Argentina Part Three: The Powdered Milk Giant

Argentina Part Three: The Powdered Milk Giant

Family-owned South American agribusiness thrives despite tough business environment

It may not have refugees or civil war, but make no mistake: Argentina is a difficult place to do business right now, especially for dairy farmers. That much was made clear last month when 200 journalists descended on this wind-swept South American country for the IFAJ Congress, an annual gathering of agricultural journalists from around the world.

Policies of pro-union president Cristina Fernandez de Kirchner have led to rampant inflation, farmer strikes in the cities and spilled milk in the fields.

"You have to want the risk," to build a successful business in Argentina says Federico Boglione, President, S.A. La Sabila.

Through it all Federico Boglione, president and co-owner at privately-held agribusiness giant Los Lazos S.A., has managed to grow the vast farm, livestock and dairy processing businesses to become one of the leaders in the country.

NO WORDS NEEDED: Los Lazos produced this unique company video to describe its farm businesses.

We met Boglione at his company's state-of-the-art milk plant in Nogoya. He was, as we say in the business, a walking quote machine. A big man with a quick smile, Boglione charmed his audience of press hounds for two hours, talking openly about his family, his father's cancer battle, and the future of agribusiness in Argentina.

In a few hours we learned what it takes for a business to succeed in a land where the government sees business as the enemy.

"In Argentina you have to move quickly, you have to want the risk," Boglione says. "The government here changes the rules on a monthly basis. If you come and invest in Argentina, you have to find the right partner; otherwise you will lose a lot of money.

"It's hard to explain to people abroad. They have a budget and a plan; here, we don't know if rules will be changed tomorrow."

Value-add success

Forty years ago Los Lazos had the second largest edible oil brand in Argentina. In 1989 it sold its oil factory and moved strategically into farming. S.A. La Sabila, the dairy processor, is one of four divisions in Los Lazos' farm holdings. As the dairy grew it could not find prices to sustain profitability. Meanwhile in Nogoya, Nestle had just finished refurbishing a factory when it shut down after trouble with the local union. Boglione's family purchased it and began a new product line, Purisima, to compete with Nestle products on Argentine grocery shelves. The company reinvested another $60 million to bring the plant up to international standards.

The plant receives milk from 60,000 grass-fed cows and 220 farmer suppliers in a 190-mile radius – none of whom have contracts. Farmers haggle over price each month, but that's the way Boglione wants it. The company pays around 2.1 pesos per liter ($1.20 per gallon) for milk, a price that changes monthly based on negotiations and market demand. Still, few farmers jump to other processors. This is now the second largest milk producer in Argentina with 40% market share, with capacity to produce 1.2 million liters a day.

Likewise, when the company saw the growing need for better quality feed, it built a factory that now supplies retail feed for its cows and others in the region. It's now the number one dairy feed company in Argentina, producing 12,000 tons of feed a month.

Boglione began looking overseas to learn about growth opportunities. He discovered a niche in China which has, as he says, a '4-2-1' policy: four grandparents, two parents and one child. "So, they don't mind how much money they spend on that baby," he quips.

The company does not sell infant baby formula directly; rather, it makes the raw materials that others use to make their formulations. It has since become a global leader in the business.

His father's footsteps

Boglione, 46, got his formal education with an accounting degree at University of Rosario. "In our country education is free – that way you don't learn anything," he says with a laugh. A family man with a son, 13, and daughter, 11, Boglione learned about the family business straight out of college. In some respects, he had to: His father was diagnosed with cancer in 1990 when Boglione was just 23 years old. His uncle, a doctor, told him his father did not have much time so he needed to learn everything he could about the business.

"If my father had not been ill I never would have been so focused on spending time with him, and he had a huge knowledge base of farming," says Boglione.

Like his father before him, Federico is much loved by his employees, who make a base salary of $1,000 per month. As we walk from one area of the plant to the next, he reaches out to everyone, shaking hands and asking for family updates.

"He's always one-to-one with everyone," says Pedro Vacca, who has worked as director of industry for the family business since 1972. "It's in his genes, just like his father – being kind to everyone. In a big company some people get treated like a number, but not here. He likes to be in touch with people.

"This way of treating people is special to this company" says Vacca. "It was never like this when Nestle owned this place."

His father died in 2008 with the knowledge that the family-owned business had succeeded on a global scale. That year the company purchased another milk plant in Villanueava, and two years ago the company branched into energy drinks. After just one year the company achieved 7% market share.

Boglione's family business has $600 million annual turnover, including farms in Central Illinois and Uruguay. The four Argentine farms comprise 100,000 acres, 6,000 dairy cows and 19,000 beef cattle. His cows average 32 liters (8.5 gallons) of milk a day. He takes a private plane to make farm visits. When you ask Boglione how much he's worth, he just laughs. In Argentina, that's a polite way of saying 'none of your business.'  

Such growth has come despite working in a difficult business climate. The government taxes milk powder exports at 50% or more. Like every Argentinian I've met, Boglione loves his country, but hates its leaders.

"I'm not happy with the government because they divide the society, and it's going to be very difficult to fix," he says.

"In some ways Argentina is the most predictable country in the world. Every 10 years we make the same mess. We explode in the same exact way."

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