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McKinsey Hard Comparison Capital Allocation Operations

Fertilizer Company

#Agriculture #Manufacturing #Chemicals
ProHub Comment

This is a classic comparison case requiring candidates to evaluate two competing strategic options (greenfield vs. expansion) through financial and non-financial lenses. The case tests structuring ability, financial acumen, and operational thinking. The key tension is between market fundamentals (1% growth, increasing competition with 81+ facilities) and management's bullish forecast, requiring careful critical analysis.

Estimated Time 15 minutes
Difficulty Hard
Source PeterK
50 / 100
Fertilizer Company is a U.S.-based fertilizer manufacturer that produces 1.5M tons of nitrogen, phosphatic and potash fertilizer annually. They have five factories across the country that work at capacity right now. Given bullish market forecast, Fertilizer Company would like to expand their production. They are considering two options - build a new factory or expand the existing one. The CEO has reached out to you to get your advice on which option to pursue. We’re in early 2020 (before the pandemic).

Clarifying Information

  1. The client plans to invest $0.5B in capacity expansion
  2. The project will take 2 years to design and 2 years to build (either a new factory or an upgrade of the existing facility)
  3. The state governments will offer tax incentives to offset some costs as your project will create a lot of jobs
  4. The U.S. demand for fertilizer has been mostly stagnant as the annual growth rate has been 1% (2016-19) (see Appendix 1)
  5. Currently there are 81 operational U.S. fertilizer production sites and this number keeps increasing (see Appendix 2)
  6. No specific goals provided