Up & ComersÿA smart Chilean engineer has turned a clumsy old government-owned outfit into an upstart global player in fertilizer.
Patricio Contesse's white gold
By Kerry A. Dolan
RUSTY THOMPSON, a 38-year-old farmer from Versailles, Ky., becomes almost emotional when he talks about the fertilizer spread on his 60 acres of tobacco. "It's 40% more expensive than traditional fertilizer, but it's worth it," he says. "The roots just grab at it, and [the plant] greens up real well."
Five thousand miles to the south, Patricio Contesse beams. The chief executive of Santiago, Chile-based Sociedad Qu¡mica y Minera de Chile S.A. spends half his time on the road, drumming up business for this manufacturer of specialty fertilizers and chemicals. Buoyed by a surge in exports, SQM (as it is commonly known) enjoyed a net margin of more than 14% in 1996-its closest U.S. competitor, Trans-Resources, Inc., netted only 2.5% that year.
Contesse has built this formerly government-owned outfit into one of the Forbes 100 Best Small Foreign Companies (FORBES, Nov. 3, 1997). Its ADRs have been listed on the NYSE since 1993.
It doesn't hurt to have mining rights to the world's largest known deposits of nitrates and iodine. Out there in the desolate, lunar like desert of northern Chile is a mineral-rich ore called caliche-once known as white gold. From it come the nitrates used in SQM's specialty fertilizers and chemicals. The company claims that its extraction process is cheaper than synthesizing nitrates, as its competitors do. At its potash facility, giant tractors scoop up mounds of glistening white mineral-rich brine dried by the desert sun. A nearby facility separates out the usable material.
Low costs on product that fetches high prices is every company's dream. SQM has found that even small farmers will shell out extra money to lift crop yields.
SQM's other chief advantage is its innovative marketing. A decade ago-when exports of $48 million were only 20% of revenues-Contesse could see that growth lay beyond Chile's domestic market. That was the easy part. But how does a smallish company in a remote country penetrate world markets on a small budget?
Contesse hit on a creative strategy. SQM agronomists work with university researchers around the world, persuading them to experiment with the product on small plots of land owned by local farmers willing to be guinea pigs. Converts to the fertilizer aren't hard to find. "They could probably sell every bit they bring up here," says Gary Palmer, an agriculture professor at the University of Kentucky in Lexington. Today exports are more than $380 million, or 75% of revenues.
SQM is a splendid demonstration of how private enterprise can do what governments cannot do. From the 1830s through the 1920s the nitrates in Chile's Atacama Desert were used mainly for explosives, but the market collapsed in the late 1920s with the invention of synthetic nitrates and the onset of the Depression.
Hoping to revive the nitrate industry, the Chilean government established SQM in 1968. Like many state-owned companies, it creaked by on government support. Augusto Pinochet's regime privatized the company over five years, beginning in 1983. That same year it began trading on the Santiago stock exchange.
In 1990 Contesse, then 38, took over as chief executive. An ambitious forest engineer who had executed a turnaround at a state-owned coal operation, his biggest challenge was to rid SQM of its inefficient state-owned mentality. "People were making political decisions rather than economic ones," he recalls. Contesse encouraged employees to become shareholders by offering them low-interest loans; 90% jumped at the chance. "Today we have one-third the people we had in 1988, and we're five times as productive," he says proudly.
Contesse is moving ahead with more plans to exploit the mineral wealth of desolate northern Chile. He is building a $250 million cement plant in the desert. With exclusive mineral rights to a vast supply of limestone, a key ingredient in cement, Contesse thinks he can be Chile's lowest-cost producer-even if he's the newest and the smallest player.
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Read more:
ÿ By Kerry A. Dolan
ÿ International
ÿ Up & Comers
ÿ FromÿMarchÿ23,ÿ1998ÿIssue
Marchÿ23, 1998
Table of Contents:
On The Cover:
-Asia will rise again
-Burn the firewalls
Management, Strategies, Trends:
Companies
-Silicon bully
Entertainment
-Man in the mirror
Industry
-First Union bigfoot
Media
-Buffy 1, Harry Caray 0
Companies
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Jobs
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-RadioShack, USA
-Delay, delay, delay
-All in la familia
-River of subsidies
-Crying cronyism
Starting Your Own Business
-Web-struck dreamer
International:
Up & Comers
-Land of white gold
-Who needs P&G?
Technology:
Web Solver
-Ear to the Web
Computers/Communications
-Animating life
-Rx: no merger
Insights
-Green alchemy
-Phone man
Departments:
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Columnists:
Observations
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Money & Investments:
Taxing Matters
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-The Forbes/Barra Wall Street Review
-Streetwalker
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Business Strategy
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Foreign Exchange
-150 yen to the dollar?
The Forbes Life:
Ideas
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Indulging
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The Technologist
-Game Boy
Columnists:
In The Classroom
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