The “D” in the ABCD of Agriculture Behemoths
Louis Dreyfus is one of the ABCD companies that dominates the Commodity and Agriculture markets.
A note on terminology: Louis Dreyfus include LD Commodities which is managed separately from other parts of the Louis Dreyfus company. With “Louis Dreyfus” the entire company, including LD Commodities, is implied.
Louis Dreyfus is a true story of the American dream, despite being from France. It was started by an 18-year-old who would purchase grain from his local farmers and transport it 8 miles up the road to an important Swiss port where he would sell it. 7 years later he expanded the scope of his operation and started buying grain in Hungary and Romania. In 1860, 9 years after he started, Louis Dreyfus established offices in Germany and France while also improving the transportation systems connecting different wheat markets.
Fast forward to the present day and Louis Dreyfus is the only ABCD company that deals in Rice trading, and like Cargill, is still family owned. Although unlike Cargill, employees own about 20% of Louis Dreyfus.
Rice is a weird commodity because it is the most consumed but least traded and the country that produces the most isn’t even close to being the largest exporter. In 2014, China produced 206.51 million metric tons of paddy rice but exported around 0.01% of that production; with Thailand being the largest exporter and India not far behind. Thailand exported over 27% of its Rice production in 2012 whereas in 2014, India exported a smaller percentage of its production but the same tonnage as Thailand. In the coming years, India will likely overtake Thailand as a primary exporter of rice.
Louis Dreyfus is the only ABCD company that trades in rice because of the volatility of the crop. Not because the crop is hard to grow but rather because there is occasionally not enough to go around; i.e. countries only engage in trade when there is a surplus of the crop meaning that trade doesn’t always happen. This makes rice as a commodity tricky for companies such as ADM, Bunge, and Cargill to engage in its trade because the profits aren’t guaranteed and most importantly, the trade is not guaranteed. This matters because of how these companies operate. In a previous article we talked about how companies utilize economies of scale to make sure that they maintain a profit; those same economies of scale don’t work with rice as consistently because there isn’t always the same amount of rice available to the market.
Louis Dreyfus purchases paddy, brown, milled rice and transports it across the world with the vast majority of it reaching Africa but its reach is not limited to the Asia pacific and African region of the world.
You can find Louis Dreyfus in North America, South America and of course its home base, Europe. In North America, Louis Dreyfus has the largest bio-fuel production in the USA producing over 1 million tonnes of soy meal for animal feed and most importantly, over 88 million gallons of biodiesel every year- an enormous amount of production.
Since Louis Dreyfus is a privately held company, they do not have to show their profits to shareholders, they do not have to show market shares and they do not have to show lots of other information about how their company works. They do not have to show the same amount of information regarding their profits to the government as their headquarters for L.D. Commodities is required to do in the tax haven of Amsterdam, Netherlands. They have other offices strategically located throughout the world.
This makes any information on them difficult to gather. Much like Cargill, they are intensely private though Bloomberg news reported their net profits at $648 million in 2011. Chairman Margarita Louis-Dreyfus told the press that year would be as good as 2010 with over $1 billion net profit.
With the increased volatility of the grain markets and how any change can affect the already razor thin profit margins, Louis-Dreyfus has shifted to acquiring more production assets and being more involved in the logistics and production of foodstuffs as opposed to the movement of grain. This a departure from the beginnings of the company, but shows how Louis-Dreyfus is forward thinking and is dedicated to retaining its dominance of the markets and continuing its growth.
Read about the other ABCD companies here.
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President, BCG Senior Vice. “Rice consumption in China 2016 | Statistic.” Statista. N.p., n.d. Web. 09 Feb. 2017.
“Major rice exporting countries worldwide 2015/2016 | Statistic.” Statista. N.p., n.d. Web. 09 Feb. 2017.
Hoffman, Andy, and Javier Blas. “Louis Dreyfus Selects CEO as Billionaire Owner Tightens Grip.” Bloomberg.com. Bloomberg, 18 Sept. 2015. Web. 09 Feb. 2017.
Murphy, Sophia, Ms, David Burch, Dr, and Jennifer Clapp, Dr. “Cereal Secrets.” N.p., Aug. 2012. Web.
