Transport logjams and paltry harvests in producing regions have conspired with surging demand to stoke food inflation. The UN Food and Agriculture Organisation (FAO) expects the value of global food imports to reach nearly $1.9trn this year, up from $1.6trn in 2019. In May its index of main soft commodities hit its highest value since 2011, after rising for 12 straight months. Another benchmark index, by S&P Global, a research firm, has risen by 40% since July 2020. On July 22nd the boss of Unilever, the Anglo-Dutch maker of everything from Ben & Jerry’s ice cream to Hellmann’s mayonnaise, said that pricier raw materials have caused his firm’s costs to swell at their fastest pace in a decade. E warn that the price spikes could feed broader inflation, which is already on the rise in many countries.
That would be bad for consumers. But their loss is a gain for the giant firms that source, store and ship foodstuffs on behalf of state buyers and multinational companies. These opaque traders, which possess the networks of silos, railways and vessels, as well as the data and relationships, necessary to redraw supply routes, thrive on volatility. The four biggest—ADM, Bunge, Cargill and Louis Dreyfus, collectively known as the ABCDs—have been adding to their total workforce of 240,000 and ploughing billions of dollars into new businesses that rely less on cycles of feast and famine. Their prospects offer a foretaste of global food markets in decades to come.
Last year was nevertheless a bumper one for the ABCDs, whose combined net profits doubled, to $4.5bn. Analysts expect ADM and Bunge, which are publicly traded and report second-quarter results this week, to do even better in 2021. All four benefit from abruptly changing patterns of demand for crops and of their supply.
Droughts in North and South America have curtailed output. Brazil’s winter-wheat harvest is down by a fifth—and that fifth was meant for export. Besides the container shortage that affects specialty crops such as coffee, the grounding of commercial flights is stranding fresh fruit and vegetables. Rising bulk-shipping rates, up by 150% this year, are adding to the squeeze. Part of that is the result of rising oil prices, which also increase the cost of petroleum-derived fertiliser and other chemicals, and of running farm equipment (which is itself more expensive to buy as farmers take advantage of high crop prices and cheap credit to invest in new tractors and other machinery).
This cocktail of forces is raising global wholesale prices.
Soyabeans and corn are, respectively, 56% and 68% more expensive than a year ago. This filters through to consumer prices. The uncertainty and shrinking stockpiles are creating volatility. IFPRI, a think-tank in Washington, DC, has had corn on high “excess price variability” alert for nearly four months. Wheat and coffee prices have been volatile, too. Demand is likely to stay strong. Analysis by Josef Schmidhuber and Bing Qiao of the FAO suggests global agricultural trade volumes will grow by 16bn tonnes, to 444bn, in 2021.
Big traders are enjoying the boom. Higher prices give the ABCDs more margin to play with. Bigger volumes, as farmers sell more to lock in the high rates, let them recoup fixed costs more quickly. And more volatility makes it possible to exploit price discrepancies across time and space. The share prices of ADM and Bunge are still up by a third since 2019. A cash injection by Abu Dhabi’s sovereign-wealth fund bought a 45% stake in Dreyfus. Cargill is headed for record earnings after the first three quarters of 2020.
The ABCDs are diversifying. All of ADM’s recent capital spending has gone into less cyclical and more lucrative businesses such as flavouring, colouring and other ingredients for fast food, fizzy drinks or vitamin supplements. In the first quarter of this year its nutrition-ingredients units generated $154m in operating profit on revenues of $1.6bn. That is about 8% of its total, and growing fast. ADM expects this business to expand twice as fast as its core business, which tends to track global GDP. Bunge has sold dozens of mills, elevators and other assets to invest in plant-protein and edible-oil factories. Cargill now derives most of its profits from animal feed and animal protein. Its food-production facilities include a fish farm in Norway, a poultry farm in the Philippines and cultured-protein factories in America and Israel. It has become one of America’s largest meat processors, as well as a big investor in venture-capital funds focused on food and life sciences. Dreyfus has invested in Leong Hup International, one of South-East Asia’s biggest integrated producers of poultry, eggs and livestock feed.