Archive for July, 2009

On the Nature and Importance of Business Risk

Sunday, July 12th, 2009


One of those slightly nerdy things that has been niggling at my brain for some time now is “business risk”.  Now I don’t mean financial risk which is something that investment bankers and hedge fund managers claim to understand and to deal with, nor do I mean insurable risks which insurance and reinsurance businesses deal with.  These I would class as exogenous business risks, i.e. non-controllable business risks that need to be offloaded from the business so far as is practically possible.


In fact, it was by looking at the behaviour of investment bankers that started me worrying away at risk.  In 1992-1993, I was looking at buying Carnegie from PK Bank on behalf of WestLB, the German wholesale bank.  It was eventually bought by Singer & Friedlander.  When I was in Stockholm, I remember chatting with one of the option traders, who showed me his trading screen and on it there was a beautifully simple and elegant curve that showed the pricing of some option over time.  What struck me was 2 things:


1.       The trader didn’t actually understand option theory, but knew what his computer was telling him.

2.       What would happen if option theory was actually wrong, but that it had become correct because everyone was taught that an option is priced using the Black-Scholes model or a similar theorem.  So if everyone is told that an option is priced following this theory and all computer programs use this theory to construct their simulations of option pricing, then it becomes a truism that options can be priced using this theory.  But if the theory is simply an artificial construct, then all traders are actually doing is playing a game with a certain set of rules and they may as well construct any different set of rules or play any form of game and pit their wits against each other in a different artificial game.


Business theoreticians do acknowledge the importance of risk.  They make statements like “the opportunity cost of capital depends on the risk of the project”.  As an accountant and then invesment banker many aeons ago, I remember learning about Modigiliani-Miller, calculating  beta factors and WACCs (weighted average costs of capital) and using them in valuations of businesses, and working out IRRs (internal rates of return) for venture capitalists. 


But in the end, economists and business people simply fudge the answer.  They have created theories based on the following: (i) they assume that all businesses are big; (ii) they assume that all businesses are financed by people that hold portfolios of investments; (iii) they assume that the availability of capital is limitless subject only to pricing; (iv) they assume that all business people, investors and financiers have perfect knowledge and a total understanding of how the markets operate; and (v) they assume that all business people, investors and financiers are rational. 


So they simply state that the individual risk of a business does not necessarily matter, rather what matters is the risk in shares of similar businesses on the stockmarket adjusted for a further risk weighting.  Once again, have we created an artificial construct that looks good on paper and enables high financiers to trade businesses, strip out value and pass them on for theoretical values?


I think it’s a load of rubbish.  Most businesses have no genuine equivalents on the stockmarket, markets are irrational and capital is a limited resource for smaller businesses and because businesses are really human in their behaviour and are not financial machines.  The difference between treating the world as an animal/human system rather than a machine throws up all sorts of interesting new ways of looking at politics, economics and sociology.  So as most businesses have no actual comparators, anyone who actually deals with project risk cheats a little bit more by deciding what return they want to make. 


So, in other words, working out the project risk or individual business risk is too difficult, therefore we will simply state that 15% is a good annual return so we will do anything that beats that rate of return, or if I am a private equity player or hedge fund, I will look to making 30% or more on an annualised basis. 


But this circuituous argument misses the crux of the question “what is business risk?”.  I think business risk really does matter and cannot be theorised away.


Many people will simply say – so what?  Does it really matter what the risk is if you already know the return you want to make, plus the system seems to work pretty well, so why bother?


I think it is important to at least try and understand the empirical nature of business risk for the following 2 reasons:


1.      Business risk is the other side of the theoretical business equation: risk = reward, i.e. the profit you make is determined by the risks you take.  So through understanding business risk and the potential to manipulate business risk to your advantage you can improve your profitability; and

2.     Conversely by failing to understand business risk, you can make your business very vulnerable to sudden collapse.  Witness what happen in the Lloyds of London insurance market and more recently in the financial sector, where in each case there was a sudden catastrophic collapse in an industry because too much business risk (which happens to be financial as well in this case) had been taken on with little genuine understanding of what was happening.


It is also possible to see how some larger businesses grow by transferring their business risk onto other people.  This is especially simple to see in the classic leveraged buy-out model where the equity providers of a business transfer the financial risk in a business onto the debt providers and tax system.  The second part is even acknowledged in business theory as utilising the tax shield, i.e. you don’t pay tax on the part of the profits used to pay interest on loans, hence if you increase the level of debt in your capital structure, you reduce the underlying cost of equity for a business.  However, by reducing the level of equity in the business by stripping out all the accumulated profit reserves and minimising the cash value of ordinary share capital injected into the ownership structure, the business is much more susceptible to business and financial shocks.  So, for example, Gala has been built up by private equity businesses that have cobbled together many established businesses, however with changes in the economic climate the value of the equity invested by the private equity providers is now zero and, as they have no reserves’ buffer, they must decide whether to invest more equity or let the group go into administration.


Let me give an example in our business which is in the small world of spices.  We are regularly being asked by customers to provide a price for buying/selling say 500kg of organic cumin powder over 12 month period or more recently an organic dukkah mix at 60kg every month.  However, when we ask whether we can have a contract for this, there is a lot of huffing and puffing that basically comes down to the fact that customers won’t do this.  In effect, therefore, customers are asking Steenbergs to accept the sales risk of the customers’ end product as well as our stocking risks, the foreign exchange risks of the organic spices and ingredients (the forex risks have been horrific in the last 12 months).  I characterise it as trying to get a fixed forward rate or an option to buy for 12 months without paying the cost of getting that rate.     The volumes trick is another very common trick, i.e. ask for a price for 1 tonne of organic black pepper then place an order for 50kg and never come through with indicated the volumes, yet the customer still expects the same price.


An even stronger example of the transferance of business risk relates to Tesco.  Some farming friends of ours entered into a contractual agreement with Tesco in 2008 to grow organic potatoes.  They had never dealt with Tesco and were told by everyone that they were mad to even try as it was like grabbing the tail of a big tiger.  However, they felt that they’d got a contract in place and that you never know how it will work out unless you try.  The credit crunch ensued, organic sales fell and Tesco said that they didn’t want the potatoes; on being explained that the potatoes were growing in the ground and there was a contract in place, Tesco’s response was that if they insisted on delivering them, Tesco would simply reject the majority of the delivery and it would be wasted.  I appreciate that this story is unlikely to be provable as Tesco will have emails or a paper trail to show that the farmer willingly decided to give up the benefits of the contract.  These organic potatoes are still in the ground and are actually growing again this year, so if anyone wants loads of really nice organic potatoes I can tell you where to get some.


Going back to my thesis, Tesco sought to mitigate its purchasing risk by entering into a forward contract with the farmer, which is prudent, but it did more as it actually also transferred the sales risk of selling organic potatoes in its potatoes by wriggling out of its contractual obligations, which had been entered into in good faith.  In effect, it really had an option to purchase organic potatoes, however it never paid the actual cost of the benefit of entering into such an agreement. 


It is right and proper for Tesco and other retailers to mitigate their purchasing risks and to maintain their supply chain, but it is arguably not fair for them to offload their selling risk.  Selling product is what the supermarkets do and they have all the detailed information on sales patterns, so they should be expected to live with that risk.  If they feel that some of the sales risk should be borne by their supply chain, then supermarkets should have a reciprocal open book policy.  Supermarkets often operate open book policies whereby suppliers must show their accounts to the supermarket so the supermarkets can decide a fair profit for the supplier, so if the supplier must bear some of the selling risks they should be given all the accounting data on the sales and margins of their product lines and competitors “better to plan for future production.”  But I bet that supermarkets have never opened books to anyone!


I suppose in the end if suppliers are willing to trade on this basis then that’s what the market is and people like us should suffer the consequences of inequality in the marketplace.  In fact, I think it also indicates 2 opportunities: 


1.       You should do everything possible to set up your business in a way that transfers most if not all business risk away from you.  In other words, your business should be as close as possible to being an agency operation but you need to keep the margins at the level or higher than your peer group.  So at Steenbergs, we are now doing everything to shift our business over to this agency concept by increasing the level of outsourced activities within the business. 

2.       If you are a private investors, you need to find businesses that are set up as these agency style businesses, but that have the outside image of being a “normal” business.  While strongly branded consumer products are a classic example of this, some retailers may also have similar characteristics.

Using this concept of business, I also think that you can come up with perhaps a better definition of monopoly behaviour, even if it is harder to verify.  A particular type of business will under normal circumstances generate a particular return or operate at a particular margin.  So for example supermarkets normally have operating margins of around 2 – 3%.  There is then a range of 10-20% either way from the average return due to normal business efficiency, i.e. some businesses are simply better organised at getting the right stock to the right places at the right times, or at billing or whatever.  In the early 1990s, Sainsbury for example was simply atrocious at getting its stocking right which was simply down to bad management, so its operating margins and returns fell.  But a monopoly can shift its returns and margins significantly beyond those anticipated from normal operating, and it does this in part by shifting some its “natural business risk” onto other unconnected people within its operational chain.  In other words, simply looking at pricing is not necessarily the only characteristic of a monopoly but you should also consider how it can change the normal characteristics of its operational environment.  Some of this change will be fine, but the judgement for regulators is to ensure that this behaviour does not become predatory and so instilling greater overall risk into the business environment.

Some Good Books on the Environment

Saturday, July 11th, 2009

I have recently read Al Gore’s “Earth in the Balance” which is a pretty good overview of the environmental issues facing the world.  It is lucid and comes up with some sensible political strategies to managing the potential ecological issues impacting our planet.  It is a pity that while it was written in 1992, little progress has been made and a current review of the situation would be “little has changed”.

So here are the very few books that have had an impact on the way I see the planet and our impact on it:

  • Carson, R. “Silent Spring” Hamish Hamilton 1963
  • Gore, A. “Earth in the Balance” Earthscan 1992
  • Lovelock , J.E. “Gaia:  A New Look at Life on Earth” Oxford University Press 1979
  • Schumacher, E.F. “Small is Beautiful” Blond & Briggs 1973

What I am really disappointed by is that there are no good books that I have so far come across about the environmental impact mankind is having on water.  This is poor, since the amount of chemicals that we are pouring into our oceans and rivers and lakes is truly frightening.  There are books of course, but nothing that offers any profound insight into the damage we are causing, nor how we should address this major environmental issue.

A bit more on Aspartame

Thursday, July 9th, 2009

I read this article in The Ecologist ages ago.  It’s a bit one-sided and perhaps a little over-excited, but it does give cause to concern.  Here’s the link to the article: And here for some balance is the response to the article from the aspartame industry:

Recipe – Wild Harvested Samphire

Wednesday, July 8th, 2009

For many, the sign of summer is the first swallow or the sound of a cuckoo or the sound of cricket being played or perhaps Glastonbury of the Summer solstice.  For me, it is samphire.  Samphire is one of those truly old foods from the wild that people have been gathering from our coastal areas, well probably forever.  It connects Hugh Fearnley-Whittingstall to Ray Mears, the survival expert.

Samphire is also called sea fennel and St Peter’s cress.  These religious overtones live on in the derivation of the word samphire which comes from the French – herbe de St Pierre.  It is a dark green, fleshy plant that grows along cliffs, rocky coast and marshlands.

It is relatively difficult to come by.  However, the easiest way is to find a good fishmonger and ask him whether he has got any or could get some for you.  It seems to be relatively easy to get in places like Norfolk or Dumfries & Galloway and I know that Booths Supermarkets, the quintessential Northern chain of quality stores, has it. 


700g    samphire
100g    unsalted butter
Squeeze of lemon juice

Wash the samphire thoroughly in plenty of cold water and trim off any coarse shoots.  It does become fairly tough later in the season but is pretty tender at the moment.

Put the samphire into a steamer and steam for about 15 minutes or until tender.  Once again this depends on the time of the year as it is tender now but gets tougher as the season progresses.

Drain and add butter.  It doesn’t need seasoning as it is already naturally salty but some lemon juice can be nice.

Serve and eat at once.

Recipes: Macaroons – part 3

Tuesday, July 7th, 2009

This is the final recipe that I think is worth using for macaroons.  It came from a Women’s Institute charity cookbook.  It came with a tale that the word “macaroon” stems from the Greek makaria which means happy, and was introduce by the Greek to Naples in the 10th Century and around 600 years later came to England.DSC_3136

Ingredients for 20 macaroons

125g    ground almonds
225g    caster sugar
25g      brown rice flour
1tsp    Steenbergs almond extract
2          egg whites, stiffly whisked
Split blanched almonds
Rice paper, or non-stick baking parchment

Preheat the oven to 180oC

Use a metal spoon carefully to fold the ground almonds, caster sugar and rice flour into the stiffly whisked egg whites.  Then fold in the Steenbergs natural almond extract.

Line some baking trays with rice paper and spoon small scoops of the mixture onto the rice paper, leaving plenty of space for each to spread out.

Put a split almond on top of each macaroon and bake for 20-25 minutes.

Cut the excess rice paper from the base of each macaroon and leave to cool on a wire rack.

Britain Will Go Nuclear

Sunday, July 5th, 2009


I have just been walking by the River.  It was sunny – the swifts and swallows were flying high in their intricate aerobatic dance.  There was no noise except the peaceful background sounds of nature.


It sent my mind back to those quiet moments at home whenever we have a power cut.  It is amazing how noisy our homes are, with that background hum of electrical things buzzing away – fridges, freezers, TVs on standby (not ours, by the way), computers, phones etc.  There is an almost eery silence when the power goes off.


We are addicted to electrics.  It makes our life so much easier, enabling us to live as gods, kings or pharaohs.  Imagine how many slaves or servants it would have needed to get ourselves to the current lap of luxury that we live in – washing done, food made, house vacuumed, house heated, water heated etc etc.  Then think of the energy needed to move the distances we do by car, plane or train.  We are addicted to fossil fuels.


But fossil fuels pollute the atmosphere and poison the earth.  They also cost a lot of money and are a finite resource.


Unfortunately, I don’t think that there is even a smidgeon of a chance that mankind will be able to give up its addiction to energy.  As a family, we do everything to reduce our use of electricity – in part to reduce our carbon footprint but also (because we are from the North of England) to save money.


So whatever the misgivings about nuclear energy, and I have many, there will come a time in the next 10 – 20 years when politically nuclear power will become the only option.  However, we will fight until the bitter end to oppose it, but it will (like many right and proper things) ineveitabvly be a lost cause.


Within that timeframe, it will become relatively less expensive vis-à-vis fossil fuels and the environmental imperative of reducing carbon emissions will become relatively even more important.  Another major driver will be the requirement to offer a special grid for recharging electric car batteries.


At that point, Britain as a nation will inevitably shift towards nuclear energy.

Another Macaroon Recipe – this time from Betty Crocker

Saturday, July 4th, 2009


My mum has leant me a wonderful cookbook which is packed full of traditional, homely recipes from America.  It’s the classic Betty Crocker’s Picture Cook Book which was given to her by her German aunt on her engagement in 1965.  It has a lovely dedication which says “with this book you will really learn to bake marvellous cakes…”


On my current quest for the perfect macaroon recipe, I found a section on macaroons within this Betty Crocker book.  It takes some time as it does include 2 stages, including one that needs maturing for a few days, although you can get away with reducing that maturation period down to a couple of hours if you use an intense natural almond extract.


I have tweaked the recipes to convert it into metric units as well as including ground almonds rather than explaining how to make your own ground almonds.


Stage 1: make your almond paste


In a food processor, blend together 450g (2 cups) ground almonds with 185g (1.5 cups) sifted icing sugar.  Blend in 2 egg whites, unbeaten and 2tsp Steenbergs natural almond extract.  Pulse process until nicely blended together.  Mould into a ball and leave tightly covered in fridge for at least 4 days.


Stage 2: create your almond macaroons


450g     caster sugar (2 cups)

¼ tsp    sea salt

4tbsp    plain flour

85g       icing sugar (two-thirds of a cup)

5          egg whites, unbeaten but whisked together


1                        Preheat the oven to 160oC.

2                        Line a baking tin with silicone or rice paper, but the best is rice paper so you then don’t have to worry too much about them getting stuck to the bottom.

3                        Now kneed the almond paste until soft.

4                        Dampen your hands and form the mixture into small balls.  Space a good 2-3cm apart on the baking tray.  Press a large almond sliver onto the centre of each macaroon (Betty Crocker doesn’t put an almond sliver on the top but I think they need this flourish)

5                        Bake until lightly coloured, about 20 minutes.  Cool on a wire rack and dust, if wished, with icing sugar.

6                        Store in an airtight container.

Almond Extract – Recipe for Almond Macaroons

Thursday, July 2nd, 2009


Sophie and I have an ongoing discussion with each other about the best macaroons.  I like the ones in our local farm shop The Smithy at Baldersby, which have been locally baked.  Sophie says these are nowhere near as good as the ones you get down South, which are more of a biscuit and don’t include pastry.


I Googled a recipe and came up with this from one of our great friends, Clarissa Hyman.  This comes from her book “The Jewish Kitchen” and it is much closer to what Sophie thinks of as a macaroon.  They are called a marunchinos (Sephardic almond macaroons).  Clarissa says that in Iraq they change the almond extract for rose water, which also sounds delicious, although a bit less like a macaroon.  They are reminiscent of amaretti biscuits but a bit harder, but in any case we wolfed down the lot in abut half an hour.


So to celebrate the fact that we’ve just launched a new extract – Steenbergs natural almond extract and an organic orange blossom water.




175g     Organic ground almonds

125g     Fairtrade caster sugar

Pinch of sea salt

1tsp      Steenbergs natural almond extract

1          Egg white

Almond slivers, to decorate (optional)

Icing sugar for dusting (optional)




1                     Preheat the oven to 160oC.

2                     Line a baking tin with silicone or rice paper.

3                     Process the almonds, sugar and salt in a food processor until finely ground.

4                     Add the Steenbergs natural almond extract and egg white and pulse-process until the mixture forms a damp paste.

5                     Dampen your hands and form the mixture into small balls.  Space a good 2-3cm apart on the baking tray.  Press a large almond sliver onto the centre of each macaroon.

6                     Bake until lightly coloured, about 20 minutes.  Cool on a wire rack and dust, if wished, with icing sugar.

7                     Store in an airtight container.

Steenbergs’ June/July newsletter

Wednesday, July 1st, 2009


Tasty treats from STeenbergs

A mixture of looking at new products and firm favourites for a delicious summer from Steenbergs.

We’ve also got some summer offers on as well as lots of new products and recipe ideas. Hope you have a wonderful July from us all here at Steenbergs.

Summer special offers from Steenbergs

We are currently offering 10 per cent off vitamins and supplements and as an introductory offer to cereals we are also giving 10 % off organic corn flakes and grape nuts.

So it’s a good time to stock up on old favourites or try something new.

Home baking gets some new additions

They’re here – natural bitter almond extract, and organic orange flower water. We’re very excited about these new additions to our home baking flavouring range. The almond extract goes wonderfully in sweet pastries, macaroons, marzipan and with apricots amongst many other things. The orange flower water works well with fruit and in madelaines.dsc_04543

This joins our very popular organic Fairtrade vanilla extract, organic rose water and organic peppermint extract to form the core of our home bakery range. Next month the flavoured sugars, bicarbonate of soda and baking powder will join them with colourful labels.

We stock a range of organic and ethical home bakery ingredients from organic sultanas, currants and raisins to organic flour (including gluten free versions) and unbleached baking paper and recycled aluminium foil.

Paprika – just arrived from Spain

7-recogida-de-pimientoOne of the lovely things about the fact that Steenbergs has now been going for nearly 6 years is that we have developed strong links with our growers. We’ve just had delivery of another delicious harvest of organic paprika and natural smoked paprika from our Spanish growers in Murcia, south-east of Spain. This family run company has been going since 1880 growing, drying and grinding this delicious wonderful paprika. They are a wonderful company to work with and their paprika is exceptional – intense in colour with a lovely sweet flavour.

Jams, chutneys and marmalade – Glenroyd give us the low down

glenroyd2Glenroyd Organics is Dean & Michelle (husband and wife) based in Barnsley in Yorkshire. They’re both complete foodies and when Michelle isn’t making Glenroyd’s delicious chutneys, mustards and jam, she’s reading recipe books and magazines for new ideas or watching foodie programmes. Dean is blessed with the enviable job of product testing and enjoying all the culinary delights!

They admit to always having been foodies and their best days and nights have been spent sharing great food and drink whether it be on fantastic holidays, with family & friends or simply chilling out together with some treats over the weekend.

The enjoyment of great food & drink and hectic professional lives naturally led to trying out recipes in the kitchen for those luxury weekend chill out treats and the beginnings of Glenroyd Organics was born…

Axel and Sophie’s favourite Glenroyd products – organic beetroot chutney, organic chilli jam, which the family can get through pots of – on the sweet side it has to be blackcurrant jam.

“Pots of gold” and other sightings

We were delighted to be listed in The Independent’s top 50 for Food websites this June – our first appearance on this list compiled annually where the Steenbergs jars were described as “pots of gold”. Whilst our Madras curry was suggested by that wonderful ethical cook – Rose Prince – in The Telegraph whilst discussing making the perfect coronation chicken.

Steenbergs jars were also spotted by one eagle eye fan being used by comedienne and actress Helen Lederer on BBC Celebrity Masterchef.

Lifestyle magazine continues its series using Steenbergs products.  Lifestyle issue 12 covers French cooking with our French box – go to pages 16-17, issue 11, page 34 – 35 gives some ideas on Thai cooking using our Thai box.

Many thanks for all the support.

Za’atar and sumach top sellers

Many of you have come to us because of the wonderful Ottolenghi  – the Cookbook – written by the Yotam Ottolenghi and Sami Tamimi.  This London based restaurant draws on numerous culinary traditions from Persia to California, focussing particularly on the Mediterranean. There are now 4 of these restaurants in Islington, Belgravia, Kensington and Notting Hill.  The book was kind enough to mention us in regard to buying sumac and za’atar. In the book, they are recommended as great garnishes for a plate of hummus or labneh – a type of Arab cheese. They also recommend them for salads and roasted meats.


New products

At we often introduce new products. Recently we’ve added cereals and cereal bars – this offers everything from organic mueslis (with or without raisins), the classic grapenuts and organic cornflakes. We’ve also pulled out our free from non Steenberg products – all Steenbergs blends are gluten free, dairy free and suitable for vegetarians and vegans – this new section includes gluten free bread mixes and chocolate cakes and dairy free chocolate drops and chocolate spreads. We’ve also introduced a number of Mediterranean items including olives, pesto, pasta and sun-dried tomatoes. We add to the shop regularly so don’t forget to check our What’s new section.

Blogs and stockists

Latest blog updates including a number of items about summer cooking including for delicious lunches in the office and the delights of home-made cooking.

We continually update our list of stockists – which grows daily – just tap in your postcode and find your nearest stockist. However, we also have a number of distributors, particularly on the home bakery range, so we don’t always know which shops stock us!