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How Bunge Is Creating Value from Segment Synergies

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Value-chain integration

Bunge’s (BG) Agribusiness segment processes oilseeds into vegetable oils. Bunge’s Food and Ingredients segment is one of the primary users of the company’s unrefined vegetable oils. This segment uses these oils as raw materials in the production of edible oil products for the food industry and retail markets. Third-party edible oil processing companies also use the segment’s oil products.

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Food & Ingredients segment

The Food and Ingredients segment consists of two reportable segments: Edible Oil Products and Milling Products. The major raw materials for both of these segments are various crude and further processed vegetable oils and grains such as wheat, corn, and rice. These raw materials are either supplied from Bunge’s own Agribusiness segment or from third-party suppliers. 

Bunge aims to realize synergies between these two business segments by raw material procurement activities and the co-location of industrial facilities. Bunge expects a ~$145 million EBIT run rate improvement in the food and ingredients segment by 2017. The company plans to achieve this through the following:

  • asset, supply chain, and process optimization
  • category leadership
  • account management
  • value realization

Peers for this segment

In the US and Canada, Bunge’s peers for the Edible Oil segment include Archer Daniels Midland (ADM), Cargill, Stratas Foods, Unilever (ULVR), and Ventura Foods. Bunge’s peers in the Milling products segment in Brazil include Glencore (GLEN), M. Dias Branco (MDIA3), and J.Macedo. Its North American corn milling peers include Cargill, Didion Milling Company, SEMO Milling, and Life Line Foods.

ADM sells oilseeds, corn, wheat, and rice as raw materials through its Agricultural Service segment. Its Oilseeds Processing segment processes soybeans and soft seeds into vegetable oils and protein meals. Both these segments together earned a profit of $335 million for ADM in its last reported quarter. Bunge, on the other hand, earned operating profit of $52 million for the Food & Ingredients segment in its last reported quarter. Ingredion (INGR) also provides vegetable oils and various other products to other industries and earned a profit of $200 million.

ETF exposure

The VanEck Vectors Agribusiness ETF (MOO) and the iShares MSCI Global Agriculture Producers ETF (VEGI) invests 6.4% and 7.8%, respectively, in Archer Daniel Midland’s stock. The VEGI ETF also invests 1.6% in INGR while Bunge makes up for 3.3% of the ETF’s portfolio.

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