Tuesday, Oct 24, 2017
Agriculture | South America | Uruguay

Cereoil

A game changer in Uruguayan agriculture


11 months ago

The new Uruoil grain processing plant from Cereoil and its US-based partner Seaboard is a $220 million investment in adding value to Uruguay’s agriculture
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William Johnson

CEO of Cereoil

Cereoil’s new grain processing plant is set to have a major impact on adding value to Uruguay’s agriculture sector and raw materials, and will transform the company into a manufacturer, as well as producer and exporter, as CEO William Johnson explains.

 

In a South American region with Argentina getting out of a deadlock situation and Brazil with a projected fall of 3.3% of its GDP according to the International Monetary Fund, Uruguay stands out as a stable country with a solid legal framework that enables foreign investment and sets a reliable ground for international companies. How would you analyze the international positioning of the country?

The idiosyncrasy of Uruguay is that it is inherently stable. We live between two vast countries and we depend on them to do well.

In this context, and thanks to market policies that led the country in the last 20 years, its dependence on the region is declining. The dependence on Brazil and Argentina has been reduced, which allows us to better deal with moments of crisis. So in a contractionary scenario in the region, both in Brazil and in Argentina, you can see a stable, consistent Uruguay, even with a growth environment of 1%.

 

The agribusiness sector is trying to reach new markets around the world, especially in the USA, Europe and Asia. In Uruguay it accounts for almost 12% of GDP and stands out because of the efforts made to add value to raw materials, although many of them are commodities, so that they can reach the highest quality standards. How important is it for the sector to enter new markets further afield?

One of the reasons why we partnered with an American company like Seaboard was to avoid depending so much on Argentina and Brazil. Seaboard is in many parts of the world; it has experience and allows us to open other doors.

Our goal is to add value to the raw material. Today, for example, is soy. We have a very advanced project, Uruoil, and we are finalizing the permits. I am optimistic that by year-end we will have them all approved; after five years of starting to fight for it, we're now in the final stretch.

It is a large construction. The investment is about $220 million. The work and the implementation will take two and a half years. It will employ many people and we will add value to soybeans, as we will also enhance associated services with it having its own dock.

 

The country is making a significant effort and has a logistics investment plan of nearly $12 billion, with recently created PPPs that are beginning to work on railways and roads. For a company like yours, which exports mainly in bulk, what do these kinds of initiatives mean?

For a long time the country has continuously unmet its logistics and infrastructure needs and we need to catch up. Investments in roads will help to solve the inefficiencies we have today in the transport of grains.

If you have an inadequate road infrastructure, logistic activity is slower, and many breaks occur in the process. This raises costs.

Of course, it affects the competitiveness of the sector. These efficiency improvements will result in gains in competitiveness, and these will also be reflected in increasing the amount of area to carry out agriculture or forestry or whatever industry that may be developed in the fields near the new infrastructure. It improves the business climate for primary sectors.

 

Cereoil is going to enhance its portfolio with its new Uruoil plant, but it also produces flours and grains. What part of the business corresponds to each of the products and services?

Today Cereoil is a company that exports soybean. It has a flourmill and exports wheat and wheat flour, mainly to the region, and Brazil.

Our industrial vocation is intrinsic to the company. With the new oil plant the core business of the company will change a little. We will swap from exporting a large proportion of raw materials and begin to have a large proportion of industrialization. This will be positive for Cereoil and also for value-addition in the country.

We will go from being a trading company to a manufacturing company. That's the biggest change. And we will add services in logistics thanks to the new dock terminal.

 

The company has been working five years to get the permits for this plant. How it will impact your business?

We will add value in the order of 30%-35% of our soybean production. And always with intentions of growing more. The oil plant is designed for 3,000 tons/day but we already projecting an increase up to 10,000 tons.

It will have a powerful impact. If today we sell soybeans for $400, tomorrow we will sell the same soybeans produced with much more value. We will handle more volume and services. It is really a game changer.

 

The impact the investment will have on the area around the new plant will be very positive. How would you value the contribution from Cereoil to Uruguay regarding production, employment and welfare?

In the region of Soriano, it will be critical. It will introduce an industry that will strengthen the profile of the department as a producer. It will give it an industry with proven technology without any negative environmental impact and create good jobs with good remuneration. Also, given the circumstances, in the construction phase of the plant it will create a lot of work.

In two and a half years there will be many positive changes. It will give much support to the region. An investment of this kind raises the area. The city will receive a new impetus. Everything begins to grow on the back of something new. That's what we are looking for.

For this investment the company partnered with Seaboard. How did this partnership happen?

Three and a half years ago, we started looking for an investor to accompany us on this enterprise and Seaboard was best aligned with our expectations.

It is an alliance based on the new plant, and we expect it to be very successful. The only problem we had is timing: it is taking too long to be approved, but as Uruguayans we know our institutions, and we have the patience to keep going, and eventually the fruits of our efforts will be borne out.

In any alliance, each part has its role. Today it is our turn to push and tomorrow, when all this comes out, undoubtedly Seaboard will be vital. And that is where the alliance will look better.

Seaboard gives us the opportunity to learn and open markets, in addition to its extensive financial support. The business grows and requires more working capital. It's a win-win partnership; Seaboard has several industries around the world that will be our customers.

They are the off-taker. When you get to make an investment of this type, it looks fantastic in Excel because the numbers add up. But then comes the real time; to know who will buy your products is what validates de model. I have secured a demand for what I'm producing.

And this does not mean that afterwards you can’t explore new markets and try to add more value. It only means you have a high starting point, which helps give strength to the project.

 

Are you seeking other companies to associate with in the same way?

Once a company like ours begins to grow and you start having families depending on you, a CEO has always to keep looking to improve and grow.

Growth is always a goal. Today we want to consolidate this project. After that, surely we will want to do other things, and there's always room for third parties. If we closed our doors, we would neither be prudent nor intelligent.

 

International investors are beginning to appreciate other attributes besides revenue such as respect for the environment or carbon footprint, especially in the food industry. How does Cereoil work in all those areas?

Always with proven technology and state-of-the-art standards. Our plant is 100% efficient and does not produce any waste.

This project is designed to drive the processing and movement of grain. The loading of ships is done with dust extraction to affect the environment as little as possible. In the case of the plant itself, it is zero effluent.

We are engaged in various programs, especially as it has to do with agrochemical farmers who work with us. We also have a recycling program called “clean packaging field” here in Uruguay. Whenever we make a decision on how to operate, it is always done considering the environmental variables and economic impact on our region. We are a small country. It is very easy to destroy it but is also very easy to maintain and we strive to do so.

 

Cereoil is clearly really committed to the country. How would you describe this commitment?

We are Uruguayans, so we fight for our country. While we have a partner who is American, the idea is to invest in the country. We could also invest this project in Paraguay or the region, but we want to do it here in Uruguay. We believe it is viable, and that will give much support to Uruguay itself.

We want to do better for our country and our people.

 

This company was part of Crop Uruguay and now operates independently as Cereoil. The alliance with Seaboard plans a road, hopefully a very successful one. In all this time leading it what motivates you?

We started in 1999 with only two people and today directly employ 250 people and indirectly about 900. We are at the stage of growth to consolidate a more ambitious and transformative project.

The path makes us feel comforted. We think we will be much more than 250. That's what makes me feel prouder, beyond revenue.

The goal we want to achieve is to be the best locally. And then stand out in the region.

Also, when you get to a certain age, as I'm coming, you start thinking about future generations, and you stop thinking about yourself. So also I’m concerned about leaving something good for them.



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