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The world of agricultural trading does not enjoy the best press. Four companies: Archer Daniels Midland (ADM), Bunge, Cargill and Louis Dreyfus, or ABCD for short, traditionally dominated the industry. As the global pandemic and Russia’s invasion of Ukraine sent food prices soaring, the disruption helped this quartet book some of their most profitable years on record in 2021 and 2022.
It also sparked charges of war profiteering. The UN is among those that have called for greater oversight of the sector.
Those tricky optics are unlikely to change anytime soon. Over the weekend, ADM said it had placed its chief financial officer on leave amid an investigation into the firm’s accounting practices.
Details are scarce. ADM, one of the world’s largest crop traders, said the investigation centres on its nutrition business, its smallest unit. It comes following a voluntary document request by the US Securities and Exchange Commission.
The situation is serious enough that ADM has postponed the release of its fourth-quarter earnings, which was originally scheduled for this week. It has also lowered its earnings expectations for the year slightly from its previous outlook in October. Shares in the trader tumbled 22 per cent on Monday.
The bulk of ADM’s revenue comes from trading agricultural commodities such as corn and soyabeans, and producing edible oils, sweeteners and biofuels. But the group has been expanding its speciality ingredients business in recent years, as it looked to diversify its revenue streams.
That makes the nutrition unit, which specialises in making higher-value added food and feed ingredients, important strategically. It made around $7.6bn in revenue in 2022, or 7.5 per cent of the group’s total. Its share of group operating profit was bigger, at 11 per cent.
Building up the nutrition business was a priority for chief executive Juan Luciano. But the unit has struggled lately as demand for plant-based protein has waned.
It counts as good news, perhaps, that the nutrition division is the least connected to wholesale agricultural commodities trading, the focus for those calling for more regulatory oversight. The United Nations Conference on Trade and Development said in a report in October that a lack of regulation meant that traders were not required to record transactions in a transparent way. That opacity could be exacerbating instability and price increases by enabling financial speculation, corporate arbitrage and profiteering.
Even so, no company ever wants to be associated with the words “accounting investigation”. Least of all one that might prefer to stay out of the spotlight.
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