May 26, 2009 Optimizing Efficiency

Volume 12 | Issue 3

The Agromart Group, comprised of 21 agricultural retailing joint ventures in Eastern Canada, obtains a wide variety of support services and

Success in the farming business relies on many fluctuating factors: market conditions, favorable weather, fertile land, pest-free crops, and more. Supplying the inputs to farmers is no different, and through the Agromart Group’s business model, they have adapted and prospered.

The Agromart Group was started in Canada in 1969 as part of a fertilizer manufacturing business under the Canadian Industries Limited (C-I-L) banner, in which a group of managers at local retail locations entered into joint venture arrangements with C-I-L. Fifty percent of each dealership was sold to the operator of the individual business and the remaining 50 percent was retained by C-I-L. Over time, C-I-L set up more Agromart JVs by setting up more partners at their retail locations and by acquiring 50 percent of several independent dealers to form the C-I-L Agromart Group. In the late 1980s C-I-L sold its interest in each JV business to ICI Canada, which then sold in 1993 to Terra, a large U.S.-based crop input retailer and fertilizer manufacturer. Terra continued to develop the business and eventually sold its entire distribution business to CHS Inc. and Land O’Lakes, Inc. in 1999, forming in Canada what is today the Agronomy Company of Canada Ltd. On December 31, 2008, La Coop fédérée, a federation of agricultural cooperatives located in Quebec, Canada, purchased the shares of the Agronomy Company from CHS and Land O’Lakes, making The Agromart Group, along with the other La Co-op fédérée businesses, owned and operated in Quebec, the largest crop input retailing network in Eastern Canada. Today, the Agronomy Company operates as a wholly owned subsidiary of La Co-op fédérée and continues as the corporate partner for each of the individual JVs that make up The Agromart Group.

INDEPENDENCE WITH MAJOR BENEFITS
The Agronomy Company (and its predecessors) created “a business model that captures the best of being a large regional entity with local entrepreneurship,” says Agromart business manager Eric Bosveld. “The Agronomy Company of Canada provides links to and from each joint venture business by ensuring that our goals and objectives are aligned.” Each joint venture business or franchisee operates under a franchise agreement, and as part of that agreement, the Agronomy Company of Canada supports each business in ways that allow it to operate more efficiently and, ultimately, more profitably. Over the last 40 years, the services have evolved to include: a credit specialist, who can help establish credit limits for growers or provide guidance or coordinate legal help when complicated credit issues arise; financial support and a franchise banking program that provides favorable terms and loan facilities; accounting services and tax preparation; IT and systems support; corporate board services; help with regulatory and compliance issues; help with safety, health, and environmental programs and risk management services. Perhaps the most economically significant service the company provides to its franchisees is its product purchasing services. The company maintains a fertilizer and crop protection product purchasing program from major manufacturers on behalf of the group and coordinates storage in warehouses and terminals. “Based on our combined volume, we have the ability to purchase a vessel of fertilizer that might be imported from Egypt, for example, where an individual Agromart would not have the volume to capitalize on such a purchase,” Bosveld says.

“The Agronomy Company of Canada also maintains a group of professionals who call on each of the Agromarts to take care of financial reporting and become financial advisors to the managers, looking at cash flow, monthly revenue and expense levels, and facilitating annual budget preparation,” says Ken O’Hagan, manager of finance and administration. “They also assist the manager in analyzing capital expenditure alternatives for the profitable growth of the business and benchmark their performance in a wide range of operating metrics against their peers in the group.” Each of the franchisees operates differently from the others, and the Agronomy Company encourages them to develop their own marketing strategies. “We don’t try to put a one-size-fits-all marketing strategy for the whole Agromart Group,” Bosveld says. “We rely on individual business strategies based on opportunities and threats of the local marketplace, as long as they are within the confines of our overall strategy. That’s our strength. Any program that a competitor dreams up to compete may work against only one or two franchisees, as each JV operating manager has quite different approaches for tackling the same problems.”

SUCCESS OVER TIME
The Agromart Group has experienced significant growth and great success with its business model over the last 40 years and has built up its market share so much that the group has become an exclusive distributor for some of its products. For example in 2005, the company launched a complete new line-up of corn and soybean seed that is marketed exclusively by The Agromart Group franchisees.

In 1996, The Agromart Group constructed an inland fertilizer terminal in Belton, Ontario to service central and southwestern Ontario. “This allowed us to enhance our fertilizer purchasing program,” explains Casper Kaastra, Agromart purchasing manager. “We started off with seven domes, added to that in 2001 and then again in 2007, and now we can store over 80,000 tons of fertilizer. We also purchased an inland terminal in 2002 to service our Eastern Ontario Agromarts. La Coop fédérée has two terminals, one in Sillery, near Quebec City and the other in Cote Ste. Catherines, near Montreal. That gives our group one of the largest distribution networks across Canada.”

“With our storage capabilities and distribution networks, The Agromart Group is able to purchase fertilizer from overseas if the price is right and store it at its water terminals. Or the group can commission product from North American sources and store it at the inland terminals,” says Kaastra. “We have the opportunity to position product when and where it is most favorable for the market. In addition to centralized warehousing, each of the joint ventures has its own physical location or locations, which enables the group to position its products across the marketplace for complete coverage.”

HIGHER EXPECTATIONS
Many of The Agromart Group’s farming customers are expanding and growing their businesses. With that growth comes increased expectations. The equipment needed at an Ag retail business to support a large grower can be different from the equipment required for a small grower. In addition, larger growers are under greater pressure to plant their crops in an ever more compressed period of time, so efficiency in the delivery or application of the product is key. To meet these increasing demands, The Agromart Group adjusted its focus. For example, the joint ventures invested heavily in professional application equipment and made it a priority to invest in top-of-the-line equipment with the latest technology. “We have to be able to handle, apply or deliver ever increasing volumes of product in a shorter period of time, to service larger and growing accounts in order to grow our business,” Bosveld says.

The Agromart Group’s employees are well-trained and experienced individuals who are able to adapt to the growing demands of their customers, while providing superior service. Farmers don’t want to explain their farm issues and field conditions to a new manager or professional applicator each year. “The Agromart Group’s managers and key sales people may often know as much about the farmer’s crop operations as the farmer does,” says Bosveld. “With our JV model, we see fewer turnovers than other organizations, and this results in forging deeper relationships with our customers by having experienced and knowledgeable staff that know their customers’ needs very well. As a result, we are able to position our products and services for the farmer more effectively.” Nineteen people are employed at the Agronomy Company headquarters to support the Agromarts, with a staff of more than 300 across the entire Agromart Group. With a larger staff base than many independents, the company is able to offer a better benefits package which also helps in staff retention.

FORGING AHEAD
The company also develops new proprietary products under exclusive agreements for the franchisees to sell and market. One such initiative involves identity preserved food grade soybeans. The franchisees offer exclusive varieties for export to Japan through The Agromart Group. This arrangement brings value to the Agromarts by allowing them to offer their customers varieties of soybeans with a developed end use market that pays a premium price for their soybeans.

New product research and development is often outsourced but with the recent acquisition by La Co-op fédérée, this can be accelerated through the parent’s R&D facility near Montreal. Recently, the Agronomy Company worked closely with its former parent companies to develop and register a new fungicide for use in potatoes. This product will bring significant value to the Agromart JVs, as the product’s use is expanded to more crops.

“The Agronomy Company is developing a new high-end system IT network so each franchisee can be better linked within the group,” says O’Hagan. The goal is to give the Agromart a competitive advantage in the marketplace by providing superior IT infrastructure and systems. The standardization of hardware and software will enable the franchisees to have increased ability to share inventory, allow us to further develop additional proprietary systems, offer improved service to their customers, all of which would be cost prohibitive if done individually.

The Agronmy Company provides services and products to its franchisees that allow each Agromart to focus on key operating factors such as local marketing strategy, managing location staff, and day-to-day operations without having to address matters such as bank issues and purchasing of products on their own. This enables the franchisees to stay focused on the customer. “We believe our business model offers benefits to our Agromart JVs which allows them to focus on bringing superior value to their grower customers, while at the same time creating excellent shareholder value,” says O’Hagan.

“It’s like a hybrid model,” Bosveld explains. “We do part of the business at our headquarters and they (the Agromart JVs) do their part at the local level, and even after 40 years, we continually try to optimize the balance all the time. We make sure we foster that entrepreneurial spirit at the local level. We believe it is our business model that makes us strong and that it will be the basis for our growth going forward.”

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