Background
Yara International is one of the world’s largest producers of fertilizers for the agricultural sector, with operations in over 60 countries and distribution all over the world. The company is also known as a provider of environmental solutions, for example software support to farmers, crop planning assistance and proper fertilization. Finally, Yara is one of the world’s largest producers of ammonia, a product that is being increasingly sought after as an alternative propulsion fuel to traditional CO2-emitting fuels, by using renewable energy , carbon capture and storage to produce clean ammonia.
Yara was established as Norsk Hydro-Elektrisk Kvælstofaktieselskab in 1905, demerged as Yara International in 2004 and is listed on the Oslo Stock Exchange with headquarters in Oslo. Norsk Hydro’s traditional corporate culture might have been seen to be upstream-focused, with relatively few but major divisions driving its business. In 2015, this upstream culture was still apparent in Yara, although Mr. Holsether tried to change this to become more downstream-focused, building on several initiatives that had gathered momentum internally over the past decades. This meant that Yara would need to become more entrepreneurial, get closer to the farmers, and would involve many more decisions than that which would be the case in an upstream business culture.
Before taking on his current role as President & CEO at Yara, Mr. Holsether spent 10 years in Elkem, the world’s leader in the manufacturing of ferro-alloys, and indeed an upstream culture. Thereafter, he held the position of CFO of Orkla and went on to become head of the SAPA Group, the Sweden-based manufacturer of aluminum profiles for doors, windows, car-parts, etc., i.e., downstream. He left for Yara in 2015, to become CEO. (SAPA was sold by Orkla to Norsk Hydro in 2017, after having been combined with Norsk Hydro’s downstream business. So, the continued downstream aluminum activities unit owned by Norsk Hydro was now number one worldwide, as of 2009).
Shifts in Yara’s business environment
There seem to have been at least two critical, relatively recent, changes:
The jump in gas prices from 2015. The period immediately prior to this (2004 – 2015) was characterized by relatively low gas prices and was a good period for traditional sales of Yara’s fertilizer products.
The Paris climate agreement, December 2015. This set out clear targets for lowering emissions, thus stimulating the firms’ sustainability strategies. At least two Norwegians were centrally involved:
Mr. Børge Brende, then Norway’s Minister of Foreign Affairs, former Steering Committee Member at Bilderberg, board member at Global Shapers Community and Statoil, and now President at the World Economic Forum.
Mr. Vidar Helgesen, Executive Director, The Nobel Foundation, formerly Special Envoy for the Ocean (Norwegian Ministry of Foreign Affairs), former Minister of Climate and Environment, Chief of Staff to the Prime Minister and Minister for Europe.
Yara’s “new” strategic approach – value chain focus
Increasingly there seems to be competition among value chains, rather than competition regarding specific products in isolation, i.e., between chains such as:
Fertilizers -> farmers -> food producers -> end customers, different than fertilizers from producer A versus fertilizers from producer B.
For Yara, this implies more dialogue with focus on the other key entities in the value chain:
The final customer.
Food product manufacturers, such as Unilever and Nestlé.
The farmer. Farmers are today seen as more and more high tech, implying faster efforts, say, of reaching scale.
This clever dialogue with others in the value chain implies a shift in the company’s culture, from a more traditional up-scale focus (relatively few, large decisions) to more or a down-scale focus (with many more decisions, typically smaller, and allowing for some inevitable errors). A more entrepreneurial focus.
Sustainability
To build sustainability into Yara’s strategy, the firm picked up from what other firms were doing, especially Unilever. There were above all three complementary approaches:
A shift towards delivering an effective value chain, i.e., a “new” way for Yara to compete.
Investments in own manufacturing, so as to reduce dysfunctional emissions with negative climate effects. (To be climate neutral by 2050!). For instance, significant investments were made in plant/process improvements, with an expectation of 45% less emissions from the plants in the relatively near future. Significant investments were also made for making fertilizers based on electricity, rather than based on gas – back to the original process invented by Dr. Kristian Birkeland (one of the founders of Norsk Hydro in 1905).
The final products, paid for by the consumer (a bread, a cup of coffee) would only be marginally more expensive because of the use of the new generation of “emission-free” fertilizers, even though the cost of this to the farmers would be significantly higher (2-5x) than for conventional fertilizers.
Ten critical factors for transforming food and land use
A task force (the Food and Land Use Coalition, FLUC), consisting of key executives from companies central in the value chains, various ideal institutions, etc. came up with ten key factors in a landmark report (September 2019; https://www.foodandlandusecoalition.org/wp-content/uploads/2019/09/FOLU-GrowingBetter-GlobalReport-SummaryReport.pdf): (1)
Healthy diets
Productive and regenerative agriculture
Protecting and restoring nature
A healthy and productive ocean
Diversifying protein supply
Reducing food loss and waste
Local loops and linkages
Digital revolution
Stronger rural livelihoods
Gender and democracy
Many of the factors identified in this study added to Yara’s impetus of following value chain approach.
Adherence to Yara’s traditional core values, and to Norwegian core values as well
Pride in Yara’s past achievements was seen as key by Mr. Holsether. This included, above all, a recognition of the critical importance of Professor Birkeland’s invention, to be able to extract nitrogen from the air. Yara’s global network of business engagements, and another source of pride, might be hard to re-create today. Credit should go to Mr. Erik Tønseth (then Head of the Agricultural Divisionat Norsk Hydro, and later CEO of Kvaerner) as well as his then boss, Mr. Torvild Aakvaag, former CEO of Norsk Hydro, for a string of acquisitions made more than 30 years ago.
Yara was involved in a difficult case involving allegations regarding corruption (in Libya) some ten years ago. This resulted in stressful effects on the organization’s morale , but have pulled through with a very high employee engagement. An important reason for this, is the work on its mission and vision and the change into a purpose driven company. Since, the corruption case, Yara has adopted an even more rigorous ethics & compliance culture to avoid similar cases in the future. Together with its HESQ “Safe by Choice” culture, these two programs form the foundation of Yara’s license to operate and its company culture.
The shift towards a more downstream focus, more entrepreneurial, and more on dialogue with customers has of course not been without resistance from some. Upstream traditions are hard to change. To facilitate this shift towards more a down-stream focus, Mr. Holsether and his top management team have spent considerable energy, including Mr. Holsether personally signing 17,000 copies of a new book about Yara’s transition, which was handed out to most of Yara’s global employees.
Another strategic initiative – fuel from ammonium
Traditionally, the process of making fertilizers has been to extract nitrogen from the air, and with ammonium as a by-product. This process was initially based on electricity, as the energy source, but more recently gas. A shift towards use of electricity again is foreseen –
i.e., less CO2 emission. Ammonia is increasingly accepted as a possible source for “alternative” fuel, say for the automotive and shipping sectors, instead of gasoline/diesel. Yara currently has three active partnerships to pursue this:
Norway
Netherlands
Australia
This industrial strategy does of course now follow the same logic as the value-chain approach taken by Yara for its fertilizer business.
Senior Executives’ Roles
Mr. Holsether has spent a considerable effort to operationalize the shift in Yara’s strategy towards more downstream, entrepreneurial and sustainable. This has also led to close contact with other senior leaders, the most notable being Paul Polman (ex-CEO, Unilever). He feels that senior executives from larger corporations, often leading in their fields, might have a particular responsibility for bringing other firms along, often somewhat smaller ones.
More about Svein Tore Holsether (from www.yara.com)
Svein Tore Holsether (born 1972) is President and Chief Executive Officer of Yara since 2015.
Mr. Holsether is passionate about promoting the Sustainable Development Goals in the global business arena. To contribute to a thriving future and drive inclusive growth, he is a member of the Executive Committee and Chair of the Food & Nature program for the World Business Council for Sustainable Development (WBCSD). He was a Commissioner of the Business and Sustainable Development Commission (BSDC), and also serves on the Executive Committee and Board of the International Fertilizer Association (IFA). Previously, Mr. Holsether has held a range of executive and senior position in large industrial companies.
Mr. Holsether has a BSc degree, specializing in Finance & Management, from the University of Utah, USA.
References
SOURCE: FLVC Report, September 2019, pg. 13.
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