Talk about the business of sugar, and discussion soon extends to ethanol and energy policy, emerging markets like China, speculation in financial markets and even health concerns over sweeteners, World City’s CEO Club found at a lively July meeting.
Raimundo Varela, president for the Americas for trading giant ED&F Man Sugar, led July 9 talks, broaching topics that spanned growing risks in socialistic Venezuela today where “any transaction can go wrong, and you can lose a lot of money.”
Varela helps lead a company launched by two English brothers in 1783 to supply rum to the British navy. The firm grew to sell sugar, coffee, cocoa and other goods from rum-making nations; to produce and store sugar and related products; and to develop a big hedge fund that it later spun off.
ED&F Man now employs about 4,500 people in 68 countries, he said, and is owned by its employees.
“Commodities are a risky business, and we want employees to take the responsibility to be entrepreneurs and feel and act as if they were the owners,” said the top executive, who has worked with ED&F Man in Chile, New York, the Philippines, Singapore and London before his Miami post.
Sugar is ED&F Man’s core business, and it’s a tough one, Varela said. The world produces about 150 million tons a year, with Brazil the top supplier by far. Demand is rising only modestly, mainly from developing markets like China. Speculation in financial markets is rife, with bets on small shifts in production leading to wide swings in prices. And a new factor is transforming the market: ethanol.
In Brazil, mills can use the juice from crushed sugar cane either to make sugar or ethanol, a kind of alcohol that can substitute for gas in cars. About 95 percent of new vehicles sold in Brazil now feature a flex-fuel engine that can run on either a gas-ethanol blend or 100 percent ethanol. Brazilians can decide at the pump, based on price, which fuel to use. The upshot: Demand is soaring for ethanol in Brazil, influencing how much sugar is produced and traded worldwide, he said.
Sugar-cane growers in the United States might follow Brazil’s lead and make more ethanol too. But Washington offers price supports for U.S. producers that make it more profitable to make sugar than ethanol. Plus, Washington subsidizes ethanol from corn, discouraging ethanol from cane, he said.
“If the United States were a free market, the U.S. would produce less (sugar) without a doubt, and (sugar) producers would choose themselves to produce more ethanol,” said Varela.
Club participants, including Ruben Rotulo of Robles Advisors, asked how much sugar demand also varies with consumer preferences for “fair-trade” goods that pay farmers more of the final price.
Varela said the fair-trade movement generally affects higher-priced goods more, like coffee sold at Starbucks restaurants. Consumers don’t seem as concerned about cheaper ones, like sugar sold at supermarkets. Even so, some makers of specialty sugars are marketing products with a “fair-trade” or organic bent to boost sales and command higher prices, he said.
How do health concerns over sweeteners, now rising in the United States, affect the sugar business?, asked Steve Bartley, managing director of Boyden global executive search firm.
Not too much, Varela said. The real health concern in the United States is high fructose corn syrup, widely used in processed foods from soda to bread, and other artificial sweeteners – not sugar, a natural product, he said. In fact, some U.S. producers are switching from high fructose corn syrup to sugar to be able to market their foods or drinks as natural, helping boost U.S. demand for sugar.
In addition, rising demand for sugar from emerging markets like China and India outpaces any drop in sales from health concerns in the United States or elsewhere, Varela added.
Special guest at the July meeting was Sir Alan Collins, who runs the United Kingdom’s Trade and Investment program in the United States from offices in New York. Collins said priorities for the new UK government elected in May – the first coalition government in 70 years – include deficit reduction. Plans call for axing government spending and slicing corporate tax rates to “to the lowest level” in the Group of Seven industrialized nations to promote investment, exports and business, said Collins.
The CEO Club is one of six event series hosted by WorldCity to discuss international business topics. The Club series is sponsored by the University of Miami School of Business Administration and telecom company Telefonica. The next Club meeting is set for September.