Los Grobo – A Farming Model of the Future?

Alex Tiller - Thursday, June 21, 2012

The second largest grain producer in Latin America generates revenue of about $550 million USD per year, produces or handles more than 2.6 million tons of grain per year, farms more than 617,000 acres every year, employs 900 staff people, 5000 farmers, and 4000 supply-chain workers…and does not own a single acre.

They don’t even own a tractor.

The company is named Los Grobo and is the end result of nearly a century of a family farming tradition among the Grobocopatel family of Argentina. Starting in 1920, the family patriarch began farming on a 15-acre land grant. Over the decades the family acquired more and more land, and eventually had more than 10,000 acres in production.

At that point, the family-based company (the subject of a fascinating Harvard Business School case study in 2010, readable here) began to make a major shift. Previously, the Grobocopatels, like farmers worldwide, had focused on acquiring more land, buying more equipment, and reinvesting profits into the farm itself. That changed when Gustavo Grobocopatel, at the ripe old age of 23, graduated from an agronomy program at the University of Buenos Aires and, together with his MBA wife, joined the family firm in 1984.

Gustavo (who still runs Los Grobo today) had a very different vision of farming than has been traditional among farm analysts – though it is a vision of farming that many farmers themselves might endorse. He does not believe that the financial strength of a farming enterprise comes from its land holdings, its supplier deals, its machinery and capital-intensive equipment. Rather, the enterprise’s strength comes from the knowledge and expertise of the farmers that work the land. It is a human-capital-centric business model that disdains land purchases and actively avoids investing in fixed capital – and instead hires the best agronomists, soil chemists, and other agricultural professionals it can find.

Los Grobo partners with 5,000 individual farmers, who own plots large and small throughout the southern half of South America. It sends its experts to help the farmers manage planting, herbicide and pesticide administration, financial transactions, sales, and all the other business details that go into a farmer’s life. The company directly leases some land and produces its own crops, but the bulk of its revenue (and about half of the enterprise’s considerable profits) comes from lease deals with these partners throughout South America. It leases the equipment it needs, where and when it needs it, and keeps fixed assets to an absolute minimum.

In addition, Los Grobo provides a wide range of management and consulting services to farmers, helping arrange financing, teaching best practices, etc. In fact, the company invested heavily in no-till agriculture back in the 1980s, pioneering this method of soil management and greatly increasing its profitability at the same time. The company’s employees spend their time managing the company’s own rented cropland, and more time out at the client farmers’ properties, both helping to manage the crop production as well as training the local farmers in the Los Grobo approach.

Is every farm destined to become a Los Grobo, or managed by one? Probably not. For one thing, the company maintains its profits in part by selecting the best farmers, with the best land, where it can make good deals and handle the supply chain in an efficient and cost-effective manner. However, I was drawn to the Los Grobo story because it seems to me that Gustavo hit onto something fundamental back in 1984, when other agricultural corporations were obsessing about land prices and trying to consolidate operations into giant megafarms:

It isn’t the farm. It’s the farmer.