By Brian R. Hook
Bunge may not be a household name with its
corporate logo appearing on food labels in
grocery stores, but the agricultural firm, with its North American headquarters in St. Louis, is integral to the global producer-to-consumer food chain.
Maryland Heights-based Bunge North America is a grain
processing company, buying grains produced by farmers,
processing the grains, and later selling the ingredients to
food manufacturers that provide the food products for the supermarket shelves.
“We are an interface between farmers, who are producing bulk grain, and the food retailers who are looking for quality raw ingredients to make their retail food products,” says
Carl Hausmann, president and CEO of Bunge North America.
With 450 employees at its St. Louis headquarters and 4,500 employees across Canada, the United States, and Mexico, Bunge North America operates facilities as far east as Rhode Island and as far west as California. Bunge also operates grain elevators strategically placed along the Mississippi River, and its tributaries, for easy shipping.
Bunge North America has been trading commodities for domestic use and for export to global markets since the early 1900’s. Its business includes oilseed processing, edible oils, shortening, and corn dry milling. Bunge moved its North American headquarters to St. Louis in 1989 to be in the
grain producing heart of the country.
Hausmann joined Bunge as president and CEO of Bunge Europe after the 2002 acquisition of Cereol S.A. by White Plains N.Y.-based Bunge Ltd., the parent company of Bunge North America, one of seven operating companies worldwide controlled by Bunge. Hausmann relocated to St. Louis to lead Bunge North America in 2004.
MERGERS & ACQUISITIONS
Bunge has expanded around the globe since it was founded in 1818 in the Netherlands. Bunge established Bunge North America in 1923 in New York as a privately held company, and went public on the New York Stock Exchange in 2001.
Bunge continues to grow organically and through acquisitions. It announced plans earlier this year in June to buy Westchester, Ill.-based Corn Products International Inc., a supplier of starches, sweeteners and other ingredients with plants in 15 countries.
“We want to be stronger in different geographies around the world in order to meet the growing needs for food, feed and fuel products,” Hausmann says, adding that Bunge’s acquisition strategy is driven by value chain and geographic complementarity.
Corn Products has an important presence in South America, Asia and Africa, Hausmann notes, adding that Corn Products’ sweeteners, starches and other ingredients, will add to Bunge’s portfolio of grains, fertilizer, edible oil and other products.
The all-stock acquisition was valued at approximately $4.8 billion when the deal was announced. Corn Products will become a wholly-owned subsidiary of Bunge.
The North American business of Corn Products will be folded into Bunge North America, but Corn Products will maintain its operational headquarters in Westchester. Hausmann says that everything is on track to close the deal in the fourth quarter.
After the combination of Bunge’s and Corn Products’ global operations, Bunge will have approximately 32,000 employees and operations in 40 countries. Neither company expects closures of any industrial facilities as a result of the transaction.
Bunge is already working on the integration process, Hausmann indicates. Teams from both companies are examining the operations of both Bunge and Corn Products looking at functions like information-technology systems, human resources and other back-office type processes.
Bunge expects to achieve annual cost synergies of $100 to $120 million by eliminating duplicate costs and by merging functions like procurement and logistics.
“They have very good skills, disciplines, and product knowledge,” Hausmann says, referring to Corn Products. “We feel that their corporate culture is very similar to ours. We are both integrating between the farmer and the food product retailer.”
SUPPLY & DEMAND
In addition to providing storage and transportation of grain, Bunge also provides financial risk management for farmers. Using futures contracts on the Chicago Board of Trade, Bunge hedges the price of grain to reduce volatility of price movements.
Higher prices do not necessarily hurt or help Bunge’s business, Hausmann explains. “We are not taking a position that we hope prices go up or down,” he says.
If grain prices are higher because there are floods, for example, this means there are fewer products for Bunge to buy from the farmer, to transport, to transform and to sell. While this might hurt Bunge, higher prices caused by more demand may help.
“We are trying to make a margin in the transportation and transformation of grains,”
Hausmann says. “If high prices go up further and it gets so expensive that it begins to choke out demand, we don’t like it,” because it reduces volume. “Our business does better when the volume of our services required is going up,” Hausmann adds.
THINK GLOBALLY, ACT LOCALLY
“Our operating model is such that we execute regionally, but our strategy is global,” Hausmann says. “This strategy is driven by a worldwide vision.” For instance, the pricing of corn in China will impact, instantaneously, corn prices in the U.S.
As consumers around the world, especially in developing countries, look to improve their diets, food producers are looking to buy more grains from Bunge, whether the grains originate in Brazil, Argentina or the U.S, Hausmann says. “It is critical for us to be global actors. We need to know what is going on around the world, because this has an impact on the pricing and supply in the various countries that we operate in.”
A case in point is China. As it looks to improve the diet of its citizens wanting to eat more meat, the country is buying more feed ingredients to supply animals, whether it is for pork, chicken or beef. This ultimately means more demand for Bunge’s products.
This demand for grains has put demand pressures on prices. “Prices have gone up and as agricultural prices go up this will impact the agricultural supply chain around the world,” Hausmann notes. “So it is critical for Bunge to be as aware of what is going on in South America, Asia, Europe and Africa, as we are of what is going on in the U.S.”
While some pundits call for more protection of farm products in various countries around the world, including in the U.S., in the name of food security, Hausmann says the interdependence of the world supply of food actually provides more security. “We would have far less world food security if we tried to be independent in our sourcing,” he says.
“I’m absolutely convinced that the world has the ability to respond to the increase in demand of agriculture products. However, in order to meet this demand, we need to see the world as interconnected in terms of the major grain production areas of the world.”
BOOST BIOFUELS
While more people in developing countries are looking to improve their diets, developed countries are using more grains for converting into fuel. Hausmann expects 30 percent of the corn produced in the U.S. this year to be transformed into ethanol. Therefore, some corn that would have been exported is now being used to produce ethanol instead.
“We strongly believe that corn, as well as other agriculture production, can play a role in making biofuels,” Hausmann says. “Bunge is watching this area very closely.”
While Bunge is involved in the production of biofuels, Hausmann says the government should be careful about creating mandates. He says that while mandates may seem reasonable, mandates chosen for the wrong reasons might counteract market signals, pushing up prices and encouraging too many farmers to switch to corn, leading to less supply of other grains, and forcing up the price of all grains. “Ethanol certainly is not the silver bullet that people were hoping it to be five years ago,” Hausmann says.
“I absolutely support agriculture production going into biofuels. I think this is a role that the agriculture should have,” Hausmann says. “However, government mandates need to be managed very delicately in order not to create excess supply or demand.”
PERFECTLY CENTERED, REMARKABLY CONNECTED
Hausmann paraphrases the branding effort by the St. Louis Regional Chamber and Growth Association, “Perfectly Centered, Remarkably Connected,” when talking about St. Louis. He says it is important for the St. Louis community to understand that St. Louis is not only perfectly centered for the rest of the country, but to the world as well.
“Understanding these worldwide ebbs and flows of demand and supply is something I believe will make St. Louis an interconnected global market,” he says.
“What I want is a vibrant business community that understands the fact that St. Louis is part of an interconnected world, and that we need to have our regional and national leaders understanding the interconnectedness of worldwide trade.”
With 450 employees located in St. Louis, Hausmann admits that Bunge has a modest workforce presence in St. Louis. “Nonetheless, we transact a lot of business. We are a vibrant part of the worldwide grain trade,” Hausmann says. “Although we have our headquarters here, we are not transacting physical grain movement here in St. Louis. It has become our home. It is a vibrant community in which we are happy to be located.”
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