What It's Like to Do Big Ag Business in Venezuela and Ukraine

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0:33Hello and welcome to another episode of the Oddbots Podcast. I'm Tracy Allaway. And I'm Joe Weisenthal. Joe, one of the big topics of discussion, there are a lot of topics of discussion nowadays, but when it comes to the recent takeover of Venezuela, the Trump administration's takeover of Venezuela, I don't know how to describe it, but the action in Venezuela. One of the themes or things that you saw people talking about was this idea that, Well, even if the goal is to get more oil, Venezuela's oil industry is a mess. It's in shambles. Yeah. So you hear things about, you know, ships that are rusting in the dock and pumps that don't work and whatever.

1:17People talking about really creaky infrastructure and also just a bad environment for doing business. Yeah. I mean, this is the thing. And so in the Venezuela-specific context, we know that the oil infrastructure has been degraded for years, which is why there is all these numbers about the massive amounts of upfront investment that would be required to get the oil started. But then there is this other phenomenon that's global, which is that there's really not much of a connection per se between the existence of natural resources in the ground and some way to get them out commercially anywhere.

1:52This also happens to be the case in Greenland. It happens to be the case in Western Australia, which is a very well-run country, which is that assets in the ground or anywhere mean nothing without the sort of rule of law, refining, processing, shipping, infrastructure, etc. So all these places of various different degrees, the actual existence of some asset, in Venezuela's case, oil, that's only part of the story. Absolutely. So this got me thinking, what is it like to actually do some sort of industrial business in a place like Venezuela? And I always wanted to do more on the Venezuelan economy.

2:28I think it's pretty interesting and more interesting now. So that is exactly what we're going to do today. We're also going to talk about doing business in another hot spot. Hot spot. Hot spot is a good way of putting it, which is Ukraine. Right. We did a number of episodes immediately after Russia's invasion of Ukraine, talk about the effects on the grain business. But the important thing, which we didn't get into that much, although I think we did a little bit, is like, well, the grain business, the wheat export business, it still exists. It was impaired. But then the day-to-day business of running a commercial operation in that intense environment, how that changes and so forth and so forth.

3:06How does that change under the new competitive strains? And I just want to say one more thing, which is, you know, when you talked about, well, what is the right word now to describe our relationship with Venezuela? It's I've been thinking about a lot of this, too. Do you have a word? No, I don't. Because it's very context dependent. Right. If you were to listen to the administration, it's like Maduro was arrested. Right. If you believe this was a flagrant violation of international law, you'd say he was kidnapped, etc. There's almost no words to describe it. You saw the president talking about already selling Venezuelan oil.

3:39So whose oil is this already? It's just a it's a very odd situation to say the least. Definitely. OK, so speaking of odd situations, we have the perfect guess to talk about them. And just I just got to say, I got a headline. U.S. seeks immediate talks on acquiring Greenland, Trump says. So at some point we will have another conversation about weird relationships with parts of the world that we didn't think about as much. Yeah. The Greenland economy episode is is yet to come. inevitably going to arrive. Okay. So we're going to be speaking with Jeff Kazin. He is the co-founder of Agris Academy and also the other co-founder, Mike Rolfson.

4:17So Jeff and Mike, thank you so much for coming on AllBots. Really appreciate it. Thanks for having us. Yeah. Thanks for having us. So first of all, why don't you give us a sort of nutshell summary of your career history? Because this is why we're talking to you. Both of you had very long, interesting careers at Cargill, which is one of the massive, massive agricultural conglomerates, among other things. So talk to us about why we're talking to you, I guess. Yeah, I guess I'll start out. This is Jeff Kazin. I did a full career in Cargill, 30 years, and started at the ground up at Baton Rouge, Louisiana ports buying grain to go to export.

4:59Was the head of wheat trading, did a lot of wheat trading at some point. Spent some time in their mergers acquisition shop around the world, looking at various businesses. Ended up as a CEO of a joint venture between Cargill and Monsanto at the time. Switched over into the vegetable oils, particularly the refined vegetable oils. Was the head of trading for what we call the West, so the Western Hemisphere on the refined oil side. and that's actually where my time with Venezuela was connected. Cargo had a very large oils business there, actually a packaged oils business. And I finished up my career in the feed side, a lot of aquaculture, very large salmon feeders around the world, shrimp, all kinds of various aquaculture, and then really the western side, South Latin America on the feed side, all the way to Argentina.

5:48So a typical, highly varied cargo career. Similar story with me. Back then when Jeff and I started, you know, Cargill intentionally threw you around to many different places. So yeah, I had three different domestic roles in the early to mid-90s that got your feet wet in different markets in the United States. And I also was involved in the export side out of Houston, you know, similar to what Jeff did. And then about five years in, I got tapped on the shoulder to go to Ukraine. There was no real commercial presence for Cargill then. What year are we talking about, sir? This would have been April of 1995.

6:22Okay. Yeah, so I was young. I was single. I spoke Russian. I was perhaps tongue-in-cheek. You ticked all the boxes. Expendable. And, you know, with a blank slate that not really knowing what was going on at the time and probably rather difficult to find people to come there. Yeah, I had raised my hand already to go. And fortunately, they circled back to me and gave me that opportunity. And it was five wonderful years there, taking it basically from a theoretical representative office to, I think we had seven or eight business units and a couple hundred million dollars invested. So it was a wonderful experience over those five years.

7:02And I also was with Jeff in the merger and acquisition shop shortly after returning and went into corporate ventures for a while after that and left Cargill a little earlier than Jeff did and went through ag tech and ag tech oriented venture capital. Then about three years ago, we kicked this off. I hope you guys are cool with us turning this into a five-hour conversation now because I imagine there's an incredible number of stories and I already have a billion questions. So we're going to be doing a little bit of that on the fly. Jeff, talk to us about the years you did business with Venezuela and maybe the difference in what years those were and then the sort of different conditions from like the beginning to the end as you saw them.

7:45Yeah. So because of the oils business, I was attached to that. And I'd like to say that it was a varied business and I ended up and I had a lot of grain experience, too. So I ended up kind of the head of overseeing trading for all of it. And probably the biggest statement is I think when I started the boulevard, the currency was like one to eight hundred. and this is and i get my years right and i think you know three years later it was like one to twelve thousand or something like that you ended up we ended up in that period of super hyperinflation where the economy basically seizes up and you know you watch from the capability if you don't have a functioning currency and the government makes you sell in local currency in order to go, you have to have some way to exchange it.

8:36And we effectively became dependent on the government to do the exchange, to go out and buy dollarized raw materials right now. 80 % of global trade is still in dollars, and a lot of the grain trade is. And that probably is the most single telling thing. The currency ceased to function, and that really changed the game on the ground in Venezuela. I want to get into some of the currency complications in a little bit, but I was surprised that Cargill had any business at all in Venezuela. Can you just tell us what exactly Cargill was doing over there? Yeah. And keep in mind, I'm currently a former employee and Cargill does not own the business there anymore.

9:20I was reached out to by Cargill. Basically, this is very typical of Cargill. They'll have females, they'll go in, they go out, They'll start with feed mills. They had the long-term salt. Salt was a big play there. Cargo is a large producer globally of salt. A lot of things quietly. I think there was a lot of industrial use salt there. They had the petrochemical business was using salt. I don't actually, I'm not an expert on the petrochemical side. And then there are lots of food processing businesses around the world. In this case, you know, they were natural flour millers, oil refineries, oil bottlers.

9:53The rice I had not seen anywhere else in the world. It was actually gone by the time I got there. Pasta plants. So in this case, probably the more unique thing was that not only were we doing primary processing, but we were going all the way to consumer. They actually had a very, I think the number one brand that they had bought over time. I think there was an acquisition from Bungie predates me in there also. So they were, you know, this was a very wealthy country and a place where you could do some very good business in and then repeat that model in multiple countries all over the world. And so, yeah, that's how they got there.

10:31It was very natural flow and they had a very large investment there.

10:51Today's markets move fast. Get the insights you need in 10 minutes with the Barclays Brief, a new podcast from Barclays Investment Bank. Through sharp dialogue and scenario-based analysis, our leading experts analyze key market themes each week. So whether you're managing a portfolio or leading a business, the Barclays Brief podcast can help you make smarter decisions today. Stay sharp. Stay briefed. Find Barclays Brief wherever you get your podcasts. Mike, on Ukraine, you know, 1995 is still the early days of real post-Soviet optimism, right? And people hadn't become jaded yet. And they probably hadn't woken up to sort of all the various pathologies and stuff that would occur in the wake of the dissolution of the Soviet Union, et cetera.

11:39Talk a little bit about the calculation and the hopes for Ukraine and the degree to which, you know, over the many years that you've paid attention to this market and worked in it, how they unfolded relative to, say, expectations. Well, I almost would say you underestimated the optimism at the time. And, you know, in 95, there was a tremendous amount of optimism there. We had a very dynamic team. Quite frankly, even the older folks that we would find to help be a part of what we were doing commercially, even though they all they had known is is the system. There were folks that that were experienced and hardworking and very excited to to jump into the sort of things that we were doing in a very differentiated way.

12:30So we had rock stars in our group that were 22 and out of school, and we had rock stars that were 60 years old that probably had some sort of legacy experience in agriculture in the Soviet Union, but was able to translate that to us. And it was an absolutely fantastic experience back then. It was more than just a job. You felt it was transformational. You were changing the way business got done there. There was an insane amount of chaos, but working in a regimented, ethical way got you business in another route. So, yeah, we made it work. It was classic Cargill at the time, sort of being sort of pioneering and entrepreneurial.

13:14And, yeah, we made it work and started with the trading side and slowly but surely put assets on the ground and a lot of other more formal things. It made it look more and more like a regular geography by the time, you know, the year 2000 rolled around and when I left. So, Mike, you were on the ground in Ukraine and Jeff, you were managing the Venezuela business remotely. What was that actually like? Because I imagine, you know, we're talking about a couple of decades back now. Communication must have been more difficult than it is even nowadays. is no it was very typical i wouldn't say you know there was we had leading edge uh as400s back in the day and so communications has always been a priority of a trading firm and so there was a lot of investment in that right you know that was very typical that you would have one and remember i'm a trading manager not the overall business manager but i would have you know we would have local merchants in each country and you've got to connect and coordinate that you know think about if you're buying, say, you're buying a multi-grocery boat cargo, you're going to load that cargo in New Orleans with all kinds of different commodities.

14:22And it's going to, you know, you're going to leverage that out to get your freight costs down and create competitive advantage. And so you're coordinating all your different trading groups in the region. And then that actually goes out on a global basis. So you're constantly looking for that edge. So I play the coordination role. And then at the local level, like you have to have local expertise on the ground, particularly in the cases Venezuela started to become unstable. You need people to understand how to navigate the government, how to navigate the various channels to get things and continue to get things done.

14:57And that takes local know-how. So that was kind of that big picture role that I would be filling in, of course, the risk management side. And then you have that very local execution side to make things happen. You got to have both. Yeah, and the same proxy existed for us, at least in our external communication and how we linked up. So my usual routes of communication went through our Geneva office and then outward throughout the rest of Cargill. So the external communication was world class. We had satellite phones through which we ran our modems and that kind of thing early on, at least. Internal, a whole different story.

15:32I could probably waste 45 minutes explaining just simple sending a fax type story and things like that. in 1995 and 1996, but before things got a little bit better integrated. But yeah, it was a dichotomy between internal and external, but manageable nonetheless. One of my first journalism jobs was literally monitoring the fax machine and making sure if a fax came in that the newsroom would be aware of it. Thrilling times. We could easily do an hour on internal communications and the sort of like pre-email, pre-slack, pre-IB. The pre-IB era is very long ago, but pre-digital document management in general and how that must have been.

16:16And maybe we'll have you back just to talk one day about that. Jeff, I remember I had a, it's interesting enough, I forgot about this, but when my first year of college, I had a roommate who I think had done some mission work for his church in Venezuela. And he was there when he, by the time he was roommates, he was talking about, oh, this guy, Hugo Chavez, it looks like he's going to win. This is going to be bad news, et cetera. And so should have taken that more seriously and paid more attention. What was though the point, a lot of people were concerned about Chavez, obviously. What was the point though in which you sort of saw like, okay, this is turning down.

16:55And what was it? And what was the process by which like, oh, we're starting to get serious inflation. We are starting to have a more difficult time doing business or importing dollar denominated machinery. When did that sort of sink in for the business? Yeah. So I arrived, we were already to Maduro. So we were already, so Chavez, the time there had already passed. And it's the frog in the boiling pot, right? It starts small and then it starts to, you know, and then you get all these unintended consequences and you're trying to and then, you know, there's a socialist regime. You're trying to plug holes.

17:33Right. And all these things that start to go on. And plus, you know, you also have a government that is healthily paranoid about being overthrown. Right. There's a power aspect that's going on all this at the same time. I think it really, really took a plunge. I mean, it wasn't good at Chavez, but when the currency and, you know, as you said, the oil industry starts to deteriorate. So that spigot of dollars is drying off. It takes ever more dollars to pay off everybody in the system. Right. It's a constant payoff system. And then you just don't have enough money. So you just run the printing press.

18:12Right. And I remember this. There was a point it got it happened so fast. A couple of stories. One is the BTU of a paper boulevard. The BTU value is worth more than it could buy. You can burn it. So you literally burn them for fuel. You can burn it for fuel. That's crazy. And there was a time where they were having the boulevards printed, but they didn't pay their printing bill. And they were flying it. The printing was being done in dollars outside the country. They didn't have enough money to buy the boulevards to fly them in. So you really started running out of currency on the ground, like you just even if you wanted to work on it.

18:50There's all kinds of these kind of stories. But it was right in that probably two years in the Maduro space when when the currency stopped functioning. That was really when we knew we were in trouble. Just to go back to something you said. So an American company working in any foreign country has to abide by American laws, particularly related to things like bribery and corruption. And maybe for both of you, and I imagine, you know, that this is a very prominent issue in both these countries, maybe more in Venezuela than Ukraine, et cetera. But we know that there's significant corruption in Ukraine, et cetera.

19:30Can you talk a little bit about essentially how you function in these environments where probably lots of people are getting paid off literally or in the bribery sense and how you have to navigate that from the perspective of a multinational? I'll start. Sure. And going back again, within the perspective of the mid 90s, there were two impediments. And I use the word impediment, you know, not not that it impeded us, but it did create a headwind for, shall we say, the ease of doing business and the scale of doing business. Yeah.

20:39system. So most of the infrastructure and there were gatekeepers at various stages that could easily be catalyzed, shall we say, to get grain out the door at very reasonable numbers and trade at large scale. And I could name names, but there's plenty of some of the global traders that don't have to apply to the US rules-based system. So what we basically did is did it old school. We went straight to the farms in smaller quantities, in reasonable amounts with people we could trust and just gutted it out through atypical ways of getting the grain out of the country, which ironically is some of the infrastructure that we built on the Danube River system that it's very lumpy.

21:25It's transshipment through cranes and evacuation systems and things like that, as opposed to a big, you know, high scale elevator. Those are some of the things today that are getting grain out of the country because some of the main elevators have been destroyed or damaged in some way. So that was our biggest problem. You know, you could get around it. And quite frankly, it was more rewarding doing it that way because we saw our impact on the ag sector. But that was that was sort of the big picture reality at the time when I first got there. I think in my case, it is comforting as operating is to know you don't have to pay those type of bribes or facilitated payments.

22:03The company did a very good job of instilling that. Everybody who joined trained on it yearly and quite frankly backed it up. Right. If you didn't make your numbers because you would have had to pay the bribe to get there, it didn't hurt you career wise. They knew you talk about it. You tell them, I'm not going to do this. And it happened. And we had these stories that happened. But it's on that side, it made it very clear for your employees to know how to operate. The other thing I want you to think about in the global food space, right, is if you're a Nestle or Frito-Lay or one of that, and you're buying raw materials.

22:39So you have a plant in Venezuela. around okay you want to make sure that you have food safe product u.s grade and you know the standards right food safety you want to actually it actually draws business to you right right the brand value of american food right and that you're going to act honestly and they don't have to pay a bribe to get a truck you know to the plant on that day right the things like that that the way you can do business so uh at that time let's call them western companies they're now today more modern companies, they like to go to some of these early markets together. And because they knew that they had a supplier that, you know, if you were making malt barley for the brewery, and it's a, you know, South African brewery, they knew that you were actually going to, you know, make a contract and stick to the contract, no matter what, if we had to work it out, there was crop failure, you would, you know, hold your word was your bond.

23:32And I, you know, I'm going to tip a hat off to my former employee, they were very good about how that operated. And I work with them in places basically in all the corners of the world and everything from fish meal to lysine to wheat. That brand helps out in these environments because the customers can count on you. And in food, super important, right? Because if you screw that up, you can kill somebody and or tarnish the customer's brand, right? If something gets through this, that's the same way it is in the US actually, but not with maybe the same criticality when you're working in a remote location around the world.

24:14So this actually leads into something I'm really curious about, which is obviously Cargill is a private company operating at that time under a socialist regime under Maduro. What was the relationship like just between a private commercial enterprise and a socialist government, especially for something as critical as food, right? I imagine the government cared about the food supply. We had to follow both sets of laws, right? You have to follow the local law too, right? So if they say you must transact in boulevards, you have to transact in boulevards. Now, we didn't have Tether or Bitcoin at this point, right?

24:53So the world's changing in an interesting way. You have to follow that. I mean, you don't want to poke the bear, right? And then you have to have people that become experts in how whatever government you're working with runs. And we do. And that's how it is. But this was a very common, still is common to operate in some of these places where, you know, places that have cocoa, right? You know, some of the African countries there, Zimbabwe, right? South Africa. You still have this situation. You have to become there is a competitive advantage in becoming experts at working in difficult places. Were you ever pressured, though, for instance, to lower grocery prices?

25:37Oh, absolutely. All the time. Right. And there were laws on theoretically how much you could make and how the counting was done on that. And, you know, if we had a global rice shortage, it was not the fact that we had a global rice shortage and prices rising. It was Cargill that was doing it to the people. You had to have an escape goat effectively. And, you know, at some point, you just know that you can't import at price X and sell it for X minus, you know, a bunch. And you'll just bleed out. And quite frankly, at some point and several geographies, we get a situation where a corporation says we will put no more dollars in the country.

26:16And we were there. And I can still remember that. So if we want to import something, we had to get dollars either from the government or figure out how to export something that created dollars. So that's where you really start to struggle because you're basically relying on the government to exchange boulevards for dollars. And that's where we tried all kinds of things to try to export. I mean, there was salt there. We tried pallets. But every time you tried to do something, somebody in the economy was like grabbing that. oh no if you really want to move that you know to the port that's going to require some facilitation payment or something like that it just and the team down there was desperately trying it because the other thing we needed beyond just raw materials that we needed spare parts and this may be lies to your question about what's the situation there you know if you need to buy some electrical equipment from siemens they're not going to want boulevards and they want euros or dollars so we were having to try to figure out how to generate enough dollars just to get spare parts.