CEOs also talked about environmental targets at a conference
08/11/2022
Cristiano Teixeira, chief operating officer at Klabin — Foto: Ana Paula Paiva/Valor
Limited wood supply and rising input prices are expected to restrain announcements of new pulp mills in Brazil over the next seven years, which corresponds to the eucalyptus cutting cycle, said industry executives attending the Fastmarkets RISI Latin American conference held Tuesday in São Paulo.
“It is very difficult to foresee new projects happening in Brazil in the short term because of lack of wood,” Suzano CEO Walter Schalka said in a panel with Klabin chief operating officer Cristiano Teixeira, Bracell executive vice-president Per Lindblom, and Eldorado Brasil commercial and logistics head Rodrigo Libaber.
In São Paulo, as Mr. Schalka said, Bracell secured the wood that was still available to feed the expansion of the Lençóis Paulista mill. The company also advanced in Mato Grosso do Sul, where Suzano already operates and is building a new unit, through a total investment of R$19.3 billion, which represents additional demand for inputs.
“From my perspective, there is a shortage of wood in Brazil. We don’t have wood available for competitive short-term projects”, added Mr. Schalka.
At Eldorado, which has a plant in Três Lagoas, in Mato Grosso do Sul state, the perception is the same. Rodrigo Libaber said there will be no wood for new projects in the short term. “More: there will be no wood economically viable in the long term” if planting doesn’t start now, he said. There are areas available in Brazil and the frontiers are “huge,” the executive said. Therefore, there is room for growth in the industry, as long as it is “planned and organized.”
The Eldorado executive also said problems in the global logistics chain are unlikely to be solved in a short period, especially because the logistics cycles in the sector are long and, therefore, it takes time until solutions have some effect. “I don’t believe either that we will have the logistics we had before. There will hardly be a turnaround this year, and things will happen gradually until we reach equilibrium,” he added.
Asked about the commitments assumed by Brazil in the United Nations Conference on Climate Change last year, the COP 26, Klabin’s CEO said it is unclear in which conditions the country will arrive at the next meeting. “I can say that, given today’s figures of emissions and deforestation, we are likely to arrive at COP 27 with low expectations and without delivering what was promised,” said Mr. Teixeira.
According to the executive, the arrival at COP 26 was also marked by low expectations concerning potential efforts of the government, which ended up causing surprise by making unexpected commitments. However, discourse and practice have become disconnected ever since, in his view. “The carbon credit market could be the half-full glass, but the bill that was being discussed with different sectors ended up being run over by a decree,” he said.
Mr. Teixeira also said that it is part of Klabin’s strategic vision to evaluate potential acquisitions or mergers in the corrugated packaging market, and the company will keep this view. “If an opportunity for [paper] integration arises, Klabin will certainly look at it closely. Recently, it has preferred organic growth,” he added.
However, states reliant on industry and services may see moderate advance
08/11/2022
Camila Saito — Foto: Divulgação
States in Brazil’s Central-West region are expected to see the highest economic growth this year driven by agriculture. After a drought last year, agricultural production accelerated with record soybean and corn crops. On the other hand, states reliant on industry and services like São Paulo may face moderate growth, in line with the national average, while those in the South region may witness contraction, projections by Tendências Consultoria show.
According to the study carried out by the consultancy, the GDP of Mato Grosso will probably grow the most among Brazilian states, with an expansion of 5.6% this year, well above last year’s 3.1%. Mato Grosso do Sul comes next, with 4.6% growth, also above the 2021 growth of 3.6%.
“In Mato Grosso, the projection is explained by record soybean and corn crops and better performance for meat slaughtering, resulting from external demand for animal protein. Besides this, the Mato Grosso industry has been showing expressive performances because of the food and biodiesel sectors,” said Camila Saito, an economist with Tendências and a co-author of the study. “In Mato Grosso do Sul, we will also see a good evolution in agriculture. Even though the soybean harvest has suffered with the drought and may drop, the strong performances [of production] of corn and meat are likely to more than offset that.”
She added that both states are expected to benefit from the favorable scenario for food, pulp and biodiesel production.
Mato Grosso and Mato Grosso do Sul have low industrial density and high agribusiness density, which explains those projections, said Fabio Silveira, a partner at MacroSector Consultores. He argues that besides the primary sector activity, farming and cattle raising make industry and services move forward in those states. “It is agribusiness in the broadest sense that drives these states,” he said.
The weight of agribusiness in the industrial and logistics chains of these states exceeds 50%, said Sergio Vale, chief economist of MB Associados. “The growth of agribusiness therefore ends up helping the economy as a whole,” he said.
Mr. Vale argues that the favorable situation of strong price increases and a very favorable exchange rate for exports will lead these states to grow above the country’s average.
The positive effect of agribusiness for growth also benefits nearby states, such as Piauí and Maranhão. “We can’t say that this is a new [agricultural] frontier, because this has been happening for 20 years, but these states where North and Northeast meet have strong grain production that helps GDP growth,” he said.
Piauí is expected to boast the third-largest growth among Brazilian states, with an expansion of 3.7% this year, compared to 4.6% the previous year. Maranhão is likely to expand 3.1%, compared with 4% last year. Tocantins is seen as growing 2.7%.
According to Ms. Saito, Maranhão and Piauí have benefited from international prices since 2020, which stimulated the expansion of the planted area. A crop failure in the South region has also contributed indirectly as it stimulated production in the North and Northeast regions.
“Added to this is the increase in the total income bill after government cash transfers. The implementation of the Auxílio Brasil and the increase in the value of the handout may benefit more the states in those regions,” Mr. Vale said.
The Tendências survey also shows that parts of the South region may see a contraction because of the grain crop due to drought, and the low industrial production of pro-cyclical sectors, such as machinery and equipment, and metallurgy, said Lucas Assis, co-author of the study.
Santa Catarina is expected to contract 0.1%, after advancing 6.6% in 2021. Rio Grande do Sul’s GDP, in turn, is likely to fall 1% this year after expanding 8.6% in the previous one. Last year, the state was one of the positive highlights due to agriculture’s strong recovery after a crop failure in 2020 and good evolution in industry, Mr. Assis said.
Mr. Vale says that, depending on the La Niña weather phenomenon, the following harvests may be affected, while the GDP growth of southern states may disappoint again.
São Paulo is seen as growing 1.6% this year after a 4.4% expansion in 2021. Rio de Janeiro will probably grow more this year, with an acceleration of 2.1%.
“São Paulo’s growth may be slightly below the national average [1.7%], due to a weaker industrial performance, especially in sectors such as automotive and capital goods, which feel the effects of production cost pressures and shortage of inputs, resulting from the imbalance of global chains,” Ms. Saito said.
The higher growth forecasted for Rio is due to the oil sector, with highlight to the Carioca and Guanabara rigs (each one with capacity to process 180,000 barrels per day), and the expectation of the inauguration of the new Peregrino II unit (with capacity for 60,000 barrels per day).
Rising oil prices in the international market indicate a promising near future, says Ms. Saito, since such a scenario tends to stimulate investments in mature fields and the resumption of fields that were inactive.
As for 2023, the scenario is positive for producers of soy, corn, cotton, meat, biofuel, and pulp, which benefits states like Mato Grosso and Mato Grosso do Sul, she said. Pará is seen as recovering iron ore production with the expansion of Vale’s S11D complex, while Rio Grande do Sul is likely to take advantage of the soybean harvest.
States in the Southeast region, however, are expected to face more problems. “Exchange rate and price will still be favorable for agriculture-producing states, to the detriment of others that will suffer with growing interest rates,” Mr. Vale said.
Problems such as the lack of containers have eased in recent weeks in Brazil
08/11/2022
Problems such as lack of containers and delays in ship calls have eased in recent weeks on the Brazilian coast, even at peak times — Foto: Divulgação/Claudio Neves/Portos do Paraná
The logistical chaos triggered by the pandemic is not over, but the situation is starting to improve, analysts and companies say. Although freight rates remain high, problems such as the lack of containers and delays in ship schedules have eased in recent weeks in Brazil despite the peak season for global trade.
In the Brazil-Asia route, the nominal capacity of the two-way trade is expected to reach in August its highest level since the beginning of 2021, according to data from consultancy Solve Shipping.
“Logistics are beginning to return to normal. Blank sailings [call cancellations] have dropped a lot, we have seen a number of extra loaders [additional vessels], and routes are returning to regular scheduling. The strange thing is that this is happening in the peak season,” said Leandro Barreto, a partner at the consultancy.
At the height of the global logistics crisis, in addition to the skyrocketing price of freight rates, Brazilian importers and exporters struggled amid the lack of space in ships and containers, which often delayed operations or made them impossible.
A factor that has reduced such pressure is the economic slowdown in Europe and the United States, which ends up expanding the supply of capacity of ships and containers on the Brazilian coast, said Luigi Ferrini, the regional sales and customer service senior vice president at the shipping company Hapag-Lloyd. “In 2020 and 2021, much of the capacity was being allocated to other global routes,” he said.
Maersk projects that global container demand will be flat in 2022, but already sees a greater risk of a downturn caused by global inflation and a potential recession, according to a recent quarterly report.
This reduction in domestic demand, however, is not yet perceived in Brazil, said Rafael Dantas, sales director at the importer Asia Shipping. “The market has shrunk between March and May before rising again in June and July. Today, imports are heated,” he said.
Despite the strong demand, the lack of capacity has not been a problem, Mr. Dantas said. However, container freight rates remain high – a scenario that, in his view, will not change any time soon. “This new price reality is here to stay.”
Last month, the average import freight rate from Asia was $10,550 per 40-foot container, while the rate for refrigerated containers was $8,000. In January 2020, the rates were $2,050 and $3,100, respectively, according to data by Solve Shipping, published by the Nacional Confederation of Industry (CNI).
In exports, the highest freight rates are those of the routes to the United States. In July, the average price to the East Coast reached $10,600 per 40-foot container. In addition, the reefer container market remains under pressure. On the route to Asia, the rate is $6600, while the price to the Mediterranean and the Middle East is at $6800.
Maersk expects some normalization in the second half of the year, although the forecast remains a question mark. The company said in a note, however, that “normalization does not mean returning to pre-covid freight levels.” The company highlighted the substantial rise in fuel prices and time charter rates in the last two years.
Analysts believe it is too early to say that the crisis is over. The prevailing perception is that any increase in demand or logistical hurdle can bring problems back. One example is the fruit crop in the Northeast region, whose harvest will start soon and increase substantially the demand for reefer containers, said Mr. Ferrini, with Hapag-Lloyd.
In addition, with the war in Ukraine and the growing demand for inputs and food around the world, Brazilian exports are expected to rise, the executive said. Therefore, if during the peak of the pandemic the Asia-Brazil route was in great demand, now the pressure is likely to reverse course.
In addition, he notes that congestion in ports in Europe and the United States still persists, in some cases caused by strikes of workers in the sector.
Mr. Barreto also considers the tension between China and Taiwan as a point of attention to watch. “It is increasingly clear that any extraordinary event generates an impact. The entire logistics infrastructure is operating at the limit, so the tolerance to any event is zero,” he said.
Expansion was driven by fiscal situation favored by extraordinary factors
08/10/2022
State governments have increased nearly threefold investments in the first half of this year, in real terms, driven by this year’s elections and a fiscal situation favored by extraordinary factors. The 26 states and the Federal District jointly invested R$31.4 billion between January and June 2022. In the same months last year, they injected R$11.8 billion. In 2018, also an election year, they invested R$13.48 billion, according to figures adjusted by inflation. Current revenues, which include collections and transfers from the federal government, rose 7.3% year-over-year, in real terms, in the first half of the year, and 21.7% compared with 2018.
Representatives of states and experts in public accounts say the situation of revenues is still influenced by cyclical and non-recurring factors. The picture is likely to begin to change in the second half.
Changes on how states calculate sales tax ICMS levied on fuels, electricity, and telecommunications are expected to at least slow down the increase in the collection of the main state tax. Besides this, expenditure pressures, such as salary adjustments granted during the first months of the year, are seen as weighing more heavily in the second half. Even so, in general, specialists say the result of 2022 is expected to be positive given the good performance of the first half and previous periods. As for the fiscal situation in 2023, they still see many uncertainties.
A set of cyclical factors, which included extra transfers from the federal government due to the pandemic and higher revenue driven by the recovery of the economy, inflation, and high commodity prices, played a role, said Ursula Dias Peres, a professor of public policy at the University of São Paulo (USP) and a researcher for the Solidary Research Network. These factors provided the states with more funds in 2022 than at the end of the previous terms in 2018, when the Brazilian economy was coming out of a recession.
“There are two distinct periods,” she said. Part of what caused the most recent increase in revenues helped the states in the first half of 2022 and, for this reason, despite recent measures to reduce ICMS rates in key sectors, states may end the year with a better relative collection than in 2018 or 2021.
Besides revenues, what helps explain such an increase in investments this year was the space opened by the restrictions on salary adjustments for public servants resulting from Complementary Law 173/20, she said. The suspension of debt payments in 2020 also helped generate some leeway and contributed to the current fiscal picture, although the situation among states is heterogeneous, Ms. Dias Peres said.
All 27 federal entities increased investments in the first half of 2022 year-over-year in real terms. In 19 of them, investment at least doubled. The total expenses of the states grew much less than the investments. In the first half, they increased 5.8% in real terms in relation to the same period last year. Current expenses, which are linked to regular and payroll expenses, rose by 2.4%.
Manoel Pires — Foto: Wenderson Araujo/Valor
The level of growth in total spending, above the expected GDP growth for this year, shows that states, although with divergent performances, expanded combined demand during the first half, said Manoel Pires, a researcher at Fundação Getulio Vargas’s Brazilian Institute of Economics (FGV/Ibre). In the analysis of spending, he highlighted the “impressive” growth of investments, which reflects the good performance of revenues, and the elections. The result also reinforces the idea that these amounts were significantly subdued before, he said.
Spending on salaries is expected to put more pressure on states since they were adjusted earlier this year, said George Santoro, finance secretary of Alagoas. The greatest pressure is expected to be felt in the second half, he said, when collection is likely to fall due to the changes in ICMS collection. Alagoas is expected to maintain investments of R$1.8 billion foreseen for 2022, but a larger portion is likely to be financed by credit operations, not by own funds.
São Paulo’s Secretary of Finance and Planning Felipe Salto says that even with the impacts of the new ICMS changes, tax collection in the state is expected to reach R$201.9 billion in 2022, compared with R$195.4 billion foreseen in this year’s budget law. The “good fiscal indicators” and a cash flow of nearly R$35 billion give the state “a certain comfort,” he said. Investments are seen above R$20 billion in 2022, which would be one of the highest levels ever, he said.
But Mr. Salto is not so upbeat. He recalled that the compensation to states for ICMS losses is still being discussed. And, in his view, “the unbalance in the federation pact caused by the federal government’s attempt to interfere in the states is worrisome. There is no guarantee for increased spending, as the federal government seems to suggest.”
The secretary also points out that there is a “clear” slowdown in revenues. In the 12 months through March, the collection of ICMS increased 14.5% year-over-year. In the 12 months through June, it decelerated to 8.9%, and in the 12 months through July, to 6.9%. In July, collection dropped 0.7% year-over-year in real terms. In March, also in a year-over-year comparison, the increase was 8.2% in real terms.
Estimates for tax collection next year are not yet closed, Mr. Salto said, but the scenario will be “much more adverse” with the perspective that the Brazilian economy will slow down compared with 2022. In 2023, we will have lower inflation rates, but the interest rate “will take time to return to civilized levels,” he said. Nominal revenue will grow less and increase pressure, with a performance “that may be quite different from what we had in the last two years.” In São Paulo, according to the most recent collection figures, inflation contributed with about 40% of the revenue increase, while 60% were structural factors, Mr. Salto said.
In 2023, Mr. Pires said, with the possibility of a collection impacted by changes in ICMS, the sensation that state governments will boast fiscal space can change a lot. The data show that the current fiscal situation has mainly benefited investments.
Christiane Schmidt, treasury secretary of Goiás, also highlights the cyclical nature that led to the most recent increase in tax collection, and says the big challenge will come in 2023. Part of the positive fiscal result of 2021 in Goiás is expected to be used in 2022. “What happens from 2023 on?” Next year, she says, mandatory expenses, including salary adjustments, are expected to weigh, although still cushioned by spending limitations on states.
The secretary says that for now, one of the focal points this year is to comply with the spending cap rule put in place by Complementary Law 156/16, established in exchange for renegotiation of debt with the federal government. The drop in revenue with the change in ICMS collection can give rise to spending beyond the constitutional minimum limits to health and education, which makes compliance with the ceiling more difficult, she said. In addition, the inflation rate, previously estimated at 9% in 2022, may stand at 7.5%, which would reduce the margin for increased spending.
For Ms. Dias Peres, the performance of state accounts in the next term is uncertain. On the revenue side, the most obvious question marks are the recent changes in ICMS tax rates levied on fuels, electricity and telecommunications. “It was a structural adjustment for a cyclical problem driven by international prices, exchange rates, and inflation.” In her view, it is not yet clear how the new state administrations will deal with this. Another factor expected to weigh on revenues is the reduction in the Industrialized Products Tax (IPI), a tax collected by the federal government, but whose collection helps finance the federal government’s transfers to state governments and municipalities.
In the expenses front, there should be the effect of adjustments for public servants, in some places already scheduled for next year. Besides this, she points out, the current investments are also expected to give rise to an increase in current expenses, due to maintenance and personnel. Equipment in the health sector, she highlights, generates annual expenses corresponding to 90% of the amount invested.
Market is expected to grow in 2022, but volume will still be lower thanbefore pandemic
08/10/2022
Fabiano Todeschini — Foto: Nilani Goettems/Valor
The bus industry is going through an unusual moment. As soon as it hit Brazil, the pandemic emptied public transportation in cities and roads. Mass vaccination then brought the hope of a return to normality. But the recovery of sales has been slower than industrial players expected. The companies that operate the lines have not yet recovered from the impact of the health crisis. In addition, semiconductor shortages are affecting production. And even if chip supplies normalize, as predicted, demand is likely to fall in 2023. A new emissions law, effective as of January, will cause bus prices to rise due to the cost of the technology needed to reduce emissions.
The expected expansion of 23.5% of the domestic market in 2022, according to the latest projection of the automakers’ association, Anfavea, is not a reason for celebration, since the last two years were very bad. If this forecast of 17,300 vehicles is confirmed, the Brazilian bus market will return this year to what it was in 2015, the first of four consecutive years of crisis in the sector before a recovery interrupted by the pandemic. Some executives reckon that only in 2024 will sales return to the level of 2019, the year that became a reference for the industry. In 2019, nearly 21,000 units were sold.
The urban segment is the one that brings the most uncertainty. “Municipalities are having cash flow problems because they had to direct funds to public health and need to decide if they will be able to subsidy fares,” said Fabiano Todeschini, CEO of Volvo’s bus division in Latin America. “The urban bus suffered a lot because the pandemic took half of the people off the streets. That’s why we still see bad numbers,” said Danilo Fetzner, head of Iveco’s bus division in Latin America.
With the exception of large urban centers such as Rio de Janeiro and São Paulo, which need to renew the fleet more often due to the number of inhabitants, in smaller cities, in addition to emptier public coffers and struggling operators, it is not yet clear how many of those who leave for work every day will return to buses, how often, and whether they will continue to use public transportation. “Remote work is a new reality and it hits those who survive on fares,” Mr. Fetzner said. In addition to the pandemic, unemployment has also driven people off the buses in the last two years. That’s why industry executives are keeping a close eye on the recent advance in employment levels.
The coach bus industry has suffered, too. “Operators are still bruised from the pandemic and will first get companies back on their feet and then go shopping,” Mr. Todeschini said. The recovery of tourism has been gradual. There is also a great expectation that the increase in airfare prices and the reduction in the offer of flights will cause the migration of part of those who used to travel by plane to buses, said Ricardo Portolan, Marcopolo’s head of commercial operations for the domestic market.
Marcopolo, a traditional bus body maker, saw a stronger demand in June and July. Mr. Portolan said the company was unable to make more bus bodies due to the delay in the arrival of chassis produced by assemblers affected by the shortage of semiconductors. In his view, the demand will grow significantly. “We expect the road segment to be much stronger in 2023,” he said. According to him, due to the shortage of semiconductors, the waiting time for making bus bodies, which used to be around 60 days, increased to 90 or even 120 days.
The prevailing view among executives, however, is that many companies that bought buses this year, especially in the coach segment, did so in an attempt to escape the price increase that will come from the entry into force of the so-called Euro 6, a legislation that forces the industry to reduce the level of emissions of trucks and buses produced as of January.
“Clients are bringing forward purchases to protect themselves from increases. That’s why demand this year will be stronger than in 2021, but will slow down again in 2023,” Mr. Fetzner said. In his view, after a year of the new administration and a “higher cost accommodation with Euro 6,” the market will look better in 2024. The industry does not reveal how much prices will rise. Some estimate a minimum 15% hike because of the new technology alone.
Two segments, however, helped the industry to offset the difficulties – chartering and the Caminho da Escola program. As for chartering, the need for social distance was precisely what made demand increase. Companies in the industrial sector that provide transportation for workers, who worked in person the whole time, had to double their fleet to ensure distance between the occupants of the buses. It used to be one person per row. With the normalization of this transport, now, many vehicles – in this case, second-hand ones – were sold to short-distance road transport companies or to urban transport companies in metropolitan regions.
Created in 2009, Caminho da Escola is a federal social program aimed at transporting students from rural areas. It has remained independent of the federal administrations since then. The program uses funds from the National Fund for Education Development (FNDE), which has maintained the routine of calls for bids.
Exports have also helped the sector. Urban transportation systems in Santiago and Bogotá have been supplied, in large part, by the Brazilian industry. And demand tends to increase with the forecast of new bids. Volvo, for example, sends 60% of its Brazilian production abroad.
After a series of setbacks, company sold a record 72 aircraft in 2021, boosted by agribusiness
08/10/2022
Aircraft seller TAM Aviação Executiva was still recovering from the economic crisis aggravated by anti-corruption task force Car Wash when air travel practically ceased because of Covid-19. At the country’s largest jet marketer, the controlling shareholders needed to bail out the company with a capital injection of R$36 million.
When the pandemic broke out, few might have bet that the upturn would be quick, but TAM Aviação Executiva has never sold so many jets. Last year, the Amaro family’s company sold 72 aircraft, a record. In Brazil, it is the exclusive representative of the manufacturers Cessna, Beechcraft, and Bell.
The horizon has opened up so quickly thanks to a combination of a change in behavior – many customers have avoided commercial aviation to reduce the risks of getting the coronavirus – and the commodities boom, which has multiplied demand for aircraft from agribusiness customers. The strong demand for executive jets also benefits Embraer.
Mauricio Amaro — Foto: Silvia Zamboni/Valor
Currently, farmers represent 40% of TAM Aviação Executiva’s aircraft sales, Mauricio Amaro told Pipeline, Valor’s business website. Customers from the countryside buy mainly the King Air (Beechcraft) and Caravan (Cessna) models, which are able to land on different types of runways.
With record sales, TAM Aviação Executiva increased its net revenue by almost 48% last year, reaching R$165.6 million. The group does not disclose its projections for 2022, but it has already delivered 62 aircraft and closed the sale of 40 units for delivery next year. The order book for 2024 has also started to be assembled.
The good moment also translates into margins, says Mr. Amaro, son of Commander Rolim (1942-2001), founder of TAM, now Latam. TAM Aviação Executiva’s Ebitda margin hit negative 13% in the turbulent years following Car Wash.
“I couldn’t see light at the end of the tunnel,” recalls the businessman. Now, the margin indicator is at 17% positive, a remarkable recovery.
Besides the demand for aircraft, which is expected to continue for the next two years, TAM AE is strengthening its services area, with investments of R$10 million. To seize the opportunities generated by agribusiness, the company will open a maintenance center in Goiânia. The hub joins the maintenance megacenter in Jundiaí (São Paulo state), where the company has more than 7,000 items in stock.
“Our largest business is maintenance, but the sale of aircraft is the most profitable one,” says Mr. Amaro.
In the service area, TAM Aviação Executiva also bets on retail parts sales, a segment in which it had little activity but that helps to increase margins at a time when commissions paid by aircraft manufacturers continue to fall.
In the hangar located at Congonhas airport in the city of São Paulo, TAM Aviação Executiva also charters jets, but using seven customer aircraft, which reduces the fixed capital employed in this type of operation.
New company will produce collagen, gelatin to food, pharmaceutical, cosmetics industries
08/10/2022
Claudia Yamana — Foto: Silvia Zamboni/Valor
Giant meatpacker JBS has a new venture. The company starts this month the operations of Genu-in, a new company that will produce collagen peptides and gelatin from bovine skin coming from the company’s production chain. The investment in the business totaled R$400 million, with an eye on a market of $4 billion a year that has grown more than 15% annually in the last five years, data by consultancy Allied Market Research show.
The new business will sell peptides and gelatin to the food, pharmaceutical, and cosmetics industries. Collagen is widely known as a protein that helps with skin hydration, wrinkle reduction, and cartilage regeneration, among other benefits.
“It is a company that was born big, positioning itself among the three major players in the market with 10% of the global market for peptides and bovine skin gelatin,” said Claudia Yamana, CEO of the group’s new company.
The investment is higher than the R$280 million forecast in February 2021, when JBS announced the venture. The higher contribution is due to higher prices of steel, copper, materials for manufacturing the equipment, and transportation expenses, the company said.
Genu-in will be the main Brazilian company in this field. A direct competitor of JBS in the processing of bovine protein, Marfrig, for example, only sells the by-products of its production to collagen and gelatin manufacturers. Globally, the biggest competitors are German company Gelita and Rousselot, of U.S.-based Darling Ingredients. Both have operations in Brazil.
Genu-in joins the new business division of JBS, with operations that transform the by-products of the cattle, pork, and poultry processing chains into products such as leather, biodiesel, fertilizers, feed, pharmaceutical inputs, personal care, and cleaning materials. Collagen was already produced by JBS, but for use in industrialized foods made from meat.
The executive argues that the differential to the competitors is precisely in the control of the entire chain, “from the origin to the plant,” preserving native collagen and its benefits. In the first moment, production will be concentrated on products made from bovine skin.
With a facility in Presidente Epitácio, São Paulo, Genu-in starts operations with more than 130 employees. Production capacity is 6,000 tonnes per year of collagen peptides and 6,000 tonnes of gelatin per year.
“The installed capacity here is five times larger than the domestic market,” says Ms. Yamana. The company will operate in the foreign market, but also sees growth potential in the domestic market “as the population ages.”
The first launch is the collagen peptide Genu-in Life, an ingredient for health and beauty products. The component will be in the formulation of third-party brands that will reach final consumers through the retail market by early 2023, according to Ms. Yamana. Another product is Genu-in Gel gelatin, which is used by the food industry in the production of desserts, ice creams, and candies, and by pharmaceuticals in the development of pills and medicine capsules.
A scenario of rising costs requires faster decisions in order not to be left out of the market
08/09/2022
Largest consumer industrial companies in the world are making an effort to try and show a reaction to the current difficult situation — Foto: DanielWainstein /Valor
“Two and half years ago, you had to switch off the autopilot and go into what I call hand steering … You really have to try to stay as nimble as you can because you don’t know which shoe might drop next. So it’s these unknown unknowns that keep me most worried,” Nestlé CEO Mark Schneider said when asked by an analyst a few days ago what ails him before bedtime in an environment of widespread inflation. “Obviously, taking pricing is never a simple discussion. So we have, in some cases, some pretty robust discussion,” Danone CEO Antoine de Saint-Affrique told investors a day before Mr. Schneider’s speech. “Right mix of driving the pricing in a very sophisticated way and in a way that also makes sure that we don’t price ourselves out of the market.”
What was seen in the last few days, for hours on end, in conference calls of the largest consumer industrial companies in the world was an effort to try and show a reaction to the current difficult situation. CEOs needed to position themselves, in part, because analysts put pricing policy and cost management at the center of the discussion.
The pandemic crisis and the war in Eastern Europe exposed the need for companies to face something that current management teams had not faced before: an inflationary escalation in consumer markets that are very different, in terms of cost structures, habits, tolerance to adjustments, and a stagflation backdrop already bordering on the risk of recession. “Inflation was not a complicating factor at the onset of either of those crises. It is today,” with tensions “converging in the near term across the second half of 2022 and into 2023,” Austin Kimson, a vice president at consultancy Bain & Company, wrote in an article last week.
Most groups, which reported results for the second quarter and the first half of the year in July, announced price increases in recent months of up to 20%, in the world and in Latin America, to offset the rising costs of the production chain – sales volume has fallen.
Brazil was affected by the adjustment policies and was mentioned in conference calls by executives from four of the eight companies that reported results. In this group are Unilever, P&G, Kimberly-Clark, Nestlé, Danone, Coca-Cola, Whirlpool, and Electrolux.
Worldwide, five of the eight companies raised prices and sold smaller quantities between April and June, which tends to reduce operational leverage and efficiency – only Coca, Nestlé, and Danone adjusted prices without losing volume. In June, Economy Minister Paulo Guedes asked commerce and industry companies to give “a brake on price increases” and suggested that companies update prices only in 2023. At the time, in private conversations, industry and retail executives rejected such hypotheses as companies need to recover net sales and profit margins.
Analysts, when commenting on the dose of adjustments, say that companies are within an “acceptable” volume loss calculation. And they acknowledge that inflation is higher than they anticipated. Commercial actions have been revisited in a shorter period of time, including route changes. There is a visible effort by industrial companies to hold on to the “value” of their brands to prop up their strategies.
Marcos Gouvêa, CEO of the consultancy Gouvêa Ecosystem, says “Brazilian companies navigate well through this scenario because it is an environment they know, but it is not the rule.” He recalled that “CEOs around the world are having to evaluate more, test more, and quickly review what doesn’t work in an environment where consumers from different parts of the world are very skeptical and looking for the essential for the lowest possible price. And with many more brand options.”
Costs are expected to remain under pressure, and such a situation is likely to be passed on to prices for the rest of the year around the world. Brazil, which accounts for up to half of sales of the large groups, is unlikely to be excluded from this.
Unilever CEO Alan Jope, for instance, told investors in late July that the company has passed on, so far, 70% of the cost increases felt in Latin America after the pandemic.
There was a 21.7% increase in prices in Latin American countries and volume fell 4%, while sales grew 17%. It was the largest adjustment for a quarter since 2017 in the region. From January to March, prices had already risen 16.4% and volume shrank 5.7%. Mr. Jope says that the loss in volume is in line with expectations and that it was necessary to make these adjustments in the region “to retain our ability to invest behind our brands” – which can also be interpreted as a way to avoid a greater hit in profitability, which fell in the quarter in Latin America.
The decision to adjust prices, in a scenario with recession risk, was also cited by the management team of Coca-Cola in a conference call with analysts in late July. CEO James Quincey said that the company has been trying not to lose the timing of the price increases. In Brazil, data from IPCA/IBGE show that soft drinks and waters rose almost 11% in the 12 months through June. In April alone, they rose 2%.
“We are hedged on commodities,” he said. “We are seeing broader-based inflation than just commodities up and down. And so as those come through, we pass them through. And so we’ve passed a good bit through so far this year. We anticipate more cost increases will come through on a broad-based set of inputs. And we will continue locally in each country because it’s very different,” the CEO said.
It is a fine-tuning, where the biggest risk is to make a mistake and end up losing market share. The biggest difficulty today is to decide when and how much to increase prices because there is the risk of passing on too quickly and losing share, said Richard Pelz, a partner at Bain in Germany, in a presentation last week on the industry’s challenges.
In Latin countries, from April to June, there was an increase of 12% in the prices of Coca-Cola’s portfolio and in the value of the mix sold (with the effect of hyperinflation in Argentina), and the volume grew by 9%. From January to March, they had already passed on 19%.
Mr. Quincey said that in Latin countries he decided to “leverage compelling occasion-based marketing campaigns” after the company lost market share at the beginning of the year. After the actions, “the share losses improved.”
In the search for quick effect solutions, the strategy of investing more in marketing has been repeated by other companies, such as P&G, the owner of brands like Ariel and Pantene. Its management team recently told analysts of significant headwinds throughout the year, but also cited the “irresistible superiority” of its products to show “value” to buyers. P&G raised prices worldwide by 8% from April to June and lost 1% in sales volume.
“Exploring the brand is a way to get around mistrust, to create a connection with consumers. But it is hard to know if this will be welcome in such a pragmatic market with more mature private labels,” Mr. Gouvêa says. One question mark now is how to protect brand value and stand out compared with lower-priced brands, Mr. Pelz, with Bain, said.
On this matter, Nestlé’s CEO made a caveat in his conversation with analysts. He said that “private label supply chains are feeling the pinch too when it comes to their cost inflation and also some of them are still experiencing some bounce-back problems from the times of Covid.” In Mr. Schneider’s view, everything “is moving so fast” on things including pricing, habits, followed by the problems of inflation and the supply chain crisis – that is, many variables together at the same time. “Usually a large company’s systems are not really set up for [that].”
“I mean, we were geared up like everyone else in the business for smoother evolving situations,” he said, pointing out that further adjustments are expected to be made in the second half of the year.
Within this need to know the right time to move, Kimberly-Clark, owner of the Neve and Intimus brands, has made course adjustments. The company’s management team told investors days ago it seeks to work the issue in a measured way, but said there were some “price lagging in developing and emerging countries from competitors,” and, with this, the market share “softened a bit.” This was done with the intention of prioritizing the recovery of profit margins.
“We recognize that we’ve advanced pricing maybe further and faster than some of the competition,” said CEO Mike Hsu. “We’re going to have to continue to monitor that situation closely.” In emerging and developing countries, prices rose 12% from April to June (up from 9% overall), while volumes fell 6%.
Danone’s CEO told analysts that in countries like Russia and Brazil there is “huge” volume and price elasticity. In such cases, increases can lead a brand to lose sales easily. “In places like the U.S. or France, you see limited to no elasticity … So, it is, to be honest, a bit of an unknown quantity given the broad spectrum of reaction,” Mr. Saint-Affrique said. Danone says it is preparing “for the worst” by looking at the strength of its brand, portfolio, and consumer sensitivity. That is “to make sure we have a portfolio ready in case things are getting tougher.”
Danone, Nestlé, P&G, Unilever, and Coca-Cola declined to comment. Kimberly-Clark says it does not comment on breakdown data and that the second-quarter results reflect “the efforts of its teams in a challenging and dynamic environment.”
Project will enable transportation of fertilizers from Port of Santos to this central state
08/09/2022
Rumo and Andali, a joint venture between U.S.-based agribusiness cooperative CHS and BRFértil, will officially start operations in a fertilizer terminal on the North-South Railway in Rio Verde, Goiás, on Tuesday. The project will enable the transportation of fertilizers from the Port of Santos, in São Paulo, to Goiás.
The state’s agribusiness is mostly served by trucks now. The railroad is expected to allow moving 60% to 70% of the volumes used in the region.
Freight transportation in this railroad, which Andali had already started in a preliminary way in April, is expected to reach 500,000 tonnes later this year and 800,000 tonnes in 2023, Andali CEO Rafael Vaccari Gonçalves said. The company expects to reach 1.5 million tonnes per year by 2025. “This solution comes to reduce costs and provide more efficiency,” he said.
Besides the terminal, a fertilizer mixing plant was built on the site with a capacity expected to reach 750,000 tonnes next year. The company is investing R$160 million in the project.
Andali already had a terminal in Rondonópolis, Mato Grosso. With the new structure, the executive said, the company’s capacity is expected to more than double and reach 6% of the country’s total volume.
This is also Rumo’s fourth terminal in the so-called Malha Central (Central Network), the concession that operates the central stretch of the North-South Railway. The project consolidates the logistics complex the operator is building in Rio Verde. The company had already built a grain terminal there. Besides this, the company plans to conclude by mid-2023 a new fuel terminal in the city, which is being built in partnership with Dinâmica Terminais de Combustíveis (DTC).
By next year, a new container terminal is likely to start operating in Anápolis, Goiás – a partnership between Porto Seco de Anápolis and Brado, Rumo’s arm for railway container transportation.
Rumo already has plans for new terminals in Malha Central to handle grains and soy meal in the north of Goiás and the south of Tocantins, said Pedro Palma, the company’s chief commercial officer. However, there is still no timetable defined for this next stage of the project.
The construction of the central stretch of the North-South Railway is virtually concluded, the executive said. There is still a short stretch between Palmeiras de Goiás and Ouro Verde de Goiás, which is expected to be delivered by the end of the year.
“We are going according to plan on Malha Central. Rumo is close to reaching a 30% share in the grain market in Goiás,” he said.
In relation to Malha Norte, Mr. Palma said the company is making adjustments for the beginning of construction. Rumo has already started commercial prospecting for the railroad, whose terminals are also likely to follow the model of Malha Central – they will be independent facilities built in partnership with customers.
However, he said these agreements will be signed later. “The advantage, in this case, is that we already operate in Mato Grosso, where we already have good relationships,” he said.
Abu Dhabi’s Mubadala fund, Raízen are among those interested in assets
08/09/2022
Bunge and BP created joint venture in 2019 — Foto: Divulgação
U.S.-based Bunge and British oil company BP have put up for sale the sugar-and-ethanol company BP Bunge Bionergia, a joint venture created by the two companies in 2019, sources say. With 11 sugar-and-ethanol mills and capacity to crush about 33 million tonnes, the deal attracted the interest of Abu Dhabi’s Mubadala fund and the giant Raízen, a partnership between Cosan and Shell, sources familiar with the matter say.
JP Morgan has been hired to advise on the sale of the company. The assets are valued between R$9 billion and R$10 billion, considering a price between $55 and $60 per tonne of crushed cane, according to a source in the sugar-and-ethanol sector.
This is not the first time that Bunge has tried to dispose of its sugar-and-ethanol business. Before creating the joint venture with BP, the U.S.-based agribusiness behemoth hired banks to sell assets in the sector.
The sale is still in the non-binding proposal phase, according to sources. In this phase, offers are received, but there is no exclusivity contract between the parties. Sources say any deal is unlikely to be cut before the elections, in October.
Initially, only Bunge wanted to sell its 50% stake in the business. In the last two months, however, BP has also decided to throw off its stake, people familiar with the matter say.
Raízen and Mubadala are said to be potentially interested in the whole business, but did not make an offer yet. The shareholders do not rule out selling the assets separately. The company’s mills are located in the states of Goiás, Mato Grosso do Sul, Minas Gerais, São Paulo and Tocantins, and have a crushing capacity of 32.4 million tonnes of sugarcane per harvest. In the harvest ending March 2022, BP Bunge Bioenergia’s net operating revenue totaled R$7.2 billion, with net income of about R$1.7 billion.
Raízen was among the groups interested in buying Bunge’s assets in the past, but the deal did not go forward. The largest sugar-and-ethanol company in Brazil, the joint venture between Cosan and Shell has a crushing capacity of over 100 million tonnes of sugarcane and 35 production units.
Last year, the group closed one of the largest M&A deal with the purchase of Biosev’s (formerly Louis Dreyfus) mills. Bunge and Louis Dreyfus, another giant in the sector, have made heavy investments in sugar and ethanol in Brazil, but have not obtained the return they expected from the deal.
Abu Dhabi’s sovereign wealth fund Mubadala is also looking at sugar-and-ethanol assets to verticalize its refining business in Brazil, sources say. Last year, the group bought the Landulpho Alves refinery (RLAM) in Bahia from Petrobras for $1.65 billion. The sovereign wealth fund raised earlier this year $322 million to invest in Brazil — last week, the fund made an offer for the control of the fast-food chain Burger King in the country.
BP and BP Bunge Bioenergia said they do not comment on market speculations. Mubadala, Raízen and JP Morgan also declined to comment.
In a statement, Bunge said it “continues to evaluate options to exit its participation in the sugar and bioenergy joint venture.” The company stresses in the statement that it is satisfied with the performance of the business, but the assets are not essential to the overall strategy of its business.
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