Background and Challenge
A recent change in international law and tariff duties suddenly opened a new opportunity for a global agricultural processing giant to invest in a greenfield soy crush facility in an emerging market in Asia where it was already importing soy beans, meal and oil. The client had begun initial research into the opportunity, but still had many unanswered questions about the offtake markets, value chain economics, competitive landscape and overall investment feasibility under a range of possible market scenarios.
The key challenge was not only understanding the demand for soy oil consumption in the emerging market, but also assessing the economic viability of expanding operations into this country at an efficient scale. The client was unsure about the shifting consumer demand for other vegetable oils in the region, as well as the potential to displace current competitors in the soybean oil and meal value chain. Before approaching the Board for investment approval, the company engaged L.E.K. to conduct a thorough evaluation of the business case behind the potential investment.
Approach and Recommendations
We conducted a detailed assessment of the market and value chain, using on-the-ground research and interviews to gather critical data and insights for our evaluation. Working closely with the client team, we developed a robust model of the economics of the business and investment returns, and tested the outcomes using sensitivity analysis around key market variables. The results of our work fed directly into the client’s internal business case for presentation to the Board and enabled the client to get the green light needed to proceed.
As a result of the in-depth analysis performed, the client was able to confidently request and secure investment approval from the Board to proceed with the project. Since its initial operation, the project has been very successful, due in part to the rigorous diligence conducted at the outset.