Bunge buys into palm oil, filling portfolio void

Bunge, the agribusiness giant which last year expanded into Brazilian sugar, is entering the palm oil sector too, in the face of deteriorating prospects for growth in its traditional vegetable oil markets.

The US-based group agreed, for an undisclosed sum, to buy a 35% stake in Bumiraya Investindo, which runs four Indonesian plantations and has a processing mill under construction, plus owns land banks on top.

And Bunge, the world's biggest oilseeds processor, signalled that this was only the start of its march into the sector, viewing the purchase as "a first step in building an upstream presence in palm oil".

"It's a natural fit, through which we can leverage our core capabilities and experience," Christopher White, the chief executive of Bunge Asia, said.

Margin squeeze 

Bunge gained its top rank through expansion in soybeans, the main oilseed in its native market, and rapeseed, the major oilseed in the European Union

However, the company acknowledged last week, unveiling a drop in profits, pressures in these historic markets, flagging that crush margins in the US had remained at "low levels" for some time.

Those in European rapeseed have been squeezed by high prices for the oilseed, boosted by a second successive disappointing harvest, and soft demand for meal, one of the main processing products, used as an animal feed.

Furthermore, palm oil is widely viewed as having stronger growth prospects, thanks largely to its particular popularity in Asia, where it is also produced.

The main consumers of the oil are India, China and Indonesia, which is the top producer and exporter, followed by Malaysia.

Palm oil vs soyoil

Indeed, the OECD sees world palm oil production soaring by one-third by 2020-21, twice as fast as the average for other vegetable oils.

And, in 2011-12 at least, palm oil trade, as measured by imports a particular opportunity for a giant such as Bunge - is expected do better too, rising by 6.8% compared with a 5.5% drop in soyoil, on US Department of Agriculture estimates.

Palm oil demand has been boosted by its discount to soyoil, with which it is interchangeable for many uses. The discount reached $290 a tonne in August, the highest in nearly three years.

Bunge vs Wilmar

However, Bunge's move will take it more closely into competition with peers such as Wilmar International, the biggest palm oil trader, which has also made a move into sugar, buying up Australia's Sucrogen last year for $1.5bn.  

Bunge, flush with proceeds from the sale of fertilizer assets, spent roughly the same on four Brazilian sugar mills a few weeks earlier, and has continued to boost investment in the business.

Bunge is buying its stake in Bumiraya Investindo from Indonesian noodles and biscuits company Tiga Pilar Sejahtera Food, which is itself relatively new to palm oil production, having entered the industry two years ago.

The deal requires approval of Indonesian regulators and Tiga Pilar shareholders.

Bunge shares cl;osed 0.8% higher at $61.50 in New York.

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