FACE TO FACE INTERVIEW

NAME: Norwell Coquillard

EDUCATION: Dartmouth College, B.S.

POSITION: President of Cargill China, Chairman-Elect of the American Chamber of Commerce in Shanghai

IN HIS POCKET: Pen, mobile phone, leather change purse (Gold Pfeel from Germany), wallet

Founded by two brothers in Minnesota in 1865, Cargill has grown from a single grain storage facility on the American frontier to become the world’s biggest grain trader 140 years later. With 158,000 employees worldwide in 66 countries, Cargill posted USD 1.6 billion in net revenues in just six months of operation last year. CIB sat down with the president of Cargill China, Norwell Coquillard, in his office in Times Square in Shanghai to talk about new trends in agribusiness and probe into Cargill’s China strategy.

What has been China’s effect on worldwide agribusiness?

It has changed the game. China’s voracious appetite for iron ore is probably the biggest single factor affecting the world’s ocean freight market. China’s steel production has grown from approximately 170 million metric tons in 2003 to over 450 million metric tons today. Although Cargill does not produce much steel today, we are still one of the world’s premier steel trading companies. We are a supplier of iron ore to China and we also either supply finished steel to or export finished steel from China depending on market conditions. The growth of China’s import appetite has been incredible. For example, in the late 1990s China was an exporter of soybeans, but now it’s the biggest importer of soybeans. China is now importing over 30 million metric tons per year. Because Cargill has been one of the world’s largest traders and processors of soybeans, we’ve been heavily involved in this trade. Our four soybean plants in China now use over 300,000 metric tons of beans per month. Most of these beans are imported from either the US or South America. China used to both import and export cotton, but now it’s the biggest importer of cotton due to the textile industry, and Cargill, as one of the largest cotton traders in the world, is now a major supplier to this sector. Not too many years ago Cargill traders were buying cotton in Xinjiang and exporting it around the globe. Also, until last year, when China drastically slowed down its export of corn, Cargill was the largest buyer of export corn from China. We helped China develop a number of new markets around the world, especially in the Middle East and in Africa.

How has this changed the logistics needs of your company?

Everything about China is big. When China’s import boom really started gathering steam in 2003, we saw what this would mean for the world’s ocean freight markets. Many people, even market experts, have been amazed at the run-up in the cost of ocean freight caused by China’s huge demand. Ocean freight rates shot to record highs in late 2003 and in 2004 and they have not ever gone back to pre-2003 rates. Cargill is the world’s largest charter of dry bulk ships. We used to own many ships ourselves, but sold these off around 1990. Today we are a very active user, trader and provider of ocean transportation. We charter ships for Cargill goods or charter them back out to others depending on our market view. Because we read the China market right, our Ocean Transportation division had a record year in 2004. China is such a huge user of all types of transportation, so if you read the China market wrong, you will suffer. Today the ocean freight industry uses larger ships than in the past to move more cargo to China. There’s been incredible growth of ports in China to unload the vast quantity of imports China requires. But our studies have shown that the bottleneck never happens at the Chinese ports, it’s usually caused by an inefficient rail system.

Cargill has a long history in China, with a presence beginning as early as the 1970s. Can you tell us more about this?

Cargill traders were in touch with China’s state trading companies really right after President Nixon visited China and signed the Shanghai Communiqué. In the 1970s, we were able to supply China with products like wheat, corn and cotton in large volumes. When I joined the company in the late 1970s I heard stories from the senior traders of their large trade with the Chinese and their occasional trips to China. There were many reciprocal visits between Cargill’s senior officials and Chinese officials in the 1970s. I think Cargill made its first investment in China in Shandong Province in 1987 – I believe it was a cottonseed processing plant. This joint venture was not easy and we struggled with it. And we did not make another investment until 1994 when we set up offices in Shanghai and Beijing. A little after that, we built a fertilizer blending operation in Tianjin and a few feed mills in the Shanghai area. So by 1998, we had two feed mills, a small oilseed crushing plant and two small fertilizer plants on the ground in China. We had about 300 employees then.

What about now?

At last count, we had 4,400 employees in China. Our activity accelerated after the 2004 Cargill leadership team visit to China. My team and I made a number of recommendations of how Cargill should ramp up its investments in China, and since then our growth in China has been extremely rapid. We now have 30 plants in China. About half of them are animal feed; the others are corn and oilseed processing, sweetener production, fertilizer and specialty food ingredients like the products that go into infant formula.

How will environmental issues emerging in China affect Cargill and agribusiness?

First of all, Cargill uses its worldwide environmental and health standards (EHS) in all of its facilities in China. The EHS policies we use here are no different from those used in other parts of the world. We hope that industry in China will move toward our standards so to ensure that world class environmental standards are implemented across all the industries we participate in. The major environmental issue of concern is water. Agriculture uses a tremendous amount of water and we at Cargill try to encourage the efficient use of water. The changing water situation in China may end up affecting what crops China grows in the future, which would have great bearing on future agricultural trade flows.

Can you tell us about Cargill’s stance on Genetically Modified Organisms (GMOs)?

Cargill’s overall business goal is to raise living standards by creating distinctive value for the people we serve, and agricultural biotechnology is a powerful tool in achieving that vision. The genetically enhanced crops grown commercially throughout the world today have been thoroughly researched and reviewed in the United States and other countries and found safe for people, animals and the environment. As important, they offer many benefits to farmers, the environment and consumers; and we have just begun to scratch the surface of this promising new technology. We plan to work with farmers and our food and feed customers to bring more of those benefits to market.

Can you talk about Cargill’s emphasis on business standards?

One thing that hasn’t changed since I began working here Cargill’s commitment to good ethics. I was taught on day one when I entered the company that a Cargill trader’s bond is his word. Today we teach new recruits the same way. When I was a grain trader in the US 20 years ago there were days when I would trade up to USD 20 million in one day – all on phone calls. Good ethics are essential for a business where one is trading a large amount of money on a phone call.

How long did it take for Cargill to be profitable in China?

We’re large and still growing, so some of our businesses are making money and some are not. Many are still in their first few years of operation and we haven’t yet overcome our start-up costs.

Do you do any research and development (R&D) in China?

Yes, we do. We’re conducting some tests here for an international project based out of the US, a pure research project sponsored by our Minneapolis head office. Other R&D activities are centered around the various businesses we have located here, like our food texturizing business and our global flavors business. Much of our R&D here is to fit our products to the demands of the Chinese market but as our R&D staff grows here, we are taking on projects for worldwide use. Our animal feed group, which now has 15 plants, does work on developing feed products exclusively for the Chinese market. Really, our business here in China is to mostly produce things for China; produce in China for China.

How long have you been with the company?

Twenty-nine years. When I joined Cargill almost 30 years ago, the company was mostly in grain trading and processing. It was a world trader of agricultural bulk commodities — such as oilseeds, wheat and corn — and a processor of those same commodities. Cargill was also a big producer of animal feed and steel. About the time I joined, it also made a number of investments into the animal protein area, such as beef, pork and chicken, and in citrus production and also fertilizer production and distribution.

How have you seen the company change and develop since you joined?

Well, the biggest change was that the company decided to build on its risk management skills to become the largest grain trader in the world. It also started actively trading in the financial markets, doing financial futures and derivative products. And in the wake of the savings and loan crisis in the US, Cargill developed a successful business buying packages of non-performing loans. In the late 1990s, Cargill focused on becoming the premier global food and agricultural company and started to reshape its portfolio of businesses. We then sold off most of our steel assets and started to invest in more corn-based products in Europe, in more specialty food ingredients such as vitamin E, and in specialty sweeteners as well as a biodegradable plastic made from corn.

What’s your take on China and the future of agribusiness?

I’ve been in China nine years. Prior to that I was 10 years in Tokyo. The pace of change is incredible here. It’s a just fascinating time to be in China. For our industry, the growth is here. There’s no other place in the world.