Genetics and their importance

March 18th, 2016

By: Ashleigh Blausey, Lexington Everett, Dakari Howard, John Marsh

Today our journey had a planned start at 8:40 am, but we were delayed as we had a traveler fall back asleep after the wake up call. We headed on our way to the first stop of the day once all travelers were in the vans.

The first stop of our day was CIAVT in Santa Fe Province, Argentina. CIAVT is an agribusiness in Argentina that specializes in Artificial Insemination (AI). The company was founded in 1961 with a main focus on the gathering and selling semen of dairy and beef cattle.  When the company was founded, artificial insemination was an emerging technology gaining global adoption..  CIAVT brought technology from England to start there business in the early 1960’s and over the years has become a well-established and best AI company in Argentina because they were the foundation of artificial insemination expertise.  The first company CIAVT connected with for their selling and expansion semen abroad was ABS.  After some time, ABS decided to leave Argentina when it was purchased by another competitor.

As we listened to the speaker representing the company, it was quite apparent that he had great pride in this company. At first we believed it to be a facade that every company worker is forced to express. But as the meeting went on, their attention to detail seem to us, to go beyond other companies. One example of striving for excellence is when they milked the bull, and tested the sperm. They used a technology that takes pictures of the sperm with the stats of how healthy that specific batch is. They said that they were the only ones in the field that gave their customers this type of “Sperm Vision”, a term they coined. To us this is a clear example of CIAVT going over and beyond for the customer, and they didn’t say that they implemented this in order to increase sells or gained a competitive edge in the market. (Although that could have been their intention). We felt that what they expressed was that they simply did it because they cared about their customers, and thought it would be nice for them to see this “Sperm Vision”. Another example of the company’s pride and attempt for perfection can be seen in how they treat their animals.

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They treat the bulls with care that was uncommon in the field. As our speaker boosted “Do you see these fields? When we bring Americans to see our operation, they all say that four or five bulls could fit in the same area that we have one in.” He continued “I always reply. Our bulls are happy! You can always see them prancing and gallivanting. Do your bulls do that?” This is when we saw what was really important to CIAVT. Their main concern was how they did business, not if they made the most money. We have seen the same mindset within most of the Argentinian companies that we have toured throughout the entire trip. So this contrast is between the U.S.A. and Argentina, not between other Argentinian companies. It’s an Argentinian mindset or pride, that you must be the most ethical in the field and do things the right way. (Although right and wrong is subjective). Don’t get us wrong we don’t believe that companies like CIAVT keep profits in the forefront of their mind. But we do believe that they do business on a foundation, composed of values and morals at its center, and less about profits. At the end of day it comes down to, not what you do, but why you do it. Where we see a lot of American companies do things that are seen as ethical for profits. While in Argentina we feel that a lot of companies are doing ethical things because they believe that it’s the right thing to do, and are following a strict moral code, that sometimes contradicts economic growth and profitability. We think the key word is strict. Because some of the choices they make are for lack of a better word, foreign to us.

Next on our trip was Dow Agro-Science. This company is was well known to many of us students before coming to Argentina.  Dow has branded and expanded themselves throughout the world. The facility that we had the pleasure of touring housed four ear corn pits, seventeen dehusking beds, and four dryers. With all the set up and organization that Dow had at this facility they are able to condition ten tons of crop per hour and bag six-thousand seed bags per day.  All of this soon to be corn seed is coming from the five thousand and seven hundred hectares of land.  When Dow harvest the corn to turn into seed corn, it is harvested out of the field at thirty-five percent moisture in order to allow the kernels to be properly dried for the best germination in the next growing season.  Once we finished touring the facility we got to go through a presentation and learn about the new technology that Dow is going to be selling called Enlist.  This technology is to help kill the herbicide resistant weeds that over use of herbicides has created. From these stats you can clearly see that Dow is an international powerhouse. But with all their money, market share, and power. They still have problems with the most basic economic trait – payments of technology fees. In Argentina, they said in is hard to get the farmer to pay for the seed product after they use it. The only type of seed that causes the problem is soybeans, because the soybeans can be saved and planted the next season.

They have tried many different approaches to collecting the technology fees but with limited success. Although this problem persists, I don’t see them slowing down their progress in the near future.

 

After the two wonderful tours we had today we loaded up the vans and started the last leg of our trip to Mendoza.  We had about a seven hour drive until we finally reached our destination for the night. With this long drive, many used the time wisely to catch up on some sleep. Once we caught up on some sleep, we started to play a game called town’s people and mobsters.  This game is really entertaining since we have a narrator who comes up with a town name and then decides who is the mobster, nurse, electrician, and town’s people. The only catch is that when the characters are being decided everyone’s eyes are closed so no one knows who is who.  Then it is up to the towns people to try and eliminate the mobster before the mobster eliminates them.  Eventually we finished with games and sleep and made it to our hotel where we settled to prepare for the next day.

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A little white water and some air miles

March 19th

We have a little downtime on the weekend in Mendoza.  Why not get in some time on the river and do a little flying. These two activities were amazing. We had the opportunity to see people cross things off their bucket list like whitewater rafting and then overcome fear of heights while zip lining. Truly awesome day!

Whitewater rafting in the Mendoza River!

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A few pics of zip lining over ravines and the river.

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To the countryside we go..

By: Megan Harper, Shelby Wade, Cori Green, and Lauren Nickell

March 17

With stomachs probably still full from the steak dinner last night, this morning, we packed our things and headed out on our first cross country venture. Souped up to look like Mercedes, our two fully packed vans left for our first visit of the day. Before we could even get out of the city, both buses were soft asleep dreaming of wine, zip lining, and all the other adventures that are to come.

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For the first time we were out of the city and finally got to see some of the Pampas that we had been described all week. Imagine a mix between the rolling hills of Kentucky and the flat Corn Belt seems to be the perfectly way to describe it. Unless you looked at an Argentinean license plate, the combination of horse, cattle, grain bins, farm machinery and row crops being harvested, our route simply felt like traveling in the United States.

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Today we visited Haras La Leyenda which is a Thoroughbred horse farm. The operation is on 250 hectares in which they carry out a breeding, boarding, and studding business in the  horse racing industry. The farm was bought in 2007. They did research in 2008 by spending two weeks in Lexington at the major horse farms and then came back and created a team to develop a business plan and  farm plan.  In November of 2008, they bought their four foundation mares at Keeneland.  To date they still come to Lexington for the sales every year twice a year. (In fact one of the other classmates helps them export horses from Lexington to Argentina.  By the numbers this farm has 19 employees, 90% pregnancy rate, and 250 horses. They have been very successful in the horse racing in Argentina and are selling breeding stock all over.

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Unlike Polo games – horse races, jumping events, and dressage are for everyone. Many parents even send their kids to learn about dressage. Owner says the three keys to his success were Good Labor, Good Pasture Control, and Genetics.  There were several differences to the operation to how we do horse racing in Lexington. One is the horses eat 20% hay, 15% concentrate, and the rest is from grazing soybeans and corn on rotation during the Summer months (January to February).  They graze down to 40% of the stems and don’t want them too full because they want the horses to move around the pasture. They want 17-18% alfalfa hay which is mostly stems.  Horses are weighed every 2 months to monitor their nutrition and pasture effectiveness. Horses are almost always kept on pasture. The exceptions are if they are preparing them for sales and breeding. They also still do the pony beside pre-sale training even though it involves more use of resources and labor.  The team was very cultural loyal aware of Argentina and history of Argentina and more or less used it as a guide in decisions.

After the thoroughbred farm, we visited Rizobacter microbiology company which specializes in seed treatment. Their mission is to supply technology and solutions to farmers. They are the pioneers of the production of liquid inoculations which are when plants have symbiotic relationships with bacteria. Rizobacter works mostly with soybeans. In the United States, the biology is driven by the chemical where as in Argentina it is inoculant/bacteria driven. This is because we have to deal with weather temperatures, and disease during planting season.

Rizobacter uses 50% of their profits for research and development. They are committed to environmental care and high quality standards. They modeled their company structure much like the symbiotic relationship of the soybean and bacteria. They have many alliances. Syngenta is one that is popular in the United States. Rizobacter sells more of Syngentas products in Argentina then they do themselves. Both companies benefit from one another. A few of the companies that Rizobacter develops technologies for us Dow, DuPont, and Monsanto.

Overall, today was exciting and informational. The group enjoyed visiting our first Argentine farm, and took lots of pictures of the Kentucky bred stallions. We watched a 3D informational video on the process of inoculation at Rizobacter, listened to a presentation given by  marketing manager Lionel Thomas. After our two hour van ride to Venado Tuerto, we arrived to our hotel and walked the 10 blocks to our restaurant where we feasted on pork chops, grilled chicken, and T-bone steaks. We then ran through the pouring rain back to our hotel lobby where we proudly watched the cats beat the Stoney Brook Seawolves. Go Cats!

The Big Picture – Price Discovery, Executive Power and Role of Public Sector Information

By: Todd Davis and Tyler Mark

March 16

The day started with an early trip to the Liniers Cattle market located just outside the Capital Federal limits but still part of the greater city of Buenos Aires. About 20% of Argentina’s cattle are sold through this market in an auction style similar to the Chicago stockyards of 40 years ago. One unique feature of this stockyards is that all animals sold through the market are terminal animals or no breeding stock is sold through this market. Many slaughter facilities are located near the market for the next step in the beef supply chain.

Liniers is the primary point of price discovery in the cattle market with the auction price serving as a reference price throughout the country. US commodities use the futures market for price discovery with basis serving to adjust the local price.

The class toured the Government House (aka the Casa Rosada) to see the executive branch of government. Argentina’s constitution is based on the US constitution in form, but not necessarily in spirit. Argentina has had several administrations that had strong executive powers that implemented farm policy without congress providing a check and balance. Hence the conflict between government and farmers over policies to promote cheap food which result in commodity price distortions and unprofitable production. This also creates a very unstable agricultural sector that requires long term investments and stable policies. Farmers and agribusiness hope that the new president, Macri, will be more market friendly which will result in more investment in agriculture and farmers making decisions based on economics instead of responding to political forces.

The final stop was with the Ministry of Agriculture, similar to the USDA. Some American farmers view the USDA reports as being wrong and intentionally trying to distort production in a way that lowers commodity prices. The rest of the world envies the transparent and consistent methodology used in USDA’s surveys of production, consumption, and potential supply and demand balances.  The private sector in Argentina tends to fill the information void by doing specialized estimations and surveys that lack the statistical validity of USDA reports. The point of this visit is that unbiased information improves the function and transactions within the supply chains. As USDA responds to budget cuts and reducing the frequency of some surveys, will the US farmers and agribusiness step in to fill the void in providing market information?

Big Picture– why do you buy an asset?

By: Todd Davis and Tyler Mark

March 15

The class had an eye-opening discussion with Cresud which started as a farm management / farmland owning company that has grown to be the primary holding company of office real estate, shopping malls, and real estate throughout South America and Israel.

Cresud has a focus on ROI whether in farmland or commercial properties. They choose to purchase undeveloped farmland on the edge of the primary production region that is not in any type of agriculture. They pay a very low price to buy the land, make improvements to bring the land into cattle production and then eventually into crop production. This process takes time but can earn a return of over 5 times the purchase price. The same philosophy applies to their investment in commercial properties.

Cresud manages farms but prefers to only buy assets that generate a return. Hence they do not own farm machinery and instead prefer to hire custom farming operations which transfer a fixed cost into a variable cost. In an environment that lacks the tax incentives for machinery investment and lacks low-cost credit, this business model makes sense even if it is a foreign concept to American students. Could US farmers implement this strategy?

MSU is another land holding company but does not have the commercial diversification as Cresud. MSU has financed growth by selling bonds to European insurance companies that wants to add commodity agriculture to their portfolios. MSU uses the capital to purchase land and serves as a farm management company to generate a return to the bondholders.

Both Cresud and MSU spark the philosophical question of why are farmers involved in farming? Farmers that do not budget a return to owned land, operator labor and management are serving a noble production of food production but are selling their resources (land and human capital) cheaply. In the words of Cresud they are the “world’s gardeners”.  Cresud and MSU are not ashamed of their goal of fulling compensating all economic resources.

The afternoon meeting with HSBC highlights the credit constraints in Argentina. Many farmers use vendor credit on a rural credit card that has a promotional interest rate of zero percent for 6 to 12 months. If the balance is not repaid, the interest rate becomes about 40%. In a period of low prices and high costs, Argentine farmers have experienced profitability and liquidity problems. The 40% interest rate on operating credit only adds to their liquidity problems.

AACREA is similar to a private sector Extension organization. The goal is for farmers to work together to share information in learning new technologies and improve their management skills. The class seemed focused on the non-profit and communal aspects of AACREA. The members of AACREA are not working towards a socialistic utopia. They are focused like a laser to improve their profitability. The non-profit aspect of AACREA is for tax purposes and helps in sourcing sponsorship from agribusinesses to reduce the per member cost of the association.

HSBC and AACREA are important parts of the supply chain. The technical information provided by AACREA helps farmers become more efficient. HSBC and other credit institutions are vital to agriculture as money truly makes the world go around.

Big Picture: The importance of supporting institutions in a supply chain

March 14

By: Todd Davis and Tyler Mark

The class jumped into the discussion of supply chains at 8 am Monday with a visit to Aceitera General Deheza at their corporate office in Buenos Aires. Carlos “Billy” Haeberle, AGD’s economist and trader, provided an excellent overview of Argentina’s agricultural economy. AGD is the largest Argentine oilseed crusher/exporter and Billy provided an overview of the company’s product lines beyond soybean meal and oil like vegetable oil, mayonnaise, and other cooking sauces. Billy also shared AGD’s infrastructure, and risk management practices. AGD has a competitive advantage by owning a network of grain elevators in the interior in an area void of on-farm or off-farm storage bins. AGD also owns a rail line that runs through the main production region which is a low cost alternative to trucks which hauls the majority of Argentina’s grain and oilseeds to the port at Rosario. A final risk management tool is that AGD owns and farms grains, oilseeds, and peanuts which provides commodity inputs whenever there is disruption in the cash market and keeps the processors running to avoid the costs of a total shutdown of crushers, ethanol and biodiesel processing.

Schutter Argentina provides certification and verification services that helps the supply chain function. John Adams once said that “If men were angels, no government would be necessary.” The same applies to certification and verification of quality and grade standards with regards to trade. The buyer has the right to use Schutter or similar companies to ensure that the seller meets the contract terms. This service is paid by the seller which helps motivates proper delivery of the grades and standards. Schutter maintains the quality samples in case of an arbitration of a dispute between the buyer and sellers.

The final visit was to the Senate Agriculture committee. This committee is similar to the US except that the professional staff serves both the majority and the minority political parties. The staff shared with the class how they work with Senators and related groups to form policy that affects farmers and agribusiness.

In the context of supply chains, it is clear why we visited AGD as they are a principle player. The role of Schutter is more subtle but may become more important if consumers increase their preferences for sustainably certified produced agriculture. For example, ISO 9000, Round Table for Responsible Soybeans (RTRS), and Global Gap just to name a few of the certifications gaining popularity.  RTRS is a large organization that certifies sustainable farming practices for soybean production. RTRS is gaining acceptance in South America but has limited adoption in the United States. If China ever decides that sustainability is an important part of their tastes and preferences, then the US will have to obtain RTRS certification in order to sell soybean and soy products to China. This implies more of an identity-preserved and segregated export chain that is higher cost and less efficient than the bulk commodity system currently in the US.

Value chains need supporting institutions like Shutter and even government to keep the players in the chain coordinated and to mitigate disputes. The US is fortunate to have a government that is supportive of agriculture and infrastructure. Other competing countries do not have that same advantage.

Managing and Financing with no safety net

By: Connor Jones, John DeReamer, Brad Blincoe, and Dante Zanelli

On Tuesday March 15 during our second day of meetings for the Argentina Agribusiness Seminar we had the opportunity to meet with officers of four (4) companies. We visited the offices of Cresud S.A., Group MSU, HSBC Argentina and CREA.

To start the morning off, we met with Cresud S.A. (http://www.cresud.com.ar/) officers which provided a look into their diversified elite agriculture business operation. Santiago Donato, the investor relations officer of the company, explained the model of the company and how their vertical integration led to concentrate their focus in real estate holdings. This diversified model focused on holdings like farm land, shopping centers, hotels and office space. This allowed them to hedge against devaluation and inflation, but overall the company appears to be land developers, and not necessarily long term farmers.

The next meeting brought us to MSU, a family owned company that was grown into a co-joined enterprise between the Manuel Santos Uribelarrea with Spain and Dutch based investors. Our speaker was Guillermo Marseillan, the company’s business development manager. MSU labels themselves as a “pure play” agriculture company. They manage farmland, and receives a management and performance fee for their services. Their model differs from Cresud’s, as their focus is farming, but also that they have concentrate those farming efforts while leasing most of the land they manage; a model that is not common in the United States.

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Later in another of our meetings, Patricio Gonzales Chaves, an HSBC Argentina Team Leader Agribusiness banker explained to our group that when Cresud S.A. wants to purchase more land they just issue more shares, but in the other hand MSU raises funds through third party investments on basis of commodities funds sold to European investors manage with international pension funds. It is what they called a pure play of soft commodities.

This brings us to our third meeting. This was with the banker Patricio Gonzales Chaves from HSBC. Chaves began his meeting outlining the policy challenges of the last 12 years in Argentina where the situation was not good for the free market or farmers. After the election of the recent president, Mauricio Macri, business policy has begun to be more pro market. Whereas, before they had a “closed economy,” they now have a more open economy with lowered tariffs and more access to U.S. dollars. They still face challenges though, such as inflation, concerns of a weakening ARS, more tariffs, and no majority in Congress. Patricio also explained how most Argentine farmers use vendor financing to purchase inputs on a rural credit card. This card offers a zero percent interest if repaid in 6 months. Then the interest rate soars to 35% to 40% interest (paid on Argentine Pesos). This is crazy! Do you think US producers would know how to manage this type of risk?

Lastly, we were given a presentation by Federico Guyot, a team member of the organizational direction for AACREA. This is known as the Argentine Association of Regional Consortiums for Ag Experimentation. Federico was a great speaker and started out describing the non-profit organization that gathers groups of farmers and gives them support that leads to better productivity, yields and relations between farmers. CREA, which was founded in 1960, stands for Association of Regional Consortium for Agriculture Experimentation and has 2200 members throughout 18 regions in northern and central Argentina. Members work in groups to share experiences and generate knowledge as well as share ideas. Benefits of this system have been proven to increase yields by over 50%. The benefits also include teamwork, development of new skills, training, adoption of new technology. This contrasts to the more independent and competitive nature of North American farmers, and the closest comparison to the services provided by this organization will be to those provided by the extension programs by the Land Grant Universities in the United States. Mr. Guyot shared a thought that could interpret as a Trading/Enrichment Golden Rule: “An apple for an apple = 1 apple each, while an idea for an idea = 2 ideas each”.

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