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Standard: Cooperativa Solvereda: size the storage gap, then build a silo?
You run the case. Read the prompt, answer questions from the notes below, and share data only when the candidate asks for it or gets stuck. Score at the end.
Case timer
00:00
1. Read the prompt aloud
Read it slowly, then pause. Let the candidate ask questions before they structure.
First, estimate how much grain storage is missing in the area around Cooperativa Solvereda, a farmers' cooperative in Brazil. Then: should the cooperative build a 100,000-tonne silo?
Format note: Difficulty: Standard. Format: market-sizing opener, then a business question. Industry: Agribusiness. Region: Brazil. Interview length: about 30 minutes. The company is fictional and all figures are illustrative.
2. Answers to clarifying questions
Give these answers only if the candidate asks. If they ask something not listed, give a sensible answer or say it does not matter here.
If asked: Which area and which crops?
Answer: The area around the cooperative in the state of Mato Grosso. Farms there grow soybeans and then a second crop of corn in the same year, about 3 million tonnes of grain in total a year (illustrative).
If asked: How much storage is there, and how much is needed?
Answer: About 1.8 million tonnes. For this case, use a planning rule of storage equal to about 1.2 times the yearly harvest.
If asked: What would a silo cost and earn?
Answer: A 100,000-tonne silo costs about BRL 600 per tonne of capacity. Grain stored for about three months sells for about BRL 80 per tonne more than at harvest on average, storage costs BRL 20 per tonne, and members avoid about BRL 20 per tonne of extra freight cost at harvest time. The silo can be filled twice a year, once for each crop.
If asked: How should I value it?
Answer: The cooperative borrows at 14 percent a year. At 14 percent, BRL 1 a year for 20 years is worth about BRL 6.623 today.
3. The hypothesis a strong candidate states
Listen for an early, testable guess like this one. It does not need to match word for word.
Harvests have grown faster than storage, so my hypothesis is that the area is short of storage, and that a silo pays back well because it can be used for two crops a year.
4. A model structure
Compare the candidate's structure with this one. A different split can be just as good if it is clean and fits the problem.
- Size the gap, then value the silo
- Storage needed = harvest x 1.2; gap = needed - existing
- Benefit per tonne: later sale, avoided freight, storage cost
- Key: Two crops a year: payback and NPV
- How low the benefit can go
5. The working, step by step
Each step shows how a strong candidate works it out. Share a new fact from it only when the candidate asks or is stuck, and let them do the math: the result in the dark box is what they should reach.
Step 1: Storage needed
What a strong candidate does: 1.2 times a 3 million tonne harvest, in million tonnes.
Storage needed (million tonnes): 3 × 1.2 = 3.6
Step 2: Storage gap
What a strong candidate does: Needed minus the 1.8 million tonnes that exist.
Storage gap (million tonnes): 3 × 1.2 - 1.8 = 1.8
Step 3: Cost of the silo
What a strong candidate does: 100,000 tonnes at BRL 600, in BRL million.
Silo cost (BRL million): 100,000 × 600 ÷ 1,000,000 = 60
Step 4: Benefit per tonne stored
What a strong candidate does: BRL 80 of higher price plus BRL 20 of avoided freight, minus BRL 20 of storage cost.
Benefit (BRL per tonne): 80 + 20 - 20 = 80
Step 5: Yearly benefit
What a strong candidate does: Filled twice a year, in BRL million.
Yearly benefit (BRL million): 2 × 100,000 × (80 + 20 - 20) ÷ 1,000,000 = 16
Step 6: Payback
What a strong candidate does: Silo cost divided by the yearly benefit.
Payback (years): 100,000 × 600 ÷ (2 × 100,000 × (80 + 20 - 20)) = 3.75
Step 7: NPV over 20 years
What a strong candidate does: Yearly benefit times 6.623, minus the silo cost.
NPV (BRL million): 2 × 100,000 × (80 + 20 - 20) ÷ 1,000,000 × 6.623 - 100,000 × 600 ÷ 1,000,000 = 45.97
Step 8: Curveball: weak years
What a strong candidate does: Interviewer: "The price gain after harvest varies a lot. In some years it is only BRL 20 per tonne. How low can the average benefit per tonne go before the silo stops paying?"
Break-even benefit (BRL per tonne): 100,000 × 600 ÷ 6.623 ÷ (2 × 100,000) = 45.3
The recommendation to listen for
At the end, say: "The CEO walks in. What is your recommendation?"
The area needs about 3.6 million tonnes of storage and has 1.8 million, a gap of about 1.8 million tonnes. The cooperative should build the silo. First, it costs BRL 60 million and brings about BRL 16 million a year, paying back in under 4 years, because it serves two crops a year. Second, even when borrowing at 14 percent, its value over 20 years is about BRL 46 million more than its cost. Third, it keeps paying as long as the average benefit stays above about BRL 45 per tonne, against BRL 80 expected; because storage and freight costs cancel each other out here, that means an average price gain after harvest of about BRL 45 per tonne. In a weak year the benefit is only about BRL 20 per tonne, so the cooperative should agree clear rules with members on when to store and sell, so the silo is well used every year.
Risks a strong answer names: Several weak years in a row would push the average benefit below break-even; Higher interest rates would lower the value of the silo.
Next steps: Survey members on how much grain they would store and when; Get quotes from two silo builders and check the site's road access.
Strong versus weak
A strong answer
Sized the gap in clear steps, noticed that two crops a year double the silo's use, and found the break-even benefit to test the weak-year risk.
A weak answer
Assumed one crop a year, found a payback of 7.5 years, and rejected the silo.
Score the candidate
Score each criterion from 1 to 5. A 2 or a 4 sits between the descriptions.
This case has no exhibit. Score Exhibit reading on how the candidate used the data you gave them: did they pick out the number that matters and say what it means?
Total
0 out of 25
Score all five criteria to see the band and the feedback template.