"Decrease in revenues not a sign of decrease in economic activity"
Cargill Inc, the US-based agricultural trading behemoth, has had a presence in India since 1987. It owns leading consumer brands such as NatureFresh (edible oil, wheat flour) and Sunflower (Vanaspati) and is expanding its operations in the country. The company's Chairman and Chief Executive Officer David MacLennan was in India recently to inaugurate a $100-million corn wet milling plant in Davangere, Karnataka. He spoke to Business Today's Joe C. Mathew and Rajeev Dubey about Cargill in India and the emerging trends in global commodity markets. Edited excerpts:
The global economic forecasts seem to be suggesting subdued commodity prices for some time now. How do you rate the situation?
Yes, low prices will be here for a while. You have got a strong US dollar and weak currencies in some major agri-producing nations such as Brazil, Argentina, India and China. The major growing regions had really good weather, and in North America, there are plenty of stocks. We had a consistent pattern in North and South America. Good weather, good rains.
So you attribute the 11 per cent fall in your 2015 revenues of $120.4 billion to low prices?
Some of it is because of lower prices. You had several years of decrease in prices. However, we are in a low profit margin business and hence do not pay large attention to revenues. Revenues as a measure of our financial viability are not as meaningful as they are for a technology company or a durable goods company. Our revenues are higher when prices are higher. You also have currency fluctuation. So this kind of decrease in revenues is not a sign of decrease in economic activity.
Has there been a corresponding decrease in demand?
Broadly no, but it is true for some commodities. People change their consumption pattern in some categories. For example, chicken consumption in China is down 25 per cent. So I will not say that since prices have come down, there is a significant increase in demand.
Is climate change affecting your procurement pattern, stock management, etc?
Climate change means you have got to be cleverer about storage and transportation. For instance, ocean freights are cheap now. When mineral prices are low or energy prices are low, the shipping freight rates are very low.
How much of a threat will climate change be in the coming years?
Maybe in the next five to 10 years, I could be taking strategic decisions to anticipate the impact of climate change. It could be because of the emergence of new growing regions, or because traditional growing regions are not offering as much as it used to before. Africa is a major growing region of the future. We are expanding there. We crush imported soyabean in Egypt. We are increasing our facility there. We do not have significant capital investment plans for Africa today, but Africa will have to be part of the global food chain soon. It is just a matter of decades.
Is there a shift in global consumption patterns?
As the world income grows, as the per capita GDP grows, it has a correlation with meat consumption and consumption of corn, etc. We are in the chicken business; we are in the red meat business in Australia. I believe the world can eat more fish. So we see growth opportunity in our fish feed business, animal proteins, feed ingredients, etc.
Are we beginning to see decrease in agriculture output in some markets?
Looking at the major agriculture producing countries of the world - the US, Canada, Brazil, Argentina, Australia, Russia and India - I don't see any reduction.
We have always thought that you had an over emphasis on your edible oil business in India..
Correct.
Going ahead, what are your plans for India?
We just opened our corn mill in Karnataka. So that is the first Greenfield corn project with an 800-tonne-a-day capacity to provide the Indian market with products like starches, glucose, etc. Animal feed is a big area for us. We have committed a $15-million dairy feed mill in Bathinda, Punjab. We acquired a fish feed company headquartered in Norway. India is a big shrimp producer. I expect to see an increase in our shrimp feed capacity and business in India in the years ahead. Also, edible oil business is very important, and we have several very strong brands here.
You have made several brand acquisitions in India. Do you see consolidation happening in the food product business?
More staples are getting packaged and branded. That is a trend across the world. We will have brands we need to invest in for growth.
What is your take on genetically modified (GM) crops?
Food products are different from crops. The presence of genetically modified ingredients is not restricted in food products in India. It is restricted in crops. As long as it is not required, we don't have to take a view on that.
How about your engagements with farmers?
We are very active with dairy farmers all over India. We are also engaged with farming communities and have launched a programme in Karnataka to promote local economic development and impact 5,000 farmer households.
