A Conversation with K.S. Vishwanath

When I started working on my new book on agricultural commodity supply chain professionals, I quickly realised that I had significant gaps in my knowledge. One of the biggest was my complete ignorance of the world of insurance. I had worked for many years as a physical trader and broker, but we always traded FOBS or C&F. I don’t think I ever traded a CIF cargo. As I started to delve into the matter, the first thing that struck me was the connection between marine insurance and the law.

Lord Mance, formerly Deputy President of the UK Supreme Court, said,

“Insurance and the law are inextricably linked at all points. Insurance is not like making cars or widgets. It depends on agreements and wordings for its force and effect, and agreements and wordings depend on the law for their force and effect”.

The second thing I learned was that insurance is so incredibly complex that someone could write a whole book about it. Therefore, I was delighted to find someone who had written an entire book on the subject and could answer my stupid questions. I have always loved meeting fellow authors. Only an author can share Winston Churchill’s pain when he said,

“Writing a book is an adventure. To begin with, it is a toy and an amusement. Then it becomes a mistress, then it becomes a master, then it becomes a tyrant. The last phase is that just as you are about to be reconciled to your servitude, you kill the monster and fling him to the public.”

K.S. Vishwanath (Vish) has nearly 40 years of experience in marine insurance in India and the Far East. Since 2008, he has been a freelance consultant based in Bangalore. He has written a highly acclaimed book, Insuring Cargoes—A Practical Guide to the Law and Practice, published in the UK. The second edition was released in March 2023.

Vish told me that although there are many scholarly works on the subject, he felt there was still space on the bookshelf for a book written by a practitioner that focused on practice rather than theory. He wanted to write a book that provided solutions to the issues a practitioner confronts daily.

“The shipping industry is in turmoil with the events in the Red and Black Seas,” he told me. “Still, on a different level, the insurance sector’s most significant issues are excess capacity and severe competition. In many parts of Asia and Africa, this leads to the commodification of complex risks. The European markets are less affected.

“Many risks are complex to price. Insurers, hungry for premiums and profits, may not price them correctly.

“Insurers develop volatility in their books and must make a profit to build a reserve for any significant loss. An insurer will take a pyramid approach, where most of their business comes from a low frequency of claims, but one or two of those claims will be of high severity.

“The bottom line should always be at the back of your mind as an underwriter. Still, market and broker pressure may force you to introduce excess volatility into your book. Competition is severe. If I say no to a business, the brokers will say, ‘You’re cherry-picking—if you want profitable business from this client, you must also do some high-risk areas.’

“As an insurer, you must ask yourself, “Is my business sustainable over a long period? Am I being fair to the clients as well as my shareholders?” These are things which I would lose sleep over.”

“You mentioned that the insurance market is in turmoil because of the Red and Black Sea situations,” I said. “What are the issues there?”

“The Red Sea is one of the world’s most important shipping zones,” Vish told me. “An underwriter with less appetite for risk may say they will not write business for voyages via the Red Sea, but most companies will do the business but increase their rates. It increases traders’ costs.

“The other issue is that avoiding the Red Sea will increase transit time and adversely affect a moisture-sensitive cargo like grain. Going from the Red Sea through another climatic zone may lead to condensation issues in bulk cargoes.

“Sweating and condensation can be a particular problem for containers but may be excluded under the insurance. Desiccants only work for a limited time; they stop working if containers take longer routes or are otherwise delayed.

“Piracy is still a risk if you go through the Red Sea. Traders must ensure they get piracy extensions in their policies. Some bulk cargo owners only have the ICC clauses B and C. It is untested whether they cover piracy ransoms. It is preferable to get piracy extensions.

The Dark Fleet is the biggest issue in the Black Sea. Some underwriters insure Dark Fleet ships, but if there’s a significant incident, there may be no recourse against the ship owner via the P&I Club (1). The IPOC typically covers an oil spillage but doesn’t cover the Dark Fleet. (2)

Another issue is that some vessels switch off their transponders as they approach the area. Russian exporters may take Ukrainian grains and mix them with Russian grains, but insurers or traders cannot know that.

“Imagine you are a trader,” I said, “what traps should I look out for when I insure a cargo?”

Most companies, even the big corporate trading houses, pay too little attention to insurance. Senior management must embed good insurance practices across the whole organisation. The CFO or the insurance manager may try to get the cheapest premium, but how about the coverage?

“What’s the deductible? Have you covered heat, sweat, and spontaneous combustion? Is rejection risk covered? The corporate office should drive risk management and insurance.

“First, appoint a good broker and don’t encourage brokers or underwriters who don’t ask for copious information. Brokers should be fussy with details and fully understand the business.

“Second, do a benchmarking exercise. How does my insurance programme compare with my competitors? A good broker should do a benchmarking exercise.

“An all-risk policy will not cover rejection, seizure, or condemnation by food, health, port, tax, or quarantine authorities,” he continued. “You require a rejection risk, which few people take. Insurers have little appetite for rejection insurance. There are specialist markets that write this class of business. The rates may be high, but at least attempt a small limit, start somewhere and cover rejection risk.

“What are the specific challenges for agricultural commodities?” I asked.

Shortage is a big risk for any bulk cargo,” he told me. “The shortage could be due to various reasons.

“If there are multiple receivers and ports, it’s entirely possible that some excess delivery has been made to a receiver in another port or your port.

“The draft survey may not reflect this as the tendency is to match the draft survey with the bill of lading. A draft survey method is not an exact science but depends on the condition of the sea, the swell, the wind, and the surveyor’s experience.

Another issue concerns moisture, self-heating, and dust accumulation. Another risk is quarantine due to loss or fear of loss. Insurers sometimes specifically exclude the rejection of grains by some importing countries when grains arrive with traces of genetically modified crops.

“And of course, you have this piracy and general average, theft, water damage through bad weather. These are the usual claims.”

“There has been an increase in fraud by sellers and buyers over the past few years.

“An example of seller fraud would be when a surveyor fails to notice that a container has not been correctly sealed. When the surveyor leaves, the seller unplugs the seal, removes the cargo and puts some rubbish inside.

“There are three types of buyer frauds,” he continued.

“The first type is where a buyer and seller have been trading for a while and build trust between them. The seller agrees to discharge shipments against a letter of indemnity, but suddenly, there is a dispute, and the buyer refuses to pay.

“The second type of fraud is the one-time fellow who places an order with you, forges the bill of lading or signs the bill of exchange, takes delivery of the original bill of lading, and disappears.

“The third type is imposter fraud, where someone pretends to work for a big company, shows industry knowledge, creates an email ID that resembles a corporate email ID, and gives the name of a first-class bank but with a fake account number and address. The buyer then intercepts or forges the documents, discharges the cargo, and disappears.

“Watch out for red flags. Go to a trade body like the Chamber of Commerce or the company to ask whether they know this email or this person or if it is fake. You should never enter today’s market with an unknown buyer or seller.”

“Are there things that you should particularly watch out for containers?” I asked.

“For general cargo like machinery, toys, and electronic items, containerisation is a better risk for insurance companies than shipment in break bulk. Still, containers will have problems with coffee, cashew nuts, and grains because of heat-sweat issues. Containerisation has reduced losses but has not eliminated them.

“Damages, theft, pilferage, water damage, and piracy are common claims in containers and breakbulk.

“How is technology affecting the insurance world?” I asked.

“There is an issue with automated crew-less vessels,” Vish told me. “How will they reduce losses? Will General Vverage come down? Will they encourage piracy? We need to see.

“Artificial intelligence will streamline claims processes. It can give you an online platform where claims and documentation are more straightforward. It can help underwriters generate proper premiums through data analytics.

“The sky is the limit for technology. Embrace it or be left behind.”

“Do claims often end up in court?” I asked.

“Insurers in the US and Europe don’t deny legitimate claims,” he replied. “They will negotiate, but they won’t deny. Most European and American companies have a strict Chinese wall between underwriting and claims to avoid the temptation for the underwriter to increase profitability by reducing the claims. Arbitration is compulsory in Western markets, but arbitration is only for quantum disputes, not for determining liability in India.

“If somebody files a case in a court in India, it will take 15-20 years before a judgment comes. By then, I will have retired from the insurance company and collected my bonus. So why should I bother? Compulsory arbitration would resolve this.”

“Could you give me a pre-trade checklist for insurance?” I asked.

“Absolutely,” he replied.

“The most important thing is to spend time on insurance. Don’t go for the lowest possible rate. Identify brokers or experts. Benchmark your program and spend some time on risk engineering. Identify insurance companies with an excellent claims-settling philosophy.

“You should then consider your chartering philosophy and how you select a vessel. Do I go for the cheapest ship, or do I go for a good-quality one? You may save on freight today, but what if a 5-million-dollar claim is not payable?

“Look for any gaps in my coverage. Consider taking rejection risk insurance. It is costly, but ask whether it is better to have it. Identify any unique exposures in your business and tell your insurance company about them.”

“And for companies in general?” I asked.

“Companies should use insurance to protect their balance sheets. Large corporates often forget this and go for the cheapest premium instead of ensuring best-in-class coverage backed by risk management. As a consultant, I have always told my clients that insurance should be driven from the top to embed the right message within the organisation.

I’ll give you an example of a textile mill in India whose products were brand names here. A new CFO joined them, saying, “This is not a low-lying area. We have a water shortage in this area. Why are you paying $50,000 for flood insurance? Cancel it.” The board applauded the decision, but there was a freak flood the following year, and the company went bankrupt.

Protect yourself against anything which can ruin your balance sheet, even though the chances of that happening are rare.


(1) A P&I club is a mutual insurance association that provides members with risk pooling, information, and representation. Unlike a marine insurance company, which reports to its shareholders, a P&I club reports only to its members. Originally, P&I Club members were typically shipowners, ship operators or demise charterers, but more recently, freight forwarders and warehouse operators have been able to join. Source Wikipedia

(2) Click here to read more about the risk implications of the Dark Fleet.

© Commodity Conversations® 2024

A Conversation with Peggy Olde Bijvank

Peggy and I have two things in common. We both worked as physical commodity merchants at Cargill before moving to futures brokerage.

I started as a futures trader at Cargill and found the shift to physical commodity merchandising challenging. I wasn’t a good salesperson and didn’t enjoy convincing people to buy what I was selling. It was not a problem that I had as a futures trader. The liquidity in a futures market is such that there is (almost) always someone willing to buy when you want to sell or sell when you want to buy.

I enjoyed being a futures broker. I built a small group of clients who trusted me to do my best. I never needed to convince my clients to do something. We discussed their hedging and risk strategies together, and I executed them in the market.

After four years working as a vegoil merchant with Cargill in Amsterdam, Peggy made a similar move into futures brokerage, joining Natixis Bank in London.

“I moved to London partly for personal reasons,” she told me. “Still, I saw it as a huge job opportunity to apply my knowledge of the physical commodities sector to a financial markets role. Natixis was setting up an agricultural brokerage desk for futures and options. They had people for coffee, cocoa, and sugar and took me on for grains.

“I enjoyed working as a physical commodity merchant,” she continued. “Cargill has a fantastic culture with a strong entrepreneurial spirit. Cargill taught me to be entrepreneurial. I still benefit from all that today.

“At Cargill, I was a merchant responsible for one of the vegetable oil product lines. My interactions with our clients were commercial and competitive. I had to understand what the market was doing and watch for whatever everybody else was doing. I had to follow inflows from South America and keep on top of refining margins.

“I found the commercial nature of the job fulfilling, and I especially liked the tangibility of it. I could watch the chartered vessels arrive in the port of Amsterdam and then depart with the products we traded aboard. I found it thrilling. So yeah, I really enjoyed that.

“My first line manager was an accomplished salesperson. He taught me how to connect with clients and have different approaches for different clients.”

“Why did you choose commodities as a career?” I asked.

“I did a master’s degree in business administration from Erasmus University in Rotterdam. Unfortunately, their Commodities programme didn’t exist then. I decided to study business administration as it provided a comprehensive knowledge base in the field of business. It allowed me to study and work abroad, which I found very appealing.

“I was keen to work in a fast-paced environment,” she continued. “When I saw Cargill’s advertisement for graduate trainees, I just knew it was for me.”

“What was your role at Natixis?” I asked. “And, more widely, what is the role of a futures broker?

“Unless they have been in the industry,” Peggy replied, “it’s challenging to understand futures markets or what a futures broker does.

“There are two types of brokers: execution brokers and clearing brokers. The former provides access to the markets and executes trades for clients. They also offer market data and find liquidity.

“Clearing brokers process clients’ trades after they have been executed. They hold the client’s assets, guarantee the client’s obligations and contribute resources to the default fund maintained by the clearing house. These default funds serve to absorb losses from defaults and protect the sustainability of the future’s markets. Natixis was an execution and clearing broker.

“Although it was a significant change from physicals to derivatives, it felt like a natural evolution of my previous role. In addition, I was also involved in physical commodity financing, namely the financing of coffee stored in exchange-approved warehouses.

“Banks offer significant credit lines to clients, larger than a standalone brokerage house would. During periods of high price volatility, clients need enough credit lines not to be forced to reduce their positions. It is a natural business for banks to finance their clients, whether in the fields or the futures markets.

“In 2008, one of our clients, a Brazilian sugar producer, built up a sizeable, short position in the market and couldn’t pay his margin calls. The exchange asked the producer to reduce their net position, but they didn’t. The exchange held the company in violation of its position limits and instructed brokers only to accept liquidating orders.

“This episode brought home to me the responsibility of the clearing member. It made me understand how well the system works and how vulnerable you are as a broker. It is a low-margin business where a client bankruptcy can wipe out your profits for years.”

“Did the move to electronic trading change how brokers operate?” I asked.

“It was challenging for brokers when the trading floors closed,” Peggy said. “Clients had direct access to the markets via their office screens and often did their own trading. You could quickly lose contact with them. There were fewer points of contact.

“The more successful brokers understood they needed an edge. Some offered proprietary research. Others specialised in execution, for example, in arbitrage between raw and white sugar or between New York and London cocoa – the tricky stuff. Others competed with lower execution fees, looking to reduce their overheads.”

I asked Peggy what she liked and disliked about being a futures broker.

“I liked dealing with many different clients in various sectors,” she replied. “I had soft-commodity clients worldwide, from Brazil to Vietnam and Singapore to Europe. I had tradehouses, producers, and corporates as clients. It kept things interesting. I enjoyed travelling and networking, not just with the clients but with others in the markets.

“What I didn’t like was that as a futures broker, you deal with a standardised financial product, which can be less attractive than dealing with shiploads of physical commodities.

“Also, as a futures broker, you don’t necessarily get to understand a client’s strategy. It’s what I enjoy most in my current role, where we tailor and bespoke OTC products to individual client’s needs. To do that, we must understand their objective and their strategy. On an OTC desk, you must get to know every customer to understand what they’re after and how to price it.”

Peggy has worked in commodity sales with Lloyds Bank in London for the past five years, covering Energy, Metals and Agricultural products. I asked her how her current position differed from being a futures broker.

“Futures contracts are standardised products,” she told me. “They trade on an exchange and require daily margin calls. There’s no counterparty risk as the clearing house guarantees them. The clearinghouse is the seller to every buyer and the buyer to every seller. If a counterparty defaults, the clearing house assumes the risk of loss.

“OTC contracts are not standardised but are bilateral and customised agreements between counterparties. They’re not traded on the exchange and are often not subject to margin calls. “You can customise the parameters of a swap, such as the quantity, the currency, the length, etc. They are always financially settled, whereas futures can be financially or physically settled depending on the market.

“The beauty with OTCs is that liquidity is not restricted to the volumes on the exchange as some market participants will warehouse the risk and not hedge them fully with futures. It means you can sometimes offer more liquidity to your client.”

Peggy has had two extended career breaks for maternity leave. After her first career break, she took a return-to-work programme with Macquarie Bank to get professionals like her back into the workforce. Still, she was back on maternity leave by the time she finished the programme.

“It’s not how these programmes should work,” she told me. “But hey, life happens.” After another two years off, she applied for her second return role in commodity sales at Lloyds Bank.

“Those two breaks were a big disruption,” she told me. “Still, they have been a positive for my career. They allowed me to do something new and have a different role in the industry. I went from a commodity merchant to a futures broker, from commodity finance to commodity sales.

“Looking back, I’m grateful for my different experiences, but maintaining a career is much easier than restarting one. There is a lack of returners programmes that offer viable re-entry at a suitable level. However, this is changing as the corporate institutions that provide them are beginning to realise these programs give them a competitive advantage in accessing talent.

“At Lloyds, I am one of the organisers of a pilot sponsorship scheme to support women’s career advancement, matching female colleagues with senior leaders to drive diversity, equity, and inclusion. It shows you how sentiment has changed over the years. It would never have happened when I started my career.”

© Commodity Conversations® 2024

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

A Conversation with Sherif Abdeen 

When Al-Waleed bin Talal (who Time magazine called the Arabian Warren Buffett) cofounded Savola in 1979, he said he wanted the group to become the ‘Nestlé of the Middle East. It is now one of the largest food companies in the region and has branded retail vegoils in Egypt, Saudi, Algeria, and Turkey. The group owns Panda, the largest grocery retailing chain in the Middle East. It has been investing in food businesses in the past couple of years, buying Bayara in spices and nuts and Al Kabeer in processed and frozen foods. Savola has a pasta business in Egypt and will soon go into snacks.

The company owns and operates two sugar refineries, one in Jeddah, Saudi Arabia, and the other in Sukna, Egypt, as well as a 160,000 mt sugar beet factory in Egypt with 20,000 hectares of sugar beet.

Sherif Abdeen is the company’s Chief Strategic Sourcing & Supply Officer. He studied Economics at the American University in Cairo and joined Cargill in 2001. His first job with them was selling sugar locally to industrial users. He told me it was the most challenging job he had ever had as there were five or six millers all selling the same product. Cargill then transferred him to Geneva, where he spent a year and a half on the futures desk, surrounded, in his words, by the best traders in the business. He called his eighteen months in Geneva “the foundation of his career.”

Cargill then sent him back to Cairo as a sugar trader before transferring him to their Dubai office, where he spent eight years. He joined Savola in 2018, returning to Cairo and becoming the general manager for their Egyptian operations.

“I had four roles there,” he told me. “One was to run the 850,000 mt refinery. The second was to run the company’s Egyptian 160,000 mt sugar beet mill. The third was to manage beet production on 20,000 hectares of sugar beet. My fourth role was to manage the company’s sugar risk for Saudi and Egypt.

“It was challenging in Egypt to compete with the state-owned and private mills, where everything is in local currency. Still, we were able to switch almost 100 per cent of our raw sugar imports into white sugar exports to manage the forex issue.”

In March 2024, Savola promoted Sherif to his current position, overseeing sugar, vegetable oils, and wheat procurement for all of Savola’s assets, including the two refineries. Savola buys about 2.1 million mt of raw sugar per year: 850,000 mt for Egypt and 1.3 million mt for Jeddah in Saudi Arabia.

“Have you ever run out of sugar?” I asked him.

“We have never had a forced shutdown,” he replied, “but we have had to reshuffle our maintenance programs. We have at least 21 days of maintenance each year. When the market inverses are significant, we can wash out (sell back) our prompt vessels and bring forward the maintenance period.

“Our warehouse capacity is about 350,000 mt between the two facilities,” he continued. “We’re not like other Middle Eastern refineries with massive warehousing, but we don’t need it in our business model because we have a local market to trade. It helps us manage the pipeline more efficiently. We have a high market share in Saudi and Egypt.

“Both refineries run 90 per cent of the time at full capacity. Because of our size, we manage a vast pipeline. We used to buy one year ahead regardless of the spreads, with one or two monthly vessels for each, but we now manage the pipeline according to how we see the spreads moving.

“In 2020 and 2021, we had decent carrying charges and increased our stocks to the maximum. We saw massive inverses in the past three years and significantly reduced our stocks. When we do this, we risk running out of raw sugar if anything goes wrong with the next vessel.

“Still, we deal with top-notch suppliers, and it has never happened even though port congestion at load can cause long delays. Sometimes, vessels wait two months or more to load.  However, we buy arrival windows, leaving it to the traders to take care of. We don’t charter vessels.

“We have been lucky that the high white premiums paid off most of the inverses in the past two years.

“In addition, we always have the option to part ship with our other assets to manage the pipeline. It is more cost-efficient to buy separately for each refinery. However, we always maintain the option of a second-port discharge if something goes wrong with any shipment.

“We used to buy every shipment based on a two-port discharge, but it costs us more as Jeddah has a shallower draft, and we have to take a smaller vessel. In Egypt, the largest vessel we’ve taken was an 87,000 mt Panamax, although the draft can take up to 100,000 mts. The maximum we can take in Jeddah is 50,000 mt. The draft is shallow, but the authorities are currently dredging the port, and in the coming 18 months, we should be able to take larger-sized vessels.

“Do you buy exclusively from Brazil, or have you taken other origins?” I asked.

“Mercosur origins benefit from a reduced import duty into Egypt. However, as you get the import duty back when you export, we can buy from anywhere.

“Saudi Arabia has no import duty on sugar. When Indian raw sugar was at a discount to Brazilian raw sugar, we bought and imported four or five cargoes. The quality and the price drive us. These are the two factors that matter to us. So, whatever we find an opportunity, we go for it.”

The world price of raw sugar is volatile. I asked Sherif how he managed to keep a stable refined sugar price for Savola’s customers.

“The Egyptian local market is not completely correlated with the world market,” he told me. “The country produces two-thirds of its consumption locally. Many variables impact the local price, including governmental sales of subsidised sugar through ration cards.

“The Saudi market is almost 100 per cent correlated to the world market, and the impact of the volatility is high. Most of our B2B clients in Jeddah buy on a premium basis, and we price them on a BEO basis. The customers take the price risk.

“We use various risk management tools, such as futures, options, and OTCs, for our B2C flat-price sales. We hedge and manage the price risk ourselves, and we price forward to ensure the visibility of our costs. In Egypt, we manage 100 per cent of our price risk ourselves.

“We export more from our production in Egypt than from Saudi Arabia’s. We are talking about 7-800,000 mt of collective export program between both. We use all modes of shipment. We sell from Jeddah to Jordan, Egypt to Libya, and Sudan by truck. We also book containers and charter vessels.

“If you got bullish on the market,” I asked, “would you price more than one year in advance?”

“No,” he replied. “We have a rigid risk policy. We are not traders. We are a manufacturing company. Our risk policy restricts the risk we can take, led by the treasury and the board committees. It governs how far forward we can buy and limits us to a maximum of one year. We have a rigid approval process regarding how, when and who we buy from.  The refineries are not in the business of speculation.

“It’s the difference between trading and procurement,” he continued. “Procurement is about the process. Trading is about position taking.”

“What keeps you awake at night?” I asked.

“What worries me the most right now is what is happening in the Red Sea. It is an issue that can dramatically disturb our pipeline and our shipping programs. So far, it has had little impact, but it could quickly escalate.”

“Last question,” I said. “Do you have any advice you can give someone starting in the business today?”

“Mike Gorrell, one of my mentors at Cargill, once told me about the carpet rule of trading. He said a good trader can smell a good trade under a carpet but never hides a bad one. It is good advice.”

© Commodity Conversations ® 2024

Five Questions for Yusuf Merchant

1/ Please tell me about yourself and PeaceInvest.

My background is in investment banking and capital markets. I have experience in fixed income, structured credit and finance, cross-border receivables, supply chain finance, commodities and bond markets.

Peaceinvest is a financial service provider based in Geneva. We are a Swiss-regulated for-profit organisation. Our senior managers and employee stakeholders are all registered Client Advisors. We structure and arrange the financial architecture of our investments and get paid based on their success or execution.

We arrange peace-relevant financing to promote social cohesion and financial, economic and human security. We do not limit ourselves to conflict areas but seek to solve problems and issues in areas of potential conflict.

For example, we are discussing with the government of an African nation that has lost 15-20 per cent of its human capital to conflict over the last decades. They have since been through a mediation and reconciliation process. We have designed an investment to maximise the country’s remaining human capital potential and bring it back into the economy. The investment crowds in the private sector and is designed to produce a humble return linked to the US Treasury bond.

Another project in Africa is linked to digital inclusion and access. We will crowd in private sector investors to improve bandwidth availability, public infrastructure, and lighting.

Our firm is not currently able to offer investment projects to retail investors. Still, we hope retail clients will want to combine their funding into an investment where we might have a concessionary donation from a charity or foundation.

However, we do not focus on concessions, grants or donations. We believe asking for donations would limit our ambitions and the needs of the investees, regions and people whose lives we wish to enhance. We hope to realise a more significant potential by crowding in the private sector. In our field, investments that bring about substantial social change and improvement have often been made at the UN, IMF, and Foreign Aid levels. We wish to design our investments to crowd in the private sector, which arguably has larger pools of capital.

2/ What is Peaceinvest trying to achieve?

Unless we can address some of SDG 16’s * shortfalls concerning peace, society, human capital, security, and cohesion, we will be unable to realise any other SDGs. We will destroy capital if we can’t capture the dividends from peaceful coexistence. We must address SDG 16 in terms of the use of proceeds, risk factors, KPIs, and sustainability principles.

For the last year and a half since we’ve been in operation, we’ve created a pipeline of six or seven projects under the core themes of Food Security and Nutrition, Human Capital, Green Energy and Mobility, and Risk and Resilience. My presentation at GrainCom24 will focus on food security and resilience, storage, convenience, and geopolitical risk.

Human capital is our second theme: violence and insecurity, access to technology and data, digitalisation, and education.

Our third theme is energy poverty and access. Energy poverty restricts human capital and ambition.

Our fourth theme concerns youth mobility, creating conditions for young people to recognise their potential. Frustrated youth have the possibility of going into violence.

Our last theme is how we bind these four aspects into a risk and resilience framework. We don’t just think about an existing conflict but create resilience to mitigate the risk of conflict.

3/ How important is food in terms of conflict and conflict resolution?

Food plays into human security. Violence can occur between well-meaning individuals if they don’t know where their next meal is coming from. Food is central to human aspirations and is a core theme for us. It is, at a most basic level, the fuel that makes one wake up in the morning and pursue their ambitions for a better, more prosperous and fulfilled life. There can be no growth without it.

I will devote much of my presentation to the Geneva conference on the next one billion lives in Africa. I will address some systemic and endemic issues Africa faces in replacing indigenous crops with cash crops of wheat and corn to sell on the world market.

4/ On your website, you mention peace and prosperity go hand in hand, but is that true?

The nature of human beings and how nations interact is such that we won’t be able to prevent conflict. However, our investments can help create the conditions societies and countries need to coexist peacefully. We can help prevent violence and insecurity.

We are more interested in resolving things than figuring out why they happened. We are not interested in assigning blame to either side. If you speak to one side, they may have legitimate reasons for doing or not doing something. That is the nature of human discord.

But we try to find common ground that allows former adversaries to reconstruct their lives and live again in peace. We want to help them understand and quantify the peace dividends to prevent them from again falling into conflict. Indeed, much work goes into ensuring that resource exclusion, societal disparities, and inequalities are not left to fester and cause a fracture in nations, societies and peoples.

Today, a declining proportion of the world’s population lives under a social norm that celebrates and ensures human rights. Democracies are failing; they are becoming less democratic and more autocratic. Even within democracies, participation in the democratic process is falling. Whether democratic or not, we must not lose hope and find a way to create peaceful conditions for all nations and peoples irrespective. We must recognise the peace dividend we earned when creating a new world order after the Second World War. We must remind ourselves where we could return if we do not celebrate this peace.

There’s always a tendency for human beings to fluctuate between taking things for granted and recognising that they should be preserved and cherished.

5/ What message will you give to the conference?

I will tell conference participants that Africa’s malnutrition rates of between 50 to 60 per cent compel us to do something if we want to avoid the chaos of mass emigration. We cannot afford to say that we live in an isolated world.

We must recognise that we coexist on this planet. We must invest in food security and resilience in parts of the world where malnutrition exists. Putting up more storage in the middle of North America will not help. Putting up more silos or grain processing facilities in the middle of Africa will.

*SDG 16: Promote peaceful and inclusive societies for sustainable development, provide access to justice for all and build effective, accountable, and inclusive institutions at all levels.

© Commodity Conversations® 2024

Miguel Costa – Sovena Group

One of the great things about writing this blog is meeting interesting people and learning about different businesses. However, after more than forty years following the sector, I rarely encounter a company I have never heard of, especially one as big as Sovena. Shame on me!

Sovena Group is one of the largest Portuguese agribusiness holding companies, covering the entire value chain from the fields on the farm to the shelves in the supermarket with brands such as Oliveira da Serra, Andorinha, Fula and Olivari, amongst others. The origin of this group dates to 1871 when Alfredo da Silva founded Companhia União Fabril (CUF), and today, after many acquisitions, mergers, and divestitures, this family-run group is led by the fifth-generation descendant, Jorge de Mello.

The company has four interrelated business areas: olive oil, olives, vegetable oil, and biodiesel. It has also recently invested in healthy foods and snacks by acquiring Centazzi, owner of the brand Salutem. It has factories in Portugal, Spain, the USA, Colombia, and Angola and operates farms in Argentina, Morocco, Spain, and Portugal.

Oilseed crushing is still the company’s core business. Miguel oversees the division from the company’s headquarters in Lisbon. He is responsible for the supply chain for the group’s commodities division, from production up to the refined oils for everything that is not olive oil: sunflower, soy, rapeseed, avocado, and specialty oils.

He describes his role as ‘trading around an asset’.

“We are an industrial company with a trading arm to enhance profitability,” he told me over a video call. “We look at the spreads between the different oils and sometimes arbitrage between them, but we don’t take speculative positions on FOB Brazil or Argentina. If I cannot buy seeds in Spain or import them, I might buy them in France or Romania and exit those positions when I purchase the physicals to execute the cargoes to our plants.”

“Sunflowers are our main commodity, but we don’t have a futures market. The closest we have is the Six Ports (1) for sun oil and the FOB Dutch mill for the rape oil or the Matif for the rapeseed.

“So, your primary objective is not to make money trading,” I suggested, “but to keep your factories supplied and running.”

“Yes,” he replied, “but not at any cost.

“There is no point running a plant at capacity if we cannot earn a margin that at least contributes to fixed costs. We look at the market every day and calculate our replacement costs. What is the oil worth? What are the seeds? What is our margin? Can we lock in that margin by selling the oil and the meals to the domestic or export markets?

“Importing seeds doesn’t make sense if we are not making $1 above our variable costs. Instead, we can import oil, refine it, and bottle it. I won’t put seeds into the plant pipeline just because I have an asset to run.

“We are the brand leaders in Portugal, with around 45 per cent of the market, so we have a responsibility to meet our needs. We treat our private-label customers the same way. If we commit to delivering oil, we will do whatever it takes to ensure the customer has it.”

Miguel began his career in 1996 with Continental Grain in Geneva, working on soybean execution. He had always wanted to be a trader, and Conti offered him a trainee trader position just before Cargill bought the company in 1999. Sadly, Cargill told Miguel he would have to stay in operations. He left to take a position in freight brokerage, hoping that some freight experience would help him reach his objective of becoming a trader.

“When Bunge opened an office in Geneva three years later, they asked him to join them, along with many of his ex-colleagues from Continental. He started on veg oil execution but moved on to the Black Sea grain desk, originating wheat, corn, and barley from Russia, Ukraine, Romania, and Bulgaria.

As mentioned above, Bunge has a toll crush agreement with Sovena in Lisbon. In 2007, Sovena sought someone to handle their soft seed crush operations in Lisbon. He took the position and stayed with the company for four years before rejoining Bunge to manage their crush and food operations in Italy. He then accepted the challenge of building and operating the EMEA high oleic sunflower value chain from Hungary. He then rejoined Sovena in 2017.

I asked Miguel how he managed during and after Russia’s invasion of Ukraine.

“My hair turned white on 23rd February 2022,” he answered. “Before the Russian invasion, Ukraine supplied 85 per cent of the sun oil imports into Europe.

“We got alternative supplies, mainly from Romania and Bulgaria. The resilience and the capacity of Ukrainian suppliers to work around different supply routes were unbelievable. Over the past three years, the country has done a fantastic job by exporting directly from their ports or via transhipment into the Danube into smaller ports or through Constanza or Poland.

“Unfortunately, I don’t know whether they can continue doing that. You’ve seen the pushback from neighbouring countries, such as Poland, Romania, and Bulgaria, over Ukrainian imports. The farmers in these countries want to ban imports. It will become challenging if Ukraine cannot fully reopen its ports.

“Ukraine was once the leading producer of sunflower seeds. In the years leading up to the war, annual production increased from 10 to 17 million tonnes. It has since fallen back to 14.5 million. At the same time, Russia increased production to 18 million tonnes when it had always been a couple of million tonnes behind Ukraine.

“We also imported sunflower seeds from a project in Argentina where, with our local partners, we rent land and produce sunflowers. By leveraging our production and buying from third parties, we assembled around 50,000 tonnes of Argentinian seeds that we imported into Europe. That year, we did about 45 to 50 per cent of Argentinian seed exports.

“Today, we manage about 12,000 hectares of land with our partner on sunflower production. We are not farmers and don’t trade the other crops in the field rotation. Our Argentine partner manages around 100,000 hectares, and we put sunflowers in that rotation.

“Argentina crushes most of its seed production, about 3.5 – 4 million tonnes, and exports the oil as crude or refined. We were interested in growing seeds near the port, south of Buenos Aires, and exporting them to supply our European plants.

“As I mentioned above, we only import seeds into our European crush plants if it makes economic sense. If it doesn’t, we stop our plants and import oil. It is the same thing with Argentina but in reverse. If it makes sense to export seeds, we do, but if we get better prices, we sell them locally. We have done both over the past few years.

“We have tried to do some kind of toll crush agreement in Argentina to test if exporting the oil instead of the seeds would make sense. It’s tricky as you’re competing with the big grain groups, and they will not give you crush capacity for free. From an economic point of view, it’s challenging to make sense of crushing at somebody else’s plant.

“Our plant in Lisbon is located at the port, and we have about 14 meters of draft. We can take Panamax or Capesize vessels, up to 100,000 tonnes. We have two crush plants on our Lisbon site, one dedicated to soybeans and the other to soft seeds. We also have another soft seed crush plant in Spain, near Cordoba and manage a 3rd one in north Spain via a JV with our partner ACOR.

“Soybeans are not our core business; the driver is meal production, not oil. We are a vegetable oil company. We have a toll crush agreement with Bunge on beans, where we manage the soybean crush plant industrially and they manage the commercial side.

“We also partner with Bunge in rapeseed/canola crush, handled via a joint-venture company called BioColza.

“Bunge markets our rapeseed meal into the Portuguese market as it is mid-protein and closer to the soybean meal market, and we manage the oil flow. On Sunflowers, we manage 100 per cent of the operation.

“About 80 per cent of our meal production goes into the domestic market, but we also export to northern Europe. If I’m crushing at 100 per cent sunflower seed capacity, I have to export meal as the domestic market is too small. It goes entirely to animal feed.”

“What’s your biggest challenge?” I asked Miguel. “What keeps you awake at night?”

“For the last couple of years, many things!” he replied. We deal mainly with sunflower seeds, so what has happened in the Black Sea over the past two years has been very worrying.

“Looking forward, the US elections in November could dramatically affect US support for Ukraine. It could be a game changer for the sun oil market.

“And in the long term, we are concerned about climate change’s impact on agricultural production.”

Sovena owns olive oil plantations and has about 7,000 hectares of olive groves between Portugal and Morocco – 6,000 in Portugal and 1,000 in Morocco. Still, the quantity of olive oil they produce from their olive groves does not even cover 10 per cent of their needs. The company buys olive oil from third parties and co-ops around the globe to supply their needs in the US and Brazil. Sovena owns Brazil’s leading brand and is the market leader in extra virgin olive oil.

Until a couple of years ago, global olive oil production was about 3 million tonnes, with half of that coming from Spain. For the last two years, Spain has only produced half of its potential.

“It has made it more challenging for us to originate,” Miguel told me. “It has also increased our working capital needs. About three years ago, olive oil was worth around €3,000 per tonne. It has since tripled in price. Today, a truckload of extra virgin olive oil is worth about €250,000.

“The recent rains in Spain have been excellent, and we have replenished most of the water reservoirs. So, we should be able to return to a more usual olive oil scenario. Unfortunately, it’s too early to be too confident because a late frost or too much heat during the summer could still impact production.

“Climate change will result in more of these extreme weather events in the future,” Miguel added. “However, climate change should open opportunities for other regions to grow olives, not only concentrating on the Mediterranean. We see that, for example, in South America, Argentina, and Brazil.”

  • Six ports are a cash assessment reflecting the value of crude sunflower oil loading on a FOB 6 ports (Rotterdam, Amsterdam, Antwerp, Ghent, Dunkirk, or Dieppe) basis for forward periods from the month ahead to twelve months ahead.

© Commodity Conversations ® 2024


Through Ana’s Eyes

Last September, I interviewed Maryana Yarmolenko Stober, the President of the Swiss chapter of WISTA (Women in Shipping and Trading Association). We discussed a joint report that WISTA Switzerland and PWC Switzerland had published on gender equality within the Swiss shipping and trading sectors. The two organisations recently published a second report, and I wasn’t surprised when Maryana contacted me for a follow-up discussion.

I was, however, surprised that she wanted to talk about a different project, Through Ana’s Eyes, that WISTA has put together in partnership with Equity Commons. This US company uses virtual reality technology to train people on equity and equality.

Together, they have developed a virtual reality experience where participants can feel what it is like to be a woman in a commercial position at a trading company.

Maryana told me she hopes “the experience will allow both genders to better understand each other and for organisations to take a more thought-through approach and actionable steps towards equity in their workplace.”

I recently read Jan Morris’ book Conundrum. Jan was an English journalist and author who, in 1976, was one of the first people to have a sex change operation from man to woman. What I found fascinating was that her old male friends treated her differently as a woman. They talked down to her. They mansplained things. They excluded her from conversations.

Jan was one of the first people to experience this implicit bias directly. I asked Maryana if this was what WISTA Switzerland and Equity Commons were trying to achieve with Through Anna’s Eyes, letting men experience how they treat women.

“It’s similar,” she told me, “But it lasts less than five minutes. It’s not permanent, and you don’t have to go through a painful operation first!”

WISTA Switzerland and Equity Commons will host an event to showcase the technology on Tuesday, 30th April, open to the public. They will hold a private event for HR departments and senior executives earlier in the day. The content will be the same for the two sessions, but the first discussion will focus more on HR. They will have 20 headsets available, so they may have to do it in 2 or 3 rounds. After everyone has had the experience, there will be a roundtable discussion.

“We are an NGO promoting women’s leadership, and we already provide training to our members on this topic,” Maryana told me. “This is our first event using virtual reality headsets. We look forward to seeing how it goes and how much interest we attract. But yes, we hope to be able to develop it.”

When I first joined the business in the 1970s, it primarily consisted of men drinking too much alcohol and behaving badly. The industry has changed dramatically since then, and I wondered why, half a century later, we still needed Through Ana’s Eyes.

“It’s a good question,” Maryana answered. “We have now completed two research studies with PWC Switzerland, and they both show that Swiss commodity trading and shipping remains a male-dominated industry, especially the higher you look in the hierarchy.

“Our findings show that male respondents are more likely to perceive equality than female respondents. This gap is evident across all levels of trading companies. It is particularly pronounced in areas such as promotion, where more women disagree that promotions are equally accessible to both genders.

“At the non-management level, women perceive less access to mentorship and professional development, suggesting a need for targeted engagement and growth opportunities. Furthermore, female respondents report experiencing subtle forms of discrimination, known as micro-behaviours, more frequently than men, highlighting an area for companies to address in fostering a more inclusive work environment.

“So yes,” she continued. “The problem persists in Switzerland and elsewhere. Our report shows progress, but we still have far to go.”

My next question was why.

“Men in senior management think they’re being fair regarding promotion,” she explained. “But they’re not. They’re promoting men more than women without realising it.

“Men sometimes ask whether we are saying that they should promote women just because they are women. That is not what we are saying. We are saying women should have precisely the same promotion opportunities as men.

“These opportunities start early in their careers when women access mentorship, professional development, and exciting projects that later lead to promotions. This first step has to be equal.”

I began to understand the problem: men perceive the workplace as equal, while women don’t. Senior male manager managers aren’t aware of their bias. If they get a choice between an equally qualified woman and a man, their natural bias is to promote the man. But they don’t realise it.

“That is why it is important to make people aware that we all have biases,” Maryana told me. “Biases are normal. We all have them. We just need to understand how to react to them.”

Women in the commodity business tend to be concentrated in the legal, communications, HR, and operations departments. The trading desk remains the last bastion of male dominance. When I asked traders why they think this is the case, some replied that men are better traders. They argued that women have a smaller risk appetite and make worse risk assessments than men.

“Research shows that women are not worse traders than men,” Maryana said. “It has more to do with the social pressure trading roles place on women. They are traditionally structured in a way that requires traders to be available 24/7, giving little flexibility regarding working hours and other personal arrangements.

“Women tend to carry more responsibilities at home than men and trading jobs don’t fit well with those other responsibilities.”

The event will be held at the InterContinental, Chemin du Petit Saconnex 7-9, 1209, Geneva, from 18:00 to 20:00. For further details, please contact president@wista–swiss.com.

© Commodity Conversations® 2024

Five questions for Michael Buisset

1/ Michael, you are the Managing Partner at HFW Switzerland and a Shipping and Trading Specialist Solicitor. What messages will you give delegates when you speak at the GrainCom24 Geneva conference in May?

I will discuss market disruptions, sanctions, navigating the rapidly evolving risk environment, and the challenges and opportunities posed by electronic bills of lading.

I will say it’s an exciting time to be in commodities and trading in general. We’ve seen significant supply chain disruptions in the last 3 or 4 years, but tremendous opportunities lie ahead. I’m upbeat about the industry and where we’re heading. It will be challenging, but traders thrive in demanding environments.

Geneva is one of the primary hubs for commodity trading. We are in the heart of the global community, and long may it last.

Traders sometimes get bad press, but Geneva and Switzerland are lucky to have traders. The Swiss like to speak about chocolate and watches, but trading and shipping account for about 3.5 per cent of the Swiss GDP and 20 per cent of Geneva’s GDP. It’s a thriving industry with a great future.

The bonuses and the profits we’ve seen in the trading industry here in Geneva have been eye-watering, but disruption plays to a trader’s strength. Traders thrive on volatility.

2/ What legal lessons can we learn from three recent events: the Russian invasion of Ukraine, the attacks in the Red Sea, and the Baltimore Bridge collapse?

When Russia invaded Ukraine, we had a wave of contract defaults where parties on either side tried to argue force majeure – sometimes successfully, sometimes unsuccessfully. We’re still seeing the consequences. Clients have vessels stuck in Ukraine and are fighting with insurers to recover what’s owed under their policies.

The legal lesson is that you must look at your contractual arrangements. War is not a case of force majeure in every case. Force majeure clauses have an event trigger in the case of war, but it has to be in the contract. If it isn’t, you can’t claim it.

The Red Sea has taken the industry by surprise. The Houthis control a vast area in Yemen and are highly organised. All vessels are potentially now at risk in the area.

Owners will only go through the area if the charterer agrees to pay extra war risk premia. Traders can choose between paying the additional freight cost via the Cape or the extra war risk premia of going through the Red Sea.

But it is not a straight choice. An interesting case was published in the UK Supreme Court earlier this year. Pirates hijacked the Polar in 2010, and the owners paid a ransom in excess of the payout the insurers were obliged to pay.

The court grappled with whether the excess was for the charterer’s or owner’s account. The charterers argued they shouldn’t pay the excess, but the court disagreed. It ruled that charterers are liable for General Average (GA)* contributions if they want to go to that region. Under GA, the charterers are liable for an excess over and above the insurance cover.

I can’t say much about the Baltimore Bridge incident because the case is still under investigation.

One general comment: a liability regime does apply, and owners are responsible for their vessels. They can probably limit liability, but they can also be exposed to claims from the state, such as the cost of rebuilding the bridge or the cost of any delays.

The question of liability will turn on what caused the accident. Was it a fortuitous event? Was it caused by the owners’ fault, neglect or want of due diligence to make the ship seaworthy? Were the crew negligent?

Incompetence is not a defence, but negligence is. The owners must recruit a competent crew and update them with the various regulations and training obligations. But if they’ve done that, they are not liable even if the crew is negligent on the day.

This reminds me of a case I handled a few years ago, known in the press as the Philippine boxing incident. In that incident, a vessel ran aground and discharged a cargo of coal on a coral reef. We successfully pleaded negligent navigation, as most of the crew were watching a boxing match on their mobile phones. They had left a junior crew member on the bridge to navigate the ship, and he ran into a coral reef.

3/ What is the difference between maritime law and commercial law?

Most English contract law is based on shipping precedents and principles. England ruled the waves for over a hundred years, and many commercial counterparties prefer to deal on English law terms.

There are some differences. A Bill of Lading is a document that ship owners, traders, and banks know well and use daily. Still, the legal aspects of the Bill of Lading are currently being fought over in the English courts. The legal implications are pretty specific to the shipping business.

So, the answer to your question is that maritime law is mainstream but has some narrow and niche aspects.

4/ What hot maritime and commercial law issues will you raise at the conference?

A series of significant frauds has led to claims under the Bill of Lading against the ship owner for missed delivery.

As a result, people are seriously speaking about moving to electronic bills of lading. They are a hot topic. The UK passed the Electronic Trade Documents Act in 2023, and we hope people will embrace the technology.

Commodity price volatility has been high, encouraging people to default on contracts. For a firm like HFW, these market disruptions have played to our strength as we specialise in disputes.

Sanctions are another hot topic. We have a specialised team dealing with them, and they have been flooded with requests. Can we do the deal? Can we finance this deal? Or, sometimes, can we get out of the deal?

5/ What advice would you give a physical grain trader starting their career, apart from reading the contract?

Challenge is a good thing. When you face a challenge, your life crumbles, and you have sleepless nights, but it’s an experience; you will learn from it and become stronger. So, don’t give up hope and remain positive.

Shipping and trading are challenging sectors, but they are full of opportunities. Never sit back on your laurels. Reinvent yourself daily. Get up early and catch the day.


* General Average is a principle of maritime law that essentially establishes that all sea cargo stakeholders (owner, shipper, etc.) evenly share any damage or losses that may occur due to voluntary sacrifice of part of the vessel or cargo to save the whole in an emergency. (Source)

© Commodity Conversations ® 2024


Five Questions for Sumit Gupta

1/ You worked nine years with Cargill, one year with Olam and have been with McDonald Pelz for nearly ten years. Could you tell me about the company?

McDonald Pelz is the world’s largest agricultural brokerage house with offices in ten countries. We cover the supply chain from the farm gate to the consumer, focusing on soybeans, grains, pulses, and oil seeds. The company sees a significant opportunity to connect India to the world market.

In addition to being a physical commodity broker, we act as an information provider. We do crop surveys and economic and market analyses on a subscription basis. If a client wants a specific report on a particular supply chain, we do that on a paid consultancy basis.

2/ What are the issues in India regarding the domestic production of grains and oil seeds?

India has 100 million farmers with an average landholding of 1.43 hectares. Ours is a weather-dependent agriculture system where a slight change in weather leads to a significant spike in local prices. India is the last country in the Northern Hemisphere to plant and harvest wheat. Small temperature changes make a substantial change in wheat production.

Supply is fragmented, and the opportunity to increase production is limited.

3/ How will rising incomes affect food demand?

Average per capita income is around $2,200; we expect it to increase to $5,000 in the next ten years.

In 2008, China’s per capita income was $2,200 per year, and the country imported around 30 million mt of beans. Today, their per capita income is around $14,000, and the country imports around 100 million mt of beans. There is a good correlation between bean imports and per capita incomes.

In contrast, India’s population is 20 per cent Muslim and 80 per cent Hindu. We don’t eat beef or pork. Poultry and pulses will drive the expected 6 to 8 per cent annual growth in protein consumption.

India produces 25 million mt and imports 3 to 4 million mt of pulses annually. The country will become an even more dominant player in pulses worldwide.

We saw a shift from wheat to rice in China as incomes grew. Still, I don’t expect to see the same in India. North India and the central part of the country dominate wheat consumption, while rice is consumed in the coastal areas. I don’t see these preferences changing. I do see a shift from a cereal-based diet to a protein-based diet.

The government will continue to play a role. Imagine you are prime minister of a country with 1.4 billion people and 900 million living in villages with an income of less than $5 a day. India is a democratic country with a free media. A small change in food prices can become a big political issue.

The government must ensure the rural economy’s health by offering farmers high prices and keeping consumer inflation low. It has a thin line to tread.

4/ What is the status of India’s ethanol programme?

The country has a 20 per cent blending target by 2025, but I doubt we will achieve it. We need around 12 billion litres of ethanol to meet our current 12 per cent blending target. Out of that, 50 per cent comes from sugar and 50 per cent from grains. We now use around 15 million mt of grains for ethanol.

In a country like India, the fuel versus food debate will always tend towards food. The government introduced this ethanol policy when we had huge surpluses of wheat and rice. Rising ethanol demand will put pressure on the grain supply. We have imported almost half a million mt of corn this year—a record. In an average year, we are an exporter.

I don’t see the current ethanol policy as sustainable, and I expect the government to eventually say that ethanol can only be made from sugar cane.

5/ What messages will you deliver to the GrainCom24 conference in Geneva?

Probably too many.

One: India’s time has come on the world stage. People are still focusing too much on China, and I fear that they may miss the once-in-a-lifetime opportunity that India provides.

Two: South Asia’s agricultural consumption will thrive. It will increasingly tie the region’s two billion people into the world supply chain and significantly impact global trade flows.

Today India imports around 18 million mt of vegetable oil – 80 million mt of bean equivalent. China imports 100 million mt of beans. What would happen to South America’s oil sector if India stopped importing oil and imported beans instead?

India has already had a considerable impact on world agricultural flows. It has not been as pronounced as China’s, but it will grow.

Three: Do not look at India solely as a trading hub but as a country where you can connect and invest. Our food processing industry will grow in leaps and bounds, with immense investment opportunities in processing, branding, and the entire supply chain.

Four: Don’t expect immediate results. Look at a typical horizon of 3 to 5 years.

Five: Government intervention will stay high. They must care for both farmers and consumers. Still, there are opportunities within those constraints. India is a private enterprise success story. The government will always be there, but not as a direct participant.

Six: India is a democratic country with a rule of law. Even without a local language, you can cover the length and breadth of the entire country.

Seven: Act internationally but think locally. When McDonald’s came to India, they had to change their menu to suit Indian tastes. You must do the same.

© Commodity Conversations ® 2024

A Conversation with Serge Varsano

I met Serge Varsano on a miserably cold and rainy Monday in Paris. I explained that I wanted to interview him for the CEO section of my new book, but he immediately told me that he was not the CEO of Sucden; he was the President of the company’s ‘Directoire’.

The concept of a Directoire dates back to the French Revolution, and the nearest translation is ‘Management Board’. It is an unusual arrangement that less than 5 per cent of French companies follow – and probably unique in trading companies.

In Sucden’s case, the board consists of five people, with each member having a right of veto. Decisions must be unanimous. Every board member must agree before the company undertakes a strategy on the markets or invests in a sector or a person. If, for example, the financial director does not agree, they do not do it.

A supervisory board oversees the management board. Serge explained that although he is the company’s majority shareholder, he operates within certain limits, first with the management board on ‘day-to-day’ trading decisions and, second, with the supervisory board on more strategic decisions. He needs authorization to exceed these limits. They ensure that the group is never put in danger.

Serge introduced the dual system to protect shareholders and the group after the company nearly went bankrupt in 1990. He told me that when Sucden bought Cocoa Barry in 1982,  the company’s best financial and risk controllers moved from the trading side of the business to the industrial side. It left a gap in the trading operation when the company expanded into different commodities such as rice, cotton, and energy.

“Everything exploded at the same time,” he admitted. “We had to sell Cacao Barry and Sogéviandes, owner of the Charal brand, dramatically reduce headcount and concentrate on sugar, our core product.

“Max Benamo, the former president who took over after my father died in 1990, came back to help me,” Serge told me. “We made a lot of money with a whole series of operations worldwide, especially in Russia, Cuba and Brazil. We had an outstanding team, a very tight team.”

“In the 1990s, we began our agroindustrial activities in Russia,” he said, “Buying four beet processing factories and the land with them. In 2010/12, we returned to cocoa and then coffee. Later, we added rice and sea freight by purchasing ships. We are also a market-maker in the London metals market. It is an activity that is doing very well, but it experienced difficult times with the nickel crisis two years ago.

“Brokerage accounts for around 15-20% of our revenue,” he continued. “Our agroindustrial activities account for 30-40% and trading for the rest. But I include distribution in the figure for Russia. I include shipping in the trading.”

Although Sucden bought beet factories and land in Russia, the company did not invest in sugar cane in Brazil. Other trading companies lost a lot of money purchasing Brazilian factories. I asked Serge how he avoided the trap.

“It’s not that we were brilliant,” he admitted. “It was just that we didn’t have the money to do it. It was luck.

“The cane mills were expensive,” he continued. “We never understood why all these people dived in. We didn’t believe in the ethanol stories, and the sugar market was around 11-14 c/lb, which was insufficient to justify the prices. It was hundreds of millions of dollars plus debt.

“We got involved in logistics operations in Brazil with port terminals but did not enter production.”

“But you do production in Russia,” I said. “Do trading and production make a good mix?”

“We do not trade in Russia,” he corrected me. “We sell our sugar locally, especially to major brands like Coca-Cola, Nestlé, etc. We export a little to Kazakhstan and Kyrgyzstan. It is not trading; it’s production and distribution.”

Cocoa trading was responsible for a significant portion of the 1990 losses. In preparing for this interview, I reread La Guerre de Cacao. I admit that I didn’t understand everything. I asked Serge if he could explain what happened.

“We were expecting a big harvest and shorted the differentials between the physical and futures markets at £20-30 per tonne. It was a significant operation but nothing extraordinary.

“President Houphouët-Boigny of the Ivory Coast banned exports – he thought the price was too low – and the differentials rose to $300-400 per tonne. We had a huge potential loss on our books. Other traders went to the Ivory Coast to convince the President to reallow exports. He said he preferred to destroy his cocoa rather than export it at such a low price.

“We went to him with a different idea: accept his price and buy 400,000 tonnes, store 200,000 tonnes in Europe for one or two years, and sell 200,000 to our customers. He accepted the operation. For that, we needed FF400 million. The French government had a structural fund that was not fully used, and they wrote a check for FF 400 million to be distributed to the Ivory Coast.

“With the storage cost and the 200,000 tonnes we sold, we emerged from the operation almost unscathed.

“We had asked the President for exclusivity on the deal for a certain time and not to sell to others. However, he sold 400,000 tonnes to Phibros, and the market collapsed. It was a disaster for us. It was also a disaster for Phibros who were long in the market. They exited cocoa soon afterwards.”

“Of the commodities you trade,” I asked, “Which is the most difficult and which is the most fun?”

“Sugar is in our blood and our genes,” he replied. “Sugar is complex because it is a fob contract, unlike coffee or cocoa. You need a robust physical department to trade in sugar. You also need to have a good physicals department for cocoa, but the cocoa is already in Europe when you take delivery.

“You need a robust global network to trade sugar: Brazil, the Middle East, Thailand, China, etc. Cocoa is mainly produced in Ivory Coast and Ghana and exported to Europe and a little to the United States. Overhead costs are less expensive.

“Coffee is between the two. We are relatively small in coffee, with 7 million bags per year, compared to the big companies, which trade 12 million bags. We are among the leaders in sugar, with around 10 million tonnes per year. We are among the first in cocoa, trading around 100,000 tonnes of beans each year and the equivalent in products.”

Serge Varsano has a reputation for being a speculator. Still, talking with people who know him well, I understood that he built the company on personal relationships and trust, for example, with Cuba and Russia, rather than by taking significant speculative positions on the market.

“I am more of a deal maker than a speculator,” he told me. “My goal has always been to gain the trust of our customers and find solutions for them. Everyone has problems to resolve, whether financial, logistical, or pricing. That is what interests me.”

“Speculation doesn’t interest you?” I asked.

“Not really,” he answered, “Especially on the flat price. We are not very good at the flat price, and we do very little for the size of the group, including cocoa and coffee.  We prefer ‘relative value’ to flat price.”

“Is this Sucden’s secret to success?” I asked.

“No, he replied. “The secret to success in this business is to have great teams and excellent people.

“As I explained earlier, if one of our traders wants to carry out an operation, he must have the management board’s agreement. And if the board agrees, we support the trader 100 per cent. Our decisions are collective. We make mistakes—it happens—but we don’t fire a trader if he loses money on a transaction that we all approved.

“We have a strong team spirit, and our traders have stayed with us for a long time. It is our secret to success. It is our way of trading, our way of managing teams.”

“Each company has its way of working,” I said. “Can partnerships work in trading?

“We have few structural partnerships,” he replied. “We do joint accounts, but for one-off operations. Interests can change in life and business, and getting married structurally is risky. Marrying a producer is challenging because we don’t have the same interests. Traders want to buy as low as possible, and producers want to sell as high as possible. It’s hard always to agree.”

“I imagine it wasn’t easy to take over the company from your father,” I said.

“Contrary to what you might think,” he replied, “It was easy. In 1975, when my father found out he had cancer, he asked me to come back from the United States. I was 20 years old. The market was dropping dramatically from 66 c/lb, and I wondered, ‘What is this thing – what is happening?’

I quickly integrated myself into the company and started doing small businesses. I had contacts in Venezuela, and we made some significant deals with them when the country became an importer in the late 1970s. I worked with my father and Elie Coriat, my father’s right-hand man. My father died in 1980.”

“How are you preparing your two sons to succeed you?” I asked.

“My desk is in the trading room with the traders. My two sons work three metres away, one to my left on sugar and the other to my right on cocoa. It’s nice.

“They participate in the management board meetings. They are not management board members but will officially join when I retire in 3-4 years.”

“What are the biggest challenges they will face?” I asked.

“Grain is our biggest challenge today,” Serge replied. We have just begun grain trading. We are small, with 2 million tonnes this year. We do not have any ambition to compete with the big trading companies, but we will find niches in complicated countries for less common products. We initially aim to distribute in Eastern and Mediterranean countries. Can we stay small? We’ll see, but we might have to move to a higher level one day.

“Russia is another challenge. It is impossible today to predict what will happen. Will it normalize?

“Cocoa is always a challenge. We cannot increase our bean volumes. Exporters have built factories and export products. However, we can expand cocoa products, such as butter and cake. There will be quite a few things to do.

“There is a lot to do in coffee. It’s a complex market at the moment. We had a bad year two years ago, but we slowly began to understand and anticipate the situation and had an honourable result in 2023. This year, 2024, is off to a good start for Arabica.

“Do you need more capital?” I asked.

“We have around $1.5 billion in capital, and our debt is less than our equity. We would need more capital if we wanted to buy factories or grain elevators. Still, we are happy to remain in trading and brokerage in London and agri-food and distribution in Russia. We live well and obtain excellent results relative to our funds.”

“You enjoy doing big deals in sugar, cocoa, etc.,” I said, “But do you get bored when there are no big deals?

“Not at all !” he replied. “It’s always interesting to follow the teams. The markets move constantly; there is rarely a year when nothing happens between sugar, coffee, and cocoa.

“I rarely get bored,” he added. “But I have another great passion, which is show jumping.”

Serge is a keen rider and competes in show jumping at an international level.

“I started at 10-11 years old in Neuilly,” he told me. “I didn’t do badly and was part of the French Junior team. But, I left for the United States at 17 to study, and I never got back on a horse until I was 50.”

“Was it easy to restart?” I asked.

“No, it was challenging,” he replied. “It was easy at first – like golf, the first shot is easy – but it’s hard to do well. Now I’m happy with what I do. I’m having a lot of fun.”

“Do you ride every day?” I asked.

“No! I’m still working,” he replied with a smile. “I ride every Wednesday morning and at the weekends. Competitions usually last four days, Thursday, Friday, Saturday and Sunday, so I sometimes have to take Thursday and Friday off to participate.”

“Are there any similarities between trading and show jumping?” I asked. “You can be an experienced trader or rider and have a good plan, but there is always an element of luck.”

“The two are similar,” he replied. “The stress is about the same between show jumping and trading.

“There is always something you can’t control. You can have a faultless course if you calculate and respect all your horse’s strides.

“Unfortunately, something always happens. The horse can swerve, add, or remove a stride, and, voilà, a bar falls.

“It’s the same in trading! You can calculate everything perfectly, but something unexpected can happen. It might rain too much or not enough, or a delivery might have more sugar than expected. You can make a bad decision; things can go wrong, unexpected things.

“If you make a mistake in trading, you cut the position and start again the next day. It’s the same with show jumping. There is always another competition – another opportunity. It’s the same in trading. The market will always give you another chance.

“So, it’s pretty similar. We never master everything in trading or show jumping. But that is what makes it interesting and fun.”

Five Questions for Harm de Wilde

1/ Could you tell me a little about Cefetra?

We are a European company and part of the publicly listed BayWa Group, a German company.

Cefetra was initially owned by the Dutch cooperative compound feed producers, which sourced feed ingredients for the country’s compound feed industry. In the 1990s, we expanded that model into the rest of Europe.

The EU produces 160-165 million mt of compound feed annually, but its growth potential is limited.

Highly populated countries in Northwest Europe want to reduce livestock herds to reduce nitrogen emissions. Some project the EU compound feed production to remain unchanged, but we could see a shift within Europe, with production declining in northwest Europe and growing, for example, in Spain, Poland and the Balkans.

Eight years ago, we reviewed our business and decided to move into what we call “Beyond Compound Feed.” We have grown in the food ingredient business and are no longer just a company that sources feed ingredients for the European compound feed industry.

I have been with the company for nearly 16 years and, along with another colleague, am responsible for market research within the Cefetra group. We forecast price direction for the broad range of commodities we trade, including grains, oilseeds, meals, vegetable oils, biofuels, co-products like beet pulp pellets, citrus pellets, and, nowadays, dairy products.

We initially provided research exclusively for Cefetra, but we invested in our team to be good in research tomorrow. We hired data engineers, quants, and biofuel specialists. As the quality of our research increased, we experienced a growth in demand for our research from our supply chain network. Based on this growing demand, we decided to sell some of our market research to external parties under the name of Ceras-Analytics. We launched our platform in October 2022 at the ECE in Valencia.

We offer standardized research on a one-stop-shop platform with weather and crop forecasts and detailed S&D balance sheets for grains, seeds, meals, vegetable oils, and biofuels. We then translate our S&Ds to fundamental fair values. As fundamentals are not the only price drivers, we also provide technical and seasonality analysis—and much more.

We are experimenting with AI and using it to improve specific components of the models, but we want to avoid AI producing a forecast that we can’t explain.

2/ You’re speaking at GrainCom24 in Geneva on the outlook for EU and Black Sea grains and oil seeds. What will you bring to the table?

I attended the conference last year for the first time and felt that although it covered the global markets well, it focused insufficiently on the EU and the Black Sea.

Despite the war in Ukraine, US exports as a percentage of world exports have declined sharply in the last ten years for critical commodities like wheat, corn, and soybeans. Therefore, the US corn and wheat prices depend more on the US domestic situation. The US still plays a crucial role in price-setting, but we must relate it to the international situation and what it means for Europe and the Black Sea.

I aim to translate global events into how they could impact the EU.

3/ What are the current issues facing the European grain and oil seed markets?

Weather and politics are our key focus today. Dutch farmers started protesting in 2019, but since early this year, we have seen widespread protests from farmers across the EU. As a result, we have seen a recent change in EU policies – for example, the proposed import duties on oilseeds, oilseed products and grains from Russia and Belarus and the withdrawal of the ban on certain insecticides.

Weather is getting more extreme in recent years. For example, North EU has been extremely wet since October last year, hampering spring planting and resulting in disappointing winter crop conditions.

4/ Would Trump’s re-election significantly change your price forecasts?

I am a fan of making scenarios. When you make a forecast, you limit yourself to the current status quo. If you create scenarios, you become more open-minded about what might happen and the potential implications.

We have had Trump in office before, so we know what to expect to some extent. In his current campaign, he has already threatened to impose import tariffs on Chinese goods, and it’s not unthinkable that China will retaliate against US agricultural exports, as they did in 2018.

Interestingly, one could argue the Chinese have been building government stocks over the last two years, and that they may have been preparing for an eventual Trump re-election.

Trump is threatening to be less supportive of Ukraine. However, it is not only Trump who is showing less support. We also see less support from some European countries.

The resilience of the Ukrainian people is inspiring. Before the Russian invasion, the country exported 300,000 mt of agricultural products via the EU. Everybody thought they could increase that to one million mt, but they increased it to three million mt. It is truly impressive.

The same applies to the Ukrainian farmers. It is incredible how they managed to grow their crops in the face of immense challenges. The Ukrainian wheat yield last year was close to record.

5/ What are you hoping to get out of the conference?

We are proud of what we do at Ceras-Analytics and would like to share this with a broader audience.

Furthermore, we always like catching up with our network and discussing markets.

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