2 Company ProfileArcher Daniels Midland (ADM) is an American based food production, agricultural, and transportation conglomerate founded in ADM is a global organization with more than 265 processing plants on six continents, operates in over 75 countries, and employs more than 30,000 people.
3 Company Profile (Cont.) Much of ADM’s success is due to its extensive vertically integrated supply chain. The company’s operations are classified into three business segments: Agricultural services, Oilseeds processing, and Corn processing. Through their supply chain links, ADM is able to take their source commodities - corn, oilseeds, wheat, cocoa, palm and sugar - and immediately transform, transport, distribute, market and sell their products.ADM’s customers are principally other manufacturers and processors and their products are distributed mainly in bulk from processing plants or storage facilities directly to customers‘ facilities. Some of the end products used by businesses and consumers include bio-diesel, oil-seed mill, Vitamin-E, wheat flour, ethanol, cocoa powder, and renewable plastics.
4 Company Profile (Cont.) Globally, Agricultural services accounts for 47.01% of net sales, while Oilseeds processing makes up 33.04%, Corn processing comprises 12.28%, and “Other” (includes processing and financial activities) makes up the remaining 7.65%.The agricultural commodities market is growing both domestically and internationally. The United States currently accounts for 52.5% of net sales and other operating income. Europe is responsible for 18.1% and “other foreign countries” make up the remaining 29.3%.
5 Company Profile (Cont.) Currently, the United States is ADM’s largest single country producer of corn, soy, wheat, and oil-seed crushing refineries. However, ADM has made significant investments in Brazil for oil-seed and sugar processing and procurement plants. Recently, ADM made a significant investment of $100 million in the Agriculture Bank of China and acquired a 16% stake in Wilmar International Ltd. to advance its strategic growth plans there (Asia).ADM’s 2010 annual report indicates that their business could be affected by many governmental policies (taxes, subsidies, price controls), extreme fluctuations of exchange rates, terroristic events, changes in global demand due to population growth, and extreme weather events (flooding, drought, etc.).
6 Competitive Advantage ADM’s competitive position is in its vertically integrated global supply chain. This image depicts two things: First, ADM’s global network of sourcing facilities, processing facilities, and sourcing and processing distribution channels. Second, ADM’s advantage of having a global presence that exceeds their competitors.
7 Business ModelADM has a balanced vertically integrated business model that allows them to take their source commodities and send them through each link in the supply chain. ADM then sells to other manufacturers, processors, and (less often) consumers.
8 Core CompetenciesADM’s core competencies revolve around the company’s position in the agriculture industry: ADM has obtained economies of scale through its efficient vast global network of crop origination, commodity transportation, investor services (ADMIS), and government contracts.ADM has the unique ability to meet a substantial portion of the world’s growing fuel and food needs.
9 Target MarketADM sells its products (mainly) to other manufacturers and processors. ADM’s target market consists of many different organizations across multiple industries.ADM’s Target Market:Federal and Local GovernmentsFood and Beverage companiesPlastic ManufacturersFarmers and Animal Feed organizations - feed for livestockRaw materials for independent organizations (wheat, oats, corn, oilseeds, etc.)
10 ADM is a WinnerADM was named the world's most admired food production company by Fortune magazine for 3 consecutive years; 2009, 2010, 2011ADM is the uniquely positioned: The company has significant market share in developed nations, while making substantial investments in emerging marketsADM has the rare ability to help supply food and fuel to the growing world population
12 PEST Analysis Agricultural Services Oilseeds Processing Corn ProcessingFoodFuel
13 Pest Analysis - Agricultural Services FactorTrendEvaluationImpact (1=High, 5=Low)Rank in terms of ImportancePolitical-US is subsidizing grain elevators-US, Germany, Brazil, Japan, India, China and more have contracts with ADM-China is making substantial investments in Ag. Services-Opportunity21Economic-Increase in cost of fuel-Droughts have reduced no. of livestock, reducing amount of feed needed to transport-Increase in cost of commodities-Need for agricultural logistics increasing-Emerging markets increase demand for Ag. Services-Weak US dollar allows transportation equipment to be exported w/favorable costs-Currency Exchange - lots of fluctuation-Threat-Opp./Threat3Social-Farmers against corporate grain elevator acquisitions-Social movement by farmers to use locally owned processing units4Technological-Increased efficiency/ability in transportation equip. (GPS) allows for increase in logistical efficiency5
14 Pest Analysis - Oilseeds Processing FactorTrendEvaluationImpact (1=High, 5=Low)Rank in terms of ImportancePolitical-Brazil subsidizing biofuels production-Brazilian govt. has inexpensive land-European and US govts. subsidizing biofuels and oilseeds by-products-US exports of oilseed products are subject to substantial tariffs-Opportunity-Threat12Economic-Global increase in demand of oilseeds and oilseed by-products-Growing of oilseed crops is land and capital-intensive-GM oilseeds allow for increase in profit margin-Labor costs in Brazil are cheapSocial-Social disapproval of trans fats-Increased use of canola/viewed as healthy alternative to veg. oil-Many countries, individuals are against GM oilseeds-European nations taxing unhealthy food products53Technological-Increase in technology has created new (feasible) uses for oilseed by-products (fuels, feed)4
15 Pest Analysis - Corn Processing for Food FactorTrendEvaluationImpact (1=High, 5=Low)Rank in terms of ImportancePolitical-Sugar Import Quotas encourage use of HFCS-BRIC and ASEAN countries need bigger quantities of human and animal feed as living quality increases-US provides subsidies for corn - largest corn producer in the world-Opportunity312Economic-BRIC and ASEAN nations have increasing living standards - increase in eating red meat-Price of corn is increasing-Global demand for corn will increase 55% by 2030-Yield affected dramatically by global weather conditions-Opp./Threat-ThreatSocial-Consumers and businesses are refusing to buy products made with HFCS-Consumers and businesses concerned with corn feed in animals, switching to no-grain or all-natural formulas5Technological-GM Corn is allowing for increase in yields in dryer climates4
16 Pest Analysis - Corn Processing for Fuel FactorTrendEvaluationImpact (1=High, 5=Low)Rank in terms of ImportancePolitical-The use of ethanol reduces dependence on foreign oil (Europe, US in particular-US may remove $.45 tariff on imported ethanol-Trade deficit from imported oil is political priority-Europe, Brazil, US are subsidizing other renewable resources-Opportunity-Threat213Economic-Substantial subsidy for ethanol producers in US-Price of corn is increasing-Global population will increase by 2 Billion by increasing demand for fuel-Opp./ThreatSocial-Taxpayers are upset with orgs. that have large subsidies-Ethanol is a controversial fuel across the ideological spectrum4Technological-Electric/Hybrid car purchases are increasing-Lithium Ion car batteries are becoming more advanced, widespread5
17 PEST Analysis Conclusion Political/Economic National and State Government’s policies (tariffs, tax credits, and subsidies) are important factors for ADM; have a substantial impact on bottom lineBRIC and ASEAN nations will have a large increase in demand for ADM’s products and services in the futureEconomicIncrease in commodity prices can become problematic for ADMGrowth in emerging markets will help increase economies of scaleBeing a global organization, fluctuation in exchange rates could be both problematic and/or beneficial
18 PEST Analysis Conclusion Social/Technological Controversial products like High Fructose Corn Syrup create a bad image, (potential) loss of B2B salesToo many acquisitions of locally owned operators can cause social backlash among farmersTechnologicalIncrease in technology assists in more efficient logisticsGM crops can perform better under adverse conditionsAlternative energy (lith. Ion, hybrid) vehicles can hurtethanol sales
21 Industrial Analysis - Porter’s Five Forces Industry Defined Organizations that process source commodities and are able to transform, transport, and distribute their productsCompanies in this industry derive vast majority of revenue from B2B business activitiesThe largest (and most successful) players in this industry have vertically integrated supply chainsThe most prominent organizations engage in risk management strategies to hedge against price fluctuations, production risks (yields and outputs) and legal risks (business agreements and environmental issues).
22 Industrial Analysis -Porter’s Five Forces Bargaining Power of Suppliers/Buyers FactorEvaluationBargaining Power - SuppliersWeakFarmers rely on relatively few large corporations to purchase their sources commodities; without them they could not remain profitableSuppliers do not threaten to advance forward in the supply chain within the industryBargaining Power - BuyersMediumBuyers have the options to purchase and transform source commodities for themselves (ex. is sweeteners), but that does require significant investment and riskBuyers have a plethora of choices to choose from for transportation domestically; less choices for international transportation (aircraft, ocean-going vessels)Governments are often buyers and/or alter the price for buyers due to regulations (subsidies, tariffs, etc.)
23 Industrial Analysis - Porter’s Five Forces Threat of Substitutes/Intensity of Rivalry/Threat of New EntrantsFactorEvaluationThreat of SubstitutesStrongOrgs. in the industry work with the same source commodities (corn, wheat, oilseeds, etc.) often producing the same end-products (food oils, animal feed, human food)Cost of buyers switching to substitute products is lowIntensity of RivalryOrgs. are expanding into emerging markets significantlyAcquisitions of agricultural organizations in emerging markets has seen a substantial increase in the last five yearsOrgs. are consistently involved with negotiating new and existing government contractsStrategic objectives of industry players are largely aligned increasing rivalryThreat of New EntrantsWeakThe industry is dominated by relatively few large organizations that wield considerable purchasing power, transformation, and transportation capabilitiesMajor players have significant advantages of economies of scaleNew entrants would have significant challenges in accessing the necessary distribution channels
24 Industrial Analysis - Porter’s Five Forces Conclusion Industry is attractive due to growing global food and fuel demand; profitableAnalysis of Porter’s Five Forces reveals significant disparities in remote environmentIntensity of Rivalry and Threat of Substitutes are HighThreat of New Entrants and Bargaining Power of Suppliers are WeakBargaining Power of Buyers are MediumIndustry lacks differentiation in source products - commoditiesValue is added through vertically integrated supply chain; processing, transformation, and transportation of crops/products is necessary to add some differentiation (substantially increases profitability)Governments play an substantial role in industry: contracts, regulation of crops, subsidies, etc.
25 Competitor Analysis ADM’s Main Competitors: Bunge Limited (BG) Corn Products International Inc. (CPO)Cargill Inc. (Privately Held)CHS Inc. (CHSCP)(Louis Dreyfus Commodities was omitted due to lack of available information)
26 Competitor Analysis Revenues Net Income No. of Emp. Global Presence (to ADM)ADMCargill Inc.(Major)Bunge Ltd.CHS Inc.(Minor)Corn Prod. Int.Revenues$80.6 bn(FY 2011)$119.5 bn$ bn(FY 2010)$ bn$4.367 bnNet Income$2.03 bn$4.24 bn*(includes discontinued operations)$2.388 bn$ mil$176 milNo. of Emp.30,000138,00032,0008,30010,000Global PresenceOver 75 Countries63 Countries40 CountriesIn at least 12 Countries25 Countries
27 Competitor Analysis Strategic Business Units (to ADM)ADMCargill Inc.(Major)Bunge Ltd.CHS Inc.(Minor)Corn Prod. Int.SBUsAgricultural ServicesOilseeds ProcessingCorn ProcessingOtherAgricultureFood/Ingredient applicationsOrigination & ProcessingRM & FinancialIndustrialAgribusinessSugar & BioenergyFood & IngredientsFertilizerEnergyAG BusinessProcessingCorporate and OtherSweetenersStarchesCo-Products & OthersSBU w/ highest % of revenue47.01%N/A65.9%62.04%52%Sweetener
28 Competitor Analysis - Priority Markets/Revenues (Star Represents Market with Highest Revenues) ADMCargill Inc.(Major)Bunge Ltd.CHS Inc.(Minor)Corn Prod. Int.North America52.5%37%26.5%100%*Rev from Mkting and Merchandising not attributed to other countries56%South America*Other Foreign Countries29.3%12%39.5%n/a28%Africa/Mid. E7%0%*Asia/Africa14%Asia Pacific25%.04%Europe18.2%19%33.6%2%
29 Competitor Analysis Resources & Expertise ADMCargill Inc.(Major)Bunge Ltd.CHS Inc.(Minor)Corn Prod. Int.Resources65 Countries30,000 Emp.Largest producer of corn, soy, wheat, and oil-seed crushing refineries in US63 countries138,000 employeesVery diversified; Agriculture to Finance to SteelLong-standing ties with China and Russia (since 1970s)40 countries32,000 employeesProfitability - highest profit margin of all competitors analyzedLargest producer and supplier of fertilizers in SA8,300 employees in 26 states (US)Owns 23rd largest convenience store chain in USCHS is the largest cooperative marketer of grain in USApprox. 10,000 employees in 25 countriesUse of a single commodity - corn - which is the most grown crop in the AmericasHigh demand for line of productsExpertiseVertically integrated supply chain managementRisk ManagementPublic Image - Ranked Most Admired Food Production Co. 3 yrs running (Fortune)Revenue sources from B2G, B2B, and B2CProcuring, processing, transforming, and distributing oilseed by-productsMerch. and Mkting serv. of grain in US, Switz., Brazil, and ArgentinaExports grain to over 60 countriesOne of the largest re-sellers of refined fuel in USCreating an array of sweeteners and starches from cornDeveloping several inactive ingredients used in the pharmaceutical industry
30 Market Analysis Global Population Distribution Global Population GrowthGlobal Livestock Production by CountryCattleChickenSwineIncrease in CO2 EmissionsForecast Ethanol ProductionGlobal Maize Production by CountryCommodity Prices
31 Market Analysis Global Population - Distribution Other than Africa, distribution of world population will not see any dramatic changes over the next 40 years
32 Market Analysis Global Population - Growth By 2050, the world will have 9 billion people substantially increasing the amount of food and fuel needed. The vast majority of growth will come from developing nations.
33 Market Analysis Global Livestock Production by Country Substantial population growth, an increase in living standards, and urbanization has fueled demand for meat in regions that previously could not afford it.Currently, 33 percent of global arable land is used to grow feed grain. This will grow to nearly 40% by 2040.The emerging markets of China and Brazil have seen sizeable increases of cattle and chicken production, which will continue to expand.
34 Market Analysis Global Livestock Production by Country - Cattle
35 Market Analysis Global Livestock Production by Country - Chicken
36 Market Analysis Global Livestock Production by Country - Swine
37 Market Analysis Increase in CO2 Emissions The increase in meat consumption and livestock production are associated with substantial greenhouse gas emissions, as well as land and habitat degradation. The escalation of CO2 emissions will bring more scrutiny to the organizations that operate in agricultural (and commodities) markets.
38 Market Analysis Ethanol Production Both corn and sugarcane ethanol production is expected to increase in the future. Ethanol is viewed by countries as commercially viable alternatives to oil-based petroleum products. Ethanol can also reduce imports of foreign oil from unstable regions (Middle East).
39 Market Analysis Global Maize Production by Country In the United States, 2011 was the first year that more corn was used for ethanol than for food/animal feed.
40 Market Analysis Commodity Prices A substantial increase in the price of commodities is expected to occur in both the short and long-run.Risk Management will be essential to mitigate dramatic fluctuations in prices as commodities will continue to be volatile.Climate change will exacerbate the volatility by reducing the overall number of crops due to drought, increased rainfall, and inclement weather in general.
42 Internal Analysis - Strengths DescriptionVertical IntegrationADM takes their source commodities and are able to transport, process, transform, distribute, market, and sell their products (services). ADM’s vertically integrated supply chain has enabled them to create value-added products from their source commodities, which boosts profitability.ADM also has well established investor services (ADMIS) that augments their supply chain. Financial activities include futures commission merchant activities, private equity fund investment, and captive insurance.Diversity of productsADM has created a diverse number of products from their source commodities. Some of ADM’s more popular value-added products:Corn - sweeteners (dextrose, glucose, and syrup), starches, amino acids, ethanol, animal feed, sorbitol, xanthun gum, and glycolsOilseeds - biodiesel, soybeans, cottonseeds, sunflower seeds, canola oil, vegetable oil, rapeseed, commercial livestock, and poultry feedsCocoa - cocoa liquor, cocoa butter, cocoa powder, and chocolateWheat - wheat gluten, wheat flour, high-gluten wheat flour, and wheat proteins
43 Internal Analysis - Strengths DescriptionLogistics /TransportationADM owns or leases large numbers of the trucks, trailers, railroad tank and hopper cars, river barges, towboats, and ocean-going vessels to transport their commodities.Deepwater vessels - ADM currently owns eight deepwater vessels (and has ordered three more) to transport grain, grain products, and bulk commodities to and from North America, South America, Europe, W. Africa and AsiaRiver Transportation - ADM has a fleet of 1,750 covered barges, 85 tank barges, and 29 line-haul vessels to transport liquid and dry commoditiesTrucking - ADM has access to over 6,000 carriers globally; ships both bulk and packaged freightTerminal Services - located on major inland waterways, rail lines and highways to allow efficient unload, storage, and distributionStevedoring (Crane) Services - ADM has partnered with St. James Stevedoring to provide dry bulk stevedoring, lift operations and stevedoring labor services. Is the most efficient transfer of bulk cargo between ocean vessel and river bargeEthanol ProductionADM is the largest producer of Ethanol in the United States, currently producing 1.8 billion gallons annually (more than double any other company). Ethanol production and consumption is projected to increase in the US substantially by In fact, in 2011 more corn was used to produce ethanol than to feed livestock. Nearly all of ADM’s ethanol production is currently from dry milling activities. However, in conjunction with Monsanto and Deere & Co., ADM is using more corn Stover - stalks, cobs, and leaves of the corn plant - to produce ethanol. Corn Stover is considered a viable supplement to traditional ethanol that will decrease corn use and CO2 emissions, while increasing ethanol supply and profits.
44 Internal Analysis - Weaknesses DescriptionGovernment Reliance(Foreign and Domestic)ADM relies heavily on governments in which they operate, particularly the US and Germany, for subsidies, tax credits, and federal protectionsIt is estimated that ADM derives over one third of profits in the United States based on preferential treatment for production of ethanol, corn, oilseeds, and sugarCompetition in the agricultural industry is fierce. Emerging market nations, such as Brazil, often times choose preferential treatment for individual organizations in lieu of the industry as a whole. For Example, in Brazil ADM is currently receiving favored treatment for a new biodiesel plant, while Bunge Ltd. is garnering more support for their fertilizer operations. Such agreements can be viewed as anti-competitive and politically motivated.ADM can also be substantially impacted by international trade disputes, which can limit or disrupt trade between countries or regionsRaw Materials - CommoditiesAll of ADM’s raw materials are agricultural commodities. Theavailability and price of commodities are subject to many factors:Changes in weather conditionsGovernment programs and policiesIntense competitionChanges in global demand resulting from population growthChanges in standards of livingGlobal production of similar and competitive cropsVolatile fluctuations in currency exchange ratesSome of the factors listed may be out of ADM’s direct control, but ADM chose to make agricultural commodities their only raw material sourceDependence on USThe United States accounts for 54.1% of ADM’s net sales and other operating income. Significant gains in technology and productivity have led to consolidation in all segments of the U.S. agricultural industry. Shrinking profit margins require organizations to grow to obtain better economies of scale. Significant investments in the US agricultural industry will (most likely) result in a net loss and have substantial opportunity costs. Agriculture accounts for less than 2% of GDP and is expected to decline as emerging economies increase their agricultural output.
45 BCG Matrix - Strategic Business Unit HighMarket ShareLowHighAg. ServicesOilseeds ProcessingMarket GrowthCorn ProcessingLow
46 SWOT Analysis Strengths Weaknesses Opportunities Threats Vertical IntegrationDiversity of ProductsLogistics/TransportationEthanol ProductionOpportunitiesUS, Germany, Brazil, Japan, India, China and more have contracts with ADM for multiple ag. Services (potential for expansion)China and SA are making substantial investments in Ag. ServicesEmerging markets increase demand for ADM’s products/servicesEuropean and US govts. subsidizing ethanol, biofuels and oilseeds by-productsBRIC and ASEAN countries need bigger quantities of human and animal feed as living quality increasesTrade deficit from imported oil is political priorityWeaknessesGovernment Reliance (Foreign and Domestic)Raw Materials - CommoditiesDependence on USThreatsCost of fuel is increasingUS exports of oilseed products are subject to substantial tariffsCurrency Exchange Rates - volatileGrowing of oilseed crops is land and capital- intensiveMany countries, farmers, and consumers are against GM oilseedsCommodity yields are dramatically affected by global weather conditionsConsumers and businesses are refusing to buy products made with HFCSTaxpayers are upset with orgs. that have large subsidiesUS may remove $.45 tariff on imported ethanol
47 Strategic Choice - Ansoff Matrix Strategic Business Unit ProductsExistingNewCorn Processing - Market Penetration -Ethanol, Sweeteners, Starches. Maintain position in United States through government contracts with Ethanol production including investments in Corn Stover; “Big 7” processing plants to increase market shareOilseeds Processing - Soybeans, Biofuels, and Vegetable Oil; Continued investment in new plants in SA - Brazil and Argentina in particular - gain economies of scale through market penetration- Increased production of cocoa; procurement, processing, and exportation out of W. AfricaAgricultural Services - Enter new markets in Asia through continued horizontal integration (ADM currently has a 16% stake in Wilmar Int. Ltd.); ADM’s transportation and logistics infrastructure will create synergistic qualities to any mergers and acquisitionsExistingMarketsNew
48 Strategic Choice Generic Strategy - Regional Archer Daniels Midland is employing a differentiation strategy geographicallyADM is located in over 65 countries and is committed to substantial investment in the United States and emerging markets. Made clear by shareholder presentations, investments in emerging markets will increase relative to investments domesticallyBrazil and Southeast Asia are the focus of ADM’s largest investments outside of the US. However, the United States is still by far the largest region ADM has recently invested in. In fiscal years over 80% of investments globally were in US.ADM is utilizing different markets to obtain a diverse portfolio of commodities and value added products (Biofuels in SA, Ethanol in US, Cocoa in W. Africa, etc.)
49 Strategic Choice Generic Strategy - Products/Services Archer Daniels Midland is becoming a low cost provider of products and services in the agricultural industryADM is investing heavily in agricultural services, logistical capabilities in particular, to achieve economies of scaleADM is continually expanding their vertically integrated supply chain into new markets. Brazil would be the most recent example; ADM now has the ability to transform, transport, distribute, market and sell their expanding biofuels products and services (B2B and B2G).Value-added products and services are essential to remain competitive and maximize profits since ADM’s raw materials consist of nothing, but commodities
50 Strategic Choice Grand Strategy - Market Penetration Focus on market penetration in the United StatesADM has excellent footing in US; 47 oilseed processing plants, 17 corn processing plants, 23 wheat mills, 6 cocoa processing plants, and produces more than twice the amount of ethanol than any other companyCargill is a highly profitable major competitor of ADM; Cargill’s success demonstrates that there is significant market share to be gained in the USADM recently finished the “Big 7” in the US. These seven plants consist of two cogeneration power plants, one PHA plastics processing plant, two corn dry milling plants, one cocoa processing plant, and one PG/EG plantTechnological advances in Ethanol production are key to capitalize on generous government subsidies (Corn Stover)
51 Strategic Choice Grand Strategy - Market Penetration Focus on market penetration in the South AmericaBrazil and Argentina provide significant revenue for the Oilseeds Processing segmentContinued investments into oilseeds procurement and processing plants are required to take advantage of rapidly growing marketsADM’s biodiesel products are becoming more available and widespread for use in farming equipment
52 Strategic Choice Grand Strategy - Horizontal Integration Horizontal Integration is needed to gain a foothold in Southeast Asia, specifically ChinaFurther horizontal integration is crucial to gain relevant insight and expertise into a rapidly growing marketADM currently has a 16% stake in Wilmar Int. Ltd., Asia’s leading agribusiness organizationLong-term strategy must consist of gaining a larger stake in Wilmar, possibly a complete acquisitionAcquisitions in Southeast Asia must ultimately support ADM’s ability to become vertically integrated