Is the Ag-Export Industry for Big Players Only?

In Chile and Peru, amidst operational shutdowns and financial struggles, the sector is seeing an influx of mega investments and strategic consolidations, navigating through the challenges posed by the pandemic, war conflicts and climate crises.

by Gabriel Gargurevich Pazos

In simple terms, restructuring is a legal process aimed at preventing a company from going bankrupt. It involves negotiating a payment agreement with creditors — a step companies take when facing significant financial troubles. This was recently the case for Chilean agro-exporters Chisa (Chilean South Apple) and Santa Cruz. In the ensuing media reports of the news, the term “perfect storm” was used, describing the challenges the sector encountered in the 2021-2022 season. These challenges included sharply rising production costs, increased maritime freight rates and plummeting prices, all set against the backdrop of Covid, the Ukraine-Russia conflict and climate.

Meanwhile, or possibly as a result of the above, the global agricultural industry is starting to take strategic actions and restructure itself through numerous significant investments, mergers and acquisitions that have reshaped the landscape. In January, Sebastián Valdés Lutz, a board member of numerous agricultural companies in Chile, commented on this trend via his social media, referencing the acquisition of Verfrut by Unifrutti. “This deal is among several investments by the mega-fund ADQ, an Abu Dhabi government-backed investment fund, and it’s unlikely to be the last,” he noted. “It joins a series of moves including those by Frutura in the Americas, by Miura in Europe and Latin America, the expansion of Westfalia, Hancock’s purchase of DDC (David Del Curto), PSP’s acquisition of Hortifrut, and the merger of Total Produce with Dole, etc., signaling an era of unprecedented industry consolidation within just five or six years.”

For Valdés Lutz, these developments serve as a major wake-up call for the industry, signaling that the boards of various agricultural companies in Latin America cannot afford to remain indifferent. He explains that the competitive landscape is bound to transform. “Giant competitors, clients and suppliers are emerging, the supply chain is becoming more direct, and the market is globalizing. An industry that was once semi-informal and family-oriented is now moving towards corporatization, presenting undeniable challenges for all involved. Every company must consider how these changes might impact their future business.”

Financial Juggling

Manuel Olaechea, the agricultural manager at Sunfruits, which operates in Peru’s southern Ica region, has been closely monitoring the recent surge in mega investments, mergers and acquisitions within the country. “This trend is indicative of the broader challenges facing the country. Historically, the Peruvian agricultural industry was primarily fueled by local capital and national funds — a testament to Peruvians building their nation. However, there’s now a diminishing confidence in the future of Peru’s sector,” he notes.

Olaechea points out the rising production costs as a significant issue. “The government’s lack of response to this problem has done nothing to curb the industry’s declining profitability. Worse, governmental inaction has been accompanied by an increase in expenses. This situation has left the small and medium-sized segments of the agricultural industry on the brink of failure, with only the largest players able to sustain such investments through economies of scale. My concern is that this trajectory promotes land consolidation and alienates the industry from its community roots, further isolating small farmers from export opportunities that could lift them out of poverty. Essentially, we’re witnessing the transformation of the sector into one that only large-scale investments can navigate.”

Peru ended 2023 with the impacts of weather phenomenon El Niño, a threat that gradually waned over the weeks. “Indeed, this situation prompted the Peruvian banking system — and to a lesser extent, international banks — to raise concerns and cut short-term credit lines. This perceived risk drove up financing costs, in some instances even tripling them,” explains Juan Carlos Paredes, president of Peru’s Hass Avocado Growers’ Association (ProHass) and managing director of exporter Agrícola Pampa Baja. 

“Fortunately, specialized investment funds, well-acquainted with the agricultural sector’s risks, responded swiftly and offered much-needed support amid the dwindling local fund availability. Recently, the accessibility of financial lines has started to normalize, yet the costs still remain elevated,” notes Paredes.

Omar Diaz, the general manager of Westfalia Fruit Peru, acknowledges the national industry’s evident challenges but points out that companies that have managed their expenses well and pursued more sustainable practices are now faring better. “Take blueberries, for example; some producers have enjoyed a very successful year thanks to better pricing. However, many have fallen short of expected yields, and the struggle persists. The situation with mangoes is similar; only a few have achieved satisfactory yields. Integral to overcoming these challenges is cost control, an essential and ongoing process, not just in response to crises but from the inception of projects, encompassing both operational and administrative dimensions,” notes Diaz.

Urgent Diversification

What factors explain the success or struggles of agricultural industries in complex environments? Why do some exporters thrive and expand, while others struggle? What influences have led to successful outcomes? Iván Marambio, president of Frutas de Chile, notes that his organization has concentrated on improving market access by identifying and removing trade barriers for Chilean fruits. He notes, “The tariff advantages our fruits once had have been fading for several years. Moreover, we’ve continuously focused on promotional activities in our target markets. We think effective promotion is key to differentiating our products and ensuring they are valued by retailers, distributors, importers and end consumers in crucial markets.”

Lorenzo Bauzá Fernández, with more than 35 years experience in the sector and who is serving as the general manager and partner of Bauzá Export in Chile, also talks about a “perfect storm” of factors challenging the agro-industry in this region. “Only the strongest, most prepared and diversified players in this tough agro-industry have managed to endure without failing,” he says. “The Chilean agro-industry’s journey has been more disrupted by climate events than by competition from countries such as Peru and Brazil. Nonetheless, it is important to note that this season presents a favorable outlook for Chile in terms of table grapes, as the El Niño phenomenon in Peru has impacted exportable volumes in areas like Piura and Ica.”


Bauzá points out that the dominant business model in the sector now is an integrated one, with companies being part of the entire supply chain. “Being involved in production, export, logistics, and distribution and sales enables a company to sustain itself over time. Undoubtedly, this integration is crucial for longevity in business. For instance, the Spanish fruit and vegetable group AM Fresh acquired the North American genetics company IFG (International Fruit Genetics), known for its links with global producers for varietal renewal. Similarly, the Muñoz group, known for its marketing and distribution prowess, is now venturing into production, closely aligning with its offerings. Such groups, with their scale, have stronger bargaining power in logistics and maritime transport, securing better rates and thus ensuring their sustainability over time.”

Nicolás Moller, president of the Chilean company Hortifrut, a world leader in the platform for producing and marketing fresh and frozen berries, discusses the reasons some exporters flourish while others face crises. “Efficiency, high quality, reliability and positive margins are the basics for participation, yet these alone may not suffice in the long run. Strategic partnerships, diversification, technological advancement and innovation, along with internationalization in some cases, greatly contribute to reinforcing and broadening the foundation; often, they are what differentiate in challenging times.”

“Competitive advantages emerge from complex scenarios, presenting opportunities. I remain optimistic; despite inevitable ups and downs, the Chilean agro-industry is poised for innovation and the development of new niches, backed by its core strengths.

Moller attributes poor company outcomes to several factors: “Maintaining the status quo, a lack of expertise and specialization, a narrow focus from production to market, poor planning, inadequate financial structures and a failure to diversify.”

Valdés Lutz contends that those who align with the global trend towards shortening the supply chain — reducing intermediaries and margins between farmers, processors, exporters, transporters, importers, wholesalers and retailers, and who can efficiently achieve vertical integration, are ahead in the competition. “However, this isn’t true for the majority of companies,” he notes. “Many exporters are not effective producers, and vice versa. Yet, there are numerous success stories. I’m convinced that partnerships and strategic alliances help mitigate the risks associated with vertical integration or foster their growth, which is why many opt for this route. Collaborating with a local distributor can certainly fast-track an exporter’s integration into distribution at their destination, just as teaming up with a producer from a different source can hasten integration into agricultural production.”

For Valdés Lutz, varietal innovation is crucial. “End consumers may not know about different varieties, but they recognize and choose based on flavor, texture, color and sweetness. New varieties that have significantly improved post-harvest life, disease resistance, and particularly the eating experience, have become favorites in the markets where they’re introduced. Those failing to update their offerings risk losing their consumer base. If you ask me the secret to success, I’d highlight the importance of having a team with the right skills, talent and effective governance. Effective strategies are born out of competent boards and managers and are executed by dedicated individuals who meet goals. Companies lacking robust governance, with overly centralized power and managers who only execute orders, are on a fast track to becoming obsolete along with their owners. Ultimately, the success or failure of a company rests on its governance.”

Due Resilience

For Paredes, effective corporate governance involves highly efficient use of resources, which doesn’t simply mean “cutting costs for its own sake.” He emphasizes the importance of precise focus and firsthand verification of operations beyond the office. “Making decisions with a hands-on approach in the field is crucial; leaders must have a passion for agriculture. Businesses not operating in this manner will encounter numerous hurdles,” he says. “Equally critical is maintaining a balanced debt structure; given the substantial investments required in this sector, excessive debt can pose liquidity risks that may lead to bankruptcy, particularly within the challenging financing environment I’ve described.”

Olaechea notes that for the past three years, growth has been confined to pre-planned projects. “For instance, when a company begins harvesting 100 hectares of avocados, it’s often overlooked that these were planted and funded three years prior, and production is just beginning. This misinterpretation skews perceptions of growth. Furthermore, the  agricultural industry is contracting as numerous companies shut down.”

So, what factors should be considered in company governance to ensure success today? “Resilience and adaptability have been key in distinguishing which agricultural companies thrive and which do not,”says Olaechea. “It prompts the question of who made the right decisions in the past and who didn’t. Often, the industry is simplified, likened to shoe manufacturing, where different companies are thought to operate similarly despite producing diverse products. However, the agro-industry involves vastly different processes; whether discussing the production of onions for export, blueberries, avocados, or grapes, each presents unique challenges and requires distinct approaches; there’s no one-size-fits-all strategy for the agro-industry,” notes Olaechea.

For Díaz, of Westfalia Fruit Peru, the trend among agro-industrial companies towards product diversification is becoming increasingly apparent. “This trend is a major reason why we’re witnessing more acquisitions and mergers. For example, banana companies are now looking to add avocados to their offerings, or stone fruit businesses are branching out into berries, grapes and other products. In essence, firms are broadening their range of products and markets to minimize reliance on a single product in a single market,” he explains.

Olaechea emphasizes that companies able to navigate challenges and embrace change will lead the way in shaping future trends. He underscores the volatile nature of agriculture, where conditions can shift rapidly. “If I have an avocado orchard that isn’t turning a profit, we’ll pivot to a different crop. If labor costs become a barrier, we’ll transition to less labor-intensive crops. There’s a wide array of mechanized farming options globally that are well-suited to Peru, with many already being implemented. For example, tomatoes in Ica, traditionally a labor-intensive crop, are now 90% mechanized. We anticipate similar shifts for onions and potentially for crops like rice, barley or wheat. Should the cost of importing fertilizers make farming unsustainable, we’ll switch to crops compatible with locally available fertilizers. The players may change, but agriculture endures; it’s a resilient and noble industry capable of withstanding the tests of time.”