Is search for alternate fuel giving birth to a new type of companies, companies which are hybrid of Food and Energy companies?
With the increasing awareness about harmful effect of fossil fuel emissions on earth’s ecosystem, countries have started looking for alternative source of eco-friendly fuel. Bio-fuel has attracted the attention of governments’ and companies world wide because of their eco-friendliness and the fact that they decrease dependence on other countries for fuel requirements.
Owing to high fuel prices and generous regulatory support, ‘Bio-Fuel’ industry has been attracting billions of dollars of investments from companies in industries as diverse as food, biotech, petroleum, chemical, etc. On one side you have global food companies like Cargill, ADM, Bunge, etc. investing and on other side companies like Shell, BP, Chevron, etc. are developing their strategies in this area. Apart from these companies there are many companies which are cropping up who are trying to take advantage of the current healthy margins, short investment payback times and bright future this industry is facing.
The Figure 1 below shows a high level view of value chain of Bio-Fuel industry.
Figure 1: High Level Value Chain of Bio-Fuel Industry
The value chain of the food and energy companies which are venturing into Bio-Fuels can be described as below:
Food companies turning into Bio-fuel companies:
These companies were traditionally operating as buyers of food commodities, processing them and selling them to other food manufacturers or to retailers. Now their value chain is getting modified as they now have to process food based raw material into bio-fuel and then supply bio-fuel to either retail station chains or to petroleum companies which would eventually sell the fuel. Figure 2 below shows the value chain of such companies.
Figure 2: Value Chain of Food Companies Venturing in Bio-Fuel Business
Traditional energy companies selling bio-fuel:
Traditional energy companies are now either procuring food based raw materials, processing them into bio-fuels or procuring processed bio-fuel and then selling it. They also now have to take care of the by-products of bio-fuels as shown in the Figure 3 below. This has changed the traditional way they used to operate.
Figure 3: Value Chain of Traditional Energy Companies Venturing Bio-Fuel Business
New companies venturing into Bio-Fuel industry
The value chain of this category of companies is similar to that of the traditional food companies turning into Bio-Fuel producing companies.
Increasing Complexity in Bio-Fuel Industry
Another factor is introducing complexity in this business. Not long ago the ‘Bio-Fuel’ companies were catering to local domestic markets, so they had one standard to adhere. But today as the global demand is increasing companies are beginning to produce and sell bio-fuels across geographies, which means they have to adhere to different standards and mandates.
These are sufficient indicators for us to start pondering whether we as the solution providers are ready to meet the changing requirements of these new ‘Food-Energy‘ hybrid companies and help them manage the new dimensions in their value chain enabling them manage their business effectively. Let’s explore this further.