FLOW

A Brief History of BUNGE LIMITED.

Bunges current strategy.
Bunges Agribusiness.
Their Value chain.
Turnaround and IPO.
Bunges operations in agribusiness.
Operation strategy matrix.
Bunge Global Markets and challanges.
Organisation and Culture.
Integrating Cereol and challanges.
Competitors.
A BRIEF HISTORY
1818: Founded in Amsterdam by Johann Peter Bunge
& Co.
1884: Bunge was established in Argentina by
grandson, Ernest Bunge
1905: Bunge then expanded into Brazil
1923: Bunge North American Grain Corporation
founded in New York City to trade raw agricultural
commodities
2001: Changed its name to Bunge North America prior
to the initial public offering of Bunge Limited
2002: Bunge Limited acquired Cereol, which included
Central Soya in the United States and Canamera Foods
in Canada
 CURRENT STRATEGY

Bunges strategy rests on its newly founded Bunge Global

Agribusiness divisions whose focus is on vertically
integrated operations improving value by linking different
regional and international markets together.

Global Agribusiness
 AGRIBUSINESS
Soybean , wheat and corn accounted for more than 65% of US crop area planted
in 2001.
In 2001 , more than 160 million tonnes of soybeans were consumed worldwide as
mentioned in Exhibit 5. United states, brazil and Argentina accounted for more that
80% of world soybean and corn exports and more than 50% of wheat exports.
Growth in agricultural production had moved towards South America largely
because of cost advantages and the larger tracts of arable lands available there.
For Europe, Russia and Ukraine to resume their role as a market exporter
required them to go for major investment in transport, storage and processing
infrastructure. These countries being on a path of development, the main driver of
growth in demand for food and feed was income & population growth.
 CONTD.
Because of huge lags in the adjustment of agricultural supply and commodity
processing capacity to changes in demand made agribusiness highly cyclical.

With Asian crisis in 1997, the industry continued the downcycle of processing till
2000. Overcapacity in oilseed processing put pressure on the margins, leading to
10$/ton from an average of 18$/ton.

In 1996, genetically modified seeds were adopted by farmers in US & Argentina.

However, they became prohibited in Brazil in EU.
 VALUE CHAIN

Elevators: Facilities that were served as consolidation and storage points

The above chain could involve a single integrated grain company or multiple companies with several changes in
ownership and with prices established many times at different locations

STRATEGY
Goal was to become the best integrated agribusiness and food company in the world
In addition to its strong market positions, it could differentiate itself by its business model and its organization and
culture
Superior logistics > Cost advantage
Three dimensions to logistics:
Transport
Having the right industrial footprint and locationally advantaged production assets
Extremely good management in the capture and analysis of information
Logistics Getting the right product to the right customer, in the right quantity, at the right time and the right place
 TURNAROUND
In order to compete globally, it was suggest that Bunge should refocus on
consumer foods and agribusiness operations, divest non-core assets, and
introduce professional management.

In 1997, Bunge returned to its roots in agribusiness, implemented new strategy

and acquired Ceval Alimentos(Brazils largest Soybean processor).

In 2001, Bunge went for IPOs and sold 17.6 million new shares at $16/share.
BUNGES IPO
 BUNGES STRATEGY
The companies model needed itself to be integrated in a whole chain.
This can be attain by focusing on integration & the most defining factor would be
logistics as stated by Weisser(CFO, Bunge ltd).
Weisser thought, logistics not to be only transportation but getting the right product
to the right customer, in the right quantity at the right time and the right price.
Managed logistics would give Bunge a cost advantage over companies that
competed in only one part of the value chain. This would also enable Bunge to
offer customers better service in terms of tracking their orders.
According to Weisser, logistics could be bifurcated into three dimensions:
transport; having the right industrial footprint and locationally advantaged
production assets; and extremely good management in the capture & analysis of
information.
 BUNGES OPERATIONS IN AGRIBUSINESS
Bunges agribusiness division consisted of GRAIN ORIGINATION, OILSEED
PROCESSING and INTERNATIONAL MARKETING.

Grain Origination
- Bunge was strategically growing its grain origination network in brazil & handled
nearly 1/3rd of its soybeans.
- Bunge was more export oriented than most of its competitors, so operated a
number strategically located port facilities in the US, brazil & Argentina.
- Bunge in 2001,used more than its 50% of oilseeds & grains it originated in its own
processing operations & sold the rest to third parties for more revenue.
 CONTD.
Oil Seed Processing
- Bunge being the largest oilseed processor used all soybeans originated by its
own grain origination.
- Acquisition of an Argentine agribusiness firm made Bunge the largest soybean
processor & 2nd largest exporter of agricultural products in Argentina.
- Brazil being the worlds fastest growing agricultural area Bunge decided to setup
2 new crushing facilities there. Bunge sold 80% of its Brazilian soybean meal &
65% of its soybean oil production becoming the largest soybean processor in
brazil.
 CONTD.
International Marketing
- By 1990 Bunge had become primarily an originator & processor of oilseeds and
grains.
- Bunge sold majority of its products as Free on board (FOB) in ports in the US ,
Brazil & Argentina.
- Even after earning significant margins in international trade, Bunge did not have
the knowledge of end customer contact, which affected the effectiveness of its
hedging and risk management activities.
BUNGE NORTH AMERICA
Grain Oilseed Processing

Bunge North America,

Inc., is the North American
operating arm of Bunge
Limited (NYSE: BG),with
facilities in the U.S.,
Canada and Mexico.
Oils Milling
OPERATIONS STRATEGY MATRIX
 BUNGE GLOBAL MARKETS(BGM)
After seeing ample opportunities in the global market, Bunge decided to build an
international marketing capability by establishing BGM in 1998.
The value of BGM was to take Bunges origin capacity, linking with customers &
managing the risk in b/w: commodity, credit, IR, forex, freight and political.
BGM had rapidly grown during 2001 by doubling its volume and quadrupling its
gross profit, which resulted in the growth of net operations by 6 times.
BGM was organized along 2 axes:
Distribution business: Organized regionally at the main destinations, were focused on
serving customers in their local markets
Product Lines: It covered global functions such as trade-structured finance, ocean
freight and risk management activities.
 CONTD.
BGM had 4 main activities-
Marketing physical products
Freight
Risk management
Trade finance

Archie Gwathmey, MD, BGM strategized BGMs key position by taking decisions on
operations of where to crush more, crush less-how to manage global risk in terms of
having the right offsets b/w the risk in different categories.
 CHALLENGES AT BGM
BGM interfaced with all of Bunges companies in the origins yet was a stand-alone
profit centre.
The major challenge BGM faced was that the value fluctuation around in the value
chain over time depended on global markets. It may be stated that at some stages
there was profitability in the demand side but mostly it was at the origin.
Although Bunge was very flexible with integrated fashion yet had the major focus
on the bottom line, resulting in strong potential for friction and tension b/w them.
Since the negotiations were done on the basis of FOB, the transfer price issue in
the origin was a major challenge for BGM, which resulted in paying too much.
Operational ineffectiveness in the origin also affected BGM through its Brazilian
ports with delays in loading & unloading vessels.
 CONTD.
BGM addressed the above challenges by deepening personal relationships b/w
them and Bunge's regional units.
Friction had dissipated but still some of the challenges persisted because of a
Bunges decentralized structure with separate profit centres.
To ensure that BGM is focused on building the business rather than just a
segment of the chain, since everybody was optimized for their local business
To make sure that the people in charge of production at origin and the person in
charge of marketing have the same goals
To co-ordinate with origins regarding operational decisions
Vertically Integrated

Fertilizer
Fertilizer Agribusiness
Agribusiness Food
FoodProducts
Products

Retail Grain Oilseed Food Retail and

Nutrients Retail &
Products Grain
Origination Oilseed
Processing Distribution Food Retail and
Nutrients Products & Distribution Processing Consumer
Services Origination Processing Processing Consumer
Services

Worlds leading oilseed processor and seller of bottled oils

Leading miller of wheat in South America and corn in North America
South Americas leading fertilizer producer
 ORGANISATION AND CULTURE
A decentralized management structure
According to Weisser, the source of competitive advantage for the company is its
Decentralized management structure
Easy for decision making across different regional offices
Easy for the local management to act according to the local requirement
It reduced bureaucracy and allowed local managers to act fast and seize
business opportunities
Want to be seen as a local player, not as an ugly multi national
Was able to hire very good local talent, people who are bright and intelligent and
take initiative, and who find the space to move
Only 35 people in Burges headquarters in White Plains, NY
 CHALLENGES OF DECENTRALISATION

To run an integrated company in a decentralized manner

To obtain synergies across P&L lines
To correctly identify the functions that need to be centralized and the
functions that truly need to be decentralized
Difficult to convince and to give instructions or directions to all regional
managers
 INTEGRATING CEREOL

It was the number four soy processor in the US and the leading oilseed processor
in Canada
Its US assets were very complementary to Bunges and would make Bunge a
strong number two to ADM
Cereol has established a leading position in the oilseed processing industry with
the privatizations in eastern Europe
It had a strong soy ingredients business and was a global leader in soy con-
centrates and lecithins
It was wisely respected by food industry customers for its innovation and long
tradition
 CHALLENGES IN INTEGRATION OF CEREOL

Increase the complexity in the organization

Affect of it to the Bunges business and organization model

Weisser wanted Bunge to be the worlds best integrated agribusiness company.

So he was confused, whether the acquisition on Cereol require a change in
Bunges organization model or not
 COMPETITORS
ADM
Large and diversified than Bunge
Operated in oilseed processing, wet corn
processing, wheat milling etc.
Highly centralized, US-focused and 70%
revenues from North America
Low cost provider, and more market share &
production oriented than customer driven
Visualized itself as a large food input and
fuel factory: raw materials entered at one
end and exited as value-added products
Has majority ownership stake in AC Toepfer
International, a grain trading company
Toepfer had more than 40 sales offices
world wide and traded 40million tons of
grains annually
CARGILL
Large and diversified than Bunge
Largest private company in the world
with sales of $50 billion in 2002
Active member throughout the
agribusiness chain, from supplying
inputs to farmers to selling processed
foods to consumers
Its strength was in commodity
processing
Had leveraged its capabilities in
commodity trading, logistics and
processing into non-food businesses
including steel mini-mills and metal
trading