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Opinion: Shell casts vote in farming's favour

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Shell has given another huge vote of confidence to the agribusiness story.

The week after mining giant BHP Billiton, round about the world's 60th biggest company, unveiled a $39bn bid for PotashCorp, Shell, a member of the top 10, has signed a deal to share control of the world's biggest sugar group.

Sure, the sum involved is far smaller. Shell has termed its 50:50 sugar ethanol joint venture with Cosan a $12bn concern, implying that its interest is only half of that.

But there is also reputation at stake. The fact that Shell is doing the deal at all looks a huge fillip to the sector's supporters.

Sugar icon

Joint ventures, like any relationship with divided loyalties, are often fraught with risk.

Especially those with foreign partners, which add a layer of cultural differences on top. Just ask Shell's sparring partner, BP, whose Russian joint venture, TMK-BP, was causing headaches long before the Gulf of Mexico distaster.

Sure, Brazil looks a better place to do business than Russia. But the Cosan chairman that Shell is joining forces with, Rubens Ometto Silveira Mello, is no pussycat.

Mr Mello spent a decade fighting other members of his family, through Brazil's courts, to win control of the sugar giant. Three years ago, he tightened his grip by setting up Cosan Ltd, a company with a dual share structure which allowed his shares 10 times the voting weight of ordinary ones.

Prize asset

The fact that Shell is prepared to do business on a 50:50 basis with such a determined character looks a measure of the rewards to be gained � especially, in Brazil, with Mr Mello onside.

And it's not difficult to see why. Sugar cane is generally seen as the "greenest" of the major biofuel feedstocks. It is efficient at capturing calories, and has suffered less bad press than corn, so far at least, for displacing food crops, and putting thirsty engines before hungry mouths.

In sugar, Brazil, as the world's biggest producer and exporter (by a distance), is the place to invest. Cosan, as Brazil's top sugar group, gives extra distance to Shell's head start.

More deals ahead?

Still, the question investors should now be asking themselves is "who's next"?

BHP and Shell are not the first giants to add an agricultural twist to their corporate story. Auto group Fiat, for instance, was making tractors long before it even bought New Holland, which was to become CNH Group.

But they will have got other non-farm groups thinking about tapping into the upheaval promised by an expanding population at a time of limited arable frontiers.

Investors would be justified injecting a bid premium into likely-looking targets.

By Mike Verdin

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