WEBVTT - The Investors Who Think Hazelnuts Will Be the Next Pistachios 0:00:02.480 --> 0:00:15.800 Bloomberg Audio Studios, Podcasts, radio News. 0:00:18.200 --> 0:00:21.599 Hello and welcome to another episode of The Odd Lots podcast. 0:00:21.680 --> 0:00:24.840 I'm Jill Wisenthal and I'm Tracy Alloway. Tracy, you know 0:00:24.880 --> 0:00:26.200 I've never had nutello before. 0:00:26.800 --> 0:00:29.200 I know that. I think we're talking about this the 0:00:29.240 --> 0:00:31.800 other day and I said, and I mean this one 0:00:31.880 --> 0:00:34.000 hundred percent, and I don't mean it to come off badly, 0:00:34.040 --> 0:00:36.680 but I genuinely feel really sorry for you for never 0:00:36.760 --> 0:00:39.599 having newtella. I feel like you are missing out on 0:00:39.600 --> 0:00:41.560 one of the best things in life. 0:00:41.720 --> 0:00:44.800 And you know, I've never had the Dubai chocolate before either. 0:00:45.040 --> 0:00:45.239 I know. 0:00:45.520 --> 0:00:48.919 Again, my sympathy for you just continues to expand. 0:00:49.320 --> 0:00:51.360 So as everyone knows, you know, I'm just like a 0:00:51.400 --> 0:00:53.519 real ahead of the curve guy in most things. I 0:00:53.640 --> 0:00:56.080 was really ahead of the curve. I'm having nut allergies 0:00:56.560 --> 0:00:59.520 because now like all kids basically have nut allergies. It 0:00:59.560 --> 0:01:02.000 seems like or like half the kids in any my 0:01:02.080 --> 0:01:04.280 kids class. But I was like, really early on in 0:01:04.280 --> 0:01:05.200 the nineteen. 0:01:04.800 --> 0:01:06.559 You're having nut allergies before it was cool. 0:01:06.640 --> 0:01:08.880 I was having nut allergies before it was cool. I'm 0:01:08.920 --> 0:01:12.280 aware that people love nutella. I'm aware that people love 0:01:12.520 --> 0:01:14.839 Dubai chocolate or some people do, or they at least 0:01:14.840 --> 0:01:18.040 like posting about it on Instagram and all things pistachios, 0:01:18.040 --> 0:01:20.560 et cetera. And yes, but I take it. It's all 0:01:20.560 --> 0:01:21.120 good stuff. 0:01:21.440 --> 0:01:24.800 It's so good. Oh my god, it's I mean, there 0:01:24.880 --> 0:01:28.280 is nothing better than eating nutella out of a spoon, 0:01:29.040 --> 0:01:31.959 or sorry, eating nutella out of a jar with a spoon, 0:01:32.160 --> 0:01:34.920 preferably with a glass of milk. Like, it is so good, 0:01:35.040 --> 0:01:37.400 it looks good. Do you buy chocolate? 0:01:37.480 --> 0:01:38.119 Have you had it? 0:01:38.200 --> 0:01:41.319 I have, but I'm not that enamored with it. 0:01:41.400 --> 0:01:43.759 Interesting. I remember, like it was probably like a year 0:01:43.760 --> 0:01:46.280 and a half ago, and I just started seeing like signs. 0:01:46.319 --> 0:01:48.160 It's like we have the du Bui chocolate. 0:01:48.360 --> 0:01:49.120 Oh they're everywhere. 0:01:49.200 --> 0:01:49.520 Yeah. 0:01:49.560 --> 0:01:52.160 But the other day I went to my the local 0:01:52.200 --> 0:01:55.600 deli on my block and they had five just on 0:01:55.640 --> 0:02:00.400 the counter. They had five different versions, five different company 0:02:00.520 --> 0:02:02.840 selling it, five different products that you could buy, which 0:02:02.880 --> 0:02:04.800 I take is just some sort of you know, chocolate 0:02:04.800 --> 0:02:06.960 with some sort of creamy pistache shoe in the middle, 0:02:07.200 --> 0:02:09.360 and if you break it open, it looks good. On 0:02:09.400 --> 0:02:11.120 social media, that's pretty much it. 0:02:11.600 --> 0:02:13.560 I do find it kind of funny that this like 0:02:13.760 --> 0:02:17.600 viral chocolate has come out of Dubai, of all places, 0:02:17.639 --> 0:02:22.520 which doesn't necessarily have a strong confectionery history, but it 0:02:22.560 --> 0:02:25.400 has certainly tapped into various luxury markets. So I think 0:02:25.400 --> 0:02:26.160 that's what's going on. 0:02:26.240 --> 0:02:30.960 I was looking through the conference called transcripts on the 0:02:30.960 --> 0:02:32.920 Bloomberg a few weeks ago, and I was looking like, 0:02:33.120 --> 0:02:35.600 what companies have talked about this? And there's one big 0:02:36.000 --> 0:02:39.480 Swiss publicly traded chocolatier and they talked about it, and 0:02:39.480 --> 0:02:42.360 they talked about I guess it was a woman and 0:02:42.480 --> 0:02:44.639 Dubai just started making it. Then we called it the 0:02:44.720 --> 0:02:47.000 Dubai chocolate. Anyway, they were talking about how fast they 0:02:47.040 --> 0:02:50.680 adapted to TikTok trends, et cetera. But I guess the 0:02:50.680 --> 0:02:54.200 business of nuts and how it works not something that 0:02:54.240 --> 0:02:56.960 we discussed much, maybe because of my own you know, 0:02:57.000 --> 0:02:59.760 I'm allergic to talk about these topics. 0:02:59.760 --> 0:03:01.440 Well, there is one nut that. 0:03:01.440 --> 0:03:03.400 You can eat, that's right, almends. 0:03:03.000 --> 0:03:06.040 Almonds, and I still manage to poison you once with almonds. 0:03:06.120 --> 0:03:07.120 I feel really bad about it. 0:03:07.120 --> 0:03:07.760 How did it happen? 0:03:08.000 --> 0:03:10.160 I don't know. I so for listeners. I didn't do 0:03:10.160 --> 0:03:12.040 it on purpose. I bought him some of those Korean 0:03:12.120 --> 0:03:15.320 nuts that we've been talking about in the snack Food episode, 0:03:15.400 --> 0:03:17.440 and they were almonds, so we thought they were okay, but. 0:03:17.480 --> 0:03:20.720 Like laced with something else omens. I guess I didn't die. 0:03:20.919 --> 0:03:23.680 Yeah, so that's always a plus. I didn't kill my co. 0:03:23.720 --> 0:03:28.320 Host anyway, despite my own Because I'm a journalist dedicated 0:03:28.320 --> 0:03:30.440 to learning about the truth about the world, I will 0:03:30.680 --> 0:03:35.080 get over my personal biases against nuts in pursuit of 0:03:35.160 --> 0:03:38.480 journalistic truth and learning more about how all these businesses work, 0:03:38.480 --> 0:03:40.920 in the chocolate business and all these work, how these work, 0:03:41.320 --> 0:03:43.760 just because I want to learn more about the world, 0:03:43.960 --> 0:03:46.240 even when I cannot partake of its goodness. 0:03:46.640 --> 0:03:48.840 I think that is a very worthy cause. The one 0:03:48.840 --> 0:03:51.440 thing I would say is this is really interesting from 0:03:51.480 --> 0:03:54.440 just an investment and business perspective, because you have heard 0:03:54.480 --> 0:03:56.840 every once in a while people do get really excited 0:03:56.840 --> 0:04:00.720 about nuts as an investment. And the exact I'm thinking 0:04:00.760 --> 0:04:05.280 of is remember Michael Burry years ago. Yeah, his whole 0:04:05.320 --> 0:04:08.920 thing was invest in almonds because they're so water intensive. 0:04:08.960 --> 0:04:12.839 It's basically a play on water shortages. I don't think 0:04:12.840 --> 0:04:13.640 it worked out that. 0:04:13.680 --> 0:04:17.120 Way, so I'm kind of curious. Uh Yeah, that was 0:04:17.160 --> 0:04:18.920 like at the end of the big short that very 0:04:18.960 --> 0:04:21.880 cryptic ending where they're like and after betting against the 0:04:21.920 --> 0:04:25.080 collapse of the US housing market, he's now shifted his 0:04:25.120 --> 0:04:26.760 attention to almonds. 0:04:27.400 --> 0:04:29.760 They said, they didn't even say almonds would have. 0:04:29.800 --> 0:04:34.080 Very strange anyway, Yes, what can we learn through the 0:04:34.120 --> 0:04:38.200 medium of nuts? Anyway, very excited to say that. We 0:04:38.279 --> 0:04:40.000 have a couple of guests today who have been doing 0:04:40.040 --> 0:04:43.520 a lot of work on nuts. Someone a couple of guests. 0:04:43.520 --> 0:04:45.960 I think we talked to them about five years ago 0:04:46.480 --> 0:04:48.040 during the pandemic. 0:04:48.560 --> 0:04:48.680 Uh. 0:04:48.800 --> 0:04:51.039 They're interested in frontier markets. They go all around the 0:04:51.040 --> 0:04:54.520 world looking for interesting opportunities that are off the beaten path. 0:04:54.839 --> 0:04:57.440 They've been doing some research on the hazel nut industry 0:04:57.520 --> 0:05:00.120 and they're based in Dubai. We're gonna be speaking with 0:05:00.160 --> 0:05:03.520 Burton Flynn and Ivan Neutronev. They are managing partners at 0:05:03.560 --> 0:05:07.560 Terra Nova Capital. They scour the world for interesting stories. 0:05:07.600 --> 0:05:09.919 They're based in Dubai. Burton and Ivan, thank you so 0:05:10.000 --> 0:05:12.960 much for coming back on odd Lots, and thank you so. 0:05:13.000 --> 0:05:13.760 Much for having us. 0:05:14.800 --> 0:05:15.840 Yeah, thanks for having us. 0:05:15.920 --> 0:05:19.080 I just have like a really simple question. In Dubai, 0:05:19.360 --> 0:05:23.679 is it just called chocolate? Like or do they also 0:05:23.760 --> 0:05:26.440 specify that it's Dubai chocolate even when it's in Dubai. 0:05:27.040 --> 0:05:30.400 Like you know, the original Dubai chocolate is called fix 0:05:31.640 --> 0:05:34.920 and so in Dubai there's fixed chocolate and then there's 0:05:34.960 --> 0:05:38.240 the knockoff you know, other kinds of chocolates and the 0:05:38.279 --> 0:05:41.000 fixed chocolate. I didn't know this when I received it 0:05:41.040 --> 0:05:44.000 as a gift once actually about six months ago, when 0:05:44.279 --> 0:05:46.480 the first time I had it, somebody brought it to 0:05:46.520 --> 0:05:49.479 my house. They brought me five bars and as a gift, 0:05:49.520 --> 0:05:52.159 and we ate them that week. And then later I 0:05:52.320 --> 0:05:55.039 found out that these bars go for like twenty five 0:05:55.080 --> 0:05:55.760 dollars apiece. 0:05:55.839 --> 0:05:57.880 Oh that was a good guest, so I did. 0:05:58.000 --> 0:06:02.080 Yeah, it was how much of that is the cocoa 0:06:02.120 --> 0:06:05.320 price versus the pistachio price, because we've seen both of 0:06:05.360 --> 0:06:06.760 those kind of go up recently. 0:06:07.080 --> 0:06:10.960 Well, I mean this was before any of that went up, right, 0:06:11.040 --> 0:06:14.919 So this is all just margin based on marketing, I 0:06:14.920 --> 0:06:15.560 think branding. 0:06:16.360 --> 0:06:19.560 So what do you tell us, generally speaking, besides the 0:06:19.640 --> 0:06:22.680 fact that you're in Dubai, actually tell us about the 0:06:22.720 --> 0:06:24.840 work that you do. We sort of covered it in 0:06:25.279 --> 0:06:27.880 when we talked to you in twenty twenty, but presumably 0:06:27.920 --> 0:06:30.120 we have a lot of listeners who haven't listened to 0:06:30.120 --> 0:06:32.719 that episode. What do both of you tell us, like 0:06:32.960 --> 0:06:36.479 how you approach your work discovering new thing interesting things 0:06:36.480 --> 0:06:37.120 around the world. 0:06:37.440 --> 0:06:40.480 First of all, what we look for in our objective 0:06:40.800 --> 0:06:43.320 is to find stocks that can double in twelve months. 0:06:43.480 --> 0:06:45.400 And the way that we do that is we look 0:06:45.480 --> 0:06:50.200 for basically, you guys know, growth GARP investing right, growth 0:06:50.520 --> 0:06:54.279 at a reasonable price. We are not GARP investors. We 0:06:54.400 --> 0:06:59.040 are growth at an unreasonable price investors. We go on 0:06:59.120 --> 0:07:03.200 and we look for or really huge earnings, growth that 0:07:03.480 --> 0:07:08.720 is being completely miss understood or completely overlooked, because, you 0:07:08.760 --> 0:07:11.680 know what, we believe that a good stock, you know, 0:07:11.720 --> 0:07:14.440 it has to be a good business plus something that's 0:07:14.560 --> 0:07:17.600 fundamentally misunderstood. So the way that we do this is 0:07:17.640 --> 0:07:20.720 we approach it from several different angles. One is that 0:07:20.800 --> 0:07:24.280 on a daily basis, we're looking at insider transactions basically 0:07:24.360 --> 0:07:27.560 CEOs buying theirs of their own companies. We find that 0:07:27.600 --> 0:07:30.160 to be a really strong signal. We also look for 0:07:30.280 --> 0:07:34.400 companies that have very good leading indicators to their earnings 0:07:34.640 --> 0:07:38.520 and we try to monitor those and then also periodically 0:07:38.600 --> 0:07:40.800 we like to reach out to all of the companies 0:07:40.840 --> 0:07:44.440 we've met, and at this point we together Ivan and 0:07:44.520 --> 0:07:47.880 I have met over two thousand companies. We've conducted twenty 0:07:47.920 --> 0:07:51.640 six hundred meetings in the past six years with both 0:07:51.640 --> 0:07:54.080 of us. In all of those meetings, most of those 0:07:54.080 --> 0:07:57.240 were with CEOs, and so we like to reach out 0:07:57.400 --> 0:08:02.000 periodically and just ask about top all situations that are happening. 0:08:02.280 --> 0:08:04.600 The most recent one was the Trump terraces. You know 0:08:04.920 --> 0:08:07.120 and understand how it's affecting your business. So we get 0:08:07.200 --> 0:08:10.520 kind of a global view based on a bottom up perspective. 0:08:10.800 --> 0:08:13.280 So how did nuts actually get on your radar other 0:08:13.360 --> 0:08:15.840 than you know, a friend gave you twenty five bars 0:08:15.880 --> 0:08:17.560 of overpriced luxury chocolate. 0:08:17.880 --> 0:08:20.239 Well, you know, it's an interesting story because we're based 0:08:20.240 --> 0:08:23.160 in Dubai, so just by definition, we are right in 0:08:23.160 --> 0:08:26.800 the center of this Dubai chocolate hysteria. Like you see 0:08:26.840 --> 0:08:30.600 du Bai chocolate bars everywhere in the grocery stores, then 0:08:30.640 --> 0:08:32.880 you see them when you order food online, you see 0:08:32.880 --> 0:08:36.439 them on the billboards, and you know, sometimes you hear 0:08:36.480 --> 0:08:39.960 from people that haven't been in touch for like ten years, 0:08:40.040 --> 0:08:42.240 and then they message you and all they want is 0:08:42.280 --> 0:08:45.040 not actually even ask how are you doing. But they 0:08:45.080 --> 0:08:47.520 just want you to ship some Dubai chocolate to them 0:08:47.800 --> 0:08:51.840 by some express courier delivery, and you know, it's fun. 0:08:51.920 --> 0:08:56.359 A lot of media has written about the Dubai chocolate phenomenon, 0:08:56.880 --> 0:08:59.920 and I think there was also a claim that Dubai 0:09:00.280 --> 0:09:05.120 chocolate led to some severe shortages of pistachios and skyrocketing 0:09:05.200 --> 0:09:09.000 prices of pistachios, which is debatable. But one day we 0:09:09.040 --> 0:09:11.760 were in office and we were just just jogging around 0:09:11.840 --> 0:09:15.720 and we were saying, look, you know, pistachios are such 0:09:15.760 --> 0:09:19.160 a kind of a hot niche commodity. Now, let's let's 0:09:19.160 --> 0:09:21.320 have a look at something else. What about hazel nuts, 0:09:21.520 --> 0:09:23.640 because you know, they're also used in chocolates and so on, 0:09:23.760 --> 0:09:26.560 even in some of the variations of the Dubai chocolate 0:09:26.559 --> 0:09:29.920 and knokovlans. And we checked kind of the recent news 0:09:29.920 --> 0:09:33.400 about hazel nuts just to see what's going on with 0:09:33.440 --> 0:09:36.800 the hazel nuts, and what we found was actually quite 0:09:37.000 --> 0:09:39.480 you know, it was really really really interesting. 0:09:40.400 --> 0:09:42.800 Well, before we actually get to the hazel nuts, I'm 0:09:42.880 --> 0:09:47.600 curious you mentioned there these metia reports of pistachie shortages 0:09:47.720 --> 0:09:51.960 or skyrocketing, skyrocketing prices and then you said, but that's debatable. 0:09:52.440 --> 0:09:56.160 What actually is happening? You know, I don't know, I 0:09:56.160 --> 0:09:58.120 don't know. I don't think we have like a pistachio 0:09:58.200 --> 0:10:01.680 index on the terminal, although I've never actually looked. 0:10:01.880 --> 0:10:04.800 I think a lot of them come from Iran, which 0:10:04.920 --> 0:10:05.560 I also. 0:10:05.360 --> 0:10:07.800 Coright, which right also, But like actually, what like how 0:10:07.840 --> 0:10:10.800 do you what is happening in the pistachio market. What 0:10:10.920 --> 0:10:13.760 has been the effect so far as you can tell, 0:10:14.040 --> 0:10:18.679 from the Dubai chocolate craze to the actual trade in pistachios. 0:10:19.120 --> 0:10:22.040 Actually, quite a lot has to do simply with weather. 0:10:22.480 --> 0:10:26.240 It's not only it's not only the Dubui chocolate demand, 0:10:27.320 --> 0:10:29.800 but a lot of that has to do with the weather, 0:10:30.080 --> 0:10:33.280 and just the weather was not favorable enough and the 0:10:34.080 --> 0:10:37.360 crop was not good enough. So as simple as that. 0:10:37.480 --> 0:10:40.359 So because I remember there was one expert on pistachio 0:10:40.440 --> 0:10:43.200 supply chain and he was saying that basically there is 0:10:43.240 --> 0:10:46.400 now so much talk and a lot of media articles 0:10:46.440 --> 0:10:49.840 claiming that it's all about du Bui chocolate, but in reality, 0:10:50.000 --> 0:10:54.520 the Bui chocolate doesn't use the row pistachios. You know, 0:10:54.520 --> 0:10:57.240 it's a paste, and a paste is very very diluted, 0:10:57.600 --> 0:11:00.320 so you don't really need like all the pistache in 0:11:00.320 --> 0:11:03.480 the world to produce the by chocolate. But you know, 0:11:03.559 --> 0:11:07.679 if the weather events affect the crop, then of course 0:11:07.720 --> 0:11:09.960 the price of the commodity will go up. And this 0:11:10.080 --> 0:11:13.560 is something that also happened to the hazel nuts this year. 0:11:14.840 --> 0:11:17.280 So it's a supply story more than a demand story 0:11:17.320 --> 0:11:18.880 for pistachios, at least. 0:11:20.400 --> 0:11:22.600 It could be both, could be both, but without the 0:11:22.640 --> 0:11:27.160 supply shortage there would not be such a severe price appreciation. 0:11:27.720 --> 0:11:29.920 How did Turkey get into the hazelnut business because they 0:11:29.960 --> 0:11:32.960 seem to have made a conscious decision to actually, you know, 0:11:33.120 --> 0:11:35.199 nurse this particular type of agriculture. 0:11:35.720 --> 0:11:39.320 Yeah, it's a long story which goes back thousands of years, 0:11:40.160 --> 0:11:45.280 and the situation is that Turkish Black Sea region is 0:11:45.559 --> 0:11:49.080 naturally the best region in the world to grow hazel 0:11:49.120 --> 0:11:53.520 nuts because hazel nuts need a cool winter, they also 0:11:53.600 --> 0:11:56.840 need sunny, warm spring and also need a rainy summer, 0:11:57.200 --> 0:11:59.520 and this is exactly what the Turkish Black Sea region 0:12:00.120 --> 0:12:03.400 gives them. And they've been cultivated in Turkey for thousands 0:12:03.440 --> 0:12:07.400 of years. So today there are six hundred thousand farmers 0:12:07.440 --> 0:12:10.360 that grow hazel nuts in Turkey, and there are over 0:12:10.480 --> 0:12:14.040 five million people in Turkey who are in some way 0:12:14.160 --> 0:12:18.319 involved in the hazelnut farming or trading business. So it's 0:12:18.360 --> 0:12:21.240 a very, very long history. It just came naturally. It's 0:12:21.320 --> 0:12:24.000 just where the hazelnuts grow. In a given year, Turkey 0:12:24.000 --> 0:12:27.560 produces about seventy percent of all the hazel nuts in 0:12:27.600 --> 0:12:32.440 the world, so the concentration in this industry is huge. 0:12:32.520 --> 0:12:36.640 It's like seventy percent of all hazelnuts. So if something 0:12:36.720 --> 0:12:40.400 happens to the Turkish hazelnut crop, you know, the consequences 0:12:40.440 --> 0:12:55.520 to the supply can be severe. 0:12:57.520 --> 0:13:01.240 What is the market structure of the Turkish hate nut industry? 0:13:01.559 --> 0:13:04.760 How fragmented are those six hundred thousand farmers? Is a 0:13:04.920 --> 0:13:09.960 huge agribusinesses that dominate the trade. And then what is 0:13:10.000 --> 0:13:12.360 the exchange process? Like I don't know, I assume there's 0:13:12.360 --> 0:13:15.240 not hazel nut futures, but talk to us about like 0:13:15.559 --> 0:13:19.480 that process by which the nuts get to the processors 0:13:19.480 --> 0:13:21.559 and then into a finished product. 0:13:22.040 --> 0:13:25.080 So there's six hundred thousand farmers, they are quite fragmented. 0:13:25.480 --> 0:13:30.240 It's basically some artisan mamonopop farmer shops, and then there 0:13:30.240 --> 0:13:33.920 are some wholesalers who buy hazel nuts from the farmers 0:13:34.440 --> 0:13:38.040 when the harvest time comes around, which is actually next week, 0:13:38.679 --> 0:13:42.000 and then as wholesalers, they might sell their hazel nuts 0:13:42.000 --> 0:13:44.840 to the exporters and then the exporters sell them abroad, 0:13:45.480 --> 0:13:48.520 or some of these wholesalers they also act as exporters. 0:13:48.840 --> 0:13:51.560 So basically, if you compare the hazel nut industry in 0:13:51.640 --> 0:13:55.400 Turkey to the one in Chile, then the Turkish one 0:13:55.640 --> 0:13:59.679 is much more old school. It's very small orchards, it's 0:13:59.679 --> 0:14:04.120 famine businesses, it's some standalone farms, whereas for example, in 0:14:04.559 --> 0:14:07.719 Chile it's kind of industrial scale, and then once a 0:14:07.800 --> 0:14:11.800 year this all gets consolidated. The farmers sell their hazel 0:14:11.880 --> 0:14:15.640 nuts to wholesalers and then the entire kind of chain starts. 0:14:15.920 --> 0:14:20.120 It's quite fragmented, and you know, the quality of the 0:14:20.280 --> 0:14:24.080 entire hazel nut production in Turkey is lower than in 0:14:24.080 --> 0:14:26.840 some other parts of the world because also it's not 0:14:26.880 --> 0:14:29.400 only the history, it's also kind of the terrain. It's 0:14:29.440 --> 0:14:32.840 a bit hilly. It's much harder to have these huge 0:14:32.880 --> 0:14:36.600 fields of hazelnut plantations. It's a long standing tradition and 0:14:36.640 --> 0:14:39.920 it's very very hard to bring any innovation into the 0:14:40.040 --> 0:14:41.760 Turkish hazelnut farming. 0:14:42.760 --> 0:14:46.440 Okay, so you have a traditional business that's resistant to 0:14:46.520 --> 0:14:50.960 innovation in an emerging market that is very, very fragmented 0:14:51.560 --> 0:14:54.600 and also pretty untransparent because it's not like you can 0:14:54.600 --> 0:14:58.880 look up a single benchmark for hazelnut prices. How do 0:14:58.920 --> 0:15:02.640 you deal with I guess the opaqueness of a niche 0:15:02.840 --> 0:15:05.840 commodity like this when you're evaluating an investment. 0:15:07.400 --> 0:15:10.000 Well, this is this is exactly the kind of situation 0:15:10.080 --> 0:15:13.960 we love, actually is opaqueness because it means that it's 0:15:13.960 --> 0:15:17.240 difficult for others to kind of access you know, access 0:15:17.280 --> 0:15:20.200 the information. And so the way we approach it is 0:15:20.360 --> 0:15:22.680 we try to find primary sources, right and so in 0:15:22.720 --> 0:15:26.480 this in this case, we have had the opportunity to 0:15:26.520 --> 0:15:32.720 talk to the world's largest hazelnut processing company and basically 0:15:33.320 --> 0:15:36.080 understand the market situation from them, you know, and then 0:15:36.200 --> 0:15:38.880 kind of collaborate this with other sources that we find 0:15:38.960 --> 0:15:43.120 and you know, continue to ask them questions to understand 0:15:43.120 --> 0:15:46.800 the market situation. But you know, it's possible that we 0:15:46.880 --> 0:15:49.400 might be the you know, some of the world's best 0:15:49.520 --> 0:15:52.600 experts on hazel that's even though we didn't know anything 0:15:52.640 --> 0:15:53.680 about them two months ago. 0:15:53.800 --> 0:15:56.800 So what do you look at in terms of just pricing. 0:15:57.160 --> 0:15:59.440 There is pricing. It's not something you can pull up 0:15:59.440 --> 0:16:02.480 on Bloomberg. So basically, when we are talking to the 0:16:02.520 --> 0:16:08.560 CEO of this hazel nut operating operator, he said that, 0:16:09.400 --> 0:16:13.400 you know, it's it's basically a price that it's called 0:16:13.400 --> 0:16:15.120 on the phone. I mean, it's this is like old 0:16:15.120 --> 0:16:17.400 school trading practices. 0:16:18.360 --> 0:16:22.320 There are no hazel nut futures. It's nearly impossible to 0:16:22.440 --> 0:16:26.680 trade hazel nuts, you know, through any agricultural exchanges, and 0:16:26.840 --> 0:16:31.320 it makes this market so inaccessible that it's it's very hard. 0:16:31.360 --> 0:16:33.680 It's very hard for a regular investor to play it. 0:16:34.240 --> 0:16:36.520 I mean, I think the only way to play the 0:16:36.520 --> 0:16:41.840 hazelnut market is probably through this only listed public like 0:16:41.960 --> 0:16:45.680 the only publicly listed hazel nut processing company in the world, 0:16:45.760 --> 0:16:47.920 and it's listed in Turkey, which also is not so 0:16:47.960 --> 0:16:50.960 easy to access. But when it comes to hazel nuts themselves, 0:16:50.960 --> 0:16:54.440 it looks like you just need to find the party 0:16:54.520 --> 0:16:57.000 that can sell this hazel nuts and you just buy 0:16:57.040 --> 0:16:59.840 the bags the tones of hazel nuts, but you also 0:16:59.840 --> 0:17:02.680 need to find a transportation, you need to find the 0:17:02.760 --> 0:17:05.159 storage and then and then you need to find a buyer. 0:17:05.440 --> 0:17:08.440 When you want to sell. So it's it's a very 0:17:09.000 --> 0:17:10.640 very difficult one to accident. 0:17:26.800 --> 0:17:29.600 Something I'm interested in, you know, this idea of there 0:17:29.680 --> 0:17:33.240 not having been much productivity gains in the actual farming 0:17:33.520 --> 0:17:37.280 of hazel nuts. And I'm sort of fascinated by the 0:17:37.400 --> 0:17:42.440 degree to which different commodities inherently lend themselves to varying 0:17:42.560 --> 0:17:46.239 levels of mechanization in production. Right, And so you know, 0:17:46.280 --> 0:17:50.800 you could have competitively priced wheat in that's grown in America, 0:17:51.320 --> 0:17:54.639 competitively priced wheat that's grown in Russia, competitively priced wheat 0:17:54.680 --> 0:17:57.080 or corn that's grown in Brazil, all because there's very 0:17:57.119 --> 0:18:00.760 little labor involved. You have like one one combine out 0:18:00.760 --> 0:18:03.320 there on a giant field, and then you have other 0:18:03.880 --> 0:18:07.479 commodities that are inherently labor intensative because it's not so 0:18:07.520 --> 0:18:10.480 easy to automate. What have you seen, you know, as 0:18:10.520 --> 0:18:14.720 you've gone around the world to frontier various frontier markets, 0:18:14.920 --> 0:18:18.760 the sort of range by which some commodities lend themselves 0:18:18.800 --> 0:18:20.680 to productivity gains and some don't. 0:18:21.560 --> 0:18:24.080 You know, for example, in this hazel nut industry, right, 0:18:24.119 --> 0:18:27.280 we can look at turkey, which we discussed it's artisanal, 0:18:27.840 --> 0:18:30.480 and then we can look at something like Chili. So 0:18:30.800 --> 0:18:34.040 by nature, Chili is not necessarily the best place for 0:18:34.359 --> 0:18:39.480 growing hazel nuts because it doesn't have enough moisture. However, 0:18:39.680 --> 0:18:43.840 if you manage to provide enough irrigation, then you solve 0:18:43.880 --> 0:18:47.600 that issue. So in Chile, for example, you can grow 0:18:47.640 --> 0:18:51.800 hazel nuts with a much much higher yield than in Turkey. 0:18:52.000 --> 0:18:55.840 You can have huge plantations of hazel nuts, you provide irrigation, 0:18:56.440 --> 0:18:58.920 and then you can get probably five six times more 0:18:58.960 --> 0:19:02.520 hazel nuts per hector of land than in Turkey. And 0:19:02.560 --> 0:19:05.320 this is all this is something that started happening in 0:19:05.359 --> 0:19:09.679 the last several years, and the projection is that Chili 0:19:09.720 --> 0:19:12.840 will become the number two producer of hazel nuts in 0:19:12.880 --> 0:19:16.159 the world in about seven to ten years, with a 0:19:16.200 --> 0:19:19.680 production capacity of two hundred thousand tones a year, which 0:19:19.760 --> 0:19:23.719 still compared to the Turkish supply capacity of eight hundred 0:19:23.720 --> 0:19:27.920 thousand tones a year, is quite small, you know, and 0:19:28.000 --> 0:19:34.840 this just kind of underlines the sheer importance of the 0:19:34.880 --> 0:19:37.600 Turkish market for hazel nut business. 0:19:40.000 --> 0:19:42.600 Do you have any idea why Chili decided to go 0:19:42.800 --> 0:19:45.600 in on hazel nuts. I'm just very curious about how 0:19:45.640 --> 0:19:48.959 they make these decisions, because you know, it's not necessarily 0:19:49.000 --> 0:19:51.720 a completely natural crop. As you pointed out, ChIL doesn't 0:19:51.800 --> 0:19:54.520 have you know, that much rainfall, and so they have 0:19:54.560 --> 0:19:56.920 to do something in order to foster this industry. Why 0:19:56.960 --> 0:19:59.400 did they decide on hazel nuts in particular? 0:20:00.240 --> 0:20:04.200 The initiative comes from the bottom up. So for example, 0:20:04.240 --> 0:20:09.560 the largest hazelnut processor that's based in Turkey, they decided 0:20:09.640 --> 0:20:13.440 to expand in Chile. Right, So it wasn't the kind 0:20:13.440 --> 0:20:17.879 of Chilean government initiative. It was the corporate initiative because 0:20:18.080 --> 0:20:20.360 they looked at many different countries. They looked at New 0:20:20.440 --> 0:20:24.200 Zealand where it's more hilly, which would be more difficult. 0:20:24.280 --> 0:20:27.679 They looked at Latin America, and in Chile, there is 0:20:27.720 --> 0:20:34.720 this great culture of basic of growing agricultural commodities. Right, 0:20:34.840 --> 0:20:40.120 it's industrialized, it's possible to make it large scale, and 0:20:40.800 --> 0:20:44.360 they just needed to add irrigation and that would. 0:20:44.160 --> 0:20:46.920 Be the Other thing is that it provides a very 0:20:47.000 --> 0:20:50.480 nice diversification for them, right because as we're talking about, 0:20:50.520 --> 0:20:53.760 there was a huge weather event that disrupted the supply 0:20:54.000 --> 0:20:57.920 in Turkey. Turkey is the vast, vast majority of the production. 0:20:58.160 --> 0:21:00.240 So for them to have you know, the crop in 0:21:00.320 --> 0:21:06.439 an entire different hemisphere with different conditions pro know provide 0:21:06.440 --> 0:21:07.600 some sort of diversification. 0:21:07.760 --> 0:21:10.520 What do you tell us about that weather event specifically, 0:21:10.560 --> 0:21:13.920 since this seems to be central to your interest, How 0:21:13.920 --> 0:21:16.080 big of a deal is it? Is it a one off? 0:21:16.400 --> 0:21:18.840 And second of all, like give us the overall sort 0:21:18.840 --> 0:21:22.960 of supplied demand imbalance that you analyze right now for 0:21:23.040 --> 0:21:23.920 the hazel net market. 0:21:24.240 --> 0:21:28.359 Every about ten years there's a big frost that happens 0:21:28.400 --> 0:21:31.040 in Turkey. So the previous ones happened in two thousand 0:21:31.040 --> 0:21:34.639 and four and twenty fourteen, and this year there was 0:21:34.680 --> 0:21:39.760 a very very major frost in April which destroyed one 0:21:39.880 --> 0:21:43.680 third of all Turkish hazel nuts. Basically, in a few days, 0:21:43.920 --> 0:21:47.280 one third of the entire crop was destroyed. And frost 0:21:47.359 --> 0:21:49.840 like this, as I said, they happened in once every 0:21:49.880 --> 0:21:53.920 ten years. They are quite one off. But the thing 0:21:54.040 --> 0:21:57.480 is that this year Turkey had a very very warm spring, 0:21:57.960 --> 0:22:02.239 so the hazel nut trees started deloping much earlier, and 0:22:02.240 --> 0:22:05.439 then when the frost happened, they were exposed to this 0:22:05.560 --> 0:22:09.320 huge risk and they got damaged really badly. Now this 0:22:09.480 --> 0:22:11.919 is one thing, so the frost destroyed one third of 0:22:11.920 --> 0:22:15.639 the Turkish hazelnut crop. The second thing is there's another 0:22:16.160 --> 0:22:21.959