Thursday, September 13, 2007

Brazilian sugar and ethanol: slow to consolidate While most segments of both agricultural and energy industries are rushing into global consolidation, Brazil's sugar-cane and ethanol industry resists fervent attempts at consolidation. That's according to a Wall Street Journal article ("Sugar Rush", 9/10/07). Despite the fervent efforts of all kinds of global players from commodities like US-based ADM, Cargill, and Bunge, to sugar companies like Australia's CSR, Germany's Südzucker AG, and India's Bajaj Hindusthan, as well as private investors like George Soros and government consortia across the globe. The problem is, the established sugar plantation and mill owners won't sell or demand unthinkable prices for often shaky enterprises. The result is a fragmented industry in Brazil with little money for technological improvement, As the artcile puts it, "Analysts say Brazil needs billions of dollars in investment to expand production and to build the pipelines, ports and other infrastructure it needs to become the world's ethanol supplier. There are roughly 210 companies running 368 sugar and ethanol mills. The five largest players generated about 17% of the country's ethanol production last year." And with corn prices in the US sky-high, sugar-based ethanol is a less expensive and, according to the article, greener way of producing ethanol. Hence the major worldwide interest. Some investors are starting their own sugar plantation, but the turnaround is likely to involve a five-year investment period before actual returns. And few investors have that kind of patience. At least for now, Brazilian sugar resists consolidation and integration into the world economy. 9:58:19 PM

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