Category: Blog

A Conversation with Nicko Debenham 

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

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

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

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

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

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

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

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

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

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

What does Sustainability Solutions do?

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

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

Could you tell me about these new regulations?

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

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

What is the difference between the EUDR and the CSDDD?

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

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

When does the EUDR come into force?

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

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

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

I disagree.

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

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

Can the cocoa sector comply?

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

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

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

What about coffee?

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

I would agree with him.

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

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

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

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

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

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

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

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

Why?

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

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

What is a hold and release order?

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

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

Why hasn’t it been enforced?

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

Will the EU do any better?

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

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

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

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

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

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

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

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

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

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

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

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

You must have checks on the ground.

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

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

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

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

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

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

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

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

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

Thank you, Nicko, for your time and input.

For more information on EUDR, please click here.

© Commodity Conversations ® 2024

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

“Anything else,” I asked.

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

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

For further reading, see:

Precision Fermentation Perfected: Fermentation 101 – TurtleTree

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

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

Planetary website

© Commodity Conversations ® 2024

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

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

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

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

The challenge.

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

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

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

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

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

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

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

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

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

Why does the shipping and trading sector need SUISSENÉGOCE?

The Executive Board has assigned the Association three missions.

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

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

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

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

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

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

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

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

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

What advice would you give to your members?

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

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

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

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

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

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

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

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

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

So, let’s go back to the fundamentals.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Is there anything that you would like to add?

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

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

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

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

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

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

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

Thank you, Florence, for your time and comments.

© Commodity Conversations ® 2024

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

© Commodity Conversations ® 2024

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

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

I’m Spanish, and I live and work in Geneva. I’m 41 years old, married to a Spanish lady, and father of a six-year-old and a five-year-old, both born in Switzerland. They speak French better than Spanish.

I have a master’s degree in electrical engineering from the Polytechnique University of Madrid. When I finished my studies, ABB, a Swiss engineering company, offered me a job in their marine division. One of the conditions of the job was that I should be willing to travel and stay for long periods in the Republic of  Korea, which, at the time, was the biggest shipbuilding country in the world. I’m from Madrid, which is as far from the sea as can be in Spain. I had never been on a ship. ABB is a dream company for anyone involved in electrical engineering, so I signed up.

On my third or fourth day of work, I boarded one of the last ships built in the historic city of Bilbao, a 330-meter LNG carrier. I was like, wow, this is big! A few weeks later, I was a commissioning and technical engineer in the Republic of Korea, and I travelled frequently back and forth over the following years.

Eventually, I decided to move from engineering to a more commercial career. The company supported me and paid for me to do an MBA at the IE Business School in Madrid. I stayed with ABB in Spain, developing the local business and working on what people now call decarbonisation, but at the time, it was commonly called energy efficiency.

My wife was offered a job in 2014 in Switzerland, and ABB transferred my contract to Switzerland, giving me global responsibility for their energy efficiency business. I began in product and solution management and moved to business development and sales, where I’ve spent most of my career. I gained exposure to merchant shipping and travelled extensively.

I then had a couple of kids and realised that travelling 80% of my time wasn’t great with a young family. I left ABB for Inmarsat, where I worked in business development and strategy in their maritime business unit.

I did the University of Geneva’s Advanced Diploma in Commodity Trading while at Inmarsat. Once I graduated, I participated as a guest lecturer on the shipping element. It’s a fantastic programme that gives you a 360-degree view of the commodities business. Most of us sit in a specific area of the value chain – shipping, in my case – and it’s interesting to see the whole value chain together. The programme is a good mix, offering both a practical and an academic approach.

Lloyd’s Register knocked on my door in 2022 and asked me to set up and lead an entity in Geneva to cover commercial maritime markets for non-ship-owning entities, predominantly charterers, financiers, and insurance companies.

How big is the shipping sector in Switzerland? Are there owners in Switzerland, or are they mainly charterers?

MSC, the biggest owner in the world, has their head office in Geneva.

Many merchant ship owners in Switzerland sold their tonnage and now operate as charterers or commercial operators. Shipping is huge in Switzerland, but it’s more related to the chartering.

Could you tell me a little bit about Lloyd’s Register?

Lloyd’s Register, commonly referred to as LR, was founded in 1760 at Edward Lloyd’s Coffee House in London, which in the second half of the 18th century was a meeting place for merchants, ship owners and insurers.

The underwriters, owners, and merchants had no standards or criteria to help them evaluate the risk of insuring a ship. They began to employ technical experts to go to the docks, inspect the vessels and rate them against specific criteria. As a next step, they started to develop shipbuilding rules. They published a book, the Lloyd’s Register of Ships, which listed and rated the ships they inspected.

Lloyd’s Register of Shipping evolved into a technical society, simply known as Lloyd’s Register and expanded into non-maritime areas. The company has undergone a transformation in recent times and continues to evolve as a trusted adviser to its partners in the maritime industry.  Recent acquisitions, including that of Hanseaticsoft, OneOcean, Greensteam and ISF Watchkeeper, have marked a drive towards maritime digitalisation, with LR’s digital solutions now used onboard over 20,000 SOLAS vessels.

We act as a professional services company with predominantly two lines of work. The first is the inspection and rating business, where we do a lot of work on behalf of governments, representing several flag states and doing inspections on their behalf. Our second line of work is ‘advisory’, anything not exclusively related to the certification of a ship.

LR is 100% owned by Lloyd’s Register Foundation, a UK charity. We have a long tradition of public benefit, with charitable aims for the advancement of safety on land and at sea, along with the development of public education and other engineering and technology disciplines. LR does this by investing in research and development and funding chairs at universities through LRF grants.

So that’s what we’ve been doing for the past 261 years, trying to make the maritime trade and the sea safer for all those working there.

How often do you inspect each ship?

There are different types of inspections. There are annual surveys for the class and the flag state. The same inspector typically does both at the same time. Then, there is usually a significant survey every five years, often occurring while the ship is dry-docked for maintenance. In addition, an insurance company will typically require a class survey after an incident or accident.

When you do an inspection, do you take crew welfare into account?

Class inspectors mainly look at the ship’s physical condition, ensuring it is seaworthy and there is no risk to the cargo.

Flag state inspections apply to IMO (International Maritime Organization) regulations on crew welfare. Every ship management company needs to be audited against these rules.

One of the criticisms levied against shipping is that ships often sail under flags of convenience with poor standards. Is the criticism justified?

There was a debate some 30 years ago as some flags had looser standards than the traditional flags. Many countries agreed to inspect vessels when they came into their ports to mitigate this. Port State Control (PSC) has become an essential element of marine regulation. Inspectors have the authority to detain the ships if necessary.

All the information is public. If inspectors find that ships from a particular flag start to present problems, they might grey- or deny-list that flag. It’s the last thing that a flag wants because any ship under their flag will be inspected whenever they visit specific ports. Generally, inspectors always find something wrong, which helps maintain standards across all flags. Shipowners will choose a flag state for tax reasons rather than to get away with lower technical standards.

How many class societies are there?

There are 20 to 25 class societies in the world. Tier one class societies are members of IACS, the International Association of Classification Societies. If you want to trade internationally, your ships must be IACS registered to be insured. The class societies within IACS are aligned in their approach, and we try to keep a very high standard.

I read about Russia using tankers which are not registered. How does that work?

Tanker vessels engaged in illegal or sanctioned activities which are not registered with a recognised flag State will find it extremely difficult to operate and obtain insurance cover. If such vessels are allowed in and out of ports, it is important to note they have many fewer incentives to maintain safety standards. So, you may have an ageing subset of the world’s tanker fleet without a stringent safety performance mechanism.”

 You mentioned decarbonization earlier. What is the solution?

There is no one solution; it will be a combination of solutions.

Ships carry 90 to 95 per cent of the world’s transported goods but are responsible for less than 3% of all GHG emissions. It’s an economically and environmentally efficient means of transport. However, there is room for improvement,  and the IMO  has set a  goal to achieve net zero by 2050.

It will not be easy as alternative fuels do not yet exist in meaningful amounts. It means that the policy will concentrate on increasing fuel efficiency for the next few years. It alone will not solve the problem, but it could reduce it by 20 to 30 per cent.

The goal is to get to a point where most of the ships in the world use alternative fuels. Some of the fuels are carbon-negative; using them will remove atmospheric emissions. By 2050, most of the world’s fleet will be using alternative fuels, a combination of pure synthetic hydrogen-based fuels like green ammonia and methanol, as well as  LNG and biofuels.

Will adding sails to cargo ships help?

Absolutely. By the beginning of next year, we should have 50 ships on the water equipped with sails, commonly referred to as Wind Assisted Propulsion Systems (WAPS). And there is an order book of 200 more. The technology is heading for massive adoption in the next five to ten years. You can considerably reduce the use of your main engine by using sails. We’re talking about high single-digit to low double-digit per cent savings in power.

There’s a shipping regulatory framework starting next year in Europe called Fit for 55, where regardless of the flag and the ship’s ownership, any ship entering or leaving a European port will be subject to EU legislation on shipping emissions. The penalties will be significant. Part of this regulation, in particular, FuelEU, will provide incentives for using WAPS. As a result,  if you operate a five-year-old tanker regularly visiting European ports, retrofitting it with sails is more than likely economically worthwhile.

What is the life expectancy of a ship?

It depends on the ship type, and it is often more of a commercial consideration than a technical one. For ships that trade internationally, it is roughly 20 years for a bulk carrier ship and 15 years for an oil tanker. There are some 30- or 40-year-old cruise liners still operating.

We often see pictures of workers taking terrible risks breaking up old vessels. Is it controlled in any way?

Dismantling ships is considered one of the most dangerous professions in the world, both for workers and the environment. Injuries, fatalities and work-related illnesses are often because of the hazardous materials onboard the vessels in question.

Controls on ship recycling are, therefore, crucial in order to keep the sector operating safely and efficiently. Policymakers and regulators came together to address this and introduced the Hong Kong Convention for Safe and Environmentally Sound Recycling of Ships (HKC), which came into force in June 2023. As part of the convention, ships must have an Inventory of Hazardous Materials onboard, which must be prepared, verified and kept up to date, in line with the IMO’s guidelines.

Whilst ship recycling remains hazardous due to the above points, we certainly see a shift towards safer and sustainable practices for vessels that have reached the end of their lifecycles. LR is committed to working towards a better future for the environment, those involved in ship recycling and the wider shipping community as a whole.

Thank you, Alberto, for your time and input.

© Commodity Conversations ® 2024

• The flag state of a merchant vessel is the jurisdiction under whose laws the vessel is registered or licensed and is deemed the nationality of the vessel. A merchant vessel must be registered and can only be registered in one jurisdiction but may change the jurisdiction in which it is registered. Source Wikipedia

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

Good afternoon, Brian, and welcome to Commodity Conversations. To start, please tell me about your journey so far.

I’m Irish and partly grew up in Ireland. I studied law and politics at Galway University but decided to move to Cardiff to study law, particularly maritime law. On graduating, I went to Holman Fenwick Willian (HFW).

I joined Cargill in 1995 after a period at Middleton Potts, a famous commodity firm. Cargill was their biggest client. I initially spent some time in Cobham, where Cargill used to have their UK offices, and then moved to Geneva, where I served ocean transport, sugar, and other areas.

I loved my five years at Cargill but concluded that you either stayed there for life or went off and did something different. All my business in Cargill was captive; I wanted to see if I could build a practice.

Hill Taylor Dickinson gave me a partnership, but it was up to me to build my own business. I was lucky because Bunge was growing and had no in-house lawyers. Cargill remained a client for a while. I slowly increased my client base, benefiting from the absence of in-house lawyers. I became an external in-house lawyer for various shipping and trading companies. It was a natural habitat for me. During that time, I was lucky enough to witness and legally support the birth of Swiss Marine, FIS and later GMI.

I slowly grew and developed. I left Hill Taylor Dickinson, returning to HFW, where I had articled, partly because it was a more prominent firm. I have been with them for almost 20 years, and my business has grown significantly.

The nature of my work has changed over the years. Many companies now employ in-house lawyers. I have had to adapt and change my product. I have had to expand and diversify my practice.

I understand that you have been ranked in Band 1 of Chambers 2024. How does this happen?

It takes time and involves accrediting by your clients and peers. Over the years, I have worked my way up through the ranks. This was quite an achievement for a lad from Ireland.  Nothing was ever given, but the loyalty and kindness of clients are something I have never taken for granted. I have had some momentous periods in my legal career.

Could you give me some examples?

The first was the Red Bean Crisis, when various trading houses found themselves with shiploads of soybeans sitting off China containing little red beans – beans that someone had dyed red. I still have some on my desk. It gave the Chinese buyers an excuse to reject the shipments, and the prices plummeted. It was my first experience of a significant commodity crisis.

My second crisis was the freight crash when the time charter rate for Capesize vessels went from $200,000 a day to zero or minus $ a day.

Can you tell me about that?

It was the only time in my life where I could choose which clients I acted for.

I had co-drafted the legal FFA document – the Forward Freight Agreement – with another lawyer. We built the contract’s architecture together.

When the physical freight market crashed, the forward market also crashed. Everyone knew I had co-drafted the FFA contract and wanted me to tell them how to deal with it. I was overwhelmed with physical and futures freight work in 2008 and 2009.

Since then, we have had various commodity price crashes and other world events, including the Russian invasion of Ukraine.

I said to one of my associates recently that I know it feels overwhelming at times, but this is my fifth crisis, and they all pass. It gets easier every time because you know how to approach the work. You know what matters; you know the priorities; you know the systems.

We are living through the Ukrainian crisis, where initially, some clients had to grapple with a suddenly changed legal world where sanctions had a huge impact on performance. I have been stress-tested and lived to tell the tale, building long-lasting relationships with traders, clients, and in-house lawyers. You are reliant on each other when you are in the trenches together. You learn a lot about each other; these are special professional moments.

I remember going to the Baltic Exchange during the freight market crash. Those attending owed millions of dollars in physicals or futures. It was paralysis. Rule B was in full force, and everyone had their bank accounts frozen. The whole thing was surreal. The owners, charterers, interested parties and brokers had never seen anything like it. The freight market was on its knees. I didn’t think so then, but in retrospect, I am fortunate to have experienced that unique period in market history.

How do you cope with the stress?

I remember sitting at my desk during the FFA crash and thinking that I just wouldn’t be able to cope with the pressure.  Every client wanted my urgent attention. Everyone’s problem was unique and special. You just find great resolve, don’t you? You cope. I had a good group of Partners and associates around me. As I grew as a lawyer, I had more people around me who had similar experiences. I have had great support in the Ukrainian crisis. It was more brutal previously because I had fewer associates. I was still growing as a partner. But you just cope. There were long hours, long days.

I co-drafted the FFA document, and billions of dollars were traded on it. I thought, “Just imagine if we have missed something.” There were a dozen or so court cases that tried to undo the architecture of the contract. The brightest of QCs (Queen’s Counsels) were trying to argue that the contract didn’t work – that the architecture was wrong.

I will let you into a secret. When formulating the FFA contract, I kept a copy in my pocket for about three or four weeks, stress testing it, throwing situations at it, and seeing if it held up. I had done everything I could to make it work. It survived the court challenges, and the architecture proved sound. It was a huge relief.

We built the FFA contract pro bono. I knew it would be professionally fascinating, but it also meant that we had done something special – designed a contract that supported a hugely vibrant trade.  Freight futures have now moved to exchange. I never worked out how many billions were traded on the FFA form.

How do you avoid burnout?

The freight crash was the closest I have come to it. You may have colleagues, but it’s a lonely place because, ultimately, the buck stopped with me.

As always, you must go back to people’s backgrounds and experiences – to their childhood. From the age of eleven, I attended a strong, traditional Irish boarding school. My parents had been in England, and although I was born in Ireland, the other boys saw me as a Brit. I spoke like a Brit. If you survive that without too many bruises, you can survive most things.

Is it tough to keep up to date with the Law?

I am passionate about keeping up to date with the law. Every day, I inject myself with a new matter, a new case. A client expects you to know the current law. You might think it’s obvious, but I am sorry to say that not every lawyer does.

You are the most active litigator in London in the commercial litigation rankings. Does that mean commodity trading has more disputes and litigations than other professions?

Yes, it does. However, the statistics embrace commodities, shipping, and other pieces of commercial litigation.

I have had something like 50 reported cases in my career. One case, for Cargill, went to the Supreme Court. We won.

One of your ex-colleagues at Cargill told me you were a lawyer who solved problems rather than created them. I asked him if he thought some lawyers created problems, and he told me I had to ask you that question.

I come from the Cargill Academy. People at Cargill didn’t enjoy disputes and didn’t want them. They preferred to protect relationships but, at the same time, solve problems.

I believe every legal problem, whatever the sector or subject, is capable of solution.

Years ago, I was lucky enough to go on a mediation course where I saw the early benefits of mediation as a way of resolving differences. Mediation is a slightly more formal structure than a conversation. We ended up putting mediation clauses in Cargill charter parties, probably one of the first in the industry to do so.

Do I think some lawyers create problems? Yes, I think some do. Many colleagues are interested in solving problems, but lawyers sometimes respond to a client’s passion and emotion. Emotion is a dangerous thing because it can make it more challenging to solve problems. This is why divorce can be so conflictual. Commercial problems should all be solvable, however emotional they are.

Clients need to own a dispute and not leave it to the lawyers. Clients should remain invested and interested. The best clients remain interested and invested and play a significant role in the solution.

How does arbitration fit into all of that? Do you put arbitrations in the same category as court?

Arbitration is more hostile than mediation, which is a more informal affair. People regard arbitration as a gentlemanly form of court action. You are judged by commercial people who you respect, and there is a sense that commercial morality will prevail. Contract interpretation is all about the words, but the context does matter. There’s a belief that arbitration often provides a more commercial judgment than a court.

One advantage of arbitration is that it is confidential. If there are embarrassing elements in WhatsApp or emails, they are protected. It’s a less hostile forum. It’s not open; you’re not in the witness box in front of the court. I would argue that it should be mediation, arbitration, and court – in that order.

Unfortunately, enforcement of an arbitration award (or judgment) can be a stubborn issue. You may win the battle but lose the war. Over the years, I have specialised in collecting awards, and we have recovered many millions on behalf of clients.

Where do most problems arise within that agricultural supply chain?

They have changed over the years.

You have the classic quality, quantity, performance, and force majeure. New issues might be cyber-attacks and force majeure resulting from sanctions. Contract drafting is becoming increasingly sophisticated, with cross-default provisions and termination clauses becoming increasingly common.

Which commodities have the most problems?

Sugar has always been a challenge, and it remains so. Jurisdictions remain an issue. You win the award, but what do you then do about it? Cotton has had its fair share of problems, as has fertiliser, the latter because of sanctions.

How many commodity lawyers are there?

I would say there are around 100 very active commodity lawyers in London. It’s not that many compared to shipping, where there are many more. There is a shortage of talent in commodities. Many trading companies have hired commodity lawyers and are looking to hire more.

Law firms have lost people as a result. If there were a massive crisis again, you’d probably have a shortage of lawyers.

What would you say to a young law student to encourage them to come into commodities rather than something else?

I would say that international trade is fascinating. The best cases result from the buying and selling, the finance, and the shipping of goods. Without commodities, international trade, and shipping, the law reports would be a fraction of the size. Every area of the law seems to have been developed because of the business that we are in.

I would say to young lawyers that they will have to work hard, and there will be challenges and pressures, but it’s a wonderful area if you’re interested in the law and the development of the law.

And what would you say to a trader to try to stay out of trouble?

Realize that you are both masters or mistresses of your contractual destiny. The words you use in your contract will dictate the outcome. I try to get people to realise the power and impact of words and to get it right at the beginning. It usually leads to a happier ending.

Any final thoughts?

Words are my commodity, and the words chosen will almost always dictate the outcome of a dispute. I spend an increasing amount of my time guiding clients appropriately.

Personally, it has been a privilege to experience the highs and lows of the commodity market from a legal perspective. The characters I have met and the professional friendships I have developed have led me to conclude that this remains a people-centric business, where conversations lie at the heart of what I do.

© Commodity Conversations ® 2024

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

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.

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