Strategic Advice to John Deere on Recent Drought in Brazil - Case Study Example

International Politics: Strategic Advice to John Deere on Recent Draught in Brazil Introduction Brazil is known to be the world’s second and third largest exporter of soybean and corn respectively. (China Financial News Headlines) During the past two decades, natural phenomenon related to drought had been negatively affecting millions of Brazilians who live in the northeast. With regards to the existence of dry weather, Conab – a Brazilian crop research company reported that soybean crop in Brazil is expected to go down by 57.7 million tons as compared to previous year’s 60 million tons between the years 2008 to 2009 (Gartian). As an emergency response to drought, the Brazilian government highly prioritizes the availability and distribution of clean drinking water to save the lives of the people living in affected communities more than the need to supply water for agricultural activities (Osava). As an end result, the profitability of the businesses related to agricultural products suffers most. A large number of agricultural farmers in Brazil purchase their agricultural equipments from the world’s biggest manufacturer of farming machineries known as Deere & Company. (John Deere) As part of Deere’s marketing strategy, the company extends a credit loan to as much as 17 countries worldwide including the medium- and large-scale agricultural businesses in Brazil (John Deere Credit). Since majority of the agricultural business in Brazil are seriously experiencing financial difficulty to pay their credit loan to John Deere Credit, several marketing and non-marketing strategy will be provided in order to prevent the negative financial impact of the phenomena in Brazil over the business performance of John Deere. Proposed Marketing and Non-marketing Strategies John Deere Credit Should Make Necessary Arrangement with Brazilian Farmers Drought can exist in any country temporarily. Considering the demand for corn and soybean will always be present, it is highly expected that the business performance of agricultural companies in Brazil will normalize as soon as the period of drought ends. In times of a global natural phenomenon such as the existence of drought, it is advisable on the part of John Deere Credit management to extend the loan payment to affected agricultural companies in Brazil. This can be done by extending the number of payment years depending on the length of forecasted drought period and the time frame wherein the Brazilian farmers will be able to plant and harvest crops including a grace period of at least one year to allow these businesses to recover from the financial loss caused by the uncontrollable environmental factor. Considering the proposed strategy, John Deere Credit could maintain a good business relationship with the affected Brazilian market. Another way of encouraging and motivating the affected businesses to pay their credit loan as soon as the weather becomes suitable for farming activities, John Deere Credit should consider granting the Brazilian farmers a reduced interest rate on the affected businesses’ credit loan. Rather than not being able to collect the principal loan, it would be better to simply reduce the interest rate to avoid delaying the payment which could result to possible bad accounts. Request for Government Assistance and Intervention Since agricultural products are necessary in terms of increasing the available food supply within and outside the geographic boundary of Brazil, the affected agricultural businesses in the country could lobby to either seek financial aid from the Brazilian government and/or make a request to lower down the government tax that is imposed on agricultural products. Private-owned local and international banks are unlikely to grant the loan request of affected agricultural businesses due to fear that these companies will not be able to pay back their requested loan. For this reason, seeking financial aid directly from Brazilian government is the next best solution that will enable the affected agricultural businesses to have sufficient fund to cover up the financial loss that will occur throughout the period of drought. Back in September 2008, Ribeiro reported that the state-owned Bank of Brazil released as much as 6.7 billion Brazilian reais or US$3.7 billion to fund the crop production between the years 2008 and 2009 (Ribeiro). This strategy will enable the agricultural businesses to start increasing their crop production as soon as water supply becomes readily available. Likewise, requesting the government support to temporarily cut down the tax rate imposed on the affected agricultural businesses will make it easier for farmers in northeast to recover from the business opportunity loss. Drought is often characterized by “a prolonged, abnormally dry period when there is not enough water for the needs of the people” (Australian Government). Given the fact that drought is related to the absence of water supply needed for agricultural production, Brazilian government should seek financial assistance from the World Bank to ensure that semi-arid region in Brazil will be safe from the health and economic consequences of drought. In line with the recommended strategy, it was reported by Azeredo and Jackson that giving a strong support with the development of Ceara Integrated Water Resource Management (Progerirh) will ensure not only the availability of safe drinking water during drought periods but also the continuous profitability of agricultural businesses located in semi- and northeast part of the country (Azeredo and Jackson). In general, the main purpose of the said project is to develop infrastructure which will make it possible to direct waters coming from the nearby rivers during the entre drought period. As a positive result, the existing social and economic problems related to the absence of water supply during drought period will be prevented in the future. Considering the fact that the negative economic consequences of drought can be avoided, agricultural businesses located in semi- and northeast part of Brazil will be able to promote their ability to continuously supply soybean and corn products to international market without the fear of being unable to deliver the quantity ordered during drought period. Ensuring the global market of reliable supply will eventually increase the agricultural companies’ profitability and ability to continuously pay their credit loan to John Deere Credit as agreed upon in the business contract. Discussion Government intervention is very important when it comes to dealing with a serious environmental disaster which could negatively affect the agricultural sector as well as the health, social, and economic performance of the country. Considering the situation between the affected agricultural businesses in semi- and northeast part of Brazil, the adverse socio-political impact of drought such as the possible increase in the rate of unemployment, poverty, and hunger weighs heavily for the affected agricultural businesses to easily convince the Brazilian government to extend necessary financial grants, reduced in tax rate, and the promotion of developing alternative water supply to promote the continuous increase in the crop production whole year round. Aiming to strengthen the affected agricultural businesses’ persuasive acts to convince the Brazilian government to extend some financial and non-financial support to affected individuals, this group of business people can also enter into collusion with the local and international media group combined with some of the environmentalists and socialist groups. By joining forces, Brazilian government will be more concern about addressing the increasing socio-political problems related to the consequences of drought. Solving the business problem related to the huge amount of credit loan being extended to agricultural businesses in Brazil should not involve only the Brazilian government. Since the business profitability of John Deeve is also significantly affected by the natural phenomena that are present in semi- and northeast part of Brazil, the management behind the affected agricultural businesses could simply enter into a win-win negotiation with John Deeve Credit. By entering into a mutual business agreement, both parties could make the payment option more realistic based on the current environmental and economic situation in Brazil. Basically, extending the payment period combined with the reduction on interest rate will make it possible for the affected businesses to be able to pay back their credit loan over a longer period of time. Conclusion One way or the other, all of the proposed solutions that were discussed in the study could enable the affected agricultural businesses in Brazil to pay back their loan to John Deere Credit. Since the period of drought is inevitable in regions with below average precipitation, the best solution lies behind the lobbying of affected group of people to encourage the need for Brazilian government intervention especially when it comes to the development of the Ceara Integrated Water Resource Management (Progerirh). Pushing the need to implement the Progerirh project will provide not only to the affected people in the semi- and northeast region but also the agricultural businesses a more permanent financial solution to the problem. Considering the huge capital needed for the said project, the political power of the Brazilian government is necessary to request financial assistance coming from the World Bank. In the presence of large-scale socio-political problems, government intervention is necessary to empower the local businesses to remain profitable despite the uncontrollable environmental factors. Depending on the country’s economic performance, each political government such as in the case of Brazil has the option to seek financial support from international sources in times of financial crisis. References: "Australian Government." 2009. Living With Drought. 30 January 2009 . Azeredo, Mauro and Stevan Jackson. "The World Bank." 2009. Loan to Expand Successful Water Security Initiatives in Brazil’s Semi-Arid Region. 29 January 2009 . "China Financial News Headlines." 12 January 2009. Brazil drought may lose 10 million tons of corn and soya. 29 January 2009 . Gartian, Karen. "dtn Progressive Farmer." 8 January 2009. Brazil Cuts Soy Outlook On Drought Concerns . 29 January 2009 . "John Deere." 2009. About Us. 29 January 2009 . "John Deere Credit." 2009. My Accounts. 29 January 2009 . Osava, Mario. "Tierramerica." 29 January 2009. Devastating Drought Strikes Brazil - Again. 29 January 2009 . Ribeiro, Stenio. "Brazzil Magazine." 28 September 2008. Brazil Hands Out US$ 3.7 Billion for 2008/2009 Crop. 29 January 2009 . Read More