Brazilian partners
WHAT'S NhwS Issue 1 January 1998
working relations
3
Some days before Christmas, on 12 December 1997, a refrigerated vessel named
Southern Juice slipped from her moorings and put out to sea from the port of
Santos near Sao Paulo in Brazil. She was loaded with 13,000 tonnes of frozen
orange juice concentrate bound for delivery to a purpose-built terminal in
Antwerp, and further distribution to markets throughout the European hinterland.
The maiden voyage of this specialized
'frigo' vessel marks the start of an
important new strategie phase for her
owners. She represents just one (albeit
crucial) component in an extensive new
joint-venture logistics system that was
made possible, in part, by the unique
banking relationship that exists between
^P^aibobank do Brasil SA and the companies
concerned. The joint-venture partners -
Cambuhy Citrus, Montecitrus, and CTM -
are three important players in the orange
juice industry of Brazil, which is the world's
leading exporter of frozen orange juice
concentrate, or FCOJ, as the experts say.
KEEPING PACE
According to Ernando Antoniolli, head of
corporale banking in Sao Paolo, the design
and construction of this system is a
response to changing realities in the
Brazilian market, which is overwhelmingly
tending towards a few large and fully
integrated producers. Seven years ago, each
of the partners individually controlled a
(relatively) small section of the overall
strategie 'food chain' in FCOJ. What's
•nore, much of their juice output was
hipped in drums rather than in specialized
frigo ships, via the terminal facilities of
their competitors, adding additional cost
and inefficiency to the process of moving
product to market. It gradually became
clear that integration held the key to
survival and continuing prosperity.
Companies needed to involve themselves in
every stage of the food cycle from orange
plantations, juice crushing plants, bulk
transport and cold storage facilities, plus
specialized cargo ships to deliver the juice
abroad.
FIRST STEPS
The first important step in a far-reaching
process in consolidation came in 1992, when
Cambuhy built - and then later substantially
expanded - a modern processing plant into
•yhich rhey could feed their primary
^iroduction. In 1995, Cambuhy joined forces
with Brazil's Montecitrus, the world's leading
orange grower, and soon afterwards the two
companies together acquired strategie stakes
in CTM, their third domestic partner in the
bulk transport venture. But no single partner
was financially capable of building the
required bulk transport system, even though
it was also clear that, without one, competitive
realities would ultimately force them to
withdraw from the market altogether.
Raibobank do Brasil conducted an in-depth
study that confirmed the feasibility of
proceeding under a joint venture.
DOING HOMEWORK
Rogério Braga is President of Cambuhy
Citrus and Manager of Bulk Services
Corporation (BSC), the venture which built
and runs the newly-completed USD 55
million transport system. Mr Braga praises
the way Raibobank do Brasil studied,
organized and financed the ultimate deal, in
conjunction with the International Finance
Corporation - an arm of the World Bank.
'Rabo is an important part of this deal
because a number of its key individuals -
including top management - were capable
of making a very quick judgment regarding
the potential risks and potential rewards,'
he explains.
GRASPING RISK
In his initial presentation to garner support
for the logistics project, Braga says he
approached a number of international
banks, all of which had pre-existing
relationships with at least one of the three
joint venture partners involved. 'In our
opinion, Rabo was able to respond so
quickly because it already had a relationship
with all three companies, and therefore a
good grasp of the level of cliënt risk. The
bank's deep understanding of the FCOJ
markets made it possible to make an ultra
rapid calculation of market risks as well.'
Among the Utrecht and Sao Paolo-based
teams involved in the deal, which also
included a USD 15 million bridging finance,
were RIAS, our agribusiness advisory
service, the Agri Project Finance Team
(APFT), and Corporate Banking. APFT
conducted all the project evaluations and
feasibility studies together with the IFC.
TOP CAPACITY
Currently, Cambuhy Citrus, Montecitrus,
and CTM now control some 17 percent of
the European market, having exported some
122,000 tonnes of FCOJ during the erop
yearjuly 1996 through June 1997. Their
combined overall production capacity of
140,000 tonnes, if combined, would make
them the fourth largest FCOJ player in
Brazil. These economies of scale and scope -
combined with a strong logistics system that
now includes a fleet of specialized tanker
trucks to transport the product from
processing plants to shipping terminals,
terminals in the harbours of Santos and
Antwerp, plus the Southern Juice, which is
managed and operated by a specialized
Norwegian shipping firm - provide a stable
base from which to compete and successfully
expand well into the next century.
CUTTING COSTS
Thanks to the newly-inaugurated system,
says Braga, the joint venture partners have
pushed down their shipping costs by over
USD 100 per ton. This is a substantial cut
indeed for a commodity product that
fetches roughly USD 1300-1400 on
wholesale markets. The bottom-line saving
of USD 13 million per year clearly shows,
better than any lengthy article, what the
concept 'added value' for our customer
ultimately means.
One of the
specialized 'frigo'
vessels.
