HOTTEST
TROUBLE IS BREWING in America. The reopening economy’s hunger for goods from China, and for the containers that carry them, has left importers of coffee, of which the average American guzzles two cups a day, struggling to ship the stuff from Brazil. They are using whatever they can get, says Janine Mansour of Port of New Orleans, where much of America’s raw coffee lands. That includes much bigger boxes, which reach maximum allowed weight before they are full. Importing part-empty containers adds extra costs, Ms Mansour says, and these will ultimately be swallowed by consumers.It isn’t just coffee prices in America that are rising. Transport logjams and paltry harvests in producing regions have conspired with surging demand to stoke food inflation across the smorgasbord. 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 (see chart). 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.Central bankers 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.The ABCDs have been matching buyers and sellers of foodstuffs for more than a century. The youngest of the four, ADM, was founded in 1902. The oldest, Bunge, dates back 84 years before that. In the decades to the early 2010s they thrived on the back of population growth, rising prosperity and accelerating globalisation.Down on the farmThen they began to wilt. A prolonged glut of crops kept prices low and stable, squeezing margins. Smartphones and other technology put real-time data on local conditions and global prices at farmers’ fingertips, reducing the middlemen’s market power. Producers bought storage to ride out price swings, which decreased arbitrage opportunities. Challengers emerged, including Viterra, the agricultural arm of Glencore, a large commodity-trader-turned-miner, and COFCO International (CIL), the overseas trading arm of China’s state-owned food giant. Between 2013 and 2016 the ABCDs’ combined sales plummeted from $351bn to $250bn.The revenues have stayed flat since. But 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.Start with demand. For one thing, the pandemic has altered diets. When covid-19 began to spread in early 2020, lockdowns and crimped incomes meant that people stopped eating out and started cooking at home. Meat, fish and dairy (for all those lattes) gave way to more vegetables and cheaper packaged foods. As restaurants, canteens and cafés reopen, and wages rise thanks to the economic rebound, the reverse is happening. “A year ago we were trying to get rid of milk,” says Alain Goubau, a farmer in Ontario. “Now we are adding as many cows as we can.” China has been rebuilding its vast hog herd, which an epidemic of swine flu in 2018 had halved in size.This has had a multiplier effect on demand for crops, since more grain is needed to produce an animal calorie than if the plant were consumed directly, says Sebastian Popik of Aqua Capital, an agribusiness buyout firm in Brazil. Alfonso Romero of CIL expects China to buy a record 30m tonnes of corn (maize), one of the world’s most-traded crops, this year, in large part to feed all its new pigs. That is up from 11m tonnes in 2020, which was itself an all-time high.Another boost to demand comes from high oil prices, which make energy crops look like an attractive alternative. The more crops are turned into fuel, the less is left in the food system. The volume of American soyabean oil used to produce energy could rise by 39% between 2020 and 2022, according to the US Department of Agriculture (USDA). Brazil’s production of ethanol from corn shot up by more than half last year and is forecast to increase by another quarter in 2021.Even as demand for crops has surged, a confluence of factors has conspired to squeeze global 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 kit).This cocktail of forces is buoying global wholesale prices. Soyabeans and corn are, respectively, 56% and 68% more expensive than a year ago. This has filtered through to consumer prices: the cost of a home-grilled cheeseburger is up by 11 cents from 2019, says the USDA. 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.Big traders are enjoying the ride. 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. Despite a recent dip, the share prices of ADM and Bunge are still up by a third since 2019. Rumours of Bunge’s takeover by rivals, which swirled in 2018 as it embarked on a painful restructuring, have quietened. Dreyfus, the most troubled of the four, has been steadied by market conditions (and a cash injection by Abu Dhabi’s sovereign-wealth fund, which bought a 45% stake in the family-owned business). Cargill has not reported its annual profit for last year but was headed for record earnings after the first three quarters of 2020.In the short run conditions for the traders look clement. Demand is likely to stay strong. Analysis by Josef Schmidhuber and Bing Qiao of the FAO suggests global agricultural trade volumes will grow by double digits every quarter in 2021. Although prices have softened a bit in the past two months, thanks to better-than-expected planting forecasts in big regions and the near-completion of China’s hog splurge, they are much higher than before the pandemic.They will probably stay that way until at least next year, reckons Carlos Mera of Rabobank, a Dutch lender. Mr Popik says that the food businesses in Aqua Capital’s portfolio, which export to 45 countries, must now finance two months of stock instead of the usual one. This implies that it will take time to iron out supply-chain wrinkles. And meteorologists place a high probability on another La Niña—a weather event of the sort that caused droughts in late 2020 and early 2021—before the end the year.Crop rotationTo deal with their longer-term structural challenges, 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, says Seth Goldstein of Morningstar, a research firm. 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.As the traders become ever larger producers of foodstuffs and consumers of crops in their own right, they may come to prize stability a bit more. But probably not too much. They are not about to stop trading. As the populations of Asia and Africa grow bigger and richer, the middlemen will be called upon to supply them with crops from surplus countries, says Jos Boeren, a former Bunge executive now at Stafford Capital, an investment firm. The policies of big hoarders such as China, India and Russia look ever more unpredictable and their stocks less transparent. Climate change will ensure mismatches between supply and demand of foodstuffs. With six centuries of experience between them, the ABCDs will be evening out soft-commodity cycles well into the future. More
An arbitration panel awarded Nikola $165 million in damages from its founder and ex-CEO Trevor Milton.
Milton left the company in 2020 and was subsequently convicted of fraud related to false statements he made about Nikola’s tech.
Nikola had to pay $125 million to settle related charges in 2021.Nikola’s founder and former CEO, Trevor Milton, was found guilty on three counts of fraud in October 2022.
Massimo Pinca | ReutersShares of electric truck maker Nikola traded higher Tuesday after the company said in a regulatory filing that its disgraced founder, Trevor Milton, has been ordered to pay the company about $165 million in damages.
Shares closed up about 9%, trading at a little more than $1. The company’s market value was about $375 million as of Tuesday’s close.Nikola said an arbitration panel in New York determined last week that Nikola was due the funds for “costs and damages arising from actions that were the subject of government and regulatory investigations, including the December 2021 Securities and Exchange Commission settlement and associated civil penalty.”
Nikola agreed in December 2021 to pay the SEC $125 million to settle charges that it defrauded investors by misleading them about its products, technical capacity and business prospects.
Nikola said in a statement that it intends to seek reimbursement for its attorneys’ fees as well.
Milton, who founded Nikola in 2014 and served as its CEO and executive chair, resigned in September 2020 after short seller Hindenburg Research accused Nikola of making false statements about its technologies to boost its stock and secure partnerships with major automakers.
Milton was found guilty in federal court last year on three counts of fraud related to statements he made while leading the company. He is scheduled to be sentenced Nov. 28.Nikola will report its third-quarter results before the U.S. markets open Nov. 2.Don’t miss these CNBC PRO stories: More
The ongoing spread of the new coronavirus has become one of the biggest threats to the global economy and financial markets. The virus, first detected in the Chinese city of Wuhan last December, has infected more than 110,000 people in at least 110 countries and territories globally, according to the World Health Organization. Of those […] More
State of Freight
Walmart CEO Doug McMillon says suppliers are telling the world’s largest retailer that prices will remain elevated in the near term, especially for dry goods and consumables.
Walmart is adjusting inventory based on inflation and a slowdown in consumer spending.
Walmart is investing in supply chain technology to increase the speed of e-commerce and delivery.Retail sales slumped on Thursday even though the latest data on consumer prices earlier this week showed a cooling. Walmart CEO Doug McMillon says the retail giant is managing for inflation and a slowdown in consumer demand that extends into 2023, and the economic conditions are changing what shoppers will see on the shelves of the nation’s largest retailer.
Grocery sales, responsible for 56% of Walmart’s revenue, is a key inflation read for the McMillon and company.“We’re managing this item by item, category by category,” McMillon said in an exclusive interview with CNBC at the Hope Global Forum in Atlanta earlier this week. “We have a plan and adjusted our inventory to be ready for this next year.”
McMillon’s comments came after November CPI report that showed consumer prices rose 7.1% year over year, which was below estimates, but before the retail sales decline posted on Thursday.
Food prices remained elevated, rising 10.5% year over year. Grocery sales require more regular shipments than general merchandise, and trucking prices are also elevated, approximately 35% higher year-to-date, according to data from Evercore ISI.
“What we’re seeing is that if you take the fresh food categories, commodities, things like proteins, things are starting to move. Chicken right now is more expensive, but beef is down. Fruit and vegetable is in pretty good shape,” McMillon said. “But dry groceries, consumables is where we’re seeing the most stubborn and persistent inflation, mid double-digit inflation. And we’re not hearing from our suppliers looking forward that’s going to come down soon,” he said.
General merchandise categories have started to adjust because demand has softened, according to McMillon, but he added, “We think there’s going to be persistent inflation with us for a while, in drug, grocery and consumables.”McMillon said Walmart is continuing to look for new technology to maintain inventory and increase the speed of its e-commerce business. That includes a commitment to purchase thousands of delivery EVs from General Motors’ subsidiary BrightDrop and Canoo; the opening of next-gen fulfillment centers that use automation and artificial intelligence; and the acquisition of robotics startup Alert Innovation.
“There’s so much it’s possible today with technology, whether it’s the way we use data, the way we put smarter algorithms to work or the way we deploy automation through our supply chain. There are a lot of changes coming in distribution centers, fulfillment centers, last mile with EVs (electric vehicles) and delivery,” McMillon said.
The Hope Global Forum is the annual event for Operation Hope, one of the nation’s largest non-profits focused on financial literacy. Walmart is also a founding member of Financial Literacy For All, an initiative lead by Operation Hope that also includes Disney, Bank of America, Walgreens, Delta Air Lines, Ares Management and other companies. MoreRetailers and restaurants are looking to robots and other technology to keep up with demand in a tight labor market and to better adapt to buying habits.
Sam’s Club uses robots to scrub store floors and scan inventory and cupcake chain Sprinkles has replaced traditional cashiers with self-checkout kiosks.
Diners and shoppers, impatient with long waiting periods and poor service, welcome the changes, said AlixPartners’ Molly Harnischfeger.Sprinkles has added kiosks to its bakeries across the country, which allow customers to place their own orders and help manage the company’s surge in online orders.
Ashley HaguewoodWhen customers buy a cupcake at a Sprinkles bakery, they no longer line up at a cashier. Instead, they type into a tablet, swipe a credit card and wait for an employee to retrieve an order.
The kiosk system — which the cupcake chain began testing during at the beginning of the pandemic — initially allowed social distancing. Now, it helps the Austin, Texas-based company keep pace with increased online orders in a tight labor market where new employees are hard to find and retain. Its 20 locations will have the kiosks by early January, said Justin Murakami, Sprinkles senior vice president of operations.To cope in these changing times, retailers and restaurants are stepping up investments in robots and other technology. Walgreens is turning to automation to fill prescriptions, while Sprinkles and Starbucks move to swap out cashiers for tablets. Elsewhere, Walmart-owned Sam’s Club is using robots to scrub store floors and scan inventory at some locations, and restaurant chains like Buffalo Wild Wings and White Castle are testing robots that can flip burgers or make chicken wings.
Molly Harnischfeger, a director of the consumer-insights team at AlixPartners, said companies are feeling more urgency as they struggle to find workers and pay higher wages. Plus, she said, shoppers and diners, impatient with long waiting periods and other consequences of staffing shortages, are becoming more open to robots and other technology.“When customers have been going to restaurants, [and] are … [not] able to get the level of service that they expect and the convenience that they expect, the narrative changes a little bit in their acceptance of this.”
They are looking to “get their products quicker, whether that’s a robot delivering their curbside order at a retailer, whether it’s self-checkout, whether it’s their plates coming from the kitchen on a robotic server,” she said. “Everybody’s feeling that crunch as a consumer right now.”
She said many restaurants quietly increased tech budgets and kicked off pilots of robotics and artificial intelligence in the second half of the year — a trend she expects to continue in 2022.“You’re really on the cusp of this technological enlightenment for the restaurant sector,” she said.
Persistent labor crunch
The retail and restaurant sectors have long been associated with high turnover and low wages. But with fewer workers now and on the horizon, the industries are raising wages, sweetening perks and even offering sign-on bonuses to recruit new hires.
Ron Hetrick, a senior economist for labor market-insights firm Emsi Burning Glass, said the labor shortage will outlast the pandemic. Many baby boomers retired early, and some people opted out of industries with higher levels of interpersonal interactions or chose a job that allowed remote work because of child-care challenges.
Digital orders have also resulted in the need to complete new tasks like moving items off shelves for curbside pickup, or preparing takeout orders and more — which means they need more employees, not fewer.Scrubbing floors, filling prescriptions
Cleaning robots scrub the floors of some grocery stores and membership club Sam’s Club. The software, made by Brain Corp., can also scan shelves for inventory.
Brain Corp.Inside of Sam’s Club stores, robots clean the floors. These robotic scrubbers are powered by software made by Brain Corp., which counts airports, hospitals and malls among its clients. At some locations, Sam’s Club is testing an attachment with a camera that scans inventory and can flag if employees need to restock or rearrange a shelf.
Throughout the pandemic, the membership-based club has encouraged customers to use a Scan & Go app to skip lines and check out purchases on their smartphones as they shop the aisles.
The Walmart-owned chain has nearly 600 stores and about 100,000 employees. Through a spokeswoman, the retailer said it has not had trouble finding employees, but it recently raised its hourly minimum wage to $15 — an acknowledgment of a more competitive market.
At Walgreens, some prescription bottles are filled at centralized, automated hubs — rather than getting filled by an employee by hand at a store. The company acquired the majority stake of iA, a pharmaceutical fulfillment technology company, in January.
The drugstore chain has already opened a facility in Phoenix and Dallas, which helps fill prescriptions for 550 pharmacies. It plans to operate 11 of the centers in the U.S. by the end of 2022.
Both Sam’s Club and Walgreens say the automation frees up time for employees to help customers instead of spending hours on mundane tasks like mopping floors, manning cashiers or counting pills.
Josh Braylin, vice president of product and marketing for Brain Corp., said companies have to get smarter about how they use their workforce. That means looking for monotonous, low-value tasks to automate — an approach that both saves money and makes jobs more enjoyable.
“A robot can do that repetitive, boring job while that same worker is either going and talking with customers to provide more customer service or potentially spot-clean other areas in the store that may need more attention,” he said.Use of robots powered by Brain Corp.’s software has jumped. The company said the amount of square feet covered by these autonomous robots rose 40% in the retail sector, 69% at airports and 113% at malls year-over-year as of Oct. 1.
Rina Shah, group vice president of pharmacy operations and services at Walgreens, said the chain opened its prescription fulfillment centers at a fortunate time.
With the pandemic, pharmacists and pharmacy technicians have ramped up the patient-care side of their tasks. They are doing Covid-19 tests and vaccines along with filling prescriptions and answering questions about medications. Even beyond the health crisis, Walgreens was looking to turn stores into health-care destinations with doctor offices and other medical services.
“We have way more work to do and opportunities in front of us than we’ve ever had before due to the pandemic,” Shah said.
At cupcake chain Sprinkles, self-checkout kiosks are now part of the pitch to job candidates, who may be nervous about ringing up customers orders in person while slinging cupcakes into boxes for online orders, Murakami said. He described the tablets as a “stress relief” for employees.
“We let them know not only is this for the guests. This is also for the team,” he said. “This actually helps create an efficient, organized environment, so you can come in and not have that pressure of making it kind of like an assembly line.”
—CNBC’s Nate Rattner contributed to this story.WATCH LIVEWATCH IN THE APP More
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