Bunge Acquires Stake in Brazil’s Agrofel in Bid to Increase South American Grain Origination

Global commodities trading giant Bunge announced it has agreed to acquire a 30 percent stake in Brazilian grain and input company Agrofel Grãos e Insumos (Agrofel), in a move to strengthen its grain origination position in the South American country.

Active in the sector for 42 years, Agrofel is in control of an origination strategy that sources more than one million tons of grain including soybeans, wheat, and corn from a targeted 15,000 farmers. Its business consists of 38 units including warehouses and shops with a combined capacity of 450,000 tons, and its team numbers 470 professionals.

“Combining Agrofel´s broad relationship and expertise with local farmers and our logistics and existing origination capabilities in Brazil will be ideal for us to increase our origination capillarity with farmers in of one of the most important soybean growing states,” said Raúl Padilla, president of global operations, Bunge.

Grain Strain

For Bunge, ongoing market conditions and geo-political trade realities have made risk management and mitigation a top priority. Years of highly challenging factors including a multi-year global grain glut, and a trade war with China that is entering its second year with no immediate end in sight, have led the 200-year old company to make a series of realignments amid investor pressure.

In December 2018, then-company CEO, Soren Schroder stepped down from his position, which he had held since 2013, after targeted takeover attempts by rivals Glencore in May 2017, and Archer Daniels Midland (ADM) in February 2018.

Two months earlier, in October 2018, the company bowed to pressure from two of its investors – D.E. Shaw and Continental Grain – by appointing three new Board members: Paul J. Fribourg, chairman and CEO of Continental Grain Company; Gregory Heckman, founding partner of Flatwater Partners; and Henry W. (“Jay”) Winship, president of Pacific Point Capital. The company had also previously announced that Mark Zenuk, managing director of Tillridge Global Agribusiness Partners, was joining the Board of Directors, effective July 17, 2018.

At the same time, the company announced that it had established a Strategic Review Committee of the Board. Chaired by Paul Fribourg, the committee includes Greg Heckman, Jay Winship, Andrew Ferrier, Kathleen Hyle, and Mark Zenuk, and will conduct a comprehensive, strategic review of the business with the goal of boosting long-term shareholder value.

By January of this year, Gregory Heckman, former CEO of Gavilon Group during its acquisition by Japan’s Marubeni, and a founding partner of private investment firm Flatwater Partners, had been named as acting CEO.

“After a thorough, global search process, the board clearly recognized that Greg has the unique combination of expertise, vision and leadership to successfully lead Bunge,” said Kathleen Hyle, Bunge’s non-executive board chair.

More recently, in August of this year, Bunge relocated its global headquarters from White Plains, New York, to St. Louis, Missouri, enabling the company to “leverage shared capabilities and enhance cooperation”.

“Moving the global headquarters to a location where Bunge has a major business presence is a big step forward in shifting the Company’s operating model to align around a more efficient, streamlined global business structure,” said Heckman.

And earlier this month, the company announced it was laying off up to 10 grain traders in Geneva as part of a global restructuring that would minimize risk, and reduce costs and market exposure. Each of these moves is part of an overarching effort to streamline the company’s operations as the company shifts toward its new global operating model announced in May.

“Shifting away from our regional, matrix-based structure will simplify the organization and speed up decision making, increasing our strategic flexibility, customer focus and accountability,” said Heckman. “These changes support our strategic priorities: driving operational performance, optimizing the portfolio and strengthening financial discipline.”

Bunge’s latest move to strengthen its origination presence in Brazil appears to be in line with Heckman’s goal of avoiding what he called “stroke of the pen risk”, referring to sudden unforeseen government policy changes or market fallout from U.S. presidential tweets, reports Reuters. For Agrofel, the tie-in with one of the world’s oldest and largest agribusinesses gives it the potential to grow into a leadership role in Brazil’s grain industry.

“We share the same values and principles in terms of ethics and sustainable production, and we believe that this transaction will maximize opportunities for both companies to expand their business in Rio Grande do Sul,” said Wilson Ferrarin, chairman of the Board, Agrofel. “Bunge is experienced in risk management and has full logistic capacity, and counting on that expertise takes us to the next level in Brazil’s grains market.”