Robin Cave, Chief Executive of the sugar broker Czarnikow, discusses food,
fuel and the future with Stefan Stern, Visiting Professor at Cass.
Mary Poppins was right: a spoonful of sugar helps the medicine go down. The
nanny's timeless wisdom is a reminder that some commodities will always be in
demand. So it is not surprising that Robin Cave, the 48-year-old Chief
Executive of the sugar broker and consultant Czarnikow, has a confident air as
we settle down to talk.
Not that everything in the sometimes volatile world of sugar trading is always
sweet. When Cave was brought in to run Czarnikow three and half years ago the
firm was wrestling with the great financial crisis. Cave was a 20-year veteran
of derivatives trading at City houses such as Smith New Court, Merrill Lynch
and HSBC. He had worked mainly in equity derivatives, not commodities, and knew
nothing about sugar. He had also never been a chief executive before. "People
here knew a lot more about sugar than I did, and for a while I was allowed to
ask some basic questions," he says. "Even now I learn something new about sugar
almost every day."
Czarnikow started trading all sorts of exotic commodities in London in 1861. It
became a pure-play sugar trader 20 years ago when it was heavily dependent on
the Australian market. It diversified to trade in the growing sugar markets
such as Brazil and India. But when the credit crunch hit, trade (and cash)
flows were disrupted. Cave was brought in from outside the industry to help
right the ship.
There are many basic facts about sugar that the outsider may not appreciate. In
India, for example, the preference is for larger sugar crystals, whereas in
Japan the stress is more on achieving the greatest purity.
The juice from sugarcane is highly versatile. Boil it and let it crystallise
and you have sugar. Ferment it and you have alcohol. And the fibrous residue
called bagasse, left after the sugarcane has been crushed to extract the juice,
can be burnt to produce electricity and power the sugar processing
The use of bio-ethanol as a possible replacement for fossil fuels is another
area to explore. But here, Cave says, the price of crude oil is key. If it
falls, the incentive to find alternatives reduces. But were we to head back to
$150 a barrel or higher, research would be stepped up again.
Improved technology is changing everything in the sugar industry, Cave says.
Efficiency has improved and the development of large areas of land in Brazil
and India has changed the dynamics of the market. Satellite images can help to
predict surpluses or shortfalls by identifying the size of sugar cane crops
around the world.
But misreading these images can also skew markets. In equity markets,
volatility increases when economic times are bad, but life in commodities is
rather different. Indeed, says Cave, the challenge in the industry can be to
persuade farmers to improve their crops when prices are steady and reasonably
The crucial thing for Czarnikow is to maintain the best possible market
intelligence by understanding how farmers are operating worldwide and what this
will mean for levels of supply. The value of the crop in the ground can rise or
fall long before sugar is actually delivered to customers. Skilful use of
hedging is thus vital - which is where a derivatives expert such as Cave can
offer experience and insight.
Czarnikow's London offices are literally just round the corner from Cass and
the company has been a corporate partner since May 2010, supporting Cass
students through placements and internships. Cass's masters degree in trade
finance and shipping turns out a ready supply of potential recruits - people
who already have an affinity for the business of international trade. "We're
spoilt," says Cave.
Czarnikow is also working with Cass on a white paper to be published this year
which will explore future demand for transport fuel and the role that renewable
fuels will play in meeting it.
The demand for energy is growing in much the same way as the demand for sugar
and food. Czarnikow hopes that Cass's expertise will help the company to better
understand how that market is growing, and the type of fuels that will be
required. Czarnikow is an expert in bio-ethanol, based on its market knowledge
of sugarcane. Bio-ethanol already accounts for about 6 per cent of global
transport fuel consumption, and this could rise.
Czarnikow is positive about the potential for technological innovation to
increase the volume of ethanol that can be produced from existing feed-stocks
and to enhance the compatibility of ethanol with petrol.
In the meantime, we will all continue to need a few spoonfuls of sugar in our
tea, cakes, fizzy drinks, alcoholic beverages and a thousand and one other
consumer products. This is one commodity that remains constantly in demand.
Stefan Stern is Director of Strategy at Edelman and also Visiting Professor of
Management Practice at Cass. He can be contacted at firstname.lastname@example.org