Integrated strategy

The management style of grouping similar businesses in the same business platform reached South America. In 2016, we began to operate in an integrated fashion throughout the grain production chain and processing of soy, cotton, sugar cane, corn, palm, sorghum, and wheat from Argentina, Bolivia, Brazil, Colombia, Ecuador, the United States, Paraguay, Peru, the Dominican Republic, Uruguay, and Venezuela.

The main objective of the new business management model is to leverage synergies and gains in efficiency, which the company intends to translate into performance benefits for shareholders, clients, suppliers, employees, and the communities where we operate.

Benefits:

Agility

Quality of products and services;

Competitiveness

More operational safety

Career opportunities for employees

Countdown at Três Lagoas

We began the first operational tests and are almost ready to reopen our soybean milling plant in Três Lagoas (MS), whose expansion work began in 2014. With an investment of BRL 240 million, the soybean processing capacity jumped from 2,100 tons/ day to 3,200 tons/day beginning in 2017, when we resumed 100% of the operation, which will allow us to increase the production of meal and oil for producing biodiesel.

In biodiesel production, glycerin is also obtained, used in several industrial applications. With the refinery, a 99% pure glycerin will be produced, whose applications are directed to the cosmetics, food, and beverage industries.

The expansion project also includes the expansion of rail and waterway modes, through which we will transport our production. The extension of the rail terminal will serve to improve the biodiesel load; and the waterway terminal will improve for the meal load.

What's new

With experience in distribution and the strength of the brands Borges and Maria, Cargill is preparing to market the products domestically. See also the highlights of 2016 in the categories of tomato sauces and oils and fats.

Promising partnership

The agreement to market products from Borges Branded Foods was one of Cargill's main initiatives in the food category in 2016. Since September, we added extra virgin olive oil, the premium olive oil line, and Borges balsamic vinegar to our portfolio, as well as the new Maria extra virgin olive oil, directly from Spain.

In the last months of the year, we were dedicated to importing and analyzing the product line and distribution strategies. We combine Borges' knowledge and tradition with Cargill's excellence in execution. We want to cover national territory - remembering that Borges is already very strong where it is present, mainly in the Southeast Brazil. Communications actions are planned for the second half of 2017.

Contribution to the market

In order to demonstrate our commitment to Brazil's current standards, we comply with the National Health Surveillance Agency (ANVISA), and in August 2016, we started a public campaign to collect products from the consumer market. We point out that Cargill adopts strict controls of food safety, hygiene, and quality, as well as best manufacturing practices, as established in the applicable standards, in order to guarantee a product that does not pose any health risk. We evaluate health and safety impacts and look for improvements in almost 100% of our significant product and service categories. (G4-PR1)

Regardless of the collection issue, it should be noted that in the last five years we have made solid investments in processes and equipment throughout our production chain, which involves activities in the field, harvesting, separating fruit, transport, and cleaning, reinforcing Cargill's conviction to continuously improve itself through technologies and innovating processes and products.

We are strongly committed to food safety.

Integrated operation

Our corn biorefinery, in Castro (PR), already operates with the first client based at our site. With this model, unprecedented for this segment in Latin America, we expect to have social and environmental gains, and boost business in the region and long-term business relationships.

In a market with a growing demand for a higher value-added product that overcomes the commodity concept, Cargill has been investing in its portfolio in the area of starches and sweeteners, constant labor training, and structuring differentiated services. In March 2016, we consolidated an important part of this strategy: serving clients with factories on the same site.

The project began three years ago, with the inauguration of the Castro plant, located 200 kilometers from Curitiba (PR), where we process corn for the production of its by-product ingredients, such as starches, glucose syrup, and dextrose. With this initiative, we created about 800 indirect jobs in the region. The total area is 352 hectares, of which 2.5 are occupied by Cargill. The rest is occupied by other partner company facilities. Our first neighbor is Evonik, a world leader in specialty chemicals.

The challenge of cocoa

To mitigate impacts caused by Brazil's drought and economic downturn, and fulfill our 2016 commitments, we seek even more efficiency by importing part of the raw material needed in our cocoa and chocolate operations.

The year 2016 can be summarized as a challenging year for the cocoa business, for Cargill and the whole country. Three main factors made the scenario more difficult in the period:

The severe drought in Bahia was detrimental to the crop, and also demanded efforts in water management

The low availability of raw materials affected our price competitiveness

There was a drop in Brazilian purchasing power, who in the last three years began replacing products with higher value added with cheaper options

It is important to point out that Brazil has a more complex reality regarding cocoa than the rest of the world. We are the only country with great consumption potential that produces cocoa itself.

In this context, two areas support our work regarding the development of this market. We are dedicated to both productivity, with significant investments in partnership programs, and adequate environmental and social conditions for cocoa production. For these reasons, in addition to launching a certified product, today Cargill is one of the leaders in this discussion and in the quest to improve sustainability in the Brazilian cocoa crop (see “Sustainability in the cocoa supply chain”).

Entering in new markets

With the challenge of doubling its market share over the next three years, Cargill begins operating throughout the industrial oil production chain and enters the cosmetics market.

For the Cargill Industrial Specialties (CIS) business unit, focused on the production of high value added industrial oils - 100% renewable and biodegradable -, the year 2016 was a significant evolution. We gained new clients, entered the cosmetics segment by launching Lyveum (see table), an unprecedented solution for the cosmetics market, and acquired a micro-ingredient company in Ponta Grossa (PR).

Some factors contributed to CIS dealing well with obstacles such as the country's political and economic recession and difficulties in the processing segment, also affected by the price of oil. Some of the main ones are:

Portfólio Diversity - We operate in the consumer, personal care, processing, oleo chemical, and corp protection segments, a variety that allows us to better overcome periods of crisis;

Technical competence in providing services and controlling costs.

Solutions for animals

The drop in Brazilian purchasing power and the historic rise in the price of corn in 2016, due to water instability that resulted in a 20% reduction of the country's corn crop, also required extra efforts from the animal nutrition segment, which includes our Animal Nutrition business. With the economic recession, people began consuming less animal protein, since it is more expensive than vegetable protein, affecting the financial structure of the whole chain.

The challenges, however, did not stop us from moving forward in our purpose of becoming a key partner. To address these challenges, we rely on our business model and intensify our efforts to bring new products, new technologies, and qualified service to producers and ranchers, to help them through this most critical period, contribute to their growth, and strengthen our business ties.

With three factories, located in Itapira (SP), Toledo (PR), and Chapecó (SC), the Animal Nutrition business in Brazil has an annual revenue of BRL 700 million - and the advantage of having the experience and cutting-edge solutions developed by our global matrix. We stand out on four major fronts of animal nutrition in the country - pig farming, dairy cattle, beef cattle, and poultry - and we provide, on a much smaller scale, nutrition for domestic animals such as dogs and cats.

Learn about some of our differentiators, and what we offered to the market in 2016:

Long-term relationship

Banco Cargill is the financial arm of Cargill in Brasil. This way, we are always close to producers. We closely understand their reality and their needs, and work to achieve a virtuous cycle, in a safe, healthy financial scenario guided by ethics and best market practices.

The institution provides services and loans to agricultural, industrial, and cooperative clients through an agile credit approval process, won by Cargill's credibility and knowledge of agribusiness. In 2016, we went through a phase of severe instabilities in patterns of rainfall, aggravated by the loss of the country's investment grade at the end of 2015. The States of Maranhão, Tocantins, Piauí, and Bahia had a 50% crop failure in cotton and 40% in soybeans. In Goiás, there was a 75% crop failure in corn. In Bahia, which experienced its fourth year of drought, we also faced the problem of helicoverpa, one of the most aggressive pests in agriculture.

Given this scenario, our strategy was to stay with rural producers, providing financial alternatives in a time of severe shortage of financing in the market. We plant long-lasting relationships and are confident about the 2017 crop, which looks as if it will yield good results.

Bank figures in 2016