Accenture Agribusiness

8/2/2019 Accenture Agribusiness

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Achieving High Performance

in the Agribusiness Industry

Consulting Technology Outsourcing


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A combination o sheer scale, outstanding operational efciency,astute investment management and a sophisticated approach totackling risk distinguish the high perormers in Agribusiness. Inthe uture, upstream players will need to ocus increasingly on

innovation in order to create commercially viable options or thecustomer and end consumer, downstream.

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The future outlookBy 2030, thanks to populationincreases worldwide, changing

diets in rapidly emergingeconomies, and the risingpopularity o biouels, the UnitedNations estimates that demandor agricultural products will beabout 60 percent higher than it istoday.1 Global ood production willneed to increase by 40 percent tomeet this surge in demandhelpedby productivity improvementsin central and Eastern Europe

and sub-Saharan Arica, and theexpansion o productive land inNorth Arica, Latin America, andAsia. China, or example, willincrease ood production by 26percent and India by 21 percent.

These developments represent ahuge opportunity or upstream

agribusinesses seeking to maximizereturns on their commoditystreams. Suicient scale willbe essential to success. But ourresearch also suggests that theuture belongs to those companiesthat can leverage scale bycombining internationalization withdownstream integration in order toinnovate new consumer productsand services.

Meanwhile, the industry conrontssigniicant challenges. In thenext decade, or example, thecosts o inputs such as oil andertilizeralready at recordhighsare expected to climbhigher still. Environmental issuesare also a growing concern,

1World agriculture: towards 2015/2030, Summary report, Food and Agriculture Organization o the United Nations.

especially in emerging markets,where much o the worlds ood

is grown and where extremeweather conditions will inevitablyimpact crop production. Mountingconsumer demand or sustainablearming will increase the pressureon governments to regulatethe industry, or even to erectprotectionist barriers. Concernsabout ood saety will have asimilar eect, orcing companies toinvest heavily in sae, secure and

exceptionally lexible supply chains(see Figure 1).

Figure 1.

More Volatile

and Complex

Business Context

Growing role of developingeconomies in global trade

By 2030, global food production needs toincrease by 40% to meet demand

Production growth will be driven byproductivity improvements in Central &Eastern Europe and sub-Saharan Aricaand expansion o productive land in LatinAmerica, Arica and Asia.

Development of a whole new

energy market with biofuels

Demand for renewable energy sourcesrapidly expanding around the world

US and other developed nations settargets to assure a signifcant percentage orenewable uels in energy sources matrix

Increase in food security concerns

Exporting bans limiting trade ows in keyproducing regions

Quest for food security pressuring nationsto acquire land abroad

Consumers increasingly demand safe andsustainable ood

Growing ecological and social

concerns

Extreme weather conditions andtemperature variations signifcantlyimpact productivity

Growing regulatory pressure fromgovernments & NGOs to operatebusinesses sustainably

Rising input costs

Commodity boom with Chinese growthhas led to signifcant cost increases in majoragricultural inputs such as oil and ertilizers

In the next decade, input costs will continueto rise to levels at or above those o thedecade preceding the 2007/2008 peaks

Demand from growing middle class

Diets are changing signcantly in China,India, Russia and Brazil

By 2030, the United Nations estimates that

demand or agricultural products will be about60% higher than today


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The global agricultural productsmarket is valued at almost US$1.4

trillion, or 4 percent of global GDP.Accentures study looked at ourprincipal agribusiness sectorssugar/ethanol, grains, protein(bovine meat and poultry), anddairy.

Emerging market producershave steadily increased theirshare o global trade across allour sectors. Rising incomes inemerging markets have led to anincrease in meat consumption,or example, and while high eedprices have kept cattle numberslow in traditional producermarkets, bovine meat output isexpanding in Brazil and India.Rising meat consumption has alsoboosted Asian corn producers.Dairy output, similarly, is risingin emerging markets. And Asianproducers, especially in Thailand,

have beneited rom rising sugarconsumption. Meanwhile, thedevelopment o a whole newenergy market in biouels hasboosted demand or ethanolamarket dominated by Brazil (interms o ethanol derived romsugar cane) and the US (in termso ethanol derived rom corn).

Players in all sectors have been

grappling with rising input costsand intense margin pressure.All are vulnerable to climatechange. And although meatprotein players are perhaps mostexposed to ood saety concernsexporting bans have curbed tradein key producing regionsall areeeling the eects o consumersincreased environmentalawareness and consequentchanges in buying behavior.

Conronted with this complexbusiness environment some

companies have sought to growby internationalizing. Those romemerging markets have expandedinto Europe and the US, and playersrom mature markets have ocusedon new and emerging markets.

Brazil is o particular interest.South Americas dominanteconomy is now one o thelargest and certainly the mostdiversiied Agribusiness regionsin the worldthe biggest globalexporter o ive internationallytraded ood products (orange juice,sugar, coee, chickens and bee)and the number-two exportero soybeans and maize. Thecountry still conronts signiicantinrastructure challenges andcredit is tight; but its achievementis especially striking given thelow level o government subsidy:

5.7 percent, compared with 12percent in the US and 29 percentin the European Union, accordingto the Organization or EconomicCooperation and Development(OECD).2

The industry background

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2.The miracle o the cerrado, The Economist, August 26, 2010.


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Accenture deines high perormersas companies that outstrip

their competitors over multipleeconomic, industry and leadershipcycles. In order to identiy thehigh perormers in Agribusiness,Accenture analyzed 56 playerssome purely upstream commodityproducers and traders, some withboth upstream and downstreamocus and all with annual revenuesin excess o US$1 billion acrossour core sectors: ethanol and

sugar, grains, protein and dairy.

We used our proprietary HighPerformance Business researchmethodology to analyze boththree-year and ive-yearperormance or this peer setacross ive key metrics:

Longevity: Total return toshareholders (TRS) over the periodexamined.

Profitability: The capacity togenerate adequate returns orcapital invested in the business.

Growth: Increase in revenueduring the relevant period.

Positioning for the future:Percentage of enterprise value thatcan be attributed to uture cashlow generation.

Consistency: Percentageo years that the companyoutperormed its peer set medianin growth, spread and positioningor the uture.

Our analysis revealed some trulysigniicant outperormance in

all our sectors. The top iveperormers in grains, or instance,achieved proitability o between11.6 percent and 17.8 percent,compared with an industry averageo only 6.9 percent. The top twoperormers in ethanol and sugarachieved returns on investedcapital o 17.3 percent and 14.4percent respectively, against anindustry average o 7.3 percent.

While some top perorming proteinand dairy businesses achieveddouble and even triple the capitaleiciency scores o the averageplayer (see Figure 2).

The high performers

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In terms of return on invested capital, the achievements of the top five performers

20%

10.9%

12.8%13.3%

11.0%

6.2%6.9%

17.3%

7.9%

15%

10%

5%

0%Ethanol/

Sugar

Grains Protein Dairy

20%

15%

10%

5%

0%Ethanol/Sugar

Grains

In terms of profitability, achievement of the top five performers

Protein Dairy

10.1%

7.3%

17.8%

11.6%

6.4%

3.1% 2.9%

5.7%

In terms of capital efficiency, the achievements of the top five performers

Industry average

High Performance range

1

10

8

6

4

2

0Ethanol/Sugar

Grains Protein Dairy

2.4

1.3

6.5

2.82.5

2.5

9.8

3.7

Figure 2.


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Like high-perormancebusinesses in all industries, theleaders in Agribusiness share acompetitive essence made upo three building blocks o highperormance: market ocus andposition, distinctive capabilitiesand perormance anatomy.

These building blocks describethe organizational mindset thatdictates howand how wellan organization ulills itsstrategic objectives.

The building blocks of

high performance

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Our research has identiied ourdistinctive capabilities thatdistinguish the high perormers inupstream Agribusiness (see sidebaror the distinctive capabilities thatdistinguish the downstreamhigh perormers):

Distinctive capabilities

Market focus and positionTo position themselves or growthrelative to the competition

and within the value chain,high-perormance Agribusinessplayers have both globalized anddiversiied. Led by grains, leadingsplayers in sugar and ethanol,protein and dairy have built globalscale in research, production,marketing and sales throughexpansion and consolidation.They have acquired competitorsto create dominant businesses

that are also more diversiied interms o geography, products andservices. They have merged withkey players in product segmentswith high growth potential (suchas poultry or ethanol), expandingtheir global reach, especiallyinto emerging markets. And they

have ormed joint ventures andpartnerships with complementary

businesses downstream (processedood producers, or example, oruel distributors) to help secureaccess or their productsacrucially important considerationin todays complex and volatiletrading environment.

Managing investments moreeectively

Improving operational efficiency

Creating more effective tradingand risk management capabilities

Managing the innovationand generate a commerciallyviable portolio

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Distinctive capabilities fordownstream high performers

Accenture has conductedrelevant research into thebuilding blocks o highperormance in Food and Non-Alcoholic Beverages, where thereare three distinctive capabilities

applicable to Agribusinesscompanies that also ocus ondownstream operations

Solution Marketingspottingconsumer trends irst andinnovating (or renovating)portolios with products thatconsumers avor or or whichthey are willing to pay more

Customer and ChannelManagementtailoring accountstrategies and tactics to b2b/ingredients as well as retailpartners priorities, includingdevelopment o sophisticated

trade management andpromotional analytics andeective sales orce anddistributor network management

Flexible and Low-CostOperationsleveragingeconomies o scale delivered bya simple operating model acrossa global network, investing in

lean processes and technologiesto control costs


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1. Investment management

Managing investments careully isa critical capability, especially in avolatile and unpredictable globaleconomy where sudden changesin the competitive landscape

and in regulatory deinitions candramatically impact supply anddemand. In biouels, or instance,blend mandates and import tarisare subject to constant change.Indeed, no player in an industry aslow-margin as Agribusiness canaord to be complacent.

Our research shows that highperormers manage theirinvestments exceptionally well

across three dimensions: projectportolio selection, capitalexpenditure, and post-mergerintegration. A high level omanagement rigor complementsthis skill throughout theproject liecycle.

Top perormers are outstandinglygood at project portolio selection,to which they apply advancedtechniques such as scenarioplanning. They are especially adeptat evaluating investment optionsin disruptive technologies, takinga structured, disciplined approachthat goes beyond traditionalDiscounted Cash Flow (DCF) ordecision-tree valuation techniquesin avor o advanced S-curveanalysis, based on engineering,yield and scale drivers.

They also successully combinea top-down, long-term view owhich new geographies to developwith a pragmatic, bottom-upapproach to growth optionsgreenield, brownield, divestmentor acquisitionemploying clearevaluation criteria includingproitability, cost per ton, time tomarket and inance. As a resultthey establish strong, proactive

positions as early movers.

Their capital expenditure isexceptionally disciplineda criticalcapability in an industry wherehal-billion-dollar investmentsin mills and actories are notuncommon, and where newcrops and breeding programs and

improved growing and originationmethods require decades to becomeoperationalized at suicientvolumes to be absorbed into thesupply chain and transormed intoproducts or the market. In act,a 30 percent overrun in budget ortime planning can put $200 millionat risk.

High perormers are masters, tooo post-merger integration. Outo the 300 major mergers andacquisitions in the past ten years57% have resulted in lost value. Inorder to achieve success these highperormers quickly and seamlesslyintegrate acquired companies,thereby avoiding operationalinterruptions, identiying synergiesand optimizing value creation.Having successully diversiiedacross both products and

geographies, high perormers canmitigate the risks o excessiveluctuations in any single market:i one country temporarily closesto their products, or example, theycan manage supply chain risk byleveraging operations in others.

Finally, their project managementis exemplaryhence theiroutstanding capital eiciency.

Top perormers apply advancedtechniques such as strategicsourcing to the integrated physicaland inancial management o theirproduct and service portolio. Theyalso exercise considerable inancialdiscipline. Above all, they managetheir investments well on anongoing basis.

2. Operational efficiency

In Agribusiness, most o the costo goods sold is accounted orby agricultural production costs;in the case o oranges, as muchas 80 percent, and as muchas 65 percent in sugar cane.Moreover, in an environmentwith an increasingly diversiiedset o customers that demandsthe continual optimization o themanuacturing ootprint and supplychain network, agribusinesses areunder constant pressure to improvetheir operational eiciencyandhigh perormers are masters othe art.

They boost ield eiciency andyield maximization through theexceptionally eicient use oequipment, personnel and otherinputs. Their maintenance planningand execution is better than theircompetitors. And they minimizelosses and potential waste inthe use o ertilizers, herbicidesand uel.

The high perormers reducetotal cost o ownership byleveraging strategic sourcing.Whats more, thanks to their deepunderstanding o the varyinglevels o producer sophisticationin terms o inance, operationaland commercial practices, theyestablish optimized relationshipswith dierent producer segmentsmore proitable relationships orboth parties that also help boost

security o supply.

Thanks to the eiciency o theirsupply chain management, thehigh perormers have higher servicelevels and lower transportationand storage costs. They tacklelogistics challenges systematically,planning and executing oreicient transport inrastructuresby integrating with logisticsprovidersbuilding pipelines


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or ethanol transportation, orinstance, instead o relying onexpensive (and oten unreliable)road and rail networks.

High perormers also optimizetheir back oices. They reduce

General and Administrative (G&A)expenses through shared services.Their organization design is betterthan their peers. And they driveproductivity by implementing theright package o incentives. Byintegrating worldwide operationson a common platorm, some haveincreased synergies across businessunits and regions, driving downcosts even more.

3. Trading and riskmanagement

High perormers take an integratedapproach to trading (inancial) and(physical) risk managementmajorchallenges or any commoditiesbusiness. Unlike their peers, whoseoperations tend to be ragmentedand are thus oten mired in turwars between unctions and

departments, the high perormersleverage standardized processes toimprove their visibility, right acrossthe enterprise. This boosts decision-making capabilities overall,and helps with operational risksin particular, accelerating theirability to take proactive steps tomitigate problems with producers,or example.

When it comes to reducing

inancial risk, high perormers use aprecise hedging strategy to manageexchange rate exposures, as wellas availing themselves o advancedtools in market simulation andplanning, which together withpredictive analytics can helpidentiy market opportunitiesbeore competitors. Using thesetechniques to build scenarios andset up simulations has helped top

perormers orecast results moreaccurately and develop moreeective reporting mechanismsin general.

The high perormers integratedoptimized supply and commercialplanning capabilities are criticalto driving revenue and proitmaximization. And because theyleverage technology to trace andtrack commodity streams, their

operational and sustainabilityrisk management is also superiorto the competition. This all inan international context withsigniicant and increasing amountso legislation in an area wheregovernment actively operateto protect their national orregional interests.

4. Innovating valuable

options

Consolidation has given the highperormers the scale they need asupstream producers and traders tomaximize returns on their chosencommodity streamsbe they sugar/ethanol, grains, protein or dairy.But as value creation has moveddownstream, closer to the endconsumer, high perormance hasbecome much more than the ability

to leverage scale alone. It alsorequires the ability to marketand sell more sophisticatedproducts and servicesin otherwords, innovation.

Top perormers have recognizedthat they need to manage theinnovation pipeline eectively inorder to generate a portolio ocommercially viable options basedon their commodity streams. They

have recognized, moreover, thatdiversiication downstream requiresthem to address the needs o adiversity o very dierent marketsB2B and B2Cand that doingso successully requires speciicgo-to-market and commercial/salesmodels that are built internally orwith partners.

This has been especially trueo ethanol/sugar and proteincompanies. The high perormers inthese sectors have leveraged M&A,

joint ventures and partnerships

throughout the value chain tocompete more eectively. Theyhave ormed joint ventures withoil companies to invent, marketand sell bio-plastics, or example,leveraging a new, cost-eectivepolymerization process to produce

high-quality polylactic acid-based(PLA) bioplastics from a renewablesourcebioplastics that can beconverted into a variety o valueadded applications. And they havecreated similar partnerships tooptimize the business beneits oinnovations such as geneticallymodiied cattle whose milk outputis double that o normal cows, orhens eggs that can help combat

common diseases o the eye andother human organs. Anotherexample is the area o polylacticacid based (PLA) bioplastics and thedevelopment new cost-eectivepolymerization process to producehigh-quality polylactic acid roma renewable source which cansubsequently be converted into avariety o value added applications.

Some o these innovations have

created additional revenue streams,while others have enabled betterways o absorbing volume.


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Intrigued? Accenture works collaboratively with the high perormers and

leading players in Agribusiness, leveraging an unmatched combinationo research-driven insights, experience and skills to help them navigatethe road to high perormance. For a presentation o the detailed researchfndings and more inormation about how Accenture can help yourcompany achieve high perormance, please contact:

Latin America

Eduardo Barros+55 11 9281 [email protected]

North America

Brian Burns+1 [email protected]

Europe and Africa

Rob van der Krogt+31 20 593 [email protected]

Asia

Anish Gupta+91 11-429-80113

[email protected]

The high perormers inAgribusiness have diversiied their

portolios, expanded their reachinto key emerging markets andsought to satisy the constantlyescalating requirements o endconsumersachievements thatwould have been impossiblewithout a suiciently lean,cohesive and perormance-driven underlying perormanceanatomy (or culture). Theseleading companies welcome

change. They have implementedincentive systems that motivateand reward their workorces romthe highest to the lowest levelsor embracing it. And they haveboosted the ability o leadershipto manage through increasingcomplexity. They are also masters

o cost containment, drivingout costs with common, global

platorms in areas like the backoice. Moreover, their globallystreamlined operations havegiven them the transparency theyneed to sustain these capabilitiesgoing orward.

Performance anatomy


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Copyright 2011 Accenture

All rights reserved.

Accenture, its logo, and

High Performance Delivered

are trademarks o Accenture.

About AccentureAccenture is a global management

consulting, technology services

and outsourcing company, with

more than 223,000 people serving

clients in more than 120 countries.

Combining unparalleled experience,comprehensive capabilities across

all industries and business unctions,

and extensive research on the worlds

most successul companies, Accenture

collaborates with clients to help them

become high-perormance businesses

and governments. The company

generated net revenues o US$21.6

billion or the fscal year ended

Aug. 31, 2010. Its home page is

www.accenture.com

Accenture Agribusiness

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