164-year-old commodities trading house Ecom enters cocoa and coffee top league; Esteve family mantra: “volume is vanity, profits are sanity”

November 12, 2013 8:52 am

Ecom enters cocoa and coffee top league

By Emiko Terazono in London

Armajaro Trading purchase puts publicity shy group in spotlight

Even within the publicity shy commodities industry, Ecom Agroindustrial is considered one of the least known of the trading houses. Yet the 164-year-old company is about to become one of the leading players in cocoa and coffee after it acquires the trading arm of London-based Armajaro, the commodities and hedge fund group co-founded by veteran cocoa trader Anthony Ward.In cocoa, the Swiss-based commodities trading house – which reported turnover of $5.1bn in 2011 – is expected to become the third-largest purchaser of beans after leading agricultural trading groups Cargill and Archers Daniel Midland, while in coffee, it will compete head to head with top trader Neumann Kaffee Gruppe of Germany.

Ecom’s purchase of Armajaro Trading is regarded as a good fit by some commodities executives. The two companies in the second tier of agricultural trading houses are focused on similar commodities, especially cocoa and coffee.

Armajaro Trading’s jewel in the crown is its cocoa business, with veteran traders as well as extensive on-the-ground operations. It is said to have a top client list which will open doors for Ecom, which already counts household names such as NestléStarbucks and Mars as its clients.

So who are Ecom? The company was founded by Jose Esteve in 1849 as a cotton trading business during the industrial revolution in Spain. From its humble origins of supplying raw cotton to the mills around Barcelona, the company has transformed itself into the world’s second-largest coffee trader, the fourth in cotton and a top-ten player in cocoa.

The trader moved into coffee in 1935, opening an office in São Paulo. After buying the operations of Cargill in 2000, it joined the top players. In 2012, it handled about 13m bags of coffee – or about 9 per cent of global crop output – second only to Neumann and ahead of other players such as Volcafe, part of ED & F Man, and Louis Dreyfus.

Ecom entered the cocoa sector in 1985, and now handles about 280,000 tonnes of the raw material used to manufacture chocolate – about 7 per cent of the global crop. But it is rapidly growing, with processing plants in Holland, Malaysia and Mexico. Ecom also trades sugar and oilseeds and raises hogs.

With its Spanish foundations, Ecom is still a player in the cotton market. In 1885, the Esteve family moved to the US, the world’s top cotton exporter. Ecom trades roughly 2m bales of cotton – equal to about 2 per cent of global production – in a sector led by Dreyfus, Glencore, Cargill and Singapore-listed Olam.

The philosophy of the company is simple: get close to the farmers. “We go to the source, we buy from the producer whenever we can, we are the local exporters,” Ramon Esteve, a sixth-generation member of the founding family and the group’s chairman, told a Swiss magazine two years ago.

In his late 50s, Mr Esteve, a Spanish national who was born in Dallas, Texas, and now lives in Switzerland, recently said that “Ecom currently employs more agronomists than traders”.

Its focus on sustainability and traceability of crops has gained the trust of the IFC, the World Bank’s investment arm, which has invested $154m over six years in Ecom’s various projects involving small holder farmers.

The trading house, which has a reputation of being well run, says it “prides itself on having fostered a tight-knit company culture”. Ecom remains controlled by the Esteve family, which holds a 94 per cent stake.

Although it is increasingly likely to be under the spotlight now that it has entered the soft commodities trading big league, it is unlikely that it will stray from the Esteves mantra, said to be “volume is vanity, profits are sanity”. As Teddy Esteve, head of coffee trading, told an interviewer last year: “What we’ve been taught is: Forget about the volume, the only important thing is profitability.”

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: