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Multinational Agribusiness Companies Losing Significance in World Trade

01/01/2019

For more than a century, four multinational commodity and grain traders have dominated agriculture as middlemen between producers and consumers. The four comprising ADM, Bunge, Cargill and Louis Dreyfus referred to as ABCD, have brokered a high proportion of the World’s major commodities. This has been achieved through superior market intelligence, storage infrastructure and transport facilities including harbor installations and bulk vessels.

According to an insightful article in the December 14th edition of The Economist, the dominance of ABCD has been eroded over the past decade. Cofco was established by the Government of China to source and supply grains essentially from Latin America to producers in their nation. Glencore Agriculture emerged as a major competitor to ABCD backed by parent company Glencore, involved in multinational mining. Glencore was a potential acquirer of Bunge in 2017. Olam was established by a state-funded Singapore investment group and is active in brokering transactions between Africa and Asia.

The problem faced by international commodity traders is exemplified by the decline in profitability of Bunge that recently announced replacement of both the Chairman and the CEO. According to The Economist article, total commodity sales generated by ABCD declined from $350 billion in 2013 to $260 billion in 2017. The relevance of the four enterprises was enhanced by the tariff war with China. The advent of disruption in orderly marketing commencing in June resulted in a scramble to source alternatives to U.S. soybeans and the countervailing need for the U.S. to find new customers. The market price of Brazilian soybeans soared reaching a peak in October with a concurrent depression in U.S. prices which stimulated trade. By early December, with the end of the export season from the Southern Hemisphere, the world market price for soybeans in the U.S. and Brazil had converged close to $350 per ton. In the interim, razor-thin margins on trading increased, albeit fractionally, to improve profitability.

Companies such as ADM and Cargill have diversified with the former involved in ethanol production and the latter deriving two thirds of revenue from upstream activities including poultry in Latin America, the E.U., Asia and Central America. In addition Cargill is heavily involved in production of animal feed and further-processing of commodities.

Multinational commodity traders such as ABCD and their clones are a necessary component of the food supply chain. Going forward, their dominance will decline possibly representing an advantage for consumers in developing nations.