Presentation on theme: "Archer Daniels Midland. Archer Daniels Midland (ADM) is an American based food production, agricultural, and transportation conglomerate founded in 1923."— Presentation transcript:
Archer Daniels Midland (ADM) is an American based food production, agricultural, and transportation conglomerate founded in 1923. 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. Company Profile
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.
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%. 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.). Company Profile (Cont.)
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. Competitive Advantage
Business Model ADM 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.
Core Competencies ADM’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.
Target Market ADM 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 Governments Food and Beverage companies Plastic Manufacturers Farmers and Animal Feed organizations - feed for livestock Raw materials for independent organizations (wheat, oats, corn, oilseeds, etc.)
ADM is a Winner ADM was named the world's most admired food production company by Fortune magazine for 3 consecutive years; 2009, 2010, 2011 ADM is the uniquely positioned: The company has significant market share in developed nations, while making substantial investments in emerging markets ADM has the rare ability to help supply food and fuel to the growing world population
Pest Analysis - Agricultural Services FactorTrendEvaluationImpact (1=High, 5=Low) Rank in terms of Importance Political -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 -Opportunity 211211 2 Economic -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 -Opportunity -Opp./Threat 12331221233122 1 Social -Farmers against corporate grain elevator acquisitions -Social movement by farmers to use locally owned processing units -Threat 4343 4 Technological -Increased efficiency/ability in transportation equip. (GPS) allows for increase in logistical efficiency -Opportunity5 3
Pest Analysis - Oilseeds Processing FactorTrendEvaluationImpact (1=High, 5=Low) Rank in terms of Importance Political -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 -Threat 11121112 1 Economic -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 cheap -Opportunity -Threat -Opportunity 12211221 2 Social -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 products -Threat -Opportunity -Threat 25332533 3 Technological -Increase in technology has created new (feasible) uses for oilseed by-products (fuels, feed) -GM oilseeds allow for increase in profit margin -Opportunity 3232 4
Pest Analysis - Corn Processing for Food FactorTrendEvaluationImpact (1=High, 5=Low) Rank in terms of Importance Political -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 -Opportunity 311311 2 Economic -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 -Opportunity -Opp./Threat -Opportunity -Threat 11121112 1 Social -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 formulas -Threat 2525 3 Technological -GM Corn is allowing for increase in yields in dryer climates -Opportunity3 4
Pest Analysis - Corn Processing for Fuel FactorTrendEvaluationImpact (1=High, 5=Low) Rank in terms of Importance Political -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 -Threat -Opportunity -Threat 21132113 1 Economic -Substantial subsidy for ethanol producers in US -Price of corn is increasing -Global population will increase by 2 Billion by 2030 - increasing demand for fuel -Opportunity -Opp./Threat -Opportunity 111111 2 Social -Taxpayers are upset with orgs. that have large subsidies -Ethanol is a controversial fuel across the ideological spectrum -Threat 2424 3 Technological -Electric/Hybrid car purchases are increasing -Lithium Ion car batteries are becoming more advanced, widespread -Threat 4545 4
PEST Analysis Conclusion Political/Economic Political – National and State Government’s policies (tariffs, tax credits, and subsidies) are important factors for ADM; have a substantial impact on bottom line – BRIC and ASEAN nations will have a large increase in demand for ADM’s products and services in the future Economic – Increase in commodity prices can become problematic for ADM – Growth in emerging markets will help increase economies of scale – Being a global organization, fluctuation in exchange rates could be both problematic and/or beneficial
PEST Analysis Conclusion Social/Technological Social – Controversial products like High Fructose Corn Syrup create a bad image, (potential) loss of B2B sales – Too many acquisitions of locally owned operators can cause social backlash among farmers Technological – Increase in technology assists in more efficient logistics – GM crops can perform better under adverse conditions – Alternative energy (lith. Ion, hybrid) vehicles can hurt ethanol sales
Industrial Analysis - Porter’s Five Forces Industry Defined Organizations that process source commodities and are able to transform, transport, and distribute their products Companies in this industry derive vast majority of revenue from B2B business activities The largest (and most successful) players in this industry have vertically integrated supply chains The 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).
Industrial Analysis -Porter’s Five Forces Bargaining Power of Suppliers/Buyers FactorEvaluation Bargaining Power - Suppliers Weak Farmers rely on relatively few large corporations to purchase their sources commodities; without them they could not remain profitable Suppliers do not threaten to advance forward in the supply chain within the industry Bargaining Power - Buyers Medium Buyers have the options to purchase and transform source commodities for themselves (ex. is sweeteners), but that does require significant investment and risk Buyers 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.)
Industrial Analysis - Porter’s Five Forces Threat of Substitutes/Intensity of Rivalry/Threat of New Entrants FactorEvaluation Threat of Substitutes Strong Orgs. 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 low Intensity of Rivalry Strong Orgs. are expanding into emerging markets significantly Acquisitions of agricultural organizations in emerging markets has seen a substantial increase in the last five years Orgs. are consistently involved with negotiating new and existing government contracts Strategic objectives of industry players are largely aligned increasing rivalry Threat of New Entrants Weak The industry is dominated by relatively few large organizations that wield considerable purchasing power, transformation, and transportation capabilities Major players have significant advantages of economies of scale New entrants would have significant challenges in accessing the necessary distribution channels
Industrial Analysis - Porter’s Five Forces Conclusion Industry is attractive due to growing global food and fuel demand; profitable Analysis of Porter’s Five Forces reveals significant disparities in remote environment – Intensity of Rivalry and Threat of Substitutes are High – Threat of New Entrants and Bargaining Power of Suppliers are Weak – Bargaining Power of Buyers are Medium Industry lacks differentiation in source products - commodities Value 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.
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)
Competitor Analysis Competitor (to ADM) ADM Cargill Inc. (Major) Bunge Ltd. (Major) CHS Inc. (Minor) Corn Prod. Int. (Minor) Revenues $80.6 bn (FY 2011) $119.5 bn (FY 2011) $45.707 bn (FY 2010) $25.267 bn (FY 2010) $4.367 bn (FY 2010) Net Income $2.03 bn $4.24 bn* (includes discontinued operations) $2.388 bn$535.39 mil$176 mil No. of Emp. 30,000138,00032,0008,30010,000 Global Presence Over 75 Countries 63 Countries40 Countries In at least 12 Countries 25 Countries
Competitor Analysis Strategic Business Units Competitor (to ADM) ADM Cargill Inc. (Major) Bunge Ltd. (Major) CHS Inc. (Minor) Corn Prod. Int. (Minor) SBUs Agricultural Services Oilseeds Processing Corn Processing Other Agriculture Food/Ingredient applications Origination & Processing RM & Financial Industrial Agribusiness Sugar & Bioenergy Food & Ingredients Fertilizer Energy AG Business Processing Corporate and Other Sweeteners Starches Co-Products & Others SBU w/ highest % of revenue 47.01% Agricultural Services N/A 65.9% Agribusiness 62.04% AG Business 52% Sweetener
Competitor Analysis - Priority Markets/Revenues (Star Represents Market with Highest Revenues) MarketADMCargill Inc. (Major) Bunge Ltd. (Major) CHS Inc. (Minor) Corn Prod. Int. (Minor) North America52.5%37%26.5% 100% *Rev from Mkting and Merchandising not attributed to other countries 56% South America *Other Foreign Countries 29.3% 12%39.5%n/a28% Africa/Mid. E 7%0% n/a *Asia/Africa 14% Asia Pacific 25%.04%n/a Europe 18.2%19%33.6% n/a 2%
Competitor Analysis Resources & Expertise ADM Cargill Inc. (Major) Bunge Ltd. (Major) CHS Inc. (Minor) Corn Prod. Int. (Minor) Resources 65 Countries 30,000 Emp. Largest producer of corn, soy, wheat, and oil-seed crushing refineries in US 63 countries 138,000 employees Very diversified; Agriculture to Finance to Steel Long-standing ties with China and Russia (since 1970s) 40 countries 32,000 employees Profitability - highest profit margin of all competitors analyzed Largest producer and supplier of fertilizers in SA 8,300 employees in 26 states (US) Owns 23 rd largest convenience store chain in US CHS is the largest cooperative marketer of grain in US Approx. 10,000 employees in 25 countries Use of a single commodity - corn - which is the most grown crop in the Americas High demand for line of products Expertise Vertically integrated supply chain management Risk Management Public Image - Ranked Most Admired Food Production Co. 3 yrs running (Fortune) Vertically integrated supply chain management Risk Management Revenue sources from B2G, B2B, and B2C Vertically integrated supply chain management Risk Management Procuring, processing, transforming, and distributing oilseed by-products Merch. and Mkting serv. of grain in US, Switz., Brazil, and Argentina Exports grain to over 60 countries One of the largest re-sellers of refined fuel in US Creating an array of sweeteners and starches from corn Developing several inactive ingredients used in the pharmaceutical industry
Market Analysis Global Population Distribution Global Population Growth Global Livestock Production by Country – Cattle – Chicken – Swine Increase in CO 2 Emissions Forecast Ethanol Production – Global Maize Production by Country Commodity Prices
Market Analysis Global Population - Distribution Other than Africa, distribution of world population will not see any dramatic changes over the next 40 years
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.
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.
Market Analysis Global Livestock Production by Country - Cattle
Market Analysis Global Livestock Production by Country - Chicken
Market Analysis Global Livestock Production by Country - Swine
Market Analysis Increase in CO 2 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.
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).
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.
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.
Internal Analysis - Strengths StrengthsDescription Vertical Integration ADM 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 products ADM 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 glycols Oilseeds - biodiesel, soybeans, cottonseeds, sunflower seeds, canola oil, vegetable oil, rapeseed, commercial livestock, and poultry feeds Cocoa - cocoa liquor, cocoa butter, cocoa powder, and chocolate Wheat - wheat gluten, wheat flour, high-gluten wheat flour, and wheat proteins
Internal Analysis - Strengths Strengths Description Logistics /Transportation ADM 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 Asia River Transportation - ADM has a fleet of 1,750 covered barges, 85 tank barges, and 29 line-haul vessels to transport liquid and dry commodities Trucking - ADM has access to over 6,000 carriers globally; ships both bulk and packaged freight Terminal Services - located on major inland waterways, rail lines and highways to allow efficient unload, storage, and distribution Stevedoring (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 barge Ethanol Production ADM 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 2025. 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.
Internal Analysis - Weaknesses WeaknessesDescription Government Reliance (Foreign and Domestic) ADM relies heavily on governments in which they operate, particularly the US and Germany, for subsidies, tax credits, and federal protections It 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 sugar Competition 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 regions Raw Materials - Commodities All of ADM’s raw materials are agricultural commodities. The availability and price of commodities are subject to many factors: Changes in weather conditions Government programs and policies Intense competition Changes in global demand resulting from population growth Changes in standards of living Global production of similar and competitive crops Volatile fluctuations in currency exchange rates Some of the factors listed may be out of ADM’s direct control, but ADM chose to make agricultural commodities their only raw material source Dependence on US The 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.
BCG Matrix - Strategic Business Unit Market Growth High Low Market ShareHighLow Ag. Services Oilseeds Processing Corn Processing
SWOT Analysis Strengths Vertical Integration Diversity of Products Logistics/Transportation Ethanol Production Opportunities US, 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. Services Emerging markets increase demand for ADM’s products/services European and US govts. subsidizing ethanol, biofuels and oilseeds by- products BRIC and ASEAN countries need bigger quantities of human and animal feed as living quality increases Trade deficit from imported oil is political priority Weaknesses Government Reliance (Foreign and Domestic) Raw Materials - Commodities Dependence on US Threats Cost of fuel is increasing US exports of oilseed products are subject to substantial tariffs Currency Exchange Rates - volatile Growing of oilseed crops is land and capital- intensive Many countries, farmers, and consumers are against GM oilseeds Commodity yields are dramatically affected by global weather conditions Consumers and businesses are refusing to buy products made with HFCS Taxpayers are upset with orgs. that have large subsidies US may remove $.45 tariff on imported ethanol
Strategic Choice - Ansoff Matrix Strategic Business Unit Corn 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 share Oilseeds 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. Africa Agricultural 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 acquisitions Markets Products Existing New
Strategic Choice Generic Strategy - Regional Archer Daniels Midland is employing a differentiation strategy geographically ADM 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 domestically Brazil 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 2006-2010 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.)
Strategic Choice Generic Strategy - Products/Services Archer Daniels Midland is becoming a low cost provider of products and services in the agricultural industry ADM is investing heavily in agricultural services, logistical capabilities in particular, to achieve economies of scale ADM 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
Strategic Choice Grand Strategy - Market Penetration Focus on market penetration in the United States ADM 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 company Cargill is a highly profitable major competitor of ADM; Cargill’s success demonstrates that there is significant market share to be gained in the US ADM 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 plant Technological advances in Ethanol production are key to capitalize on generous government subsidies (Corn Stover)
Strategic Choice Grand Strategy - Market Penetration Focus on market penetration in the South America Brazil and Argentina provide significant revenue for the Oilseeds Processing segment Continued investments into oilseeds procurement and processing plants are required to take advantage of rapidly growing markets ADM’s biodiesel products are becoming more available and widespread for use in farming equipment
Strategic Choice Grand Strategy - Horizontal Integration Horizontal Integration is needed to gain a foothold in Southeast Asia, specifically China Further horizontal integration is crucial to gain relevant insight and expertise into a rapidly growing market ADM currently has a 16% stake in Wilmar Int. Ltd., Asia’s leading agribusiness organization Long-term strategy must consist of gaining a larger stake in Wilmar, possibly a complete acquisition Acquisitions in Southeast Asia must ultimately support ADM’s ability to become vertically integrated