The Agribusiness World Today

Ken Shwedel
Investigador de Agronegocios de Rabobank, México
10 - 14 de Diciembre de 2007

The World

Better to be on the inside setting the agenda: In the context of the U.N. Climate Change Conference we are seeing that a number of the leading global food and beverage companies are “calling on the world’s leaders to forge a binding UN agreement to tackle climate change.” It appears that companies are seeing the writing on the wall: “greenhouse gas reduction programs are inevitable”. Likewise, consumers are concerned and they want food manufactures to act accordingly. As a result, the companies want to be actively involved in setting the agenda. In what represents an important change in their previous positions, the companies are saying that “CO2 emissions targets would be binding”. In the past they argued in favor of voluntary compliance and targets. They take the position that the targets and guidelines should be based on science – of course, they don’t say whose science. Interestingly, the companies appear to come to the conclusion that inaction will be even more costly. They are now also saying that the cost of compliance is “manageable”. In fact, they are of the opinion that “a low-carbon economy will create significant business opportunities”.

Acquiring to strengthen the retail business: With prices at such high levels, it would seem natural that fertilizer companies would look for to expand through acquisitions. In a sense this is what Agrium, the third largest fertilizer producer in North America, did announcing that they would acquire UAP Holding. What is interesting, though, is that the acquisition is not really designed to strengthen their fertilizer business but rather the retail side of their business. They understand that fertilizers are a commodity business, with its characteristic ups and downs, while the retail business tends to be more stable. Their strategic thinking probably is that the retail business will provide a cushion during the downside of the fertilizer business cycle. The take over of UAP will convert Agrium into the largest agricultural retailer in North America. While size of the expanded company was an important consideration, what also made UAP attractive was the fact that they hardly competed head-on with Agrium. In other words, the acquisition significantly expanded Agrium’s retail business’ geographic coverage. Interestingly, after the acquisition Agrium will have a 15 percent market share. This means that they will have plenty of room to grow. So don’t be surprised if they invest more, and even look at other acquisitions.

Mexico

More tequila and more agave: Through the eighth month of the year tequila production grew by 17.9 percent compared with the same period in 2006. Export growth, however, measured in volume, was flat. So where did all this extra tequila go? Apparently it has been absorbed by the domestic market. Meanwhile, as expected agave production is now in the expansion phase, with the industry projecting a surplus of some 20 million plants this year. This will both facilitate and put pressure on the industry to expand production. The question, therefore, for the industry is that if export volume remains flat, even at the present high levels, will the domestic market be able to take up the slack?