Fertilizers distribution: a business in the spotlightgpcafertilizers.com/wp-content/uploads/2017/10/07-Alexandre... · Emerging solutions offer opportunities at distribution level

Fertilizers distribution: a business in the spotlight

New Beginnings: Return to Growth

Distribution disrupts the fertilizer industry landscape

-50% for pure producers

-2% for integrated players1

Market cycle resilience Distribution “gold rush” Distribution 2.0 emerging

+$3bn invested

over the

past 2 years2

20% fertilizer sales via

digital channels

&

25% revenue from

farmer digital services3

Impact on the fertilizer industry landscape?

How to capitalize on these changes?

vs.

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

Fertilizers distribution today

A business in transformation

Opportunities for fertilizer

industry players

Agenda


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”

570 million

customers

$50bn

value-added

350+ million

tonnes fertilizer

50,000+

players

Source: IFA, FAO, CVA Fertilizer Practice

Source: IFA, FAO, CVA Fertilizer Practice


Multiple value chain steps between producer and farmer with specific profiles…

Producer FarmerImporting Wholesale Retail ServicesLogisticsTrans-

formation

Stakes

Risks

• Sourcing

• Access to port

assets

• Inventory

management

• Sweat the

assets

• Customer reach

• Pricing

• Customer

stickiness

• Added value

• Optimize

backhaul

• Access to rail /

barges

• Price volatility

• Product mix

• Product

availability

• Competitiveness

• Product

availability

• Credit

management• Competitiveness

• Sweat the

assets

• Production

flexibility

• Product mix

• Inventory financing • Local regulations

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



Strong regional differences with different distribution models shaped by structure of the agriculture and maturity of the business

SSA:

• State intervention

• Small scale retail

• Cost inefficiencies

• Brand importance

• Corridor-based

China:

• Scattered models among

agriculture regions

• Historical govt. control

• Inland logistics constraints

Brazil:

• Private owned

• Wholesale model with

blending

• High logistics constraints

& costs

• Bartering

North Am.:

• Private owned

• Very granular retail

• Service oriented

• Rail and barge logistics

Oceania:

• Wholesale model with

blending

• Service oriented

• Product quality focus

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

India:

• State intervention

• Very granular retail

• Majority of private retailers

vs. govt. outlets

• One-stop shops

• Services offered by large

producersSource: CVA Fertilizer Practice


4 key success factors on distribution

Operational & Logistics Excellence

De-risking of fertilizer sourcing

Deep knowledge of local markets

and regulations

Service and financing offer & credit

management

How ready are you?

Is distribution worth

the effort?


First, current phase of the fertilizer cycle heightens the importance of distribution for producers to secure outlets

N

P

K 16mt K2O

14mt urea

5mt P2O5

Net capacity addition by 20201

One of the levers to secure

access to key markets

$3bn invested by producers

on distribution assets

Source: CRU Oct. 2016, CVA Fertilizer Practice Note (1): 2016-2020


Distribution is a crucial driver of fertilizer market growth in emerging countries

50kg/ha

15kg/ha

Today

Abuja Declaration

Source: IFA, FAO, CVA Fertilizer Practice Note: Arable area of Sub-Saharan Africa is 260mha; demand could grow from 4mt today to 14mt fertilizers


Emerging solutions offer opportunities at distribution level to increase its value-added, still to shape and grasp for fertilizer industry players

+5% farmer revenue (+$50/ha)

x1.6 distribution value-added1 (+$20/ha)

Digital

distribution

Farmer

services

Ag-

technologies

Source: CVA Fertilizer Practice Note (1): 150kg/ha fertilizer application; 150$/t distribution value-added ; distribution value-added worth 22.5$/t


Distribution transforms the value pools of the whole fertilizer industry

Fertilizers PesticidesSeeds

Market size (sales) at a 10-year horizon $bn

~50

~50 ~50

~80

Distribution

value-add ($30bn)

160

130

Dis

trib

uti

on

Securing

access

($5bn)

Growing

market

($25bn)

Market size (sales) today in $bn

How to seize the

opportunities?

How to drive the

change?

Source: CVA Fertilizer Practice Assumptions: DAP at $450/t, Ammonia $350/t, other prices average 2015


Opportunities exist to increase resilience and capture more value by being a player of the change with specific focus in each region

SSA:

• Develop cost-efficient

solutions

• Structure and educate

farmers

• Leapfrog into mobile/

digital solutions

China:

• Rationalization of the

industry

• Structure and educate

farmers

• Accelerate of development

of mobile/ digital solutions

Brazil:

• Further consolidation

• Development of new

logistic corridors

• Assets turnaround

optimisation

North Am.:

• Direct sales

• Innovative services (logistic

solutions, tech.)

Oceania:

• Direct sales


solutions, tech.)

Europe:

• Direct sales


solutions, tech.)

• Distribution consolidation

CIS:

• Expand distribution

networks (“fill the gap”)


solutions, tech.)

India:

• Accelerate of development

of mobile/digital solutions

• Enhanced/ liberalized

regulations



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

With a pragmatic and agile approach:

pilot, adapt and deploy

Taking into account both local context

and own capabilities and ambitions

No easy solution

No one-size-fits-all

But lots of

opportunities!


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 thetransformation of distribution models and user experience within severalindustries

Created in 1987, CVA currently operates in 17 offices worldwide, with more than300 professionals and a unique network on industrial experts

This document was created by the CVA Ag Team, a team dedicated to supportmajor players from the agriculture and agri-food industry shape and graspopportunities


Thank you for your attention!

Thank youwww.gpca.org.ae

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Fertilizers distribution: a business in the spotlightgpcafertilizers.com/wp-content/uploads/2017/10/07-Alexandre... · Emerging solutions offer opportunities at distribution level