Opinion / Web Comments

Evolving role of trading companies in food chains

By Marcos Fava Neves ( Updated: 2013-03-18 09:54

This article aims to discuss the major changes happening in trading companies (here I will use the acronym TCo’s) that operate in food and agribusiness chains. The idea her is to raise the facts that are changing, the impacts brought by these facts and leave an open discussion towards which acts should companies that are performing with TCo’s do. These ideas are based on discussions with leading trading companies and agribusiness specialists. Examples of TCo’s are Bunge, Cargill, ADM, LDC and others.

The TCo performs several functions in agribusiness markets, but the most important is exactly the trade. Find the sellers of crops (or what we call sourcing), and sort out the buyers. Different from a broker (operates via a commission), a TCo buys and sells products. Most of theses companies also went backwards (vertical integration) getting involved in processing (industrial phase). They also play important role in logistics and in financing agribusiness, being this last fundamental in some markets. Most of them have access to capital, large scale, own fleet of vessels, world-class selling teams, and several other resources are strong characteristics of TCo’s.

Within the food chain, from agricultural supplies towards the final consumer, TCo’s operate in several ways. Some are more focused at the initial parts of the chain and others move forwards, towards final consumption via branded products.

Several facts are impacting the world of TCo’s. As new entrants start to operate in the growing food business, we have a tougher competition in commodities, mostly in grain origination. In this way, some companies needed to expand operations through the value chain and others are reinforcing their position in the trading and/or input business. Which are the facts happening at the global environment of TCO’s that are influencing strategies of these companies?

Due to increase in consumption, the food trading business is growing fast in all parts of the world; 

World is facing a mid term challenge of insufficient grain and other commodities origination; 

Concentration of TCo’s via mergers and acquisitions;

Increase in transport costs and pressure over logistic resources; 

Fast rate of internationalization of TCo’s, global operations and sourcing mostly to become bigger and also to take advantage of the different production cycles of the products in different regions of the world, making possible better usage of logistical and management assets; 

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