Business Model

BEF:s Business Model

Business Model

BEF:s Value Chain (PDF)

 

 

Land Ownership

  • Land is BEF’s key production asset.
  • Through the Agroinvest Group of companies, Black Earth Farming controls 256 k Ha. of land in Tambov, Samara, Lipetsk, Voronezh, and Kursk regions, out of which 89% are in full ownership, 9% are leased and 2% in process of registration.
  • BEF’s current land strategy is directed at optimizing and consolidating the land bank to improve yields and increase operational efficiency.

 

Value drivers

  • Soil structure, growing days, rainfall, climate conditions
  • Cropped, grass or fallow land, topography
  • Location in relation to infrastructure
  • Distance to export channels and deep sea ports
  • Consolidation of land blocks
  • Access to infrastructure (rail, storage, local processing capacity)

 

Cost drivers

  • Investment requirements to bring land in production
  • Investments requirements to remove yield constraints
  • Soil quality maintenance
  • Land taxes and lease costs
  • Registration process and legal costs
 
 

 

Input/Machinery Procurement

Each production cluster is supported by the central organization in terms of procurement of the major input items as well as expenditures on equipment and maintenance. The central organization coordinates investments and purchases to benefit from scale discounts and contract terms. The industries in each sub-category of major inputs are generally highly consolidated with a limited number of suppliers.

  • BEF fully owns a machinery fleet of more than 500 vehicles, including John Deere/CLAAS combines, tractors, spreaders and sprayers and other machinery equipment/li>
  • Key input materials include seeds, sprays, fertilizers, fuel and spare parts. These industries are generally highly consolidated with a limited number of suppliers
  • The Company centralizes procurement of machinery and input materials to benefit from scale discounts and contract terms

 

Value drivers

  • Production scale and crop mix
  • Quantity and quality of application of inputs
  • Financial flexibility to source and store material opportunistically
  • Position to achieve discounts
  • Consolidation of business to allow higher capacity utilization of equipment
  • Maintenance vs replacement capex

 

Cost drivers

  • Seeds, herbicides, fertilizers, fuel, spare parts
  • Maintenance and equipment life cycle
  • Capital costs (depreciation)
 
 

 

Field Works and Harvesting

  • BEF applies scientific farming and management technology to generate high crop yields of good quality at low unit costs
  • Land consolidation, new management information systems with technology driven control mechanisms (notably GPS and fuel sensors), revised and uniform management and labor organization, and performance driven incentive structures have been applied to improve operational efficiency in field applications, machinery fleet utilization, and logistics

 

Value drivers

  • Harvest area, crop mix, crop yield
  • Precise and timely application
  • Support and maintenance infrastructure
  • Management information systems and access to real-time data
  • Crop mix decisions are driven by profitability, risk management, rotational and logistical factors

 

Cost drivers

  • Fuel, spare parts and maintenance
  • Capacity utilization
  • Crop Insurance
 
 

 

Crop Handling and Storage Logistics

  • Logistics involved in crop handling and storage is critical to minimize crop quality problems, reduce fuel and other costs as well as to shorten the harvest period
  • BEF has total storage capacity of 470kt,
  • 230kt of storage capacity is at railhead
  • Net quantities and quality are assessed in labs at electronic weighbridges
  • Harvested crop is transported to drying and storage facilities such as elevators or on-farm storage sites
  • The Company is broadly self-sufficient in storage capacity and can therefore delay sales over trough price periods
  • Storage facilities are monitored with CCTV systems

 

Value drivers

  • Yield (volume) and crop mix (weight and sensitivity)
  • Weather impact on quality and processing requirements
  • Management of transhipment and logistics
  • Quality economics: Wet or dry sales vs. processing costs
  • Storage economics: Cost of dry storage vs. price forward curve

 

Cost drivers

  • Spare parts, maintenance,
  • Fuel and capital costs of transhipment
  • Capital costs of storage and drying capacity
  • Diesel, power and labor costs
  • Inventory insurance
 
 

 

Sales and Marketing

  • BEF sells its crops both domestically in Russia and via exports to international customers
  • Total revenue was US$130mn in 2015
  • Between 20-40% of sales volumes are typically exported.
  • The Company runs and managers its own export program via Black Earth Trading International Ltd (established in decamber 2013)
  • Since 2013, BEF hedges sales through grain futures position on MATIF and CBOT

 

Value drivers

  • Price (domestic and international supply/demand balances)
  • Cost of working capital (cost of storage vs. forward price pick-up)
  • Export net-back margin
  • Price volatility in local and international markets
  • Hedge position and collateral requirements
  • Retail access in value chain (vegetables)

 

Cost drivers

  • Selling and distribution costs; rail transport, port storage and handling, shipping and insurance, brokerage fees
  • Sales administration
  • Risk of export restrictions