Directory UMM :Data Elmu:jurnal:J-a:Journal Of Business Research:Vol50.Issue1.2000:

Agroceres-PIC
Decio Zylbersztajn
UNIVERSIDAD DE SÃO PAULO

Jonathan C. Turner
ROYAL AGRICULTURAL COLLEGE

James V.H. Jones
ROYAL AGRICULTURAL COLLEGE

A chance meeting at the Harvard Business School Agribusiness Seminar
in 1976 is the backdrop for this case on the alliance of two agro-enterprises.
The first, Agroceres, was a Brazilian producer of genetically improved
corn seeds that was seeking to reduce its dependence upon a single
product; PIC is a British animal genetics company specializing in the
improvement of pigs that wishes to position itself in emerging markets.
For both, the alliance a means of achieving corporate objectives. Alliances
between enterprises of the northern and southern hemispheres are a means
of facilitating technology transfer and access to new markets. In this case,
a company with experience in plant genetics, Agroceres, becomes a full
partner in a program to revolutionize the breeding of pigs on a large

scale while PIC, the Pig Improvement Company, is well situated to tap
the great expansion potential of the Latin American market. The case
describes the world pig industry and recent technological improvements
in pig breeding that allow superior genetic merit to be transmitted. By
1995, Agroceres-PIC had been highly successful in the adaptation of these
technologies to the Brazilian market and was looking forward to another
20 years of growth. However, the Vice-President of Agroceres in charge
of the Animal Division, Dr. Roberto Butteri, had some concerns about
the future. These concerns reflected the more general problems and challenges of strategy formulation in the Latin American agro-enterprise. The
first concern is how to ensure that technology benefits the small and
medium as well as the large producers. The PIC concept, unfortunately,
is designed to be used with very large-scale operations. If Agroceres wants
to see the benefits flow to the smaller pig breeders, it must invest in
training programs. A second challenge for a Latin American enterprise
such as Agroceres that enters into an alliance with a multinational firm
like PIC is how to maintain strategic flexibility to expand geographically
and not be limited by the actions of partners in third countries. In this
case, PIC has been acquired by another multinational whose long-term
strategy in South America is unclear. A third challenge for the Latin
American enterprise, which like Agroceres seeks to introduce a differentiated product to the market, is consumer education. It is not clear that

Address correspondence to D. Zylbersztajn, University of Sao Paulo, School
of Economics and Business, Av. Professor Luciano Gualerto 908, 05508-900
Sao Paulo SP Brazil.
Journal of Business Research 50, 71–81 (2000)
 2000 Elsevier Science Inc. All rights reserved.
655 Avenue of the Americas, New York, NY 10010

the consumer is prepared to pay higher prices for pig meat (or any other
product) with value added that may not be immediately evident. In the
United States, pig producers have launched a campaign advertising their
product as “the second white meat”. Will this approach work in Brazil?
And if so, who should finance the advertising campaign? Amid these
challenges is the spectre of competition. The case describes the acquisitions
and fusions taking place among major players in plant and animal genetics.
Brazil and its neighbors in the southern cone offer attractive markets. If
Agroceres-PIC is to retain its advantage as first entrant, it must take
measures to reduce costs. J BUSN RES 2000. 50.71–81.  2000 Elsevier
Science Inc. All rights reserved.

D

uring the welcoming ceremony of the annual agribusiness seminar at the Harvard Business School in January 1976, Mr. Ney Bittencourt, President of the Brazilian company Sementes Agroceres, S.A. was introduced to Mr.
Ken Woolley, managing Director of the Pig Improvement
Company (PIC) of England. Agroceres had been operating in
the field of plant genetics since 1945, its main business being
in the field of hybrid corn seeds. PIC had been involved in
animal genetics since 1963 and now held the premier market
position in the production of crossbred pigs.
Shortly before this meeting, Mr. Bittencourt had submitted
a report to his Board of Directors expressing concern about
his company’s dependence upon corn seeds, which represented 80% of total sales. The Board subsequently decided
to explore diversification to other products with which the
company could apply its technological expertise in genetics.
This was mirrored from the English side where PIC was concerned about being positioned in emerging markets with developing potential, amongst which were China, South Korea,
and Brazil. Nevertheless, PIC’s international experience indicated that the key to entering international markets depended
upon the identification of a reliable and skillful partner with
the technological knowledge in genetics, essential for the commercial success of the business.
ISSN 0148-2963/00/$–see front matter
PII S0148-2963(98)00113-1

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By the end of the seminar, a new joint venture was born.
Agroceres-PIC began operating commercially at the beginning
of 1978.
PIC, which was subsequently acquired by a large multinational company, Dalgety, had by 1994 set up 25 subsidiary
companies in over 30 countries producing 1.1 million crossbred gilts and generating sales of US$30 million per annum.
In the same year, 35% of the pork produced in Brazil under
federal supervision originated from Agroceres-PIC genetic material, representing sales of US$18.9 million.

Agroceres Background
Dr. Antonio Secundino de Sao Jose, founder of Agroceres and
father of Mr. Bittencourt, had developed an interest in animal
genetics in the 1970s and created a pig reproduction centre
in Patos de Minas, where he replicated in pigs the success
obtained by the company in plant genetics with hybrid corn.
Dr. Secundino, however, considered that the technological

gap in animal genetics was already too great to depend upon
technology developed for seeds. Thus, in order to gain access
to international genetics, it was necessary to set up a partnership with a company that had the available technology—a
world leader in porcine genetics. The need for the genetic
basis to be modified for local needs, or “tropicalized,” was
not considered as important as it had been in the case of corn.
Many possibilities were considered. The Dekalb Group
and N.D.P. were contacted in the United States and Europe,
respectively. Everything indicated, however, that the meeting
between the two corporate presidents at the Agribusiness seminar in Harvard had been the defining moment in setting this
strategy in motion.
In 1977, Agroceres, Swift-Armour, Natron, and PIC set up
a partnership of equal shares, establishing the operation in
Brazil. In December of that year, despite the problems of
African pig fever facing the industry, an air freight Boeing
from England landed secretly in Brasilia with the first lot of
animals. After the first steps were completed, Swift and Natron
sold their interests to Agroceres, and in 1982 there was a
capital call that was not followed by PIC, leaving Agroceres
with 87.7% of the shares and PIC with 12.3%. In 1998 Agroceres sold the seed operations to Monsanto focusing the activities in the market of hogs and poultry.

Great changes had since taken place in the international
pork industry that were of concern to Dr. Roberto Butteri,
vice-president of Agroceres in charge of the Animal Division.
Consumers were now more concerned about health, and much
higher standards were demanded of pig breeders in quality
and in managerial efficiency. Global competition could only
be expected to increase in the near future. Despite the success
of the venture, Dr. Butteri’s concerns were focused over the
long term. The company had been quite successful in its first
two decades, but the problem would now be to consolidate
and maintain a lead over their competitors.

D. Zylbersztajn et al.

The International Pork Industry
The world pig herd was estimated in 1992 at 956 million
pigs producing approximately 72 million tons of meat. The
global demand was increasing considerably due to population
and income increases in the main consuming countries, a fall
in the price of pork, convenience food processing, a reduction

in fat content, improved attractiveness of taste and texture,
and consistent marketing programs. Meat consumption “in
natura” was concentrated in the countries with mild climates,
whereas in the tropical countries it was the consumption of
processed food that developed most.
The world consumption of pork per capita/per annum was
around 13 kg, ranging from 22 kg in North America, 10 kg
in Asia, 41 kg in Europe, and 19 kg in the countries of Eastern
Europe. The consumption per capita increased annually by
8% between 1985 and 1992, according to a study made in
Rabobank by Gaasbeek et al. (1993). Asia presented the greatest growth with 32% a year, whereas the consumption trend
in Europe was decreasing (see Table 1) (van Gaasbeek, Borgstein, and de Vlieger, 1993).
International trade was limited and concentrated in the
countries next to large consumption centers, explaining why
Denmark exported 50% of its production, whereas China
exported only 2%. The markets considered most promising
for future growth were China, Japan, Thailand, Taiwan, and
Brazil. Approximatly 70% of the world trade took place within
the European Union. Germany, Italy, and Japan were the
largest importers while Denmark, Holland, and Belgium/Luxembourg were the largest exporters.

The international supply of pork was affected by the increase in consumption and by productivity improvements due
to the dissemination of better genetics and handling technologies. The largest producing countries were China, USA, Germany, and the Eastern European countries (see Tables 2 and 3)
(van Gaasbeek, Borgstein, and de Vlieger, 1993). The producer
countries that specialized in intensive production, such as
Holland, were subject to growing environmental limitations.
The factors considered essential for competitiveness in the pig
sector are:
1. Geography: especially related to the proximity of the
markets.
2. Climate: which determines whether the meat consumption is “in natura” or as processed meat.
3. Raw material available: which limits production in areas
where the cost of the feed ration is high.
4. Labor: because modern production requires specialized
labor with the right skills to get high herd productivity.
5. Capital: where the necessary facilities to start production
require a high level of investment and the minimum
production scale excludes the small producer.
6. Infrastructure: Where facilities to ship both the parent
livestock and frozen semen are important.
7. Chain coordination: The dynamic activity in competition that requires the developing of communication

channels between all the factors of production.

Agroceres-PIC

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Table 1. Pig Meat Consumption per Continent, 1985–1992

Year

Consumption
(million of tons)

Asia
(%)

North and

Central
America
(%)

1985
1989
1990
1991
1992a

58.1
67.9
69.8
70.9
71.8

37
40
42
44

45.5

14
14
13
13
14

South
America

Africa
(%)

Europe
(%)

Oceania
(%)

Ex-USSR
(%)

3
3
3
3
3

1
1
1
1
0.9

34
31
31
29
28

1
1
1
1
0.6

10
10
10
9
8

a

Preliminary data.
Source: van Gaasbeek, Borgstein, and de Vlieger (1993)

8. Animal health: which relates to handling and results
from factors such as coordination of input availability
and producer’s technical abilities.

The producers organized a conference with important geneticists such as Dr. Sid Fox from Reading and Dr. John King
from Edinburgh. During the conference, it was emphasized
that by concentrating breeding programs on the animals performance there was enormous potential to be explored. There
were further potential gains from improved animal health
associated with suitable handling that would be vital for desired performance. The elimination of the influence of disease
was another important issue in the breeding program.
With this new concept, a group of producers created the
PIC Improvement Company (PIC), whose aim would be to
explore the benefits of a high health status breeding environment and genetic improvement achieved by breeding on a
scientific basis. They bought a property in Oxfordshire and
selected Large White (LW) females and Landrace (LR) males
under the direction of the Pig Improvement Development Association, PIDA. To ensure that the progeny were free of pathogens, the hysterectomy technique was used. The womb was
surgically removed just prior to giving birth naturally, avoiding
the contamination of the offspring. By this method they produced 80 disease-free piglets to start the breeding program. As
a result of this process, most performance reducing diseases
were eliminated. Equally important was that performance
from superior genetic stock not be compromised by disease,
allowing a more accurate and rapid selection process to take
place. This required that the breeding pigs be taken to com-

The perceived level of international competitiveness with respect to each of these factors for three well-known producing
countries—Holland, Germany, and China—is shown in Table
4 (van Gaasbeek, Borgstein, and de Vlieger, 1993). The major
conditions affecting competitiveness were production costs,
access to resources, sources of capital for investment, capacity
to adapt technologies, capacity to coordinate the system,
knowledge, and infrastructure.

The Evolution of PIC
Before the 1950s, the pig breeder’s aim was concentrated on
obtaining phenotypes, pigs based on a good appearance that
could be enhanced by management. English farmers had a
particularly strong tradition in the genetic improvement of
animals, including pigs, but the cost of the parent stock was
excessive relative to their potential for production.
At the end of the 1950s, some producers noticed that the
new genetic improvement techniques used in plant and chicken
breeding could be redirected from the phenotype approach to
genotype; based on objective criteria of production for characteristics such as food conversion, weight gain, and carcass quality with the view to passing these on genetically.
Table 2. Overall Production of Pig Meat per Continent, 1985–1992

Year
1979/81
1985
1989
1990
1991
1992a
a

Production
(million of
tons)
53.9
58.1
67.9
69.9
70.9
71.8

Asia
(%)

North and
Central
America
(%)

South
America

Africa
(%)

Europe
(%)

Oceania
(%)

Ex-USSR
(%)

34
37
40
42
44
45

16
14
13
13
13
14

3
3
3
3
3
3

1
1
1
1
1
1

35
34
32
31
30
29

1
1
1
1
1
0

10
10
10
9
8
8

Preliminary data.
Source: van Gaasbeek, Borgstein, and de Vlieger (1993)

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D. Zylbersztajn et al.

Table 3. Pig Numbers per Continent, 1979–1991

Year
1979/81
1985
1989
1990
1991

Production
(million of
tons)
776.2
791.5
847.0
855.9
857.1

Asia
(%)

North and
Central
America
(%)

South
America

Africa
(%)

Europe
(%)

Oceania
(%)

Ex-USSR
(%)

47
48
50
51
51

13
12
11
10
10

7
6
6
6
6

1
1
2
2
2

22
23
21
21
21

1
1
1
1
1

9
9
9
9
9

Source: van Gaasbeek, Borgstein, and de Vlieger (1993).

pletely isolated environments, and that pigs born in the same
week be kept in separate units at least one kilometer apart.
The mating of LW females with LR males resulted in a
10% increase in the pigs’ size, feed conversion, and live weight
gain as a result of “hybrid vigor.” It was necessary to include
animals with good fertility characteristics because litter size
is only inheritable by 10% whereas feed conversion and live
weight gain can be up to 30% inherited. The first females that
resulted from the mating were called “Camborough” (developed at Cambridge and Edinburgh) and were initially mated
with LW males to produce the commercial pigs. The program
results were transmitted through a “breeding pyramid” in
which any advance could be rapidly transferred via the multipliers to the producer of slaughter pigs. According to one
report, the system stimulates the repeat purchase of further
breeding stock every two or three years if the producer wants
to maintain the best possible performance of the herd. About
100 great-grandparents are needed to supply replacements
for 1,200 grandparents. These, in turn, provide replacements
for herds of 18,000 sows. These would have an annual production of over 360,000 slaughter pigs. Thus, superior genetic
Table 4. Factors for International Competitiveness: Individual
Country Comparisons

Geography
Climate
Raw materials
Labor
Capital
Infrastructure
Knowledge
Internal market
Network
Economic structure
Animal health
Environment

Holland

Germany

China

****
***
***
**
****
****
****
**
****
**
***
**

***
***
***
**
***
***
***
****
***
****
**
**

***
**
**
****
*
**
*
**
**
*
**
****

Source: van Gaasbeek, Borgstein, and de Vlieger (1993).
*, poor/expensive and very rare;
**, moderate;
***, good;
****, very good/cheap and widely available.

merit from 100 pigs can be transmitted 3,600 times. Even a
small commercial gain therefore in the slaughtered pigs can
pay for breeding royalties multiplying up to high values for
the ideal grandparent stock.
At first, the traditional English producers and improvers
did not believe in the use of hybrids and the Camborough female. The producers who concentrated on the male pig improvement ridiculed the new concept when it was introduced
in England, and the same happened in other countries. PIC’s
approach, however, was successful commercially. It was reluctantly accepted by the breeders and the number of clients
grew. PIC was followed closely by Cotswold Pigs, a company
subsequently taken over by Nickersons, a seeds producer. As
advanced plant breeders, they understood the potential gains
from genetics and how to exploit them. Later on, the commercial
improvers adopted the technology and formed groups such as
United Pig Breeders (UPB), later part of Porcofram. JSR Healthbred was a more recent imitator. It produced pigs for 10 years
and made great progress in that time. JSR took over the Artificial Insemination Centre of the Meat and Livestock Commission (MLC) in 1995. NPD in the Netherlands, the greatest
competitor in Europe, was subsequently taken over by PIC.

Development of the PIC System
The internationalization strategy for PIC was developed in the
1970s. It necessitated the development of a range of selection
standards directed at specific countries with their own particular production system and distinct market requirements. As
a result of this, races of pigs such as the Pietrain were introduced that had desirable production traits despite being susceptible to Pale Soft Exudative (PSE) muscle. This characteristic made it difficult to sell the meat “in natura” due to its
unappealing appearance (of less importance in the consumption of processed meat). The Duroc race proved to be particularly promising, when introduced in systems that require robustness in a harsher environment and improved meat quality.
The improvement system adopted by PIC was based on
“population genetics” that searches for material from a wide
population with the aim of continuously improving the desired
characteristics in the potential parent stock. In fact, under the

Agroceres-PIC

system each great-grandfather sire has only 25 mating and each
female only two litters, regardless of how promising the animal
is. This technique guarantees sustained gains in all the herd
instead of great surges achieved only when an exemplary animal
appears. The population genetics system used is known as BLUP
(best linear unbiased prediction).
A limitation found by PIC at the international level was
the difficulty in maintaining high health status in the production phase to obtain the best results from the genetic improvement process. All the advantage could be lost if the material
produced did not find appropriate conditions to reach its
performance potential. International PIC believed that the
main role of the associated companies was to guarantee that
the clients adopted the standards considered necessary for
business success.
Many international companies turned to PIC in order to
use high potential females so that they could improve their
own breeding production structure. These companies were
just aiming to reach producers in general and in some cases
just targeted producer groups. “These partners can then end
up limiting the market development for hybrid pigs that is the
base for PIC business expansion,” said one company executive.
Another concern was how to cope with the fact that the
most of the countries where PIC operated did not have intellectual property protection laws for living beings, creating a
potential problem for protecting the rights of breeders.
PIC recognized that the trend towards market segmentation
could lead to the need for greater strengthening of the breeding
programs at the local level. This might result in a greater use
of U.S. biotechnology in that region whereas other countries
would use more conventional means of multiplication adapted
to suit local conditions. PIC had become very skilled in developing a dozen or so breeding lines that allowed them to offer
the ideal pig for local production and market conditions.
Even so, nonparticipation in specific markets could create
opportunities for smaller companies to operate with success.
PIC’s aim was therefore not that of total market domination
but to appeal to mainstream, large-scale markets.

The Brazilian Market for Pork
The consumption of pork in Brazil 7.2 kg per person per year
in 1993 and 7.5 kg in 1994 is shown in Table 5 (Wedekin and
Mello, 1995), which also shows the per capita consumption of
meat substitutes. The variables traditionally used for determining demand could be used to explain the reasons for the low
level of consumption. First, low incomes were a limiting factor
for the consumption of animal protein in general. This, however, was particularly significant in the case of pig meat, which
had higher prices than both beef and poultry (see Table 6)
(Anais Suinocultura 2000, Agroceres-PIC, 1994).
Over the period between 1970 and 1993, there was a
5.55% annual increase in the PIB and a 2.32% annual increase
in the Brazilian population. Over the same period, the real

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Table 5. Consumption of Meat per Capita, Brazil 1989–1994a
Type

1989

1990

1991

1992

1993

1994

Beef
Chicken
Pig meat

27.9
12.5
6.7

23.6
13.5
6.8

22.8
14.8
7.0

22.9
15.8
7.0

23.7
17.1
7.2

24.6
18.4
7.5

Source: Wedekin, V.S.P., Mello, N. (1995).
a
In kilograms per capita.

price of poultry decreased 3.97% a year while pork decreased
by 1.65% a year. As a result, poultry consumption increased
by 10.76% a year, whereas pork consumption increased by
only 2.57% a year—little more than the rate of population
growth. Another reason for the slow rate of increase was that
modern Brazilian consumers, more concerned with health and
diet, related pork with high cholesterol intake. Also, actual
consumption may have been as much as twice the official figure
of 1,300 tons, due to the high incidence of illegal slaughter.
Production conditions varied considerably in different
parts of the country. The national herd was estimated at 33
million (see Table 7) (Pinazza and Frigorı́fico, 1994) with
very low slaughter rates estimated at 39.8% per annum in
1992. Approximately 33% of production was located in the
south, 29% in the northeast, and 18% in the southeast. The
slaughter rates, however, were 159% in Santa Catarina, in the
south, which is comparable to the rates observed in countries
where pig breeding is well developed (see Tables 8 and 9)
(Associação Catarinense de Criadores de Suinos, 1995; Wedekin and Mello, 1995). The official figures for the total number
of pigs slaughtered in Brazil in 1993 was 13.6 million animals.
Data from the producers indicated a breeding herd size of 2.7
to 2.8 million sows of which 1.2 million were good meat
producers, from improved races or hybrid stock. Out of these
it was estimated that 400,000 were of a high genetic standard
and 800,000 of average or below average standard.
Besides the characteristics of the breeding herd, one of the
main factors limiting production was the raw material available
to produce pig rations. The southern region of the country
still had the largest and best pig herds but production would
be better located in the central region near the major grain
producing areas, where the high-technology and most efficient
producers were migrating. According to PIC, the demand for
its product had been increasing in the states of Minas Gerais
(where 37.2% of the sales were concentrated in 1995), Goiás,
Table 6. Relative Meat Price to the Producer, in Sao Paulo
Producta
Chicken/Beef
Chicken/Beef
Pig/Beef

1970/72

1991/93

1.49
1.14
1.30

0.80
0.67
1.20

Source: Anais Suinocultura 2000, Agroceres-PIC (1994).
a
Living net.

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D. Zylbersztajn et al.

Table 7. Regional Analysis of the Brazilian Pig Herd
Regions
North
Northeast
West Center
Southeast
South

Size
(million head)

Production
(tons)

Exports
(tons)

Consumption
(kg/capital/year)

3.7
9.4
3.5
6.0
10.4

6,000
55,000
40,000
299,000
750,000

—
—
—
500
16,223

4.0
4.5
5.0
7.8
7.8

Source: Pinazza and Frigorifı́co (1994).

Mato Grosso and Rio Grande do Sul, and it had been decreasing in the states of Sao Paulo, Paraná and Santa Catarina (see
Table 10).
Veterinary support services were equivalent to those found
in developed countries, and this factor did not represent an
obstacle to growth. Pig housing and sanitary control, however,
still represented an obstacle for the improvement of performance and were a limiting factor in the access to international
markets that were often protected by nontariff barriers such
as sanitary and phyto-sanitary measures.

plier of hybrid seeds, also had a strategy for expanding genetic
programs in the international market.
PIC’s strategy had been to start operating in the market
with Agroceres. The success of the joint venture represented a
barrier for new companies attempting to operate on a national
scale. Nevertheless, with the expected development in the
sector, marketing segmentation could bring local opportunities for these companies.

Agro-Industrial System Coordination
Competition
Many of the companies that competed in the breeding market
were of a high or at least medium standard. The traditional
companies, that developed their own breed types by improving traditional breeds, operated at a local level without providing technical support. The introduction of hybrid pigs through
technologically superior genetics represented a threat to these
breeders.
In the more technologically advanced sector, some Brazilian
agro-industrial companies (such as Sadia, Frigorı́fico, and Aurora) had developed their own breeding program through
backward links in a vertical integration strategy. Others (such
as Rezende Grange) had based their breeding program on
imported genetic material.
The profits earned by PIC in the 1990–94 period attracted
new international companies anxious to participate in a highgrowth (see PIC financial statements, Tables 11 to 13). Seghers
of Belgium and Dalland of Holland had started operating in
the Brazilian market. Dekalb, the world’s second largest sup-

Though agro-industrial system coordination was considered
to of growing importance as a competitive factor in Brazil,
the system coordination of pork production had still not produced the desired results. Information exchange was deficient
and there were many conflicts between the industry and the
pig producers. A critical aspect of technologically advanced
pig breeding was the payment of premiums for quality, which
was difficult to implement, especially when such payments were
not coordinated by producer associations or cooperatives.
The existence of illegal slaughter further complicated the
coordination process because producers operating within the
sanitary regulations and paying breeding royalties, and thus
operating with higher costs, were treated as equal to producers
operating outside the system.

Table 9. Pig Numbers and Total Slaughtering in the Main Producing
Regions/Countries of the World, 1993a (in thousands)
Herd

Table 8. Ratio of Slaughtering Relative to the Size of the Pig Herd,
Santa Catarina, 1990–1994
Year

Percentage

1990
1991
1992
1993
1994

135.9
149.3
158.8
156.7
159.0

Source: Associacao Catarinense de Criadores de Suı́nos (1995).

Country
China
CE (12)
Ex-USSR (12)
USA
Brazil
Poland
Japan

Initial

Final

Animals
Slaughtered

Ratio
(%)b

384,210
110,002
60,667
59,016
31,050
21,078
10,783

398,210
110,009
55,530
58,537
30,450
18,000
10,560

375,000
175,800
61,716
92,475
13,600
21,700
18,940

101.4
162.9
88.1
158.9
39.8
104.6
173.9

Source: Wedekin, V.S.P., Mello, N. (1995).
a
Preliminary data.
b
Ratio 5 slaughter 1 variation in herd size during the year.

Agroceres-PIC

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Table 10. Agroceres-PIC: Geographical Distribution of Sales
Estate
Minas Gerais
Sao Paulo
Paraná
Santa Catarina
Rio Grande do Sul
Espı́rito Santo
Rio de Janeiro
Goias
Mata Grosso do Sul
Mata Grosso
Bahia
Others
Total

Head

1995
(%)

1994
(%)

1993
(%)

1992
(%)

12,528
4,021
1,828
3,234
3,688
725
722
1,468
1,410
1,805
552
1,681
33,662

37.2
12.0
5.4
9.6
11.0
2.2
2.1
4.4
4.2
5.4
1.6
4.9
100

36.2
11.2
11.6
9.6
7.3
3.4
2.8
5.2
4.4
—
1.7
4.9
100

31.1
15.5
11.2
14.1
5.0
1.7
2.3
3.5
9.0
—
1.7
4.9
100

27.0
10.4
7.1
29.0
9.2
1.9
1.6
2.8
—
—
—
11.0
100

Sources: Agroceres-PIC (company records).

Possibilities did exist for smaller producers to operate in
a more sophisticated production and marketing environment
when these producers were involved in just one stage of the
production process. This required very specialized structures
for the coordination of the agro-industrial chain. Such coordinatiion could be provided, in part, by cooperatives.

Pork Industry Prospects
in Competition with Poultry
The contrast between the efficiency of animal protein production of pork and poultry may be seen from the technical measures of food conversion: 2.8:1 for pigs as compared to 1.9:1
for chickens. With appropriate management and genetic material, the conversion ratio for pigs could be as low as 2.35.
This represented a marked improvement but was still well
over the average for chicken (Table 14). This performance
gap originated from long-term genetic selection as well as
easier handling techniques and the animals’ inherent biological
capacity. In spite of chicken having these production efficiency
advantages, pork was the animal protein source more commonly consumed in the world (Table 15) (Anais Suinocultura
2000, Agroceres-PIC, 1994). Agroceres decided to form a joint
venture with Ross Poultry breeders, a UK-based international
company who, like PIC, were market leaders. They thus had
a stake in both forms of intensive meat production.

Recent Technological
Improvements in Pig Breeding
Improvements of pigs at the international level had been constant over the past years, but new technology provided a
powerful tool for accelerating the process. PIC patented an
identification method for isolating the ESR gene whose occurrence is associated with an increase in reproductive capacity.

77

This isolation technology had now developed further. PICsponsored researchers had identified an association of the RYR
gene to high quantity nonfat meat and also high susceptibility
to stress; the RN gene with acid meat, the K88 gene with
resistance to Escherichia Coli and the MHC gene with offspring
size, bacon thickness, and piglet mortality.
Improvement programs could now be accelerated and targeted more accurately by “gene tagging”. PIC had decided to
keep this work centralized in the United States but with contacts and coordination methods to connect it to the developing
programs in associated companies that could benefit from the
work. These associated companies had the option to participate fully in advanced biotechnological programs, reaping a
share of the rewards, or merely benefiting from the acquisition
of stock.
Participation in the program required contributing to a
research fund. The participant companies would have special
treatment in the early use of the best results obtained. Agroceres preferred not to participate in the fund, meaning that
it would have to obtain an agreement with International PIC
in order to benefit from any advances that might result from
the program.

The Compatibility
of Breeding Objectives
PIC recognized that there was a worldwide need to introduce
a pig breeding program based on meat quality, although operationally this was focused on Germany, Denmark, and Netherlands. In the other countries, production was still a priority,
with the emphasis on the capacity of the crossbred female pig
to generate large numbers of strong piglets per farrowing.
PIC’s objective was to reach a technical index of performance
of 30 weaners per sow per year. The advance in the improvement directed towards low-fat meat, unfortunately, seemed
incompatible with breeding for such high reproduction rates.
In other words, the improvement programs had limited possibilities for advancing simultaneously in two or more directions.
All the effort that went into pork improvement could be
wasted without suitable management of the herd with appropriate facilities run by skilled personnel using good quality
inputs. When visiting PIC clients, it was clear that there was
a wide diversity of producers in terms of management capability and resources. Consequently, the results were quite different in terms of productivity.
Special techniques concerning the management of boars
had led some units to introduce artificial insemination, eliminating natural mating. This technique allowed the dissemination of positive characteristics in the herd much more easily,
given that a male could mate with 200 instead of only 20
females (because the semen from one natural mating could
serve 10 pigs by artificial insemination). On the other hand,
the pig semen was not as easily stored as cattle semen, and
the handling was more specialized.

78

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D. Zylbersztajn et al.

Table 11. Agroceres-PIC: Balance Sheet ($US)

Assets
Short term:
Cash and banks
Financial application
Promissory notes to be received
(2) Doubtful debtors
Other sums to be received
Stocks
Anticipated expenses
Longer term
Allied operations
Other sums to be receiver
Fixed
Investments
Immobilized
(2) Accumulated depreciation
Subtotal
Total
Liabilities
Short term
Suppliers
Importations
Clients advantage payment
Loans and financing
Provision of interests
Social taxes/other taxes
Income tax
Social contribution
Dividens to be paid
Other bills to be paid
Longer term
Allied operations
Loans and financing
Provision for income tax
Equity
Social funds
Funds store
Accumulated profits
Year result
Total

1990

1991

1992

1993

1994

195
1,389
684
(46)
159
2,437
—
4,818
1,525
38
1,563
34
7,929
(3,186)
4,743
210
4,897
11,368

108
1,740
623
(19)
357
2,387
—
5,196
1,074
34
1,108
34
8,216
(3,605)
4,611
145
4,790
11,094

18
1,938
569
(17)
295
2,037
—
4,840
113
41
154
34
8,303
(4,033)
4,270
80
4,384
9,378

24
11
983
(15)
399
2,137
1
3,540
3,978
40
4,018
34
8,534
(4,344)
4,190
54
4,278
11,836

87
—
1,812
(27)
193
2,255
—
4,320
9,431
678
10,109
34
8,934
(4,566)
4,378
65
4,477
18,906

325
—
—
104
—
210
705
267
—
304
1,915

276
—
—
336
4
368
346
112
1
278
1,721

169
—
—
182
1
229
4
—
—
275
860

216
—
—
—
—
55
140
51
2,181
231
2,874

519
—
—
185
9
83
215
92
2,944
446
4,493

128
161
1
290

296
64
131
491

43
—
—
43

64
—
—
64

805
104
—
909

2,898
—
5,047
1,218
9,163
11,368

2,898
—
5,729
255
8,882
11,094

6,343
18
2,255
(141)
8,475
9,378

6,361
114
(83)
2,506
8,898
11,836

9,400
310
(3,254)
7,048
13,054
18,906

Implications at the Farm Level
All the innovations in pig breeding contributed to an increase
in the optimal scale of production. Units with 20,000 sows
existed in Brazil, but the 150-sow unit was more common.
The traditional producer with five to eight sows was far too
small to compete on the technical performance criteria expected in the industry. This prompted changes in producer
structure with a tendency to specialize into units for nucleus
herds, multipliers, weaner production, and fattening. As a
result, it was necessary to transform the cooperatives that were

inefficient in terms of scale by the creation of the “condominium system.” In this system, investments were divided up
and centralized, making it possible to achieve the business
continuity without losing the scale advantages and still maintaining the coordinating role of the cooperative.
The PIC business structure was developed to allow for
rapid diffusion of the technological advances obtained in the
genetic improvement program. Their success was due to continuous innovation by PIC and to the organization and coordination of the production systems where the company operated
with its partners.

Agroceres-PIC

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79

Table 12. Agroceres-PIC: Profit and Loss Account ($US)
Result
Net sales
Sales cost
Gross profit
Expenses and operational receipts
Sales expense
Overall expenses and administrative
Revenue/financial expenses
Doubtful debtors provision
Other operational revenue
Total
Operational result
Nonoperational results
Earning/loss in the conversion
Results before income tax
Income tax provisional/social contract
Net results

1990

1991

1992

1993

1994

18,383
(11,684)
6,699

17,937
(12,378)
5,559

14,987
(11,292)
3,695

19,254
(12,171)
7,083

24,864
(13,879)
10,985

(2,349)
(1,784)
4,221
(494)
—
(370)
6,329
69
(3,706)
2,692
(1,474)
1,218

(1,683)
(2,767)
4,409
(355)
—
(396)
5,163
16
(4,587)
592
(337)
255

(1,890)
(3,039)
1,049
(31)
—
(3,911)
(216)
(19)
191
(44)
(97)
(141)

(1,693)
(2,783)
1,942
(42)
—
(2,576)
4,507
569
(1,564)
()
(1,006)
2,506

(1,765)
(3,871)
(1,482)
(41)
—
(7,105)
3,880
164
4,431
8,475
(1,427)
7,048

The Introduction of the
Pig-Champ Recording Program
Agroceres-PIC introduced the Pig-Champ program for its customers, which was a system of integrated and computerized
record keeping that by 1995 involved 152 production units
with a total of approximately 93,000 sows. These production
units could then compare their performance indices with the
other participants in the program. By inference, it also gave
Agroceres and PIC a database of performance regarding the
commercial performance of their pigs and how successful their
larger clients were in managing them.
The smaller customers, who had the greatest need to monitor their performance and improve their management, did not
take part in this program. For Agroceres-PIC it would be
expensive to expand the program to include small producers,
and the investments required to participate were prohibitive
for small producers. It would be up to cooperatives to open
the door to scale economies for this group.

Challenges to Agroceres-PIC
The international competition analysis of van Gaasbeek et al.
(1993) indicated that the European markets were saturated

and had limited possibilities for growth. Production costs were
high, due to high feed costs and the increasing environmental
restrictions imposed on producers. Under such market conditions, one alternative was increase operational and organizational efficiency, reducing costs, while continuing to aim for
quality. Another alternative was to differentiate the products
by adding value and targeting consumers with higher incomes.
The major competitive challenge, according to industry
observers, was poultry. In the United States, where the pork
industry was mature, the strategy was to seek differentiation
with the theme of “the other white meat” with promotional
emphasis on the appearance of the product. It was expected
that products for specific market segments would require
different finishing and slaughter facilities, which would in
turn require coordination between the processors and the
producers.
The Latin-American market for pork, however, was less
mature and offered greater expansion potential as consumer
incomes increased. Agroceres former vice-president Dr. Butteri wondered about the future of the Brazilian pig industry
and the development of the Mercosur trading bloc.
First, PIC’s fast growth had led the company to work with
very different kinds of customers in terms of technological
know-how and herd management. The customers’ perfor-

Table 13. Agroceres-PIC: Financial Performance Indicators of Agroceres
Indices

1990

1991

1992

1993

1994

Current ratio (floating assets/floating liabilities)
Liquidity ratio (floating assets-stock/floating liabilities)
Production costs participation (sold products cost/net sales) (%)
Overall returns indicator (net produce/net sales) (%)
Capital returns indicator (net produce/net patrimony) (%)
Return on investments (profit before Income Tax/Total Assets) (%)

2.52
1.24
64
7
13
24

3.02
1.63
69
1
3
5

5.63
3.26
75
21
22
0

1.23
0.49
63
13
28
30

0.96
0.46
56
28
52
45

Source: Agroceres-PIC (company records).

80

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D. Zylbersztajn et al.

Table 14. Indices of Food Conversion of Chicken and Pigs
Food Conversion
Pigsa
Chickenb

Very good

Medium

Bad

should Agroceres react or was its leadership position still so
solid that it was not necessary to take protective action?

2.35
1.7

2.8
1.9

3.6
2.1

Teaching Note

Source: Agroceres-PIC (company records).
a
For growing pigs between 145 to 180 days, with slaughter average weight of 100 kg.
b
For slaughtered chicken between 42 to 55 days, with slaughter average weight of
2.2 kg.

mance varied widely, which led to criticisms from the smaller
producers who needed more training and technical support.
The Pig-Champ program supported only the larger customers.
In order to benefit fully from International PIC’s philosophy,
should Agroceres-PIC invest more in pig management training
programs or even expand the Pig-Champ program in order
to give support to the smaller producers?
Second, how would the partnership between PIC and
Agroceres develop in the long term? PIC would be able to
adopt strategies to limit the action of its partners at within
the region. Currently PIC was placing its product in other
Latin American countries, and it was not clear to Dr. Butteri
what the PIC strategy was in Mercosur. Specifically, would
Agroceres have a privileged regional position or would other
joint ventures be formed? Should Agroceres take more aggressive action in Mercosur markets? Should they develop these
markets themselves or look for partners instead of allowing
PIC to intervene?
Third, the producers who used PIC material had higher
overhead costs than the traditional producers. In a country
where illegal slaughter was high and where consumer preference for high quality meat had not yet developed, the producers added value, but they were not compensated with a higher
price. Publicity campaigns promoting pork as the other white
meat, and the PIC brand as a differentiated product could
motivate the final consumer to pay for quality, establishing a
scale of prices that would increase the value of Agroceres-PIC
genetics even more. Should Agroceres-PIC invest in publicity
campaigns aimed at the final consumer? Would it be possible
to run these campaigns in collaboration with the industry?
Finally, the threat of new competition had arisen with
the arrival in Brazil of several multinational animal genetic
companies. In a concentrated market, such as that for gilts,
Table 15. World Consumption of Animal Protein
Meat

1981 to 1983
Average
%

1991 to 1993
Average
%

Pigs
Beef
Chicken
Total

36.359
39.109
14.615
90.083

37.213
47.067
27.221
141.501

40.3
43.4
16.3
100.0

Source: Anais Suinocultura 2000, Agroceres-PIC (1994).

47.5
33.2
19.3
100.0

Objectives
1. Understand the potential offered by technology in revolutionizing a traditional industry.
2. Appreciation of advantages and disadvantages of strategic alliances between Latin American and multinational
enterprise.
3. Be able to identify and evaluate challenges to the future
of the strategic alliance that are presented by the environment.

Discussion Questions
1. Why did Agroceres and PIC form a joint venture?
2. What are they key factors in pig production? How does
Brazil stack up against Holland, Germany, and China?
3. What are the advantages of the new technology? How
successful is it?
4. How attractive is the Brazilian market for the AgroceresPIC product?
5. What is your evaluation of the PIG-CHAMP Programme?
6. How should Agroceres negotiate participation in other
South American markets with PIC?
7. How should Agroceres negotiate participation in other
South American markets with PIC?
8. Should the company respond to growing competition
from new industry entrants in Brazil? How?

Case Analysis
Why Did Agroceres and PIC Form a Joint Venture?
• Agroceres wanted to diversify out of corn seed and gain
experience in animal genetics.
• PIC wanted to position itself in emerging markets (European markets saturated according to competitive analysis).
• Both were looking for a reliable partner.

What Are they Key Factors in Pig
Production? How Does Brazil Stack Up
against Holland, Germany, and China?
• Geography, climate, raw material availability (see list in
The International Pork Industry section).
• One of the weakest links in Brazil would appear to be
agribusiness chain coordination. What role can Agroceres-PIC play in strengthening this?

Agroceres-PIC

What Are the Advantages of the New
Technology? How Successful Is It?
• “Hybrid vigor” results in 10% increase in pig size, feed
conversion, and live weight gain.
• Genetic advances are rapidly transmitted through a
“breeding pyramid”.
• Superior genetic merit from 100 pigs can be transmitted
3,600 times.
• The system stimulates repeat purchase of breeding stock
every 2–3 years if the producer wants to keep his herd
at maximum performance, creating repeat customers for
Agroceres-PIC.

How Attractive Is the Brazilian Market
for the Agroceres-PIC Product?
• Slow rate of increase for pig meat consumption, 2.57%
per year.
• Problem is competition from chicken meat whose real
price is declining more rapidly than that of pig meat.
• Another reason for the slow rate of increase is that modern Brazilian consumers are more concerned with health
and diet, and they relate pig meat to high cholesterol
intake.
• Competition also comes from illegal slaughter.
• Consumers unable to distinguish quality, which makes
differentiation pricing difficult.

What Is Your Evaluation of the
PIG-CHAMP Programme?
• Enables performance comparisons; fully integrated and
computerized.
• But smaller customers do not take part in the program.
• Opportunity for involving cooperatives?

How Should Dr. Butteri Address the
Challenges Facing Agroceres-PIC?
• Need to attack main competitor, chicken meat, with

J Busn Res
2000:50:71–81

81

industry advertising campaigns emphasizing “second
white meat.”
• Need to consider training programs in technology and
herd management for smaller producers to they can take
advantage of PIG-CHAMP Programme.

How Should Agroceres Negotiate
Participation in Other South American
Markets with PIC?
• Seek privileged regional position based on successful
Brazilian experience.
• If PIC continues to put its product in other Latin American countries, Agroceres should take more aggressive
action in those markets.

Should the Company Respond to
Growing Competition from New Industry
Entrants in Brazil? How?
• Agroceres-PIC first entry advantage is unassailable.
• Defensive moves would be costly and are unnecessary.
• Multinational competitors are coming to Brazil who can
challenge Agroceres-PIC leadership.
• Agroceres-PIC should make investments in brand advertising and in promotional programmes for smaller producers.

References
Associação Catarinense de Criadores de Suı́nos, ACCS, Florianópolis,
Brasil. 1995.
Anais de Suinocultura 2000, Agroceres-PIC, São Paulo, Brasil. 1994
Pinazza, L. A., and Frigorı́fico Aurora: Os caminhos para a construção
de marca (Case Study). PENSA. Universidade de São Paulo, São
Paulo, Brasil. 1994.
van Gaasbeek, A. F., Borgstein, M. H., de Vlieger, J. J.: Competitiveness
in the Pig Industry. Rabobank Report, Utrecht, the Netherlands.
1993.
Wedekin, V. S. P., and Mello, N: Cadeia Produtiva da suinocultura
no Brasil. (Report) Agricultura em São Paulo, São Paulo, Brasil.
1995.