An hour after Cargill Inc. released its quarterly earnings last week, CEO Greg Page sat down for a conversation in the founders room of the agribusiness giant’s Lake Office headquarters in Minnetonka.
If you know anything of Cargill, you should know that it takes a long-term view of its business. But just how long still takes some adjustment, as I was reminded when asking about strategic challenges in the next 24 months.
“I was set to answer your question,” Page replied, “until you said 24 months.”
Is 24 years better?
“Twenty-four years is better,” he responded. “It would resonate far better with the family.”
By family he means the Cargill and MacMillan family shareholders. It’s been 148 years in this investment, and that kind of ownership has a lot to do with the durable set of strategic principles that Page described.
It’s not like Page doesn’t care about the short term. He said a debate over Chinese steel demand in 2014 may be interesting and even germane to the financial results of the company.
It just wouldn’t be strategic.
As Page talked strategy, he started with the organizing principles of the family shareholders. They want their company to have a noble purpose and do work they can be proud of. They want a company that won’t just fold up in any financial crisis, drought or political upheaval.
That means not betting the farm on any market or geography, and achieving a level of portfolio diversification that should be comforting if Cargill were the only stock a shareholder owned.
Page understands diversifying his shareholders’ risk to be part of his job. A CEO of a publicly held company would have a far different approach, and feel confident focusing on a single segment knowing that his investors could diversify just by buying different stocks. Page gets asked if Cargill would go public, and he said he has no idea. But he doesn’t view it as likely based upon the thoughts of Cargill’s owners. “Our job as custodians of their wealth is to not give them any reason to,” he said.
At the same time Cargill seeks portfolio diversification, he added, it sees itself as a business operator, not an investor on behalf of the family. Page wryly observed that “there are times we have to remind ourselves” of that.
Balance means investing for short-term opportunities as well as long-term, in developed countries and emerging economies, adding capacity in mature businesses as well as funding innovations, and so on.
“The other thing is we have to be growth-driven, which is pretty powerful language if you think about it,” Page said. “The family [shareholders] have been unbelievably permanent and patient capital providers.”
Cargill might take a successful business and try it in a new country, or acquire another step in a processing chain. Page said the “what” of Cargill rarely changes, it’s the how and where that does.
Cargill also believes that any business of Cargill should have a connection to other Cargill business units. Cargill’s involvement in the iron ore market may seem odd, he said, unless you understood that there are huge ore shipments in Asia with a big impact on Cargill’s ocean shipping of other commodities.
Cargill’s planning horizon isn’t really 24 years, of course; it’s more like five. That’s far enough out that management isn’t talking individual projects but not so far out that the discussion is just about concepts.
In those meetings they talk about trends, but strategy at Cargill is not based upon any given forecast. Page said that doesn’t keep Cargill managers from trying to predict the future, but “if your goal is to soon be 150 years old, it would take a significant amount of hubris to have a strategy predicated on prognostication.”
Near the end of our conversation Page made a pretty convincing case that its consistency in what he called “themes” has something to do with the fact that Cargill is not that complicated of a company. Sure, it’s in 65 countries and has about 75 business units, but that mostly makes Cargill big, not complex.
To illustrate, Page grabbed his pad and jotted an “S” on the left hand side, for supply, and a “D” on the other side, for demand. In the middle he drew a simple box with a “T” in it, which meant transformation. Cargill is the box with the “T,” because it knows how to get soybeans in Brazil and transform them into food products for customers in Japan.
Cargill occupies part of the “T” box in many different markets and geographies.
It’s a simple model, but not necessarily an easy one to manage. It would be a lot easier, Page said, if the world had no trade barriers.
He also talked about the development of the Brazilian soybean industry, “as anybody who overinvested, which was everybody” then had currency valuation moves go badly against them, or the example of spending capital dollars to avoid shipping costs only to have the daily rent of the large Panamax freighters drop to just 10 percent or so of what it was a few years ago.
“Back to this predicting the future,” Page said. “You might get the geopolitics right and get the foreign exchange and the ocean freight wrong, and you are still going to wish you had a more diverse and balanced portfolio of assets.”