Brascan: How to Capture Value in the Beef Chain

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Brascan How to Capture Value in the Beef Chain

• Marcos Fava Neves
• Roberto Fava Scare

2nd Annual World Food AgribusinessCase
Conference
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Paper Structure

• 1. Introduction
• 2. Agribusiness and Beef Chain in Brazil A
  Growing Business
• 3. Brascan in Brazil
• 4. Brascan Network on Beef
• 5. The Marfrig Experience
• 6. Further Perspectives
• 7. References

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International Trade PeformanceBrazilian Export
DynamismPRODUCTION AND EXPORTS ANNUAL GROWTH
RATES (1990-2003)
Note Annual growth rates for exports of all
agricultural products were calculated using
FAOSTAT for 1990-2002 in US values. Annual
growth rates for exports of each product were
calculated using USDA Official Statistics for
1990-2003 in volume (tons).
Source ERS/USDA FAO Elaboration ICONE
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International PerformanceBrazilian Production
and Export Dynamism (2003)
Source ERS/USDA Elaboration ICONE
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Increase in the Brazilian Soybean Area and Yield-
Quinquennial
Source IBGE Elaboration Agroconsult
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Areas to Develop Agriculture
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Brazil offers worlds greatest geographic
potential for agricultural expansion, with
favorable, climate, soil and topography.
NEW AGRICULTURAL FRONTIERS IN BRAZIL
Belém
Source FAO
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Grain Production
Average Growth Production 6,06
a.a Area 1,76 a.a.
Total Variation Production 128,2
Area 27,8
produção
área
prevision
1,53
2,73
Yield (t/ha)
78,6
Source CONAB/MAPA
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In Numbers, the Potential
Sources Agrianual, Pensa, MAPA, CONAB, IBGE
2003 Crop
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Beef Chain in Brazil A Growing Business

• Brazil exports to more than 150 countries
• Brazilian beef growth production
• internal factors of production genetics,
  diversity, costs, availability of grass lands,
  technology
• external factors crisis of beef production in
  Europe (mad cow disease), Argentina, Uruguay and
  recently, USA
• Brazilian beef future opportunities according to
  ICONE (2004) 61 of the total market for beef in
  the world

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Beef Consumption in 2020
prevision
source FAO
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Global Beef Export Market Share
Elaboration Enio Marques Pereira
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Beef Chain in Brazil A Growing Business
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Beef Chain in Brazil A Growing Business
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Beef Chain in Brazil A Growing Business
() Indicates that specific tariffs were
converted in its ad valorem equivalent.
Underlined indicates the existence of
Safeguards Shadowed indicates sanitary barriers.
Source WTO, APEC, COMTRADE, USITC, TARIC
Elaborated by ICONE (Instituto de Estudos do
Comércio e Negociações Internacionais)
Source USITC, OMC - Elaborated by ICONE
(Instituto de Estudos do Comércio e Negociações
Internacionais).
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World Meat Consumption
Millions tons
Prevision
Source FAO
Year
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Introduction

• Brascan (Canadian-Brazilian Group)
• direct investments US 16 billion and US 7
  billion of assets
• 55 premier Office properties and 45
  power-generating plants
• long-term goals 12 to 15 annual growth in cash
  flow from operations, 20 cash return on common
  equity and 12 increase in the value of the
  company
• return on capital / risk by narrowing the
  areas where the company operates and broadening
  activities in these areas
• To be a large and reliable supplier in a beef
  chain, Brascan needs to grow horizontally, to
  capture value, Brascan needs further vertical
  chain coordination. What to do?

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Brascan in Brazil

• Brascan over 100 years old company
• - agribusiness (including cattle, land leasing
  for row, fruit crops and timber), energy bank,
  and 40 of Accor in Brazil (hotels and food
  employees tickets)
• - 1984 agribusiness sector entrance (Swift
  group)
• - 40 thousand cows, with 25 having artificial
  insemination (Nelore)
• - alternative production soybeans, sugar cane,
  rubber, pineapple, American Quarter Horse
  horses and pinus/eucaliptus

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Brascan in Brazil
Brascan major SE farms Bartira (14,4 thousand
hectares), Formosa (6,8), Mosquito (13,3) and
Pirapitinga (17,9)
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Brascan Network on Beef

• Linkages with well-known research institutes in
  Brazil -Unesp, Embrapa
• Consistency, volumes and well organized
  supplies
• Investment vertical integration for genetic
  supply
• Long term contracts alternative for capturing
  value
• 8000 animals are sold in 6 auctions/year
  calves (20 overprice) or finishished animals
• Tracebility Biorastro (SISBOV)

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Brascan Network on Beef
Brascans Network
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Brascan Network on Beef
An alternative to grow vertically in the agri
chain The Marfrig Experience

• Slaughterhouses
• -vertically integrated production and processing
• -food suppliers, with marketing functions
• -family managed groups

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Brascan Network on Beef
An alternative to grow vertically in the agri
chain The Marfrig Experience

• Marfrig Group 4 production centers (SP, MT,
  MS)
• -1.900 heads/day
• -40.000 metric tons/month.
• -8.000 metric tons of food products
• -2004 export US 185 million
• -2000 employees professional training,
  educational incentives, healthcare and
  nutritional assistance

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Brascan Network on Beef
An alternative to grow vertically in the agri
chain The Marfrig Experience

• Quality control department
• -calves (30 months of age) with minimum standards
  for fat covering
• -properties not further than 300 Km away
• -certification of livestock origin
• -HACCP (Hazard Analysis and Critical Control
  Point) recognized by the FDA, European Union and
  the Codex Alimentarius
• -IBD (Bio-Dynamic Institute) organic meat
  process

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Brascan Network on Beef
An alternative to grow vertically in the agri
chain The Marfrig Experience

• Products distribution Montana fast-food

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Brascan Network on Beef
An alternative to grow vertically in the agri
chain The Marfrig Experience

• Internal market
• -high per-capita consumption
• -informality 50
• -tax problems solution and rigorous tax
  monitoring system (next two-three years)
• 2001 Brascan relationship with Marfrig
• -beginning only an alternative marketing channel
  
• -4 years later higher degree of trust, some
  common projects/studies, some joint planning but
  still no formal supply contracts

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Further Perspectives

• Brascan needs to capture more value in beef
  business in order to enhance headquarters
  investments on beef. The opportunities are in
  extending agro-food chains and networks to
  contribute for this development.
• Two major points of discussion
• - To be a large and reliable supplier in a beef
  chain, Brascan needs to grow horizontally,
  towards 400.000 cows. What are your suggestions
  of horizontal governance structures feasible for
  Brascan?
• - To capture value, Brascan needs further
  vertical chain coordination. What are your
  suggestions in this subject? Which strategies
  could be recommended?