Fertilizer Changes
While we're positive about the future, it's important to understand the past, and no discussion of the recent past can start without a candid acknowledgement: Bunge's 2009 results were disappointing. We faced significant challenges in Fertilizer. Consequently, our net income fell considerably from 2008, despite strong performances in Agribusiness and Food & Ingredients. We can and will do better.
The losses in our fertilizer business stemmed from a dramatic decline in demand for end products that began in the second half of 2008. In response, both international and local Brazilian prices for fertilizers collapsed and continued to trend downward for much of 2009 (Figure 1). For Bunge, this caused an ongoing mismatch between market prices and inventory costs, resulting in negative margins.
Moving forward, we are approaching the Brazilian retail fertilizer business differently. We are not accepting as much risk and are linking our fertilizer business even more closely to our agribusiness operations to optimize our volumes, product offerings and logistics. We are reducing risks associated with price volatility by consolidating responsibility for raw-material sourcing and end-product sales, and we are working to reduce lead times on purchases and adjust our cost structure. We expect these changes to have a positive impact beginning this year.