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An ag revolution that traders may dislike is coming anyway

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Jonathan Kingsman, founder of the Kingsman sugar brokerage and analysis group, tells Agrimoney of a growing trend that many traders hate – for growing traceability in agricultural commodities.

Mr Kingsman will be giving the keynote speech at the Agrimoney Investment Forum on what the next five years holds for agritrade and investment.

Ag trading giant Cargill is, apparently, committed at it. As is Singapore-based rival Olam International.

And Italy's Ferrero, the group behind Nutella, has also made big strides, not that you might think of to judge by an attack by French environment minister, Ségolène Royal.

These are examples of companies which are attempting "to do something good in the world" by asking extra questions over the sourcing of their agricultural products, and whether it meets health and ethical hurdles, says Jonathan Kingsman.

They are bowing to what he sees as a growing trend in the industry – a switch to a more sophisticated approach to where we get our calories.

The question is not just "how the world will feed itself", as growing populations and wealth boost food consumption, but how to do so "while feeding itself better", says Mr Kingsman.

"We do need more food, but people want it to be healthy, and sustainable."

"People want to know where their food came from, and that people producing it were treated fairly. That there was no forced labour, child labour involved."

Calorie intake vs requirement

Mr Kingsman, you may remember, made his name in a sector – sugar - hardly renowned for health promotion and linked, in history, to plentiful human rights abuses.

He built up the Swiss-based Kingsman sugar brokerage and analysis group, a big name in the industry, which he sold to Platts four years ago, and helped too set up the Dubai sugar conference, co-sponsored by Al Ghurair's Al Khaleej refinery.

But the sweetener is "part of a balanced diet", he tells, flagging lifestyle changes, rather than sugar gorging, as fuelling the Western obesity crisis.

"On a per capita basis, Europeans are eating less sugar," Britons in particular, with a drop of 53 kilogrammes per head to 33 kilogrammes per head "over the course of two generations".

"It has even started to come down in the US."

The trouble is that "we are doing less physical work. We don't work in the factory or the farm people are walking to work.

"We sit an air conditioned office, walk to the water-cooler once a day, and that's about it" as far as physical exertion goes.

Premium pork

However, we still want to eat healthily, and indeed ethically.

Mr Kingsman quotes a report last week on a Chinese pig farmer who keeps his animals free range, allowing his pork to sell for a premium of about one-third.

"Rich Chinese, they want to eat healthily too," Mr Kingsman said, if acknowledging that getting poorer consumers to pay up is more of a challenge.

But there are ways to spread the agenda nonetheless.

'1,000 apologies'

One is to name and shame companies using agricultural products from unethical sources, a strategy which has worked, for example, in the palm oil industry, where companies buying the vegetable oil from sources not certified as sustainable have been attacked by activists.

Hence the criticism by Ms Royale of Ferrero – and subsequent "1,000 apologies", given that the Italian group has in fact signed up to buying its palm oil from sources approved by the Roundtable on Sustainable Palm Oil.

Other companies, such as Kraft and Nestle, have made pledges too on sourcing palm oil, an ingredient in products from biscuits to shampoo, even though certified supplies may cost extra to buy.

'Traders do not like the idea'

Indeed, Mr Kingsman acknowledges the kind of themes he is talking about are not popular among all sectors of the food industry, including many of the participants he used to deal with at Kingsman inc.

"Traders do not like the idea of a traceability element. They want to be able to sell something five or six times, taking a cut each time."

Still, such objections may be overcome by making sustainability criteria the norm, and including them, for instance, in specifications for futures contracts.

"The aim is within 10 years that all commodities will be certified as sustainable by independent certification," Mr Kingsman says.

Then it would be possible for a trader to switch, say, a cargo of Guatemalan sugar for a cargo of Thai, if the sweetener was in both cases sourced from certified producers.

RCMA vs Plexus

As to whether business is ready for such changes, Mr Kingsman points to a deal in cotton which closed last month, in which UK-based cotton merchant Plexus sold its trading operation to Singapore's RCMA to focus on building a supply business built around ethical values.

"On the one side you had RCMA expanding in traditional cotton trading. And then you had Plexus taking a different route, and focusing on providing cotton from sustainable sources," Mr Kingsman says.

"This is where we are at."

And it will be interesting to see, in a decade's time, where RCMA or Plexus is making the bigger returns.

More details on the Agrimoney Investment Forum can be found here.

By Mike Verdin

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