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U.S. CPI for baked foods, cereals rises in August

September 23rd, 2017
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The Consumer Price Index for baked foods and cereal products rose 0.2% in August, according to the Bureau of Labor Statistics of the U.S. Department of Labor. The index for all food at home, meanwhile, decreased 0.1%.

Of the 18 items followed by Milling & Baking News, a sister publication of World Grain, 11 posted month-over-month increases and 7 finished lower.

The August index for Cereals and Bakery Products before seasonal adjustment was 272.5% of the 1982-84 average, down 0.2% from a year ago. For all food at home, the August index was 238.8, up 0.3% from August 2016.

The CPI for cereals and cereal products in August was 228.3, down 0.1% from July and down 1.3% from August 2016. The index for products within this category included: flour and prepared mixes, 239.3, down 0.6% from July and down 1.7% from the previous year; breakfast cereal, 223.8, down 0.7% from the previous month and down 0.8% from a year ago; and rice, pasta and corn meal, 236.6, up 1% from July but down 1.6% from August 2016.

The price index for bakery products in August was 297.8, up 0.3% from July and up 0.3% from August 2016.

The August index for bread was 179.2, up 0.9% from July and up 0.4% from August 2016. Under this heading, the CPI for white bread was 325, up 0.6% from July and up 1.2% from August 2016. For bread other than white, the index was 346.5, up 1.2% from July but down 0.7% from a year ago.

The price index for fresh biscuits, rolls and muffins in August was 173.8, down 0.3% from July and down 0.8% from August 2016. The August index for cakes, cupcakes and cookies was 282.8, up 0.2% from July and up 1.3% from August 2016. Under this segment, other price indexes included fresh cakes and cupcakes, 301.4, down 1% from July but up 0.7% from August 2016; and cookies, 268.8, up 1.2% from the previous month and up 1.5% from the previous year.

The CPI for other bakery products in August was 267.6, up 0.3% from July but down 0.1% from August 2016. Under this heading, other price indexes in August included: fresh sweet rolls, coffee cakes and donuts, 295.9, up 1.2% from July and up 1.5% from August 2016; crackers and cracker products, 307.3, up 0.1% from July but down 1.8% from August 2016; and frozen and refrigerated bakery products, pies, tarts and turnovers, 271.1, down 0.5% from July but up 1% from the previous year.

Source: World Grain

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Vanilla price spike is hurting Maine ice cream companies

August 26th, 2017
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If you’ve ever used the words “plain” or “boring” to describe vanilla, it’s definitely time to pull out the thesaurus to look for some new adjectives.

That’s because increasing global demand for vanilla, a recent cyclone off the coast of Africa and other geopolitical events happening half a world away have caused a massive vanilla price spike and supply shortage that is making life far from bland for Maine’s ice cream makers and others who need the sought-after bean.

“It definitely has affected our business,” Lindsay Skilling, the CEO of Skowhegan-based Gifford’s Famous Ice Cream, said of the price spike, which the company began noticing in January 2016.

Gifford’s uses about 25 gallons of vanilla extract a week in the production of the nearly two million gallons of ice cream they make every year. With prices jumping an eye-popping 568 percent in less than two years, it has caused some ripples.

“We’re a local, regional family business, and we use every caution possible in order to not raise our prices,” Skilling said. “But we had to pass on a price increase … Everybody’s fingers are crossed at this point. The challenge is supply and demand.”

All over Maine, it’s the same story. What’s happening in Madagascar, the island nation off Africa that is the world’s top producer of vanilla beans, has sharply affected the bottom line of Maine’s vanilla consumers. And what is happening in Madagascar is not exactly simple.

Vanilla pods grow from orchids that are pollinated by hand and which take about three years to mature and produce beans.

A quick history lesson, courtesy of the Vanilla Company, a California-based retail and wholesale vanilla business: between 2005 and 2014, there was more vanilla on the market than there were buyers for the bean and so the prices dropped down and stayed there.

“Because farmers weren’t making enough to survive, many finally burned their vanilla vines and switched to growing other crops,” Patricia Rain, the head of the company, wrote in a February essay to her customers. “This eventually led to a vanilla shortage, and with the shortage of vanilla beans, prices shot through the roof!”

According to Rain, the sharp price increase led to a so-called feeding frenzy for vanilla beans. Some speculators who reportedly used money earned from selling illegally harvested rosewood bought the 2015 Madagascar crop and later sold it at inflated prices to manufacturers and traders who would pay anything for more beans. This has led to some unrest and trouble, she said.

“Madagascar … is currently experiencing high tension and chaos, enough so there are travel advisories to not visit certain areas of the country,” Rain wrote. “The current hoarding and selling of bad vanilla makes the country quite volatile.”

Then, to make an already bad situation much worse, a cyclone in March devastated this year’s crop of vanilla beans. Madagascar supplies more than 80 percent of the world’s vanilla, and this spring some distributors resorted to rationing supplies, according to the Boston Globe.

The rationing and price increase came as a big, unwelcome surprise to Chelcie Shappy, the co-owner of Orrington’s Drunken Vanilla Bean, which makes pure vanilla extract. The small company makes about 12 gallons of extract per year using Brewer’s Twenty2 Vodka infused with vanilla beans. When they began buying vanilla beans, they were paying about $50 per pound, which is between 120 and 140 beans. That has changed.

“Just last month we paid $85 for 25 beans, and they’ve been really hard to find. You can’t even buy them in a pound anymore. Places just don’t have the quantity,” she said. “It has had a huge impact on the Drunken Vanilla Bean business.”

In Belfast, Sarah Wilder digs an ice cream scoop into a container of the super-premium old-fashioned vanilla ice cream that she makes and sells at her family business, Wild Cow Creamery. Vanilla beans have more than 250 flavor components, she said, and add a complex richness to her ice creams, including perhaps unexpected varieties like chocolate. They use vanilla to make 13 of the 16 ice cream flavors that were on display at the company’s ice cream store.

“A lot of times people think, oh, it’s just vanilla. But real vanilla is very exotic,” she said. “It tastes better, and when you use real ingredients you’re going to notice their flavors … if you don’t have it, you’re lacking something.”

In Monroe, Kathy Chamberlain relies on best-quality vanilla to make her super-premium Stone Fox Farm Creamery ice creams, using about half a gallon of Madagascar double-fold extract a week in the summer. Two years ago, she was paying about $89 per gallon, but now is paying about $400 per gallon, and it’s hard to get the amount she needs.

She’s thinking of making her own vanilla extract, which might save her some money, and isn’t interested in getting vanilla beans from other countries such as Mexico, because she believes the Madagascar beans are far superior. And with her ice cream already costing $4 for a single scoop, she feels she can neither decrease the quality or go up in price.

“People’s palettes are more sophisticated now. They want something that’s a little better,” she said. “Vanilla quality really shows in ice cream … I think our fans who go out of their way to buy our vanilla, they’d notice. That’s why they will go out of their way, and they will spend $4 on a cone.”

Another super-premium ice cream maker, Linda Parker of Mount Desert Island Ice Cream, said she has noticed a roughly 400 percent increase in the price of vanilla beans. She goes through about five pounds of beans every week.

“It’s the worst I’ve seen,” the ice cream maker, who opened her business 11 years ago, said.

She noticed the spike last fall, when she saw an invoice for vanilla and thought someone must have made a mistake.

“No — there was no mistake,” Parker said. “It’s just something we have to do. Vanilla is one of our biggest flavors, and the taste of the Madagascar vanilla bean is the most sophisticated that I’ve seen. It’s just the cost of doing ice cream business.”

Many of the Mainers said that the vanilla situation shows that global events have local repercussions.

“Even here in Maine we can get affected by huge things going on on the other side of the world,” Wilder said. “There is no local anymore. It really is the entire world.”

Source:  wgme.com

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The power of pricing

December 7th, 2013
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Shaky consumer confidence, stiff competition and increased transparency offered by the internet are forcing organisations to reappraise how they price their goods and services, says a new report from PwC entitled ‘The power of pricing’.

The survey of more than 500 companies worldwide highlights some significant and also surprising trends in how companies set prices.?More than 40% of respondents consider pricing to be the most effective way of growing profitability. However, only 26% believe increased prices will drive profits over the next three years, while a significant minority (17%) believe that profits will decline along with their prices.

David Lancefield, partner, PwC, says: “Pricing is one of the main levers you can pull to make an impact on your bottom line. It’s especially important to get it right in a world in which investors and customers are more demanding than ever. Yet only 5% of respondents feature in the top quartile of all aspects of pricing performance.”

The results also show that as many as 60% of respondents adopt the most basic approaches to setting prices including matching competitors’ prices or applying a fixed mark up to costs. More sophisticated approaches such as pricing based on customer willingness to pay are less common.

Nazanin Naini, senior consultant, PwC, says: “The greatest challenge for companies is to understand where they generate real value and to reflect this in their pricing. Many companies claim to be customer centric, yet understanding what customers really value is one of the most commonly stated challenges, with only 13% of our survey respondents telling us they have deep insight into their customers’ willingness to pay. ”

“Furthermore, we often see companies taking a scatter gun or uniform approach rather than, for example, setting prices in a way that rewards loyalty and customers generating high profitability, as opposed to those most costly to the business.”

Companies often underestimate the importance of having the necessary people and systems to support an effective pricing strategy. Nearly half of the survey respondents don’t have a pricing team to make fully considered recommendations on pricing. As a result businesses often give their sales force discretion to discount from list prices, making profit targets less achievable.

David Lancefield, partner, PwC, said:?“Our research suggests that the infrastructure to support smart pricing decisions is not fit for purpose. Almost half the respondents struggle to develop an IT infrastructure that supports pricing, while 37% struggle with governance and decision-making.”

“A poor pricing strategy can result in a loss of customers and a backlash from important stakeholders. When it’s done well, it’s the most powerful and effective way to achieve profitable growth.”

Source: Sweets and Snacks Europe

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Nestle, Mars accused of price fixing

June 7th, 2013
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nestle-ukmars-chocolatesConfectionery giants Nestle and Mars have been charged by Canada’s Competition Bureau for alleged criminal conspiracy to fix the prices of chocolate products in the country. The Bureau said a five-year inquiry uncovered evidence suggesting the two companies “conspired, agreed or arranged” to fix prices of chocolate products. The charges also include ITWAL, a network of independent wholesale distributors.

The CCB has also charged three individuals: Robert Leonidas, former president of Nestle Canada; Sandra Martinez, former president of Confectionery for Nestle Canada; and David Glenn Stevens, president and CEO of ITWAL. The accused face the possibility of a fine of up to C$10m and/or imprisonment for a term of up to five years if found guilty. Interim commissioner of competition, John Pecman, called their alleged actions “egregious anti-competitive behaviour that harms Canadian consumers” and “a serious criminal offence.” Nestle Canada said it will “vigorously” defend the charges. Mars did not return a request for comment at the time of going to press. The case also involves Hershey Canada, which has reached a settlement with the bureau that will see it plead guilty to one count of price-fixing. A spokesperson for the confectioner said: “Hershey Canada promptly reported the conduct to the Competition Bureau, cooperated fully with its investigation and did not implement the planned price increase that was the subject of the 2007 communications.” The bureau said it has recommended that Hershey receive “lenient treatment”, as a result of its cooperation.

Source: Just Food

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Majority of Americans see organic label as an excuse to charge more

May 1st, 2013
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USDA_Organic_sealDoes an uptick in the economy give people more reason to care about Mother Earth? That is what a March 2013 Harris Poll of 2,276 U.S. adults (ages 18+) interviewed online set out to find.

Turns out that concern for the current stateand future of the environment are on the rise in 2013 (38 percent vs. 31 percent in 2012) even as economic indicators point to all-time stock market highs and a solid housing market recovery. However, as Americans start to feel better about reaching into their pockets, they still may not be ready to dish out the extra green on organic items. Turns out that more than half (59 percent) agree that labeling food or other products as organic is just an excuse to charge more.

“What surprised us most was that while Americans are showing more concern for the environment, they aren’t necessarily willing to pay more to do anything about it,” says Mike de Vere, president of the Harris Poll. “While Americans feel better about the economy, many are wary of the ‘greenwashing’ concept that gives companies a chance to cash in on consumers who want to help the planet but are confused by all the eco-friendly jargon.”

Fact vs fiction

Going green continues to be a gray area, as consumers try to decide where it makes sense to incorporate it into their lives. While recent research shows that organic produce and meat typically aren’t any better for you than conventional varieties when it comes to vitamin and nutrient content [1] , more than half of Americans (55%) believe that organic foods are healthier than non-organic. In addition:

41% think organic food tastes better and/or fresher than non-organic

Only 23% know what the term “dirty dozen” (The Environmental Working Group’s annual list of foods consumers should always buy organic due to pesticide levels) means in regards to organic food

48% think washing dishes by hand is more environmentally friendly than using the dishwasher, though a study from Scientists at the University of Bonn in Germany found that the dishwasher uses only half the energy, one-sixth of the water, and less soap than hand-washing an identical set of dirty dishes.

Is it easy being green?

Americans are divided on how easy, or not so easy, it is to live a more environmentally conscious lifestyle, with nearly equal percentages of U.S. adults perceiving it as difficult (49%) and easy (47%). When asked about sentiments towards going green, respondents indicated the following:

Eight in ten Americans (80%) say they will seek out green products, but only three in ten (30%) are willing to pay extra for them

60% of Americans prefer to use environmentally friendly cleaning supplies because of the chemicals contained in traditional cleaning products

As noted, the majority of Americans agree that labeling food or other products “organic” is just an excuse to charge more (59%)

Men are the most skeptical about organic, with 63% agreeing that the labeling of food or other products as organic is an excuse to charge more, versus 54% of women

Overall, efforts to be green seem to have leveled off, with nearly two-thirds (63%) making the same amount of effort to be environmentally conscious as a year ago, up considerably from 2009 (51%).

Source: Harris Polls

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The Price of Responsibility

April 19th, 2013
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cargill-logoIn his keynote address Tuesday at the FT Commodities Summit in Switzerland, Cargill CEO Greg Page delivered a plain message: “Price is one of the most powerful signals on earth, and to be a communicator or disseminator of that price means we must accept huge responsibility.” Page urged the commodity trading world to be accountable for the social, environmental and economic consequences of business decisions. With technology making communication both global and nearly instantaneous, he said, there is nowhere for companies to hide. Nor should they seek to hide. Pointing to recent government action in the banking industry, Page called for good policy frameworks that don’t hinder the essential work of getting crops and other raw materials to where they’re needed: “We can either earn and embrace the governance and regulation we want and need, or ignore our ethical, behavioral and societal obligations and then accept the governance that all others may impose upon us.”

These are Page’s prepared remarks. His speech may have varied slightly.

It’s a pleasure to be here and to have the opportunity to address such an esteemed audience. As I look around the room I can see pretty much a “who’s who” of the commodities world – and I think it’s a real statement of how important our sector is, and how much interest it generates, that the FT successfully launched this event last year, and this, only the second year, has attracted such a high level of attention and engagement. We live in a fast moving world, and it’s a testament to Lionel, Javier and the team that they have lined up a programme that makes it worthwhile for all of us to spend a couple of days here – so congratulations, and thank you for inviting me to share some opening thoughts.

This gathering is timely. At the end of last month we saw the publication of the Swiss Federal Administration’s Report on Commodities, and if you are familiar with the report you will recognise some common themes in my remarks. The need for appropriate, not disproportionate, regulation, the need for responsible conduct, the recognition of the real value commodity trading brings to the world and above all the need for transparency.

We all know that over the last few years the commodities sector has increasingly been in the headlines. Weather events, price events, policy changes – in fact pretty much every aspect of our industries are all gaining a greater public prominence than perhaps ever before. And not always positively. So today I am going to talk about the world we all operate in today; the role trading holds in that world, and its critical purpose. I will talk about why transparency and responsibility are so important and, finally, reflect on the role of price.

When I started pulling my thoughts together for this morning, I thought I could start by comparing and contrasting some key commodity prices from when Javier first approached me, back in March 2012, to now. I mean it has been a roller coaster of a ride over the last year.  So we looked at the numbers, and a year ago prices of basic commodities were 250 to 300 percent of long-term averages. And guess what? They still are – even if it does feel like we are in two very different worlds. We always say that as traders we like volatility, but what we saw last year wasn’t just volatility – it was turbulence. I recently asked one of our trading leaders the difference between  volatility and turbulence. His response? “One can make you money. The other can make you  air-sick!” I think we can all recognise that feeling.

So having tried the numbers, I looked to the politics. We were all watching the tension across North Africa and the Middle East, as the understandable ambition and personal tragedies of the Arab Spring continued on through the autumn and into 2012. In the U.S., it was early days of electioneering, with the primaries in full swing, and the big question was would President Obama’s healthcare reforms bring him down, or would he see a second term for the Democrats. In Europe some national governments were teetering on the brink of financial crisis as the Eurozone continued to struggle with the aftermath of 08/09. Could the single currency survive? Would the dominant northern European economies come to the rescue of the more economically fragile southern countries?

And while traditional economies were struggling, growth in the emerging regions of Latin America and Asia was still relatively strong – although slowing from previous peaks. Even China’s much vaunted 10 percent plus growth rate was beginning to show signs of strain.

So 13 months on, what has changed?

Just like the prices – not a great deal, though there are some new headlines added into the mix:

Continued instability across some parts of the Arab world still causes political concern. President Obama did win his second term, but immediately needed to navigate a torturous path with Congress to avoid the worst elements of the fiscal cliff. Individual European economies are still in fire-fighting mode. Long-term sustainable coherent recovery plans remain elusive, especially following the Cyprus bailout which continues to dent consumer confidence and trust.  Asia’s growth, while still stronger than North America and Western Europe, has slowed.  The world is holding its breath over North Korea’s intentions, and all of us are watching Xi Jin Ping with keen interest since he became president a couple of months ago.

The world is clearly in transition, and always will be, but it is not certain whether this phase of transition is marking the beginning of a new era. I think not. What is certain is that change will continue to bring new challenges and uncertainties for governments, economies, global industries and individuals.

 So what does it look like and feel like for us in Cargill? What are we seeing?  As you may know, we have about 140,000 employees operating in 65 countries across the food, feed, energy, metals, transportation and financial sectors. Our people are on the ground at many points within the supply chains in which we operate – from origination to end user.

We see:

  • An OECD world burdened by immense debt, in some cases acknowledged, in others not, and still on a trajectory to dig deeper with demographics that exacerbate the challenge.
  • An emerging world that, despite the OECD problems, is growing, liberating its economies, innovating and investing in its future that often with incomplete rule of law.
  • A telecommunications-led level of networking and interaction driving change as never seen before and diminishing the value of data.
  • Finally, a thirst for trade connections of new and old markets between nations – an unprecedented level of connectedness and interdependence.
  • In short, some very positive macro trends.

But equally we see levels of uncertainty and instability as economies stutter, as political and social unrest continues, as unemployment figures continue to rise, as do food prices. Stability is increasingly hard to see or find. The elasticity of market responses is outside versus the past. We are seeing exaggerated movements to the same degree as stimuli.

One thing that is clear and relevant for all of us, is that our role in trading commodities, whether operating in “creation” commodities – those that the planet naturally provides, renews and restores through the power of photosynthesis every day – or “extraction” commodities – that is those which the planet naturally created, and then hoards – is ever more crucial to support stability in the world today.

Stability through access to safe, affordable food. Stability through access to essential metals, minerals and energy. Stability through mitigating financial risk in an increasingly volatile global environment.

And stability, perhaps predictability, accelerates growth.

That’s a big role and a big responsibility we share, and not one of us can afford to take lightly.

So how did trading get to where it is today?

Trading has long been a fundamental of life. To quote Libanius, from his “Orations III,” written in the fourth century:

“God did not bestow all products on all parts of the earth, but distributed his gifts over the different regions, to the end that men might cultivate a social relationship because one would have need of the help of another. And so he called commerce in to being, that all men might be able to have common enjoyment of the fruits of earth, no matter where produced.”

I am not sure that markets are necessarily divine, but I am convinced Libanius was on the right path.

Now we’ve not been in business quite that long, but in 2015 we will be celebrating 150 years of our company’s role in this ancient practice – and, despite my boyish looks next year it will be 40 years since I started in the business.

And in my experience, Libanius was right. Trading, or exchanging goods, has long underpinned human progress, and the interdependence that comes from trading creates the real capacity to raise living standards.

Trading across national boundaries is a necessity, not a luxury, if the world wants to better serve the needs of its citizens. And as we face into a global population perhaps reaching 9 billion by mid-century, an even greater proportion of the world’s food will need to move across oceans to feed the people. National self-sufficiency in food or in each individual food stuff will not suffice.

So trading has always been important and will always continue to be so.

But something has happened in recent years. Perceptions of trading have changed, and not for the better.

The term “trading” has become wrapped up and confused in the public perception with speculation, hoarding, market fixing, monopolies, cartels and bad practices. There is increasingly little differentiation in perception between trading and the worst excesses of banking – the massive points of difference being misunderstood or ignored.

We should not be afraid to point out the difference. We should not ignore or underestimate the significant value we bring to people’s lives every day through moving food and crops from places of surplus to areas of deficit, or providing safe and efficient storage, minimising waste, maximising productivity, or supporting farmers with crop inputs, pre-financing or access to markets, managing risks or trading coal, electricity, natural gas, petroleum, iron ore and basic metals.

A feature of today’s world is the increasingly interrelated nature of these fundamental commodities. Some of these connections are brought about through regulation – agriculture and energy via ethanol for instance. But many are simply revealing the underlying basic relationships between commodities at a fundamental level as seen, for example, by the convergence of multiple forms of energy.

All these connected, basic commodities are fundamental to life and essential contributors to the global economy.

So fundamental are they that we should question whether the term “trading” is even the correct descriptor for those of us dealing with physical products rather than purely abstract financial transactions. Because as the term becomes discredited and confused, so abuses by a minority of “traders” at any extreme of the “trading” spectrum impact negatively on the broader industry.  And we all become tarred with the same brush – and suffer from the erroneous perception that trading is somehow “bad”.

Just looking at our own businesses – we trade with more than 2 million smallholders around the world, giving access to markets, paying them promptly in cash so they can invest in planting, support their families, improve their livelihoods and invest in their futures. Is that “bad”?

Is providing training to tens of thousands of cocoa farmers, helping them improve their yields, raise the quality of their crop and increase their income “bad”?

Is ploughing more than 13 billion dollars into physical infrastructure, transportation and logistics in the developing world alone to allow raw materials to be gathered, stored, moved and shipped safely “bad”?

Is championing the need for open and free markets to allow true price discovery “bad”?

Is improving shipping standards on all freight charters “bad”?

Does innovation in improved efficiency and cost reduction in moving oil, metals, or energy, allowing billions to have power, phones and jobs because they have become affordable at ever diminishing real prices describe a ‘’bad ‘’ profession?

Is conserving finite materials, valued for their scarcity, a “bad” thing?

We do not think so.

So when does it go bad?

When trading becomes divorced from the management of the supply chain and becomes driven by a short-term horizon. When the management of risk and the seizing of opportunity becomes detached from its consequences. When it moves to become a purely abstract point of speculation and an outcome in its own right.

That is when it ceases to have a noble purpose.

Cargill has ever believed in a noble purpose – our vision “to be the global leader in nourishing people” speaks to our belief.  We have long been at the forefront of such behaviour: storing crops and minimising spoilage; painting the bottom of ships to reduce energy use in propulsion; championing the use of green technologies to harness the wind in ocean transportation; sourcing responsibly; developing supply chains that respect people and human rights; using and promoting the most responsible practices across all our businesses; demanding and expecting the highest behavioural standards from our people.  Constantly being innovative, and working to meet the existing, evolving and often unspoken needs of customers and consumers around the world with physical products and tangible solutions.

“Commodity merchandising” was the term we all used to use to describe what we do – and perhaps we should again. It speaks more to the relationships inherent in our world. We are a service industry first and foremost, providing essential lubrication for the global system with liquidity, mitigating risk, meeting the needs of our customers and our suppliers, helping them, and the world at large, thrive.

They are lofty words, and highbrow principles, all of which are fine, but let me bring it down into some detail.

Fundamental to the system working is the supply chain. That’s not something that can be left to chance. Companies like Cargill, Glencore, ADM, Shell, Exxon and many others have long ago moved down, through and into the detail of the supply chain. Investments made on the ground in physical infrastructure for the long term both create and underpin the trading relationships that Libanius referred to all those years ago.

As an example when we, Cargill, invest in vehicles and  roads in Indonesia which allow smallholder farmers to have their palm fruit carefully and safely transited from their plots, and when we support and encourage the development of community cooperatives, and they, in turn, create and develop local cooperative banks, who in their turn support the cooperatives’ long-term reinvestment plans for the commercial smallholders, while we continue to provide access to not just market knowledge, but transportation to markets, and full and fair market price. Those interdependent elements are what we believe are important – and what I think Libanius was talking about.

In the global economy, the connections across the food, agriculture, energy, minerals and metals space are increasingly apparent.  As science progresses, the interdisciplinary nature of everything is coming to the fore.  Interdependent and interconnected value chains either happen naturally, or become uneasy bedfellows because of government policy actions. Like hedging of commodity price risk being linked to banking regulations, or fertiliser subsidies hindering farmer education. These forced connections occur because of often unintended policy actions where the linkages have simply not been thought through – as in the case of biofuels. Dangerous situations are created that put the natural symbiosis of the value chains out of balance.

There’s an inherent conflict between government frameworks and global trading value chains. Governments are, naturally, based on nation states, and legislate and tax on this basis. The value chains are, on the other hand, naturally, cross border, cross region, cross continent, truly global. The work of the WTO tries to bridge these gaps, but with variable success. Trade is global, and needs to be recognised as such. It deserves to be supported by coherent legislation and coordinated policy frameworks which support and encourage good, ethical practice, and truly transparent operations.

There is a belief that the trading houses are secretive, totally opaque, manipulating markets and fixing prices in the same way a small number of bankers fixed Libor. A belief that there is no transparency – the buzz word of the forthcoming G8 in the UK.

That could not be further from the truth. Back in 1974 when I started, things arguably were opaque. There was no Internet, no cellular phones, no instant communication or flash commentary or opinion – and of course no email. (Sometimes I yearn for those days). The information was available on the ground and competitive advantage came from how quickly you could gather it and do something with it. Cargill was the first company in the world with its own private worldwide wire system, introduced to try and give us the edge on the one thing that mattered – speed.

Today every one of us has enormous amounts of information available and at our fingertips, instantaneously. There is no time and date advantage. Everything is totally transparent. The skill today is in the analysis, interpretation and the insight derived from that openly available mountain of knowledge.

So far from being opaque, the reality of today’s technology, instant information, and with public opinion shaping global acceptability, it means there is nowhere to hide– and neither should there be.

A ‘Noble Purpose” needs nowhere to hide.

I called this talk today “the price of responsibility” – and I believe that we all have a responsibility to ensure that market prices are allowed to do their jobs. Continuous, open price discovery is crucial. It is arguably one of the most important mechanisms to avoid a repeat of the great excesses of 2008 which almost collapsed major economies.  Open price discovery serves to reveal errors and mistakes – it exposes the problems that can be created by other collective decision making within the public sectors. While that can be a cause for embarrassment and make it a target for criticism, it should not and must not be stifled. Price is like the canary in the coal mine. Should we kill the canary when it shows us something bad or dangerous is happening? Or should we recognise its role, and listen to what it is telling us?

Price is one of the most powerful signals on earth and the best fertilizer. To be a communicator or disseminator of that price means we must accept the huge responsibility which that entails. We must ensure that price signals are heard and are listened to – not just by the people in this room – but by the millions of producers and consumers around the world.  This is not something abstract. In the world of commodity merchandising it is about real, tangible products and services that impact real decisions of real people, every day of their lives. It focuses their lives and drives their choices and actions.

But beyond that, we must be responsible for our own actions and be aware of the social, environmental and economic consequences of what we do.  Because in today’s world, it is going to be obvious to anyone who cares to look, and many do  As an industry, we should speak out for good policy frameworks that help markets work to everyone’s benefit while filling in the gaps the market cannot fill. We also need to have the confidence to explain what we do and how it works to people’s benefit – how efficient, transparent markets give both producers and consumers the best prices.

It is not for us to take on the roles of governments, although we should seek to inform their deliberations, but it is essential that we are a force for bettering people’s lives.

The industry, as a whole, must accept its responsibility to behave appropriately, properly and ethically. There are lessons to be learned from the banking sector, and the forced legislation it prompted and is still prompting.

As commodity merchants we have a choice. We can either earn and embrace the governance and regulation we want and need, or ignore our ethical, behavioural and societal obligations, and then accept the governance that others may impose upon us.

The world needs what we do, and what we bring, today more than ever. We should all recognise the huge behavioural responsibility the industry carries, and we must all hold ourselves, and each other, accountable

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Commodities, Companies

Food prices poised to increase

August 3rd, 2012
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This summer’s lingering drought—the worst in at least 50 years, with over 1,000 counties in 26 states currently qualifying for disaster relief—will inevitably cause a spike in food prices. As reported by The Wall Street Journal, corn is now 22% more expensive than at the beginning of the year, and soybeans are up 32% (see in “For Food, It’s the Bad and the Ugly”).

The World Bank also reports that wheat prices have spiked considerably—up 50% since mid-June (see “Food Price Volatility a Growing Concern, World Bank Stands Ready to Respond”).

After a period of high food prices, consumers initially got a bit of a break this year. And as the WSJ article notes, consumers haven’t yet felt the effects of this summer’s drought-induced price hike—but they will soon, first in meat prices, with packaged and processed foods taking a hit in 10 months to a year (see WSJ, MarketWatch, “Why the Fed Will Look Past Rising Food Prices”). Once that impact hits and major food manufacturers are subsequently forced to raise prices, analysts predict consumers will reduce total food expenditures while taking a renewed look at private-label products. Reduced overall spending could impact the overall economy, forcing the Federal Reserve to potentially take stimulation measures it when it meets tomorrow and Wednesday; some analysts feel that the current commodity situation will not factor into the Fed’s current thinking.

The World Bank has voiced its concern about this situation—and particularly how it might potentially impact the world’s economically disadvantaged population.

“When food prices rise sharply, families cope by pulling their kids out of school and eating cheaper, less-nutritious food, which can have catastrophic, lifelong effects on the social, physical and mental well-being of millions of young people,” said Jim Yong Kim, group president, World Bank. “The World Bank and our partners are monitoring this situation closely so we can help governments put policies in place to help people better cope.

“In the short term,” continued Kim, “measures such as school feeding programs, conditional cash transfers, and food-for-work programs can help to ease pressure on the poor. In the medium to long term, the world needs strong and stable policies and sustained investments in agriculture in poor countries. We cannot allow short-term food price spikes to have damaging long-term consequences for the world’s most poor and vulnerable.”

The World Bank reports that the impact of the U.S. drought on global markets has been exacerbated by weather-related conditions in other countries that have affected production, where a “feast or famine” polarity has emerged. Like the United States, wheat crops in Russia, Ukraine and Kazakhstan have been hit hard by a lack of rain. Europe has the opposite problem, where persistent rain is causing problems with the wheat crop. In India, monsoon rainfall is about 20% below the long-term annual average.

Source: Food Product Design

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Global fight for natural resources ‘has only just begun’

July 13th, 2012
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Academics and business figures gave a grim warning at the Resource 2012 conference, but defended the Rio+20 outcomes

The global battle for natural resources – from food and water to energy and precious metals – is only beginning, and will intensify to proportions that could mean enormous upheavals for every country, leading academics and business figures told a conference in Oxford.

Sir David King, former chief scientific adviser to the UK government, who convened the two-day Resource 2012 conference, told: “We are nowhere near realising the full impact of this yet. We have seen the first indications – rising food prices, pressure on water supplies, a land grab by some countries for mining rights and fertile agricultural land, and rising prices for energy and for key resources [such as] metals. But we need to do far more to deal with these problems before they become even more acute, and we are not doing enough yet.”

Countries that are not prepared for this rapid change will soon – perhaps irrevocably – lose out, with serious damage to their economies and way of life, the conference was told.

Amartya Sen, a Nobel prize-winning economist, said that the free market would not necessarily provide the best solution to sharing out the world’s resources. Governments would need to step in, he said, to ensure that people had access to the basics of life, and that the interests of businesses and the financial markets did not win out over more fundamental human needs.

Sen has played a key role as an academic in showing how the way resources are distributed can impact famine and surplus more than the actual amount of resources, that are available, particularly food.

David Nabarro, special representative for food security and nutrition at the United Nations Special, defended the outcomes of last month’s Rio+20 conference – a global summit that was intended to address resource issues and other environmental problems, including pollution, climate change and the loss of biodiversity, all of which are likely to have knock-on effects that will exacerbate resource shortages.

Many observers criticised the governments represented at Rio+20 for failing to adopt any clear targets and initiatives on key environmental problems, saying it was a wasted opportunity.

But Nabarro said there had been important successes – that governments had agreed to strive for the elimination of hunger and more sustainable agriculture, including an emphasis on small farmers, improvements in nutrition (in both developed and developing countries), and cutting the harmful waste of resources that is currently plaguing economies.

Several speakers joined him in highlighting the problems of waste and inefficiency – the developed world tends to be profligate in its use of natural resources, because most western companies have in the last century experienced few limits on their ability to access raw materials in peacetime, thanks to the opening up of global trade.

But this is rapidly changing. One of the first indications has been the soaring price of fossil fuel energy in the past decade, which has had severe economic impacts but which could easily be lessened if countries and companies took simple measures to be more energy-efficient. The failure of businesses, individuals and governments to improve their efficiency, even by relatively small amounts, has been one of the conundrums for resource economists in recent years. According to standard economic thinking, rising prices should prompt more efficiency, but this has happened at a much slower rate than should have been the case.

If price signals are not enough to change behaviour, then other methods such as government intervention may be needed.

Paul Kagame, the president of Rwanda, urged rich countries to work together with poor developing nations to ensure that the best was made of the natural resources, and to remedy situations where scarcity leads to human suffering.

Businesses also joined in to discuss their efforts to use resources more sustainably. Peter Brabeck-Letmathe, the chairman of Nestlé, outlined his company’s programme to use water more efficiently. He said water was often overlooked, and considered as a free resource, but that this was a mistake – he reminded listeners that the increasing availability of clean drinking water, accompanied by better sanitation and hygiene, had been the biggest single factor behind the enormous increases in longevity of people in developed countries in the past 150 years, and the GDP growth that followed.

Camilla Toulmin, of the International Institute for Environment and Development, said the conference should act as a primer to policymakers and politicians who have been insufficiently aware of the real issues surrounding resource constraints and the economics of waste and distribution. “This is like an Open University course that is educating people on the problems here. I hope the financiers and businesspeople go home with a clearer understanding of how important this is, and of the role they can play.”

Source: The Guardian

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Ingredients , ,

Vanilla prices explode

April 6th, 2012
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A worldwide shortage of vanilla pods could send prices rocketing this summer. The cost of the spice has remained at approximately $25 per kilo for the last six years, but following poor harvests in India and Mexico and opportunists stockpiling the spice, in the past two months the price has already gone up to $30 per kilo. Experts believe the price is likely to climb further.

Vanilla is one of the world’s favourite flavours, and one of the most expensive (second only to saffron) due to its time consuming production.

Vanilla is an important ingredient for both ice cream and confectionery, and this rise in price is likely to see many manufacturers start using synthetic vanillin.

Source: Confectionery Production

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Ingredients ,

Preparing for egg supply crisis

December 23rd, 2011
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Bakery manufacturers face the threat of rising egg prices – and even shortages – when new Europe wide animal welfare legislation comes into force on 1 January. But they could avoid taking a hit by specifying egg replacers instead, according to Arla Foods Ingredients.

The Welfare of Laying Hens Directive will ban the use of cramped battery cages, forcing egg producers to use larger ‘enriched’ cages that allow laying hens more space to perch and move around.

However, as many as 13 countries across the European Union, including Spain, Italy and Poland, have admitted that their egg industries will not be ready to meet the new requirements in time for the New Year – sparking fears of availability problems and higher prices.

The looming crisis has prompted Arla Foods Ingredients to urge bakery manufacturers to consider using egg replacement products – such as Nutrilac – to protect themselves from growing uncertainty in the market.

John Gelley, sales director for EU Bakery at Arla Foods Ingredients, says, “No-one knows for sure what impact the Directive will have. But with so many member states admitting that they are unprepared for the changes, there are worrying signs that bakers could face difficulties sourcing sufficient eggs for their needs or, at the very least, significantly higher prices.”

He continues, “Egg replacement ingredients, such as our own Nutrilac range, offer the perfect solution to avoiding this uncertainty. They perform just like eggs in a host of bakery applications, and enable companies to maintain product quality and all-important clean label status.”

Manufactured from fractionated whey proteins, Nutrilac egg replacers offer several advantages over eggs. They are less expensive than eggs, they are lower in calories, saturated fat and cholesterol than eggs, they have a longer shelf life than eggs – up to 18 months – and they produce great tasting end products.

Gelley says, “We’re confident that bakers will be delighted by the benefits of egg free baking with Nutrilac – and there’s no doubt that the onset of the Welfare of Laying Hens Directive means now is the ideal time to make the switch.”

The Welfare of Laying Hens Directive comes into force across the EU on 1 January 2012. It prevents hens being kept in cages with less than 45cm of headroom and 750cm2 of floor space. It also obliges egg producers to provide perches and litter to allow the hens to nest, peck and scratch.

 Source: Confectionery Production

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