Mariano Bosch

What is the outlook for the global economy, as you see it?

We believe that the global economy will recover but not before a potential slowdown. There are still structural matters affecting the global economy and have not certainty in the way that they will be fixed.

What are the prospects for your business?

Adecoagro is focused on producing food and renewable energy to supply the world. We believe the demand for food and renewable energy will continue growing, driven by the constant growth of the global population and the income in Brazil, China, and India and also in other undeveloped countries. In the short term, we expect demand to remain stable, since the demand for this type of basic goods is inelastic. However, we are very cautions and do not discard a scenario where commodity prices fall. We are focused on maximising liquidity and the risk-return profile of every dollar we spend.

Does this perspective change for Brazil, Argentina and Uruguay?

The three countries are ranked especially well in the world. They all have a very moderate debt/GDP ratios and reasonable growth prospects for 2012 and 2013. South America offers the most competitive conditions for agriculture production of the world. The natural conditions of the region, together with the highly qualified labor, offer us a great opportunity and a favorable position against the crisis.

Has this been a particularly volatile year for your business?

Not really. We have had very good operational and financial results in each of our business lines and we have been able to deliver the growth expected by our shareholders. However, the price of AGRO shares has been underperforming and trading with certain volatility.

Looking back at the past year, what non-economic event had the most significant impact on the business objectives of your organisation?

Our business is highly dependent on climate. Sugar cane production in Brazil was negatively affected by a heavy frost that impacted all producers in the main productive region. Therefore, our production volumes were lower than expected. But the increase in the international price of sugar offset the lower volumes; therefore, our financial results for the Sugar, Ethanol & Energy business were not impacted.

Looking forward, what is the one risk to your growth that you are most concerned about and why?

Adecoagro’s greatest challenge for growth is recruiting the right people to manage operations. In large cities, this is relatively simple but it is not so easy in the interior of the countries, where our farms and agroindustrial operations are located. To continue growing, we need human capital. It is a difficult task to find people who understand efficiency and focused on return on investment and sustainable production, and are good leaders who can motivate teams. We spend a lot of time and money in training our people, but it is a process that cannot be done from one day to the next.

How much does the fiscal position of domestic or foreign governments worry you? Has volatility in capital markets and/or exchange rates become an issue for you?

We sell different commodities in dollars, Brazilian reales and in Euros and our cost of production are also denominated a portion in local currency and a portion in foreign currency. So clearly, volatility of exchange rates is an issue and may have an impact on our margins. We therefore continuously track exchange rates and hedge our exposure to keep our position square and minimise the impact on our margins.

What’s the one thing the Argentine government can do to better support your company?

One of the key things that we hope the Government will allocate resources to strengthen of education, especially in the interior of the country. In fact, we are having discussions with several governmental agencies promoting that rural schools should train their students in the theory of knowledge, as well as helping them to develop an entrepreneurial spirit. This is essential for both the young people who work with us and for those who will set up their own businesses to sell us products and services.

In what ways has your strategy changed in the past year?

Our strategy has not changed. Following our IPO on January 28 of this year, where we raised over 423 million dollars, we continue strengthening and growing our three main business lines. We continue focusing our growth decisions based on maximising the return on invested capital.

In what ways is the attractiveness of different countries or regions changing, either for sales or for operations?

Before the crisis, Europe and the US were the most important markets. Now we are going to India, to China and building much stronger relationships with BRIC countries. We are selling rice, sugar and ethanol to a more expanded and balanced world.

Where did you move forward and where did difficulties arise?

Cultural differences are always hard to learn and manage, but in time they can be overcome. The advantages of new countries relate to volume and large orders and, once trust is in place, the market opens and opportunities start to grow.

How do you get to know the needs of customer in markets that are new to you? How does it impact your operations?

We produce basic products and their demand is relatively uniform worldwide. We also adapt ourselves to market needs by producing, for example, new varieties of grains.

Your company is open to investors worldwide; does this change the management of your business?

There are some differences between shareholders but in the end all investors are after the same thing: a strong company in the short run, with attractive long-term growth plans. I am proud of having contributed to found a company able to align its own values with those of its investors: efficiency, transparency, long-term profitability, sustainability and a good working environment.

How have building relationships and partnerships become more important to succeed in the management of your business?

We rely heavily on the relationship with our contractors and suppliers in the interior of the countries where we operate. The trust network created between us is the most important partnership that we have. This includes small companies engaged in fumigation, sowing, service suppliers and machinery maintenance, consultants – for all our lines of business.

How do you make those relationships work?

We generated a culture in the company based on values such as trust, transparency, respect, focus on profitability and good communication. This allows our people to efficiently negotiate the day to day, while taking care of relationships over the long run.

Is your board becoming more engaged with enterprise risk? How has that affected your planning and operations?

Yes. We have an independent and professional board of nine individuals Within the board, we have four committees, one of which is the Risk and Commercial Committee that analyses and monitors the company´s hedging strategy for both prices and Fx. Our hedging strategy aims to manage gross margin profit among all company's output considering cost incurred in crop planting.

Does this committee analyse environmental risk?

We manage and operate natural resources such as land and water that are key for our business and our operations. Therefore, taking care of these resources with a long term view is part of our core business strategy and is discussed and evaluated by the board of directors. Environmental risk is constantly assessed by external consultants and our managers who are guided under the highest sustainability criteria.

A clear example is how we manage our land. By applying a sustainable production model based on No-Till and other best practices we achieve our environmental goals of protecting the quality of soil and our business targets of increasing crop yields, reducing production costs and increasing the value of the land.

In what ways has your response to environmental or social concerns become an element of cost reduction, corporate reputation or revenue growth expectations?

Regarding social responsibility, we first take care of our employees, ensuring that they live in a decent place, are fairly compensated and work in proper safety and health conditions.

Then we go to the communities close to our operations where, in partnership with specialised NGOs, we focus on education and nutritional programs. We support educational initiatives because we believe is essential to our project to develop qualified workforce in the interior of the country. We also take care of nutrition issues because, been food producers, it would be unacceptable if our neighbors went hungry.

What is your company's approach to innovation?

We have an Agricultural Technical Group working on applied innovation from a technical and economic perspective. The group liaises with universities and public and private research institutions, which in turn look for ways of applying innovation internally within the company.

Does the current dispute about patent law between the companies producing seeds and the governments have a bearing on access to innovation?

So far, this has not generated any type of limitation on our access to innovation. I believe negotiations with governments are ongoing, but I expect they will be resolved. Our company, as well as every farmer in the region, needs to count on the research and development contributed by Monsanto, Syngenta and many other smaller local companies. Their existence is fundamental for crop production in South America.

Can you give an example of applied innovation in your business?

There are many examples. In our farming business, we use “no-till” technology as the cornerstone of our crop production; we also utilise crop rotation, second harvests, integrated pest management, balanced fertilisation, water management and mechanisation. Additionally, we use the innovative “silo bag” storage method, resulting in low-cost, scalable and flexible storage on the field during harvest.

In our dairy business, we believe that we were the first company in South America to implement the “free-stall” infrastructure in dairy operations, resulting in more efficient conversion of feed to raw milk and higher production rates per cow compared to our peers in the region.

In our sugar, ethanol and energy business, our Angélica mill has a highly mechanised planting and harvesting operation, has the capacity to use the bagasse to cogenerate of clean and renewable electricity and has the ability to recycle by-products such as filter cake and vinasse by using them as fertilisers in our sugarcane fields, as well as recycling water and other effluents, generating important savings in input costs and protecting the environment.

Yours is a rather young company, but even so, are challenges different than they used to be regarding talent? How are you addressing these challenges?

Yes, there have been changes and adapting to them required effort from everyone, including myself. When we first started, we were more an entrepreneurial team, used to handle many different tasks and with a less formality in the follow up or reporting. But as we grew and went in the direction of a public company, we had to adapt and formalise our processes. We developed a professional and specialised team in order to implement international accounting standards, a world class ERP, internal audit procedures, ISO 9001 for crops productions and other tools.

All these changes demanded understanding and time for adjustment, but they were necessary to manage a growing company.

Have you had to reconsider a strategic objective because you couldn't find the right people, in the right place, at the right time? How did you deal with it and what was the impact on your business?

Talent is one of the reasons why we have not expanded outside of South America yet. We have analysed interesting projects in the Ukraine, Mozambique and other countries and even had investor support in the implementation, but we decided it was best to discard those opportunities for the moment.

Finding the right people in the right place takes time and as a result may delay the execution of some businesses, like in rice and sugar and ethanol segments.

What was the impact on your business?

When we decided to enter the sugar and ethanol business in Brazil, we took a year and a half until we found the right team to execute. Once the team was assembled, the growth plan was increased and speeded.

The case of our expansion in the rice business is very similar.

What restrictions are there in finding new people?

A target technical profile does exist, but we also look for other qualities in recruits, such as being efficient, self-demanding and having great leadership skills. Those three qualities are difficult to find together, alongside the technical knowledge necessary. We experience this difficulty in all three countries, even though they all have very good universities and schools.

How is talent factored into your strategic plan?

As I have already mentioned, this is key element of our strategic plan. We continuously know potential candidates in a proactive process, in order to detect and incorporate new talent. Many of our young professionals passed through the internship program, and they all participate in the training program of the Agricultural Technical Group. We constantly promote internal candidates, and develop leadership skills through permanent coaching from the senior management.

Are you building a succession plan?

Yes, the human resources committee of the Board of Directors has set the issue as a priority and is therefore focusing on it. As we are a young company, there is still work to be done on this issue.

Does your company need to do anything differently to remain attractive to younger workers?

We need to collaborate on improving the quality of life in the local towns near our operations. For example, education and recreation.

How are you collaborating with educational institutions or governments to better develop a pipeline of future employees?

We work with the NGOs in our regions on social responsibility, and education has always been a priority for us.

We take an interest in the enhancement of educational quality in the short, medium and long term. In Brazil, for example, we take part in a programme called Escola Nota 10 together with the Bradesco Foundation and make contributions so that children have school supplies.

In Argentina, we work together with NGO Cimientos to promote equal educational opportunities for children from low income families, and we contribute to the CONIN foundation, which is devoted to fighting childhood malnutrition.

Has the allocation of your time and attention changed over the past year?

Personally, and due to the characteristics of this company, it is very difficult for me to consider a “standard” demand on my time, since we have had intensive growth from the very beginning. Precisely for that reason, I devote a lot of time to the company and cannot foresee a time when I would do less than at present.

It is true, however, that since the company went public in January 2010, there has been a change in the time spent on each task. Today, a third (of my time) is devoted to the board of directors and shareholders, another part is dedicated to senior management and the last portion is assigned to the specific business. Formerly, the business used to take 80 to 90 percent of my time.