Associated British Foods (ABF) has agreed to sell its cane sugar business in Southern China to a Chinese consortium consisting of Nanning Sugar Industry Co. Ltd., and its partners, Minsheng Royal Capital Investment and Guangxi Royal Construction Investment, for $500 million.
The sale of the unit includes five sugar cane factories with a combined annual production capacity of 600,000 tons and which are held by ABF through controlling interests in four joint ventures, according to Reuters.
A Chinese Industry Under Pressure
This is not the first retraction from sugar for the British grain-to-clothing giant. Falling revenues and tighter margins forced the group to take a £128 million (US$168.8 million) hit early last year when it was forced to close two sugar beet factories in northern China.
The annual China Sugar GAIN report issued by the U.S. Department of Agriculture (USDA) in May 2015 showed an industry facing challenges on multiple fronts.
Production for the 2014/15 marketing year was revised down by 17.3 percent by the USDA due to damage caused by adverse weather and substantial losses incurred by millers.
China is now the world’s top sugar importer with imports for the 2015/16 marketing year expected to be 5.5 million tons as the gap between international and domestic sugar prices continues to widen, and on top of legal imports, it is estimated that one million tons of sugar was smuggled into the country throughout the 2013/14 marketing year. Meanwhile, the elimination of the government sponsored reserve purchase program in the 2013/14 marketing year resulted in growing inventories, and high input and production costs and inefficiencies have led to 70 percent of the country’s millers to be operating at a loss.
In May of this year,as weak economic growth stalled consumption, and production costs climbed due to higher wages, ABF was initially seeking to sell its five China sugar cane mills and its two beet factories operating under the AB Sugar unit for $1 billion, according to Foodprocessing-technology.com. Despite that sugar prices have shown a good deal of recovery this year, multiple prior years of falling prices have placed ABF and other sugar giants in the position of having to consolidate their energies into only the more profitable markets.
“I won’t be surprised at all if you saw more consolidation in the sugar industry in the south of China,” AB Foods Finance Director John Bason told Reuters.
Eyes Toward Europe and Africa
Following the divestiture of the two sugar cane plants in Southern China, ABF will have remaining sugar cane operations in Britain, Spain, and southern Africa, and will have remaining beet sugar operations in China with a combined processing capacity of 4.4 million tons of sugar and 600 million liters of ethanol. Yahoo Finance reports that following the completion of the sale, ABF plans to focus on its European and African sugar businesses despite the anticipation that Britain’s Brexit vote will put pressure on profit margins next year.
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Lynda Kiernan