By Lynda Kiernan
Global commodity giant Louis Dreyfus Company (LDC) announced a partnership with China’s Donlink Group to develop fish farming and plant-based bioenergy operations through a joint venture in China.
Under the agreement, the partners will create a food industry park in proximity to the southern port of Nansha in China that will call for a total investment of $1 billion, and once up and running, is expected to have an annual production value of 22 billion yuan (US$3.14 billion).
Tightening margins, volatile markets, and international trade tension have exerted sustained pressure on the world’s largest commodity traders. Each of the legacy ABCD global grain companies (ADM, Bunge, Cargill, and Louis Dreyfus) as well as other major rivals, have undertaken reviews and re-examinations of their business models, including reorganizations, and a shifting of their focus into more downstream or higher margin categories and activities.
In Q4 2019, the 169-year old, family-run LDC implemented a cost-cutting and reorganization plan with the goal of optimizing its cost base in the face of challenges on multiple fronts, including a swine fever outbreak sweeping through China that further cut demand for soybeans and grains.
“The aim is to become a stronger organization, with greater empowerment and accountability, structural simplification, the right levels of service and costs,” said an internal announcement, according to Reuters. “Our strategy does not change.”
Driven by this need to diversify and expand operations further down the value chain, LDC announced another China joint venture last month with Luckin Coffee to build a coffee roasting plant in Xiamen, China, that will have an initial annual production capacity of 30,000 tons.
The state-of-the-art plant will include cutting edge, environmentally friendly technology for coffee cleaning and roasting, and once phase II of construction is completed, will have annual output of 40,000 tons.
“Our strategic partnership will continue to strengthen LDC’s business presence in China, enabling us to develop further downstream,” said Michael Gelchie, COO, LDC. “This joint venture will also enable a more robust, transparent and sustainable coffee supply chain, to provide great tasting, high quality and convenient coffee to Chinese consumers.”
Aside from joint ventures and diversification, it appears that after a long history of refusal, LDC would now be willing to sell an interest to an external investor. Margarita Louis-Dreyfus, who consolidated control of the company through her Akira family trust and now owns 96 percent of the holding company, told Reuters that she would consider selling a large, non-controlling stake in the company to a high-quality investor that brings not only capital, but value to LDC.
This consolidation and buyout of minority stakeholders came at a price though, with Akira borrowing $1 billion from Credit Suisse in 2019, as the company posted a decline in net profits of $18 million year-on-year in October. One month later, the cost-cutting plan was announced.
“It is the first time in our almost 170-year history that we are prepared to open our capital to an external shareholder,” Margarita Louis-Dreyfus told Reuters at the end of January 2020.
–Lynda Kiernan is Editor with GAI Media and daily contributor to the GAI News and Agtech Intel platforms. If you would like to submit a contribution for consideration, please contact Ms. Kiernan at lkiernan@globalaginvesting.