The Agribusiness World Today

Ken Shwedel
Investigador de Agronegocios, Rabobank
3 - 7 de Diciembre de 2007

The World

The biofuels industry moves to consolidate: We see the biofuels industry and particularly the ethanol sector in the U.S., going through a process or cycles similar to that experienced by other industries. First there is the glamour and excessive investment. That is followed by the bubble busting, i.e. an industry shakeout and consolidation. Subsequently the industry recovers with fewer, larger and better positioned players. In the U.S. the ethanol industry went through a period of rapid capacity expansion enticed by high ethanol prices and edged on by government support. The rapid growth in capacity along with higher corn prices subsequently has put considerable pressure on company margins. In other words, the industry is ready for consolidation. The announcement at the end of last week of the merger between VeraSun Energy and US BioEnergy, in effect, says that the industry is now poised to move – or is already moving -- into the second stage of the cycle. VeraSun Energy and US BioEnergy affirm that the synergies from the merger will work out to between US 5 to 10 cents a gallon. Immediately after the merger the new company will be the second largest player in the market, after ADM. Considering expansion plans by the end of next year the merged company and ADM together will control around 25% of the U.S. ethanol market. Their marketing power and potential cost advantages will work to dissuade many prospective entrants to the market. While we essentially see the industry entering the second phase of the cycle, enhanced policy support under consideration in the U.S. Congress could keep smaller and less efficient players in the market for a longer time.

They won’t produce pork from cloned hogs: That is the position that Smithfield is taking. They say that being a “thoughtful leader” in the industry they took this decision because “the science involved in cloning animals is relatively new.” Although they do leave the back door open, saying that they “will continue to monitor this technology”, we are of the opinion that their decision is more marketing based than a concern about the market than technology. Research is showing that consumers are still largely uneasy about cloned food, and an overwhelming majority feel that “food from cloned animals [should be] labeled.” Other companies have said that they wouldn’t manufacture/market cloned food, but for the most part they are associated with the organic and/or natural food segment. Because Smithfield is a mainstream company, and the world’s largest hog producer, their decision represents, for the time being, a setback for cloned food.

México

The tally in Tabasco: The severe flooding in Tabasco seriously damaged that state’s agriculture. Out of 240,000 hectares under cultivation, some 160,000 were lost. Initial calculations placed the damage to a number of crops at between 80 percent to practically a total loss: banana, cacao, coco, corn, sorghum, papaya and rice. On a national level Tabasco is Mexico’s main cacao producing state and accounts for around 30 percent of the country’s banana production. On a political level the Secretary of Agriculture lost credibility with producer groups as a result of some of his initial comments regarding the severity of the impact on the state’s agriculture.