Industry Insights: ADAMA CEO Steve Hawkins on Managing Overstock, Improving Cash Flow in 2024
6 May 2024 AgriBusiness Global recently interviewed Steve Hawkins, President and CEO for ADAMA, about how the company is strategizing to work through the oversupply in the market. Hawkins shares some of his company’s strategies and outlooks for the rest of 2024.
ABG: What challenges did overstock cause ADAMA in 2023 and 2024? How did ADAMA leadership respond?
Steve Hawkins: We had far more inventory or stock than was demanded in the market. As the demand side slowed down, active ingredient prices were falling dramatically since the pre-pandemic high. The combination of excess inventory at our level, and in particular, it was more difficult at the distributor level, plus that inventory was at a very high cost.
The first thing we decided to do was manage our own inventory level. We pulled back on manufacturing and also on procurement of products and limited our own inventory build. Then we focused on the sales of our inventory at those prices with distributors around the world. We had to pay particular attention to the market, as it was very competitive, with particular attention to listening to customers on what their individual volume and price needs were during a kind of fog of war market change.
ABG: What are your thoughts on Chinese manufacturers continuing to manufacture product, putting it into the market at lower prices? Do you have any comment on that?
SH: Well, about 70% of the active ingredient production for all the agricultural inputs is from China. They are by far the largest supplier in the industry, including ADAMA. We have manufacturing assets in China, plus we procure from China. This market disruption, this kind of super cycle that happened post-pandemic, takes time. As we know, in agriculture, it’s seasonal. You only get one chance in the year for this high-cost inventory to move through the chain.
As far as the inventory build in China, it’s still there. It’s working its way through the system. The pricing is more stable than it’s been. We see 2024 as a year of transition or it may take a little more time, like the next cycle, but those macro-factors of inventory remain in most markets.
ABG: What steps did ADAMA take that supported significant improvements in cash flow in 2023? Were there any cuts to staff or other budgets to help with that?
SH: Well, of course, the easy thing is to just cut the expenses. In fact, we really minimized the cutbacks in staff. I know some other companies reacted that way. In 2023, we did not make significant cuts. That’s action for a last resort. We see a tremendous asset in our people. We took a look at the simple things, like travel and some other period expenses. But for sure, we had to tighten our belts. That’s clear.
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We had to focus on the reduction of our inventory, so liquidating that into the market and pulling back on a lot of the production and procurement. Those were the main levers. The other action we took was to focus on driving our new or differentiated products through the markets. We tightened the mix of what we did buy because we still had to procure products. However, the commodity type products we stayed away from as we shifted our portfolio already in 2023.
In the first quarter of 2024, we demonstrated notable progress in enhancing the quality of the business, succeeding in improving its gross margin, despite a decline in sales. This was achieved through the positive impact of new inventory sold, priced at market levels, and an improvement in the sales mix of higher-margin products.
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