A new agribusiness environment
May 01, 1996
by Teresa Acklin
Grain executive urges responsibility from industry in wake of market, trade liberalization.
The liberalization of grain markets and trade has brought renewed vigor to the world's grain trade and agribusinesses. But “more freedom implies more responsibility” among all participants, according to Hubertus Spierings, chairman and chief executive officer of Cargill International S.A., Geneva.
Speaking at the Agra Europe conference, held last November in Brussels, Belgium, Mr. Spierings called on the industry to renew its commitment to responsible behavior and impeccable business practices. Agra Europe, a leading information service on European agriculture and trade, sponsored the conference, “World Grain Trade to the Year 2000,” in conjunction with Sosland Publishing Co., publishers of World Grain.
Mr. Spierings, who joined Cargill Gestion S.A. as a management trainee in Amsterdam, Netherlands, in 1965, also is a former member of the board of directors of the North American Export Grain Association. Following is an excerpt of his comments.
It is opportune today to look at our responsibilities in the context of our world of food supply. Opportune, because the world has started for the last few years gradually to liberalize and privatize our agribusiness and activities. Land use and price controls are, I think, on their way out, and the value of any state or para-state monopolies is being tested.
But we have also begun a slow and steady march toward dismantling the export subsidies and import barriers that long protected agriculture from the forces of global competition.
Apart from the General Agreement on Tariffs and Trade and the European Economic Community, a number of other regional alliances have been formed like the North American Free Trade Agreement, Asia-Pacific Economic Cooperation, Association of Southeast Asian Nations and Mercosur as more and more countries realize that benefits of freer trade outweigh the benefits of protecting certain industries. Trade used to be “interesting”; now, it is becoming important.
When we combine all of this with the ever-increasing speed of change in communications, information technology and scientific fields such as bio-genetics, we are surely justified in having a vision that, within just a few years, there will be a very different world of food and agriculture; a world in which many more farm communities can and will thrive; a world producing a changing mixture of basic food supplies, increasing its output and doing so more and more economically.
Each community and region will concentrate on its own area of agricultural expertise and maximize its specific natural advantage. More food is necessary to satisfy the needs of a world population growing by some 70 million people every year. And changes in the basic food supplies should and would mostly respond to increasing living standards in major parts of the world.
Price will work its balancing act, more globally and more quickly. Both food supply and food demand will respond more rapidly and more widely to price incentives. Haven't we always known that, in the long run, markets are much stronger than governments in regulating food supply and demand?
To me, the outlook for the world's grain trade and agri-processing business is exciting, not just because we can look for continued relatively tight supplies and price volatility in the short term, but also because our role and function is widening.
Our role to stimulate the world to produce, handle, process, transport and distribute increasing volumes of food will no longer be so dependent on government controls and regulations worldwide.
The excessive, direct or indirect dependence on governments has, for a long time, put our agri-industries and trade in a secondary role, a role that has stimulated some of us:
to be very opportunistic in our approach;
to use existing futures exchanges and new derivative instruments for excessive speculation rather than as genuine business tools;
to stay close to home, working in smaller niche markets rather than going global and enhancing competition;
to put too much emphasis into lobbying those authorities who can change our fortunes;
to limit sharply, or even to exclude, investments in world-wide infrastructure, plants and transportation equipment.
In some instances some in the trade have gone even further in feeling less than 100% engaged to execute to the letter commitments made by word or deed anywhere in the world, or even closing an eye to the fact that some business practices and arrangements logically undermine the credibility and integrity of our profession. These kinds of approaches may have enhanced short-term profitability. But they have not helped much to build a better future for any part of the world.
Some of these actions are pretty bad habits, and it will not be easy to get rid of them. Bad habits are like a comfortable bed easy to get into but hard to get out of.
But we have to change our approach. Privatization, liberalization of agriculture and worldwide trade, in fact, imply that governments and authorities have to have trust in markets. They need also to have confidence in our capabilities and, above all, in our responsible behavior.
Yes, it is time for our industry to dust off and update our vision and mission statements.
We in Cargill say we are in business to help improve the standard of living of people around the world. A very wide range of activities and strategies can be developed to fit that never-ending mission everything that allows us to pay the producers of basic food a slightly better price and/or to provide an increasing quantity of safe food to the worldwide consumer just a freckle cheaper.
None of us, as a responsible entity in the world of agricultural industry and trade, can any longer “let things happen.” Now is the time to make things happen.
I urge all of us as business leaders to respond responsibly to our new public challenge. To do so, we all must reinvigorate our missions and adopt strategies that will lead both to a better balance in worldwide food supply and to long-term business growth and success. As an industry we should enhance global competition through global presence in this global marketplace presence not as visitors but as companies, integrated into all different societies and agricultural regions, to stimulate the effective transfer of the best food production practices worldwide over time.
We must understand our changing risks, adapt our business and continue to invest in modern communication and information technology. How well and fast we do this will probably be the most determining factor in overall business success in the future.
We must respond to our substantial responsibility to protect the world's ecology, its environment and its future food supply. Open, constructive dialogue with authorities must result in sensible, balanced policies and regulations.
We should, at a minimum, share in the world's responsibility to allow bio-genetic science to contribute to an increased future supply of absolutely safe and healthy food.
We should more aggressively invest to create worldwide more efficient food handling, transportation and processing facilities. It is hard to see a more noble purpose for our cumulative cash flows than to use them to increase the world's future ability to feed itself better and more efficiently.
We should use derivatives like futures and options to limit our risks, and we should also create and deliver instruments to serve the worldwide producers, processors and consumers of food to manage their price risk exposure in the most appropriate ways.
We must jointly seek to discipline all our market participants to act responsibly in terms of only entering those risk exposures and commitments that are commensurate with their capabilities and financial resources.
Finally, we must all stand for and enforce impeccable business conduct in our worldwide expanding operations.
Listening to all this, many of you may feel that there is really nothing new compared to what you have been doing to date. This may be so for some of us, but I contend that our industry as a whole has, from now on, an increasing responsibility on its shoulders to move faster and become more open and committed than ever before to lead the world of agriculture.
In most conferences, when it is all said and done, 99% will be said, and only 1% will be done. But the people and governments of the world are looking to our industry to work hard at the 99% in the years to come. If we were to fail, the governments would be obliged to take over once again all the way. We must succeed.