On the money: Bunge expects consolidation in grain
Bunge looks to M&A, greenfield expansion for growth
US agribusiness giant Bunge expects to be an active player in a process of consolidation in grain markets after recent volatility and crop failures in the sector.
Bunge CEO and chairman Alberto Weisser said companies needed to grow to be able to ride out turbulent conditions in the industry.
"I do believe that we have more consolidation because we have shown that the market has shown that it is necessary to have large companies with a significant geography spread and strong balance sheets to operate and serve the markets in these volatile times," Weisser said yesterday (25 October) after the company reported its third-quarter results.
Bunge anticipates further consolidation in the market and the company expects to take an active role in M&A activity. "We expect them [acquisitions] to continue and we are part of it", Weisser said.
However, he also emphasised that Bunge is a "disciplined operator".
Weisser said: "When we do acquisitions, they have to meet our hurdle rate. If they are too expensive, we will not move and then we prefer to do either greenfield over a longer period of time."
Weisser's comments come against the backdrop of Archer Daniels Midland's US$2.85bn takeover bid for Australian commodities group GrainCorp, as the global agri-giants could be scrambling to gain control of key grain producing regions.
According to Weisser, grain crop failures around the world - notably in the US and areas of eastern Europe - demonstrate the increasing importance of having a strong global presence. The need to have a broad global spread has meant that the process of consolidation in the sector has increased, Weisser added.
Weisser added Bunge will also continue to expand organically in the regions in which it is already present, through initiatives such as its move to expand its grain organisation in North America. Weisser said the group is developing similar distribution capabilities in South America and eastern Europe, which would facilitate higher grain exports from those regions.
Bunge is also looking to expand its geographical reach by moving into Africa and Australia, Weisser added.
The company yesterday revealed its third-quarter net earnings more than doubled on the back of higher sales at its grain trading unit.
It benefited from a low US grain harvest, where crop yields were hit by drought. Speaking during a conference call with analysts, Weisser said Bunge had been able to use its global reach to meet demand by importing grains from Latin America.
Weisser added that, should North American supplies dwindle, Bunge is preparing to fill the gap with imports.
"The situation will allow Bunge to play its strength because of our large presence in South America. We have been very active in filling our pipeline so that we can start earlier than usual with the production and exports from South America. So if necessary, if the North American supply dwindles earlier because of strong demand, I think we can kick in with the South American supply," he suggested.
A leader in oils and fats, Bunge has focused on other packaged food categories such as sauces, dressings and condiments after acquiring Etti and Etti Salsaretti from Hypermarcas at the end of 2011. Wi...
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