The Agribusiness World Today

Ken Shwedel
Investigador de Agronegocios, Rabobank, México
17 - 21 de Marzo de 2008

The World

Working together to build the market: It appears that more and more companies are seeing advantages of joint ventures in certain markets or segments. In some cases the strategic imperative is collaboration rather than outright competition, while in other cases the companies seek advantage from synergic overlap. In South Africa Diageo and Heineken, apparently seeing success from their existing joint venture, have decided “to expand their cooperation…to tap into growing demand for premium” beverages by the “emerging middle class”. Their existing joint venture has allowed them to hold down costs while positioning themselves in the market. The new venture will also involve a local company, Namibia Breweries Limited (NBL). Both Diageo and Heineken will have a 42.5 percent stake with NBL holding the remaining 15 percent. The idea is to set up two companies, DHN Drinks and Supplyco, “which will jointly produce and bottle the groups' major brands in the country”. Additionally, they will also build a brewery and bottling plant, with Heineken taking a 75 percent share with Diageo holding the rest. For Diageo, it seems that they are convinced of the value of joint ventures since they are saying that they would consider joint ventures in other markets.

They didn’t stop buying in the U.S. last year: According to the Food Institute’s annual analysis of the mergers and acquisition in the U.S. food market the number of transactions completed last year reached 413, up from “392 deals completed in 2006”. Besides the 413 transactions completed last year there were another 60 that were agreed upon, but had yet to close. Rather than one particular sector being especially “hot”, what they found was that acquisitions had a strong strategic focus, with an emphasis on acquiring “health – focused companies and brands”. Reflecting the growing concentration in the retail sector the number of transactions in that sector went from 69 in 2006 to 79 deals last year. Investment firms also were very active, increasing the number of purchases 20.3 percent. Interestingly there was a strong focus by investment firms on acquiring restaurants. We expect that there will be a modest slow down in the number of transactions this year, as investment firms scale back as a result of the tightening in the financial markets. We project that industry initiated acquisitions, nevertheless, will continue strong.

Mexico

The giants are fighting: Seeing food manufacturers and retailers each trying to aggressively assert their position is a logical consequence of the growing concentration in the food industry. In this case it is Soriana and Alpura the large dairy company. Soriana has required that Alpura delivery dairy products to their distribution centers. Soriana then discounts Alpura the cost of distribution to their stores. While this practice is becoming more common, what is special about this case is that Alpura pulled their products out of Soriana stores and has gone public taking out full page ads announcing their decision. Of course retailers can also play hard ball. Chedrauri told consumers that they would not sell a particular brand of processed meats because the manufacture was selling to them at a higher price than Wal – Mart was paying for the same product.