Hungry food ingredients giant Cargill to enter Brazilian sugar and alcohol production sector for the first time, announcing a new deal to buy Açucareira Corona sugar mills.
In a joint venture with Brazilian sugar traders Crystalsev and Fluxo, the takeover would bring private US firm Cargill two mills, with a combined processing capacity of some 6 million tons of sugar cane.
"Cargill has analysed the important, growing sugar and alcohol market in Brazil for some time, and has made the strategic decision to become more active in this sector," commented Sergio Barroso, president of Cargill Brazil.
With 7000 employees Açucareira Corona is made up of the Bonfim mill in Guariba and the Tamoio mill in Araraquara, both in the state of São Paulo, and is among the country's largest sugar complexes.
In addition to sugar, the Bonfim mill annually produces about 190 million litres of alcohol.
The alcohol production is nearly all for the domestic market while sugar is produced both for domestic and export markets.
The Cargill sugar deal is by accounts quite timely. Brazil is now the number one exporter of sugar, boosted by a ten-fold increase in exports (to over 10 million tons) in the last ten years.
And the market is on the cusp of opening up further as the WTO recently ruled Europe must limit its subsidised exports of sugar to 1.273 million tonnes a year, and reduce its annual spending on export subsidies to €499 million a year. EU sugar sells at three times the global price.
The ruling followed initial complaints from sugar producers in Brazil, Australia and Thailand.
On average, the European bloc exports over 5 million tonnes of sugar a year and spends around €1.3 billion annually on export subsidies.
Under current plans, designed by former European farm commissioner Franz Fischler, minimum sugar beet prices would be cut by more than a third, from €43.6 per ton to €27.4, in two steps over three years; and the total EU production quota would come down by 2.8 million tons to 14.6 million by 2008/9.
Brazil has been blamed for flooding the market with sugar, creating a surplus of the commodity and contributing to an erosion of market prices.