Export Trading Group: Nurturing experience as a commodity

There is much to be considered when one discusses modern farming techniques and increasing margins through yield and volume. However the picture becomes somewhat more challenging when farm management and distribution are moved to the global stage.

At that point technology, quality and education become only part of the equation, with exchange rates, commodity prices, storage and logistical overheads all playing key roles in determining success or failure. Welcome to the world of the Export Trading Group (ETG).

IMG_1695The company was established back in 1967, giving the business a considerable advantage today, thanks to the wealth of experience it has attained in the commodities markets. This has proved crucial as ETG has continually entered new territories and emerging markets over the past couple of decades.

Yet for all the experience, handling new markets and the everyday challenges of global agriculture commodities, the move to better corporate governance has proved perhaps the most significant factor in ETG’s continued growth, as Director, Jean Craven, explains:

As ETG owns infrastructure across a broad range of agriculture producing countries, the Group is able to source and purchase commodities including grains, oilseeds, coffee and cocoa at farm gate level before distributing to a global market. This has proven to be a core benefit. We are one of the top three traders of pulses and sesame seeds in the world and we concentrate mostly on non-perishable agriculture products.

The business was incorporated in 1967 in Kenya and focussed on exporting processed and manufactured goods and crops to East and Central African countries. In the early Eighties the current owners took over and gradually moved the business focus to agriculture trade, investing in ventures across East Africa and utilising the East African Trade Routes.

Over time ETG increased their infrastructural investments and began to expand its geographical footprint through developing its processing capabilities, logistics network and in-house brands. Perhaps our big turning point came in 2008 when we conducted a group restructure and embarked upon a consolidation exercise to enable us to focus on upping our overall corporate governance.”

The exercise lasted almost two years and by 2010 ETG had appointed KPMG as auditors and was able to consolidate all of its accounts for the first time since the early days of the business.

This was a significant moment as this opened up opportunities for debt capital and our first private equity transaction, with Standard Chartered acquiring a 14.5 per cent stake in the group,” Craven recalls.

While investors provide a platform for our future ambitions, it is important that we remember they are there to make a profit and we have hard targets that have to be achieved,” Craven continues. “We have to ensure a platform is created for sustained growth and much of this comes through our continuous improvement and continual investment in infrastructure.”

At present Craven says that 72 per cent of ETG remains privately owned, with management scattered across the globe. He says that the business has a large focus in Dar es Salaam, Tanzania, one of the original bases for ETG, with the holding company located in Singapore.

Managing such a broad and vast supply chain might seem a challenge; however ETG has perfected its processes over many years and adopts a localised approach that has proved highly successful:

We have established and developed a vertically-integrated agriculture supply chain with operations in procurement, processing, warehousing, transportation, distribution and merchandising. This supply chain consists of 26 processing plants, 600 warehouses, numerous procurement centres and offices in over 45 counties worldwide. At any time we have 7,000 employees (including casual staff).

Technology plays a significant role in all of this of course. We recently undertook a large roll-out of a new centralised database system, which connects all of our operations with real-time data.”

Whilst this investment was very much made with integration in mind, Craven suggests that most transactions are made on a local and individual basis:

IMG_7647We invested in the region of $100 million in 2012; the projects tend not to be large though and typically we spend $2 million to $5 million on each one, upgrading facilities and investing in infrastructure. You have to remember that these investments are often made in developing countries and emerging markets, where such an amount goes much further. Most of these investments look to increase our storage capacity through warehousing or improve our processing plants.

We made two or three acquisitions last year and the year ahead will follow a similar pattern of capital investments and acquisitions. A substantial amount of investment also goes to increase our existing working capital lines – usually these investments have a repayment timescale of between three and five years – but we benchmark our returns at around 25 per cent.

You will find organic growth in our business all over the world, with capital being the strongest driver. With new equity investment we can acquire more debt capital,” he adds.

ETG connects African smallholder farmers with consumers around the world by procuring, processing and distributing agricultural commodities including maize, pulses, wheat, rice, cashew nuts, soya, fertilizer, sugar, coffee and tea directly at farm-gate level. Approximately 80 per cent of the 1.4 million metric tonnes of commodities that were procured and distributed in the Financial Year End March 2012 were sourced from smallholder farmers.

By investing in these smallholder farmers, ETG is not only creating new markets for African farmers, but is improving their general living conditions by making basic needs such as education, healthcare and infrastructural development within their local communities easily accessible.

Craven says that because so many of these smallholdings are located in developing countries, ETG has often invested in infrastructure to help improve roads and electricity supplies:

We often work with governments in countries like Malawi, Mozambique and Tanzania and have found that these partnerships are not only beneficial to local communities but will also smooth operational procedures such as logistics. We utilise local skills where possible but we use ex-pats who help with training and sharing knowledge.

Having such a broad range of commodities spread across the globe, ETG has somewhat mitigated the risks of seasonality and Craven says that ETG has refined its approach to distribution and shies away from price risks when dealing with commodity price fluctuations.

IMG_8720Foreign Exchange rates however can be an issue,” he acknowledges, “especially in emerging markets where rates can fluctuate enormously. We try to hedge our exchange risks where we can, but in terms of the business there is a natural mitigation as we have a fairly even split between import and export of goods.”

Transportation remains one of ETG’s biggest costs and the company owns a large fleet of trucks and barges as part of its distribution process, using third party providers only where it makes practical sense.

The infrastructure in many countries is often inadequate and with inefficiencies at borders and ports there are often additional transportation costs,” Craven explains. “To try to reduce the impact of these issues we are regionally based and we will typically have staff located on both sides of a border.”

As a food-related business, ETG has to have a strong focus on quality management. The group recently embarked on the process of implementing ISO standards to its operations, with the goal of maintaining quality and promoting food safety and an energy efficient, environmentally mindful, health and safety conscious business practice. As of December, sites in 23 countries had been audited and 243 certificates had been awarded.

Quality is ultimately driven by your customers and we simply cannot afford to deliver sub-standard products to our farmers or end users,” Craven asserts.

We have built up years of experience and we adopt best practices across the globe. With clients such as the World Food Programme, it is imperative that our quality approach is of the highest order,” he adds. As we speak, Craven is sitting in the ETG’s Johannesburg office. South Africa is a relatively new venture for the group, having made its first inroads seven years ago;

It (South Africa) fits well into our infrastructure strategy and we are currently looking at further opportunities in Cape Town and Durban such as storage and processing facilities. Where we see an opportunity to acquire assets we will look to do so,” he announces.

According to Craven, other opportunities may materialise in Australia, China and Turkey during the coming year, which will surely further strengthen ETG’s portfolio as the business moves towards an exciting long-term future:

Our current aim is to look at an Initial Public Offering (IPO) in either 2015 or 2016 – but there is still a lot of work that needs to be done around financial reporting and corporate governance,” he reflects.