The challenge:
In 2013 MSF Sugar announced that it would expand and improve the options for grower suppliers to price sugar cane and participate in raw sugar pricing pools for the 2014 season. The options included MSF managed pools, externally managed pools and individual pricing.
Having made this decision MSF Sugar faced a number of challenges in relation to its risk management processes. These included the need to reduce operational risk by eliminating significant manual work processes and a further requirement to automate the production of daily and weekly reports for around 40 corporate and grower sugar pools.
The company and its grower suppliers are at risk from fluctuations in both the sugar and currency markets and required an IT system that would provide greater visibility over these risks. This in turn would allow marketing to make better commercial decisions and the treasury to impose greater controls around its workflows.
The solution:
Faced with the management of both corporate and grower exposures the team looked to deliver best practice to MSF Sugar and scoured the market for an appropriate IT system.
The solution it selected was configured so that it could provide innovative reporting with regard to translating a USD sugar price exposure to a common AUD per tonne reporting base, under multiple potential future scenarios for commodity and foreign exchange prices. “MSF Sugar now has access to best practice risk management and a matrix-based sensitivity table along with the capability to conduct simulation-based Cash Flow at Risk (CFaR) risk management,” says Gunnar Andresen, Commercial Manager at MSF Sugar.
All this has been achieved within a tightly controlled and highly automated solution. Specifically, the software solution allows for appropriate segregation of duties between the traditional front office, middle office and back office functions. All system users have instant access to risk management and performance reports on the screen and via the standard pool reports. A complete batch report with graphs and tables for all sugar pools is produced in less than ten minutes.
As a bonus, MSF Sugar has acquired a treasury system capable of handling the company’s other treasury requirements, including debt facilities and hedge accounting.
Best practice and innovation:
The new risk management system helps manage and report on the integrated commodity and foreign exchange risk of the pools. The key benefit of the solution was to provide significant process efficiencies, improved reporting and innovative risk management capability on substantial sugar price and currency risk exposures.
The project to deploy the treasury system removed a myriad of spreadsheets to deliver a unique reporting solution for corporate and grower sugar pools. The system is able to automatically calculate and visualise the key performance metrics of AUD per tonne of sugar by firstly looking at USD sugar price scenarios and translating that through potential AUD/USD currency scenarios. The end result has been measurement of AUD per tonne achieved along with improved visibility of potential future variability via a price sensitivity matrix.
“The ability to access and analyse data provides us with the edge we need to be successful. Winning recognition with the Adam Smith Awards gives MSF Sugar credibility with our banking partners as well as grower suppliers and other stakeholders, which is also pleasing for the team,” concludes Andresen.
