Having effected major change over the course of 2019 and 2020, Gregory A. Heckman, chief executive officer (CEO) of Bunge Ltd., said the company’s portfolio-reshaping phase “is really behind us.” Going forward, Bunge is structurally positioned for success and more likely to be a buyer than a seller of businesses.
“We’ve earned the right to grow,” he said. “We’ve put the performance together a number of quarters in a row for the last year and a half, and now we start to look at growth.”
In an interview with Milling & Baking News, a sister publication of World Grain, Heckman detailed the rationale behind major changes instituted at the company over the past two years. He said the company’s position as a leading global oilseed processor offers an ideal platform for growth as well as expansion into complementary businesses.
Heckman was named CEO in January 2019 at a time the company was struggling. Heckman had joined the board of directors three months earlier to help conduct a comprehensive strategic review and took the top spot while the board ran a search process for a permanent CEO. Sensing both an immediate opportunity to elevate the company and the frustration of the company’s global leaders seeking to move the company forward, he asked to be named acting rather than interim CEO.
“I said, ‘Look I need to be acting because I think we’ve got a lot to do,’” he said. “We’ve got priorities, and I need to be able to make decisions and the team needs to understand I’m empowered. That they’re not going to just wait a few months until the next CEO shows up.”
In those early days, Heckman said he was struck by what he discovered about Bunge, a company he thought he knew and understood well as a board member and before that, a longtime competitor as an agribusiness executive.
“You know how it is in this industry,” he explained. “You’re customers. You’re suppliers and competitors. You do M&A deals, and you do transactions with each other. But you never really understand a company until you get on the inside and meet the people because the people are the fabric of these businesses. I believe they make such a difference compared to other industries.”
Soon after he was named CEO, Heckman went on a global “listening tour,” which gave him the opportunity to meet with and listen to the company’s regional leaders.
“And that’s when I became really excited about the untapped potential of this company, and what we could accomplish if we could kind of get out of our own way,” he said. “That’s about when they asked me if I would take the CEO job and take the acting title off and I said ‘absolutely.’”
Having retired from a successful career at Conagra Foods, Inc. and then Gavilon LLC, Heckman was not looking for work. But he was drawn powerfully to what the agribusiness industry stands for and to lead a 203-year-old business long a leader in the sector.
“Here is a company that really, really matters to the industry that we’re in,” he said. “Here’s an industry that really matters to the world. I always say we’re not convincing anybody to buy our stuff. We’re not selling anybody anything they don’t need. It’s food, feed and fuel, and everybody uses it every day. They’ll use a little more or a little less depending how they’re feeling about their lot in life and how much money they’ve got in their pocket, but we are an essential industry. This is a noble cause. We help feed a hungry world. We know there will be more people. We know they’re going to continue to eat differently and eat more as things are changing. And I concluded this is worth doing and making a difference. And so that’s when we dove in and started putting the priorities together.”
Some difficult decisions
Changes at Bunge since Heckman was named CEO in January 2019, both in the company’s management and operation structure as well as its asset base, were made to adapt to fundamental global shifts in agricultural production and trade that the company was not structured to address. As part of the changes, Bunge worked to optimize its portfolio focusing on core businesses:
In December 2019, Bunge finalized the transfer of its Brazilian sugar and bioenergy assets into a joint venture with BP.
Also in December 2019, Seara Alimentos SA said it had reached an agreement to acquire the Brazil-based margarine and mayonnaise assets of Bunge Ltd.
Bunge in January 2020 announced the end to its 13-year investment in Southwest Iowa Renewable Energy, LLC (SIRE). SIRE repurchased Bunge’s stake.
In April 2020, Zen-Noh Grain Corp., a subsidiary of the National Federation of Agricultural Cooperative Associations of Japan, announced its agreement to acquire 35 interior elevators from Bunge North America.
In November 2020, Farmers’ Rice Cooperative announced it had reached an agreement to acquire the Woodland, Calif., rice mill of Bunge.
That same month, Bunge Loders Croklaan agreed to sell a refinery in Rotterdam, Netherlands, to Neste Corp. for €258 million in cash.
Whether the company saw a path toward satisfactory returns in the future was central in its decisions about which businesses were retained.
“You don’t get to be a 200-year-old company without making some difficult decisions along the way,” Heckman said. “The most difficult decisions are those that have a direct impact on our valued employees. What has been most important in navigating through these changes internally is the openness and transparency with employees about our strategy and thought process behind the decisions made and how they will ultimately make us stronger as a company.”
Every bit as important as the divestitures have been steps to dismantle a decentralized structure with regional independence that was touted by the company in the past as helping make Bunge entrepreneurial and nimble.
“That had the advantage of speed during a different time but definitely as the world became more globalized, it started to become a bit of detriment,” Heckman said. “We had basically multiple corporations running, a corporation in each region, and then we ran a corporation over the top. Doing away with the regions and organizing the company around the value chains has allowed us to unleash the power of one Bunge. It’s the information that we have, the speed and agility to move to respond to customer needs at both ends of the supply chain; the ability to utilize our information to help solve problems for our customers and the ability to continue to take costs out.”
Shifting the corporate structure
Shifts in global trade patterns made the necessity to shift the corporate structure more apparent, Heckman said.
“As an example, look at Brazil soybeans going to our crushing facilities in China,” he said. “In the past it would have crossed multiple P&L (profit and loss) lines, and there would’ve been multiple internal transactions. So now the destination value chain, it is one transaction. Last year was a great example. The Brazilian real goes down. The Brazilian farmer wants to market their crops, and we were able then to buy that crop to help the Brazilian farmer lock in their profitability but then also sell that through our value chain through our crushing by selling oil and meal at that time to the Chinese market and locking in those crush margins in a much more efficient manner than in the old Bunge.
“The regional lines were a construct that had previously served very well, but the way the world works in running the global platform, and the benefits that we have to serve our customers when there is dislocation, you have to look at the total platform. That’s when you think about a one Bunge approach.”
Basic to the need for this approach is that Bunge must focus on customers on both ends of the supply chain, Heckman said.
“That’s different than how a lot of industries think,” he said. “The farmer is our customer, and we have to help him and her be successful. At the other end is the end consumer, and we deal with both B-to-B customers and B-to-C customers. So how do we take the friction out of our internal system to be most efficient on the value chain and to get the consumer what they want and get it most efficiently all the way back down that value chain and send the right signals to the farmer?”
Even as farm storage of grain has grown significantly over the last several years, the relationship between growers and grain companies needs to deepen, Heckman said.
“In some ways they need our services more than ever,” he said. “The more storage they have, the more flat-price risk that they have to manage; the more they’re not forced to make a marketing decision. Now they need to be thoughtful about that marketing decision. With more on-farm storage they have more logistical risk than they’ve ever had, and they also have more quality risk in storing that crop than they ever have, risk that used to be passed to the commercials immediately. Now for some of that reward in the carrying, and the timing in marketing, that comes with managing risk. Opportunity and risk are opposite sides of the same coin, and it’s our job to help them manage that at the front end of the value chain. We want all of our customers at both ends of the value chain to be successful and to be growing because that is good for everyone, and that’s how we’re going to feed a hungry world.”
Bunge’s new structure will help the company in other ways, Heckman said. For example, he said a new approach to capital allocation will generate strong returns over time. In the past, allocation was managed regionally, with each region funded to pursue its most promising projects/initiatives.
“Today the capital comes to the center, and we look at projects in a way that is not, say, doing the best project in South America or North America, we’re doing the best project at Bunge,” he said. “We’ll all compete for the best project whether it’s specialty fats and oils, whether it’s serving renewable feed stock, whether it’s in our soft seed crushing or soy crushing.”
Discipline around financial focus was high on the list of Heckman’s priorities together with Bunge’s management of day-to-day risk.
“But it also was the investments and the financial discipline around putting capital to work in long-lived assets,” he said. “We focused on the portfolio, which led to the divestitures that you saw. We got back to being the leading global oilseeds crusher and focusing on the businesses that give us the strength off of that, especially fats and oils.”
While a decentralized business model may not make sense for Bunge today, Heckman said it was key to helping build a deep bench of leadership talent at the company. He discovered this depth during the listening tour he conducted at the start of his CEO tenure.
“I went around the world and visited plants and visited offices with our employees and heard what their frustrations and what their greatest successes have been,” he said. “I found this incredible group of really passionate employees. They were really passionate about Bunge, really passionate about our customers. They knew our customers well.
“Bunge has invested a lot of time and money in moving people around the world. So, we have this great group of talented employees where they were kind of fiercely focused on the regions they sat in. They had worked in multiple geographies around the world. They worked in multiple different businesses. They many times crossed commercial and functional lines driving the business versus supporting the internal customer that’s driving the business. They were really passionate about winning and proud of being Bunge and there was a lot frustration.”
In June 2020, Bunge moved its corporate headquarters from White Plains, New York, US, to its existing office in St. Louis, Missouri, US. The company said co-location helped corporate staff integrate more thoroughly into the company’s daily business operations, while also providing employees with broader career growth opportunities.
“We are already seeing teams collaborating and communicating more, and training and development opportunities get created,” Heckman said. “These benefits will be even greater once we resume to normal operations post-COVID.”
Commitment to oilseeds
Underpinning steps the company takes to grow will be a commitment to bolster Bunge’s oilseeds platform, a sector of leadership for the company.
“Where industry consolidation makes sense, we want to be involved in that and a leader in that,” Heckman said. “We’ll also continue to look for organic growth opportunities. We’ll continue to de-bottleneck our own system to serve customers. We’ll also look for those acquisitions that make sense.”
A model for the kinds of moves Bunge may consider was the 2018 acquisition of Loders Croklaan from IOI Corporation Berhad. Bunge had been a major soybean and softseed oil crusher and refiner for many years, and the acquisition broadened Bunge’s portfolio of products to include tropical oils such as palm, coconut and shea, giving Bunge a “full slate of fats and oils,” Heckman said.
Looking forward, Bunge is well positioned through its crushing/refining platform to grow in the plant-based protein boom currently underway, Heckman said. He expressed confidence “multi-year growth” would be forthcoming in plant proteins.
“Our specialty fats and oils are important to that because they go into many of those products and give them the mouthfeel and the taste and the bite that people so love in eating these healthier plant-based products,” he said.
More directly, Bunge is looking for ways to supply the plant-based protein market as a food ingredient versus the company’s current role as what Heckman called a “commodity supplier.” The company’s customers are looking for more suppliers, he said.
“They want to get us in,” he said. “We’ve got a great pipeline of projects, and that’s a space you’ll hear more about. We’ve announced a couple of small projects, a couple of smaller investments but you’ll continue to hear more. That’s a place that is absolutely built off the back of our global oilseeds platform, a space where we have a right to compete and a place where we deserve to win. We’ll continue to build out the plant proteins, and, as I said, that fits hand in glove with our specialty fats and oils.”
One investment in the space came in August 2020, when Bunge said it had invested $30 million in Merit Functional Foods. Merit is a Canadian-based company and has built a plant-based protein facility in Winnipeg, Manitoba. Merit is planning to produce novel pea and canola protein ingredients at the plant.
Product made by Merit are ingredients in products ranging from vegetable burgers to protein shakes for health and fitness, Heckman said.
In specialty fats and oils, Bunge has long been a maker of lecithins but in the past “had more of a commodity mindset,” he said. With Bunge Loders Croklaan, the company is combining “go-to-market expertise,” and innovation capabilities. Such specialty markets represent adjacencies that will allow Bunge to add value and serve the company’s customers.
Addressing climate change
Sustaining and building a 200-year-old company requires a focus on the long term, and Heckman said delivering value to the consumer in 2021 involves awareness of climate change and the role practices like regenerative agriculture may play in mitigating the problem. Helping growers change agronomic practices represents an opportunity for companies like Bunge to “play a huge role in that value chain,” Heckman said.
A natural fit for Bunge in addressing climate change, adjacent to its core business, is providing feedstock to the biofuels market. Even as Bunge backed away from the ethanol business at the end of 2019 with the sale of its stake in Southwest Iowa Renewable Energy, LLC, Bunge remains committed to serving the renewable energy and biodiesel industry, in particular the growth in North America. Attitudes toward biofuels are changing, Heckman said.
“Consumers are demanding it,” he said. “It is creating a lot of demand for vegetable oil and that again is a multi-year trend that is in place. Here in the US we’re seeing the big oil companies make investments, switching over oil assets to do the processing for renewable diesel and renewable diesel is a splash in fuel that can go right through their distribution systems and allow them to continue to use those assets.
“That’s an opportunity for us in helping supply those lower carbon index feedstocks that not only the consumer is demanding but government regulation is supporting.”
Growing demand for biofuels results in the tightening of edible oil supplies and may prompt reformulation in some instances by price-sensitive users. With its broad portfolio of different edible oils and fats, Bunge will be able to help.
“We’re basic in all the oils globally, and we’ll be able to help solve those problems,” Heckman said. “We’re excited about that growth trend that’s in place and what that is going to mean. That is going to be part of providing a lower carbon index (CI) scores into those renewable feed stocks.”
Even with many car manufacturers committing to shift their fleets to electric vehicles, Heckman said prospects for biofuels remain positive for many years to come. In addition to the marine and aviation sectors, which are likely to continue relying on high-intensity energy fuels, biofuels are expected to play a large role into the 2030s and beyond, he said.
“Hydrogen and other new technologies are under exploration, but people are trying to drive down their GHG (greenhouse gas) footprint right now, and they are taking action and we can make a difference right now with bio-fuels,” he said.
Toward that end, governments are legislating and oil companies are making major investments to have a nearer-term impact.
“So this is a multi-year run,” he said. “It is pretty exciting for ag.”
A change from the past in Heckman’s view is the manner in which biofuels are being characterized. During the 1990s and 2000s, the advantages of biofuels became mired in the complexity of food-versus-fuel debates.
“Now it seems like governments and ag and oil are all lined up trying to do the right thing for the globe and for the climate and for mankind,” he said. “It’s going to be very interesting to watch it develop; it feels different.”