Big sugar drama

On Thursday, the International Sugar Organisation said that the global sugar output for the 2009-10 crop year will probably fall 9.4 million tonnes short of demand. In India, most analysts concur that deficiency in sugar production is here to stay, as are imports. Once the programme to mandatorily blend 10% ethanol in petrol takes off, pressure on sugarcane will rise even further. And every time the monsoon falls short of expectation, India’s reliance on imports will build up.

So, as the world’s largest sugar consumer, it’s only rational for India to develop synergies with the world’s largest sugar producer and exporter. This happens to be Brazil, which also happens to be the world’s second-biggest ethanol producer, behind the US, whose maize-based industry is, however, considerably less efficient than Brazil’s sugarcane-based one. And Brazil has been actively scouting for new ethanol markets.

All this is to say that we welcome the news that India’s Renuka Sugars has entered into a definitive agreement for a controlling stake in Equipav of Brazil, which boasts large, modern and integrated sugar mills. Of course, this is another strong signal that Indian companies are rediscovering their appetite for global acquisitions. It also brings a leading domestic player closer to building a global sugar and ethanol business. India’s leading integrated sugar manufacturer has been seeing strong profits and it has funnelled them in the right direction by pursuing an acquisition that will bring it cost-efficiency and scalable production.

If we put this new sugar story in the larger global context, what’s at stake is how different countries are scouting the globe to best position themselves vis-à-vis resource shortages in the future. The China story is well known. On October 20, 2009, it nonchalantly announced the cancellation of 150 items of maturing government debt which 32 African countries owed it. Last year, it also overtook the US to become the biggest buyer of Brazilian products.

Brazil itself is an enthusiastic seeker of African resources. As for India, our farmlands are shrinking on account of rapid urbanisation. Our yields have not been increasing fast enough. The most forward-looking companies have, therefore, been branching out. One of India’s largest players in branded edible oils, KS Oils, has purchased 50,000 acres of land in Indonesia. Even India’s leading edible oil maker, Ruchi Soya, is scouting for palm plantations in Indonesia and Malaysia.

Edible oil companies initiated the move to acquire landholding and processing plants abroad, but other food industries have to do the same. As for the government, it needs to help finance such manoeuvring. As our lead column today suggests, the idea of creating a large fund corpus to facilitate leveraged buyouts remains an attractive one.

source: financialexpress