884 10 pages

Recommendations

1

BUSINESS OPPORTUNITES FOR INTERNATIONAL FOREST PRODUCTS

Our three recommendations to International Forest Products are as follows: Match buyers to suppliers in West Africa and Brazil; finance smaller players in the market; or, conversely, not enter the agricultural chemicals industry.

Introduction

Project Overview

Our project explored the business opportunities for International Forest Products within the agricultural chemicals and fertilizers industry. Our goal was to determine if there was an opportunity for International Forest Products to enter the agricultural chemicals industry through financing. By conducting primary and secondary research, we were able to understand the current climate of the agricultural chemicals industry, such as what the major ingredients are in agricultural chemicals and what countries need these chemicals the most. This understanding allowed us to identify potential business opportunities in these areas. In addition,, we could determine the major manufacturers and distributors of key chemicals and fertilizers, which allowed us to examine which companies need logistics and financing services, thus providing an opportunity for IFP to enter the market through those portals. . This report provides an in-depth examination of the international agricultural chemicals industry, the current climate within the industry, business opportunities, and several recommendations on how to enter the agricultural chemicals industry through logistics and financing.

Research Overview

To gain a better understanding of the agricultural chemicals industry, we started our research focusing broadly on the chemicals and fertilizer industry. First we defined the chemical industry as being an umbrella term used for various sub industries, including the fertilizer industry. We then defined the agricultural chemical industry as being a subset of the chemical industry and as being an umbrella term for the fertilizer industry. We wanted to understand how this industry looked internationally, what were the major drivers of the market, who were the major players, and what countries used agricultural chemicals the most and for what purpose.

Company Overview

International Forest Products is a privately-owned subsidiary of the Kraft Group that handles the international logistics and transportation of paper products, including paper, pulp and wood, for other companies. International Forest Products currently is ranked the sixth largest exporter in the U.S.[footnoteRef:16]. For research purposes, we defined International Forest Products industry as “paper and pulp manufacturing”. Figure 1, from Mergent First Research database, shows the growth rate of the paper and pulp manufacturing industry from 2017 to a projected 2022. [16: International Forest Products. (2016). International Forest Products General Business Overview. Retrieved from file:///C:/Users/Mia/Downloads/IFP General Presentation (2).pdf ]

Retrieved From: Mergent. (2018, March 12). Paper & Paper Products Manufacturing.

The paper and pulp manufacturing industry revenue is expected to grow at an annual compounding rate of 2 percent between the years 2018 to 2022[footnoteRef:17]. [17: Mergent. (2018, March 12). Paper & Paper Products Manufacturing. Retrieved from http://mergent.firstresearch-learn.com/industry.aspx?chapter=0&pid=145 ]

Since International Forest Products is a privately held company, certain types of financial information is not available. However, based on what we were told in the client's initial presentation to us, we can assume that International Forest Products has strong financial backing from the Kraft Group. Other assumptions that were made include the idea that the company provides a high level of customer service to its clients and that it can expand its business with its current clients. These assumptions were all based on extensive meetings with the clients over the course of several months.

Industry Analysis

Chemicals Industry

Retrieved From: Chemicals Industry Surveys (2017, November).

The fertilizers and agricultural chemicals sector makes up 15 percent of the industry3. This sizable percentage was a factor that helped us to decide to focus our research on the fertilizers and agricultural chemicals sector.

The outlook for the agricultural chemical manufacturing industry is predicted to grow at a higher rate than the paper and pulp manufacturing industry. Figure 3 visualizes the annual revenue rate of the agricultural chemicals manufacturing industry.

According to Mergent First Research database, this sector is projected to grow at an annual compounding rate of 5 percent between the years 2018 to 2022[footnoteRef:19]. Compared to the 2 percent predicted growth rate of International Forest Products current industry, the agricultural chemicals industry presents an attractive opportunity for International Forest Products. [19: Mergent (2017, November 13). First Research. http://mergent.firstresearch-learn.com/industry.aspx?chapter=0&pid=161 ]

Tariffs

Industry Drivers

Retrieved From: Mosheim, R. (2018, February 21). United States Department of Agriculture.

The graph shows the historic prices of nitrogen and phosphate but excludes potash8. The Department of Agriculture, for reasons unknown, ceased collection potash data in 1983. The price that farmers paid for fertilizer is significantly lower than the price of the individual fertilizer components, most likely since most farmers purchase fertilizer in bulk and therefore can pay significantly less than retailers would pay for fertilizer.

Industry Challenges

The agricultural chemicals industry also faces many challenges. One of the primary challenges is GMOs, or Genetically Modified Organisms. GMOs are being used as a substitute for fertilizer and agricultural chemicals. In the United States alone, the use of GMOs is expected to grow 3.2 percent annually from 2018 through 2021[footnoteRef:24]. This poses a significant problem for the agricultural chemicals industry because GMOs do not require fertilizers. Another significant challenge is the rising popularity of organic foods. The organic food industry is currently being estimated to be growing at a rate of 14 percent in the United States alone[footnoteRef:25]. The increase of sales in organic foods could reduce farmer’s consumption of agricultural chemicals. [24: Loria, K. (2017, February 23). GMO market growing at 3.2% CAGR. Retrieved from https://www.fooddive.com/news/gmo-market-growing-at-32-cagr/436711/ ] [25: Organic Food and Beverage Market Growth Projected at 14 Percent Before 2021. (2018, January 03). Retrieved April 19, 2018, from http://www.organicauthority.com/organic-food-and-beverage-market-growth-projected-at-14-percent-before-2021/ ]

One of the biggest challenges of the agricultural chemicals industry is safety. Transportation of fertilizers and agricultural chemicals is extremely dangerous and heavily regulated due to the risk of explosion 7. This also makes the agricultural chemical a high target for terrorists, because their potential use in creating explosives for attacks. The final challenge faced by this industry is the short product life cycle of agricultural chemicals and fertilizers. When these products are used constantly, diseases and insects become immune over time to the fertilizers and chemicals7. This creates the short product life cycle as producers of fertilizers need to create different formulas to stay effective and keep up with demand.

Major Players

Retrieved From: Jones, A. (2017). Who Are the Biggest Players in the Fertilizer Industry? Retrieved April 11, 2018

Most of these companies do not produce all three of the chemicals. It is also important to note that two companies, Potash Corp and Agrium, as of January 2018, merged to become Nutrien11 and that on the graph, the bar for the company is a project capacity based on the capacity of the two former companies. In our research we found that some of the companies such as Uralkali and Belaruskali are Russian, and we excluded them due to the current political climate between the United States and Russia.

We consolidated the major industry players into five major companies and created a graphic to represent these companies which we believe have or hold the most potential for International Forest Products.

Retrieved From: Agrium. (2018, February). Annual Report. Retrieved April 11, 2018; The Mosaic Company. (2017, February 3). ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. Retrieved April 5, 2018; Potash Corp. (2018, February). Annual Report. Retrieved April 11, 2018; CF Industries. (2018, February). Annual Report. Retrieved April 11, 2018

Value Chain

The value chain is based on the information gathered on the production cycle of nitrogen, phosphate, and potash, and how these components become fertilizers.

Phosphate and potash are both extracted in their raw form via a mining process; nitrogen is produced through a process that extracts it from air via hydrogen and heat7. This map shows the parts of the world where potash and phosphate is extracted.

Retrieved From: Jones, A. (2017). Who Are the Biggest Players in the Fertilizer Industry? Retrieved April 11, 2018, from https://marketrealist.com/2017/01/industry-overview-biggest-players-fertilizer-industry

Most the world’s potash is primarily in and extracted from Canada and Russia11, while much of the world’s phosphate is primarily in and extracted from the continent of Africa and some from China11. These raw materials, once extracted, go to the materials processing sector to be processed into workable forms. Once they are processed they are brought to manufacturers who transform them into their final fertilizer forms. These fertilizers then go to wholesalers who either distribute the product to the farmers or to the retail sector.

Opportunities

Research

Based on our research on the agricultural chemicals industry, we found three main factors that increase the need for fertilizer. The map below visually depicts the three main factors that increase the need for fertilizers.

Retrieved From: Keshrinandan Enterprise. (2016). World Corn Production 2015/2016.; USDA. (2018).; World Atlas (2017). Top Banana Producing Countries In The World.

The first factor is high population, which is displayed on this map of the world by the high concentrations of red. The next factor is the farming of corn. The corn stalks on the map represent where and how much corn is harvested around the world[footnoteRef:32]. The next factor is the production of cotton, as depicted by the cotton plant graphic on the map[footnoteRef:33]. In addition to looking at corn and cotton production, we also looked at where the most bananas are grown in the world. During our meetings with Daniel Moore, he mentioned some of International Forest Products major customers are companies such as Dole and Chiquita, so we also took that into consideration when we focused on different regions of the world[footnoteRef:34]. Our research shows that the middle of the U.S., Brazil, West Africa, India, and China are the regions that need the most fertilizers. We are not recommending China due to the potential for a trade war brought on by the current political climate, an uncertainty of the tariffs on fertilizer, or whether the country will allow the import of the product from the U.S. Additionally, we will not be recommending India, as India has decided they will cease importing fertilizer within in the next five years. [32: Keshrinandan Enterprise. (2016). World Corn Production 2015/2016. Retrieved from https://www.keshrinandan.com/corn/world-corn-production-20152016/ ] [33: USDA. (2018). Retrieved from https://ipad.fas.usda.gov/ogamaps/map.aspx?cmdty=Cotton&attribute=Production ] [34: World Atlas (2017). Top Banana Producing Countries In The World. Retrieved from https://www.worldatlas.com/articles/top-banana-producing-countries-in-the-world.html]

Based on our examination of the production of corn, cotton and bananas around the world, we concluded that the United States, Brazil and other Latin American countries, and West Africa need the most fertilizer. To understand this need for fertilizers further, we examined where the United States is exporting to currently. This graph depicts the countries that the United States exports fertilizer to by metric tons.

Retrieved From: Datamyne. (n.d.). Retrieved April 11, 2018, from http://www.datamyne.com/

We looked at the United States exports of Chapter 31, the fertilizer chapter, using the Datamyne database. One important fact that we wanted to highlight is that while the United States currently exports fertilizer to China, Mexico, and the Ivory Coast, countries such as Brazil and regions such as West Africa do not receive a great deal of fertilizer from the U.S.[footnoteRef:35]. Unfortunately, due to our restricted access to Datamyne, we were only able to find information on the United States imports and exports. As a result, we were not able to find any information on any other countries imports and exports of fertilizer. [35: Datamyne. (n.d.). Retrieved April 11, 2018, from http://www.datamyne.com/ ]

Latin America

This map of Latin America from 2016 depicts the most active ports and measures the ports activity in how many TEU, or Twenty-foot Equivalent Units, passed through each port in 2016.

Each conclusion is categorized by the probability and the impact on a low, medium, high scale. Our first conclusion is high risk probability, high risk impact and it is to match buyers to suppliers in West Africa and Brazil. International Forest Products can use their already successful model of matching buyers and suppliers of paper products and apply that same model to agricultural chemicals and fertilizers. We believe that IFP can utilize its current relationships with Dole and Chiquita to connect them with suppliers of fertilizer and agricultural chemicals for their banana crops in Brazil. We also believe that it can connect with other smaller producers of cotton and corn in Brazil and utilize the dependence on imported fertilizer in Brazil. Additionally, IFP can connect with smaller producers in West Africa, particularly Nigeria, as there is a dependence on imported fertilizer there as well. We categorized this course of action as having a high probability of risk and a high-risk impact because it involves a significant financial and time investment for International Forest Products that could potentially lead to failure.

Our second conclusion is medium risk probability, medium risk impact and it is for International Forest Products to finance smaller players in the market. International Forest Products already finances paper products companies, and, in our meetings, we were told that IFP would be interested in financing smaller companies in the agricultural chemicals industry. We believe that ICL is an ideal company for International Forest Products to finance to enter the agricultural chemicals industry. ICL is one of the smaller players in the agricultural chemicals industry and is an international company. With the recent merger between Agrium and Potash into Nutrien, smaller companies are going feel the pressure from the merger and feel the need to stay competitive to compete with Nutrien. International Forest Products can offer financial backing to smaller players like ICL, and give them the advantage that they need to stay in the market. Through this financing, International Forest Products can enter the industry with less of an overall risk to themselves and develop a relationship with an international company such as ICL. We categorized this course of action as being both medium risk probability and medium risk impact because financing poses less of a financial burden on International Forest Products and allows the company to enter into the market with a company that already has a place in the agricultural chemicals industry. International Forest Products will have less of a risk to themselves and have less of a risk of failure through financing a smaller company.

Our third conclusion is low risk probability and low risk impact and that is to not enter the agricultural chemicals industry at this time. Based on our research into the agricultural chemicals industry, we found that the industry is extremely difficult to enter due to three major barriers to entry. The first barrier to entry is that there a high level of expertise needed in agricultural chemicals. Agricultural chemicals are complex and companies that produce them are usually solely dedicated to the product on these chemicals. International Forest Products does not have this level of expertise in the production and creation of agricultural chemicals and fertilizers, therefore it is more difficult to enter the industry with this significant lack of knowledge. The second barrier to entry is the financial resources needed to enter the agricultural chemicals industry is too high for International Forest Products. Agricultural chemicals cost a great deal to produce and transport as many chemicals require delicate handling because of their explosive nature during production and transport. These costs and the risk of accidents are extremely high. Therefore, it would be too costly for International Forest Products to enter the agricultural chemicals industry. The third barrier to entry is that the industry is already dominated by large companies and those smaller companies that have merged, leaving little room for entry from what would be essentially a third party. The industry has begun to shrink with the introduction of Nutrien. Also, companies such as Nutrien are involved with almost every aspect of the value chain leaving little room for a company such as International Forest Products to enter the transportation and logistics parts of the value chain.

Recommendations

Our objective of our research was to address and answer the question of is there an opportunity in the agricultural chemicals industry for International Forest Products. Our client meetings with IFC, in combination with our extensive research on the agricultural chemicals industry gave us insight into creating recommendations that International Forest Products can act on. Based on our research, we concluded that there is some opportunity in the agricultural chemicals market for International Forest Products. However, we recommend that International Forest Products should not enter the agricultural chemicals industry because the benefits do not outweigh the costs it would take to enter the industry.

Bibliography (n.d.). Agrium. (2018). Annual Report. Retrieved April 11, 2018 from https://www.nutrien.com/sites/default/files/uploads/2018-02/2017 AGRIUM Annual Report FINAL.pdf BRUNS, A. (2017). Ports Are in a Storm, but Central America will help the region find smoother water in 2017. From http://ezproxysuf.flo.org/login?url=http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=120681213&site=ehost-live CF Industries. (2018). Annual Report. Retrieved April 11, 2018 from https://www.snl.com/Cache/1001234503.PDF?O=PDF&T=&Y=&D=&FID=1001234503&iid=4533245 Chemicals Industry Surveys. (2017). From https://www.capitaliq.com/CIQDotNet/Research/DocumentViewer.aspx?documentViewerDocumentId=37881073# Datamyne. (n.d.). Retrieved April 11, 2018 from http://www.datamyne.com/ Dun and Bradstreet. (2018). Agricultural Chemical Manufacturing. Retrieved February 19, 2018 from http://www.mergentintellect.com/index.php/search/firstResearchReport/CHMA/Agriculturalchemical20180219.pdf (2018). Harmonized Tariff Schedule. Retrieved March 29, 2018 from https://hts.usitc.gov/current International Forest Products. (2016). International Forest Products General Business Overview. Retrieved 2018 from file:///C:/Users/Mia/Downloads/IFP General Presentation (2).pdf Israel Chemicals. (2018). Annual Report. Retrieved April 11, 2018 from http://iclgroupv2.s3.amazonaws.com/corporate/wp-content/uploads/sites/1004/2018/03/ICL-2017-Annual-Report-20-F.pdf Jones, A. (2017). Who Are the Biggest Players in the Fertilizer Industry? Retrieved April 11, 2018 from https://marketrealist.com/2017/01/industry-overview-biggest-players-fertilizer-industry Keshrinandan Enterprise. (2016). World Corn Production 2015/2016. From https://www.keshrinandan.com/corn/world-corn-production-20152016/ Loria, K. (2017). GMO market growing at 3.2% CAGR. From https://www.fooddive.com/news/gmo-market-growing-at-32-cagr/436711/ Mergent. (2017). First Research. From http://mergent.firstresearch-learn.com/industry.aspx?chapter=0&pid=161 Mergent. (2018). Paper & Paper Products Manufacturing. Retrieved March 12, 2018 from http://mergent.firstresearch-learn.com/industry.aspx?chapter=0&pid=145 Mosheim, R. (2018). United States Department of Agriculture. From https://www.ers.usda.gov/data-products/fertilizer-use-and-price.aspx Mulholland, S. (2017). CRU. From https://www.crugroup.com/knowledge-and-insights/spotlights/is-2017-a-turning-point-for-west-african-fertilizer-demand/ (2018). Organic Food and Beverage Market Growth Projected at 14 Percent Before 2021. Retrieved April 19, 2018 from http://www.organicauthority.com/organic-food-and-beverage-market-growth-projected-at-14-percent-before-2021/ Potash Corp. (2018). Annual Report. Retrieved April 11, 2018 from https://www.nutrien.com/sites/default/files/uploads/2018-02/2017 PotashCorp Annual Report.pdf Simões, D. C.-F. (2018). Fertilizer distribution flows and logistic costs in Brazil: changes and benefits arising from investments in port terminals. International Food & Agribusiness Management Review, 21(3), 407-422. doi:10.22434/IFAMR2017.0037 Tegel, S. (2017). Latin America's Delicate Dance With China. U.S. News - The Report, c20-c21. From http://ezproxysuf.flo.org/login?url=http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=125669731&site=ehost-live The Mosaic Company. (2017). ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. Retrieved April 5, 2018 from http://investors.mosaicco.com/Cache/c38082405.html U.S. International Trade Commission. (n.d.). Harmonized Tariff Schedule Search. Retrieved April 11, 2018 from https://hts.usitc.gov/ USDA. (2018). From https://ipad.fas.usda.gov/ogamaps/map.aspx?cmdty=Cotton&attribute=Production Ward, R. (2017). Brazil largely unscathed by customs strike, truck delays remain. Joc Online, 1. From http://ezproxysuf.flo.org/login?url=http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=123540017&site=ehost-live World Atlas. (2017). Top Banana Producing Countries In The World. From https://www.worldatlas.com/articles/top-banana-producing-countries-in-the-world.html

Appendix A

Harmonized Tariff Schedule of the United States (2018) Revision 2 (Posted March 29, 2018)

Appendix B

List of Tables and Figures