| NEW YORK (Dow Jones)--U.S. sugar growers cooperatives are
buying up beet refining facilities as other companies depart
the market in response to historically low prices.
While those acquisitions will give beet producers a
continued market, observers note that growers will face the
same adverse conditions that led the previous owners of
refineries to exit the industry.
Last week, Imperial Sugar Co. (IPRL), the largest processor
and marketer of refined sugar in the U.S. said it signed a
Letter of Intent to sell the capital stock of Michigan Sugar
Co. to Michigan Sugar Beet Growers, Inc. a new agricultural
grower-owned cooperative.
"As the new owners, the Michigan growers will be
better able to control their future in the domestic sugar
industry," said James C. Kempner, president and chief
executive officer of Imperial Sugar, which filed for Chapter
11 bankruptcy protection in January.
The U.K.'s Tate & Lyle (U.TAT) is negotiating to sell
its Nebraska-based Western Sugar Co., including six sugar
factories, to the Rocky Mountain Sugar Growers Cooperative.
And Palm Beach-based sugar company Florida Crystals Corp.
is said by market sources to be in negotiations to acquire
Domino Sugar refinery, also a Tate & Lyle unit.
At the American Sugar Alliance, a Washington-based umbrella
group that represents sugar cane and beet producers, chairman
Luther Markwart said the trend for growers to own refiners is
"very much a positive development for the
industry...producers, now as owners, can control the
investment in facilities to make sure that structural
investments are being made, and (this) allows cooperatives to
join forces in the marketing front efforts."
Markwart said that if the sales to growers cooperatives go
through, producers will control about 87% of all refineries in
the beet sugar industry, leaving only five factories outside
their control.
But other observers warned that the growers groups will
still face the problem of low prices.
"The growers' (cooperatives) will be fine as long as
refined sugar prices stay above 24.5 cents a pound; under 21
cents they won't make adequate returns," cautioned Ed
Makin, executive vice president of U.K.-based trade house C.
Czarnikow Sugar Ltd. He explained that below 24.5 cents,
processors can't cover their production costs, the main reason
for those exiting the refining business.
The growers' cooperative trend isn't new. In the mid-1990s,
three other producers got together to form the United Sugars
Corp.
The USC became a marketing cooperative owned by American
Crystal Sugar Co., Minnesota-Dak Farmers Cooperative, Southern
Minnesota Beet Sugar Cooperative. In 1997, USC was joined by
Florida-based United States Sugar Corp., the largest grower of
sugar cane in the U.S.
"The USC provides the most efficient marketing
distribution for the industry in the U.S.," said Tom
Mckenna, USC's president, concurring that having one marketing
group gives growers a better handle on the supply of the
commodity.
Moves Seen As Last Recourse To Save Refineries
But Unlike USC, whose members decided to turn into a
cooperative to market their sugar before rising supply
depressed refined sugar prices, the Michigan and the Rocky
Mountain cooperatives are seen by some observers as a last
minute recourse for beet growers, who face the daunting
prospect of not having a place to process their crops.
Preliminary data show U.S. sugar beet plantings will fall
8% in 2001 from 2000, which is partially blamed on growers'
fears about not being able to get beets processed.
The largest drop in plantings is expected in California,
where Imperial Sugar shut down two factories last year.
Imperial is also in negotiations to sell three more facilities
in the Great Plains - including factories in Wyoming and
Montana.
"The decision of those organized under the USC
happened because growers wanted to organize. Now the sugar
industry is in a desperate crisis: growers are being told to
buy the plants or they're out of business," said an
official with a leading grower.
The growers' move is backed by the Capper-Volstead Act,
which allows farmers to unite as cooperatives, seizing a large
chunk of the market without violating antitrust laws.
Some observers warn that growers can only do so much to
manage supply because, under international trade commitments,
the U.S. is obliged to import sugar even if it's not needed.
Competitive pressures on growers could increase once the U.S.
and Mexico merge into a common market for sweeteners by 2008,
as envisioned by the North American Free Trade Agreement.
If the Michigan growers complete their purchase, Imperial
Sugar will have a 30% share of the marketing of refined sugar
in the U.S., Tate & Lyle 19%, and the USC cooperative 25%,
according to market estimates. |