Cargill and the USJ Group announced they are entering an agreement to establish a joint venture in the sugar, ethanol, and bioelectricity segment. Each party will have a 50 percent interest in the venture, and management will also be shared. Transaction figures have not been disclosed. The transaction should be concluded within 60 days and is subject to regulatory approval.
The new company will combine industrial assets of the USJ Group in the state of Goiás, which consist of the São Francisco mill, in operation since 2007 in Quirinópolis, and the Cachoeira Dourada mill, which is currently under construction in the same municipality. The joint venture will also inherit sugarcane supply agreements with local producers. Part of the capital Cargill is investing in the joint venture will be used to conclude the Cachoeira Dourada mill, which is expected to enter operation for the 2013 harvest; resources will also be used to upgrade de São Francisco mill. The São João mill, in Araras, SP, will not be part of the new company.
After all upgrades, the two mills will have a joint processing capacity of 7.5 million metric tons of sugarcane per year. In addition to producing sugar and ethanol, they will also produce 120 MWH of electricity from sugarcane bagasse. One third of that will be used at the mills and the remainder will be supplied to the public grid.
According to Marcelo Andrade, Cargill's director for the sugar and ethanol business in Brazil, the investment will be in line with the company's strategy for this segment. "These are two new mills, with a competitive scale of production, in an area with up to date farming techniques and fully mechanized harvest," says Andrade, adding that this region has one of Brazil's greatest growth potential in this industry. Cargill's first investment in this industry happened in 2006, when it acquired a 64 percent interest in Cevasa, based in the city of Patrocínio Paulista, SP, an association of producers in that region. After some time Cargill increased its interest in that company.
"Our goal in Goiás has always been to transform that region into a sugarcane-based sustainable food and renewable-energy production hub, in addition to developing a local supply chain," said Hermínio Ometto Neto, president of the USJ Group. The USJ Group was financially advised by Banco Itaú BBA and Banco Votorantim.
The new company combines Cargill's experience in trading ethanol and sugar, as one of the world's largest exporters of this commodity, and the 65 years of experience of the USJ Group in the sugarcane industry. "The investment reaffirms Cargill's commitment and confidence in Brazilian agriculture," concluded Andrade.