A conversation with Mayo Schmidt

by World Grain Staff
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During his career as an agribusiness executive, Mayo Schmidt has built a reputation for restructuring businesses. After graduating from Washburn University in Topeka, Kansas, U.S., he joined General Mills where, for 15 years, he held various positions and worked at various offices throughout the U.S. Then, in 1995, he joined ConAgra Foods where he was given the task of leading the Nebraska-based firm’s expansion in Canada. At that time, Canada’s largest grain handling firm, Saskatchewan Wheat Pool, was nearing bankruptcy.

Schmidt saw this as an opportunity and the directors of the pool were also convinced Schmidt was the one person who could turn the co-operative around. Once in the job, he wasted no time in cutting costs by significantly reducing the number of employees and divesting the organization of its livestock businesses and its newspaper, The Western Producer. In 2005, he convinced farm members to relinquish voting control and convert the co-operative into a Canadian corporation. Two years later, he then went after the last three major co-operatives in Canada in the form of Agricore United and, after a six-month bidding war, acquired the last significant remnants of what were Western Canada’s once politically powerful and hugely successful farmer-owned grain co-ops. The company was then renamed Viterra, meaning "life from the land".

In fact, co-operatives were one of the major building blocks on the Canadian Prairies, and nearly every enterprise — from the distribution of consumer goods to manufacturing and banking — had a co-op sector. An analysis completed in 1998 showed that 1,306 co-operatives in the Province of Saskatchewan alone generated revenues of nearly C$7 billion and controlled assets of more than C$10 billion. For many farmers who were strong co-op members and believers in the co-op philosophy, the changes Schmidt was making to "the pool" and the basic fabric of the Prairies were not welcome.

However, Schmidt managed to persuade a large segment of the grain business that good times were coming and farmers could best capitalize on those good times by using a different, capitalist business model. Following this initial success, and as president of Canada’s largest agricultural enterprise, Schmidt put Australia’s ABB Grain in his sights and eventually brought what was once Australia’s barley monopoly into the fold, giving Viterra an entry point to the burgeoning Asian markets.

Where’s he going next? In a discussion with World Grain, Schmidt reveals that he’s looking at compatible businesses in China, India and the Black Sea region. He’s not only looking at the grain business, but at supplying nutritious food ingredients worldwide — not only for humans but for animals as well. He sees a rapidly growing world population and a Third World where people are demanding more diversity in what they eat and better quality food. For Schmidt, nutrition and health will be very much the driving forces behind Viterra, just as they are the driving forces in his personal life.

WG:
As an American businessman with 30 years of experience with two of America’s largest agribusiness firms, General Mills and ConAgra Foods, how were you received by Saskatchewan Wheat Pool (SWP) members when you joined the co-operative in 2000?

Schmidt: It was certainly a strong welcome. I would say with some trepidation that this was a bold move by a historic cooperative that was over 80 years old to do two things: One was to hire an individual that came from U.S. multinationals such as General Mills and Con Agra, and secondly, to hire external to the organization. Historically, co-operatives, of course, have brought people up through the ranks, and I think that they understood the adverse conditions that the industry and the organization faced and they knew that a change was required.

WG:
At that time, SWP was mired in debt and on the verge of bankruptcy and you were working for ConAgra in Winnipeg. You must have been familiar with the financial situation at SWP and its long history in Western Canada. Knowing this, did you actually believe you could save Canada’s largest grain handling enterprise?

Schmidt: First of all, working for ConAgra at that time, my strategies were to build ConAgra’s presence in Canada as one of the largest buyers of grain. As I studied the marketplace, and particularly Saskatchewan Wheat Pool, it was obvious to me that it was a company that had great assets, a rich history in settling Western Canada, and particularly Saskatchewan. And it had a very strong customer commitment and customer following — there was a lot of loyalty to the organization — so the challenge was the balance sheet or the financial structure of the organization. It was failing due to a failed expansion program into assets that didn’t have a direct correlation to: one, their core business, and secondly, the areas that they chose were not areas that, in my view, were growth areas for the organization. So it certainly was my view that the organization could be turned around, but it needed very strong, immediate and aggressive action, which I and the management team at the organization took. The results, I think, speak for themselves, accumulated through to 2005 when we became a Canadian business corporation.

WG:
Over the years the SWP had developed very strong philosophical and political ties with the Canadian Wheat Board. Were you able to maintain those close relationships during and after the changes you made at SWP?

Schmidt: I would say, certainly, as the Canadian Wheat Board’s and Canadian farmer’s largest handler of their commodities, we’ve continued to share a very strong relationship with all the participants. The Canadian Wheat Board, of course, serves as the single desk marketing agency. We, the Canadian Wheat Board and Canadian farmers all share the same interests, which are to strengthen agriculture in Canada and to maximize the returns to the industry for farmers and for industry players so that capital can be reinvested to further strengthen the industry. I think if you look at history back in the 1990s when there was a reinvestment of capital into this sector, and now Canada, particularly Western Canada, enjoys some of the best state-of-the-art facilities in the world. It’s a driver to get the maximum efficiencies. That’s in everyone’s best interests and that’s what we continue to be focused on today.

WG:
It’s been said that SWP management at the time believed the co-op had to grow much larger very quickly in order to compete against large U.S. multinationals such as Cargill. They were confident they could do that and, in retrospect, were perhaps too confident and lacked the necessary oversight needed to make it happen. Would you agree?

Schmidt: I would say that recognition of the change that we discussed earlier — to bring in a new leader to the organization, and with the leader comes a change in management — to step outside of the traditional, in-house succession that would normally occur was a testament to the fact that they had a view that a dramatic change was required. Of course, after my arrival the organization faced three years of drought. But I would say their expansion plan was not aligned with the direction the sector was moving in, and this caused a great deal of financial pain for the organization. The management team that came in was able to counteract that by divesting of noncore assets, re-investing into the businesses that we felt would be successful, and re-engineering the balance sheet of the organization to rebuild our financial capabilities, which I think is obviously the basis to global acquisitions — here in Canada and in Australia. These are a testament to the strengthening of the balance sheet and the ongoing strength of the company.

WG:
In 2006, your company and James Richardson International both launched an initiative to take over Agricore United. At one point James Richardson announced that a merger had been reached. However, in the bidding war that followed, Saskatchewan Wheat Pool’s C$20.50 all-cash offer prevailed. These negotiations took a lot of tenacity on your part. What do you remember most from that bidding war?

Schmidt: First of all, the most important aspect of that was the foresight to see that the agriculture sector was on the cusp of a change — a dramatic change — in growth. I think we moved with a great deal of precision and timing. The combination of the two organizations — Saskatchewan Wheat Pool and Agricore United, two great Canadian companies — brought tremendous synergies to the organization. It gave us the right assets at the right time, in the right position, and it gave us a great balance between country origination and symmetry with our port facilities. So, we have a really nice balance to be able to execute at a very high efficiency level, and Viterra today enjoys the highest level of throughput in terms of per unit, per facility, of any company in Canada. It’s put us in a position where we have a very strong collection system to support our processing, and we’re, of course, the leading exporter. It prepared us and it prepared (Viterra) Canada for the next move, where Canada then moved to acquire and combine with a very strong Australian organization. So, with that foresight to see the things that are unfolding today and all the activity in the market today, particularly as Canadian companies look at Australia and Australian companies look at Canadian companies, it shows the vision that this organization had, beginning with Agricore United and then, three years ago, moving on Australian opportunities.

WG:
In an interview in Saskatchewan Business magazine, you were quoted as saying: "Population growth, higher incomes and the biofuels market have created tight market conditions resulting in higher commodity prices. As people around the world look to North America to help fill the global demand for grain, it will be companies like ours they will look at to help bridge the gap." Do you still have confidence in this proposition?

Schmidt: More than ever, I think that activity in the marketplace today illustrates the action Viterra has taken. The strategy and the confidence to act have worked well for this organization. I think the activity, which is not only grain collection and processing, but also fertilizer production, are all things that are direct complements to population growth. To service that, Canada and other export countries are going to have to be on top of their game to keep up with rapid world population increases and a growing demand for quality food and nutritional ingredients for the global food supply.

WG:
You have made no secret that Viterra is on the acquisition trail. Since the successful purchase of ABB Grain last year, what areas and what types of enterprises are of most interest should a compatible company become available?

Schmidt: The purchase of the Australian business was an opportunity to further build our global collection system, and then we have made a number of acquisitions on the processing side. We’re now one of the leading manufacturers of pasta for the institutional market. We recently closed on a value-add business (21st Century Grain Processing) for oat coating, and a business for cereal and also flour milling. So it really is a focus on: one, building on the business of processing on top of our collection system, and finally, a very strong focus on nutrition and health for the human and animal populations, as we’re also a large producer of feed products for animals.

WG:
When you look for a company to acquire, what are the key characteristics you take into consideration?

Schmidt: It begins with a look at the geography. Obviously, the geography has to match with our guiding principles for growth and diversification. Secondly, it’s the strength of the management team. We look for strong management teams followed by confirmation of the quality of the assets.

WG:
What parts of the world offer Viterra the greatest opportunities for future growth?

Schmidt: To support the collection and processing that we’ve already accumulated, I think that India, China and further Black Sea originations are areas of interest to Viterra, along with a number of other areas. But those have to be considered when you think of India and China as foremost in the areas of consumption and areas where we’re already very active. We’re in the process of building a crush plant in China, and we’ve got an operation in India where we’re bringing in pulses to complement the Indian food supply.

WG:
You have said frequently that Viterra is not merely a grain handling company, but a nutritious food ingredients company. The recent sales agreement your company has reached with 21st Century Grain Processing would appear to be a major step toward this goal. What types of nutrition companies are you most interested in and in what countries?

Schmidt: Certainly, we’re looking at processing companies that complement our collection system, and we collect a great variety of different grains and oilseeds production. We’re also processing that production. The countries we’re most interested in — we’re Australia’s largest manufacturer of malt and we’re also building crush capacity in China to support their growing demand for oil consumption, particularly from canola from Australia and canola from Canada.

WG: As an observer of the global grain trade and, in fact, the global trade in nutrition-based commodities, do you see a continuing trend toward larger and larger agri-food companies and larger and larger farms, or you do see opportunities for other options for production and marketing in North America?

Schmidt:
I think there are many, many opportunities in this sector, and it ranges from the food system to the complementary businesses of equipment to harvest the crops and move the crops and the transportation sector. We work very closely with the rail providers; Viterra loads over 180,000 rail cars a year and over 500 to 600 ocean-going vessels to over 50 foreign countries. I think it’s critical that we continue to build on the efficiencies in the system, which means further commercialization of the sector, reinvestment back into the sector and things like efficiencies and seed technologies that are going to have to be employed to address the population explosion that will happen from now until 2050, as forecast.

WG: What major issues that affect the global grain industry are you personally tracking and which issues do you think will have the greatest impact on the whole industry over the next few years?

Schmidt
: As we’ve talked about, populations. The other is nutrition. We’ve seen an increase in Type 2 diabetes and obesity, and Viterra is very committed to health, fitness and nutrition. Secondly, when we move to new non-tariff trade barriers and export restrictions in certain countries because of production shortfalls, these are major issues that are going to affect our industry. And then, of course, is the entry of new non-ag related enterprises where organizations that previously haven’t been involved directly in the agriculture sector are entering the sector.

WG: Viterra has undergone an incredible transformation over the last few years. Where do you see the company in five, 10 and 20 years?

Schmidt: One is greater proximity to key markets. Australia for us was an opportunity to be on the doorstep of Southeast Asia, a huge, growing population area. Also, I see Viterra further adding value to nutrition, and obviously, ingredient supply to developing countries.

Based in Vancouver, British Columbia, Canada, Leo Quigley writes for a variety of national and international publications specializing in agriculture and transportation. He can be reached at
Quigley@dccnet.com.

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