Articles from Cass Knowledge

Sweet talking

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.

Global preferences
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 machinery.
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.

Improved crops
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 high.
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.

Renewable fuels
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