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Bunge Ltd (BG): A Foolish Choice

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Bunge Ltd (NYSE:BG) is undoubtedly one of the strongest players in the agri-food processing industry. Over the years, Bunge Ltd (NYSE:BG) has repeatedly proved its robust capability to harness market opportunities and create a winning scenario for itself.

The company primarily operates four business segments: agribusiness, sugar and bioenergy, edible oil products, milling products and fertilizers.

Bunge Ltd (BG)

The major expansion spree

Identifying the enormous potential available in the industry, the company has been taking active steps to expand its foothold and penetrate newer markets. The year 2012 saw the company inking some major deals in the form of strategic alliances with some prominent players in the industry to boost its business in all segments.

The company entered into joint-venture agreements in Eastern Europe and Paraguay promoting its oilseed processing and biodiesel production facilities. It recently expanded its South African joint venture to capture the market in Sub-Saharan Africa for oilseeds and grains. Furthermore, the company also successfully made arrangements to spread its oil products business in Brazil by a strategic joint venture entered into with Solazyme Inc (NASDAQ:SZYM). The past fiscal also saw the company acquire a wheat mill in Mexico and a prominent edible oils business in India including expansion of existing facilities across North America and Brazil.

In addition, the company recently joined hands with Aceitera General Deheza S.A. in Argentina to construct and operate a corn wet mill, taking the sugar and bioenergy segment forward.

The above moves significantly highlight the company’s aggressive growth strategy aimed at broadening its customer base and widening its markets.

The opportunities are huge

With the world population expanding exponentially, it takes no Einstein to guess that it would eventually translate into ever increasing demand for more food products. Nevertheless, to put it into perspective, as per United Nations’ estimates, by 2030, the demand for agricultural products will rise by 60% requiring an increase of 40% in the global food production compared to what it is today. In addition to that, the global market for agricultural products is touted to be worth an astounding $1.4 trillion which approximates about 4% of the total GDP of the world.

Nevertheless, the immense opportunities are off-set by the rising costs of inputs and risks posed by climate change creating huge pressure on profit margins.

Considering the above, the agricultural foods and commodities business demands players to focus on globalization of operations calling for massive and aggressive measures to penetrate newer and wider markets which would enable them to derive scale economies while off-setting the negative effects of the risks mentioned above.

With Bunge Ltd (NYSE:BG) having adopted a well thought out expansion strategy aimed at securing access to newer avenues for its products and strengthening its operational strengths by investing in capacity extension, it looks set on the track to achieving sustainable growth in the future along with enhancing its competitive position.

[Source: Accenture’s report on agribusiness industry]

The competitive expanse

The agricultural food production industry is an immensely competitive industry and Bunge Ltd (NYSE:BG) faces tough competition from the likes of Archer Daniels Midland Company (NYSE:ADM) and WILMAR INTL LTD ADR (NASDAQOTH:WLMIY).

Archer Daniels Midland Company (NYSE:ADM) is a prominent producer and trader of protein meal, corn sweeteners, ethanol and biodiesel, vegetable oil, flour, etc. With a market capitalization of $ 22.94 billion, it has created a solid foothold for itself in the market.

Keeping in line with the industry trends, Archer Daniels Midlands, is currently in the news for the planned acquisition of Australia based GrainCorp which will help the company to further diversify its crop supply along with imparting strategic advantage to Archer Daniels Midland Company (NYSE:ADM) by enabling it to optimize its current portfolio. GrainCorp has a solid market presence in the regions of Middle East, Africa, Northern Asia and South East Asia which will significantly enhance Archer Daniels’ presence in the global space.

Overall, Archer Daniels Midland Company (NYSE:ADM) looks set for exponential growth in the long run, owing to synergies expected to be gained from the upcoming acquisition of Grain Corp, which will significantly strengthen its core business position and has potential to push the company forward by leaps and bounds compared to its peers.

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