Industry Giants: A Closer Look at Agrofertil

Primary Analyst: Matthew Kupferschmidt
Team Leader: Julie Flesch

Agrofertil, founded in 1993, is Paraguay’s largest exporter of grain products and agricultural inputs. The company’s business model allows for 80% of crop input sales to be financed upon harvest, enabling Agrofertil to do business with small, medium and large-sized farmers. As the sixth largest producer and fourth largest exporter of soybeans worldwide, Agrofertil contributes to roughly 23% of Paraguay’s GDP. The company’s executives, Jose Marcos Sarabia, Paul Sergio Sarabia, and Antonio Ivan Sarabia, have recently focused on fostering multilateral relationships in order to secure better financing options and increased capital infrastructure. In February 2016, the Dutch development bank FMO provided Agrofertil with a $10 million  medium-term loan to help the company provide pre-harvest financing to farmers.

This investment, along with a 2005 loan from the American Investment Corporation (IIC), both include a strong sustainability angle. These transactions have enabled the company to implement internal changes aimed at improving the sustainability of their operations. The FMO is currently supporting Agrofertil as it develops a verification system to ensure that the company does not commercialize any crops from farms that have been involved in recent significant conversion of natural habitats.The IIC has further placed emphasis on ensuring the long-term maintenance and development of Agrofertil’s efficient use of resource and pollution prevention. Subject to the IIC’s Environmental and Social Sustainability Policy, Agrofertil has outsourced the handling of agrochemical spills to Tecnomyl, a company who uses their in-house facilities to properly dispose of spillage and waste.

Agrofertil employs approximately 350 employees within its South American operations and as such, compliance with labor laws is a key concern for the company. In Paraguay, the main labor regulations include obligations to make social security contributions, freedom to associate and organize workers unions as well as the prohibition of discrimination and child labor. Agrofertil's employees do not belong to a labour union and the company has demonstrated strong adherence to the labor code by creating an employee response system which uses a secure channel to send grievances and suggestions to management.

As one of the pioneers in agricultural inputs in Paraguay, Agrofertil has dominated the market. With 20 distribution centres and 14 storage silos located in industrial zones or rural centers near the major crop regions in Paraguay, the company assists more than 1.800 farmers. The 2016 investment from FMO has greatly assisted in the development of structural working capital and increased Agrofertil’s ability to expand its operations and meet growing demand for biofuels, meat and animal feed.

As a large vertically-integrated distributor, Agrofertil benefits from economies of scale in purchasing and transportation while smaller companies have been forced to compete by specializing in a certain product or geographical area. Agrofertil’s yearly sales volume is an estimated $322.9 million USD. Further, the value of the company’s foreign exports have grown from $9.3 million USD in 2014 to $30.9 million USD in 2016. The second largest agricultural supply company in Paraguay, Matrisoja, has 85 employees and generates an estimated $49.8 million USD in yearly revenue. While Agrofertil’s domestic operations far exceed those of Matrisoja, the competitor appears far more dedicated to foreign trade. The value of goods exported by Matrisoja in 2016 was $31.1 million USD.

Agrofertil comparatively dwarfs its competitors in the market and stands to achieve significant future growth as its significant contributions to Paraguay’s GDP (23%) have made the company an attractive target for foreign direct investment. The recent investments by FMO and the IIC will enable Agrofertil to expand its operations, acquire new clients and elevate its profile in terms of leadership in sustainability and social corporate responsibility. Improvements to sustainability and labour practices will significantly mitigate risks posed by increasing environmental standards and public backlash against large agro-firms. Agrofertil is a strong economic force in the Paraguayan agriculture sector and given their current trajectory should dominate the industry for years to come.