CASE STUDY

1

BUNGE LIMITED
Jonathan West

‘We are at a very special moment in the history of Bunge. We have reached one plateau. Now, we need to go to the next round of change. We constantly need intellectual jolts to the company.’ (Alberto Weisser, CEO of Bunge Limited) In July 2002, Bunge, a global agribusiness and food company, announced that it would purchase Cereol, a global oilseed processor, based in France. The acquisition would transform Bunge, making it the world’s leading oilseed-processing company, and give it a more balanced geographic footprint, as well as access to new products, but would substantially increase the complexity of the company’s product lines, locations and personnel. Less than a year before, on 2 August 2001, Alberto Weisser, Bunge’s CEO, rang the opening bell on the New York Stock Exchange, as Bunge successfully went public after more than 180 years as a private company. The company had primary operations in North and South America and worldwide distribution capabilities. Bunge was the largest processor of soybeans in the Americas and among the world’s leading exporters of soybean products. It was the largest fertiliser producer and supplier to farmers in Latin America. It was also a leader in vegetable oil and wheat-based food products for food manufacturers, food service companies1 and consumers. Bunge’s net sales in 2001 were $11.5 billion (see Exhibits 1 and 2 for Bunge’s financials). Bunge had undergone a dramatic transformation over the past decade. The company was established in Europe in the early nineteenth century. As recently as the early 1990s, it had faced financial problems and many expected it to exit the industry. Under new leadership, including Weisser as CFO, the company had returned to its roots in agribusiness and food, making a number of strategic acquisitions, divesting non-core businesses and restoring financial stability. Weisser, a Brazilian, was appointed Bunge’s CEO in January 2000. The acquisition of Cereol, for approximately $1.5 billion including debt, would be Bunge’s largest to date. In early September 2002, Weisser prepared to meet with his Executive Committee to discuss how to manage the integration of Cereol. How would this affect Bunge’s business and organisational model? Weisser cherished Bunge’s decentralised management structure with decision making devolved to the regional units. He believed decentralisation reduced bureaucracy and allowed local managers to act fast and seize business opportunities. However, the potential always existed for decentralisation to result in decisions that benefited Bunge’s regional companies, which were separate profit centers, rather than the company as a whole.
Source: Professor Jonathan West prepared this case. HBS cases are developed solely as the basis for class discussion. Cases are not intended to serve as endorsements, sources of primary data, or illustrations of effective or ineffective management. Copyright © 2001 President and Fellows of Harvard College. Reproduced with permission.

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To create synergies between all Bunge’s pieces, soon to include Cereol, coordination had to be optimised. Would Bunge’s decentralised structure be scalable in an industry in which integration was, increasingly, the name of the game? To reach Bunge’s 35-person headquarters, Weisser walked through the company’s recently created global agribusiness marketing centre. Bunge’s traders were sourcing raw and processed oilseeds and grains from the company’s operations in the United States, Brazil, and Argentina. They marketed these products worldwide: soy-protein meal to poultry feeders in Asia; edible vegetable oil to food manufacturers in the Middle East; and corn and wheat to millers in the Mediterranean. Ocean vessels were chartered to carry the products across the globe. This trade was supported by Bunge’s vast network of physical assets: grain elevators, processing plants, trucks, barges, railcars and sales offices. In 2001, Bunge had originated, processed and marketed more than 70 million tons of grains, oilseeds and fertilisers, a three-fold increase since 1997.

Agribusiness
In terms of production, the most important oilseed was soybeans and the most important grains were wheat and corn. Between them, they accounted for more than 65 per cent of US crop area planted in 2001. Although these grains and oilseeds were grown throughout the world, a number of countries could not produce enough to supply their population’s needs, either due to a shortage of agricultural land or unsuitable climatic conditions, and needed to import grains. Gigantic quantities of these products traversed the world. In 2001, for example, more than 160 million tons of soybeans were consumed worldwide (see Exhibit 5). The United States, Brazil, and Argentina accounted for more than 80 per cent of world soybean and corn exports and more than 50 per cent of world wheat exports. Because of differences in growing seasons, northern and southern hemisphere nations supplied the world market at different times of the year. In the past decade, growth in agricultural production had moved toward South America largely because of cost advantages and the larger tracts of arable land available there (see Exhibit 3 for relative production costs and Exhibit 4 for soybean production in South America). In the next 20 years, more than 60 per cent of the growth in global grain exports was expected to come from South America. In Brazil, a huge expansion of cultivation was occurring in the interior of the country – the largest undeveloped area for farming in the world. Indeed, by 1999–2001, Brazil and Argentina’s soybean and product exports had grown from less than 10 per cent in the 1960s to nearly 50 per cent.2 In the longer term eastern Europe, Russia and the Ukraine were expected to resume their historic role as grain exporters.3 This would require major investments in transport, storage, and processing infrastructure in these countries. The main driver of growth in demand for food and feed was income and population growth in developing countries.4 Wheat was the world’s principal food grain and corn was the world’s most important animal feed grain. Soybeans were processed or ‘crushed’ to produce two main products, vegetable oil and protein meal.5 Most soybean oil was refined for human food products such as cooking oil, margarine and shortening. Soybean meal was the dominant protein meal supplement for animal feed,6 particularly for poultry and

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hogs, accounting for 65 per cent of world consumption. Unlike wheat flour, soybean meal and oil were economically transportable over large distances and the US, Brazil and Argentina were all major exporters of soybean products (see Exhibit 5). Lags in the adjustment of agricultural supply and commodity processing capacity to changes in demand made agribusiness highly cyclical. Until 2000, the industry continued the downcycle that had begun with the Asian crisis in 1997. Overcapacity in oilseed processing, after a rapid expansion between 1997 and 1999, put pressure on crush margins, which averaged under $10 per ton in 1999 compared to a long term average of $18 per ton (see Exhibit 6). Crush margins picked up since 1999 because of growth and discipline in capacity management. The downcycle forced a number of smaller players out of the market and in 2000, large processors closed several soybean-processing plants to reduce overcapacity. Margins were also improved by the EU ban on meat and bone meal and improvements in Asian economies. Biotechnology had already had a significant impact on agribusiness, and was projected to grow in importance in coming years. Since their commercial introduction in 1996, genetically modified (GM) seeds with ‘input traits’,7 had been rapidly adopted by farmers in the United States and Argentina. In Brazil, although the government had prohibited the commercial planting of GM crops, it was estimated that 20–40 per cent of soybeans in the south were GM.8 The introduction of GM crops into the food chain, particularly in grains and oilseeds for human consumption, had precipitated a consumer backlash in Europe. In the US, some food manufacturers had banned GM ingredients, while Japan and Korea announced plans to begin labeling unprocessed GM corn and soybeans. In the future, Agbiotech companies planned to introduce higher value-added GM crops, with nutritional and medicinal benefits for consumers, ‘output traits’. In 2001, in response to multiple food crises, the EU proposed legislation requiring that all foods and feeds be traceable back to their origin. To capture the value created through output traits, modified grains had to be kept separate from commodity grains, or ‘Identity Preserved’ (IP).9 The existing agribusiness system was very efficient at storing, transporting and processing large quantities of homogeneous commodities. It was not designed to manage a multiplicity of IP grains.

The value chain
The growing, handling, processing and marketing systems for grains and oilseeds were similar, and storage and transport were usually common (see Exhibit 7). Farmers generally sold their production to the closest elevator in order to minimise transportation costs. Elevators were facilities that served as consolidation and storage points. Production was then transported by truck, rail or barge to terminal elevators where larger quantities were consolidated for export or sale to processors serving the domestic and export markets. Grain was diverted from the distribution stream by competitive bidding from livestock producers, feed companies and corn and soybean processors. Grain was exported for processing at destination or processed domestically and the products exported. The 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. Grain was increasingly exported in higher value forms such as refined vegetable proteins, fructose and meats. This trend had reduced the role of grain exports in the US marketing system.

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Economics
Grains, oilseeds, and their basic products were traded widely with clearly defined quality standards and transparent pricing. Customers bought mainly on price, although service and relationships could be important additional differentiators. Margins were slim and volatile (see Exhibit 8 for cost and margin structures). For higher value-added processed food products, innovation and brands were more important. There were significant economies of scale in processing agricultural commodities. The main limitation on the size of processing plants10 was not engineering but rather sourcing sufficient quantities of inputs year-round and having a readily accessible market for products. The largest plants were located in ports where they could draw on a large grain catchment area and export worldwide. Risk management was fundamental in agribusiness. Uncertainties over supply and demand, related to factors such as weather, farmer’s planting decisions, economic growth, trade policy and consumer tastes in different areas of the world, led to volatile prices for agricultural commodities. Price risks could be largely hedged through liquid futures markets such as the Chicago Board of Trade. These futures markets also acted as global price discovery mechanisms.

Bunge: 180 years in agribusiness
In 1818, a German merchant, Johann Peter Bunge, founded Bunge & Co. in Amsterdam, Holland, to merchandise grains and imports from the Dutch colonies. In 1859, the company moved to Antwerp where Bunge & Co. became one of the world’s leading commodity traders. The company moved its base to Argentina in 1884, to trade the country’s rapidly expanding grain exports.11 Bunge grew in tandem with Argentina’s agribusiness, investing initially in commodity processing and food manufacturing and later expanding into many other businesses to become Argentina’s largest private company. In the 1970s, during a period of political turmoil in Argentina, Bunge moved its headquarters from Buenos Aires to Sao Paulo, Brazil. The 1970s saw the ‘Brazilian miracle’, a time of rapid growth and Bunge became one of the country’s largest employers. By the 1980s, Bunge was a diversified conglomerate with subsidiaries spanning the manufacture of textiles, paint, chemicals, cement, banking, insurance and real estate. Although a number of the group’s companies were listed on local stock markets, the group remained private with shares held by descendants of the founders. The group’s senior management continued to be drawn from the shareholders with family members running different regions independently.

Turnaround
Bunge’s companies in South America had grown and worked in a protected environment and were not prepared for the international competition that came with the opening of the Brazilian and Argentine economies in the early 1990s. A fundamental review of the group’s strategy concluded that Bunge must refocus on its consumer foods and agribusiness operations, divest non-core assets, and introduce professional management. Weisser, who joined as chief financial officer (CFO) in 1993, recollected:

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‘In South America Bunge diversified too far. It was very successful and money was reinvested in the same countries. The group had a very inefficient holding structure.12 We found that there was money in the wrong companies and debt in the wrong places. The US operations were on a sound footing and there were other pockets of a disciplined, decentralised, entrepreneurial company, but in Argentina and Brazil controls were weak. The structure was over heavy. The shareholders decided to make the company professional. We introduced discipline and began restructuring.’ Between 1992 and 1998, Bunge sold many non-core businesses, including Bunge Paints, the largest paint manufacturer in South America. In 1997, further focusing its strategy, Bunge returned to its roots in agribusiness, largely exiting the consumer foods business.13 In the same year, Bunge took a critical step towards implementing its new strategy, acquiring Ceval Alimentos, Brazil’s largest soybean processor. ‘The move was smart’, noted Ben Pearcy, Strategic Planning Director, ‘because Brazil is the fastest growing region in the world in agriculture. We became the leader in oilseed processing in Brazil and gained a strong position in Argentina. If we hadn’t done that acquisition, we wouldn’t be positioned as we are today. It was a smart move but also fortuitous.’14 In 1999, Bunge moved its headquarters from Sao Paulo to New York as part of its preparations for the IPO. Going public on 2 August 2001, Bunge sold 17.6 million new shares, just more than 20 per cent of total stock outstanding, at $16 per share. Weisser explained the rationale for the IPO: ‘Firstly, the company needs to grow. There are many opportunities and our competitors have deep pockets. Shares are a good currency and public companies have better access to capital markets. Secondly, we need to provide liquidity for our shareholders.’ See Exhibit 9 for Bunge’s stock price chart.

Strategy
Weisser’s goal was for Bunge to become the best integrated agribusiness and food company in the world. He was convinced that in addition to its strong market positions, the company could differentiate itself by its business model and its organisation and culture. He explained the company’s business model: ‘We need to be integrated in the whole chain. We have really focused on integration and the most defining factor for integration is logistics. At Bunge, logistics doesn’t just mean transportation – we mean getting the right product to the right customer, in the right quantity, at the right time and the right price.’ Weisser believed that superior logistics would give Bunge a cost advantage over companies that competed in only one part of the value chain. It would also enable Bunge to offer customers better service, for example traceability. He saw three dimensions to logistics: transport; having the right industrial footprint and locationally advantaged production assets; and ‘extremely good management in the capture and analysis of information’.15

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Operations
Agribusiness
Bunge’s agribusiness division consisted of grain origination, oilseed processing and international marketing.

Grain origination
Worldwide soybean demand was growing at an annual rate of 4.5 per cent and it was expected that population growth and rising incomes in the developing world would sustain this trend.16 Bunge was strategically growing its grain origination network in Brazil and handled nearly one third of Brazil’s soybeans.17 It was the leading soybean originator and one of the largest consumers of logistics services in the country.18 Furthermore, since there were fewer sources of crop financing than in the US, Bunge was directly involved in providing financial services to farmers in Brazil.19 Bunge also had a strong origination position in Argentina. In the United States, Bunge was the leading handler of soybeans, corn and wheat in the southern Mississippi region. Bunge was more export-oriented than most of its competitors and, so, operated a number of strategically located port facilities in the United States, Brazil and Argentina. In 2001, Bunge used more than 50 per cent of the oilseeds and grains it originated in its own processing operations, the rest being sold to third parties

Oilseed processing
Bunge was the largest oilseed processor in the Americas and the third largest in the United States in 2001 (see Exhibit 10 for the evolution of Bunge’s oilseed processing segment and Exhibit 11 for global market shares). Virtually all soybeans used were supplied by Bunge’s own grain origination. Following the acquisition of an Argentine agribusiness firm in 2002, Bunge became the largest soybean processor and the second largest exporter of agricultural products in Argentina.20 Bunge was the largest soybean processor in Brazil. In Brazil, most of Bunge’s crushing plants were located in Brazil’s south and centre-west near soy growing centres or ports and most had attached edible oil refineries. Bunge exported nearly 80 per cent of its Brazilian soybean meal, and 65 per cent of its soybean oil production. Bunge planned to build two new crushing facilities in Brazil’s north-east and centre-west regions in the world’s fastest growing agricultural area.21 In the United States, Bunge’s seven crushing plants were located either in the primary poultry producing areas, soybean producing areas, or on the primary river tributaries for export.

International marketing
Despite its history as an international grain trader with a global network of offices, by the 1990s Bunge had retreated to become primarily an originator and processor of oilseeds and grains. Bunge sold the majority of its products delivered ‘free on board’ (FOB) ship in ports in the United States, Brazil and Argentina (as the world’s principal exporters these countries were often collectively termed ‘the origins’). These were bought by traders, many of whom were Bunge’s direct competitors, who aggregated end-customer demand, chartered ships, and provided services such as financing, storage and distribution at destination. Significant margins were being

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earned in international trade in which Bunge did not share and the lack of end-customer contact meant that while Bunge had a good understanding of grain origination dynamics it had only a second-hand perspective on destination trends. This limited the effectiveness of its hedging and risk management activities. Changes in the international grain trade made a local marketing presence even more important: ‘The nature of the export market has changed dramatically from large centralised buyers based in the Former Soviet Union or China, to broader, more diversified and discerning private buyers. Export contracts have changed: instead of their being comprised of a few large purchases of crops with standardised specifications, they have become much smaller, and have more differentiated quality and service requirements.’22

Bunge Global Markets (BGM)
By the late 1990s, in the wake of industry consolidation, Bunge saw an opportunity to reestablish itself in the international marketing arena. In 1998, it established BGM to build an international marketing capability. BGM had four main activities: marketing physical products, freight, risk management and trade finance. ‘The value of BGM is in taking our origin capacity, linking with customers, and managing the risks in between: commodity, credit, interest rate, foreign exchange, freight and political’, a BGM manager explained. Archie Gwathmey, Managing Director for BGM, spoke of BGM’s evolution: ‘We developed first the global customer bases – in oil, soybeans, corn and wheat and saw that our costs were going up faster than our revenues. While we were trying to perform these functions we were also trying to measure and look at [BGM] as a stand-alone company. We understood that the key to having a viable business model was to layer additional services and capabilities so we started and developed a trade structured finance business where we were able to leverage trade flows in areas where we had high local working capital costs. We also tried to develop our economic analysis and build a system to read global markets better. We spent a lot of time promoting the team concept among our various players (other Bunge companies at the origins). We indicated where and how we see the market evolving, for example, and the only way we’re going to be effective at this, from a pricing standpoint as well as from presenting to our global customer base, is if we do this together.’ BGM had grown rapidly. In 2001 alone, Bunge’s international marketing volumes doubled while gross profit quadrupled, and operating income grew more than six times. Soy products accounted for 70 per cent of BGM’s sales in 2001, although many customers required a mix of grains and oilseed products. Based in White Plains, New York, by 2002, BGM had opened more than 20 offices including Geneva, Singapore, Shanghai, Jakarta, Hamburg, Rome, Istanbul and Miami (see Exhibit 12). BGM was managing more than 100 chartered ocean going vessels and leased warehouse space at several destination points. In Italy and Portugal it had also leased crushing plants, supplying raw materials and marketing the resulting oil and meal. In Turkey it was constructing a port and in India, it lead the growth of Bunge’s domestic processing business, expanding a crush plant and refinery. BGM was organised along two axes – distribution businesses and product lines. Product lines covered global functions such as trade-structured finance, ocean freight, and certain risk management activities. Distribution businesses, organised regionally at the main destinations, were focused on serving customers in their local

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markets. While distribution businesses made their own decisions, they did so in the context of a global plan provided by BGM’s product lines so, ‘you don’t have 15 people going to a particular market to buy soybeans because all the buying is channelled together and all the planning and logistics is similarly channelled’, said Gwathmey. BGM took inputs from destination marketing offices as they assessed world demand and import needs. Similarly, Bunge’s origin offices conveyed their expectations of exportable surplus given current market circumstances and price structure. This information was synthesised at BGM, giving all Bunge companies a view of supply and demand in the world and insights into where surpluses and shortages were developing. This would help them manage their capacity and price risk, for example, selling capacity forward to lock in margins or increasing grain purchases in the interior. Gwathmey explained, ‘The key position [for Bunge] is how we’re going to play the cards in terms of managing our global capacity – where are we going to crush more, crush less – how we’re going to manage our global risk in terms of having the right offsets between our risks in different categories.’

Fertiliser
Bunge’s fertiliser division benefited from agricultural growth in Brazil since land in the cerrados (savannas) required regular applications of phosphate fertilisers. Brazil, the fourth largest fertiliser market in the world,23 grew by more than 70 per cent between 1991 and 1998 (see Exhibit 13). Bunge was the only integrated fertiliser producer in Brazil, participating in all stages of the business from mining of raw materials to selling of mixed fertilisers. Fertiliser was a cyclical business – demand was closely linked to agricultural acreage, fertiliser intensity, and credit avaialble to farmers. In 1996, Bunge had planned to sell its small fertiliser business. However, after studying the industry further, ‘we saw we had a fantastic opportunity to grow the business and create value’, Weisser explained. ‘We saw some synergies but underestimated them.’ Through a series of eight acquisitions Bunge expanded its product lines, improved its access to raw materials and became Latin America’s leading fertiliser producer in 2002. See Exhibit 14 for growth of Bunge’s fertiliser division. More than 75 per cent of Bunge’s sales were direct to 60,000 farmers in Brazil, but Brazilian farmers typically did not have the financial resources to buy the required fertilisers without the help of financing from agribusiness companies. ‘So, instead of giving [farmers] money who then buy fertiliser with some of the money, you give them fertiliser and you know what the money is being spent on and the farmer pays you [back] in soybeans. So you internalise and reduce the credit risk’, Pearcy said. In 2001, more than 10 per cent of Bunge’s fertiliser sales, up to 5 per cent in 2000, were made in conjunction with crop financing. This was expected to increase to 20 per cent over time. Bunge also wanted to see if its integrated fertiliser model would work with its grain origination to manage credit risk in other areas such as Argentina. In the future, Bunge intended to deepen its relationship with farmers by providing additional services such as selling seeds, chemicals, other financial services and technical advice. It was also considering managing similar risks for other companies such as agrochemical firms in return for a fee. Bunge’s scale in fertiliser gave it significant cost advantages in acquiring raw materials, financing, processing and logistics, in an industry characterised by low brand equity and little product differentiation. Weisser explained:

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‘We bring the grain to the port but we are able to negotiate to get a better rate to transport fertilisers back to the hinterlands [of Brazil]. It’s not a huge thing, but it adds a couple of cents per ton when you negotiate the back-haul. Or, if you start chartering 50–100 ships, once you have the knowledge about freight, you can also do the importing for other Brazilian fertiliser companies to bring in the potassium so integration starts to have all kinds of benefits.’24 Bunge was the single biggest buyer of road freight in Brazil because of the large quantities it moved using trucks. Its bulk fertiliser blending facilities were being located close to soybean elevators to integrate fertiliser sales with grain origination and the two divisions established shared delivery and transshipment points. Speaking of the importance of links between the two divisions, Weisser said, ‘the focus on the farmer, the logistics advantage, with the backhaul, financing, credit risk – [it is all about] efficiency, efficiency and efficiency – whatever you can do to reduce costs’.

Food products
Through its food products operations in the United States and Brazil, including oils and shortenings, consumer products, wheat and corn milling, bakery products and soy ingredients, Bunge served the food service, food manufacturing and retail grocery markets. The food products business allowed Bunge to counterbalance some of the cyclicality in its fertiliser and agribusiness divisions. Bunge was refocusing its efforts in the food products business, having concentrated on its agribusiness and fertiliser operations in the recent past. Globally, Bunge used 20 per cent of its edible oil production in its food products division. In developed markets, the retail and consumer food market had changed rapidly in recent years. Agribusiness companies were beginning to enter categories such as branded edible oil, in which returns were tied more to risk management and raw material access, for instance. Bunge, too, had to consider how far down the value chain it wanted to participate and to what extent. Bunge aimed to selectively participate in food products markets in which it could realise synergies with its agribusiness in procurement and risk management.

Soy ingredients
The soy ingredients market was growing at a rate of 11 per cent per year and offered favorable profit margins (see Exhibit 15 for diversity of soy products). However, Bunge was still a relatively small competitor, with sales under $100 million in 2001 (see Exhibit 16). Bunge manufactured soy-based food ingredients such as isolated soy proteins (ISP) and lecithin.25 It was one of only three major global producers of ISP.26 There were substantial technological barriers to producing ISP and Bunge had developed proprietary production technology in this area. Bunge’s major soy ingredient production facility was in Brazil, a low-cost production area, and Bunge had recently invested in a new plant dedicated to the production of ISP, doubling its production capacity. The facility was among the world’s most sophisticated and was designed to meet the strict requirements of pharmaceutical industry customers. Bunge planned on developing a new line of soy-based ingredients to meet nutraceutical food demands.27

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Acquisition of Cereol
Cereol was the number four soy processor in the United States and the leading oilseed processor in Canada. Its US assets, located in the eastern cornbelt, were very complementary to Bunge’s and would make Bunge a strong number two to ADM. Cereol also operated oilseed processing plants in western Europe. These primarily pocessed soybeans imported from the Americas. Western Europe was the largest market for protein meals in the world and Cereol’s assets would allow Bunge to participate in the region’s demand for domestically crushed meal. In eastern Europe, Cereol had established a leading position in the oilseed processing industry with the privatisations of the early 1990s. Gwathmey was enthusiastic, ‘We look at eastern Europe as a platform for growth in many areas – even areas outside of the ones we’re buying. Grain production will expand, protein production will expand and there will be significant opportunities for us to leverage our capabilities and our strengths in the market there.’ Cereol was integrated downstream in many of its European markets. It was the world’s leading producer of bottled branded vegetable oil, marketing a billion bottles annually. Cereol had a strong soy ingredients business and was a global leader in soy concentrates and lecithins. These products complemented Bunge’s existing soy ingredients portfolio. Cereol had production assets in the United States and western Europe, a large sales force, and was widely respected by food industry customers for its innovation and long tradition. Weisser noted that the increased sale of the combined company was important because, ‘[I]n agribusiness, it is so important to be efficient. It is highly competitive – few businesses are as transparent as commodities and the acquisition is very imortant to address scale and efficiency, and enables us to reduce logistics expenses. [The acquisition] fits like a glove on your hand. It adds to scale, efficiency and growth, and we’re gaining it at an attractive price.’28 See Exhibit 17 for Bunge’s position in oilseed processing.

Organisation and culture
A decentralised management structure
Weisser had inherited a decentralised structure from the days when Bunge was privately run. He strongly believed this could be a source of competitive advantage for the company. His professional experience had shown him what could happen at a centralised organisation: ‘[I] saw hundreds of smart initiatives that were not implemented – not even articulated. The ideas would not even reach a decision point so people start getting disenchanted and soon don’t even talk about their ideas. Also, with a large headquarters and centralisation, there can be a lot of politics, fiefdoms, much time wasted deciding who is right or wrong between the regions and the headquarters.’ At the same time, Weisser recognised that Bunge’s decentralised structure had caused problems in the past when its companies had become highly diversified in the

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absence of an aligned mission. Weisser saw that ‘to be competitive on a global basis, you have to have an aligned mission. Especially since our business is global, you cannot have regions going in different directions. It might have been fine in the past but in the current environment where the business is so global, you have to be aligned.’ Nevertheless, Weisser wanted Bunge to maintain the decentralised management structure: ‘The beauty of being decentralised is that every region is very different. We have local management that knows the people. So, if our focus is to be very efficient and farmer- and customer-focused, these local people have to know how things work. In Argentina, for example, they are all Argentines, in Brazil, Brazilians and so on. They can react to the needs of the market with greater speed because we recognise opportunities faster. We are seen as a local player, and not an ugly multinational. Also, we are able to hire very good local talent, people who are bright and intelligent and take initiative, and who find the space to move. They don’t like being in organisations that are stiff and rigid, where you just follow routines.’ There were only 35 people in Bunge’s headquarters in White Plains, NY. ‘In other companies you have a large head office, an aristocracy, slower decision-making’, explained Flavio Sa Carvalho, Bunge’s chief personnel officer. ‘There is nothing of that here. It is a tremendous competitive advantage.’ In the past, the company did not have managers for its three divisions; the heads of Bunge’s regional operating companies reported directly to the CEO (see Exhibit 18). In 2001, Bunge had appointed a managing director of its food products division with responsibility for coordinating strategy, and in 2002, a managing director for its newly created soy ingredients division. Bunge’s ten-person Executive Committee, composed of the heads of Bunge’s companies and key corporate officers, met four times a year. In the past two years, Weisser had encouraged this Committee to develop from being focused primarily on reporting performance towards becoming the global leadership team of Bunge. The Committee was increasingly involved in setting global strategy. In addition it was becoming an important forum for negotiation and discussion when decisionmaking cut across regional boundaries.

Challenges of decentralisation
Bill Wells, Bunge’s CFO, saw a challenge posed by Bunge’s structure: ‘How do you run an integrated company in a decentralised manner? How do you obtain synergies across P&L lines and how do you correctly identify those functions that need to be centralised and which functions truly need to be decentralised?’ In preparation for Bunge’s IPO, its financial functions had become more centralised. Consequently, Bunge’s companies could no longer take advantage of good local borrowing opportunities because the company as a whole needed to have a proportion of its debt funded at the holding company level to maintain its investment grade rating. Corporate functions such as treasury, financial control and planning, capital expenditure controls and strategic planning were centrally located. There was also a small human resources group. All other functions, such as business–customer contact, were devolved to country-based units that were still separate profit centres. Wells stated, ‘The bias [at Bunge] is that if something should not be centralised then it definitely would not be. And if there is any doubt, then it should be decentralised.’

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Wells felt that Bunge’s decentralised model was more scaleable than a centralised structure in which, ‘if you keep building a larger and larger command infrastructure, you end up with the Pentagon. With a relatively small centre, you do not have to grow as fast and you can add outside functions and get a networking type effect – that’s what we’re striving for.’ Weisser elaborated on the challenges of having a decentralised structure: ‘The job of the centre is made more difficult because with profit and loss responsibility decentralised it is much more difficult to give instructions or directions. We have to convince – it is a more cumbersome way of getting alignment. If you are centralised, you give an order and it is implemented. So, the problem is much more complicated at our company. ‘The alignment takes a little more time, there is friction, and there is some inefficiency. Especially with the global initiatives, you need a lot of energy to get them implemented, and sometimes they don’t get perfectly implemented. For example, because we have freight negotiations within the same country with different businesses, we sometimes don’t optimise freight. But on the other hand, if our regional companies are responsible for their P&L, we want to give them the leeway to negotiate. I’m prepared to accept a certain level of inefficiency to maintain the entrepreneurial spirit. The limit of integration is the point at which bureaucracy takes over and kills this spirit.’ To promote global coordination, Weisser had established a number of collaborative initiatives. These were in areas such as logistics, training and development, productivity, and innovation. Each initiative was championed by a member of the Executive Committee rather than being driven from headquarters. Team members were drawn from within the various companies and they participated in the initiatives alongside their other responsibilities. Information technology (IT) was a particularly challenging area. Many in Bunge perceived an opportunity to better coordinate and leverage information across the company. Bunge did not have a global information system, other than e-mail. ‘Information is all in little pockets’, a manager explained. ‘There could be tremendous power if we aggregated it.’ Bunge had an IT council that acted as a clearinghouse for broad company-wide issues, coordinating IT between companies. While there were incremental margins that could be captured, ‘like money to be saved by buying equipment in bulk’, there was the issue, Wells said, of, ‘giving people liberty to make their own specifications and adapting things to their local business is also important. How do we try to fit those things together?’ Some had suggested that Bunge should appoint a Chief Information Officer and invest in a global IT infrastructure. This would be a major change from Bunge’s existing model.

Challenges at BGM
Because BGM interfaced with all of Bunge’s companies in the origins, yet was a stand-alone profit centre, its challenge was particularly acute. Gwathmey explained, ‘Everyone is optimised for their local business. And the challenge for Bunge is to ensure that we’re focused on building the business rather than just a segment of the chain.’ Pearcy explained: ‘Our challenge is that value bounces around in the value chain over time, depending on what is going on in global markets. It may be that in a certain stage in time, there is profitability in the demand side, other times profitability at the origin. Ultimately you have to make trade-offs: there are decisions that can cost certain parts of the business some-

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thing but can benefit another part, and at the moment there are separate profit centres. We have to behave in a very flexible integrated fashion and yet at the same time, Bunge has a culture that’s very focused on the bottom line. Each of the countries is also focused on their own bottom line. This creates strong potential for friction and tension between them.’29 For example, tensions could arise around a commodity’s transfer price. A Bunge manager explained with an example: ‘A production unit would negotiate the price of their material on an FOB basis. The way they would negotiate would be to tell BGM – your competitor is paying X and we have a broker calling up and telling us he will pay one or two dollars more if we offer it. So, for you at BGM to buy it from us, you have to pay at least this price. But you would only know there really was someone if you allowed it to happen. That is, you would only find out the truth if you broke Bunge’s entire reason for creating BGM. The transfer price issue in the origins was a big issue even a year ago. Basically, we, at BGM, ended up paying too much.’ Operational decisions in the origins could also affect BGM. Gwathmey explained how some structural inefficiency in Bunge’s Brazilian ports resulted in delays in loading vessels: ‘[We] have vessels whose charter costs are $10,000 a day. If we can execute those freight programs in two days rather than five or six, then that money stays at Bunge. But till we started to measure and look at that, the economic cost was not obvious because in Brazil, it wasn’t a cost that the local profit centre bore.’30 The company worked to address such issues by deepening personal relationships between BGM and Bunge’s regional units. ‘We’re visiting customers together, making sure that the people in charge of production at [the] origin and the person in charge of marketing have the same goals – they know with who, and where and how we’re going to do business’, said a BGM manager. As a result, friction had dissipated but some felt that it was inherent in a decentralized structure with separate profit centres.

Culture
Weisser was convinced that the company’s management style, its values, collaborative initiatives and people were a source of differentiation. He believed that, ‘you can only be decentralised, entrepreneurial, informal and practical and efficient if at the same time you can have a shared mission, strategy, incentives, teamwork and values’. Values such as integrity, openness and trust, teamwork, an entrepreneurial spirit, farmer and customer focus, were to be promoted within Bunge since, ‘you cannot have a decentralised organisation with an entrepreneurial spirit and at the same time be efficient if you don’t have these strong values’.31 Bunge’s efforts in the last few years to regain global alignment of its mission and strategy among its various companies had resulted in a change of culture. Many people were recruited from other companies. ‘Bunge is more entrepreneurial. There is a desire within Bunge to create a new industry model that doesn’t replicate the models that are already out there, but draws on the elements of the different companies people came from’, noted Pearcy. Wells observed, ‘Over the last few years, there is a feeling of really

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being a winning team because we’ve had success after success, and that builds on itself and people start to be motivated by that. People like to be part of something successful.’ Because of the company’s small centre, it was not always clear exactly how things were done at Bunge. One outcome of this, Pearcy felt was that, ‘people at Bunge are better at dealing with ambiguity and uncertainty, and looking for a creative solution’. Unlike its large North American competitors, Bunge was seen as multicultural with some, such as Pearcy, seeing a distinct South American flavour, particularly a Brazilian one: ‘Meetings can switch to Portuguese easily. People are very friendly, informal, pragmatic, deal with change fast, and are entrepreneurial. That is the positive side of business in Brazil. Bunge should always feel a special relationship with Brazil. Even after Cereol, such a big part of our business is in Brazil – you’ve got to understand how Brazil works – have to have a feel for what Brazil is like, the language, the culture, the geography.’

Industry evolution
Bunge’s competitors included other integrated agribusiness companies, trading companies, farm cooperatives, and regional players.32 Competitors were often both important customers and suppliers to each other in the liquid agricultural commodity markets. However, over the past decade, the industry had undergone considerable consolidation, with many firms exiting (see Exhibit 19). In recent years, trading-focused companies such as Continental and Andre, historically a major force, faced financial problems and were either acquired, exited the industry, or played a sharply reduced role. As information became more available it was harder for them to take advantage of inefficiencies in global markets. In addition, without origination and processing assets they found it hard to source commodities efficiently. Similarly, farmer-owned cooperatives, long an important force in agribusiness, did not operate globally, and now played a diminished role. ADM and Cargill, both integrated agribusiness companies, were Bunge’s primary competitors (see Exhibit 20 for key metrics on these companies). They were each larger and more diversified than Bunge. Both operated in oilseed processing, and also wet corn processing,33 wheat milling, and other products and services, including grain trading, transport and financial services (see Exhibit 21 and Exhibit 22 for ADM’s and Cargill’s financials). ADM, based in Decatur, Illinois, was highly centralised and US-focused with nearly 70 per cent of revenues coming from North America. It was dedicated to being the lowest cost provider in each segment in which it operated, and was seen as more market-share and production oriented than customer driven. It visualised itself as a large food input and fuel ‘factory, in which raw commodities entered at one end and exited as value-added products.’ ADM led the growth of the US soybean processing industry in the 1970s, wet-corn processing in the 1980s, and the production of lysine (a feed additive) and other bio-products in the 1990s. Recently, ADM had aggressively increased its international grain marketing activity, opening overseas offices and taking a majority ownership stake in AC Toepfer International, a graintrading company. Toepfer had more than 40 sales offices worldwide and traded 40 million tons of grains annually. Cargill, formed in Minnesota in 1865 and based in Minneapolis, was the largest private company in the world with sales of $50 billion in 2002. Cargill’s activities included trading and processing commodities such as oilseeds, corn, wheat, fer-

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tiliser, beef, sugar, coffee, fruit juice, cocoa, salt and rubber. Cargill was active throughout the agribusiness chain, from supplying inputs to farmers to selling processed foods to consumers, although its strength was in commodity processing. Cargill had aggressively leveraged its capabilities in commodity trading, logistics, and processing into non-food businesses including steel mini-mills and metal trading. Cargill’s financial services business had grown to make a major contribution to the company’s results. Its activities included trading financial assets, risk management services and trade and structured finance. In the last two years, Cargill initiated a fundamental review of its business. Its new strategy was to become ‘a premier provider of customer solutions in food and agriculture’. Cargill hoped to develop its value-added operations, increase innovation and enhance its customer focus. Cargill traditionally employed a highly structured, centralised organisation. In an effort to increase returns and become more entrepreneurial, Cargill had recently reorganised, attempting to push profit responsibility down to nearly 100 business units and reducing overhead. Bunge also faced an emerging competitor group with strong regional positions, particularly in Asia. These companies invested throughout Southeast Asia and in mainland China. They were active in the poultry industry (China was the world’s largest meat consumer, producing nearly 40 per cent of the world’s total), feed milling, and commodity processing, including soybeans, wheat, and especially palm oil. A number of international companies, such as ADM, had entered joint ventures with these groups to penetrate the Chinese market.34 ‘They are very strong’, Gwathmey explained. ‘They are both strategic and opportunistic. They understand government and politics, and have the right timing.’ These groups were important customers for Bunge’s grain and oilseed exports, while at the same time, by building domestic processing capacity, they competed with products imported from North and South America.

Integrating Cereol
With the addition of Cereol, Bunge would be exporting into the European market as well as producing locally, since Cereol had processing assets in Europe. Consequently, ‘the complexity of our organisation will be much greater’, observed Weisser. ‘We will have to find a good solution to the issues that have to be dealt with globally and the issues that have to be dealt with locally. It will be more complicated to define these, especially when it relates to Europe, which is the largest consuming market in the world of meal and oil.’ A BGM manager elaborated: ‘Today we’re shipping soybean meal [and] marketing in Europe. Cereol is also a crusher in Europe. Very often, we need to make decisions at the destination in the local market, such as how to satisfy the local demand base with both local crush and the import of soybean meal. The mix is what determines profitability. So, we have to coordinate distribution opportunities on imports with local crush to optimise the value chain. But there are times when we want to position the company to optimise profitability, and not run destination capacity and ship more from origin.’ ‘It will be very much a coordination issue and to what extent we can have common incentives. The decisions are largely commercial, such as: How do we position capacity and ourselves in the marketplace from a risk perspective? That’s defining for success in our business. There is a fine line in a high volume business: a dollar per ton is meaning-

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ful to the bottom line. Marginal differences in profitability can have a huge impact. We’re now going to be the largest oilseed processor, and there is not a lot of differentiation in our business – a ton of meal produced in Brazil means a ton can’t be produced in Europe or the United States. These things are very fungible and there is only so much demand in the world. When one is big, and if one happens to be decentralised, the decentralised structure may not allow for optimisation.’

Conclusion
In recent years, Bunge had focused its corporate strategy, making a series of acquisitions to grow its agribusiness and fertiliser divisions. It had shifted from being a confederation of small regional companies to become a global giant. Now, with the acquisition of Cereol, Bunge had to reconsider how it was going to balance integration with its decentralised business model. Gwathmey articulated the problem: ‘The biggest issue is people and how we manage the system. It’s a management structure issue. As we mature and move into new regions, we have natural conflict in terms of optimising for the whole. Going forward, the value creation challenge for Bunge is how well we play the global cards, how we optimise logistics from the standpoint of making sure that the decisions we make will work for the whole rather than for one particular country business.’ BGM provided analysis, guidance and ‘there was a certain moral authority of product lines’ but, ultimately, decisions on how much to buy, when to sell, and to whom to sell, resided with separate profit centres. Should BGM assume greater control over such decisions? Was BGM’s model of building consensus to achieve results incompatible with Bunge’s larger scale and integrated business model? Or, did the benefits of decentralisation outweigh such concerns? Weisser wanted Bunge to be the world’s best integrated agribusiness company. Would the acquisition of Cereol require a change in Bunge’s organisational model?

Notes on the case
1 The food service industry consisted of prepared meal providers including restaurants, hotels and institutions. 2 Schnepf, R.D., Dohlman, E. and Bolling, C. Agriculture in Brazil and Argentina: Developments and Prospects for Major Field Crops. Market and Trade Economics Division, Economic Research Service, USDA, WRS-01-3. 3 In 2000, Ukrainian grain output was expected to be half its peak Soviet levels. 4 Pinstrup-Andersen, et al. (1999) ‘World food prospects: critical issues for the early twenty first century’, International Food Policy Research Institute, October. 5 Soybeans were approximately 80 per cent meal and 20 per cent oil by volume. Because of its relatively higher value, oil accounted for between 30 per cent and 50 per cent of the total soybean product value. 6 Usually mixed with corn, soybean meal had the best conversion rate from vegetable protein to animal protein. 7 Input traits were genetic traits that reduced a farmer’s need for herbicide, pesticide and fertiliser inputs. 8 Schnepf, R.D., Dohlman. E. and Bolling. C. Op. cit., p. vii. 9 Agbiotech companies aimed to build IP systems in partnership with the major agribusiness

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10

11 12 13

14 15 16 17 18 19 20 21 22 23 24 25

26 27

28 29 30 31 32 33

34

companies. In 1998, Cargill and Monsanto agreed to each invest $50 million annually in a joint venture to develop, source, process and market agricultural products with output traits. The average capacity of soybean processing plants in the United States had increased from approximately 1,000 tons per day in the 1970s to more than 3,000 tons per day in the 1990s. The world’s largest plant, located at a port in Argentina, processed 12,000 tons per day. Argentine wheat cultivation grew from 500,000 hectares in the early 1870s to 8 million hectares in 1913. Bunge had more than 100 holdings and companies in Brazil alone. It sold Molinos Rio de La Plata, Argentina’s largest consumer foods company, Gramoven, a leading consumer foods company in Venezuela, and Bunge Defiance, a milling and baking business in Australia. Case writer interview with Ben Pearcy, 30 August 2002. Case writer interview with Alberto Weisser, 30 August 2002. Bunge Annual Report (2001), p. 21. Ibid. In Brazil, about 80 per cent of soybeans were trucked to market for distances upwards of 800 miles. Long stretches of highways in the interior were dirt. Crop financing loans were typically secured by the farmer’s crop and a mortgage. The loans carried market interest and were repaid in soybeans or other grains. Based on volumes; in March 2002, Bunge acquired La Plata Cereal, an Argentine agribusiness company. Bunge Annual Report (2001) p. 22. Nelson, David and Bianco, David (1999) ‘Presentation to the World Food and Agribusiness Congress’, Credit Suisse First Boston, 30 June. After China, the United States and India. Case writer interview with Alberto Weisser, 30 August 2002. Soy ingredients were traditionally used as functional ingredients in food manufacturing. Soy proteins were widely used in the processed meat and baking industries for their binding, emulsification and flavour-enhancing capabilities. Lecithins were used as an emulsifier in chocolate, margarine, sweet biscuits and beverages. The others were DuPont’s Protein Technologies and ADM, both located in the United States. Soy-based food ingredients were at the forefront of the growing nutraceutical foods – foods intended to produce specific health benefits – market. This was fuelled by consumer concern over diet, an ageing population, and increasing healthcare costs. Case writer interview with Alberto Weisser, 30 August 2002. Case writer interview with Ben Pearcy, 30 August 2002. Case writer interview with Archie Gwathmey, 30 August 2002. Case writer interview with Alberto Weisser, 30 August 2002. This review does not include Bunge’s many industry-specific competitors in fertilisers, consumer foods and food service. Corn would be ‘wet-milled’ to produce high-value food ingredients such as sweeteners, or industrial products such as ethanol or starch. By 2000, corn wet-milling accounted for 18 per cent of US corn consumption, up from 8 per cent in 1970. ADM had a one-third interest in a joint venture with Wilmar that had recently constructed 10 new crushing plants in China and was the leading oilseed processor in the country. These plants processed a mix of local and imported soybeans.

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Exhibit 1 Bunge Limited financial summary ($ million – financial year ending 31 December)
1997 1998 1999 2000 2001 First Half 2001 11,484 963 436 527 (263) 134 881 1,368 3,284 1,669 5,443 775 803 2,346 830 1,376 5,443 5,161 366 – 172 (205) 29 First Half 2002 5,787 504 – 265 (115) 72

Net sales Gross Profit SG&A Income from Operations Non-operating income (expense)a Net Income ASSETS – Trade Receivables – Inventories Total Current Assets – PPE Total assets LIABILITIES & EQUITY – Trade Payables – Short Term Debt Total Current Liabilities – Long-Term Debt – Equity Total liabilities and equity
Source: the company. a Interest and foreign exchange.

7,484 458 338 120 83 510 1,200 3,571 1,587 6,092 912 605 2,487 1,257 1,453 6,092

9,103 670 374 296 (120) 92 516 1,194 3,262 1,584 5,814 886 1,203 2,714 935 1,495 5,814

8,075 612 332 280 (296) (5) 511 1,172 2,441 1,268 4,611 748 708 2,146 793 1,197 4,611

9,667 683 388 295 (234) 3 873 1,311 3,427 1,859 5,854 839 1,268 2,746 1,003 1,139 5,854

Exhibit 2 Bunge business segment selected financial data ($ million)
Agribusiness Net external sales Income from operations Total assets Fertilisers Net external sales Income from operations Total assets Food Products Net external sales Income from operations Total assets
Source: the company.

1998 5,894 162 3,115 1998 625 47 810 1998 2,584 83 1,558

1999 5,517 92 2,595 1999 605 106 694 1999 1,953 92 1,068

2000 6,327 91 2,938 2000 1,466 153 1,731 2000 1,874 52 956

2001 8,412 311 2,745 2001 1,316 187 1,654 2001 1,756 48 886

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Exhibit 3 Comparison of total cost of production and transport of soybeans to export market in northern Europe between Sapezal, Mato Grosso, Brazil and Jefferson, Iowa, USA
Cost per acre Iowa Mato Grosso Seed Fertiliser & lime Herbicides & insecticides Labour Machinery Other Total non-land costs Transportation costs to northern Europe – from Jefferson, Iowa* – from Sapezal, Mata Grosso** Land cost Total cost Yield per acre $21.00 25.00 30.00 14.00 34.00 15.00 $139.00 42.50 $140.00 $321.50 50 83.05 $23.00 $273.05 55 $11.00 70.00 36.00 5.00 29.00 16.00 $167.00 Cost per bushel Iowa Mato Grosso $.42 .50 .60 .28 .68 .30 $2.78 .85 $2.80 $6.43 1.51 $.42 $4.96 $.20 1.27 .65 .09 .53 .29 $3.03

Source: Duffy, Mike and Smith, Darnell, Iowa State University, November 2000. *Rail (200 miles) – barge (1,450 miles) from Jefferson, Iowa to New Orleans and ocean vessel to northern Europe. **Truck (580 miles) – barge (600 miles) from Sapezal, Mato Grosso to Itacoatiara and ocean vessel to northern Europe.

Exhibit 4 Global soybean production: South America as the new growth area
80 70 MM metric tonnes 60 52 50 40 30 20 US South America 1990 2001 Rest of the world 27 30 25 75 70

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Exhibit 5 World soybean crush evolution (million metric tonnes crushed)
Brazil 1995 1996 1997 1998 1999 2000 2001–2005E 2006–2010E 21.3 20.4 18.9 21.9 21.5 21.1 24.7 29.6 USA 38.3 37.9 40.4 43.6 43.7 42.8 47.9 52.3 Argentina 9.1 10.4 10.5 15.9 17.1 17.0 20.2 24.4 EU 15.1 14.2 15.1 16.4 15.8 14.9 16.4 17.3 China 7.8 7.3 9.0 10.4 12.1 17.0 21.9 24.5 India 3.1 3.7 3.5 4.5 4.4 4.6 5.5 7.2 Other 17.7 18.0 19.5 19.1 20.8 21.8 24.9 27.6 World 112.4 111.9 116.8 131.7 135.3 139.3 161.5 182.9

Source: compiled from OilWorld.

Exhibit 6 Soybean crushing margins (Chicago Board of Trade US $/ton and US $/bushel)
20 year average: $18 per ton 35 30 24 25 US $ ton 20 15 10 5 0 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 19 17 12 13 24 22 19 30 33 26 21

2.00 1.80 1.60 1.40 US $/bushel 1.20 1.00 0.80 0.60 0.40 0.20 0.00 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002
Source: adapted from: Katzman, Eric, McGlone, Chris and Jones, Pen (2002) ‘Food – down on the farm . . . agribusiness’, Deutsche Bank, August, p. 32. Note: one metric tonne 36.74 bushels of soybeans.

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Exhibit 7 Soybean value chain from farm to retail

Industrial uses Edible soybeans Animal feed manufacturers Food service Food processing industry

Retail

Protein meat Farm production Country elevators Subterminal and terminal elevators Soybean processors

Vegetable oil Port terminal elevators Overseas port elevators

Overseas processors

Source: the casewriter. Note: elevators silos.

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Exhibit 8 Illustrative agribusiness economics ($ per metric tonne)
Illustrative corn export economics $5 $2 $122

$20 $95

Cost FOB in US Gulf

Freight and insurance

Discharge and import costs

Gross margin

Cost delivered in southern Europe

Illustrative soybean-processing economics $15 $200 Oil $80 (35%) $5 $220

Meal $140 (65%)

Soybeans

Operating cost (incl. depreciation and overhead)

Operating margin

Soybean product value

Source: the casewriter.

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Exhibit 9 Bunge’s stock price vs. S&P
Relative stock price performance for Bunge 2 August 2001–2 September 2002

30

25 Bunge 20

15 S&P 500 Index 10

5

0 2/8/2001 2/9/2001 2/10/2001 2/11/2001 2/12/2001 2/1/2002 2/2/2002 2/3/2002 2/4/2002 2/5/2002 2/6/2002 2/7/2002 2/8/2002 Canada Argentina Brazil USA 2/9/2002

Source: Datastream.

Exhibit 10 Evolution of Bunge’s oilseed processing (million tons of capacity)

Acquisiton of Cereol

34

C. & E. Europe*
Acquisition of La Plata cereal New US plant Acquisition of Ceval Brazil capacity expansion

W. Europe**

20 17

14

15

15

8

1997

1998

1999

2000

2001

2002

2002 with Cereol

Source: the company *Germany, Austria, Poland, Hungary, Ukraine, Romania. **France, Spain, Italy.

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Exhibit 11 Soybean crushing market shares, 2001
Global
Bunge 16% Other 39% Cargill 21% Other 32% Cargill 21% Other 50%

USA
Bunge 15%

Brazil
Bunge 30%

Cargill 13% ADM 24% ADM 32% ADM 7%

Source: company data (prior to acquisition of Cereol).

Exhibit 12 Bunge global markets offices

Source: the company.

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Exhibit 13 Brazilian fertiliser growth, indexed to 1991
240 Market volume growth 220
GR 7.0 %

200 180 160 140 120

CA

Base year = 100 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 Brazilian market Global market

100 80

Source: compiled from data provided by the Brazilian Fertilizer Association.

Exhibit 14 Evolution of Bunge’s retail fertiliser business (million tons of NPK)
Acquisiton of Manah

C

= AGR

39%

4.8

Acquisition of Takenaka

2.8
Acquisiton of IAP

2.1 1.8

Serrana

1.3

1996 Percentage of market share
Source: the company.

1997 .13

1998 .15

1999 .20

2000 .30

.11

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Exhibit 15 The soybean product tree
Isolated proteins Fibre Concentrates Textured proteins Flours Hulls Hipro SBM DDOs Refined SBO Liquid Powdered lecithin lecithin Hulls Hydrogenated fats Tocoferols Sterols Biodiesel

Degummed SBO Pressed oil Crude Oligo sirup soybean oil (SBO) Soybean meal (SBM) White flakes Feed concentrate Hypocotils Whole bean Soy expeller

Lowpro SBM Isoflanoves Germ lecithin Germ oil

Soybeans

Source: the company. Note: products in bold were by Bunge.

Exhibit 16 Soy ingredients market share, 2001
Isolated SOY protein Bunge Liquid lecithin Bunge ADM PTI Dupont L. Meyer GPC ADM Central Soya Chinese 1960 1970 Bunge 7% ADM 29% 1980 1990 2000 1950 1960 Others Central Soya 1970 1980 1990 2000 ADM 25% Degussa

Others 33%

PTI 64%

Degussa 12%

Bunge 8%

Central Soya 22%

Source: the company. Note: Central Soya is Cereol’s US-based company.

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Exhibit 17 Bunge’s position in oilseed processing
Region South America USA Canada Eastern Europe Western Europe Asia Globally
Source: the company.

Bunge today No. 1 No. 3 Not active Not active Small toll crush India No. 3

Bunge/Cereol No. 1 No. 2 No. 1 No. 1 No. 3 India No. 1

Exhibit 18 Bunge Limited organisation
CEO

CFO

Chief Personnel Officer

Industrial Director

Food Products Director

Soy Ingredients Director

Controlling

Treasury

Planning

Legal

Investor Relations

Audit

Brazil

Argentina

North America

Global

Brazil

President Bunge Alimentos

President Bunge Argentina

President Bunge North America

President BGM

President Bunge Fertilizers

Agribusiness

Agribusiness

Agribusiness

Agribusiness

Food products

Food products Fertilisers

Soy ingredients

Source: the casewriter. Note: positions in bold are members of Bunge’s Management Executive Committee.

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Exhibit 19 Evolution of the competitive field in grains and oilseeds
1995 Origination ABC, Ceval, Continental Grain, Dreyfus, Farmland, Andre, Glencore, ConAgra ABC, Ceval, Dreyfus, Cereol ABC, Dreyfus, Andre, Continental Grain, Glencore, Nidera, Tradigrain, Toepfer, Premjee 2001 ABC, Dreyfus, ConAgra ABC, Dreyfus, Cereol ABC, Dreyfus, Nidera

Processing Marketing and distribution

ABC

ADM, Bunge, Cargill

Source: the company.

Exhibit 20 Key metrics for Bunge and its competitors, 2001
US$ million Net sales EBITDA Net income Total assets CapEx Oilseed capacity (mmt) Employees ADM 20,051 1,492 383 14,340 300a 30 22,834 Cargill 49,204 2,407b 358 26,803 893b 30 90,000 Bunge 11,484 694 134 5,443 230 21 17,360 Cereolc 4,587 229d 63 2,431 80 13 5,751 Bunge/Cereol 16,071 923 197 7,874 310 34 23,111

Source: Cereol Annual Report; Bunge Annual Report; ADM Annual Report; Cargill web site, http://www.cargill.com/finance/highlights.htm accessed 13 September 2002; and analyst reports as noted. aEstimate. Nelson, David and Park, Nancy (2001) ‘Archer Daniels Midland’, Credit Suisse First Boston, 30 October, p. 16. bMorley, Kevin (2002) ‘Cargill’, Credit Suisse First Boston, 22 March, p. 5. cCereol figures reported in euros and converted to US$ at 1.1289 euros/US$. dEstimate. Digard, François (2001) ‘Cereol-Refining Business’, ING Barings, 9 August 2001, p. 16.

C A S E S T U DY 1 • BU N G E L I M I T E D 363

Exhibit 21 ADM financials ($ millions), fiscal year ends 30 June
1991 Sales – Oilseeds – Corn – Wheat – Other Op. income Net income Capital exp. Acquisitions Current assets Net P, P&E LT debt Equity ROE 8,468 4,149 2,540 847 932 617 467 468 345 2,532 2,695 980 3,922 11.9% 1992 9,231 4,708 2,677 923 923 748 504 480 21 3,213 3,060 1,562 4,492 11.2% 1993 9,811 4,906 2,747 1,275 883 738 505 394 200 3,922 3,215 2,039 4,883 10.3% 1994 11,374 5,687 2,957 1,479 1,251 766 484 514 258 3,911 3,538 2,021 5,045 9.6% 1995 12,672 7,643 2,477 1,384 1,168 1,213 796 559 55 3,713 3,762 2,070 5,854 13.6% 1996 13,314 8,125 2,561 1,644 984 914 697 801 29 4,384 4,114 2,003 6,114 11.4% 1997 13,853 8,860 2,171 1,631 1,191 802 554 780 430 4,284 4,709 2,345 6,050 9.2% 1998 16,108 10,152 2,154 1,491 2,312 760 403 703 371 5,452 5,323 2,847 6,505 6.8% 1999 14,283 8,494 1,855 1,378 2,556 531 265 671 136 5,790 5,567 3,192 6,241 4.5% 2000 12,876 7,219 1,950 1,358 2,350 490 301 428 30 6,162 5,277 3,277 6,110 4.9%

Source: ADM Annual Reports.

ADM – new reporting structure Net sales and other operating income Oilseeds and corn Agricultural services Other Op. income Net income Capital exp. Acquisitions Current assets Net P, P&E LT debt Equity ROE
Source: ADM Annual Reports.

1999 18,510 10,727 3,574 4,209 531 265 671 136 5,790 5,567 3,192 6,241 4.5%

2000 18,612 10,109 4,640 3,863 490 301 428 30 6,162 5,277 3,277 6,110 4.9%

2001 20,051 10,464 5,644 3,943 701 383 300 100 6,150 4,920 3,351 6,332 6.05%

Exhibit 22 Cargill, Inc. financial highlights 1995–2001 ($ million), fiscal year ends 30 June
1995 Sales Net earnings Current assets Property and other assets Total assets Current liabilities Net worth 50,907 671 13,951 5,359 19,310 11,258 5,174 1996 55,979 902 14,991 6,022 21,013 11,908 5,942 1997 55,695 814 16,500 6,921 23,421 12,800 6,592 1998 51,418 468 19,930 7,139 27,069 15,507 6,836 1999 45,697 597 16,356 8,221 24,577 12,272 7,165 2000 47,602 480 15,355 8,813 24,168 11,377 7,461 2001 49,204 358 17,473 9,330 26,803 13,464 7,524 2002 50,826 827 18,779 10,708 29,487 14,346 8,143

Source: adapted from data at Cargill website, http://www.cargill.com/finance/highlights.htm accessed 9 September 2002.