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CEO’S KEYNOTE SPEECH AT FT COMMODITIES GLOBAL SUMMIT 2018
Johnny Chi, CEO of COFCO International, delivered the keynote speech at the 2018 FT Commodities Global Summit in Lausanne, Switzerland on 20 March.
Thank you for the opportunity to address this prestigious conference today. I feel honoured to be on the stage giving this keynote address on behalf of COFCO International.
As a company of Chinese heritage and a relatively new entrant to this global market, I understand there is a great deal of interest in our plans, and, dare I say it, perhaps some misunderstandings. So, as we begin the Year of the Dog, I will take a few moments to explain our strategy. I want to explain why this is such an exciting time for COFCO International, and why we believe that we can have a profound impact on the marketplace in which we are operating.
COFCO International’s aim is very simple – it is to be a world-class agribusiness, with the scale to make a positive, sustainable and long lasting impact on the global stage. We believe that we bring some unique strengths and powerful assets which differentiate us in the thriving global agricultural sector. These will enable us to be a strong and supportive partner of choice which develops mutually beneficial relationships with growers and all our stakeholders.
Our market is at a fascinating stage in its development. By 2050, there will be over 9 billion people on our planet. Rising populations and the growth in demand from emerging markets mean that production and trading in the world’s major agricultural commodities need to continue growing. We are committed to playing an integral part in the world’s food system over the long term, building on strong values of partnership and developing our business in a sustainable way for the benefit of generations to come.
Yet it is also undeniable that there are challenges too. Across the industry, margins are under pressure in the face of high levels of supply which has driven prices to historic low levels. Industry consolidation has required us to adjust our way of working with our partner suppliers, who are looking for more stable partnerships with companies like us. There is also greater demand from all stakeholders for increased intelligence and transparency from the supply chain.
However, we believe the strategy we have in place gives us the right plan to navigate these sector-wide issues. We have started the journey of building COFCO International into a leading global agribusiness. In the past 5 years we have made two significant acquisitions in Noble Agri and Nidera, and in fact the Nidera acquisition only finally completed last year. Some of our peers have been established for centuries – we are trying to create a leading global player in a fraction of that time. But that doesn’t change our commitment to doing things responsibly, sustainably and by taking a long-term view.
I am sure many of you in the room will have been involved in major pieces of M&A, and if you have, you will know that integration of a large business is never a simple process. That was why we called 2017 our ‘year of integration’, as we took a pause to focus on the integration of our new businesses, and I am pleased to say that our team has made great progress in ironing out these challenges.
That said, the business continued to make good progress despite the inevitable upheaval. We recorded turnover of $35.3bn in 2017, and our operations are profitable. Our acquisitions have given us genuine scale, and last year we traded 105 million tonnes to over 50 countries around the world. Crucially, we have emerged with a new corporate culture, a culture where we work as one organisation under the slogan of ‘One Team, One Voice, One Cofco, One Dream’. With this strong platform in place, we are approaching the future with confidence, and are ready for 2018 to be what I am calling our ‘year of development’.
These may sound like fine words, but let me tell you how we plan to achieve our objective. We now have a focused portfolio concentrated on grains, oilseeds and sugar. Even in today’s very competitive marketplace, these categories benefit from favourable supply-demand dynamics. Over the years to come in the grains and oilseeds markets, the key supply driver will be South America, and the key demand driver will be Asia. And that’s helpful to us, because the shape of our business very much reflects those flows.
When people think of COFCO International they will often first think of China. Now it is important for me to point out at this juncture that COFCO Corporation is only one of our major shareholders. Our shareholder base also includes Temasek, IFC, Standard Chartered, the China Investment Corporation and a private equity firm called Hopu. We are honoured and excited to have the backing of such distinguished organisations alongside our original founder, COFCO Corporation, and we benefit from high performance standards of corporate governance, environmental and social sustainability and two distinguished non-executive directors.
China is our most important market and will continue to be in the future. Our relationship with our largest shareholder COFCO Corporation, the world’s largest agribusiness by asset value, gives us a huge base to leverage. We have unrivalled access into the growing Chinese market and there remains much we can do to further grow our business there, at a time when Chinese demand for agricommodities continues to soar. China cannot meet its needs itself, so there is a vital role for COFCO International to play as the sole procurement platform for COFCO Corporation importing into this market.
But I want to be clear – COFCO international is much more than just a China focused business, on the other side, we aim to leverage the demand from China and grow our global business. In fact, it may surprise you to learn that China only accounts for around a quarter of our export volumes. What we are building is a genuinely global business. We see some markets where there are hugely exciting opportunities as demand for our products continues to accelerate. South East Asia and the Middle East, in particular, are two regions where demand is growing rapidly, and we believe we can play a part in meeting that demand.
Our strategy is to increase our market share in all these destination markets, and combine that with effective marketing which creates stable and enduring customer relationships. When we succeed in doing this, it will help us deliver long term, sustainable profits.
But of course, the destination markets are only one part of the equation. In order to achieve our objectives, we must grow our origination capabilities. This is a major focus for us and we will continue to invest to develop our presence in key regions such as South America, North America, and the Black Sea region, where China’s Belt & Road initiative is set to dramatically improve connectivity into the Chinese market.
As I mentioned earlier, our plan is to build strong and enduring relationships with farmers in order to access grain supplies to meet the growing demand. We want to be a partner of choice for farmers, supporting them with services and advice, a genuine partnership rather than just a commercial relationship. We are here for the long term and we want them to know and feel that.
Over the coming years, we will continue to increase the amount we buy directly from farmers. As an indication of how we plan to work towards this goal, recently we have secured a deal with a farmers co-operative called Growmark, the second largest organisation of its type in the US, which gives us direct access to grain supplies from that market. The access and insight we can give these farmers to the Chinese market represents a compelling and unique proposition.
By leveraging our partnerships with growers and farmers, and combining those relationships with processes which maximise the productivity of our world-class assets, we will have a highly efficient and sustainable supply chain which will deliver stronger margins in what is sure to remain a very competitive marketplace.
I have already described the very strong and unified corporate culture we have created. Sustainability and doing business responsibly are absolutely at the heart of that culture. We are acutely aware that we operate in a highly sensitive industry, and so we take our responsibilities to the environment and the communities in which we operate extremely seriously. That’s why our sustainability strategy is an integral part of our company strategy.
Our people, all 13,000 of them across 35 countries, are our driving force. Their safety and their prosperity are non-negotiable. We are one team, working together globally, and we are gradually building the capabilities and structure which will help us to achieve our ambitious goals.
But we will not achieve our objectives alone. Our culture as a business is one of partnership. You have heard me throughout this speech talking about inclusiveness and I am determined that we will be an open and transparent partner to all our stakeholders, including our competitors. That is my commitment, and this is how we will achieve our goals.
To conclude, I hope this speech has given you a good sense not just of the scale of our ambition, but why we are approaching the future with such confidence. With our acquisitions now successfully integrated, we have created a powerful platform to build COFCO International into a new global force in agricultural trading, and to play an active part in helping the world meet its food supply challenges for generations to come.