Gensouce’s business model is one of vertical integration – i.e., the structured connection of a group of end-users of potash with a new, scalable potash production plant in Saskatchewan (or elsewhere as the market requires). Vertical integration is a normal strategy for larger operating companies – the idea being to control input costs as much as possible.
The current business term is Supply Chain Management, or SCM. SCM can range in its scope from corporate-wide purchase amalgamation (in an effort to increase order size and therefore obtain better unit pricing), to strategic purchasing agreements (where a company will agree to purchase all of a specific item from a single source and therefore obtain preferential pricing), all the way to outright ownership and control of the item that is being purchased. Clearly outright ownership of a significant input cost item represents full vertical integration and provides the best price protection to the company with respect to the specific input item.
Gensource sees potash fertilizer as a simple agricultural crop input, and a critical input for many farmers and many crops. On that basis, Gensource is generating partnerships with end-users of potash fertilizer to help them create a vertically integrated structure for the supply of potash to their agricultural operations. Our goal is to assemble a group of end-users who will consume the entire annual production of the first scalable plant.
The following shows how the production and distribution of potash is accomplished today, the results of an oligopolistic industry structure. In this case, the Ag. Producers is a “price taker”, meaning they have no control over the cost or supply of the product. If they want it or need it, they must pay the price the system demands. Agricultural Producers have their own economic calculations – at some prices, it makes sense to apply fertilizers and at other prices it doesn’t. But, regardless of the economics, if their crops demand potash then the soil needs it.
In the second graphic, Gensouce depicts its vision of how a vertically integrated situation will work â€“ manufacturing and direct shipping of the product to the specific set of end-users/agricultural producers who are forward-looking and see the advantages of controlling these input costs.
To that end, Gensource has generated end-user contacts in both China and Brazil and is focusing now on completing on-going negotiations with our partner in Brazil.
Brazil is a massive agricultural producer and exporter of agricultural products to the world.
The intensity of Brazil’s agriculture and the crops grown there make Brazil one of the largest importers of potash in the world, with consumption ranging from 7-9 million tonnes per year.
Gensource’s primary partner in Brazil, Arizona Agroprecuaria is currently negotiating off-take agreements with agricultural producers, actual end-users of potash fertilizers, in Brazil.
On this basis, Gensource will proceed to implement its new, start-of-the-art potash facility in Saskatchewan. Stay tuned as this situation develops!