Making Hay: Tips for Value Creation in Agribusiness

Designing a long-term value-creation strategy is particularly challenging for agribusinesses because of the rapidly changing competitive landscape.

In agribusiness, there may be new challenges and opportunities that are impossible to foresee today, including disruptive technologies, shifting industry boundaries, consolidation, and increased regulatory scrutiny.

Agribusiness companies seeking to repeat successful past performance won’t necessarily be able to follow the same path. They should look to top performers in their industry for important lessons to keep in mind when they develop their own value creation strategies.

Define an explicit TSR objective to guide strategic priorities. The baseline of the objective is anticipated returns with no major changes made to the business. Unit managers can overlay potential return-boosting initiatives such as consolidating warehouses or adding a territory, keeping in mind risks as well as rewards.
Invest now to aggressively manage costs and improve the efficiency of operations. An investment in cost reduction now may help companies sustain margins should commodities prices fall. Providing capital (and a higher equity-valuation multiple) will allow investment when others are pulling back.
Strengthen offensive and defensive innovation capabilities. High commodities prices tend to lead to high R&D spending that could disrupt existing market dynamics. Even companies in less research-driven sectors such as fertilizers need to stay aware of innovation trends to protect their core businesses from disruption.
Maintain a prioritized pipeline of M&A opportunities and continually work the pipeline as circumstances evolve. High valuations make value-creating M&A a challenge. However, today’s valuations won’t persist forever, and there will doubtless be opportunities in the future to execute attractive acquisitions at bargain prices—but only for companies that are well prepared.
Be prepared to return more cash to investors. Shareholders will be more inclined to wait for investment opportunities to materialize if they are compensated for doing so. An increasing number of agribusiness companies have recognized this fact and are starting to distribute more cash to shareholders.