Bunge: A Foolish Choice
Lalita is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Bunge Limited (NYSE: BG) is undoubtedly one of the strongest players in the agri-food processing industry. Over the years, Bunge has repeatedly proved its robust capability to harness market opportunities and create a winning scenario for itself.
The company primarily operates four business segments: agribusiness, sugar and bioenergy, edible oil products, milling products and fertilizers.
The major expansion spree
Identifying the enormous potential available in the industry, the company has been taking active steps to expand its foothold and penetrate newer markets. The year 2012 saw the company inking some major deals in the form of strategic alliances with some prominent players in the industry to boost its business in all segments.
The company entered into joint-venture agreements in Eastern Europe and Paraguay promoting its oilseed processing and biodiesel production facilities. It recently expanded its South African joint venture to capture the market in Sub-Saharan Africa for oilseeds and grains. Furthermore, the company also successfully made arrangements to spread its oil products business in Brazil by a strategic joint venture entered into with Solazyme. The past fiscal also saw the company acquire a wheat mill in Mexico and a prominent edible oils business in India including expansion of existing facilities across North America and Brazil.
In addition, the company recently joined hands with Aceitera General Deheza S.A. in Argentina to construct and operate a corn wet mill, taking the sugar and bioenergy segment forward.
The above moves significantly highlight the company’s aggressive growth strategy aimed at broadening its customer base and widening its markets.
The opportunities are huge
With the world population expanding exponentially, it takes no Einstein to guess that it would eventually translate into ever increasing demand for more food products. Nevertheless, to put it into perspective, as per United Nations’ estimates, by 2030, the demand for agricultural products will rise by 60% requiring an increase of 40% in the global food production compared to what it is today. In addition to that, the global market for agricultural products is touted to be worth an astounding $1.4 trillion which approximates about 4% of the total GDP of the world.
Nevertheless, the immense opportunities are off-set by the rising costs of inputs and risks posed by climate change creating huge pressure on profit margins.
Considering the above, the agricultural foods and commodities business demands players to focus on globalization of operations calling for massive and aggressive measures to penetrate newer and wider markets which would enable them to derive scale economies while off-setting the negative effects of the risks mentioned above.
With Bunge having adopted a well thought out expansion strategy aimed at securing access to newer avenues for its products and strengthening its operational strengths by investing in capacity extension, it looks set on the track to achieving sustainable growth in the future along with enhancing its competitive position.
The competitive expanse
The agricultural food production industry is an immensely competitive industry and Bunge faces tough competition from the likes of Archer Daniels Midland (NYSE: ADM) and Wilmar International (NASDAQOTH: WLMIY.PK).
Archer Daniels Midland (NYSE: ADM) is a prominent producer and trader of protein meal, corn sweeteners, ethanol and biodiesel, vegetable oil, flour, etc. With a market capitalization of $ 22.94 billion, it has created a solid foothold for itself in the market.
Keeping in line with the industry trends, Archer Daniels Midlands, is currently in the news for the planned acquisition of Australia based GrainCorp which will help the company to further diversify its crop supply along with imparting strategic advantage to Archer Daniels by enabling it to optimize its current portfolio. GrainCorp has a solid market presence in the regions of Middle East, Africa, Northern Asia and South East Asia which will significantly enhance Archer Daniels’ presence in the global space.
Overall, Archer Daniels looks set for exponential growth in the long run, owing to synergies expected to be gained from the upcoming acquisition of Grain Corp, which will significantly strengthen its core business position and has potential to push the company forward by leaps and bounds compared to its peers.
Wilmar International (NASDAQOTH: WLMIY.PK) based in Singapore is Asia’s leading agribusiness group. Wilmar has successfully implemented a robust strategy involving an integrated business model which has efficiently optimized its value chain. With over 450 manufacturing facilities in emerging markets such as China and India, the company has efficiently developed a robust distribution network covering over 50 countries.
Continuing the industry tradition, Wilmar International has formed a series of strategic partnerships with prominent names within the industry to promote mutual benefits and achieve long-term sustainable growth.
Incidentally, the Asian leader entered into three joint ventures with Archer Daniels, the company’s long time business partner (Archer Daniels holds a 20% stake in Wilmar international) in tropical oils refining in Europe. The partnership bolsters Wilmar's global fertilizer purchasing and distribution and global ocean freight operations.
Over the years, Wilmar has managed to develop a diversified portfolio of products which gives it a definite strategic edge over its competitors in the form of access to larger customer base and wider market presence.
Wilmar has a robust growth strategy in place which is focused on expanding its footprint in the high growth markets of Asia and Africa. The company’s recent moves are evidence of its efforts to solidify its position not only as a leader in Asia but on a global platform.
Admittedly, the agricultural foods business is an extensively competitive market place. Considering the fact that the industry is set to grow exponentially in the coming times, there is a whole new world of opportunities waiting out there to unfold.
However, product differentiation, market penetration, geographical expansion and technical advancements will prove to be key determinants of success for the industry in times to come.
Considering Bunge’s extensive expertise in the industry coupled with the company’s aggressive expansion strategy, this stock looks set to soar in the coming times and is a definite addition to your portfolio.
Lalita Chauhan has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!