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Company Profile Archer Daniels Midland (ADM) is an American based food production, agricultural, and transportation conglomerate founded in 1923. ADM is a global organization with more than 265 processing plants on six continents, operates in over 75 countries, and employs more than 30,000 people.
Company Profile (Cont.) Much of ADM’s success is due to its extensive vertically integrated supply chain. The company’s operations are classified into three business segments: Agricultural services, Oilseeds processing, and Corn processing. Through their supply chain links, ADM is able to take their source commodities - corn, oilseeds, wheat, cocoa, palm and sugar - and immediately transform, transport, distribute, market and sell their products. ADM’s customers are principally other manufacturers and processors and their products are distributed mainly in bulk from processing plants or storage facilities directly to customers‘ facilities. Some of the end products used by businesses and consumers include bio-diesel, oil-seed mill, Vitamin-E, wheat flour, ethanol, cocoa powder, and renewable plastics.
Company Profile (Cont.) Globally, Agricultural services accounts for 47.01% of net sales, while Oilseeds processing makes up 33.04%, Corn processing comprises 12.28%, and “Other” (includes processing and financial activities) makes up the remaining 7.65%. The agricultural commodities market is growing both domestically and internationally. The United States currently accounts for 52.5% of net sales and other operating income. Europe is responsible for 18.1% and “other foreign countries” make up the remaining 29.3%.
Company Profile (Cont.) Currently, the United States is ADM’s largest single country producer of corn, soy, wheat, and oil-seed crushing refineries. However, ADM has made significant investments in Brazil for oil-seed and sugar processing and procurement plants. Recently, ADM made a significant investment of $100 million in the Agriculture Bank of China and acquired a 16% stake in Wilmar International Ltd. to advance its strategic growth plans there (Asia). ADM’s 2010 annual report indicates that their business could be affected by many governmental policies (taxes, subsidies, price controls), extreme fluctuations of exchange rates, terroristic events, changes in global demand due to population growth, and extreme weather events (flooding, drought, etc.).
Competitive Advantage ADM’s competitive position is in its vertically integrated global supply chain. This image depicts two things: First, ADM’s global network of sourcing facilities, processing facilities, and sourcing and processing distribution channels. Second, ADM’s advantage of having a global presence that exceeds their competitors.
Business Model ADM has a balanced vertically integrated business model that allows them to take their source commodities and send them through each link in the supply chain. ADM then sells to other manufacturers, processors, and (less often) consumers.
Core Competencies ADM’s core competencies revolve around the company’s position in the agriculture industry: ADM has obtained economies of scale through its efficient vast global network of crop origination, commodity transportation, investor services (ADMIS), and government contracts. ADM has the unique ability to meet a substantial portion of the world’s growing fuel and food needs.
Target Market • ADM sells its products (mainly) to other manufacturers and processors. ADM’s target market consists of many different organizations across multiple industries. • ADM’s Target Market: • Federal and Local Governments • Food and Beverage companies • Plastic Manufacturers • Farmers and Animal Feed organizations - feed for livestock • Raw materials for independent organizations (wheat, oats, corn, oilseeds, etc.)
ADM is a Winner • ADM was named the world's most admired food production company by Fortune magazine for 3 consecutive years; 2009, 2010, 2011 • ADM is the uniquely positioned: The company has significant market share in developed nations, while making substantial investments in emerging markets • ADM has the rare ability to help supply food and fuel to the growing world population
PEST Analysis • Agricultural Services • Oilseeds Processing • Corn Processing • Food • Fuel
PEST Analysis ConclusionPolitical/Economic • Political • National and State Government’s policies (tariffs, tax credits, and subsidies) are important factors for ADM; have a substantial impact on bottom line • BRIC and ASEAN nations will have a large increase in demand for ADM’s products and services in the future • Economic • Increase in commodity prices can become problematic for ADM • Growth in emerging markets will help increase economies of scale • Being a global organization, fluctuation in exchange rates could be both problematic and/or beneficial
PEST Analysis ConclusionSocial/Technological • Social • Controversial products like High Fructose Corn Syrup create a bad image, (potential) loss of B2B sales • Too many acquisitions of locally owned operators can cause social backlash among farmers • Technological • Increase in technology assists in more efficient logistics • GM crops can perform better under adverse conditions • Alternative energy (lith. Ion, hybrid) vehicles can hurt ethanol sales
Industrial Analysis - Porter’s Five ForcesIndustry Defined • Organizations that process source commodities and are able to transform, transport, and distribute their products • Companies in this industry derive vast majority of revenue from B2B business activities • The largest (and most successful) players in this industry have vertically integrated supply chains • The most prominent organizations engage in risk management strategies to hedge against price fluctuations, production risks (yields and outputs) and legal risks (business agreements and environmental issues).
Industrial Analysis -Porter’s Five ForcesBargaining Power of Suppliers/Buyers
Industrial Analysis - Porter’s Five ForcesThreat of Substitutes/Intensity of Rivalry/Threat of New Entrants
Industrial Analysis - Porter’s Five ForcesConclusion • Industry is attractive due to growing global food and fuel demand; profitable • Analysis of Porter’s Five Forces reveals significant disparities in remote environment • Intensity of Rivalry and Threat of Substitutes are High • Threat of New Entrants and Bargaining Power of Suppliers are Weak • Bargaining Power of Buyers are Medium • Industry lacks differentiation in source products - commodities • Value is added through vertically integrated supply chain; processing, transformation, and transportation of crops/products is necessary to add some differentiation (substantially increases profitability) • Governments play an substantial role in industry: contracts, regulation of crops, subsidies, etc.
Competitor Analysis ADM’s Main Competitors: Bunge Limited (BG) Corn Products International Inc. (CPO) Cargill Inc. (Privately Held) CHS Inc. (CHSCP) (Louis Dreyfus Commodities was omitted due to lack of available information)
Competitor Analysis - Priority Markets/Revenues(Star Represents Market with Highest Revenues)
Market Analysis • Global Population Distribution • Global Population Growth • Global Livestock Production by Country • Cattle • Chicken • Swine • Increase in CO2 Emissions • Forecast Ethanol Production • Global Maize Production by Country • Commodity Prices
Market AnalysisGlobal Population - Distribution Other than Africa, distribution of world population will not see any dramatic changes over the next 40 years
Market AnalysisGlobal Population - Growth By 2050, the world will have 9 billion people substantially increasing the amount of food and fuel needed. The vast majority of growth will come from developing nations.
Market Analysis Global Livestock Production by Country • Substantial population growth, an increase in living standards, and urbanization has fueled demand for meat in regions that previously could not afford it. • Currently, 33 percent of global arable land is used to grow feed grain. This will grow to nearly 40% by 2040. • The emerging markets of China and Brazil have seen sizeable increases of cattle and chicken production, which will continue to expand.
Market AnalysisGlobal Livestock Production by Country - Cattle
Market AnalysisGlobal Livestock Production by Country - Chicken
Market AnalysisGlobal Livestock Production by Country - Swine
Market AnalysisIncrease in CO2 Emissions The increase in meat consumption and livestock production are associated with substantial greenhouse gas emissions, as well as land and habitat degradation. The escalation of CO2 emissions will bring more scrutiny to the organizations that operate in agricultural (and commodities) markets.
Market Analysis Ethanol Production Both corn and sugarcane ethanol production is expected to increase in the future. Ethanol is viewed by countries as commercially viable alternatives to oil-based petroleum products. Ethanol can also reduce imports of foreign oil from unstable regions (Middle East).
Market AnalysisGlobal Maize Production by Country In the United States, 2011 was the first year that more corn was used for ethanol than for food/animal feed.
Market AnalysisCommodity Prices A substantial increase in the price of commodities is expected to occur in both the short and long-run. Risk Management will be essential to mitigate dramatic fluctuations in prices as commodities will continue to be volatile. Climate change will exacerbate the volatility by reducing the overall number of crops due to drought, increased rainfall, and inclement weather in general.
BCG Matrix - Strategic Business Unit High Market Share Low High Ag. Services Oilseeds Processing Market Growth Corn Processing Low
SWOT Analysis Weaknesses • Government Reliance (Foreign and Domestic) • Raw Materials - Commodities • Dependence on US • Threats • Cost of fuel is increasing • US exports of oilseed products are subject to substantial tariffs • Currency Exchange Rates - volatile • Growing of oilseed crops is land and capital- intensive • Many countries, farmers, and consumers are against GM oilseeds • Commodity yields are dramatically affected by global weather conditions • Consumers and businesses are refusing to buy products made with HFCS • Taxpayers are upset with orgs. that have large subsidies • US may remove $.45 tariff on imported ethanol Strengths • Vertical Integration • Diversity of Products • Logistics/Transportation • Ethanol Production Opportunities • US, Germany, Brazil, Japan, India, China and more have contracts with ADM for multiple ag. Services (potential for expansion) • China and SA are making substantial investments in Ag. Services • Emerging markets increase demand for ADM’s products/services • European and US govts. subsidizing ethanol, biofuels and oilseeds by-products • BRIC and ASEAN countries need bigger quantities of human and animal feed as living quality increases • Trade deficit from imported oil is political priority
Strategic Choice - Ansoff MatrixStrategic Business Unit Products Existing New Existing Markets New
Strategic ChoiceGeneric Strategy - Regional Archer Daniels Midland is employing a differentiation strategy geographically • ADM is located in over 65 countries and is committed to substantial investment in the United States and emerging markets. Made clear by shareholder presentations, investments in emerging markets will increase relative to investments domestically • Brazil and Southeast Asia are the focus of ADM’s largest investments outside of the US. However, the United States is still by far the largest region ADM has recently invested in. In fiscal years 2006-2010 over 80% of investments globally were in US. • ADM is utilizing different markets to obtain a diverse portfolio of commodities and value added products (Biofuels in SA, Ethanol in US, Cocoa in W. Africa, etc.)
Strategic ChoiceGeneric Strategy - Products/Services Archer Daniels Midland is becoming a low cost provider of products and services in the agricultural industry • ADM is investing heavily in agricultural services, logistical capabilities in particular, to achieve economies of scale • ADM is continually expanding their vertically integrated supply chain into new markets. Brazil would be the most recent example; ADM now has the ability to transform, transport, distribute, market and sell their expanding biofuels products and services (B2B and B2G). • Value-added products and services are essential to remain competitive and maximize profits since ADM’s raw materials consist of nothing, but commodities
Strategic ChoiceGrand Strategy - Market Penetration Focus on market penetration in the United States • ADM has excellent footing in US; 47 oilseed processing plants, 17 corn processing plants, 23 wheat mills, 6 cocoa processing plants, and produces more than twice the amount of ethanol than any other company • Cargill is a highly profitable major competitor of ADM; Cargill’s success demonstrates that there is significant market share to be gained in the US • ADM recently finished the “Big 7” in the US. These seven plants consist of two cogeneration power plants, one PHA plastics processing plant, two corn dry milling plants, one cocoa processing plant, and one PG/EG plant • Technological advances in Ethanol production are key to capitalize on generous government subsidies (Corn Stover)
