04/24/2015 12h01

Cargill increases investments in Brazil

valor international

Bolstered by growth in revenues and profits in Brazil in 2014, Cargill, the largest agribusiness company in the world, is speeding up to conclude this year a R$1.2 billion investment plan that tends to strengthen its Brazilian unit as one of its top sources of income among the nearly 70 countries in which it has direct operations.

Launched in the beginning of 2014, the two-year plan had R$640 million as of December. There are therefore R$540 million to invest, amount that is being injected into different business fronts and will also mark the celebration of 50 years of the company in the country. Founded in 1865 in Conover, Iowa, by William Wallace Cargill, the company came to Brazil in 1965.

Without shares traded on the stock market and controlled by a group of about 100 members of the Cargill and MacMillan families, descendants of patriarch W.W., Cargill gives no signs that it intends to touch any of the basic pillars that in 150 years consolidated it as global leader in an increasingly more competitive sector, especially with the recent advance of Asian trading companies increasingly turned to agricultural products.

In this sense, the company’s investments to optimize the transportation of products originated in Brazil for the external market gain traction. They include the expansion of a port terminal in Santarém, Pará, and the construction of a transshipment station in Miritituba, also in Pará. The projects developed in the state are receiving R$240 million and R$200 million, respectively.

With capacity to handle 2 million tonnes of grains a year, the Santarém terminal is being expanded to 5 million. Work began in May 2014 and is slated to be concluded in the third quarter of this year. Part of the expected volume increase will arrive in the terminal by river thanks to the Miritituba station, which received installation license in November and is expected to be ready in 2016.

“The competition is fierce and the search for efficiency has to be constant and differentiated. There are big companies in competition, and producers and consumers gain with this,” says Luiz Pretti, president of Cargill Brazil. The executive is in the company since 2005, when he became the first Brazilian financial chief of the subsidiary, and is now also a member of the global risk committee of the Minneapolis-based company.

Amid a race fueled by investments in logistics and also defined by “good fights” in the origination of the different farm products traded by the company — especially grains — and by the need to raise margins with the sale of higher added-value products, Mr. Pretti doesn’t hide his satisfaction with the results achieved by the Brazilian operation in 2014.

According to the recently concluded earnings report, Cargill had R$26.2 billion in net sales in Brazil last year, up 5.6% from 2013, while its net profit grew 26%, to R$481 million. Part of this result helped the multinational end the first three quarters of its current financial year, on February 28, with consolidated global sales of $92 billion and net income of $1.6 billion, a 13% year-on-year growth.

Higher international grain prices in the first half of last year contributed to increase Cargill’s revenues in Brazil in 2014, while the later drop in prices benefited its margins in the processing of products such as soybean and corn. “But the numbers also show that our investments are bearing fruits,” Mr. Pretti says.

In addition to investments in logistics in Pará, Mr. Pretti highlights that the company is investing R$240 million to expand its soy-processing unit in Três Lagoas, Mato Grosso do Sul, and recalls that it concluded the expansions of plants in Mairinque, São Paulo, and Itumbiara, Goiás, which increased its production of special vegetable oils. These oils are sold in Brazil with the Liza, Purilev and Mazola brands.

The list of Mr. Pretti also includes about R$450 million spent in Cargill’s first bio-refinery of corn processing, opened in 2014, and the expansion, for R$15 million, of the capacity of the citric acid line in the Uberlândia, Minas Gerais, plant. Citric acid is supplied to customers in the food, beverage and cleaning-products industries, among others.

Two other important initiatives took shape last year: the first was the creation of sugar trading company Alvean, joint venture in equal parts with Copersucar; the other was the creation of SJC Bioenergia, in partnership with USJ, which is developing a R$160 million project for production of corn-based ethanol in Quirinópolis, Goiás. At SJC, Cargill and USJ have stakes of 15% each, with the remaining 70% held by Finep, the Studies and Projects Financing Agency.

Among the several projects that are part of the two-year investment plan of Cargill in Brazil, the one demanding less capital is considered one of the most strategic. Solange Ferreira, Cargill controller for Latin America, says that with the Shared Services Center in Uberlândia, Minas Gerais, the company is concentrating four big departments in Brazil: financial, procurement, technology and human resources.

“The goal is to improve our processes and gain efficiency,” says Ms. Ferreira, who has been with Cargill for 29 years and was the first woman to work in the financial department of the company in Brazil. About 100 employees already work in the center, number that is expected to grow to 250 by the year’s end. And this optimization gains importance in times of falling prices for the commodities negotiated by the company and of great uncertainties surrounding the Brazilian economy.

And the effects of this adverse situation are starting to appear. According to data of the Foreign Trade Secretariat (Secex), Cargill exported $791.3 million from Brazil in the first quarter, 20.5% less than a year earlier. Part of this decline will be compensated with the increase in volumes of shipped grains, since in the quarter the soybean availability was lower because of a delay in harvesting and the strike of truck drivers in February. But on the other hand nothing suggests that the prices will rise in a significant way over the coming months.

Mr. Pretti also admits that the consumption of higher-end products on the domestic retail market is falling, a trend not seen in 2014. But he says that this scenario is not so bad to reduce the importance of Brazil in the global board of the American multinational.