A Conversation with Serge Varsano

I met Serge Varsano on a miserably cold and rainy Monday in Paris. I explained that I wanted to interview him for the CEO section of my new book, but he immediately told me that he was not the CEO of Sucden; he was the President of the company's 'Directoire'.

The concept of a Directoire dates back to the French Revolution, and the nearest translation is 'Management Board'. It is an unusual arrangement that less than 5 per cent of French companies follow – and probably unique in trading companies.

In Sucden's case, the board consists of five people, with each member having a right of veto. Decisions must be unanimous. Every board member must agree before the company undertakes a strategy on the markets or invests in a sector or a person. If, for example, the financial director does not agree, they do not do it.

A supervisory board oversees the management board. Serge explained that although he is the company's majority shareholder, he operates within certain limits, first with the management board on 'day-to-day' trading decisions and, second, with the supervisory board on more strategic decisions. He needs authorization to exceed these limits. They ensure that the group is never put in danger.

Serge introduced the dual system to protect shareholders and the group after the company nearly went bankrupt in 1990. He told me that when Sucden bought Cocoa Barry in 1982,  the company's best financial and risk controllers moved from the trading side of the business to the industrial side. It left a gap in the trading operation when the company expanded into different commodities such as rice, cotton, and energy.

"Everything exploded at the same time," he admitted. "We had to sell Cacao Barry and Sogéviandes, owner of the Charal brand, dramatically reduce headcount and concentrate on sugar, our core product.

"Max Benamo, the former president who took over after my father died in 1990, came back to help me," Serge told me. "We made a lot of money with a whole series of operations worldwide, especially in Russia, Cuba and Brazil. We had an outstanding team, a very tight team."

"In the 1990s, we began our agroindustrial activities in Russia," he said, "Buying four beet processing factories and the land with them. In 2010/12, we returned to cocoa and then coffee. Later, we added rice and sea freight by purchasing ships. We are also a market-maker in the London metals market. It is an activity that is doing very well, but it experienced difficult times with the nickel crisis two years ago.

"Brokerage accounts for around 15-20% of our revenue," he continued. "Our agroindustrial activities account for 30-40% and trading for the rest. But I include distribution in the figure for Russia. I include shipping in the trading."

Although Sucden bought beet factories and land in Russia, the company did not invest in sugar cane in Brazil. Other trading companies lost a lot of money purchasing Brazilian factories. I asked Serge how he avoided the trap.

"It's not that we were brilliant," he admitted. "It was just that we didn't have the money to do it. It was luck.

"The cane mills were expensive," he continued. "We never understood why all these people dived in. We didn't believe in the ethanol stories, and the sugar market was around 11-14 c/lb, which was insufficient to justify the prices. It was hundreds of millions of dollars plus debt.

"We got involved in logistics operations in Brazil with port terminals but did not enter production."

"But you do production in Russia," I said. "Do trading and production make a good mix?"

"We do not trade in Russia," he corrected me. "We sell our sugar locally, especially to major brands like Coca-Cola, Nestlé, etc. We export a little to Kazakhstan and Kyrgyzstan. It is not trading; it's production and distribution."

Cocoa trading was responsible for a significant portion of the 1990 losses. In preparing for this interview, I reread La Guerre de Cacao. I admit that I didn't understand everything. I asked Serge if he could explain what happened.

"We were expecting a big harvest and shorted the differentials between the physical and futures markets at £20-30 per tonne. It was a significant operation but nothing extraordinary.

"President Houphouët-Boigny of the Ivory Coast banned exports - he thought the price was too low – and the differentials rose to $300-400 per tonne. We had a huge potential loss on our books. Other traders went to the Ivory Coast to convince the President to reallow exports. He said he preferred to destroy his cocoa rather than export it at such a low price.

"We went to him with a different idea: accept his price and buy 400,000 tonnes, store 200,000 tonnes in Europe for one or two years, and sell 200,000 to our customers. He accepted the operation. For that, we needed FF400 million. The French government had a structural fund that was not fully used, and they wrote a check for FF 400 million to be distributed to the Ivory Coast.

"With the storage cost and the 200,000 tonnes we sold, we emerged from the operation almost unscathed.

"We had asked the President for exclusivity on the deal for a certain time and not to sell to others. However, he sold 400,000 tonnes to Phibros, and the market collapsed. It was a disaster for us. It was also a disaster for Phibros who were long in the market. They exited cocoa soon afterwards."

"Of the commodities you trade," I asked, "Which is the most difficult and which is the most fun?"

"Sugar is in our blood and our genes," he replied. "Sugar is complex because it is a fob contract, unlike coffee or cocoa. You need a robust physical department to trade in sugar. You also need to have a good physicals department for cocoa, but the cocoa is already in Europe when you take delivery.

"You need a robust global network to trade sugar: Brazil, the Middle East, Thailand, China, etc. Cocoa is mainly produced in Ivory Coast and Ghana and exported to Europe and a little to the United States. Overhead costs are less expensive.

"Coffee is between the two. We are relatively small in coffee, with 7 million bags per year, compared to the big companies, which trade 12 million bags. We are among the leaders in sugar, with around 10 million tonnes per year. We are among the first in cocoa, trading around 100,000 tonnes of beans each year and the equivalent in products."

Serge Varsano has a reputation for being a speculator. Still, talking with people who know him well, I understood that he built the company on personal relationships and trust, for example, with Cuba and Russia, rather than by taking significant speculative positions on the market.

"I am more of a deal maker than a speculator," he told me. "My goal has always been to gain the trust of our customers and find solutions for them. Everyone has problems to resolve, whether financial, logistical, or pricing. That is what interests me."

"Speculation doesn't interest you?" I asked.

"Not really," he answered, "Especially on the flat price. We are not very good at the flat price, and we do very little for the size of the group, including cocoa and coffee.  We prefer 'relative value' to flat price."

"Is this Sucden's secret to success?" I asked.

"No, he replied. "The secret to success in this business is to have great teams and excellent people.

"As I explained earlier, if one of our traders wants to carry out an operation, he must have the management board's agreement. And if the board agrees, we support the trader 100 per cent. Our decisions are collective. We make mistakes—it happens—but we don't fire a trader if he loses money on a transaction that we all approved.

"We have a strong team spirit, and our traders have stayed with us for a long time. It is our secret to success. It is our way of trading, our way of managing teams."

"Each company has its way of working," I said. "Can partnerships work in trading?

"We have few structural partnerships," he replied. "We do joint accounts, but for one-off operations. Interests can change in life and business, and getting married structurally is risky. Marrying a producer is challenging because we don't have the same interests. Traders want to buy as low as possible, and producers want to sell as high as possible. It's hard always to agree."

"I imagine it wasn't easy to take over the company from your father," I said.

"Contrary to what you might think," he replied, "It was easy. In 1975, when my father found out he had cancer, he asked me to come back from the United States. I was 20 years old. The market was dropping dramatically from 66 c/lb, and I wondered, 'What is this thing - what is happening?'

I quickly integrated myself into the company and started doing small businesses. I had contacts in Venezuela, and we made some significant deals with them when the country became an importer in the late 1970s. I worked with my father and Elie Coriat, my father's right-hand man. My father died in 1980."

"How are you preparing your two sons to succeed you?" I asked.

"My desk is in the trading room with the traders. My two sons work three metres away, one to my left on sugar and the other to my right on cocoa. It's nice.

"They participate in the management board meetings. They are not management board members but will officially join when I retire in 3-4 years."

"What are the biggest challenges they will face?" I asked.

"Grain is our biggest challenge today," Serge replied. We have just begun grain trading. We are small, with 2 million tonnes this year. We do not have any ambition to compete with the big trading companies, but we will find niches in complicated countries for less common products. We initially aim to distribute in Eastern and Mediterranean countries. Can we stay small? We'll see, but we might have to move to a higher level one day.

"Russia is another challenge. It is impossible today to predict what will happen. Will it normalize?

"Cocoa is always a challenge. We cannot increase our bean volumes. Exporters have built factories and export products. However, we can expand cocoa products, such as butter and cake. There will be quite a few things to do.

"There is a lot to do in coffee. It's a complex market at the moment. We had a bad year two years ago, but we slowly began to understand and anticipate the situation and had an honourable result in 2023. This year, 2024, is off to a good start for Arabica.

"Do you need more capital?" I asked.

"We have around $1.5 billion in capital, and our debt is less than our equity. We would need more capital if we wanted to buy factories or grain elevators. Still, we are happy to remain in trading and brokerage in London and agri-food and distribution in Russia. We live well and obtain excellent results relative to our funds."

"You enjoy doing big deals in sugar, cocoa, etc.," I said, "But do you get bored when there are no big deals?

"Not at all !" he replied. "It's always interesting to follow the teams. The markets move constantly; there is rarely a year when nothing happens between sugar, coffee, and cocoa.

"I rarely get bored," he added. "But I have another great passion, which is show jumping."

Serge is a keen rider and competes in show jumping at an international level.

"I started at 10-11 years old in Neuilly," he told me. "I didn't do badly and was part of the French Junior team. But, I left for the United States at 17 to study, and I never got back on a horse until I was 50."

"Was it easy to restart?" I asked.

"No, it was challenging," he replied. "It was easy at first – like golf, the first shot is easy – but it's hard to do well. Now I'm happy with what I do. I'm having a lot of fun."

"Do you ride every day?" I asked.

"No! I'm still working," he replied with a smile. "I ride every Wednesday morning and at the weekends. Competitions usually last four days, Thursday, Friday, Saturday and Sunday, so I sometimes have to take Thursday and Friday off to participate."

"Are there any similarities between trading and show jumping?" I asked. "You can be an experienced trader or rider and have a good plan, but there is always an element of luck."

"The two are similar," he replied. "The stress is about the same between show jumping and trading.

"There is always something you can't control. You can have a faultless course if you calculate and respect all your horse's strides.

"Unfortunately, something always happens. The horse can swerve, add, or remove a stride, and, voilà, a bar falls.

"It's the same in trading! You can calculate everything perfectly, but something unexpected can happen. It might rain too much or not enough, or a delivery might have more sugar than expected. You can make a bad decision; things can go wrong, unexpected things.

"If you make a mistake in trading, you cut the position and start again the next day. It's the same with show jumping. There is always another competition – another opportunity. It's the same in trading. The market will always give you another chance.

"So, it's pretty similar. We never master everything in trading or show jumping. But that is what makes it interesting and fun."