Decio Zylbersztajn
UNIVERSIDAD DESA˜ OPAULOJonathan C. Turner
ROYALAGRICULTURALCOLLEGEJames V.H. Jones
ROYALAGRICULTURALCOLLEGEA chance meeting at the Harvard Business School Agribusiness Seminar the consumer is prepared to pay higher prices for pig meat (or any other product) with value added that may not be immediately evident. In the in 1976 is the backdrop for this case on the alliance of two agro-enterprises.
The first, Agroceres, was a Brazilian producer of genetically improved United States, pig producers have launched a campaign advertising their product as “the second white meat”. Will this approach work in Brazil? corn seeds that was seeking to reduce its dependence upon a single
product; PIC is a British animal genetics company specializing in the And if so, who should finance the advertising campaign? Amid these challenges is the spectre of competition. The case describes the acquisitions improvement of pigs that wishes to position itself in emerging markets.
For both, the alliance a means of achieving corporate objectives. Alliances and fusions taking place among major players in plant and animal genetics. Brazil and its neighbors in the southern cone offer attractive markets. If between enterprises of the northern and southern hemispheres are a means
of facilitating technology transfer and access to new markets. In this case, Agroceres-PIC is to retain its advantage as first entrant, it must take measures to reduce costs. J BUSN RES2000. 50.71–81. 2000 Elsevier a company with experience in plant genetics, Agroceres, becomes a full
partner in a program to revolutionize the breeding of pigs on a large Science Inc. All rights reserved. scale while PIC, the Pig Improvement Company, is well situated to tap
the great expansion potential of the Latin American market. The case
D
uring the welcoming ceremony of the annual agribusi-describes the world pig industry and recent technological improvementsin pig breeding that allow superior genetic merit to be transmitted. By ness seminar at the Harvard Business School in Janu-ary 1976, Mr. Ney Bittencourt, President of the Brazil-1995, Agroceres-PIC had been highly successful in the adaptation of these
technologies to the Brazilian market and was looking forward to another ian company Sementes Agroceres, S.A. was introduced to Mr. Ken Woolley, managing Director of the Pig Improvement 20 years of growth. However, the Vice-President of Agroceres in charge
Company (PIC) of England. Agroceres had been operating in of the Animal Division, Dr. Roberto Butteri, had some concerns about
the field of plant genetics since 1945, its main business being the future. These concerns reflected the more general problems and
chal-in the field of hybrid corn seeds. PIC had been chal-involved chal-in lenges of strategy formulation in the Latin American agro-enterprise. The
animal genetics since 1963 and now held the premier market first concern is how to ensure that technology benefits the small and
position in the production of crossbred pigs. medium as well as the large producers. The PIC concept, unfortunately,
Shortly before this meeting, Mr. Bittencourt had submitted is designed to be used with very large-scale operations. If Agroceres wants
a report to his Board of Directors expressing concern about to see the benefits flow to the smaller pig breeders, it must invest in
his company’s dependence upon corn seeds, which repre-training programs. A second challenge for a Latin American enterprise
sented 80% of total sales. The Board subsequently decided such as Agroceres that enters into an alliance with a multinational firm
to explore diversification to other products with which the like PIC is how to maintain strategic flexibility to expand geographically
company could apply its technological expertise in genetics. and not be limited by the actions of partners in third countries. In this
This was mirrored from the English side where PIC was con-case, PIC has been acquired by another multinational whose long-term
cerned about being positioned in emerging markets with de-strategy in South America is unclear. A third challenge for the Latin
veloping potential, amongst which were China, South Korea, American enterprise, which like Agroceres seeks to introduce a
differenti-and Brazil. Nevertheless, PIC’s international experience indi-ated product to the market, is consumer education. It is not clear that
cated that the key to entering international markets depended upon the identification of a reliable and skillful partner with
Address correspondence to D. Zylbersztajn, University of Sao Paulo, School the technological knowledge in genetics, essential for the com-of Economics and Business, Av. Prcom-ofessor Luciano Gualerto 908, 05508-900
Sao Paulo SP Brazil. mercial success of the business.
Journal of Business Research 50, 71–81 (2000)
2000 Elsevier Science Inc. All rights reserved. ISSN 0148-2963/00/$–see front matter
By the end of the seminar, a new joint venture was born.
The International Pork Industry
Agroceres-PIC began operating commercially at the beginningThe world pig herd was estimated in 1992 at 956 million of 1978.
pigs producing approximately 72 million tons of meat. The PIC, which was subsequently acquired by a large
multina-global demand was increasing considerably due to population tional company, Dalgety, had by 1994 set up 25 subsidiary
and income increases in the main consuming countries, a fall companies in over 30 countries producing 1.1 million
cross-in the price of pork, convenience food processcross-ing, a reduction bred gilts and generating sales of US$30 million per annum.
in fat content, improved attractiveness of taste and texture, In the same year, 35% of the pork produced in Brazil under
and consistent marketing programs. Meat consumption “in federal supervision originated from Agroceres-PIC genetic
ma-natura” was concentrated in the countries with mild climates, terial, representing sales of US$18.9 million.
whereas in the tropical countries it was the consumption of processed food that developed most.
The world consumption of pork per capita/per annum was
Agroceres Background
around 13 kg, ranging from 22 kg in North America, 10 kg Dr. Antonio Secundino de Sao Jose, founder of Agroceres and in Asia, 41 kg in Europe, and 19 kg in the countries of Eastern father of Mr. Bittencourt, had developed an interest in animal Europe. The consumption per capita increased annually by genetics in the 1970s and created a pig reproduction centre 8% between 1985 and 1992, according to a study made in Rabobank by Gaasbeek et al. (1993). Asia presented the great-in Patos de Mgreat-inas, where he replicated great-in pigs the success
est growth with 32% a year, whereas the consumption trend obtained by the company in plant genetics with hybrid corn.
in Europe was decreasing (see Table 1) (van Gaasbeek, Borg-Dr. Secundino, however, considered that the technological
stein, and de Vlieger, 1993). gap in animal genetics was already too great to depend upon
International trade was limited and concentrated in the technology developed for seeds. Thus, in order to gain access
countries next to large consumption centers, explaining why to international genetics, it was necessary to set up a
partner-Denmark exported 50% of its production, whereas China ship with a company that had the available technology—a
exported only 2%. The markets considered most promising world leader in porcine genetics. The need for the genetic
for future growth were China, Japan, Thailand, Taiwan, and basis to be modified for local needs, or “tropicalized,” was
Brazil. Approximatly 70% of the world trade took place within not considered as important as it had been in the case of corn.
the European Union. Germany, Italy, and Japan were the Many possibilities were considered. The Dekalb Group
largest importers while Denmark, Holland, and Belgium/Lux-and N.D.P. were contacted in the United States Belgium/Lux-and Europe,
embourg were the largest exporters. respectively. Everything indicated, however, that the meeting
The international supply of pork was affected by the in-between the two corporate presidents at the Agribusiness
sem-crease in consumption and by productivity improvements due inar in Harvard had been the defining moment in setting this
to the dissemination of better genetics and handling technolo-strategy in motion.
gies. The largest producing countries were China, USA, Ger-In 1977, Agroceres, Swift-Armour, Natron, and PIC set up many, and the Eastern European countries (see Tables 2 and 3) a partnership of equal shares, establishing the operation in (van Gaasbeek, Borgstein, and de Vlieger, 1993). The producer Brazil. In December of that year, despite the problems of countries that specialized in intensive production, such as African pig fever facing the industry, an air freight Boeing Holland, were subject to growing environmental limitations. from England landed secretly in Brasilia with the first lot of The factors considered essential for competitiveness in the pig animals. After the first steps were completed, Swift and Natron sector are:
sold their interests to Agroceres, and in 1982 there was a
1. Geography: especially related to the proximity of the capital call that was not followed by PIC, leaving Agroceres
markets. with 87.7% of the shares and PIC with 12.3%. In 1998
Agro-2. Climate: which determines whether the meat consump-ceres sold the seed operations to Monsanto focusing the
activi-tion is “in natura” or as processed meat. ties in the market of hogs and poultry.
3. Raw material available: which limits production in areas Great changes had since taken place in the international where the cost of the feed ration is high.
pork industry that were of concern to Dr. Roberto Butteri, 4. Labor: because modern production requires specialized vice-president of Agroceres in charge of the Animal Division. labor with the right skills to get high herd productivity. Consumers were now more concerned about health, and much 5. Capital: where the necessary facilities to start production higher standards were demanded of pig breeders in quality require a high level of investment and the minimum and in managerial efficiency. Global competition could only production scale excludes the small producer. be expected to increase in the near future. Despite the success 6. Infrastructure: Where facilities to ship both the parent of the venture, Dr. Butteri’s concerns were focused over the livestock and frozen semen are important.
long term. The company had been quite successful in its first 7. Chain coordination: The dynamic activity in competi-two decades, but the problem would now be to consolidate tion that requires the developing of communication
Table 1. Pig Meat Consumption per Continent, 1985–1992
North and Central
Consumption Asia America South Africa Europe Oceania Ex-USSR Year (million of tons) (%) (%) America (%) (%) (%) (%)
1985 58.1 37 14 3 1 34 1 10
1989 67.9 40 14 3 1 31 1 10
1990 69.8 42 13 3 1 31 1 10
1991 70.9 44 13 3 1 29 1 9
1992a 71.8 45.5 14 3 0.9 28 0.6 8
aPreliminary data.
Source: van Gaasbeek, Borgstein, and de Vlieger (1993)
8. Animal health: which relates to handling and results The producers organized a conference with important ge-from factors such as coordination of input availability neticists such as Dr. Sid Fox from Reading and Dr. John King and producer’s technical abilities. from Edinburgh. During the conference, it was emphasized that by concentrating breeding programs on the animals per-The perceived level of international competitiveness with
re-formance there was enormous potential to be explored. There spect to each of these factors for three well-known producing
were further potential gains from improved animal health countries—Holland, Germany, and China—is shown in Table
associated with suitable handling that would be vital for de-4 (van Gaasbeek, Borgstein, and de Vlieger, 1993). The major
sired performance. The elimination of the influence of disease conditions affecting competitiveness were production costs,
was another important issue in the breeding program. access to resources, sources of capital for investment, capacity
With this new concept, a group of producers created the to adapt technologies, capacity to coordinate the system,
PIC Improvement Company (PIC), whose aim would be to knowledge, and infrastructure.
explore the benefits of a high health status breeding environ-ment and genetic improveenviron-ment achieved by breeding on a
The Evolution of PIC
scientific basis. They bought a property in Oxfordshire andselected Large White (LW) females and Landrace (LR) males Before the 1950s, the pig breeder’s aim was concentrated on
under the direction of the Pig Improvement Development Asso-obtaining phenotypes, pigs based on a good appearance that
ciation, PIDA. To ensure that the progeny were free of patho-could be enhanced by management. English farmers had a
gens, the hysterectomy technique was used. The womb was particularly strong tradition in the genetic improvement of
surgically removed just prior to giving birth naturally, avoiding animals, including pigs, but the cost of the parent stock was
the contamination of the offspring. By this method they pro-excessive relative to their potential for production.
duced 80 disease-free piglets to start the breeding program. As At the end of the 1950s, some producers noticed that the
a result of this process, most performance reducing diseases new genetic improvement techniques used in plant and chicken
were eliminated. Equally important was that performance breeding could be redirected from the phenotype approach to
from superior genetic stock not be compromised by disease, genotype; based on objective criteria of production for
charac-allowing a more accurate and rapid selection process to take teristics such as food conversion, weight gain, and carcass
qual-ity with the view to passing these on genetically. place. This required that the breeding pigs be taken to
com-Table 2. Overall Production of Pig Meat per Continent, 1985–1992
North and Production Central
(million of Asia America South Africa Europe Oceania Ex-USSR
Year tons) (%) (%) America (%) (%) (%) (%)
1979/81 53.9 34 16 3 1 35 1 10
1985 58.1 37 14 3 1 34 1 10
1989 67.9 40 13 3 1 32 1 10
1990 69.9 42 13 3 1 31 1 9
1991 70.9 44 13 3 1 30 1 8
1992a 71.8 45 14 3 1 29 0 8
aPreliminary data.
Table 3. Pig Numbers per Continent, 1979–1991
North and Production Central
(million of Asia America South Africa Europe Oceania Ex-USSR
Year tons) (%) (%) America (%) (%) (%) (%)
1979/81 776.2 47 13 7 1 22 1 9
1985 791.5 48 12 6 1 23 1 9
1989 847.0 50 11 6 2 21 1 9
1990 855.9 51 10 6 2 21 1 9
1991 857.1 51 10 6 2 21 1 9
Source: van Gaasbeek, Borgstein, and de Vlieger (1993).
pletely isolated environments, and that pigs born in the same merit from 100 pigs can be transmitted 3,600 times. Even a small commercial gain therefore in the slaughtered pigs can week be kept in separate units at least one kilometer apart.
The mating of LW females with LR males resulted in a pay for breeding royalties multiplying up to high values for the ideal grandparent stock.
10% increase in the pigs’ size, feed conversion, and live weight
gain as a result of “hybrid vigor.” It was necessary to include At first, the traditional English producers and improvers did not believe in the use of hybrids and the Camborough fe-animals with good fertility characteristics because litter size
is only inheritable by 10% whereas feed conversion and live male. The producers who concentrated on the male pig im-provement ridiculed the new concept when it was introduced weight gain can be up to 30% inherited. The first females that
resulted from the mating were called “Camborough” (devel- in England, and the same happened in other countries. PIC’s approach, however, was successful commercially. It was reluc-oped at Cambridge and Edinburgh) and were initially mated
with LW males to produce the commercial pigs. The program tantly accepted by the breeders and the number of clients grew. PIC was followed closely by Cotswold Pigs, a company results were transmitted through a “breeding pyramid” in
which any advance could be rapidly transferred via the multi- subsequently taken over by Nickersons, a seeds producer. As advanced plant breeders, they understood the potential gains pliers to the producer of slaughter pigs. According to one
report, the system stimulates the repeat purchase of further from genetics and how to exploit them. Later on, the commercial improvers adopted the technology and formed groups such as breeding stock every two or three years if the producer wants
to maintain the best possible performance of the herd. About United Pig Breeders (UPB), later part of Porcofram. JSR Health-bred was a more recent imitator. It produced pigs for 10 years 100 great-grandparents are needed to supply replacements
for 1,200 grandparents. These, in turn, provide replacements and made great progress in that time. JSR took over the Artifi-cial Insemination Centre of the Meat and Livestock Commis-for herds of 18,000 sows. These would have an annual
produc-tion of over 360,000 slaughter pigs. Thus, superior genetic sion (MLC) in 1995. NPD in the Netherlands, the greatest competitor in Europe, was subsequently taken over by PIC.
Table 4. Factors for International Competitiveness: Individual
Country Comparisons
Development of the PIC System
Holland Germany China The internationalization strategy for PIC was developed in the
1970s. It necessitated the development of a range of selection
Geography **** *** ***
standards directed at specific countries with their own
particu-Climate *** *** **
lar production system and distinct market requirements. As
Raw materials *** *** **
Labor ** ** **** a result of this, races of pigs such as the Pietrain were
intro-Capital **** *** * duced that had desirable production traits despite being sus-Infrastructure **** *** ** ceptible to Pale Soft Exudative (PSE) muscle. This
characteris-Knowledge **** *** *
tic made it difficult to sell the meat “in natura” due to its
Internal market ** **** **
unappealing appearance (of less importance in the
consump-Network **** *** **
Economic structure ** **** * tion of processed meat). The Duroc race proved to be
particu-Animal health *** ** ** larly promising, when introduced in systems that require
ro-Environment ** ** ****
bustness in a harsher environment and improved meat quality. The improvement system adopted by PIC was based on
Source: van Gaasbeek, Borgstein, and de Vlieger (1993).
*, poor/expensive and very rare; “population genetics” that searches for material from a wide
**, moderate; population with the aim of continuously improving the desired
***, good;
Table 5. Consumption of Meat per Capita, Brazil 1989–1994a system each great-grandfather sire has only 25 mating and each
female only two litters, regardless of how promising the animal Type 1989 1990 1991 1992 1993 1994 is. This technique guarantees sustained gains in all the herd
Beef 27.9 23.6 22.8 22.9 23.7 24.6
instead of great surges achieved only when an exemplary animal
Chicken 12.5 13.5 14.8 15.8 17.1 18.4
appears. The population genetics system used is known as BLUP
Pig meat 6.7 6.8 7.0 7.0 7.2 7.5
(best linear unbiased prediction).
A limitation found by PIC at the international level was
Source: Wedekin, V.S.P., Mello, N. (1995).
the difficulty in maintaining high health status in the produc- aIn kilograms per capita.
tion phase to obtain the best results from the genetic improve-ment process. All the advantage could be lost if the material
price of poultry decreased 3.97% a year while pork decreased produced did not find appropriate conditions to reach its
by 1.65% a year. As a result, poultry consumption increased performance potential. International PIC believed that the
by 10.76% a year, whereas pork consumption increased by main role of the associated companies was to guarantee that
only 2.57% a year—little more than the rate of population the clients adopted the standards considered necessary for
growth. Another reason for the slow rate of increase was that business success.
modern Brazilian consumers, more concerned with health and Many international companies turned to PIC in order to
diet, related pork with high cholesterol intake. Also, actual use high potential females so that they could improve their
consumption may have been as much as twice the official figure own breeding production structure. These companies were
of 1,300 tons, due to the high incidence of illegal slaughter. just aiming to reach producers in general and in some cases
Production conditions varied considerably in different just targeted producer groups. “These partners can then end
parts of the country. The national herd was estimated at 33 up limiting the market development for hybrid pigs that is the
million (see Table 7) (Pinazza and Frigorı´fico, 1994) with base for PIC business expansion,” said one company executive.
very low slaughter rates estimated at 39.8% per annum in Another concern was how to cope with the fact that the
1992. Approximately 33% of production was located in the most of the countries where PIC operated did not have
intellec-south, 29% in the northeast, and 18% in the southeast. The tual property protection laws for living beings, creating a
slaughter rates, however, were 159% in Santa Catarina, in the potential problem for protecting the rights of breeders.
south, which is comparable to the rates observed in countries PIC recognized that the trend towards market segmentation
where pig breeding is well developed (see Tables 8 and 9) could lead to the need for greater strengthening of the breeding
(Associac¸a˜o Catarinense de Criadores de Suinos, 1995; Wede-programs at the local level. This might result in a greater use
kin and Mello, 1995). The official figures for the total number of U.S. biotechnology in that region whereas other countries
of pigs slaughtered in Brazil in 1993 was 13.6 million animals. would use more conventional means of multiplication adapted
Data from the producers indicated a breeding herd size of 2.7 to suit local conditions. PIC had become very skilled in
devel-to 2.8 million sows of which 1.2 million were good meat oping a dozen or so breeding lines that allowed them to offer
producers, from improved races or hybrid stock. Out of these the ideal pig for local production and market conditions.
it was estimated that 400,000 were of a high genetic standard Even so, nonparticipation in specific markets could create
and 800,000 of average or below average standard. opportunities for smaller companies to operate with success.
Besides the characteristics of the breeding herd, one of the PIC’s aim was therefore not that of total market domination
main factors limiting production was the raw material available but to appeal to mainstream, large-scale markets.
to produce pig rations. The southern region of the country still had the largest and best pig herds but production would be better located in the central region near the major grain
The Brazilian Market for Pork
producing areas, where the high-technology and most efficient The consumption of pork in Brazil 7.2 kg per person per year producers were migrating. According to PIC, the demand for in 1993 and 7.5 kg in 1994 is shown in Table 5 (Wedekin and its product had been increasing in the states of Minas Gerais Mello, 1995), which also shows the per capita consumption of (where 37.2% of the sales were concentrated in 1995), Goia´s, meat substitutes. The variables traditionally used for
determin-ing demand could be used to explain the reasons for the low
Table 6. Relative Meat Price to the Producer, in Sao Paulo
level of consumption. First, low incomes were a limiting factor
for the consumption of animal protein in general. This, how- Producta 1970/72 1991/93 ever, was particularly significant in the case of pig meat, which
Chicken/Beef 1.49 0.80
had higher prices than both beef and poultry (see Table 6)
Chicken/Beef 1.14 0.67
(Anais Suinocultura 2000, Agroceres-PIC, 1994).
Pig/Beef 1.30 1.20
Over the period between 1970 and 1993, there was a
5.55% annual increase in the PIB and a 2.32% annual increase Source: Anais Suinocultura 2000, Agroceres-PIC (1994).
aLiving net.
Table 7. Regional Analysis of the Brazilian Pig Herd
Size Production Exports Consumption
Regions (million head) (tons) (tons) (kg/capital/year)
North 3.7 6,000 — 4.0
Northeast 9.4 55,000 — 4.5
West Center 3.5 40,000 — 5.0
Southeast 6.0 299,000 500 7.8
South 10.4 750,000 16,223 7.8
Source: Pinazza and Frigorifı´co (1994).
Mato Grosso and Rio Grande do Sul, and it had been decreas- plier of hybrid seeds, also had a strategy for expanding genetic ing in the states of Sao Paulo, Parana´ and Santa Catarina (see programs in the international market.
Table 10). PIC’s strategy had been to start operating in the market
Veterinary support services were equivalent to those found with Agroceres. The success of the joint venture represented a in developed countries, and this factor did not represent an barrier for new companies attempting to operate on a national obstacle to growth. Pig housing and sanitary control, however, scale. Nevertheless, with the expected development in the still represented an obstacle for the improvement of perfor- sector, marketing segmentation could bring local opportuni-mance and were a limiting factor in the access to international ties for these companies.
markets that were often protected by nontariff barriers such as sanitary and phyto-sanitary measures.
Agro-Industrial System Coordination
Competition
Though agro-industrial system coordination was consideredto of growing importance as a competitive factor in Brazil, Many of the companies that competed in the breeding market
the system coordination of pork production had still not pro-were of a high or at least medium standard. The traditional
duced the desired results. Information exchange was deficient companies, that developed their own breed types by
improv-and there were many conflicts between the industry improv-and the ing traditional breeds, operated at a local level without
provid-pig producers. A critical aspect of technologically advanced ing technical support. The introduction of hybrid pigs through
technologically superior genetics represented a threat to these pig breeding was the payment of premiums for quality, which
breeders. was difficult to implement, especially when such payments were
In the more technologically advanced sector, some Brazilian not coordinated by producer associations or cooperatives. agro-industrial companies (such as Sadia, Frigorı´fico, and Au- The existence of illegal slaughter further complicated the rora) had developed their own breeding program through coordination process because producers operating within the backward links in a vertical integration strategy. Others (such sanitary regulations and paying breeding royalties, and thus as Rezende Grange) had based their breeding program on operating with higher costs, were treated as equal to producers
imported genetic material. operating outside the system.
The profits earned by PIC in the 1990–94 period attracted new international companies anxious to participate in a high-growth (see PIC financial statements, Tables 11 to 13). Seghers
Table 9. Pig Numbers and Total Slaughtering in the Main Producing
of Belgium and Dalland of Holland had started operating in Regions/Countries of the World, 1993a(in thousands) the Brazilian market. Dekalb, the world’s second largest
sup-Herd Animals Ratio Country Initial Final Slaughtered (%)b
Table 8. Ratio of Slaughtering Relative to the Size of the Pig Herd,
Santa Catarina, 1990–1994 China 384,210 398,210 375,000 101.4 CE (12) 110,002 110,009 175,800 162.9
Year Percentage
Ex-USSR (12) 60,667 55,530 61,716 88.1 USA 59,016 58,537 92,475 158.9
1990 135.9 Brazil 31,050 30,450 13,600 39.8
1991 149.3 Poland 21,078 18,000 21,700 104.6
1992 158.8 Japan 10,783 10,560 18,940 173.9
1993 156.7
1994 159.0
Source: Wedekin, V.S.P., Mello, N. (1995).
aPreliminary data.
bRatio
5slaughter1variation in herd size during the year.
Table 10. Agroceres-PIC: Geographical Distribution of Sales This isolation technology had now developed further.
PIC-sponsored researchers had identified an association of the RYR
1995 1994 1993 1992
gene to high quantity nonfat meat and also high susceptibility
Estate Head (%) (%) (%) (%)
to stress; the RN gene with acid meat, the K88 gene with
Minas Gerais 12,528 37.2 36.2 31.1 27.0 resistance toEscherichia Coliand the MHC gene with offspring Sao Paulo 4,021 12.0 11.2 15.5 10.4 size, bacon thickness, and piglet mortality.
Parana´ 1,828 5.4 11.6 11.2 7.1
Improvement programs could now be accelerated and
tar-Santa Catarina 3,234 9.6 9.6 14.1 29.0
geted more accurately by “gene tagging”. PIC had decided to
Rio Grande do Sul 3,688 11.0 7.3 5.0 9.2
Espı´rito Santo 725 2.2 3.4 1.7 1.9 keep this work centralized in the United States but with
con-Rio de Janeiro 722 2.1 2.8 2.3 1.6 tacts and coordination methods to connect it to the developing Goias 1,468 4.4 5.2 3.5 2.8 programs in associated companies that could benefit from the Mata Grosso do Sul 1,410 4.2 4.4 9.0 —
work. These associated companies had the option to
partici-Mata Grosso 1,805 5.4 — — —
pate fully in advanced biotechnological programs, reaping a
Bahia 552 1.6 1.7 1.7 —
Others 1,681 4.9 4.9 4.9 11.0 share of the rewards, or merely benefiting from the acquisition
Total 33,662 100 100 100 100 of stock.
Participation in the program required contributing to a
Sources: Agroceres-PIC (company records).
research fund. The participant companies would have special treatment in the early use of the best results obtained. Agro-ceres preferred not to participate in the fund, meaning that Possibilities did exist for smaller producers to operate in
it would have to obtain an agreement with International PIC a more sophisticated production and marketing environment
in order to benefit from any advances that might result from when these producers were involved in just one stage of the
the program. production process. This required very specialized structures
for the coordination of the agro-industrial chain. Such
coordi-natiion could be provided, in part, by cooperatives.
The Compatibility
of Breeding Objectives
Pork Industry Prospects
PIC recognized that there was a worldwide need to introducea pig breeding program based on meat quality, although
opera-in Competition with Poultry
tionally this was focused on Germany, Denmark, and Nether-The contrast between the efficiency of animal protein
produc-lands. In the other countries, production was still a priority, tion of pork and poultry may be seen from the technical
mea-with the emphasis on the capacity of the crossbred female pig sures of food conversion: 2.8:1 for pigs as compared to 1.9:1
to generate large numbers of strong piglets per farrowing. for chickens. With appropriate management and genetic
mate-PIC’s objective was to reach a technical index of performance rial, the conversion ratio for pigs could be as low as 2.35.
of 30 weaners per sow per year. The advance in the improve-This represented a marked improvement but was still well
ment directed towards low-fat meat, unfortunately, seemed over the average for chicken (Table 14). This performance
incompatible with breeding for such high reproduction rates. gap originated from long-term genetic selection as well as
In other words, the improvement programs had limited possibil-easier handling techniques and the animals’ inherent biological
ities for advancing simultaneously in two or more directions. capacity. In spite of chicken having these production efficiency
All the effort that went into pork improvement could be advantages, pork was the animal protein source more
com-wasted without suitable management of the herd with appro-monly consumed in the world (Table 15) (Anais Suinocultura
priate facilities run by skilled personnel using good quality 2000, Agroceres-PIC, 1994). Agroceres decided to form a joint
inputs. When visiting PIC clients, it was clear that there was venture with Ross Poultry breeders, a UK-based international
a wide diversity of producers in terms of management capabil-company who, like PIC, were market leaders. They thus had
ity and resources. Consequently, the results were quite differ-a stdiffer-ake in both forms of intensive mediffer-at production.
ent in terms of productivity.
Special techniques concerning the management of boars had led some units to introduce artificial insemination,
elimi-Recent Technological
nating natural mating. This technique allowed the
dissemina-Improvements in Pig Breeding
tion of positive characteristics in the herd much more easily,given that a male could mate with 200 instead of only 20 Improvements of pigs at the international level had been
con-stant over the past years, but new technology provided a females (because the semen from one natural mating could serve 10 pigs by artificial insemination). On the other hand, powerful tool for accelerating the process. PIC patented an
identification method for isolating the ESR gene whose occur- the pig semen was not as easily stored as cattle semen, and the handling was more specialized.
Table 11. Agroceres-PIC: Balance Sheet ($US)
1990 1991 1992 1993 1994
Assets
Short term: 195 108 18 24 87
Cash and banks 1,389 1,740 1,938 11 —
Financial application 684 623 569 983 1,812
Promissory notes to be received (46) (19) (17) (15) (27)
(2) Doubtful debtors 159 357 295 399 193
Other sums to be received 2,437 2,387 2,037 2,137 2,255
Stocks — — — 1 —
Anticipated expenses 4,818 5,196 4,840 3,540 4,320
Longer term 1,525 1,074 113 3,978 9,431
Allied operations 38 34 41 40 678
Other sums to be receiver 1,563 1,108 154 4,018 10,109
Fixed 34 34 34 34 34
Investments 7,929 8,216 8,303 8,534 8,934
Immobilized (3,186) (3,605) (4,033) (4,344) (4,566) (2) Accumulated depreciation 4,743 4,611 4,270 4,190 4,378
210 145 80 54 65
Subtotal 4,897 4,790 4,384 4,278 4,477
Total 11,368 11,094 9,378 11,836 18,906
Liabilities Short term
Suppliers 325 276 169 216 519
Importations — — — — —
Clients advantage payment — — — — —
Loans and financing 104 336 182 — 185
Provision of interests — 4 1 — 9
Social taxes/other taxes 210 368 229 55 83
Income tax 705 346 4 140 215
Social contribution 267 112 — 51 92
Dividens to be paid — 1 — 2,181 2,944
Other bills to be paid 304 278 275 231 446
1,915 1,721 860 2,874 4,493
Longer term
Allied operations 128 296 43 64 805
Loans and financing 161 64 — — 104
Provision for income tax 1 131 — — —
290 491 43 64 909
Equity
Social funds 2,898 2,898 6,343 6,361 9,400
Funds store — — 18 114 310
Accumulated profits 5,047 5,729 2,255 (83) (3,254)
Year result 1,218 255 (141) 2,506 7,048
9,163 8,882 8,475 8,898 13,054
Total 11,368 11,094 9,378 11,836 18,906
inefficient in terms of scale by the creation of the
“condomin-Implications at the Farm Level
ium system.” In this system, investments were divided up All the innovations in pig breeding contributed to an increase and centralized, making it possible to achieve the business in the optimal scale of production. Units with 20,000 sows continuity without losing the scale advantages and still main-existed in Brazil, but the 150-sow unit was more common. taining the coordinating role of the cooperative.
The traditional producer with five to eight sows was far too The PIC business structure was developed to allow for small to compete on the technical performance criteria ex- rapid diffusion of the technological advances obtained in the pected in the industry. This prompted changes in producer genetic improvement program. Their success was due to con-structure with a tendency to specialize into units for nucleus tinuous innovation by PIC and to the organization and coordi-herds, multipliers, weaner production, and fattening. As a nation of the production systems where the company operated
Table 12. Agroceres-PIC: Profit and Loss Account ($US)
Result 1990 1991 1992 1993 1994
Net sales 18,383 17,937 14,987 19,254 24,864
Sales cost (11,684) (12,378) (11,292) (12,171) (13,879)
Gross profit 6,699 5,559 3,695 7,083 10,985
Expenses and operational receipts
Sales expense (2,349) (1,683) (1,890) (1,693) (1,765) Overall expenses and administrative (1,784) (2,767) (3,039) (2,783) (3,871) Revenue/financial expenses 4,221 4,409 1,049 1,942 (1,482) Doubtful debtors provision (494) (355) (31) (42) (41)
Other operational revenue — — — — —
Total (370) (396) (3,911) (2,576) (7,105)
Operational result 6,329 5,163 (216) 4,507 3,880
Nonoperational results 69 16 (19) 569 164
Earning/loss in the conversion (3,706) (4,587) 191 (1,564) 4,431 Results before income tax 2,692 592 (44) () 8,475 Income tax provisional/social contract (1,474) (337) (97) (1,006) (1,427)
Net results 1,218 255 (141) 2,506 7,048
and had limited possibilities for growth. Production costs were
The Introduction of the
high, due to high feed costs and the increasing environmental
Pig-Champ Recording Program
restrictions imposed on producers. Under such marketcondi-tions, one alternative was increase operational and organiza-Agroceres-PIC introduced the Pig-Champ program for its
cus-tional efficiency, reducing costs, while continuing to aim for tomers, which was a system of integrated and computerized
quality. Another alternative was to differentiate the products record keeping that by 1995 involved 152 production units
by adding value and targeting consumers with higher incomes. with a total of approximately 93,000 sows. These production
The major competitive challenge, according to industry units could then compare their performance indices with the
observers, was poultry. In the United States, where the pork other participants in the program. By inference, it also gave
industry was mature, the strategy was to seek differentiation Agroceres and PIC a database of performance regarding the
with the theme of “the other white meat” with promotional commercial performance of their pigs and how successful their
emphasis on the appearance of the product. It was expected larger clients were in managing them.
that products for specific market segments would require The smaller customers, who had the greatest need to
moni-different finishing and slaughter facilities, which would in tor their performance and improve their management, did not
turn require coordination between the processors and the take part in this program. For Agroceres-PIC it would be
producers. expensive to expand the program to include small producers,
The Latin-American market for pork, however, was less and the investments required to participate were prohibitive
mature and offered greater expansion potential as consumer for small producers. It would be up to cooperatives to open
incomes increased. Agroceres former vice-president Dr. But-the door to scale economies for this group.
teri wondered about the future of the Brazilian pig industry and the development of the Mercosur trading bloc.
Challenges to Agroceres-PIC
First, PIC’s fast growth had led the company to work withvery different kinds of customers in terms of technological The international competition analysis of van Gaasbeek et al.
(1993) indicated that the European markets were saturated know-how and herd management. The customers’
perfor-Table 13. Agroceres-PIC: Financial Performance Indicators of Agroceres
Indices 1990 1991 1992 1993 1994
Current ratio (floating assets/floating liabilities) 2.52 3.02 5.63 1.23 0.96 Liquidity ratio (floating assets-stock/floating liabilities) 1.24 1.63 3.26 0.49 0.46 Production costs participation (sold products cost/net sales) (%) 64 69 75 63 56 Overall returns indicator (net produce/net sales) (%) 7 1 21 13 28 Capital returns indicator (net produce/net patrimony) (%) 13 3 22 28 52 Return on investments (profit before Income Tax/Total Assets) (%) 24 5 0 30 45
Table 14. Indices of Food Conversion of Chicken and Pigs should Agroceres react or was its leadership position still so
solid that it was not necessary to take protective action?
Food Conversion Very good Medium Bad
Pigsa 2.35 2.8 3.6
Chickenb 1.7 1.9 2.1
Teaching Note
Objectives
Source: Agroceres-PIC (company records).
aFor growing pigs between 145 to 180 days, with slaughter average weight of 100 kg.
bFor slaughtered chicken between 42 to 55 days, with slaughter average weight of 1. Understand the potential offered by technology in
revo-2.2 kg.
lutionizing a traditional industry.
2. Appreciation of advantages and disadvantages of strate-gic alliances between Latin American and multinational mance varied widely, which led to criticisms from the smaller
enterprise. producers who needed more training and technical support.
3. Be able to identify and evaluate challenges to the future The Pig-Champ program supported only the larger customers.
of the strategic alliance that are presented by the envi-In order to benefit fully from envi-International PIC’s philosophy,
ronment. should Agroceres-PIC invest more in pig management training
programs or even expand the Pig-Champ program in order
to give support to the smaller producers?
Discussion Questions
Second, how would the partnership between PIC and
1. Why did Agroceres and PIC form a joint venture? Agroceres develop in the long term? PIC would be able to
2. What are they key factors in pig production? How does adopt strategies to limit the action of its partners at within
Brazil stack up against Holland, Germany, and China? the region. Currently PIC was placing its product in other
3. What are the advantages of the new technology? How Latin American countries, and it was not clear to Dr. Butteri
successful is it? what the PIC strategy was in Mercosur. Specifically, would
4. How attractive is the Brazilian market for the Agroceres-Agroceres have a privileged regional position or would other
PIC product? joint ventures be formed? Should Agroceres take more
aggres-5. What is your evaluation of the PIG-CHAMP Pro-sive action in Mercosur markets? Should they develop these
gramme? markets themselves or look for partners instead of allowing
6. How should Agroceres negotiate participation in other PIC to intervene?
South American markets with PIC? Third, the producers who used PIC material had higher
7. How should Agroceres negotiate participation in other overhead costs than the traditional producers. In a country
South American markets with PIC? where illegal slaughter was high and where consumer
prefer-8. Should the company respond to growing competition ence for high quality meat had not yet developed, the
produc-from new industry entrants in Brazil? How? ers added value, but they were not compensated with a higher
price. Publicity campaigns promoting pork as the other white meat, and the PIC brand as a differentiated product could
Case Analysis
motivate the final consumer to pay for quality, establishing a
scale of prices that would increase the value of Agroceres-PIC
Why Did Agroceres and PIC Form a Joint Venture?
genetics even more. Should Agroceres-PIC invest in publicity• Agroceres wanted to diversify out of corn seed and gain campaigns aimed at the final consumer? Would it be possible
experience in animal genetics. to run these campaigns in collaboration with the industry?
• PIC wanted to position itself in emerging markets (Euro-Finally, the threat of new competition had arisen with
pean markets saturated according to competitive anal-the arrival in Brazil of several multinational animal genetic
ysis). companies. In a concentrated market, such as that for gilts,
• Both were looking for a reliable partner.
Table 15. World Consumption of Animal Protein
What Are they Key Factors in Pig
1981 to 1983 1991 to 1993
Production? How Does Brazil Stack Up
Meat Average % Average %against Holland, Germany, and China?
Pigs 36.359 40.3 37.213 47.5 • Geography, climate, raw material availability (see list in Beef 39.109 43.4 47.067 33.2 The International Pork Industry section).
Chicken 14.615 16.3 27.221 19.3
• One of the weakest links in Brazil would appear to be
Total 90.083 100.0 141.501 100.0
agribusiness chain coordination. What role can
industry advertising campaigns emphasizing “second
What Are the Advantages of the New
white meat.”
Technology? How Successful Is It?
• Need to consider training programs in technology and • “Hybrid vigor” results in 10% increase in pig size, feed herd management for smaller producers to they can take
conversion, and live weight gain. advantage of PIG-CHAMP Programme. • Genetic advances are rapidly transmitted through a
“breeding pyramid”.
How Should Agroceres Negotiate
• Superior genetic merit from 100 pigs can be transmitted
Participation in Other South American
3,600 times.Markets with PIC?
• The system stimulates repeat purchase of breeding stock
• Seek privileged regional position based on successful every 2–3 years if the producer wants to keep his herd
Brazilian experience. at maximum performance, creating repeat customers for
• If PIC continues to put its product in other Latin Ameri-Agroceres-PIC.
can countries, Agroceres should take more aggressive action in those markets.
How Attractive Is the Brazilian Market
for the Agroceres-PIC Product?
Should the Company Respond to
• Slow rate of increase for pig meat consumption, 2.57%
Growing Competition from New Industry
per year.Entrants in Brazil? How?
• Problem is competition from chicken meat whose real
price is declining more rapidly than that of pig meat. • Agroceres-PIC first entry advantage is unassailable. • Another reason for the slow rate of increase is that mod- • Defensive moves would be costly and are unnecessary.
ern Brazilian consumers are more concerned with health • Multinational competitors are coming to Brazil who can and diet, and they relate pig meat to high cholesterol challenge Agroceres-PIC leadership.
intake. • Agroceres-PIC should make investments in brand
adver-• Competition also comes from illegal slaughter. tising and in promotional programmes for smaller pro-• Consumers unable to distinguish quality, which makes ducers.
differentiation pricing difficult.
References
What Is Your Evaluation of the
Associac¸a˜o Catarinense de Criadores de Suı´nos, ACCS, Floriano´polis, Brasil. 1995.PIG-CHAMP Programme?
Anais de Suinocultura 2000, Agroceres-PIC, Sa˜o Paulo, Brasil. 1994
• Enables performance comparisons; fully integrated and
Pinazza, L. A., and Frigorı´fico Aurora:Os caminhos para a construc¸a˜o
computerized. de marca (Case Study).PENSA. Universidade de Sa˜o Paulo, Sa˜o
• But smaller customers do not take part in the program. Paulo, Brasil. 1994.
• Opportunity for involving cooperatives? van Gaasbeek, A. F., Borgstein, M. H., de Vlieger, J. J.:Competitiveness in the Pig Industry.Rabobank Report, Utrecht, the Netherlands. 1993.
How Should Dr. Butteri Address the
Wedekin, V. S. P., and Mello, N:Cadeia Produtiva da suinocultura
Challenges Facing Agroceres-PIC?
no Brasil. (Report) Agricultura em Sa˜o Paulo, Sa˜o Paulo, Brasil. 1995.
