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A first, Cargill enters pectin market on Citrico acquisition

08-Mar-2005

Consolidation continues for the food ingredients slice of the industry chain as US ingredients behemoth Cargill enters the pectin market for the first time, announcing the acquisition today of insolvent citrus product supplier Citrico,reports Lindsey Partos.

Extending its reach in food ingredients, and toughening up competition in hydrocolloids, the purchase thrusts the largest private firm in the US straight into the number three global spot for supplies of pectin extracted and blended from citrus peel.

Further, the deal feeds Cargill's growing ambitions in the food ingredients market.

"The acquisition will support Cargill's strategy of becoming a leading provider of speciality ingredients and ingredient systems," clarified Robert Parmelee, president at Cargill food system design unit.

He claims the firm's "ability to leverage pectin with the company's global juice, orange processing and soya protein assets" will broaden "new solutions" for its customer base.

In September 2004 Citrico International went into liquidation, while the firm's German-based production plant and business situated in Malchin did not file for insolvency. Cargill's proposed acquisition includes both businesses.

The €46.7 million German plant produces some 4,500 metric tonnes of pectin annually sold through the firm's international business and when unveiled in 2001 was pushed as the cornerstone of Citrico International's hydrocolloid business.

Pectin is the gelling agent that makes jams and preserves set, but also enhances the texture and appearance of a range of foods, as well as contributing to flavour release.

But while mature hydrocolloid products such as alginates have historically witnessed stable prices, pectin, the 'darling' of the industry, can pull in higher margins, equaling beneficial gains for the pectin producers.

Dominated by a small number of industry players, makers of hydrocolloids are consolidating, particularly in the larger, more mature markets, spurred on by shrinking margins and consolidation of their international customers.

In 2004, the dynamics in the industry shifted when family-owned US firm JM Huber bought the number one pectin - and xanthan gum - slot with the purchase of hydrocolloid leader CP Kelco. Industry observers pitched the acquisition, which takes the New Jersey-based company deeper into additives and thickeners, in the region of $1 billion (€0.8bn).

The Cargill-Citrico deal, for which terms were not disclosed, now faces regulatory approval.

Demonstrating clear ambitions in the European food sector today's announcement is but the latest move in a series.

In January the firm signed off over €76 million in investments for polyol sweeteners; with the expansion of plants in the US and Europe, including the firm's Italian Castelmassa facility.

In the same month, Cargill announced it would break ground on its first refinery in Russia, the number one vegetable oil market for the Central and Eastern European region.

In February Cargill acquired Italian firm Pagnan. Without disclosing the purchase price, Cargill said it aims to absorb Pagnan's grain and oilseed meals, import and trading business into a newly formed subsidiary called Pagnan Commerciale.

According to the US firm, that already has starch and sweetener operations in Italy, the deal will build on existing grain trading businesses in Italy, providing particular benefits to "our agri-food customers".

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