AURÉLIO PAVINATO: SUSTAINABILITY – THIS IS OUR VIEW ON THE BUSINESS

07 September 2018

SLC Agrícola is one of the largest Brazilian agricultural producers, founded in 1977 by the SLC Group. SLC Group (Schneider Logemann&Cia) was founded in 1945 in the city of Horizont, in a State of Rio Grande do Sul, by three families of German immigrants, among them Frederico Jorge Logemann's family. SLC Agrícola engages mainly in the production of cotton, soybean and corn. Other crops produced by the company include wheat, corn seed and sugarcane. SLC Agrícola was the first company of its sector (grains and cotton) in the world whose shares were traded at a stock exchange. Today the giant company operates 16 farms in six Brazilian states with a total area of over 455,000 hectares. In an interview to largescaleagriculture.com, Aurélio Pavinato, the CEO of SLC Agricola, speaks of his company’s business model and presents his view on large scale agriculture in Brazil.

Mr. Pavinato, what are the main markets that your company serves?

We are an export-oriented company with roughly 95% of what we produce going abroad. We mainly export soybeans and cotton to Asian countries such as Indonesia, Malaysia, China, and South Korea. Some part of our exports goes to Europe.

How many farms does your company manage in Brazil? Are your farms more or less similar in size?

We operate 16 big farms with a total area of 455,000 hectares. The farms’ sizes differ between 15,000 and 60,000 hectares. So the total area is big, and the farms themselves are big as well.

Sixteen farms is quite a number. How do you avoid high transaction costs related to the need to coordinate those farms?

We have a well-established system. We grew over the years, we got new farms with the time and we adjusted our strategy to manage all farms of the company. We have a corporate structure whereas the farms themselves are production units. We also have procurement and sales departments. Important strategic decisions are made at the headquarters while the farms take care only of the production process.

Is there a kind of a global business model you apply on all your farms?

Yes, our company has developed a large scale, efficient and sustainable business model. I would say that we use an industrial management approach. In other words, we manage our company as if it were an industry. We apply the knowledge that we learned at universities to manage the farms. Our processes are standardized. We use machinery of the same manufacturer on all farms. Every morning the general manager has a meeting with the farm coordinators. The coordinators report of the activities that they have to accomplish during the day and that they have done the day before. So the operational management of our company is similar to the management of a family. For this reason we have high yields and high efficiency on all of our farms.

What type of crop rotation do you use?

In the western part of Brazil, we have two crops per year and use rotation between corn and soybeans with corn being the second crop. In the eastern part, we only have one crop. Having two crops is a big advantage because the production costs are much lower compared to just one crop. Crop rotation is an efficient way to avoid the effects of diseases and insects. The stability and sustainability of the production system is much better with crop rotation while the use of fertilizers is much lower. For example, we can apply a lower rate of nitrogen after soybeans, because there is already some nitrogen left in the soil. The two-crop system provides also several benefits to the productive system. Along with spreading the fixed costs, this technique helps the farms to better control for infective plants and outbreaks of diseases on the fields as well as to better use the machinery and coordinate the crew.

Seemingly, your company pays a lot of attention to sustainability of production.

We have invested in sustainability over the years. As a result, our soils become better and better. We use no-till system with the goal of significantly reducing the levels of soil loss, water loss and nutrients loss. With this system in place, it is possible to reduce the production costs through the reduction of machine operations in the fields and the conservation of soil and nutrients, which consequently reduces the need for heavy and expensive fertilization. Moreover, the system provides long-term increase in productive potential of the cultivated plantations. We believe that the sustainability of the productive system mainly depends on the correct management of soils. And, of course, we follow all the environmental regulations.

Your company engages in corporate social responsibility. What are the main activities of SLC Agrícola in this sphere?

Our social involvement includes the projects on communities’ integration around our farms. We have specific rules that we follow to satisfy all our farmers and the residents of the rural communities. We are certified according to different integrated certification standards, for example, ISO 14.001, OHSAS 18.001, NBR 16.001, ISO 9.001. For cotton, we are certified in BCI (Better Cotton Initiative), ABR (The Responsible Brazilian Cotton program). For soybean, we are certified in ADM (Responsible Soybean Standard) and ISCC (International Sustainability and Carbon Certification). We follow the sustainability strategy for fully traceable and deforestation free supply chains.

Whom do you see as the main stakeholder?

Our shareholders, our employees, our clients, our suppliers, all the communities in which we operate. This is our view on the business. We are not just a production company, but we are a company which produces and creates value for the stakeholders.

Do you think that large scale farming has better development chances in the future than farms operating on a smaller scale?

Farming in Brazil is very diverse. Only 12 % of the farms are big. Big farms are the farms with more than 3,800 hectares. Then there is a group of farms between 114 hectares and 3,800 hectares. They operate 60-64% of the planted area. And there are small farms with less than 114 hectares. They account for 25% of all farms and operate in Brazilian Savannah. Small farms are mostly located in the south and southeast regions of Brazil.

I don't have a separate view on small or big farms. I think every farmer has to use the best technology to be efficient. But large scale farming is more efficient in terms of production costs. We are able to produce at lower cost. So this is the reason why everywhere in the world there has been consolidation of production. Consolidation is good for farmers, but it is also good for the society because we benefit from increased efficiency of production and we will able to supply food to consumers at a lower price. In this context, one can conclude that large farms are more beneficial to society.

What are the main challenges that agribusiness faces in your country?

Brazil has a huge potential for agricultural expansion. Brazil has a wonderful natural environment and very good soils. The biggest challenge we face is poor logistics. We spend a lot of money on transportation of our products from the farms. We need to find a solution for this problem.