Continuous improvement – a conversation with Jan Lühmann

Jan Lühmann was until the end of May 2020 Global Head of Procurement for Jacobs Douwe Egberts. I spoke with him while he was on ‘gardening leave’ before becoming Co-CEO of Bernhard Rothfos, the Hamburg based mainstream trading arm of Neumann Kaffee Gruppe, in September 2020.

You’re one of the few people I’ve met who has moved from a merchandising role to a buying role, and then back to a merchandising role. What’s the main difference between merchants and roasters?

Technology, brand building and process are more important for a roaster than for a trader or merchant. Roasters focus a lot on technology, be it single serve, instant coffee or other proprietary USP’s. The roasting industry also has a strong emphasis on process, while the trading mindset is nimbler and more reactive as it needs to quickly adapt to market situations and shifting client needs.

In the past, I understand that some roasters set up trading departments but have since closed them. Is that correct?

There have been waves of this.  Both roasters and farmers are easily attracted to the idea of going direct, to cut out the middleman – the evil trader. And on the surface, many will agree that this makes sense. However, they quickly find out that the evil trader has many real and vital service functions. Roasters also found that trading is counter to their industrial DNA.

I don’t think it is possible to run a true trading functionality within an industrial company.

You are now moving to Neumann….

After 35 years in the coffee business, origin and trading, I spent the last 7 years with Jacobs Douwe Egberts. Two years ago, they promoted me to Global Head of Procurement, still in charge of the coffee and tea buying, but as well everything else such as packaging, machinery and even digital media. I found that I didn’t enjoy that. I really wanted to go back to what I love, which is coffee. I’m a coffee guy.

Neumann Kaffee Gruppe is the world’s largest green coffee house. They are a traditional and yet modern coffee firm with a focus on the product, on customers, the entire supply chain.  They value relationships and have a long-term commitment to coffee, and only to coffee.  So, when the opportunity came to become Co-CEO of Bernhard Rothfos, I jumped at it.

Is there a dichotomy, a divergence, between a roaster’s commercial department and its sustainability department? The sustainability people want to make sure that farmers stay in business, but the commercial people just want lowest price possible.

The people in both the sustainability and commercial departments of roasters have specific targets to achieve. Yes, there is the commercial drive to buy cheap, but it’s for management to pull those contradictions together and align them into a coherent brand strategy

Many roasters struggle with this, but that is what is so interesting about the coffee business in general. It is complex. It is changing. It has tensions. And those tensions will be resolved, sometimes with more of an emphasis on the commercial aspect, and sometimes with more of an emphasis on the sustainability aspect.

In the long run the consumer is the ultimate arbiter on those choices.

Many roasters only buy certified coffee. There seems to be a lot of certification systems: are there too many; and are they effective?

It’s very easy to be critical of certification.

My view is not that there are too many certifiers, or that they do a bad job. I strongly believe that the people in the certification business are good people who mean well and who do make a positive difference.

However, it is imperfect. And whatever positive impact one has in coffee producing countries the situation will remain imperfect. We are thus certifying imperfection.

There is a risk that you’re over promising. Even though the legal wording in the documents is smart enough so that the occasional unacceptable incident will not compromise a roaster’s legal position, consumers will nevertheless expect perfection.

Also, the desire by roasters to portray perfection can lead to a misallocation of resources. How much of the global sustainability spend reaches farmers and makes a real difference, and how much serves to “prove” perfection in a roaster’s supply chain? As a coffee industry, I believe we should be moving towards a mindset of transparency. Acknowledge the imperfections and then focus on mitigation and continuous improvement.

One of the things I’m most proud of at JDE was to be part of the effort to start a different thinking – to move from a mindset focused on certification to one where you acknowledge the imperfections in the supply chains, and then be a part of remedying them, ideally in a pre-competitive way.

So, you are saying that certification is part of the solution, but it’s not sufficient?

Yes. Also, let’s not forget that the traders are doing what the roasters are asking of them. The trade is a service provider to the industry. The buck stops with the roaster.

So, what is the solution?

People are very fast with quick answers, quick conclusions and one-liners, but coffee is complex.  There are a lot of tensions around development and sustainability, but you can’t limit the discussion to agriculture when many of the challenges are social.

The economic challenges in coffee producing countries aren’t always rooted in the price and productivity of coffee alone; they are often driven by societal issues. Many of the good NGOs are working on that.

The realities of coffee are just as varied and diverse as the different tastes of coffee: complex, contradictory, fascinating and not easy to resolve. But many very positive and engaging discussions are on-going.

Are you a coffee addict?

Yes, I love this business. You can touch it, feel it, smell it. It’s tangible.  I like the physicality of coffee: the beans and the beverage. I like the social aspect of coffee: it’s a people’s business.

Thank you, Jan for your time and input.

This is a short extract of an interview that will appear in my forthcoming book Merchants & Roasters – Conversations over Coffee.

© Commodity Conversations ® 2020

Commodity Conversations Weekly Press Summary

As more countries around the world look to progressively unlock their economy, many food producers are still struggling to cope with the coronavirus outbreak. The disease is now spreading in Brazil where Raizen, one of the world’s largest sugar producers, reported that 15 workers at a Sao Paulo plant had tested positive for COVID-19. The meat sector, with its densely packed processing lines, remains one of the most vulnerable and a court forced JBS SA to close a meat plant in Rio Grande do Sul for two weeks. 

Some groups have jumped on the opportunity to highlight issues in our current food system and call for a dramatic rethink of the status quo. In response, a coalition of industry members insisted that livestock and modern agriculture were in no way responsible for the outbreak, which originated in wildlife. They asked the EU to keep supporting the meat sector and insisted on its high safety and welfare standards. 

In the US, meat plants are struggling to maintain a positive image as many criticised a decision by Tyson Food to reinstate a policy on absent workers which centres around “punitive effect for missing work due to illness.” Tyson has also taken a central role in the government’s price-fixing investigation as the firm confirmed that it was cooperating with the Justice Department. By becoming one of the first parties to admit to misconduct and collaborate with authorities which will now go after other firms, Tyson will be offered leniency, confidentiality and possible financial benefits. 

The impact of the pandemic on other food sectors has been more discreet but not always less significant. In Florida’s poor Immokalee area, a doctor revealed that half of the people he tested had been infected, making him think the area had “one of the highest rates of coronavirus infection globally.” Some 25,000 farm workers live in Immokalee, mostly to harvest the tomato crop, but many are undocumented and officials have not made the area a priority. 

Food producers who rely on foreign demand are also particularly vulnerable, like West Africa’s cashew nut growers. The region is responsible for 55% of world production but very little is consumed locally. Most of the crop is usually processed in Asia and Olam – the largest player in the market – commented that prices should remain low for a while as the pandemic disrupted cross border trade. In a demonstration of how global the food supply chain is, an African exporter noted that the collapse in cashew prices could be linked to the mass cancellation of weddings in India. 

How the world trades food could also be impacted by the coronavirus as the CME Group announced that its grain option pits will remain closed until the situation in Chicago and Illinois significantly improves, with the introduction of a vaccine or a treatment. A broker said she was struggling after losing the advantage of being on the floor, while Futures International suggested this could mark “the end of a 180-year era.”

Countries like Singapore are realising the key role international trade needs to play to feed people. The country unveiled a plan to diversify its trade partners and has been approving more countries for food imports, bringing the total to 170 countries. A plan was also launched to produce 30% of food needs locally by 2030, compared to 10% currently. The situation is going in the opposite direction in Venezuela which is now “on the verge of famine” according to the International Crisis Group. Farmers have not been able to sow crops because of a fuel shortage.

Things could be changing over at Nestle as the CEO mentioned a potential plan to sell the Nestle Waters North America unit in order to refocus on premium international brands like Perrier, S Pellegrino and Acqua Panna. The firm also announced the purchase of a majority stake in Vital Proteins, the US’ largest producer of collagen-based supplements, vitamins and food and beverage products. 

ADM, Bunge, Cargill, COFCO, Glencore Agriculture, and Louis Dreyfus joined forces under a new partnership program with Solidaridad Brazil which will focus on improving the sustainability of soy production in the Cerrado. The deforestation rate in the area is currently twice as high as in the Amazon. In Iowa, Cargill is hoping to expand a program that paid soy farmers for their efforts to sequester carbon dioxide and improve water quality. The venture is now looking to expand to other crops and find new corporate partners. 

After Murder Hornets made headlines in the US, another dangerous-sounding insect is now taking the spotlight: the Samurai Wasp. Italy is releasing the wasps, originally from Asia, in the hope that they will prey on the brown marmorated stink bug which was accidentally introduced from Asia. 

This summary was produced by ECRUU

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A conversation with Jim Sutter

Jim Sutter (pictured bottom right) is CEO of the U.S. Soybean Export Council

Good morning, Jim. Could you please tell me about the U.S. Soybean Export Council (USSEC) and what it does?

We differentiate and build a preference for U.S. soy, and we ensure market access for U.S. soy in markets all around the world. We have a global network of about 140 people that work for our organization, most of them are outside the U.S.

How do you differentiate U.S. soy?

We demonstrate to our customers the U.S. Soy Advantage. It is anchored by four key elements. The first is its exceptional composition and intrinsic quality such as its amino acid profile and energy level. The second is consistent supply and reliability of our farmers and the whole export supply chain. The third is sustainability and our farmers commitment to protect the environment and conserve our natural resources. The final element is innovation beyond the bushel and the U.S. soy industry’s promise to continually adapt, evolve and improve.

How environmentally sustainable is U.S. soy?

Sustainability is in the DNA of our farmers; 97 percent of our farms are family-owned and nearly all are multi-generational. The farmers I talk with are always proud to tell me that they are 4th, 5th or 6th generation.

For me, one of the ultimate measures of sustainability is if farmers are passing on their farms to the next generation. Not only that, but farmers will all also tell you that they want to leave their farm – particularly the soil – in better condition than when they started.

The U.S. Soil Conservation Service was founded in 1935, now called the Natural Resources Conservation Service, and it has really helped educate and guide farmers on how to minimize soil erosion, as well as to limit the runoff of water and reduce the amount of energy they use.

When I think about what consumers around the world are concerned about – what they want to know when they’re asking about sustainability – is that the farmland will be there to feed their children and grandchildren. I think this multi-generational aspect is a great example of the sustainable way that we farm.

In addition, we have a program called the U.S. Soy Sustainability Assurance Protocol; it was developed by a multi-stakeholder group of global consumers, NGOs and the U.S. soybean industry as a means of verifying or showing the sustainability of our commodity. The European Feed Manufacturers’ Federation (FEFAC), which has developed soy-sourcing guidelines that allows buyers to verify the sustainability of the soy that they’re sourcing, has approved and recognised the verification.

How are the trade wars affecting you?

The U.S. soybean industry started investing in China 40 years ago. We’re very pleased with the relationship that we have built up over that time.

China is the largest import market in the world for soy. The trade war was detrimental for U.S. farmers, and we lost market share in this valuable destination for U.S. soy, but I anticipate this for only an ephemeral period. In the meantime, we shifted some exports to other regions, but you don’t want to be hindered from a market that makes up 60 percent of total world import demand.

We’re pleased that the Phase One agreement has been put in place, and we are optimistic that it will be implemented. The volume is significant as China pledged to buy $32 billion worth of U.S. agriculture products over two years. I know that there’s a lot of talking back and forth between the two countries, but I think at the end of the day China, and its many importers of U.S. Soy with whom we’ve built strong relationships, wants to see the agreement implemented as much as we do.

If you’re a sizable importer, you want multiple origins to choose from, so China has identified suppliers from both northern hemisphere origin (primarily from the United States) and southern hemisphere origin (primarily from Brazil). That’s how world trade works: importers want to have multiple origins to buy from, and exporters want to have multiple destinations to sell to.

How has African Swine Fever affected exports?

It did lower total global demand for soy, but it didn’t impact the U.S. too much. It was happening in China at a time when exports were down. We hear that the ASF situation is improving pretty rapidly there, and we’re glad to hear that.

With regard to ASF in other markets, we’re certainly concerned because it is a serious disease for the swine industries in those respective countries. So, we want to do all we can to help prevent the spread of ASF, and of course, stop it from reaching the U.S. We hope that science can help eradicate ASF, or at least keep it under control.

Are you actively trying to develop overseas markets outside of China?

As I mentioned, China is the largest import market for soy, but we do a lot of work in other markets as well. We diversify our marketing efforts, and we have stepped up our work in countries with large populations, low protein consumption and growing economies – for example Pakistan, Bangladesh, Nigeria and Egypt.

We work to teach people in these countries, to bring them skills on how to better use soy to improve livestock nutrition – the kind of things we did in China years ago. We are trying to take that same educational model to other markets around the world.

Which are the top three export markets for U.S. soy?

As individual countries, China, Mexico and Egypt are our top three markets, but when you take the EU as a whole it slips in there at number two after China.

Does USSEC also work to increase domestic U.S. soy demand?

The United Soybean Board (USB) is one of our founding members; they do the domestic marketing work for soy inside the U.S.

USB manages the checkoff program. Each U.S. farmer contributes a small portion of the selling price of soybeans into the checkoff program, and that provides resources that USB invests in the domestic market; they also invest in the work that the USSEC does internationally.

U.S. soy farmers have been going through a rough time recently. What message would you like to send to them?

It’s fortunate that you are in the food production business. The products that farmers produce serve as the foundation for food, feed and fuel and are grown in a sustainable and high-quality manner that meet what the people of the world need to survive and thrive.

I tell our farmers to ‘stick with it’, and that the future looks bright. We have a growing world population out there. You’re going to be an important part of feeding those people in the future.

Thank you, Jim for your time and comments!

Jim Sutter presented at the IGC Virtual Conference in London on June 10th. To see his and other presentations, please register here.

© Commodity Conversations ® 2020

Commodity Conversations Weekly Press Summary

Many workers in the US food industry have been taking a stand as part of the #blacklivesmatter movement. On-duty officers have been asked out of a Starbucks in Arizona while employees staged a walkout in a Condado Tacos in Ohio after refusing to serve patrol officers during protests. This piece in Eater explains that this is in part because a majority of the food industry is made of minority workers. However, companies, too, are taking a stand. In Georgia, Coca-Cola was one of 60 signatories to a letter urging the state to pass hate crime laws. And Unilever’s Ben & Jerry’s issued a statement with a call to investigate the consequences of discrimination. Last September, it had launched a new ice cream called Justice ReMix’d in support of a reform to the criminal justice reform. 

Unilever’s head of marketing said consumers expect brands to have an opinion, explaining that “Brands need to move at the speed of culture and culture is moving faster than ever.” She warned, however, that while brands had an important role to play, they should make sure that they don’t come across as opportunistic which would result in a backlash, as L’Oreal discovered last week.  

Cargill just announced it would no longer release quarterly reports to reduce costs but also to keep the focus on long term goals. In its sustainability report, it said it was on schedule to meet the goals in the palm oil sector, notably to eliminate deforestation from its third-party supply chain – which represents 95% of its supply – by the end of the year. It added, however, that getting indirect suppliers to fall under the “No Deforestation, No Peat and No Exploitation” compliance was an issue and may require a different approach. 

Cargill said it had reduced CO2 emissions in ocean transportation by 800,000mt in the last two years as part of a commitment to reduce emissions in its supply chain by 30% by 2030. It is also working on a standard greenhouse gas emissions reporting process and has partnered with technology experts to find solutions for its beef supply chain as part of its BeefUp Sustainability initiative. 

The group launched a new sweetener made from wheat and barley malt syrup, called SweetPure. A company official said the sweetener was “label-friendly,” explaining that consumers want to know everything that goes into their food. This comes at a time when the US’ Sugar Association petitioned the FDA to force manufacturers to clearly identify the use of alternative sweeteners in their products. The FDA recently mandated that products list the amount of added sugar, so manufacturers are often exchanging sugar for other sweeteners that do not have to be labelled as such. Another Cargill official added that “The call for radical transparency is increasing.”

A class action lawsuit in Minnesota is taking Cargill, JBS USA, National Beef Packing and Tyson Foods – which control 80% of the meat industry – to court accusing them of fixing the price of meat since 2015 and deliberately running plants at below capacity to create a livestock surplus. This is coming out of an investigation started last month by 11 Midwestern states looking into explaining the rally in retail meat prices during the coronavirus outbreak while the price for livestock collapsed. The head JBS subsidiary Pilgrim’s Pride was already charged with fixing chicken prices by the Justice Department last week. 

In Tyson Foods’ 2019 Sustainability Report, it noted that the group was the country’s largest meat producer to go into plant-based protein via its Raised & Rooted line. However, its meat production throughput is picking up again with the easing of lockdown measures. It expects that demand for meat would continue to be strong even if people eat more at home. Besides, a survey by FMCG Gurus in 18 countries found that people were increasingly worried about the weight they gained from increased snacking during lockdown. It suggested there would be a growing demand for healthy snacks, as people will likely continue to snack amid the stress of a second wave of the coronavirus but will be more health conscious about it.

A Yale study looking at the impact of posters showing the carbon emissions of dishes in dining halls showed that two-thirds of students took this information into account when making their choice. Project Drawdown wants to get food delivery apps to join the initiative, arguing that people were likely to choose more sustainable dishes if they had the information at hand. The restaurant Just Salad has already added the estimated emissions next to each of its dishes in the menu. Those who come in can thus find out that a salad with a yogurt dressing has a heavier carbon footprint than a salad with chicken. In Europe, meanwhile, Danone’s water brand Volvic has been certified as carbon neutral by the Carbon Trust.

Nestle joined the Race to Zero campaign which commits to net-zero emissions by 2050. The group’s head of digital innovation and transformation in the US said she was putting together a common, single agenda to streamline and strategise the testing and adoption of new technologies across the group. She added that the media often hyped-up new technology, when in fact it was just a nascent stage. 

On the topic of testing, Nestle Australia is looking for a paid chocolate taste tester. If you’re interested, you can apply here

This summary was produced by ECRUU

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A conversation with Pedro Amaral from Proforest

Pedro Amaral is Deputy Director of Proforest. I talked to him by telephone from Sao Paulo.

Good morning, Pedro. Could you tell me a little about Proforest?

Proforest is a not-for-profit group that works with governments, producers and other private sector partners, as well as civil society organisations and NGOs throughout agricultural and forest product supply chains.

Founded in 2000, we now have around a hundred people in our group. Our headquarters are in Oxford UK, and we also have offices in Colombia, Brazil, Ghana, Malaysia and Indonesia. We are currently opening offices in Mexico and the Netherlands.

Our mission is to help people produce and source natural resources sustainably. We have a focus on agricultural commodities, and we partner with companies in the supply chain – producers, traders, manufacturers, brands, and retailers – to help them come up with commitments around how they produce and source commodities; we then help them to implement these commitments.

We have a charity and we have a consulting arm. Part of our resources come from the companies that we partner with. These are some of the largest brands on the planet: Nestlé, Mars, McDonald’s, PepsiCo, Unilever, etc. Part of our resources come from funding agencies such as the UK’s DFID. Whenever we work with grants, we work on specific programmes.

In terms of deforestation, soy and palm must be the biggest culprits…

Cattle raising is by a long way the commodity associated with the largest deforestation areas, and soy comes second. Brazil is where most of the commodity-related deforestation is happening. Some researchers estimate twice as much native forest is associated to cattle raising in Brazil than is to palm production in Indonesia and Malaysia,.

Of course, a lot of the soy and cattle produced is not associated with recent deforestation – we could assume most of it is not. The deforestation cycle is complex and includes drivers such as land speculation, land grabbing or illegal lodging, on top of commodity production – which might end up happening on land cleared initially due to other drivers. Deforestation not only happens for commodity production, but there is a clear link with it, sometimes directly and other times indirectly.

Tell me about the Soy Toolkit.

The Soy Toolkit is part of a broader program called the Good Growth Partnership that addresses beef, palm oil and soy. It is funded by the Global Environment Facility and is developed in partnership with World Wildlife Fund (WWF). It is a demand side toolkit that shows supply chain companies the resources that already exist to address deforestation, native vegetation conversion and human rights issues in the supply chain. Overall, it aims at helping increase the capacity that companies have to implement their commitments, building on existing initiatives.

The Soy Toolkit can help companies understand, for instance, tools that will allow them to show their different stakeholders (customers, for instance) that the soy being traded is deforestation-free. On the other hand, it will also allow them to flag whenever there is a problem, which in turn provides them with the opportunity to take action to resolve it.

What are the resources and initiatives that already exist?

The Amazon Soy Moratorium, as one example, is an agreement signed in 2006 to ensure that soy production in the Amazon region only occurs on existing agricultural land and not through deforestation of native vegetation. It has been successful in helping reduce soy-related deforestation in the Amazon.

Anyone who buys soy from Brazil should check that they are buying from a company that is a signatory to the moratorium: If they are, the buyer should ask for the audit reports to see if they are 100 percent compliant, and if they’re not, to take action on it. If they’re not a signatory, then the buyer should ask them to become a signatory. The moratorium provides a credible and successful framework to demonstrate that, whenever you are trading soy from the Amazon, it is deforestation-free.

The Forest Code obliges a landowner to protect from at least 20 to 80 percent of their land as native vegetation, depending where the property is. Under the farm registry system the government provides on-line access to every single farm boundary, as well as information on protected areas. This provides people with an unprecedented level of transparency with over 5 million properties enrolled – more than 90 percent of all the properties in the country.

If you are a trader, you can ask your supplier for the registry number. You can then use this number on the system to see, for instance, if their registry is active, pending or cancelled. If it’s cancelled, it could be because the farm overlays with protected areas like an indigenous territory.

The Federal Environmental Agency maintains a list of environmental embargoes, some of which are because of illegal deforestation. IBAMA puts in the public domain areas that that have been found to be breaching our environmental laws. If you buy soybeans directly from the farmer, you can cross-check your supplier name with this list.

Another example is the Public Prosecutor’s Office website, which includes lawsuits related to environmental and social issues like land conflicts. It will show you if you’re buying from someone who has a lawsuit outstanding.

There are many other initiatives and resources we feature in the Soy Toolkit. We mapped over 100 of them, including tools that can help you with traceability, continuous improvement programs for farmers, or information on Key Performance Indicators (KPIs) related to policy implementation being reported by supply chain companies.

Are you optimistic or pessimistic for the Amazon jungle in terms of soy and agriculture?

The past two decades have proven that deforestation can be drastically reduced while crop (and meat) production can keep on increasing. Looking back, the combination of market mechanisms, geospatial monitoring, improved law enforcement, partnerships between the private sector and the civil society managed to accomplish great results in the Amazon. I am, therefore, optimistic that there is a successful track record of initiatives that, together, can achieve such great results.

On the other hand, we have seen deforestation rising again in recent years. A recent report shows that in 2019, Brazil accounted for a third of the world’s tropical primary forest loss on the planet. There has been a troubling increase in forest loss in Brazil and some of the hot spots of loss are happening within indigenous territories.  Recent research shows that most of the deforestation was not authorized and could be then deemed illegal.

Looking forward, there is a need to further strengthen law enforcement in Brazil. The market has to step up. Supply chain companies might need to play an even more important role now, by monitoring their supply chains and implementing their responsible sourcing policies.

Companies should work to shed light on what is being produced according to the law, respecting the zero conversion commitments and human rights — and I would expect many, if not most of producers, to be compliant. By scrutinizing their supply chains, they will also shed light on where wrongdoing is happening and will therefore be able to work as a catalyst to promote positive changes on the ground whilst further strengthening their commercial relationships.

Is there anything you would like to add?

I think that the more everyone knows about what’s already available, and what’s been successful already, the more capable they will be to implement their sourcing policies.

Up until April, 2021, we can offer free webinars, workshops and training funded by the Global Environment Facility through WWF to help companies understand what traceability and deforestation analysis tools exist, and how they can benefit from them. It’s all available in English, Portuguese and Mandarin.  People can contact us via the e-mail soytoolkit@proforest.net

We’ve just secured funding to extend our soy toolkit to beef and palm oil – which will allow us to shed light on resources companies can build on to implement their responsible commitments related to these commodities too. It will build on the work we did for the Soy Toolkit and lessons learned from that programme.

Our ultimate goal is to help supply chain companies to implement their commitments. We are not telling companies what to do, but we are rather showing them the tools and resources that they can use in implementing their commitments.

Thank you, Pedro for your time and input!

Pedro will be presenting at the International Grains Council virtual conference on 10th June 2020.

© Commodity Conversations ® 2020

Commodity Conversations Weekly Press Summary

Countries around the world are unlikely to impose more restrictions on food exports, according to the FAO which said that “food supply is not the issue” amid the coronavirus pandemic. The export control measures imposed by countries like Russia, Kazakhstan, Ukraine and Vietnam have been removed as the supply chain showed it could easily cope with the increase in demand from countries building food stocks. However, an economist warned that an uncontrolled spread of the disease in Brazil could be dramatic as the country is “basically […] feeding China”. 

Moreover, ships looking to export grains from Argentina and Paraguay are struggling because of the very low water level in the Parana river, which is pushing traders to buy from Brazil instead. Besides, the US reaction to China’s new security policy in Hong Kong, along with the US President blaming China for the coronavirus pandemic, could potentially lead to the collapse of the Phase One trade deal. China’s state-run agricultural groups have been reportedly instructed to stop buying US farm goods. US lawmakers, however, remained confident that the tensions were only temporary and that China would honour the deal. Some pointed to the Chinese purchase of US soybeans earlier this week, although market sources said this could just be motivated by the low price

The United Arab Emirates, which currently relies on imports for 90% of its food supply, is intensifying efforts to produce more food locally. The country successfully harvested rice grown using underwater irrigation and desalinated sea water, a method considered more sustainable than Saudi Arabia’s use of groundwater and rotary sprinklers. In parallel, Abu Dhabi Ports Co launched a new shipping company, called Safeen Feeders, which will strengthen food and medical imports from India, Pakistan, the Persian Gulf and East Africa. 

In contrast, Thailand is cementing its position as a major food exporter. A government official said she expected that the proportion of food and agricultural exports will keep growing – the weak economy and currency should keep supporting exports. Nonetheless, farmers are worried about a new ban on paraquat and chlorpyrifos which was enforced as of June 1. Farmers often do not have alternatives and total food output could suffer as a result. A similar decision to ban glyphosate was reversed in November after some pressure from the US. 

Glyphosate was in the news this week as lawyers presented arguments in the appeal of a California verdict against Bayer, the maker of the Roundup pesticide. Bayer’s legal strategy reportedly revolved around fighting the three guilty verdicts to gain leverage and settle cases. The Californian court heard arguments that federal guidance comes before state laws, as Bayer highlighted that the Environmental Protection Agency does not classify glyphosate as cancerogenic. Regardless, legal experts predict that Bayer will need to spend USD 10-12 billion to settle around 125,000 lawsuits. 

Although it started in a wet market, some experts are using the coronavirus pandemic to highlight the inherent dangers of massive livestock farms, or Concentrated Animal Feeding Operations (CAFOs), as they call for urgent institutional reforms. In Germany, the Green Party went as far as proposing a minimum price for meat, while a new law was passed banning meat plants from hiring foreign workers on short-term contracts. And in the Netherlands, Europe’s biggest pig slaughterhouse managed to avoid disruptions by relying on robots to do most of the work. 

In the meantime, global food producers continue to bet on the growth of plant-based meat. ADM and Marfrig Global Foods, the world’s second-largest beef producer, created a new venture called PlantPlus Foods to market plant proteins in North and South America. The market for plant-based meat should more than double in the next 5 years, the firms estimated. Otherwise, Nestle will be forced to rebrand its plant burger in the EU after a Dutch court agreed with a claim by Impossible Foods that Nestle’s Incredible Burger was too similar to the Impossible Burger. Nestle will rename its product Sensational Burger as a result, while it used the name Awesome Burger in the US after a court made a similar ruling. 

Competition is also growing in the coffee sector as large firms are rushing to fill in the gap left by small operations which did not have the cash reserves to survive an extended lockdown. Nestle and Starbucks are seen as the two main contenders, but Coca-Cola joined the scene with its 2019 purchase of Costa Coffee, the second-largest coffee chain in the world. Earlier this week, Coca-Cola launched the first at-home Costa Coffee products in the EU. But small coffee operations might not all disappear, as this couple from London discovered. They opened two small coffee shops inside red telephone boxes and realised that the lack of space inside the boxes was actually an advantage in the time of social distancing. 

This summary was produced by ECRUU

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A conversation with Alejandra Danielson Castillo

Alejandra Danielson Castillo is based in Singapore where she serves as the regional director for South Asia for the U.S. Grains Council.

Good afternoon, Alejandra. How did you end up in Singapore?

I was born in Nicaragua and I came up to the United States for university. I did both my undergraduate and my graduate degrees in management in Minnesota.

I worked for Cargill for about seven years across three different states within the grain, oilseeds and cotton business units and focused on trade execution before moving to the U.S. Grains Council, first as a manager for global trade, providing trade and market updates to our international offices and customers, and later joining their newly formed division for South Asia. I moved to Singapore in July 2019. The Council sees great opportunities for growth and market access for feed grains and biofuels in the South Asia region and especially India. As part of the Council’s commitment to the region, it is working to open a liaison office in Delhi, India to continue our engagements.

What does the U.S. Grains Council do?

The U.S. Grains Council is a non-profit organization that develops export markets for U.S. barley, corn, sorghum and related products including distiller’s dried grains with solubles (DDGS) and ethanol. With full-time presence in 28 locations, the Council operates programs in more than 50 countries and the European Union. The Council believes exports are vital to global economic development and to U.S. agriculture’s profitability.

In a sense, we are the marketing branch for U.S. grain farmers, tasked with creating market opportunities, identifying markets where U.S agricultural commodities are both needed and competitive, and helping to address market issues that inhibit trade. Many U.S. farmers contribute to different commodities checkoff programs based on what they grow – some that are state-based and some that are national – that attempt to improve the market position of the covered commodity by expanding markets, increasing demand, and developing new uses and markets.

We work to promote knowledge and understanding of the U.S. system for production and exports. For example, we bring trade teams from different parts of the world to the United States to visit our farmers, our operations and our marketing system, our ports etc. We also bring U.S. farmers and other stakeholders to the markets we’re trying to service. This cross collaboration serves to increase awareness of the impact of trade in the daily lives of the farmers in the U.S. and across the globe.

Is your job getting harder now that the pendulum is swinging away from free trade in agriculture?

We do have headwinds on the trade side. We are seeing more tariffs and more trade disputes; they certainly create challenges for us when we are trying to bring U.S. agricultural products into certain markets.

The U.S. Grains Council has always been very vocal in its support for free trade. We believe free trade in agriculture is beneficial to U.S. farmers and to consumers in importing countries. We often say, “when trade works, the world wins.”

During these turbulent times we continue to promote free trade, and to create an understanding of the benefits free trade brings.

The silver lining is that it’s pushing us to more actively develop new markets.

Could you give an example?

We’re starting to see there’s a need and a market for U.S. commodities in Bangladesh, as well as a renewed interest among the importers in the country. I’ve gotten to know the top five importers in the country and have been working with them in improving their supply chain. Bangladesh is currently importing a good amount of DDGS.

Of course, these markets are not anywhere near the volumes we can see in, say, India or China, but they present a very strong value proposition for U.S. agriculture.

Are you optimistic about the prospects of U.S. exports to India?

I am very optimistic. India presents some challenges from a trade policy perspective as we currently don’t have access for DDGS or ethanol, but there’s been an increase in conversations between our two governments around a bilateral trade deal, especially after U.S. President Trump visited India in February 2019, and we remain hopeful a final resolution will be reached before the end of the year.

From a market perspective, we see an annual potential import demand within India for as much as 700,000 metric tonnes of DDGS. India is the third largest market for U.S. ethanol, with over 202 million gallons imported last year. The Council is working on developing a market for fuel ethanol in the country.

We’ve had many Indian trade teams come to the United States and visit farms and look at how our farmers work. It’s certainly been a very positive experience for me. It absolutely solidifies my feeling we’re doing something that is going to create a win-win scenario for everyone.

But it must be tough all the same…

Certainly, not every day is a great day, but there’s a lot of positivity around understanding a new market and opening it up for U.S. agriculture. I am personally very excited about South Asia. I am confident we can create value both for our farmers in the U.S. and for importing countries.

Thank you, Alejandra for your time and input!

Alejandra will be one of the speakers at the  International Grains Council virtual conference on Wednesday 10th June.

© Commodity Conversations ® 2020

Commodity Conversations Weekly Press Summary

Coca-Cola, which depends on venues like restaurants or cinema halls for half of its revenues, expects that the economy will take a while to recover from the coronavirus crisis. Consumers will have less money to spend and will look for cheaper products, the CEO  forecast. The group launched a #WeLoveThisPlace social media campaign in the US to encourage people to support their local restaurants. An analysis in the Motley Fool argued that Coca-Cola’s fate is tightly intertwined with that of restaurants. Using data from a survey which showed that 80% of restaurateurs are worried they may have to close down, compared to a 38% restaurant closure rate in April, it warned this could translate into a 50% fall in Coke sales. 

On the other hand, the company is set to benefit from its new plant-based milk products called Simply Almond Milk which it just launched in North America. The US sales of plant-based milk grew by almost 15% in 2017-19, and even more in the lockdown period, according to GFI data. 

Nestle, too, expects a fall in sales in the current quarter, after benefitting from panic-buying at the start of the lockdown. However, it reported a surge in the sale of pet food globally, which it attributed to more people adopting pets to cope with the lockdown but also because vets stayed open. And in the same vein as the Coke CEO, Nestle’s India head forecast that consumers would “trade downwards” and buy cheaper products to cope with job losses and pay cuts. In Malaysia, Nestle and Starbucks released a premium instant coffee to continue to encourage consumers to consume the in-store coffee at home. Back in the US, meanwhile, Starbucks has reportedly sent a letter to all the landlords of its stores asking them to write-off one year of rent to help them cope with the current scenario. 

A poll of small-scale farmers across the US showed that a third of them would go bankrupt if restaurants and farmers markets don’t reopen by August. The government’s USD 16 billion farm aid is not expected to make much of a difference because it is based on large-scale wholesale prices, which are much lower than the prices small farmers usually get. An indepth piece by Mother Jones found that, for instance, the compensation price for asparagus was USD 0.38/lb, compared to USD 5/lb at a farmers market. 

The CEO of ADM said the COVID-19 pandemic had made the need for sustainable business more apparent. As such, the group committed to reducing water intensity by 10% and reach a 90% landfill diversion rate by 2035, as well as reduce its greenhouse gas emissions by 25%. Similarly, Danone announced it would become an “entreprise à mission” (company with a mission). The framework was set up by the French government in 2019 and includes a novel governance system which checks on social and environmental goals. Danone would be the first publicly listed company to do so. 

Looking at the waste side of things, Coke joined the “Paper Bottle Project” as part of its pledge to be plastic-free by 2023 by using environmentally friendly, biodegradable plastic from plants. It might also build a plastic recycling plant in Indonesia as the country committed to reducing plastic waste by 70% by 2025. Nestle, meanwhile, committed to only using recyclable and reusable packaging by 2025. It is looking into bulk delivery systems instead, combined with refill options to reduce packaging whilst ensuring food safety. It is currently testing such a system with Purina pet food and Nescafe coffee dispensers in a few shops in Switzerland. 

In its latest sustainability report, Cargill said it was now able to trace half of the cocoa beans in its direct supply chain from farm to factory. It has some 300 data points along the supply chain using GPS, digital data collection and mobile money, among other technologies. Technology is also helping Cargill trade faster. In Australia, the group used a trade finance platform, Bolero International Galileo, to transfer documents required for a canola oil vessel headed to China ahead of the Chinese holidays and despite coronavirus disruptions. On a more global scale, Cargill signed an agreement with Eagle Genomics to digitalise microbiome data that the former has collected over the last 10 years. 

On the topic of data, this piece by The Counter brings you inside the world of vaults and bunkers designed to protect…seeds! These banks contain seeds and roots collections to ensure a wide range of genetic material for scientists to breed new varieties with. One plant physiologist recounts how Russian scientists died protecting one such seedbank during the Leningrad siege in 1941. You can read the story here

This summary was produced by ECRUU

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Agri-risk management during Covid19

Deven Chitaliya is Senior Vice President & Global Head Credit at Olam in Singapore, where he is responsible for Credit and Counterparty Risk management across 12 agri-business platforms spread across more than 70 countries. He is also responsible for development and roll-out of company-wide Enterprise Risk Management Framework.

Could you please tell me a little about the Enterprise Risk Management, or ERM, that I believe that you helped introduce at Olam?

All organisations must manage risks effectively to endure and thrive. Traditionally, most organisations assign risk management to business unit leaders within their areas of responsibility. We call this “silo” or “stove-pipe” risk management. For example, the Chief Technology Officer is responsible for managing risks related to information technology operations; the Treasurer is responsible for managing risks related to financing and cash flow, and so on.

However, risk does not respect organisation charts; it can be anywhere and take any form. Some risks “fall between siloes”, unnoticed by individual leaders. Others can affect different units differently – managers may not know that a decision taken for one silo can cause or escalate risk in another. The upshot is that risk can go unnoticed or not be effectively tackled until a catastrophic event is triggered.

Another challenge with traditional risk management is that it is often internally focused and granular – looking within the four walls of the organisation, with minimal focus on risks that may emerge from outside the business.

At Olam we have mapped 51 risks (including 19 quantifiable risks) across 11 risk categories that Risk Office monitor, measure and report at regular interval along with each department.

We have 13 people in the Risk Office team in Singapore and 2 in London.

What are the most important considerations when implementing a Risk Management Framework for a company?

The most important is a strong governance structure and an independence of risk management team. You also need what I call a “holistic risk capture’” that is both outward as well as inward looking, and which covers the entire company, not just individual business platforms within the company. Risk must be consolidated and assessed both at business as well as corporate level.

Obviously, you need to measure risk wherever you can, and keep on stress testing and analysing different scenarios. You need proactive operational risk controls in the areas of credit, counterparty, stock, quality. At a platform level, you also need strict ‘drawdown’ and ‘stop loss’ policies.

But perhaps most importantly you need to assess your company’s risk appetite. That may sound obvious, but many companies go into trading without first assessing their risk-taking capabilities.

Could you tell me which are the biggest risks that Olam currently faces?

The biggest and most important risk that we face is the health and safety of our employees; we spend a lot of time making sure that we minimize those risks. This is especially the case now with COVID-19, where we must make sure that social distancing, sanitary measures and all requisite PPEs are always made available for factories, warehouses and our plantations.

I would say that cyber-security risk is our second biggest risk. The innovative ways in which your systems and people information can be hacked and misused sometimes even surprises experts. With wide-spread operations across product platforms and geographies, standardization of IT controls and effective implementation of latest security controls across the company becomes key to counter and reduce losses in case of actual cyber-attack or cyber fraud.

Supply disruption is currently our third biggest risk. Labour shortages and transport / logistics bottlenecks can also be an issue. We do see some slowdown in select countries. However, most of the Agri products fall under the list of essential commodities and therefore the trade is still immune from complete shutdown.

There have been some relatively short-lived food export bans from certain countries, but they have not really had much impact on the supply of food. Ports have remained open, and the food supply chain has shown itself to be robust and flexible in dealing with the current crisis.

I would put demand destruction as our fourth biggest risk. This risk is less with food products, as demand more or less remains constant. People have to eat. However, things can be more complex with what we consider as industrial products like cotton where purchases by end-users can be deferred for fairly longer periods.

For example, we have to ask ourselves how the collapse in retail clothing demand in Europe and the US might lead to the cancellation of their orders, say, with Bangladeshi clothing manufacturing factories, which in turn might affect cotton sales contracts.

In-depth regular risk reviews with business team with focus on operational checks and controls plus assessment of high-risk areas and bottlenecks helps us take proactive actions as “One Olam” team.

Has Covid19 increased counterparty risks?

Olam is quite unique among the major agricultural trade houses in that we are very involved at origin. Our vertically integrated supply chain for our Upstream businesses means that we have very limited and well-managed counterparty risk on our supply side.

Our counterparty risks tend to be downstream where we are dependent on timely contract performance and payments from our Customers. Market volatility plays an important role. Higher the volatility, higher the ‘mark to market’ exposures, and therefore higher the risks.

Not only do we have to assess the risks to our businesses, we also have to constantly monitor the risks to our clients’ businesses: are they facing supply issues; has a major buyer defaulted on them; how is their cash flow with regard to their stock levels; how is their payment performance with us, what are the inputs from our market network, etc? Any of these things can show us an early warning sign / red flag for timely and corrective action.

It goes a long way to ensure long-term relationship building and trust when we try to offer innovative solutions where possible to support their businesses. e.g. short-term cash-flow issues, bank assisted structures to support payments, credit insurance / collaterals / deposits / parent guarantee backed exposures, etc

What keeps you awake at night?

That there is something out there that we don’t know about. I am not worried about the things we know about: any event that may occur once in a while in normal course of business; we have robust systems in place to monitor and manage these known risks.

I am spending a lot of time now, for example, wondering whether there will be a second wave of COVID-19, and making sure that if there is one, we will be ready for it.

Another unknown, of course, is technological development and innovation: will something be invented that might negatively affect one of our businesses? There is no easy way of knowing that except to remain up-to-date on what are the major initiatives, experiments and actions being undertaken across industry!

Many thanks, Deven for your time and input!

Deven will be participating as a panellist in Commodity Trading Week online

© Commodity Conversations ® 2020

Commodity Conversations Weekly Press Summary

While many small independent farmers have been able to benefit from the impact of the coronavirus so far, an expert argued that “the current boom is a sweet illusion; the bust is coming fast”. A US survey revealed that many small operations would not survive the year. Part of the issue is that the pandemic seems to have reversed the previous trend where consumers were moving away from processed food to focus on eating local and fresh products. An executive at a large food firm noted that “people aren’t cooking, they’re reheating”, as he highlighted that processed food has gotten much better both in terms of taste and health. The result is that the disease could open the door for large multinationals to take over smaller operations. 

Right on cue, Nestle announced that it will invest USD 100 million to grow its presence in China. The plan includes building its first plant-based meat factory on the continent, expanding a pet food plant and a biscuit factory. In Brazil, Bunge said it will purchase two soy processing plants from Imcopa for a combined USD 9.16 million. The move would cement Bunge as one of the largest soy processors as it currently operates 12 facilities in the country, compared to Cargill’s eight plants. 

Others are seizing on the crisis as an opportunity to highlight sustainability goals. Danone, for one, will add the commitment to produce healthy and environmentally-friendly food to the company bylaws. The key aspect to sustainability is transparency when it comes to gaining consumer trust, according to Cargill’s latest Feed4Thought survey. The Global Salmon Initiative (GSI) has taken the idea to heart and published its Sustainability Report outlining the performance of salmon farming. Salmon farms have a lower carbon footprint and more efficient use of feed when compared to land-based operations, the report claims. 

Meanwhile, the price of food in US grocery stores saw its biggest monthly jump in 50 years in April with the outbreak of the coronavirus. Data from the Bureau of Labor Statistics revealed a 2.6% overall price hike in retail food prices when compared to the previous month. The situation is similar in Latin America where rising food prices and shortages led to some violent protests. In Chile, the President argued that supply remained plentiful, although he pledged to accelerate the distribution of food packages. 

The extraordinary measures taken by the EU to alleviate the impact of the coronavirus are increasingly clashing with the bloc’s long-term sustainability efforts. For example, countries like France have relaxed rules on the use of pesticides, while a draft proposal by the European Commission outlined a plan to reduce the use of chemical pesticides by half by 2030. Similarly, the Agriculture Commissioner expressed his concern at the call from France and Poland asking citizens to buy local products instead of items imported from other EU nations. The idea could threaten fair competition in the common market, he said. 

The Commissioner also expressed concern at the amount of direct aid offered by some governments. The EU recently increased the limits on state aid but he argued that this would give wealthier countries an unfair advantage. Most of the direct aid so far has been offered by Germany and the Netherlands. A solution presented by Poland would be to increase the CAP budget to make it more resilient in times of crisis. 

A key piece of legislation is due to be published this week with the release of a draft Farm to Fork (F2F) strategy, a central component of the European Green New Deal. The bioenergy policy will also see a major rewrite and will focus on minimising the use of food and feed crops, while reconsidering whether biomass feedstock is carbon neutral. In response, Bioenergy Europe said it was concerned about the decision to impose arbitrary restrictions that do not reflect the scientific consensus.

In the meantime, official data from the EU showed that supermarket food and beverage sales surged in March when compared to February, most notably in Luxembourg, Ireland and Belgium where food sales were up 20%, 14% and 13% respectively. More dramatic was the surge in demand for Trappist Westvleteren 12 ale made by monks in Belgium. Their website crashed after being opened for just four hours because of what they called a “tsunami of visitors”. In the UK and Scotland, prime barley usually used to make scotch and beer might have to be used as pig feed. 

This summary was produced by ECRUU

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