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Modeling an agribusiness
Almost a thousand Agroprosperis Group employees have already joined the group’s partnership program and are now making money together with the investor.
Legends about this unique program have been spreading around the agricultural community for more than a year now. They say that just in a matter of a year and a half, the results have exceeded even the most daring hopes of developers of innovative instruments. On top of that, everyone who joined this program has not only benefited financially but also, substantially enriched one’s worldview and enlarged the range of specialized competences. To see whether it’s true, AgroMarket has visited Smart Agri, a business modeling contest which Agroprosperis Group organized for its partner employees…
Two seasons in two hours
…The focused people working in teams around monitors set on the flanks of a large room were somewhat resembling the contestants on What? Where? When? TV program or, perhaps, students taking exams. And their task wasn’t even like a task – more like a sort of an interactive game of agribusiness: from planning a crop rotation and future crop yield to harvesting and procurement of resources, and all that for several seasons in a row.
At the beginning of business modeling contest, every team received certain initial conditions and a fixed amount of virtual money. After that, they were set free to do what their like! Everything had to be planned: costs and expected revenues, crop rotation the most suitable for a particular climate, when to buy the required resources, harvest sale time and volume, and even such things as the speed with which a sowing machine has to move in the field and the correct position of the sprayer’s boom mount. And although all these operations are something the agrarians are dealing with in real life, members of the teams were visibly agitated, trying to develop the most efficient model for their virtual business in these few hours.
— “Buy now, for this price won’t be available later!”, cried one of the teams closely grouped around a tablet computer.
— “Let’s cut some costs on fertilizers, as we have drought this summer”, a middle-aged woman, who apparently has been participating quite a few times in these modeling classes, patiently explained to her young team. “Let’s better buy more fuel – see, it now comes at a discount…”
— “Sowing sunflower on sunflower isn’t a good idea!”, some emotional player was eagerly trying to prove his point to his team. “It doesn’t matter that prices are high: if we’ll exhaust the land, what’s next? Perhaps, we should better leave this field fallow?”
— “Guys, prices at the commodity exchange are falling: sell corn now!”, a fan from the audience advised his friends.
To be sure, such an emotional shouts could be heard near almost every monitor around the entire perimeter of the huge room which brimmed with excitement.
Providing for every contingency
Every participant of the business modeling class could see for himself, in real time, how even the slightest initiative of a player (or, on the contrary, delayed decision) bears upon the results of the entire company. Surely, it means, first of all, the precise observance of agro-technological requirements for every crop. Still, it’s equally important for a farmer to understand cash flows and be sensitive to market signals.
Just like in real life, the amount of return on working capital of the player’s business also changed depending on the player’s actions. One hasn’t applied enough fertilizers, another made a too small budget, another one wasn’t able to sell his grain for a good price, and in the end, the team found themselves in “red sector” of the standings. Still, making mistake in a virtual business is one thing, and allowing things to go wrong in the field is a totally different matter unacceptable in agribusiness. That’s what the program’s developers meant when generating modeling scenarios for the most sensitive operations for the future result. They went, first of all, by benchmarking and today’s best practices. The program also had two variable factors: weather and global prices. Surely, an agricultural producer has no power over them. Still, by realizing and comparing this information with profitability of business, developing own response algorithms and style, flexibly adjusting the plan depending on circumstances, and overcoming organizational and financial difficulties (concerning logistics, sales, access to financing, forward contracts for a future harvest), a player had all chances to receive much higher income. And that was what many partners of Agroprosperis Group could see for themselves on numerous occasions.
To risk and win
Last year, general directors, chief agronomists and controlling managers of the Group’s 17 agricultural production companies (called Agroprosperis Plants, or APPs) received a unique offer from the investor: investing own money in APP’s working capital and augmenting it with their own work. As the initiators of this partnership program say, this is the only way to develop an employee’s attitude toward the work he does as an own business. As a co-investor, a hired specialist would make more prudent decisions and manage the company’s resources more efficiently, trying to augment his investment and, consequently, increasing the return on APP’s working capital. It was the experience which 35 lead specialists of various APPs received last year by risking and joining the investment program.
The best proof of the program’s effectiveness is the fact that this year, the number of its participants has grown to 965 employees of 50 APPs, more than 760 of whom are farm machinery operators! The “golden stock”, as they are respectfully called at the company. High professionalism and responsible attitude of farm machinery operators are among the foundations of a profitable agricultural production business. Therefore, their participation in the investment program this year drew close attention from Agroprosperis Group. All new partners received an opportunity to personally attend this year’s meetings with the investor and try themselves in Smart Agri business modeling contest.
— “We made a right investment, received expected harvest and sold it at the right time – in a word, got themselves a nice profit”, a member of the winning team spoke excitedly to someone on the phone.
— “It was a good game! We planned everything we wanted, and balanced expenses and revenues down the line”, a member of the runner-up team shared his impressions. “Next year, we’ll prepare better and definitely win!”
— “The institutes teaching business planning and business modeling charge an arm and a leg for that, but we are learning it here for free, and even get an opportunity to earn more money”, a middle-aged man who carefully listened during the game to advices and consultations from “seasoned” players says…
At the end of the very eventful contest, every partner received from the investor a special promotion symbolizing his new status. The list of key criteria used by the organizers of this innovative business modeling class to evaluate results shown by the contestants included per-ton production cost price, the highest sale price, and of course, return on investment over two years. The top teams with the highest indicators received valuable gifts from the investor.
Yet, the greatest achievement of the day was something much more important than final standings, gifts and ratings. Agroprosperis partners have realized the importance of calculating and analyzing everything, even at the primary stage of agricultural production. Finding themselves “on their own”, facing unpredictable external risks of agribusiness, the beginner investors experimented with business solutions, tried to manage cash flows themselves and, perhaps the most importantly, analyzed their mistakes when wrapping up the game. So, the ones who went back home after this event were not ordinary managers, agronomists and machinery operators but skilled entrepreneurs interested in carrying over their greatest achievements from virtual reality into concrete return on APP’s working capital. Perhaps not accidentally, the Agroprosperis management believes that today, business modeling is an excellent basis for annual business planning. And of course, a new level of entrepreneurship for which everyone with owner’s mindset must strive. A partner is the one who is ready, first of all, to work better and earn more in a team!
AgroMarket newspaper, October 2017