Reducing risks, increasing returns: Working toward a safe and sustainable future, and providing sustenance for a growing population.

• Author: Hogge, Guy
• Position: SPECIAL REPORT

There is no doubt that there is an inextricable link between the trade and flow of agricultural goods and the sustainable development of supply chains. This is core to our vision at Louis Dreyfus Company, as a global merchant, which is to work toward a safe and sustainable future while contributing to the global effort of providing sustenance for a growing population. It must also include the development of a robust and thriving farm sector.

While operating on a global scale, Louis Dreyfus Company's influence and ability to transform supply chains is limited to the company's own activity. However, the importance of working in concert with a wide range of stakeholders - be they our peers, customers, suppliers, non-governmental organizations, banks or governments - to facilitate change at scale, is something we are acutely aware of and have significantly focused on over the past few years.

HEALTHY FARMING

While sustainable development and a healthy farming community are essential to the future supply of food, our investments and operations also need to provide a positive return in order to achieve the desired 'win-win' result. We face many challenges and often difficult choices to achieve our own goals around environmental, social and economic parameters.

Louis Dreyfus Company's Zambian cotton operation provides good examples of the challenges that investors can encounter.

As the owner and operator of cotton ginning capacity in Zambia, Louis Dreyfus Company engages with tens of thousands of smallholder cotton growers in various regions across the country. Being able to effectively service their needs while managing a successful ginning and exporting operation requires us to operate a significant structure at considerable cost. The nature of the farming community in Zambia requires Louis Dreyfus Company to provide considerable pre-finance in the form of cottonseeds and agricultural inputs, recouping these loans in the form of harvested cotton at the end of the growing cycle.

Given the significant oversupply of ginning capacity in Zambia, competition for harvested cotton for processing is considerable. Farmers are often tempted to default on their loans and sell their cotton to other gin operators who offer to pay more, and who do not have the cost burden of a comprehensive structure, like Louis Dreyfus Company and some of our peers. In addition, our focus on cotton yield improvement, both as a means to increase farmer revenues and to secure...