Fertilizers distribution: a business in the spotlight

Transcription

1 Fertilizers distribution: a business in the spotlight

2 Distribution disrupts the fertilizer industry landscape Market cycle resilience Distribution gold rush Distribution 2.0 emerging -50% for pure producers vs. -2% for integrated players 1 +$3bn invested over the past 2 years 2 20% fertilizer sales via digital channels & 25% revenue from farmer digital services 3 Impact on the fertilizer industry landscape? How to capitalize on these changes? Source: CVA Fertilizer Practice Analysis, Financial reports Note (1): Market Cap. evolution over past 2 years; CF Industries, Mosaic Co. and PCS as pure producers; Agrium & Yara for integrated players Note (2): Excl. PCS and Agrium merger Note (3): In 10 years

3 Agenda Fertilizers distribution today A business in transformation Opportunities for fertilizer industry players

4 Distribution: all means of providing farmers with the right fertilization product and services, at the right place and the right moment, for the right price 50,000+ players 350+ million tonnes fertilizer 570 million customers $50bn value-added Source: IFA, FAO, CVA Fertilizer Practice Source: IFA, FAO, CVA Fertilizer Practice

5 Source: CVA Fertilizer Practice Multiple value chain steps between producer and farmer with specific profiles Producer Transformation Importing Wholesale Logistics Retail Services Farmer Stakes Sourcing Access to port assets Inventory management Sweat the assets Sweat the assets Production flexibility Optimize backhaul Access to rail / barges Customer reach Pricing Customer stickiness Added value Risks Price volatility Product mix Product availability Product mix Competitiveness Competitiveness Product availability Credit management Inventory financing Local regulations

6 Source: CVA Fertilizer Practice but a distribution business model goes beyond the value chain and covers 5 key dimensions Multi-dimensional Customized to local markets Several models can co-exist

7 Strong regional differences with different distribution models shaped by structure of the agriculture and maturity of the business North Am.: Private owned Very granular retail Service oriented Rail and barge logistics Europe: Scattered models with numerous co-operative and private retailers One-stop shops with services CIS: Price and credit regulations Scattered models: fertilizer focus vs. one-stop shop with services Brazil: Private owned Wholesale model with blending High logistics constraints & costs Bartering China: Scattered models among agriculture regions Historical govt. control Inland logistics constraints Source: CVA Fertilizer Practice SSA: State intervention Small scale retail Cost inefficiencies Brand importance Corridor-based India: State intervention Very granular retail Majority of private retailers vs. govt. outlets One-stop shops Services offered by large producers Oceania: Wholesale model with blending Service oriented Product quality focus

8 4 key success factors on distribution Operational & Logistics Excellence Deep knowledge of local markets and regulations De-risking of fertilizer sourcing How ready are you? Is distribution worth the effort? Service and financing offer & credit management

9 Source: CRU Oct. 2016, CVA Fertilizer Practice Note (1): First, current phase of the fertilizer cycle heightens the importance of distribution for producers to secure outlets N Net capacity addition by mt urea One of the levers to secure access to key markets P K 5mt P 2 O 5 16mt K 2 O $3bn invested by producers on distribution assets

10 Source: IFA, FAO, CVA Fertilizer Practice Note: Arable area of Sub-Saharan Africa is 260mha; demand could grow from 4mt today to 14mt fertilizers Distribution is a crucial driver of fertilizer market growth in emerging countries Today 15kg/ha 50kg/ha Abuja Declaration

11 Source: CVA Fertilizer Practice Note (1): 150kg/ha fertilizer application; 150$/t distribution value-added ; distribution value-added worth 22.5$/t Emerging solutions offer opportunities at distribution level to increase its value-added, still to shape and grasp for fertilizer industry players Digital distribution +5% farmer revenue (+$50/ha) x1.6 distribution value-added 1 (+$20/ha) Farmer services Agtechnologies

12 Distribution Source: CVA Fertilizer Practice Assumptions: DAP at $450/t, Ammonia $350/t, other prices average 2015 Distribution transforms the value pools of the whole fertilizer industry Securing access ($5bn) Growing market ($25bn) Fertilizers Seeds Pesticides ~50 ~50 How to seize the opportunities? Distribution value-add ($30bn) How to drive the change? ~50 ~80 Market size (sales) today in $bn Market size (sales) at a 10-year horizon $bn

13 Source: CVA Fertilizer Practice Opportunities exist to increase resilience and capture more value by being a player of the change with specific focus in each region North Am.: Direct sales Innovative services (logistic solutions, tech.) Europe: Direct sales Innovative services (logistic solutions, tech.) Distribution consolidation CIS: Expand distribution networks ( fill the gap ) Innovative services (logistic solutions, tech.) Brazil: Further consolidation Development of new logistic corridors Assets turnaround optimisation SSA: Develop cost-efficient solutions Structure and educate farmers Leapfrog into mobile/ digital solutions India: Accelerate of development of mobile/digital solutions Enhanced/ liberalized regulations China: Rationalization of the industry Structure and educate farmers Accelerate of development of mobile/ digital solutions Oceania: Direct sales Innovative services (logistic solutions, tech.)

14 CVA sees distribution as a key battlefield for during the present downcycle of the industry with several ways to play the game Beyond M&A: innovative business models, tailored partnerships Taking into account both local context and own capabilities and ambitions No easy solution No one-size-fits-all But lots of opportunities! With a pragmatic and agile approach: pilot, adapt and deploy

15 CVA, at the crossroad of strategic mindset and industry expertise, is well placed to accompany players in tackling challenges and seizing opportunities Corporate Value Associates (CVA) is a generalist consulting firm, with a 15yr+ experience serving the agri-inputs industry and agricultural commodities CVA combines agricultural knowledge and digital skills, enabling us to lead the transformation of distribution models and user experience within several industries Created in 1987, CVA currently operates in 17 offices worldwide, with more than 300 professionals and a unique network on industrial experts This document was created by the CVA Ag Team, a team dedicated to support major players from the agriculture and agri-food industry shape and grasp opportunities

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