Viterra's global plan
Nov. 15, 2011
by Leo Quigley
In 2000, when Saskatchewan Wheat Pool, a grain handling cooperative deeply rooted in the fabric of Canada’s agrarian history, was about to declare bankruptcy, its newly appointed chief executive officer grabbed it by the belt, pulled it back from the brink of extinction, restructured it and rebranded it as Viterra.
In the Pool’s 2000 Annual Report, when the company’s fortunes were bleakest, the new CEO, Mayo Schmidt, told investors there would be “a much sharper focus on the Pool’s core businesses.” He also said: “Although it was a tough year for the entire Canadian grain industry, the Pool suffered more than most due to a lack of operational discipline.”
Clearly, the job of Schmidt, the former President of ConAgra Canada, was to provide the necessary discipline and return the Pool to a focused, efficiently run business with positive earnings and improved shareholder value.
This he planned to do with a return-to-core business strategy that included selling off assets that did not fit with the Pool’s primary business of moving grain and supplying basic agricultural products to farmers, such as fertilizer, chemicals, seed and equipment.
Included among these assets were two capital projects: a grain terminal, Europort Inc., that was being constructed at the North Port of Gdansk, Poland, and an import grain terminal at the Port of Manzanillo, Mexico, in partnership with Mexico’s Gomez family, owners of Aceitera La Junta, an oilseed crushing plant and feed business in Guadalajara, Mexico, that was written off by the Pool in 2002.
These investments in the late 1990’s, coupled with “Project Horizon”, a costly plan to construct 22 high throughput, concrete, grain handling terminals across the Prairies at a capital cost of C$22 million, were instrumental in accelerating Saskatchewan Wheat Pool into its brush with bankruptcy.
These divestitures from 2000 to 2003 provided enough capital to give Schmidt the means to significantly reduce the Pool’s long-term debt. In 2007, once Viterra had been stabilized financially, he went out and purchased Canada’s largest grain handling company, Agricore United, a firm larger than Saskatchewan Wheat Pool.
Once these grain elevators and their managers were integrated — most in areas where the Pool did not have a significant presence previously — Schmidt purchased Australian-based ABB Grain Ltd. in 2009, giving the company control of nearly 40% of the world’s wheat, barley and canola exports in two hemispheres.
This was followed on Aug. 8, 2011 by the announcement of a new global business plan by Schmidt and, days later, it was announced that new marketing offices would be located in Ho Chi Minh City, Vietnam, and Barcelona, Spain.
Most recently, on Sept. 7 there was an announcement by Viterra’s senior executives that the company’s third-quarter profit of C$123.2 million for the period ended July 31 was almost double that of the previous year’s total of C$63.5 million.
Today, Saskatchewan’s largest grain handling co-operative that was coughing up red ink roughly a decade ago has operations on four continents, markets to over 50 countries and employs over 6,000 employees globally.
There are, of course, as many variations in corporate organizational plans for globalization as there are international agribusinesses.
As Schmidt told World Grain, “Organizations are like a fingerprint. There’s no one that’s exactly the same as the other. With Viterra I said, ‘What are my fundamental beliefs that I feel strongly about that need to be accentuated in a future structure in order for us to participate in global agriculture and food markets — not just in a business context, but in the context of giving back and participating in the world’s food supply?’ ”
The products Viterra collects are generally not shipped domestically or regionally, he said.
“In order for us, as a company shipping to all corners of the world, to think globally, we have to act globally,” Schmidt said. “By that, I mean, if I isolate a number of businesses and say, ‘You’re the leader of a regional business, then the people they associate with, the way they act, think and live will be regional,’” he said. “If I connect them with our processing companies, like the malt business or grain business, those business lines have to do with the collection, marketing, trading and delivery of grain products worldwide. They all work within a global group, they communicate globally, they think globally and they act globally — and we’re successful globally.”
For these reasons, the Viterra plan is uncomplicated, straightforward and includes reporting relationships that cut across geographical and political boundaries.
The plan has three global business lines: Grain, Agri-Products and Processing.
Grain: Responsible for Viterra’s global grain and oilseed businesses, and fully accountable for all aspects of the commodity value chain including origination, in-country and port terminal operations, merchandising, logistics and commodity trading globally. Also responsible for executing internal and external growth initiatives that expand Viterra’s international grains and oilseeds position to drive additional value from the company’s multiple point origination networks.
Agri-products: Responsible for the growth, expansion and diversification of Viterra’s global agri-products portfolio, which includes research and development, seed, crop protection products, fertilizer, equipment and wool. Also responsible for growing the company’s retail market share in Western Canada organically and through acquisition, establishing a retail presence in Australia, improving its R&D pipeline of seed genetics, launching the Viterra branded seed, crop protection products and equipment and Financial Products.
Processing: Responsible for all of Viterra’s processing operations globally including wheat and oat milling, malt, pasta, oilseed crushing and feed manufacturing, and will be focused on aligning business excellence programs throughout Viterra’s value-added processing assets to capitalize on the company’s commodity origination and procurement expertise.
Focusing on Developing World
In discussing global markets and Viterra’s target markets, Schmidt said: “Our focus really is on the developing world. When we think about the drivers of future demand, they’re clearly India and China supported by areas such as the Middle East and Africa. And we, as a company that has a collection system that’s global, since we collect not only in Canada but in Australia, gives us the opportunity to deliver to these points from multiple origins, which is important to our customer, because our customer is ultimately concerned about availability of product.
“Many of the countries we supply are unable to produce the necessary products such as grain or oilseeds to supply their population, so they’re dependent upon us to do that. No country in the world should put all their eggs in one basket and say ‘I sure hope you have a crop this year.’”
In addition to a diversity of supply, the other advantage Viterra has is a diversity of grain exporting terminals located on Canada’s West Coast, including Thunder Bay and the St. Lawrence Seaway, and South Australia’s Outer Harbour.
• Viterra Terminal (Vancouver): Formerly Cascadia Terminal, this terminal is the largest and most modern grain terminal at Port Metro Vancouver, B.C., capable of handling wheat, durum, feed barley, malting barley, canola seed and specialty crops.
• Prince Rupert Grain Terminal: Designed to clean wheat and barley to export standard and load ships at up to 4,000 tonnes an hour, the terminal is the closest export facility to Asia on North America’s West Coast. The terminal is jointly owned by three grain companies, with Viterra being the largest.
• Port of Montreal Grain Terminal: On July 4, 2011, Viterra obtained a long-term lease to fully operate the Port of Montreal’s grain terminal. The terminal is used primarily to transfer grain from vessels that move grain on the Great Lakes to ocean-going vessels and has a storage capacity of 262,000 tonnes.
• Outer Harbour: South Australia’s newest deep sea grain terminal, one of eight terminals owned by Viterra in Australia, is capable of handling Panamax vessels and is equipped with a 3.5 km rail line that allows continuous unloading of grain at up to 2,400 tonnes an hour.
Schmidt said logistical synergies are being achieved by having the operations of all of the port facilities contained within the Grain Group.
“The supply for any origination point in the world that we participate in is communicated through the Singapore office,” he said.
“Singapore then sits with offices from Ho Chi Minh City, to Geneva, to Italy, and they communicate where the demand is. So, every day Singapore is looking at the combination of the demand against the combination of the supply, and they’re managing global logistics arbitrage,” Schmidt said.
“When I say that, ‘global’ is all of the markets that we’re in touch with. Logistics being, of course, making sure the products get to a particular destination. Arbitrage means that every day those markets have changing dynamics. Demand surges and fades — when somebody gets their appetite satisfied, they’re no longer a demand.
“What we have to test every day is where the greatest demand in the world is for our products, and Singapore makes those decisions, which creates the synergy between the supply and the demand. You may say, ‘I’ve got demand in China and I’ve got product in Australia and I’ve got product in Vancouver, Canada.’ So they say, ‘Where’s my freight?’ If there’s a surplus of freight in Australia at a lower cost than the tighter freight supply in Vancouver, they’ll move the business to take advantage of the least-cost method of transportation.”
Viterra’s global operating goals
• To maximize the global pipeline
• Improve decision-making
• Simplify reporting lines
• Align and capitalize on shared expertise
• Centralize all support services
• Drive accountability