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Good morning, Eliane, and welcome to Commodity Conversations. First, what is your title and role at the University of Geneva?

I am the Executive Director of the Master of Science, Executive Diploma and Executive Certificate in Commodity Trading at the University of Geneva.

I am responsible for the whole program regarding faculty members, courses, contents, exams, etc. I’m on the student selection committee and organise the program advisory boards. I’m also the contact person for SUISSENEGOCE. I have two people working with me.

Please tell me a little bit about the MSc course.

UNIGE created the Master of Science in Commodity Trading in 2008 following a request from the commodity trading industry in Geneva. The city is a trading hub, and, at that time, the trading companies here had to import talent, particularly from London.

The commodity trading companies approached GTSA, the Geneva Trading and Shipping Association – now SUISSENEGOCE – about the idea. The association worked with the University to set up the programme.  SUISSENEGOCE has been involved from the beginning. Thanks to them and the commodity trading industry in Geneva, we are now in our 16^th intake. We have more than 1,000 course alumni.

The course is constantly evolving to adapt to the changing market conditions. It is not the same course now as in 2008!

I understand you’ve 33 students coming from 15 different countries this year.

Yes, that is correct. Of those, 27 per cent are Swiss, 55 per cent other European, and 18 per cent non-Europeans. I am proud that the program is recognised locally and internationally.

What’s the average age of this year’s intake – and what type of work experience do they bring to the course?

The average age is 25 years. The programme is for young people with a bachelor’s degree.

We are open regarding bachelor’s degrees. We have students who’ve studied finance, management, accounting, law, international relations, and all the scientific backgrounds such as mathematics, chemistry, physics, etc. This year, we have someone from a naval academy. We quite often have people with a shipping degree, often from Greece.

How does the selection process work?

It’s a two-step process. A committee initially selects the best candidates based on their academic results. Those candidates then go through a second phase where they apply to companies linked to the commodity trading industry, such as commodity trading, shipping, inspection, audit companies or banks for a traineeship.

Do other universities offer similar courses?

The CASS – now Bayes – Business School in London and Erasmus University in Rotterdam offer similar courses, but they are not linked to traineeships. Some US universities, such as Houston, have commodity programmes. But as far as I know, our programme is the only one where students simultaneously work for a company and study for the course. From Monday to Thursday, they work in their companies; on Friday and Saturday, they’re in class.

Is it challenging to find a traineeship in a company?

It’s not easy, but we help. This year, we have 33 students, which means 33 traineeships.

Together with SUISSENEGOCE, we have set up a platform whereby students upload their motivation letter, CV, and a short video presentation of themselves. Once all the candidates have uploaded their profiles, the companies access the platform and contact the students that interest them.

We also do online speed recruiting.

This year, we had a record 170 applications, of which we initially selected 100 candidates. We had  18 companies attending the Speed Recruiting event. Each candidate had nine minutes to convince a company to give them a second interview. Candidates also have to search actively for a traineeship.

The companies love it because they see a maximum of people in two afternoons. For students, it’s an excellent opportunity to meet a company, be ready, and try to convince the company to give them a second interview. We offer all the candidates a two-hour coaching session to help them prepare.

So, out of the 100 students you selected for the course this year, only 33 were offered a traineeship by a company.

The companies invest time and money in their trainees. It’s an investment, but most stay within the company, so it’s worth it. I know people from the first three or four intakes still with the same company. Companies hire again year after year. Some companies have graduate programmes but still take trainees from our programme.

What’s the limiting factor here? Why do you only have 33 students? Is it because you don’t have enough companies willing to participate, or you don’t have enough space in the University to have more than 33 students?

Thirty-three students is a considerable number. We usually like to have around 25-30, not much more. Forty would be too big.

The ratio between applicants and people in the class is about 20 per cent, approximately the same as in other masters.

Do the companies pay the students? Geneva is an expensive place to live.

Yes, they do.

Do all the graduates end up in commodity trading and shipping?

We want our students to have an overview and transferable skills they can use in many different areas and businesses.

Commodity and shipping are a broad space incorporating many professions: audit, trade finance, legal, inspection, shipping, risk, and compliance – middle, back and front office. The sustainability aspect is essential. Energy is not just oil and gas. It is electricity, whether wind, solar, or hydro.

We are teaching all the aspects of the business.

Who teaches the classes – people from the companies themselves or full-time professors?

We have professors and PhDs from the University of Geneva or other Universities, and we have a few professionals. We have experts who are professionals coming from the commodity industry. They come for an hour or so to explain to the students how their learning is applied within the company or the business.

It’s a one-year course, isn’t it?

It’s a one-year course. It was initially 18 months, then it became two years, but we have shortened it to two semesters of courses. The traineeship runs over a year, and it’s up to the company to decide whether to employ the student when he finishes his courses or wait while he writes his thesis, usually in the third semester.

The course is a 90-credit program under the European Credit Transfer and Accumulation System.

How does a student apply for the course?

Through the university website. Admissions are open from 15^th January to 28^th February.

How would a potential student know whether this course is right for them? In your experience, what sort of students succeed with these courses?

Our program tends to attract students interested in a master’s degree with an academic and a practical side, students interested in what’s happening in the world and how geopolitics or the weather affects commodities. It also attracts students interested in the environment.

Is there a dropout rate?

No, because I think we are detailed and transparent about the program.

It is an intense program because you need to be 100 per cent at the office when you’re at the office and 100 per cent at the University when you are at the University. It’s every weekend for a year. Students know that presence is mandatory. There’s no recording. There are no online courses; students need to be present. All this is clearly explained, so nobody is surprised. We never had someone who said, this is not what I expected. I’m dropping out. We never had that.

And as I said, it is a two-stage process. When the companies interview potential trainees, they are also looking for specific skills, more and more soft skills.

Women make up 42 per cent of the class this year. Do you know what the percentage was in 2008 when you first started?

I have it in front of me – in 2008, 31 per cent of our students were women. However, we have had years – 2015 and 2020 – when the percentage dropped to 5 per cent.

Commodities and shipping remain a male environment, but you would have a similar situation in other sectors, sometimes the other way around. If you go to psychology, 80 per cent of the students are women, and 20 per cent are men.

What would you say to a young woman to encourage her to take this course?

I never had a woman come to me and question whether the program is for her because she is a woman. I never had that question. The sector offers so many opportunities, whether you’re a man or woman, I don’t think there is any constraint.

Trading companies want to hire women. They need women. They want gender balance.

The program covers ags, metals and energies, but does it focus on one in particular?

Energy is slightly denser because of all the renewables, but metal and ags are the same.

Thank you, Eliane, for your time and input.

© Commodity Conversations ® 2024

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

Good morning, Indrek. Could you please tell me a little about grain brokerage at Copenhagen Merchants?

We were initially a Northern European grain brokerage company, mainly involved in wheat exports through the Baltic Sea. We have historically identified ourselves as an origin broker. Today, Copenhagen Merchants is present in the Black Sea, so we are involved with the region’s four exporting countries. We have an office in Sao Paulo, Brazil. We have six offices in all, mainly positioned according to exporting origins.

The markets are constantly changing. Destinations now accept more origins, which brings an element of competitiveness and creates a function for companies like ours. We must have a geographically wide footprint to preserve our value to the market.

The broker’s function is also changing. Price discovery, historically the broker’s job, is less important now as markets are more transparent. Our value now is in the intelligent delivery of market information, execution, and logistics.

Torben Christensen founded Copenhagen Merchants in his basement in 1977. Is he still involved in the business?

Torben officially retired in 2016, but he’s in the office three or four times a month, so it hasn’t been a complete exit. Torben’s son, Simon, took over the CEO role from his dad, and the Christensen family still own the company.

How long have you been with the company?

I joined in 2007, so close to seventeen years.

What are your responsibilities – your day-to-day role?

If you ask a broker or a trader to identify themselves, they will reply that they are a corn, wheat, or beans guy. I’m a wheat guy. Wheat is close to my heart. I’m originally from Estonia, and when I joined the company, it was natural that I looked after the markets in the emerging Baltic States. Nowadays, I’m responsible for brokerage overall. I still broker for a small portfolio of loyal clients, but my job is mainly developing new offices, products, and markets. Our world is changing super-fast, and we need to adapt to those changes.

How do you manage the communication between the different offices? Getting everyone to talk to each other and share information must be challenging.

It’s challenging for a company like ours to maintain and do well, especially given the time zones and cultural differences.

We have around 30 brokers in six different offices. If everybody calls everybody even once a day, it’s hundreds and hundreds of phone calls. You can’t do that. You need to be more innovative as today’s markets are such that business opportunities appear and disappear much faster than when I started seventeen years ago.

We invest heavily in digital tools and have developed a platform – CM Navigator – for both internal and external use, where we keep our bids, offers and vital analytical data. Everybody has access to it.

It’s like in sports when you train a football team to become perfect for a match, where everybody can read each other well. To succeed, we must have the right tools, the right people and the right attitude.

We’ll return to the digital part in a minute, but let’s first talk about the individual competition between the brokers. How do you get around that problem?

It is one of the core challenges and is why brokerage companies tend to be small. It is a barrier which restricts growth. At some stage, brokerage companies often split up, and people go on their own. We see that happening a lot.

Copenhagen Merchants is one of the few brokerage companies that acts like an organisation. I would attribute this mainly to our culture and our values. We try to think with 30 heads but talk with one mouth. We do not cherish individual achievement; we cherish group achievement. Nobody in our company is valued according to what they do individually. Business often happens between different brokers or offices. The more business transacted between brokers and offices, the better it is because it shows how our team benefits from the structure around them.

We are getting into uncharted waters today because of our size. We don’t see many similarly sized brokerage companies, which means we cannot follow any given examples. However, we strongly believe that combining our digital platform and shared culture allows us scalability.

Brokerage requires drive and competitiveness, but it should never be destructive. It comes down to the value set of people. I don’t know if we have been lucky or intelligent, but when we recruit brokers, we place more weight on their value set than their skillset or the tonnage they have brokered in the past. They must be a cultural fit for us.

Let’s go back to brokerage. Why hasn’t it moved online? There have been many attempts to move brokerage onto platforms, but none has worked. How are you progressing on that issue?

I don’t think any company is strong enough on its own to drive or disrupt the business, but we must stay on the frontline to see what is going on – which direction the wind is blowing.

Why hasn’t the business moved online? There are several reasons.

The number of transactions is relatively small, and the number of standardised contracts is even smaller.

There is always a lot of discussion about terms when you trade physical goods – load speeds, documentary instructions, etc. They often depend on the destination. Morocco, Algerian, and Tunisian terms are all different.

The contracts are significant – a cargo of beans or corn is worth tens of millions of dollars. It is not the same as buying a plane or train ticket.

Nobody has been able to standardise contracts enough to digitalise them. Even if you take the most standard flows, say, Brazilian beans to China, it is billions of dollars of flow in a relatively standardised format. The number of contracts is small enough – and the contracts are big enough – not to incentivise you to click and do the business.

Why does a market need brokers?

It’s a good question. The market needs brokers for different reasons now than twenty years ago.

Historically, a grain broker gave you price discovery to tell you the value of your goods at a certain point and time. The broker also helped build trust between counterparts by saying that this is a good buyer; you can trade with them. Sometimes, the broker’s function was to offer execution and post-trade services.

Brokers must look in the mirror and ask what value they can deliver in five or ten years. Price discovery is no longer a broker’s primary function. The markets are so transparent anybody can find out the value of their goods. The execution services are becoming increasingly automated, both with blockchain solutions – where the ABCDs have invested heavily in Covantis – and AI.

First, we believe that the primary function of a broker will remain the intelligent delivery of information. We have tens of thousands of data points on prices, analytics, S&Ds, line-ups, freight, etc. Choosing the five relevant data points for a client and delivering them at the right time is a significant value-add.

Second, people often look at a broker’s execution service as passing on emails between buyers and sellers. However, that is not the core of the service, and it can be automated relatively easily. The core of the execution service is to avoid disputes and arbitrations. It starts with designing and constantly improving the contract standard to leave the minimum room for interpretation. It is about offering advice to counterparts in case of differing opinions and mediation to find a solution.

GAFTA arbitrations do not take commercial interests into account. Sometimes, one counterparty needs the other one more than the other way around. We have access and visibility to the value of the continued trade relation in addition to the legal standpoint. Our execution service is more about consulting than just passing on emails.

The third angle is visibility into freight and freight’s visibility into brokerage. We have a multimillion-tonne trade book ahead, traded but not executed, plus we hear what the others are trading. We have a relatively good visibility into the next six months’ trade in certain areas. It offers some unique insights into the freight market and how to evaluate the freight rate correctly.

In our opinion, this is what the market will need from the brokers in the future.

You offer a kind of informal mediation service.

When we conduct the business and issue the contracts to both parties, we take control of the execution service and the post-trade processes, starting with the vessel nomination and ending with payment. During this process, something often needs solving – big or small.

The money is not made in catching the last quarter of a dollar per tonne in the port. The money is made by executing efficiently and minimising or avoiding demurrage. We try to control the process thoroughly and then give our opinion as a neutral counterpart in the transaction.

The freight brokerage side you offer dovetails into the physical grain brokerage. Has it always been like that at Copenhagen Merchants?

Copenhagen Merchants began as grain brokers in 1977, and we started freight brokerage one year later. We have been in freight for 45 years. We evolved from freight brokerage into freight trading. We own and manage a fleet of vessels, some in joint ventures. We are principal traders on freight, but we preserve our neutrality on grain. There is synchronised value in both.

So, there’s no conflict of interest?

I don’t see any conflict of interest. Yes, we may have a long or short position on freight, but I don’t see how that could conflict with our service on the grain brokerage side.

Neutrality on grain is paramount for us because it allows our business model to live. I have only once been short barley, and that’s when my colleague thought he sold wheat to one client, but accidentally, I bought barley from mine. We needed to perform and cover in. It’s the only time we held a position on the grains.

Do you give risk management advice, even informal, to your grain clients?

We don’t. Some companies offer consulting, but it involves increased compliance, possibly even a banking license. We haven’t found the synergies there.

Copenhagen Merchants offer a lot of market information, but the conclusions are yours to make. Two people looking at the same data can arrive at two different conclusions depending on their unique situation or position.

We provide daily market reports and live data on our digital platform – news that others haven’t yet published.

Do you publish prices?

We do but in an anonymised format. We group prices to specific base ports. But we also publish physical bid and offer data you can’t get in typical market reports. You can usually get indicational values of the goods, but it’s much harder to access genuine bids and offers you can trade on.

Copenhagen Merchants owns terminals. How do they fit into the brokerage?

We have terminals in the Baltics, Poland, Denmark, Sweden and the US. Although they are often owned in joint ventures with other companies like, for example, Viterra or Bunge, we are the majority shareholders and manage them. They are independent and service the free market on a competitive basis.

The synergies to the grain brokerage business are regional. Our terminals in Poland execute Polish and Ukrainian grains. There is a brokerage element, there is a freight element and identifying synergies is part of our job.

The synergies are there. For example, if you supply Ukrainian corn to our Gdansk terminal, you want to sell it for the maximum price, load it out quickly, and then get paid. We want the same as a terminal owner, broker, and freight trading company. Our interests are aligned.

Remember, the geographical scope of our brokerage is much broader than our terminals.

What is your earliest point of intervention on the brokerage side? Is it ex-farm or ex-terminal?

We don’t trade with farmers except in countries where farmers have 100,000-plus hectares and are also trading companies. Most of our business is FOB or C&F, but we also deal in rail cars. We sometimes trade containers, and we occasionally trade trucks. We do railway business in countries where rail dominates, like Ukraine and, increasingly, the EU. We previously brokered cargo and rail cars in Russia. It is a question of liquidity. If there is enough liquidity, we broker it.

How many different hands does grain go through before it ends up on the ship?

The domestic market is usually two-tiered in exporting countries like Denmark, Germany, the Baltics, or Romania. The farmer produces the grain and sells it to an originator, who then transports it to the port, loads it on the vessel, and sells it FOB to an international trader. In some countries, like Poland, it’s a three-tier system, with the originator selling it to a local trader who loads it on a vessel and sells it FOB.

The Northern European markets are over 90 per cent FOB business because the originators don’t want to go to destinations. Their function is to identify their first liquid logistical point, usually FOB, and sell the grain FOB to a trading company.

Sometimes, an end consumer will buy the grain and ship it directly to its destination, where the buyer distributes it to the local processors, feed compounders, flour mills, oil crushers, etc.

We have recently seen a regionalisation process where global trading companies have lost market share because of compliance requirements and other issues. Some second-tier trading companies are becoming more assertive in specific destination markets. For example, some focus on West Africa or Iran, while others focus on wheat marketing in South America. Not everybody can do everything.

Sometimes, a trader sells to another trader and then on again. We can see strings of six to ten companies before the grain is lifted and delivered to the destination. It varies.

Do you find that brokers and traders add more value when supply chains are disrupted? There’s less need for traders and brokers when everything’s going well.

I would add three elements to this disruption.

First, you need a healthy amount of volatility in the market. If the markets are flat, traders find it hard to identify trading opportunities. But too much volatility paralyses the business. Unfortunately, we are dealing with a growing amount of volatility in today’s markets.

Second, you need healthy prices. Ukrainian farmers are selling corn today for $85 ex-farm. It’s unhealthy. We need a healthy supply chain. It is not sustainable if prices are too low. It starts disrupting the business. The markets are more straightforward for everyone if prices are not too soft and not too high, combined with healthy volatility.

Third, wars, pandemics and weather disruptions are becoming more frequent. Traders analyse markets, but analytical thinking does little good when trends break. People trained to think analytically – to approach their markets analytically – might be disappointed if a black swan turns up.

Apart from wars and weather, what is your biggest challenge?

Recruitment is one of the biggest challenges for brokerage companies. There is a global shortage of people. The younger ones are not curious about agribusiness and are more interested in consulting, finance, and start-ups. The problem is acute in Sao Paulo, where demand is growing fast. I hope your blog and book stimulate young people’s curiosity about our business.

Thank you, Indrek, for your time and input.

© Commodity Conversations ® 2024

This is an extract from my upcoming book Commodity Professions – The People Behind the Trade.

A Guest Blog by Ivo A. Sarjanovic

One year after publishing Commodities as an Asset Class with Alan Futerman, the tranquillity of the year-end holidays provides an excellent opportunity to review data and literature regarding commodities and inflation.

In summary, our book’s thesis argued that contrary to the “conventional wisdom” of some financial advisors, the concept of passive-static investment in a commodities index as a hedge against inflation does not always prove effective.

For instance, Goldman Sachs projected for 2023 a 43% return for the S&P GSCI TR, but the index closed at -4.27%. The more traditional S&P GSCI closed at -12.55% for 2023. The Credit Suisse Commodity Index closed at minus 10.5 %, despite the bank’s advice at the end of 2022 that commodities were a good hedge against inflation, especially when invested across a very broad and equally weighted portfolio of different raw materials (not actually available in any existing index given that the different degrees of liquidity in many of the suggested markets would make it unsuitable for investing purposes).

The Bloomberg Commodity Index ended the year at -12.55%, and the Dow Jones Commodity Index finished 2023 at -8.7%. By any measure, these performances were far from impressive. But if you were seeking to diversify your portfolio, you have undoubtedly succeeded, considering that equities gained 24.2%, as measured by the S&P 500. The debate about the correlation, or lack thereof, between commodities and equities or bonds is endless…

Adding to the challenge, when factoring in the 3.1% US CPI inflation for the 12 months ending November 2023, which investors initially sought to hedge, the real return for each index becomes even more dismal. Consequently, the capital invested in these indexes not only failed to keep pace with the annual inflation rate but actually depreciated further, as commodity prices did not consistently align with the various price indexes used to gauge currency purchasing power losses.

As expected, commodity prices took divergent paths throughout the year, as illustrated in the graph, thanks to Peak Trading Research. Despite the overall weakness, notable opportunities arose on the long side, particularly among certain soft agricultural commodities.

Seeing the richness of the wide menu of price moves, one cannot help but notice that commodities are assets to be actively traded, not to be invested in passively. As outlined in our book, there are years when micro and macroeconomic conditions align in a bullish scenario, causing commodities to overshoot and generate compelling results—sometimes surpassing the originally targeted inflation rate as a hedge. However, these same conditions often trigger reactions that reverse the rally, causing commodity prices to lose momentum and struggle to maintain gains.

When prices deviate upwards from their long-term fundamental trend, the dynamics of price elasticity shift, leading to a decline in demand and an expansion of supply. Economic authorities, concerned with general price increases, tighten monetary policy, and financial investors, realizing that their bet exceeded rational bounds, often reevaluate their positions. This cycle demonstrates the need for dynamic management and a nuanced approach to trading commodities, as passive investment strategies may prove inadequate in navigating the complex and dynamic nature of commodity markets.

It’s essential to bear in mind that commodity prices are ultimately shaped in the long run by the microeconomic fundamentals of supply and demand. While macroeconomic conditions, especially those of the US and China, can undoubtedly impact their price trajectories, fund activity also has the potential to catalyze price movements in either direction, accelerating but not distorting the manifestation of fundamentals, revealing their effects at a pace different from what might be anticipated under normal circumstances.

This graph tries to summarize it:

Commodity supercycles occur when both micro and macroeconomic conditions align within the Very Bullish quadrant. In 2023, monetary policy progressively tightened, pushing real interest rates into positive territory and decelerating inflation and growth. China’s reopening proved to be disappointing, yet supply chains began to exhibit more normal behaviour, and stocks rebounded, transitioning from the Very Bullish quadrant to both the Gradually Bullish and Very Bearish quadrants, contingent on the specific commodities in consideration.

For a summary of how different macroeconomic conditions affect commodity prices:

Observing the evolution of commodity prices in 2023, some analysts are beginning to adjust their opinions, acknowledging that commodities may underperform when inflation is slowing down. Conversely, others propose that commodities serve as an effective hedge only when inflation experiences an unexpected surge.

This perspective implies that the recommendation for a suitable hedge against inflation remains valid solely during periods of rising inflation and not against any level of inflation. However, such an approach challenges the notion that commodities are a reliable long-term hedge and reinforces the argument that commodities are assets meant to be dynamically traded. This involves capitalizing on precise entry-exit levels and strategically employing both long and short positions.

For those interested in going deeper into this subject, let me recommend three recently published works which reach a similar conclusion to ours:

“The Inflation Commodities Cycle: A Regime Switching Approach to Inflation Hedging” (June 2023) by Fredrik Findsen from the Copenhagen Department of Economics, where he warns against the idea of commodities as a long-term hedge Vs. inflation and also highlights how different commodity families react to the erosion of value in money inviting investors to rethink the conventional wisdom about inflation hedging with commodities, proposing a dynamic, regime-driven strategy in place of a static asset allocation.

“Are commodity futures a hedge against inflation? A Markov-switching approach,” International Review of Financial Analysis, Elsevier, vol. 86(C) by Liu, Chunbo & Zhang, Xuan & Zhou, Zhiping, 2023, where they find that total commodity futures fail to provide a hedge against inflation over the sample period between January 1983 and December 2021. However, industrial metals and precious metals are able to hedge against inflation. Other sub-indexes, including energy, agriculture, and livestock, do not have a significant inflation hedging ability.

“Essays in Liquidity, Monetary Policy, and the Commodity Market” (September 2022) by Miruna-Daniela Ivan, from the University of Essex, where she expounds how the level of liquidity of different commodity markets make them react in a non-homogeneous way to changes in monetary policy.

Lastly, I recommend these two pieces that I came across in 2023 and thoroughly enjoyed. As someone who values the insights of myth-debunkers, these articles resonated with me.

The Roll Yield Myth by Hendrik Bessembinder from Arizona State University  (https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3011634 ) where he writes:

“A futures investor does not earn or pay the difference in futures prices across contracts on the date that contract positions are rolled, or on any other date for that matter. Gains and losses on futures positions depend only on changes in the prices of individual contracts during the time an investor has an open position, never on differences in prices across contracts. Assertions that a futures trader can “pocket the difference” between the futures prices for two different contracts so as to generate a “steady income” or that “buying” a futures contract with a “more expensive” futures price (as compared to the contract simultaneously sold) involves a loss of investor monies reflect a fundamental misunderstanding of how gains and losses on futures positions are determined.”

“Speculation By Commodity Index Funds: The Impact on Food and Energy Prices” by Scott H. Irwin, Dwight R. Sanders (https://www.cabidigitallibrary.org/doi/book/10.1079/9781800622104.0000 ) where, among other things, they explain that:

“We then used exhaustive empirical tests across numerous markets, time frames, and data sets to show that there was no consistent evidence that positions held by index investors caused large changes in commodity futures prices. Batteries of time series and cross-sectional tests failed to find consistent temporal causality between index positions and futures prices. This body of work conclusively demonstrated that index speculation was not the main driver of the great commodity price spikes that occurred between 2007 and 2013.”

Happy 2024 to all, hopefully learning more about commodities!

Good morning, Laia, and welcome to Commodity Conversations. Please tell me a little bit about your role at ADM.

I work for ADM’s Global Trade team in Rolle, Switzerland, managing vegetable oil trading in 20ft containers. I have a team in the Netherlands and Singapore, and we move crude or refined vegoil from ADM or third-party plants to customers across the globe.

Are these containers tanks?

You can fill a container with anything from televisions to dry bulk or with what we call flex tanks for moving liquid products. A flex tank is a type of bulk liquid pouch or bag that allows shippers to fill dry containers with liquids.

You mention that you trade both crude and refined vegoil. Why would somebody want crude oil? Would they refine it themselves or use it in their food processes?

We sell vegoil to food manufacturers like FMCGs and mom-and-pop shops, but we also sell to biodiesel manufacturers and vegoil refiners. A food manufacturer will refine crude oil before using it.

Is shipping refined food-grade oil more challenging than shipping crude vegoil?

The challenge in shipping refined oil is freshness. For example, we ship to New Zealand, which is almost two months of transit time. Some parameters, for example, peroxide values, increase over time. It’s still edible, but the quality deteriorates.

What types of vegetable oil do you ship? Is it mainly soybean oil?

We do mainly soy and rapeseed because that’s what comes out of our crush and refinery, but we can supply a variety of veg oils.

Do different customers want specific types of oil?

It often depends on the region and its intended use. There are regions where they might prefer soybean versus sunflower oil. Other regions prefer rapeseed. Some regions are more price-sensitive and want the cheapest oil available. It depends on the region and the specific application of the customer.

You must handle thousands of containers every year. What are the main challenges involved in managing all those containers?

We have hundreds of containers moving around the world each day. It is challenging as anything can go wrong in a shipment. A container may miss a ship or have the wrong documents. It may have quality issues. Sometimes, we must export containers from a war zone. Every container is a potential source of problems, but we work with excellent partners, freight forwarders and shipping lines. They know where our containers are. They track them. We do not have many scares.

Is the process digitalized?

We can access the shipping line’s digital platform. We know the location of each of our containers at any time.

Are they intelligent containers with GPS tracking?

Not as far as I know. We don’t need it. We use the shipping company’s platform to keep an eye on where the container is, and which ship it is on.

Container rates increased dramatically post-COVID. How did that affect your business and the trade flow?

It was a challenging period. Rates increased, and reliability decreased. Trades continued to happen; our customers still needed oil, and the flow continued despite the spike in freight rates.

On our side, we developed more intra-regional supply chains. It allowed us better control of the supply chain and container freight.

Are you a trader, or are you a supply chain manager?

I call myself a trader, but a significant portion of my role is managing a supply chain.

ADM is super strong in managing complex supply chains for customers. I can give you a couple of examples. We supply customers in the middle of Africa or the Pacific Islands who have been buying from us in containers for years. We have been strong in exporting oil in containers from Ukraine during the war. We have a robust global footprint and a network of ADM people working with customers at destinations.

What do you like most about your current role?

I like my job because I see the sense, the need, and the purpose of it. It’s a job full of stories. It could be a Caribbean mayonnaise manufacturer or a Pacific fish canner without a refinery in the country or a neighbouring country. They need to import a container of oil to their facility.

Another example could be a food manufacturer in a market with only one supplier that wants to import oil to lower their ownership price. Or a small crusher in Ukraine that wants to export its oil but doesn’t have enough capacity to fill in a big vessel. They all rely on us.

I find this is very satisfying. It is what I most like about my job, that I see the purpose of it.

How do your friends react when you say you’re an agricultural commodity trader? Do they say, oh, that’s terrible, you’re a wicked speculator, or do they say, you’re helping feed the world?

They usually ask a lot of questions. I explain my vital role in moving oil from surplus to deficit areas. I do have friends who are critical, but I think I have more supporters than critics.

I was keen to talk with you there because you started as an analyst and moved to procurement and trading. You’ve covered the whole gambit. But how does procurement differ from trading?

Procurement is about price risk management, negotiating, and cost savings. It’s not an income-generating activity by itself. If you manage cost savings and price risk management well, and the brand is selling well, then you see the returns of your job. What I like about trading is that you see your PNL daily; it’s a business by itself.

Which do you prefer? Procurement, analysis, or trading?

They all have their charm, and a nice link exists between them. I’m happy to have gone through the three.

Was it a shock to move from analysis to procurement? Was it a difficult step?

None of the steps I have taken in my career have been a piece of cake. But I think it should be like this, right? If you move, you move to stretch yourself. I was lucky enough to have people that believed in me and trusted and supported me. I would be lying if I said it was not challenging, but that’s what I like as well.

How do you see your career developing from here?

I see myself trading for many years ahead, eventually moving to another product or managing a destination office.

How many people do you manage?

Four – in the Netherlands and Singapore. And we are hiring two more.

COVID-19 led to a broader acceptance of working from home. Do you work from home, and if so, how has it changed your life?

I enjoy the flexibility of working from home, but I still prefer to go to the office and interact face-to-face with people. My team is remote, so I trust them to do their job independently of where they sit.

Do you work one day at home on a regular basis, or do you just work from time to time from home?

I sometimes work from home, but I’m in the office 90 per cent of the time. Occasionally working from home has improved my work-life balance.

Is commodity trading still a 24/7 job? And if so, how do you manage your work-life balance?

I have an intense job in terms of watching the market, my position, and my shipments. But I’m a mom of two children. I don’t know if it’s because of them, but I know when to stop before being overworked.

I also make sure I do things outside work and family. So that’s how it works for me. I think we work a lot and are always alert, but I still want to keep time for myself.

Do you find that more women are joining commodity trading firms? And, if not, how can we get more women into the commodity trading world?

We have a traineeship program at ADM for young graduates, and we see more women joining. I don’t think the issue is with attracting women to the sector but with how we retain, develop, and promote women within the sector.

I don’t see any reason why women should not be interested in trading, nor why they should not stay in the industry.

What advice would you give to a young woman seeking a career in ag trading?

I would suggest you find a woman who inspires you. Ask her to mentor you – and then to give it back to the industry, your company, and women in general. Be a mentor to another woman.

Thank you, Laia, for your time and input.

© Commodity Conversations ® 2024

Good morning, Romina, and welcome to Commodity Conversations. Please tell me a little bit about yourself and your journey so far.

I’m originally from Argentina. I grew up and studied there but had itchy feet, and an international career was always on the cards. I always thought I would return to Argentina, but it became increasingly unlikely as I got older and had a family.

I had two defining parts in my career. I spent the first ten years with Shell, an incredible company with high operations standards. I then had my agri commodities decade-plus, coinciding roughly with my time in Switzerland. I began in sugar with Cargill and then moved to coffee, molasses, and derivatives with EDF Man. I then joined Noble, later COFCO, and spent five years with Bunge in Geneva, finishing as their EMEA HR VP.

I have since moved to natural resources with mining and now am with a technical consulting firm supporting all the B2B markets I used to work with. In the last five years, I have focused more intensely on the Americas with experiences in Chile and Canada.

During your nine years with Shell, you worked in Argentina, the UK, Brazil, and the Netherlands. Since then, you have worked in Switzerland, Chile, and Canada. That’s a lot of different geographies– more than anyone I know. What motivated these moves, and did they help or hinder your career?

It was easier to move in the early part of my career. Since I am now part of a dual-career couple, it’s sometimes challenging to coordinate two senior careers. However, we have managed to lead or follow at different times depending on the opportunity and family impact.

Despite being sometimes challenging from a career perspective, there is a silver lining, and everything is an experience from a life satisfaction perspective. Living in various countries makes me a more culturally aware individual and is far beyond what I could have dreamed of in my early years as a professional. It has also been great to raise a family with a multicultural perspective. We juggle four languages at home!

Where is home?

After 14 years in Switzerland and becoming Swiss, we call Switzerland home. When we say we miss home, we mean Switzerland. It’s our anchor. My oldest son will start university in Lausanne. We all agree that finding a better quality of life is challenging once you have lived in Switzerland. Though I have lived in some other great places, Switzerland is very special, and we have grown to love it. Argentina will always hold a place in my heart; my mum, sister and the rest of the family are still there, and I follow its news daily. And that is undoubtedly a country that is never short of news!

You started in energy, moved to ag commodities, and then to mining. What specific challenges do ag companies present in terms of managing talent? Are they different than others?

Yes, I think so, more and more. Given the food element component, agribusiness is more global than the other sectors you mention – not in every role, but in many roles. You need a global mentality from a supply chain perspective and an interest and understanding of geopolitics and economics. I see that in pockets in other industries where I worked, but one of the things that I miss from the ag business is the daily global conversation.

That’s on the positive side. On the opportunities side, agribusiness companies, in my experience, are less structured when it comes to career opportunities and management. I have found that other industries provide better career visibility. The ag business has an incredible career to offer. Still, in my view, it has not done as much as it could to market what it can do for people’s careers, particularly for those with a talent for an international perspective.

Did the different ag companies you worked for have different cultures – and to what extent does the CEO set the culture?

Each one of them has a distinct personality that partly depends on size. In a company as big as Cargill, for example, the heritage, to an extent and not just the CEO, helps shape the culture. I experienced its culture as robust and well-defined. The other companies I worked for had more of an entrepreneurial flair, and the culture was somehow more linked to the personality and approach of the CEO.

The CEO plays a role in fine-tuning a company’s culture, but it has more to do with its history and whether it grew organically or through acquisitions. People often define culture as ‘the way we do things around here’. I find culture plays a crucial role in successful integrations after a merger. A strong culture that aligns with a company’s strategy is a considerable asset and challenging to replicate.

What about managing all the different types of professions in the ag supply chain? Is that a challenge?

It is the same in the oil and mining or consulting industries. You have a wide variety of different profiles and skills needed. I know that people in the ag industry like to say they are unique. They are unique in certain aspects of what their roles require. That is true, but not necessarily in the diversity of skills needed to succeed as an industry.

What I think is different in ags, at least in my experience, is the stardom of the trader. The trader used to play a protagonist role. I think it’s starting to subside a little. People realise this is a team game, and you need everybody in the chain to execute their part to the best of their abilities. I started to see a more conscious recognition of corporate functions during my last years in agribusiness.

What about compensation? Traders get royally compensated, but operators don’t. Is that a problem?

Ag trading companies tend to pay quite competitively; their people are generally well-paid compared to similar roles in other sectors. From a human perspective, the challenge is that people do not necessarily compare themselves with what they would earn in the market. Instead, they compare the different job families in the internal ecosystem.

That can create some internal friction, but it’s the same with other industries relying on different kinds of top-notch technical talent. The rainmakers can be highly paid, but they are also the ones who assess and carry the risk and eventually make the call. It’s probably more acute in the trading industry, but I think it’s an accepted fact.

But let’s be clear: it’s not all the traders. There’s a category of handsomely paid rainmakers – certainly the most significant bonuses I have been involved with in my career. Still, there’s a relatively small number of people on those big figures.

You mentioned that trading is becoming more of a team operation. It is a theme that’s been running through many of my interviews. It brings me to my next question as to the role of women. Women tend to be better as team players and networkers rather than as lone wolves. Is the future of trading female?

I don’t know if the future of trading is female. From a demographical perspective, the future and present of work is becoming more female. Industries that don’t consider women forego a big part of the equation. In my time, there were very few female traders – maybe one out of ten. To be on a trading desk as a female, you really must be outstanding. The ones that made it were exceptional.

Other sectors have been more active or at least more visible in being inclusive in general, not only on gender. Agribusiness will, unfortunately, miss out on a lot of talent if they don’t become more proactive. However, having been in other industries for the last five years, perhaps that is already happening.

How can agribusiness attract top-quality candidates, both male and female?

We haven’t done as good a job as we could around marketing what it means to work in agribusiness. That is slowly changing, particularly in Geneva, with Suissenegoce and the MSc in shipping and trading. People are getting a better insight into the industry and what sort of a career path that could lead to.

I see the difference as Gen Z comes into the workforce. Without going into the stereotypes, mental health, the work/life balance, and the ESG impact are all important. Gen Z has different priorities, and purpose seems to play a significant role in how they select their future employer.

Also, big corporations are generally less appealing than they used to be for those in their early careers.

You currently work for an engineering company that, through acquisitions, is going from 1,100 to more than 5000 employees. How do you align and manage the different cultures? I’m thinking here of Bungie’s acquisition of Viterra.

It’s been an intense ride, and we are still putting it together. Aligning culture is a long, long road. From a communication and engagement perspective, we’ve done a lot of work making the cultures explicit, but there’s no magic wand. It will take us a couple more years, and it requires everyday effort and leadership to set the right tone, which I believe we have done. These last few years, working intensely on Mergers and Acquisitions and integration will be one of my career highlights.

Remuneration is one of the critical pain points of integrations and acquisitions. You must ensure you hold on to the critical talent. Before considering strategy, you must look at the people and skills you can’t afford to lose.

What about different nationalities and cultures? With a global footprint, you must manage these nationalities and cultures in different geographies. Is that a challenge?

It is a challenge that requires patience and curiosity, which makes it interesting. It is one of the distinctive features of agribusiness. And a positive one in my view.

You need to understand where people are coming from. Why do they react like that? There’s an interesting book by Erin Meyer that talks about the different perspectives of each culture and how those translate into the workplace.

I’m hoping that in 20 years, when I look back, I’ll say that I’ve enriched myself with all these fantastic nationalities I was fortunate to work with; all of them taught me something.

You recently completed the FT Board of Directors program. What did you learn?

The course put a lot of focus on how people dynamics make or break a board.

The most important takeaway is that board members must be vested in the company and not just be there for the public recognition side of it.

The other thing I learned is the sheer complexity of it all – the number of challenges a committed board and executive team faces is no joke. You must be agile and active in scanning the environment for where the next risk to the company might come from.

Can conflict be a good thing?

There is a perception that conflict should be avoided and that we should behave and be friends. I don’t have that perspective. Conflict can be positive if you split the problem from the person. I know it sounds easier than it is, but you need creative tension; if there’s no tension, there’s no creativity, and groups gravitate towards group thinking.

Conflict becomes problematic if it turns into institutionalized friction. Permanent friction and unresolved conflict create an unhealthy environment.

What about pessimism and optimism? Do you need a pessimist in every team?

I think you do. You need a mix. The same goes for extroverts and introverts—or any other personality trait. You need a mix of different personalities to challenge, again in a healthy conflict, yourself, and your team. You need it in trading, but you also need it in any business decision.

What nationalities would make up your ideal board or team?

I don’t think it’s only about nationality. I think it’s about personalities, experience, and attitudes. Board members must be sufficiently diverse to challenge each other, but not to the point where you live in permanent conflict and cannot decide. But that is the same for every team.

What advice would you give to your 18-year-old self?

Don’t take life so seriously. Focus on what is essential in the long term. Things will eventually sort themselves out. That’s what I would probably say to myself, with the hindsight of a long career and adult life.

Would you have listened?

Unlikely. I was quite a determined 18-year-old!

© Commodity Conversations ® 2023

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

Swithun Still is an old friend. I included an interview with him in my Commodity Conversations book, An Introduction to Trading in Agricultural Commodities, and he kindly wrote the preface to The New Merchants of Grain.

I was due to meet him for lunch on a Monday at La Maison d’Igor, his favourite restaurant in Morges, Switzerland. It is a forty-five-minute cycle ride along the lake shore from my hometown of Lausanne. I knew Swithun would also want to cycle to our meeting, but a massive storm over the weekend had transformed Lake Leman into an ocean; white-crested waves were still crashing onto the shore. We compared notes during the morning and decided that I should take the train instead.

But then the sun came out, and I went on my bike. It was a fun ride as the storm had, in places, washed away the lake path, and I found myself cycling through foot-deep lake water. I got to the restaurant just as Swithun arrived on his bike.

Once at our table, I was disappointed that our waiter wasn’t called Igor. He explained that the restaurant and hotel were named after Igor Stravinsky, who had lived there for a few years at the beginning of the last century. “And, no,” he added, “the food is not Russian. We don’t serve caviar.” I was relieved; it was my turn to pay.

Swithun was President of Gafta, the Grain & Feed Trade Association, in 2019. The Association traces its history back to 1878 and has several roles, including education and training. Grain traders initially set it up to promote standard contract forms and provide an arbitration mechanism to settle disputes arising from these contracts. As much as 80 per cent of the global grain trade now transacts under Gafta terms and conditions.

I wanted to talk to Swithun about arbitration. He is one of Gafta’s seventy-five (or so) qualified arbitrators. I wanted him to explain the role of arbitration when things go wrong. Perhaps more importantly, how should counterparties avoid things going wrong in the first place? We had agreed that he would speak to me in a personal capacity.

He had brought along a Gafta brochure showing the scope of their arbitration service. Between October 2020 and September 2021, Gafta’s arbitration department received 310 claims. Over that period, Gafta ruled awarded nearly four million euros under 125 rules and just over one million dollars under 126 rules. Arbitration is big business.

“Gafta 125 arbitration rules are used for most dispute resolution under Gafta terms and are heard by three arbitrators”, Swithun explained. Gafta 126 Rules are for minor claims requiring expedited arbitration and involving parties agreeing to a Sole arbitrator. Both have the right of appeal, in which case Gafta will appoint a Board of Appeal consisting of five qualified arbitrators”.

“There are generally three exchanges at the first tier. There are first the claim submissions, then the reply submissions by the Respondent. The Claimant then replies to the defence’s submissions. The Claimant will always have the last bite of the cherry.

“What frequently happens in complex cases is that there are rejoinder submissions and clarifications as to what’s gone on. If the Claimant introduces new evidence in his reply to the defence, then the Respondent will frequently ask for the opportunity to respond to those new bits of evidence.

“It usually takes about three and a half months between claim submissions and the finalisation of closing of submissions. In the best-case scenario, the arbitration ruling takes four months, but more often, six.

“The arbitrators then assess any award, or quantum as it’s called. The claimant may claim an amount, but the respondent will inevitably argue with the amount or say there’s no valid claim. The arbitrators then convene over email and video conference to decide the merits of the arguments.

“All contracts under Gafta terms are as per English law, so the juridical seat of the arbitration is the law of England and Wales. It’s not British law because there is no such thing. It is thus not Scottish law but the law of England and Wales.

“Sometimes, companies dispute the jurisdiction or deny they traded on Gafta terms, even if they have traded under Gafta terms previously. Sometimes, there are Preliminary awards made over jurisdiction or other matters such as Time Bar, where the Respondent might argue that too much time has elapsed for the claim to be valid.”

Our non-Igor waiter brought us our pumpkin soup. It was delicious, even if it could have been a bit hotter. I asked Swithun what the most common reasons counterparties ended up in arbitration.

“They usually occur,” he told me, “When someone defaults because the market price has moved between when the contract is agreed and when it is executed. If the price goes up, the seller may think twice about performing their contract – or try to find some way out of the contract. If the price goes down, the buyer thinks twice.

“It is especially true if the counterparties are not first-class buyers or sellers. If there’s a price differential for a seller and he doesn’t care too much for his reputation, he’ll walk away and resell the goods.  He knows it will go to arbitration, but it might take a year between the first tier and the Appeal. If the Award is defaulted, the defaulting party might simply liquidate his company, and the Claimant might be chasing shadows when seeking to enforce.”

“There have been quite a lot of arbitrations in the last year due to force majeure because of the war in Ukraine,” Swithun continued. “There can be various reasons behind force majeure cases – and it is not always on the supplier side.”

I asked him how a buyer could claim force majeure.

“Lots of reasons, such as export bans, war, strikes, extreme weather, or so-called Acts of God”, he replied. “Since the start of the war, traders of Ukrainian grain have declared Force Majeure because of the war, FOB Buyers or CIF sellers have found it difficult or impossible to charter a vessel willing to go to the loading ports. There have also been cases where a vessel started loading but could not finish, or finished but could not sail.”

“Is there a list of companies that have not honoured an arbitration ruling?” I asked.

“Yes, there is a list,” he answered. “Gafta posts arbitration awards on their website and circulates them to members after the council meetings held three times a year – in January, June, and October. All members know when a company is a defaulter.

“Smaller companies may continue to trade with a defaulter, but multinationals won’t. It’s a no-go.

“And before you ask the question,” Swithun continued, I don’t know how many companies are on the list. I do know that many companies on the list are defunct. They disappear and often reappear with a new name, like a phoenix from the flames.

“The system can be ineffective if you’re up against someone who’s not acting in good faith in the first place. They’re going to do everything not to respect the award.”

The waiter bought us our main courses: chicken for Swithun and baked cauliflower for me. Swithun asked me why I didn’t eat meat, but before I could reply, he told me that he had asked his twelve-year-old nephew the same question. He answered, “I like animals. I don’t want to eat them.”

“Sounds like a good enough reason,” I replied.  My baked cauliflower was as delicious as the soup but also lukewarm. Shame.

Swithun told me he entered the grain trade in 1999 and did the Gafta Foundation Course in 2001. It is a week-long residential course where you learn the rudiments of contract types like CIF and FOB, and Gafta procedures and all the various elements of the grain trade, such as superintendents and fumigation. In 2006, as its first student, he started a six-module two-year online course, Gafta’s Distance Learning Programme. He then took a trade diploma exam, and Gafta invited him to become an arbitrator in 2008.

“You must have ten years’ experience to be an arbitrator,” he added. “I had just passed the cusp of 10 years. At the time of my appointment, I was GAFTA’s youngest-ever arbitrator.

“I thought it would be an interesting second career – a paid hobby – and it was. I found – and still find – it fascinating to learn from the mistakes of others and see the things that can happen when simple mistakes are made.”

“What sort of mistakes?” I asked.

“An example would be not giving notices on time – or not asking for an extension on a shipment period when a vessel is delayed.”

Swithun finished his chicken and looked at his phone, checking the time. I could feel that he was busy and that his attention was wandering.

“How do you find the time to be an arbitrator when you have a full-time job?” I asked him.

“It’s a dilemma,” he replied. “I didn’t take on many arbitrations when I was working full-time at Solaris, maybe one or two a year. But earlier this year, I was in a hiatus professionally and did several. I’m now trading again; fitting them in during the day is impossible. I do my arbitration work in the evenings and weekends.

“I think it’s possible to do four or five arbitrations a year – maybe six at a push – if you are prepared to work evenings and weekends. It’s challenging because you don’t know how much work each one will involve before you accept them. Some arbitrations are open and shut cases; others are more complex.

“The other tricky thing is that it can take some time between my appointment as an arbitrator and seeing the first submissions. Arbitrations can be like London buses. None will come for a while, and then lots will all turn up at the same time.”

Our waiter asked us if we would like dessert, and I was surprised when Swithun said yes, tempted by pain perdu and baked apple. “But bring the coffee at the same time,” he told the waiter. I knew my time was running out, but I had one last question, perhaps the most important one: What would he advise people to be careful about to avoid ending up in arbitration?

“Know your counterparty,” he replied, “be it the seller or the buyer.  Be aware that if you’re buying from a supplier that is not first-class – or deemed to be first-class – you have a significant and often unhedgable risk if the market moves. Many counterparties don’t hedge their transactions and can sometimes find they can’t perform if the market moves against them.

“One case I had was when a company defaulted on the purchase of wheat, claiming that the market price had dropped so much that they would have gone bust if they had executed their purchase. They called it “economic force majeure.” We had to explain to them that there was no such thing – and suggested that maybe they should have hedged their purchase.

“If you’ve sold something and the market plummets, your buyers may try to find a way to extricate themselves from the contract – by hook or by crook, by fair means or foul.”

Outside, the weather was still foul, and the wind had picked up. I took the road, rather than the lake path, back to Lausanne.

© Commodity Conversations ® 2023

Tessa leads the coffee work at IDH, developing strategy, aligning the different country teams and programs, and managing the global accounts.

She approached me a couple of months back to talk about cocoa. She felt there were similarities between the coffee and cocoa supply chains, but that cocoa was a step ahead on issues like farmers’ income and deforestation. I didn’t want to talk about cocoa. I had started writing a book about it but found the politics too challenging. I asked her instead if she could chat about IDH and coffee.

But first, I had a couple of issues to resolve.

Tessa is a shareholder in Herenboeren, an organization that brings together groups of interested people to build cooperative farms. She is a member of a 20-hectare farm on the outskirts of her hometown of Rotterdam. It is similar in size to the smallholding on which I grew up (and which I described in The New Merchants of Grain). My father could never make the farm pay, and I didn’t see how she could. That was my first issue.

“The farm is close to my heart. I am passionate about it”.

The cooperative’s 200 shareholders employ someone to farm the land for them. She admitted that she has learned a lot since they began and that they produced little in the first three years.

“I don’t understand how we expect farmers to farm when we put so much risk on their shoulders,” she said. “I understand why it leads to a business model where you go for intensive production rather than the diversified model we’re trying to do.”

My father had done the same, moving into intensive pig production. He couldn’t make that pay either.

I suggested the problem is that the price of food is too low as it does not cover the environmental and social costs of production. Consumers do not pay environmental costs like deforestation, social costs such as child labour, or healthcare costs from obesity or poor diet.

“I am aware that I can afford to pay more for my food and that other people might not be able to afford to,” Tessa admitted. “We must also remember the amount of labour you need to farm. We all work on the farm. It’s unpaid labour. Without that labour, we don’t have the farm.”

Herenboeren’s website promotes eating food produced near home, which I have an issue with. Transport contributes less than 5 per cent of the food supply chain’s greenhouse gas emissions. I suggested we could do more good by importing more of our food from Africa or South America, where many people depend on agriculture for their living.

Tessa looks at the issue from a different angle.

“The big benefit of eating food produced close to home is the connection you build with the food production system,” she told me, “Learning from that, understanding how much effort goes into producing food and therefore not wasting as much. It also encourages me to eat more seasonally and cook more creatively.”

“I think the drive should not be around eating locally,” she continued. “It should be around understanding that our food production system doesn’t consider the externalities. That’s what we need to change, and there are multiple ways of doing that – and this is one way.”

I hadn’t finished with my issues. I had a third one. The farm also raises cattle, pigs, and chickens. I asked Tessa how she could justify that in environmental terms.

“I would argue that a diversified farm includes livestock,” she said. “We have a 20-hectare farm. We use around 3 ha for vegetables and fruits; the rest is for grazing. We have two cows per hectare because that’s what a hectare can support. “You can produce beef in an environmentally friendly way, but at a much lower threshold than I would have expected.

“We try to have 250 chickens,” she admitted, “with the idea that they graze in the orchard and eat insects. It’s a natural system. The problem is we only have 70 chickens left because we also have foxes and birds of prey. We no longer keep the chickens in the orchard as they don’t survive there. There is an ideal picture of how livestock and crop production can work together, and then there’s reality.”

I wanted now to turn to IDH. I have known IDH for some years and am a fan. The organization is firmly grounded in the reality – not the theory – of food production.

Tessa explained that IDH is a not-for-profit organization financed by multiple governments and donors like the Bill & Melinda Gates Foundation. Its stated aim is to transform markets. IDH doesn’t implement projects on the ground. Instead, it works in coalitions with the private sector or public-private partnerships to drive change. IDH views its strength as collaborative– bringing people together – rather than in advocacy.

Better jobs, better incomes, better environments

“It’s big, right,” Tessa told me. “Better jobs, better incomes, better environments. We try to find the interlinkages. Farmers can double their incomes by cutting down the forest, but that’s not necessarily what we want to advocate. Or we can say that farmers should invest in climate-neutral production, but how can they do that if they don’t have the money even to eat?”

Tessa and her team are working on a project to map the value and the risk in the coffee supply chain, tracking coffee from Brazil, Colombia, Vietnam, and Ethiopia to the German market, the largest in the EU.

They’ve defined the five stages of the value chain as production, farm to export, import to roasting, roasting, and retailing. They have mapped the value within each stage and their cost, taxes, and margin profiles. They also looked at coffee formats – roast and ground, whole beans, and capsules – and the difference between private labels and national brands.  They have also considered the difference between consumer-facing certifications, voluntary business-to-business standards, and conventional coffee at the retail level.

“We wanted to see whether there is enough value in the supply chain to provide everybody with a decent livelihood.

“We have not finalized the study yet,” she admitted, “but I can share that it’s not as simple as we thought. You might think there is all this value at the end of the supply chain; we just need to pay farmers more. This is not the case. It depends on the type of product and the retail channel.

“What is clear is that even if we create more value,” she added, “we don’t yet have the mechanism to bring it back to the farmer.”

I told her that raising farm incomes by increasing production through more land, better crop varieties or fertilizer can drive prices down and do more harm than good. It can lead to increased deforestation, but if it increases production, it can push prices lower. It can be counterproductive. It has been happening in cocoa for many years. It’s not happening now, but you can have unexpected and undesired effects.

I suggested that part of the problem is that we want to raise farm incomes long-term, but the market price depends on short-term supply and demand.

Tessa told me that it is easier to do in supply chains like coffee, where there is a potential for quality differentiation. The larger roasters like Nespresso are building long-term relationships with their suppliers, emphasizing quality and supply security over price. Protecting their brand means they must make 100 per cent sure there’s no child labour or environmental damage in their supply chain.

“I tell my friends that if they want to have a relative certainty that things are progressing,” she told me. “Their best bet is Nespresso. Or if you are out of home, Starbucks. There are good models in your local store, but you must ask the right questions and choose carefully. Some amazing quality coffees don’t take farmers’ incomes into account. Nespresso and Starbucks have done a great job, but there’s typically more value in their supply chains than in your seven-in-the-morning, I-just-need-to-wake-up coffee.”

Sourcing based on relationship more than price

“Over time, we’re going to see more sourcing based on relationship more than price,” she told me. “Traders may now focus on the short term, but legislation will push traders to create greater visibility within their supply chains – and that allows for a vehicle to transfer more value.”

I harbour a perhaps naïve view that coffee is more a victim of climate change than the culprit. I asked Tessa if she agreed.

She did. “Climate change is a bigger threat to coffee than coffee is to climate change, “she told me. “But I am a bit hesitant. I am concerned that coffee is driving climate change in some big producers such as Brazil and Vietnam – through input-intensive farming systems, where the quantity of fertilizers and agrochemicals used impact water quality and biodiversity.”

I asked her if the EU deforestation legislation would help. I wanted to know whether it might adversely affect smallholders and favour the large producers, resulting in increased production in Vietnam and Brazil further driving deforestation. “Might it have the opposite effect than the one desired?” I asked her.

“I think there is a real risk,” she replied. “Some small producers may be excluded from the EU market in the short term when there will be a drive towards compliance rather than mitigation. It potentially leads to roasters and traders readjusting their origins and redirecting non-compliant supply to non-EU markets.

“If you take a country like Uganda,” she continued, “About 70 per cent of their production is indirectly sourced. Farmers in some areas sell a couple of kilos per day. There is a middleman, a guy on a bike who goes around and puts those couple of kilos into the bag. You lose your traceability straight away. The bag goes to a village where other guys with bikes bring the coffee to a factory, which does the quality checks and then pays for it. Trying to build traceability into that system is not easy.

“The other context is Brazil: you have large farmers, large farms, easy to trace. You have Vietnam, small farms, but typically quite visible and relatively easy to trace. Let’s buy more from Brazil, let’s buy more from Vietnam. And that might be the short-term implication, meaning there is no positive impact on deforestation rates and a negative impact on the smallholders.

“I hope that in the long term, the EU legislation leads to more visibility within the supply chain, making it easier for the sector to address the systemic issues. But I’m worried it will favour big companies, producers, and traders that can map their supply chains. It may drive the smaller traders and producers out of business or to other, lower priced markets.”

Before joining IDH, Tessa worked in the private sector with Unilever’s Ben & Jerry in the quality department in a factory. I asked her about her experience there.

“I learned a lot there.” she told me, “Most importantly, I learned how difficult it is to do things. It is much easier to sit outside and tell people what to do.

“My job now is great, right?” she continued. “I can sit on the sidelines and tell people they must improve farmer incomes, but it’s incredibly complex to achieve. Saying this is what you must do is very different than being on the inside and trying to change it there.

Her comments made me think about that great quote, sometimes attributed to Einstein and sometimes to the US baseball player Yogi Berra, “In theory, there is no difference between theory and practice. In practice, there is.”

Tessa has a degree in anthropology and an MSC in sustainable development. She told me that the MSc taught her to think about cost-benefit analysis in environmental issues.

“It helped me a lot,” she explained, “On a personal level, I learned more working in the Ben & Jerry’s factory. It shaped me more than the Master’s, which was relatively within my comfort zone. I would advise people to step outside their comfort zones to move beyond theory to practice. It will make a difference.”

My time was nearly up, but I had two more questions.

“What advice would you give to your 18-year-old self?” I asked.

“You don’t have to conquer the world tomorrow,” she replied. “You can listen a bit more, learn more, take your time, you’ll get there”.

I then asked her if her 18-year-old self would have listened to that advice.

“No way,” she answered. “No, never.”

© Commodity Conversations ® 2023

Two years ago, at the end of 2021, I fractured my cervicals while on a skiing holiday in France. I found myself paralysed from the neck down.

The first responder on the slopes probably saved my life by immediately placing me in a neck brace. A helicopter flew me to a local hospital, where I spent a week in intensive care. An ambulance then transported me back to Switzerland, where a duo of surgeons pinned my neck back together again. It took nearly one year of physiotherapy for me to recover fully. Still, thanks to the professionalism of everyone along the supply chain – from ski slope to home – I made a complete recovery.

One night, lying in bed in a Swiss hospital, unable to sleep, I counted the number of professionals who contributed to my recovery. There was Gilles, the first responder, the helicopter pilot, the surgeons, the various different types of nurses, administrators, cleaners, cooks, managers, and accountants. I counted more than thirty professions in total. They had all played an important role so far. Later, I would add Eric, my physiotherapist.

I told a friend my happy (in the end) story over lunch. He commented that there are more professions in the agricultural supply chain – bringing food from the field to your home – that were involved in my journey from paralysis to recovery.

Together, we began to count them off; within a few minutes, we had reached more than thirty – excluding all those involved in growing and harvesting the crop in the first place. We were both amazed that there were so many.

When people think about the agricultural supply, they concentrate on the role of traders. Few think about the people who organise moving the crop to a port, inspect its quality, elevate it onto a vessel, charter a ship, organise port logistics, insure and finance it, ensure its documents are fit for payment, manage the price risk, unload and process the cargo at destination, and account and audit the process.

To that, you must add the market analysts, price reporters, sustainability experts, HR and PR professionals, lawyers and arbitrators (for when things go wrong), NGOs, journalists, and procurement specialists who keep the big food companies supplied. (Don’t forget the CEOs responsible for the whole process.) Not all those professions are unique to the food supply chain, but they all play a vital role. The system would grind them to a halt without them.

“You should write their stories,” my friend told me.

I thought over his suggestion. My background is in the sugar and biofuels markets, and, in my previous books, I have enormously enjoyed expanding my horizons to the grains, oilseeds, and coffee markets. But I have always focused on the merchants who trade those commodities, never on the support personnel who make the supply chain work. I didn’t know anything, for example, about container logistics, arbitration, or HR.

The more I thought about the project, the more challenging it seemed. I realised it would be a long journey of discovery into unknown fields and professions. (Little did I realise just how long the journey would be!)

“You should write their stories,” my friend insisted, “because people have little idea how food ends up on their plates and all the people who make it happen. And when they do have some idea, they are often critical.”

His comments reminded me of a conversation I once had with a friend’s wife – a retired nurse – over dinner. She accused me of “getting between the farmer and the consumer – driving down prices for the farmer and driving up prices for the consumer.”

At no stage would anyone claim that the more than thirty professions in my medical recovery had pushed up the price of my treatment or pushed down the revenue of the doctors – or that they were “getting between the doctor and the patient.”

I wondered why people are so critical of the supply chain that brings food to their table but rarely critical of the supply chain that brings people from sickness to health. People love doctors and nurses but hate (maybe that is too strong a word) agriculture commodity merchants, even though they are equally essential in feeding and keeping us healthy.

Perhaps it is because most of us now live in cities but still want to feel connected to the countryside and begrudge the agribusinesses who weaken that connection. Maybe it is because people do not understand how the food supply chain works. (As with all my books, I hope this latest addition will help correct that.)

Farming is by far the toughest part of the food supply chain. Despite growing up on a farm (a smallholding), I do not feel qualified to write about agriculture itself. I will leave it to others. Instead, I will start my journey after the harvest.

I hope you enjoy reading about it as I did writing about it.

This is a brief extract from my forthcoming book, Commodity Professionals – The People Behind the (Ag) Trade

PS I have interviewed more than fifty professionals for this book, but I still have another dozen to interview. My journey is approaching its destination, but I still have some way to go. So please be patient. In the meantime, I would like to say an enormous “thank you” to everyone who has so far contributed their time and expertise to the project and to those who continue to do so.

PPS I tried and failed to find the source of the image that I used in this blog. I apologise (and congratulate you) if you created it and ask if you could contact me so that I can credit you – and retrospectively ask your permission to use it.

© Commodity Conversations ® 2023