader who specialised in dealing in countries where most people feared to tread. Daniel Ammann has written a (truly) excellent biography of Marc Rich – The King of Oil – in which he tackles the issue of corruption. He writes

“Most commodities come from countries that are not beacons of democracy and human rights. The “resource curse” and “the paradox of plenty” are the terms economists and political scientists use to describe the fact that countries that are rich in oil, gas or metals are usually plagued by poverty, corruption, and misgovernment. If commodity traders want to be successful, they are forced—much like journalists or intelligence agents who will take their information from any source—to sit down with people that they would rather not have as friends, and they apparently have to resort to practices that are either frowned upon or downright illegal in other parts of the world.”

Mr Ammann is right: corruption has more to do with governments than commodity trading. The onus is on governments to cure the disease.

Way back in 1977, the US instituted the Foreign Corrupt Practices Act (FCPA). It made it unlawful for a U.S. person or company to offer, pay, or promise to pay money or anything of value to any foreign official for the purpose of obtaining or retaining business.

More recently, China, previously one of the world’s most corrupt countries, has resorted to drastic action, instituting capital punishment for corrupt officials.  Other countries are taking less drastic measures, but they are moving, albeit too slowly, in the right direction.

Corruption in commodities typically thrives when governments get involved in, for example, awarding mineral rights, production or trade quotas or by setting prices.

It was omnipresent in the agricultural markets when I began my career in commodities. At that time, only the government had the right to import or export certain commodities in many countries. Buying and selling tenders were often rigged – and you were never sure how much money was being siphoned off or added on before it reached the farmers or the consumers.

Over the past 40 years, governments have exited the agricultural commodity trade; the business has been privatised. When business is in private hands, producers or buyers have little interested in receiving bribes; it is the price and the terms of the deal that interest them.

But what should you do if a government official asks for a bribe? In my book, The Sugar Casino, I told the true story of the first time someone asked me for one:

“After spending two years as a futures trader in Minneapolis, my company transferred me back to London with a brief to develop new markets in the Middle East and Africa. The company’s agent in one country (I won’t say which one) contacted me to say that they had surplus sugar that year and the government would like to export a couple of cargoes to earn much needed foreign exchange. The minister who was handling the sale was coming to London the following week. Could I meet him?

 “Despite being only 25 years old, I met the minister and took him to an expensive restaurant. We had an excellent meal, discussed the sugar market and tried to estimate the price for the particular grade of sugar the country was exporting. As we were leaving, he surprised me by suggesting that we dine again the following evening. I agreed even though I was unsure what we had left to talk about.

 “The next evening, the minister slipped me a shopping list of electronic items that he would like to take back with him from London. There were only four items on the list: a television, a radio, a stereo system and (bizarrely) an electric iron. He asked if I could help him obtain these items. I wasn’t quite sure if he asked me to go with him to the shops to choose the items or ask me to buy the items and give them to him for free. And if it was the latter, I was surprised at how little it took to bribe a minister.

 “The next day, I told my boss what had happened. I thought it was a bit of a joke. Still, my boss took it seriously, advising me to go back to the minister to politely explain that company policy meant that we couldn’t help with his request but that we would still like to buy his sugar and be very competitive on the price. I did as instructed and was not surprised to hear a week later that one of our competitors had bought the two cargos of sugar. I calculated they had probably made a profit of $240,000 on the deal. I compared that to the couple of hundred dollars it would have cost to buy the items on the minister’s shopping list.

 “I mentioned this to my boss, who told me angrily that I should never think about paying a bribe to anyone, no matter how much money was at stake. He called it “selling your soul to the devil” and argued that even if a television may not cost much, it was “the thin edge of the wedge. And from a business point of view”, he added, “It makes no sense.

 “First, it will give your client a hold over you. Second, if everyone does the same thing, you will end up competing against each other in the number of bribes that you pay.” He called it “competitive corruption” and said that paying a bribe would be ineffective if your competitor paid more.

In 2016, I interviewed the legendary sugar trader Robert Kuok for The Sugar Casino. He told me:

“One piece of advice: never hug the high and mighty; they electrocute you. Keep them at arm’s length. And always adhere to moral practices, and nothing can stop you. If someone asks you for a bribe, you should say that neither you nor your company could do that. But stay very polite. Don’t stand on your high horse and preach morality at that moment. Just turn them down nicely. If you get a chance later at a meal or something, you can pontificate a little, but not then – they are not in the mood to be listening to moral truth.

Sound advice, indeed.

© Commodity Conversations ® 2021

Commodity Conversations Weekly Press Summary

Global grain merchants continue to benefit from high commodity prices and tightening global supplies, as Bunge surprised market participants when it reported a net income of USD 551 million in the fourth quarter of 2020, compared to a loss of USD 51 million in the same period last year. The CEO highlighted the oilseed processing segment and exports out of North America, as he noted that a strong demand and tight supply will also help the firm in 2021. Moreover, the Brazilian sugar and ethanol unit, now operated as a joint venture with BP, expects to see its best year on record this season

Similarly, Wilmar reported a net profit of USD 1.53 billion in the 2020 financial year, up 18.6% on year, as all segments reported strong growth. The plantation and sugar unit also performed well which helped compensate for the feed and industrial products segment. The recovery of the Chinese economy and the reopening of restaurants and hotels could continue to support demand, the firm said. 

The government of Argentina suggested that firms like Bunge and Unilever were artificially hiking food prices by holding back on production. The production ministry launched an investigation to assess if and why the firms failed to produce at maximum capacity to keep prices under control. Some experts estimate that the country’s inflation rate could hit 50% this year and local investors warned that the measures implemented so far – like price caps – were doomed to fail. 

Cargill and Maersk launched a new service to simplify the procurement of fuel for the two groups’ combined tanker fleets. The companies hope that collaborating will provide better fuel prices and services amid an increasingly complex bunker market. The initiative will start on April 1 and will eventually open up to other trade houses. 

After months of insisting that the coronavirus could not be transmitted through frozen food, the WHO backtracked and conceded that some outbreaks, particularly in China, were possibly due to frozen food packages. A scientist who just returned from China as part of an investigation into the origins of the virus conceded that the outbreak in a wholesale market in Wuhan could have been sparked by frozen wild meat. Nevertheless, the agency highlighted that food transmissions remained exceedingly rare and would only be possible in specific and unusual circumstances. 

Animal welfare activists are using the pandemic to push for a complete ban on the trade and consumption of wild meat. However, a new study published in Current Biology argued that such a ban could have the unintended impact of damaging the environment, making food insecurity worse and, ironically, increasing the risk of diseases. Researchers explained that the protein from wildlife would have to be replaced by animal agriculture, which they describe as “the greatest threat to natural habitats and biodiversity, and also the most significant driver of emerging infectious diseases”. 

Another new report shines a light on wildlife that is often overlooked: the fish populations in freshwater. The report, called The World’s Forgotten Fishes, warns that our rivers and wetlands are in such poor conditions – because of pollution, dams and sewage – that a third of freshwater fish are threatened by extinction. In the UK, sturgeons and burbots have already completely disappeared, while salmon and eels are endangered. 

The good news, meanwhile, is that investments and technology are making aquaculture increasingly environmentally-friendly. When done correctly, an expert at Alphabet argued that “seafood is one of the lowest carbon sources of protein available”. The FAO estimates that 52% of the fish consumed in 2018 was farmed and that it will reach 60% by 2030. The Philippines is even pushing backyard farmers in highly urbanised cities like Quezon City to switch to aquaculture instead of keeping pigs. The drive is aimed at reducing the risk of African Swine Fever and a loss of income.

Aquaculture is enjoying a wave of interest these days but it is an incredibly old practice – just like the idea of using plants to make meat alternatives. This journalist travelled to Taiwan to sample what Buddhist monks have been working on since at least the 10th century: using soy to make mock meats and help transition to vegetarianism. The story also follows a Taiwanese immigrant who struggled to sell plant-based meats in her New York shop in the 1980s until she renamed her restaurant “Lily’s Vegan Pantry”.

Cheese lovers can read some excellent news this week as Wired published an article called: “Cheese Actually Isn’t Bad for You”. Studies seem to indicate that eating cheese has a neutral, or perhaps even positive, impact on weight loss, diabetes and heart disease. This could be due to the fact the cheese isn’t actually that calorific and contains bacterial cultures which improve the gut microbiome. The reason many believe cheese is fattening is probably that it is often added on top of unhealthy meals, like pizza. 

This summary was produced by ECRUU

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A Conversation with Aitana Conca

I recently caught up with Aitana Conca, previously Global Head of Middle Desk and Contract Management for Cargill’s Ocean Transportation Division in Geneva, and now Director -EMEA for Chinsay.

Good morning, Aitana. Could you please tell me a little about yourself?

I live in Switzerland, but I am originally from Spain, where I grew up and studied.

I started my commodities career when I joined Cargill Geneva in 2005 in the finance team of their Ocean Transportation division. I already had a deep understanding of finance. Still, I knew nothing about trading or shipping and learned everything from the bottom up, which has given me a solid knowledge of the industry’s complexities.

I felt that my career had hit a ‘pivot point’ and wanted to explore new avenues and offer the digital skills that were increasingly in demand. I needed to step out of my comfort zone and left Cargill to study for a Global Executive Master in Digital Business at Madrid’s ISDI business school.

I was excited to join Chinsay as I knew them from my time at Cargill – I was one of their first customers.

As a woman, did you find yourself in a ‘man’s world’ – and how did you deal with that?

Being a woman has never been an obstacle in my career, even in the male-dominated trading and shipping world. Having said that, I often felt the need for having to craft more solid arguments than my male peers.

Research has shown that diversified teams outperform non-diversified teams. Women bring a different perspective than men, and we definitely add value and insight. Many companies know this, and they embrace gender diversity. I’ve been lucky to work with companies that welcome women for the value that they bring.

Cargill is known for its training programmes. What was your experience with this, and have you had a chance to make use of it?

Cargill has excellent programmes for employee development. They don’t only teach you technical or professional skills. They teach you to be a better leader and how to navigate as a woman.

I am lucky that at Chinsay, I can continue to empower women and develop them into leadership roles. I find that very exciting.

Chinsay, like Cargill, is becoming more diverse and is interested in making women’s voices in the industry heard, and the company has a real passion for bettering client’s businesses. These are some of the factors that helped me decide to join their executive team.

What were the other drivers in your decision to join Chinsay?

Chinsay allows me to help people with innovation and digital transformation. It is a passion of mine. I have the opportunity to help drive real change and consider the future of technology and the market.

On the customer side, I can empathise with our clients and put myself in their shoes. I have been in their position; this helps me gain insights and establish a foundation of understanding. I can support our clients on their digital transformation journey.

From Chinsay’s side, I can help the company become an even more customer-centric company. That’s my objective!

Briefly, what does Chinsay do?

We enable clients to digitalise workflows in freight and commodity sectors. We focus on efficiency, compliance, controls and transparency. That is our core business, but we go beyond that. We are becoming increasingly about data: collecting, analysing and integrating our clients’ information into their systems.

We bring business clarity and efficiency to what has traditionally been a siloed, disconnected industry, and we reduce cost and risk.

Chinsay has several big names clients. Why do they need you?

We are fortunate to have a great relationship with clients, and our service and solution benefit greatly from input and advice. A good example is Cargill. They built the Covantis Blockchain platform in partnership with other grain-trading companies, and we work on the portion of the workflow that precedes the post-trade part.

We definitely believe in the principle of working together and integrating with best-of-breed technology; Covantis is a great example of the benefits of having one seamless flow of operations and data.

You joined Chinsay in December 2020. How are things going so far?

I am still learning, finding out how the company works and functions. I am looking at areas where the company can improve internally, particularly in shaping our product offering from the customer’s perspective.

My objective is to build a partnership with our customers. I look at it as ‘push versus pull’. Rather than ‘push’ our services to our customers, we want our customers to ‘pull’ Chinsay’s service into their systems.

First, you have to understand your customer’s needs and then work to fill those needs; don’t try to push your ready-made product or service onto the customer.

Is there anything you want to add?

I have three essential themes in my life:

The first is the empowerment of women: helping women thrive in male-dominated environments. I am a champion for gender diversity, whether at the local school or in the workplace.

The second is the importance of trust in both professional and private relationships. That could be between yourself and your children, or your company and clients. Without trust, you have nothing.

The third is to constantly learn and do better in both my personal and professional life. I see data and digital transformation as the agent for change for much of life, both now and in the future. It is the future, and I want to be an agent for that change.

Last question: how are you coping with lockdown?

On the professional side, we have been fortunate during lockdowns because our clients see us as a core part of remote working.

On the personal side, I miss the hugs!

© Commodity Conversations ® 2021

This is part of our series promoting women in agricultural commodities. Please get in touch if you have a story to tell on this theme.

Commodity Conversations Weekly Press Summary

China’s Fourteenth Five-Year Plan (2020-25) will focus on stabilising national food security, notably grain management. An official at the National Development and Reform Commission noted that the state’s reserves were already playing their roles in market stabilisation, arguing that “we have enough reserves to respond to any risks or challenges.” 

Massive food imports are a cause for concern for the Communist Party, however. As such, several analysts forecast that crop imports are likely to ease by the end of this year or the next, and that the recent surge was more the result of frontloading demand than an actual increase in consumption. A Chinese consultant suggested that there was enough food in the country and that a big part of imports was going into state reserves. 

Besides, China should see a bumper grain crop this year and farmers are being told to stick to planting grains. Billions are being poured into the National High-Quality Grain Project which aims to build a “national industrial food security belt.” The project includes developing higher yielding seeds and cutting down on losses in the supply chain. China is also headed towards a pork surplus before the end of the year, according to an economist. An analyst at Rabobank noted that this would have significant repercussions on global trade, notably for countries that have been boosting swine production to export to China. On the other hand, some say that the new African swine fever could slow the recovery in the swine population. 

China has also been focusing on diversifying who it imports food from. A report by the USDA said the combination of trade issues, the pandemic and the swine fever have exacerbated China’s intent to avoid depending on US and Canadian supply. The competition is only expected to get tougher, the report said, urging US producers to focus on developing premium products, notably foods that have nutritional and health benefits. 

In China, the government has stepped up efforts to educate consumers to check for counterfeit food and drink products which have been known to cause poisoning. The government identified 1,400 counterfeit products between May and November 2020, a surge attributed to the pandemic-led increase in online shopping. It is encouraging consumers to check labels to spot inconsistencies. 

The UN Committee for World Food Security endorsed the first voluntary guidelines to end hunger last week as an estimated 3 billion people lack access to healthy food. This comes as a report by Bloomberg warned that global meat prices are about to surge as a result of higher corn and soybean prices. Feed costs have gone up by a third, with increases expected to be felt for most types of meat. 

Similarly, companies such as Kraft Heinz, Conagra and Unilever warned they would increase the price of food products that are the most exposed to the increase in grains, sugar and edible oils prices. The US Consumer Price Index showed that food prices were up 3.7% on year in January. The US Federal Reserve, on the other hand, downplayed the issue, arguing that it was a one-off price hike and did not qualify as inflation. 

Regardless, the US President passed an executive order earlier this month committing to fully refund restaurants providing food aid. The idea is to allow those who need help to get a nutritional cooked meal – instead of unhealthy packaged food – and help restaurants with occupancy rates. However, an analysis by The Counter argued this would not be as easy as it looked. The government body in charge of refunding is known to be slow, and there has been no agreement as to what are “approved expenses.”

Mars Food, meanwhile, committed to delivering 5.5 billion healthy and sustainable meals to families globally by 2025, having already achieved its target for 1 billion more healthy meals by 2021. The group’s strategy is to focus on food accessibility, awareness and content reformulation by, for instance, increasing fibre and reducing salt content in food. 

The US spent USD 770 billion on restaurant orders in 2020, out of which 63% was for takeout, according to a new report. Around two thirds of the takeout orders were to restaurants that only offered sit-down dining prior to the pandemic. The good news for restaurants is that consumers were found to spend almost 50% more when ordering through a digital platform. But sometimes, it can be tricky to get your food from the restaurant to your home. A student in the UK got quite a shock when her UberEats driver told her he’d eaten her order. And he wasn’t joking. 

This summary was produced by ECRUU

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The history of wheat

History celebrates the battlefields whereon we meet our death, but scorns to speak of the ploughed fields whereby we thrive. It knows the names of the king’s bastards but cannot tell us the origin of wheat. This is the way of human folly.  –           Jean-Henri Fabre (1823 –1915) French naturalist and author

 Wheat, barley and rye can trace their origin back to Triticeae, a grass that grew wild in the Fertile Crescent. Wild einkorn and emmer are wheat’s earliest ancestors; they had seed heads that quickly broke apart in the wind, scattering the seeds and permitting self-sowing. Modern-day wheat is the opposite: the grains now stay on the stalks no matter how strong the wind.

Modern-day wheat did not benefit as much as corn from the Fritz Haber process of combining nitrogen with hydrogen to make ammonia. Until the middle of the 20th century, applying nitrogen as fertiliser on wheat made it grow taller and thicker, but it fell over in the wind and rotted. Wheat needed to be genetically improved to take advantage of the technological progress in fertilisers.

One of the first leaps forward occurred in 1935 when a Japanese scientist named Gonjiro Inazuka crossed a semi-dwarf Japanese wheat species with two American varieties to produce an improved semi-dwarf variety Norin 10. Unlike previous types, which grew to 150 cm, Norin 10 only reached 60–110 cm.

In the late 1940s, Orville Vogel at Washington State University took another step forward when he imported Norin 10 into the US and crossed it with other varieties to yield high-yielding, semi-dwarf winter wheat.

However, the revolution in wheat—and it was a revolution—occurred in 1952. Norman Borlaug took some of these new Norin hybrid seeds to Mexico and grew thousands of unique varieties. He couldn’t sequence the wheat’s DNA to figure out which genes caused these traits because that technology didn’t exist then, but he carefully noted each variety’s characteristics. His work paid off, producing new kinds of dwarf wheat that were rust-resistant and didn’t blow over (lodge) in high winds.

By the 1960s, Borlaug was travelling the world to spread the news. His first stop was Pakistan where wheat yields were around 360kg an acre. Mexican farmers were by then getting more than three times that. His major success, however, was in India.

When India became independent in 1947, the country produced only 6.5 million tonnes of wheat each year, and yields were around 663 kg per hectare. It was not enough to feed the Indian population, and the country largely depended on food-aid imports from the US.

In 1963, India was on the brink of famine. The government invited Borlaug to India to test his new varieties. His yields were four or five times better, and India’s farmers quickly took up the new breeds. By 1974, India’s wheat production had tripled, and the country was self-sufficient in food. India has never faced a famine since.

In 1970 Norman Borlaug was awarded the Nobel Peace Prize for enabling what came to be called the ‘Green Revolution’. He earned it.

World wheat production has more than tripled in the last sixty years, from 234 million mt in 1960 to 772 million mt in 2020. At the same time, wheat acreage has only risen 10 per cent, from 202 million hectares to 222 million hectares. Without Norman Borlaug, the world population would not have increased over that same sixty-year period from 3.0 to 7.7 billion. And what’s more, crop failures and famines would still be regular occurrences.

But it is not just the varieties of wheat that have evolved over the centuries; so too has the way humanity has sown, harvested and ground it into flour.

Ancient Egyptians sowed wheat by casting seeds into the mud after the retreat of annual floodwaters along the Nile. They then drove their cattle over the area to trample the seeds into the ground. Hand scattering of seed is still used today in many parts of the world.

Early farmers harvested their wheat with sharpened stones fitted into a wood or bone handle, but the introduction of iron and steel led to the sickle, a tool that is still widely used. Sickles are light enough to be used by women and children and allow wheat to be cut at any height so that they can leave the straw standing or cut it separately.

The sickle was so crucial in human development that the USSR put it with the hammer on its flag. The hammer represented industry, the sickle, agriculture.

The scythe was an improvement over the sickle with a longer blade at right angles to a long wooden handle. You can harvest wheat faster with a scythe than with a sickle, and you can stand upright while you do it. However, a scythe cuts the straw close to the ground, leaving it attached to the wheat head. A scythe is heavier than the sickle. But the scythe has again entered into our collective psyches with death portrayed as the Grim Reaper harvesting souls.

The first mechanical reaper appeared in 1831: a two-wheeled, horse-drawn contraption pushed a series of moving, scissor-like blades against the grain to clip it close to the ground. A rotating paddlewheel swept the stalks against the cutting bales, so they fell on a platform as the machine moved forward.

Once farmers had harvested the wheat, they spread it on a plot of hard ground or threshing floor. They then drove cattle or horses over the grain so that their hooves separated the wheat from the chaff. Winnowing, or tossing the mixture into the air, then allowed the wind to blow away the lighter chaff and the heavier wheat to drop back. The threshing machine later used fans to separate the chaff from the grain, mechanically doing the process.

As its name suggests, the modern combine harvester performs all these basic jobs in one operation. Hiram Moore developed the first version in 1834 and, by 1860, combine harvesters had cutting widths of several meters. In 1885, Hugh Victor McKay, from Australia, developed the first commercial combine harvester, called the Sunshine Harvester. It reduced the number of working hours needed to harvest one acre of wheat from 46 hours to 30 minutes. Today a modern combine can harvest 1,000 bushels per hour. That’s more than 27 metric tonnes.

Once harvested, wheat needs to be milled into flour, separating the outer bran and germ from the inner, more digestible, endosperm. Although wheat has been grown for thousands of years, humans’ teeth from excavated villages dating back to 6,700 BC show no signs of wear, indicating that those early people already milled wheat. Archaeologists have found grinding stones at sites of ancient settlements in almost all parts of the world.

Over the centuries, mills have been powered by men, horses, oxen, water, or wind, all geared to turn one stone against another. The Romans were the first to use waterpower for milling flour, in about 100 BC, and it remained a significant source of mill power. In 1870, most of the approximately 22,000 flour mills in the US were still water driven.

© Commodity Conversations ®

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The politics of wheat

“No man qualifies as a statesman who is entirely ignorant of the problems of wheat.” Socrates

Socrates was right: The Roman Empire needed a steady supply of wheat to flourish. Grain made into bread was the most critical element in the Roman diet, and the city required between 150,000 and 250,000 tonnes per year to feed its population. Rome imported most of its grain supplies and distributed a ‘dole’ of subsidised or free grain, and later bread, to about 200,000 less well-off residents, about a fifth of its population.

The Romans initially imported wheat from Sicily and Sardinia but later centred production on Carthage’s ancient city, in present-day Tunisia. In the second century BCE, the Emperor settled 6,000 colonists near Carthage, giving them about 25 hectares to grow grain. Later, when Egypt became part of the Roman Empire, the country became its primary supply source.

The Romans shipped the grain by barge to Alexandria, where they inspected it for quality and loaded it on ships for Rome. They transported it into sacks, rather than carrying it loose in the holds; ships transported an average of 350 tonnes, although some had as much as 1,500 tonnes. The ships were sail driven, unlike the Roman warships propelled by oarsmen. Sailing times from Italy to Alexandria in Egypt might be as brief as 14 days, but returning to Rome would have taken as long as 70 days as the winds were adverse.

Centuries later, Britain depended on wheat imports from its empire to feed itself and encouraged wheat cultivation in Australia and Canada.

In 1846, the UK abolished the Corn Laws, a system of tariffs and other trade restrictions on imported food and grain introduced in 1815. (Remember, at that time the word ‘corn’ referred to all cereal grains, such as wheat and barley.) The government had introduced the laws to keep grain prices high and protect domestic farmers and (particularly) landowners.

The repeal of the Corn Laws was a decisive moment in British economic history. Their repeal lowered food prices, encouraged increased agricultural productivity, and freed up surplus labour to drive Britain’s industrialisation.

But the repeal didn’t just change England. As Dan Morgan wrote in Merchants of Grain,

“Parliament, with its stroke of repeal, …changed the world. Repeal of the protectionist system had opened England to the wheat of all the world, created incentives for the settlement of vast territories across the oceans, and established the conditions for modern international trade, with the new sea routes and modern trading empires.”

The pressure of cheap imports drove a steep decline in British domestic wheat production. At the same time, food became more affordable. Between 1840 and 1880, the cost of bread fell by half. By the end of the 19th century, Britain was importing 5 million tonnes of wheat per year, about 20 per cent of which came from Britain’s colonies: Australia (150,000 mt), India (300,000 mt) and Canada (450,000 mt).

On the other side of the Atlantic, early setters were dependent on imported flour from Europe, most often England, until they could produce wheat independently. Though corn saved the early settlements, many settlers didn’t like it. They baked a bread called ‘thirds’ which they added to the imported wheat flour: one-third wheat flour, one-third rye, and one-third cornmeal.

By the 1740s, the US was exporting wheat to England from the northern fields of New York, New Jersey, and Pennsylvania. The US grew in importance as a wheat exporter after the American Revolution when the great migration into North America’s heartlands, along with the railroads, opened up new areas for farming.

Europe desperately needed this production, notably when their harvests failed in 1790 and 1807, and later, in 1860–1862. The Napoleonic wars (1803 to 1815) and World Wars I and II also led to spikes in wheat imports.

Wheat not only fed Europe during our numerous wars, but it also provoked conflicts. Writing in The Silk Roads: A New History of the World, the British historian Peter Frankopan argues that the Nazis invaded Russia for its wheat. Paul Joseph Goebbels, Hitler’s Minister of Propaganda, wrote that the Nazis opened the Russian front for ‘grain and bread’, to capture ‘the vast fields of the east (which) sway with golden wheat, enough to nourish our people and all of Europe’.

We will never know, but some argue if the Nazis had never made that dash for Russian wheat—if they had never invaded the Soviet Union—they could have won the Second World War. Is it possible that we all owe our freedom to wheat?

© Commodity Conversations ® 2021

To continue reading, please click on this link for the third part of this blog.