OneSubsea wants to have 25% of global revenue in Brazil

Supplier emerged in October after joint venture between SLB, Aker and Subsea

04/01/2024

Mads Hjelmeland — Foto: Leo Pinheiro/Valor

Mads Hjelmeland — Foto: Leo Pinheiro/Valor

Subsea technology and equipment supplier OneSubsea expects Brazil to rise to 25% of its global turnover from the current 20% in three years. The company, which does not reveal its annual revenue, was created in October as the result of a joint venture between SLB (70%), Aker Solutions (20%) and Subsea7 (10%), and has headquarters in Oslo, Norway, and Houston, Texas. The estimated synergy potential of the new business is more than $100 million per year in the medium term.

On his first visit to Brazil as the company’s CEO, Mads Hjelmeland told Valor that the country is of strategic importance to OneSubsea.

Before taking over the new company, Mr. Hjelmeland was the head of subsea production systems at SLB. OneSubsea has 11,000 employees in 16 countries, 3,200 of them in Brazil, where the company has production units in São José dos Pinhais (Paraná state) and Taubaté (São Paulo) and service units in Rio das Ostras and Macaé (Rio de Janeiro).

Mr. Hjelmeland said that production in Brazil is important because of the importance of the oil and gas market, which leads OneSubsea to acquire the knowledge to develop solutions here for other countries: “We develop new capabilities here that don’t just stay in the Brazilian market. We acquire knowledge here and export it to the rest of the world.”

He cited as an example the production of a piece of equipment used to monitor and control the production of a subsea well, known as a wet Christmas tree, produced at the company’s Brazilian facilities and which will be used in a Chevron project in the Gulf of Mexico.

The installation is scheduled for April this year and represents a significant milestone for the industry, said Mr. Hjelmeland. The company produces Christmas trees in Brazil and exports them to countries in the Gulf of Mexico and the North Sea. Around 800 Christmas trees produced by OneSubsea and Aker have already been delivered to Petrobras for use in the pre-salt fields.

Among the motivations on the company’s horizon is the development of new oil frontiers, such as the Equatorial Margin, in Brazil, and West Africa. In the case of the Brazilian region, Mr. Hjelmeland has good prospects: “The Equatorial Margin is an exciting prospect. It’s one of the areas in which we’re interested in collaborating in partnership with Petrobras. We’ve been looking at how to increase the level of investment in people to meet these needs for new fronts and new energies.” By “new energies”, Mr. Hjelmeland is referring to wind power generation, both onshore and offshore. “It’s still early days, but it’s a market we’re very interested in. We’re hopeful, but the energy transition is complex.”

Mr. Hjelmeland says that the company is committed to positioning itself in Brazil to support oil companies in the current boom cycle in the oil and gas sector, while also looking at other markets: “We are excited about the Brazilian market in 2024 and, after that, it is a place where we will continue to increase our activities. We are positioning ourselves to be able to support the expectations of projects in Brazil, collaborating in prospecting with Petrobras and other players. It’s one of the most attractive markets in our portfolio.”

As for the market in Africa, Mr. Hjelmeland said there are clear indications that activity there is recovering: “The west of the African continent has historically been active, but there was a recent slowdown, which affected each of the countries in different ways, and now we see activity returning.”

OneSubsea’s expectations are confirmed by market projections. According to Citi, countries that are not part of the production agreements of the Organization of the Petroleum Exporting Countries and its allies (OPEC+) are expected to stand out in terms of increased oil production in 2024 and 2025. According to the bank, in a March 17th report, Brazil’s oil production is expected to increase by around 400,000 barrels per day in 2024 and around 200,000 in 2025 with the boost from the pre-salt fields.

Mr. Hjelmeland cites the difficulties in the oil and gas supply chain as a warning sign. Petrobras itself, for example, has mentioned on several occasions the difficulty of contracting Floating Production, Storage, and Offloading (FPSO) units due to the boom cycle, which has increased demand from oil companies.

“There are typical challenges that arise in times of a boom cycle in the world’s oil and gas sector, such as the supply chain,” said Mr. Hjelmeland. “Right now, especially, the FPSO manufacturing market is struggling to meet demand. But we need to keep in mind that we are still living through the consequences of the pandemic, which has impacted the industry and people in general, as well as other global geopolitical issues that also affect the sector and the transportation of goods, imposing challenges in the execution of projects.”

*Por Kariny Leal — Rio de Janeiro

Source: Valor International

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Consumer credit growth could boost GDP

Corporate sector yet to experience turnaround cycle, key for investment growth

04/01/2024

Credit concessions to families, more closely linked to consumption, have been growing at a more vigorous pace than those related to debt consolidation, a trend that has strengthened since the beginning of the year. Some economists believe this will be an important factor in boosting the Gross Domestic Product (GDP) throughout 2024.

In January, free credit for individuals associated with consumption increased twice as much as that linked to debt: 14.4% compared to 7.1% in the same period in 2023. A survey conducted by PicPay economists categorizes lines of credit for the acquisition of goods (such as vehicles), cash cards, installment cards, and installment loans as consumer credit, and overdrafts, non-consolidated personal loans, and revolving loans as debt credit.

“They are not separate things; the division has intersections. However, it’s a way to differentiate credit lines that are more aligned with consumption logic from those linked to expensive debt,” said Marco Caruso, PicPay’s chief economist.

Brazil’s Central Bank has raised its credit growth projection for 2024 from 8.8% to 9.4%, according to the quarterly Inflation Report for March, released last week. The growth in free credit for individuals increased from 9% to 10%, while for companies, it rose less significantly, from 7% to 7.5%.

In the minutes of its March meeting, also released last week, the Central Bank’s Monetary Policy Committee (COPOM) noted that credit, alongside income, has acted to mitigate the slowdown in activity recently and mentioned “the credit cycle in the recovery phase” as one of the factors that should lead to “resilient consumption.”

Mr. Caruso recalls that, after an initial decline in both categories following the outbreak of the pandemic, credit linked to consumption recovered in the second half of 2020 and surged until mid-2021, as families increased their savings and shifted consumption from services to goods.

“Consumption took the lead, but at a certain point, perhaps due to an overemphasis on consumption and also with the ongoing pandemic, the debt portion grew excessively,” said Mr. Caruso.

The share of credit linked to consumption decreased from the second half of 2021, but the growth in credit linked to debt increased, peaking at the beginning of 2022. “That year was a revelation. We saw people taking out costly loans to cover daily expenses,” said Mr. Caruso.

Throughout 2022, both categories were declining, “either because, from the demand side, people were overly indebted, or because, from the supply side, banks were applying the brakes,” the economist recalled. Since mid-2023, however, while the portion of credit more closely associated with debt continued to shrink, the consumption portion stabilized and then began to increase, creating what economists call an “alligator mouth” in comparison to the other indicator.

“It’s as if the house has been put in order by both families and banks and now we’re witnessing the beginnings of a resurgence in confidence in both taking out and offering credit. It appears to be a more favorable environment for household consumption and credit,” said Mr. Caruso.

Now, total credit concessions are about 30% higher than pre-pandemic levels, according to PicPay, but for consumption, they are 89% higher, and for debt, 55% higher.

That aligns with the broader macroeconomic scenario, Mr. Caruso notes. “We have cuts in the Selic rate that are beginning to reflect in the interest rates for individuals, providing a first relief. And we are seeing improvements in default rates,” he added.

Mr. Caruso also highlights the lower burden of household income devoted to debt, though, for now, this is more due to the reduction in the principal (the initial amount of the debt) than to a drop in interest rates themselves. “We’re observing an improvement in income and in people’s capacity to repay their debts, which aligns well with what we’re seeing in the job market and workers’ earnings. The main story is still not so much about interest rates, which are now starting to improve as well,” said Mr. Caruso.

Furthermore, PicPay’s economists note that this cycle of relief in defaults has been quicker than in other difficult periods, such as at the end of 2015. “That was a much more challenging time, with GDP falling by more than 3%,” Mr. Caruso recalled.

In 2023, GDP grew by 2.9%, and for 2024, the expectation is that it will increase by 1.85%, according to the median of the estimates in Focus, the Central Bank’s survey of market participants. However, financial institutions have raised their projections, in part, precisely because of the signals emanating from credit.

Itaú Unibanco has updated its GDP forecast for 2024 to include a more optimistic outlook for credit concessions, particularly to individuals and for housing, raising its projection from 1.8% to 2%. According to BTG Pactual, credit data from January suggests that the anticipated acceleration will occur sooner than expected. BTG now forecasts a 2.3% increase in Brazil’s GDP for 2024.

“Credit will never be the savior of Brazil’s GDP because it is pro-cyclical; it only starts to pick up after GDP has already begun to move. However, it acts as a bolster, a catalyst for activity. If a person was going to consume ‘x’ without credit, with credit, they could consume ‘2x’,” Mr. Caruso explained.

Igor Cadilhac — Foto: Gabriel Reis/Valor

Igor Cadilhac — Foto: Gabriel Reis/Valor

The prospects are much more favorable this year, especially for credit related to the purchase of durable goods, such as vehicles, notes Igor Cadilhac, an economist at PicPay. “It’s challenging to predict whether this improved macro scenario will ultimately enhance debt repayment, i.e., to what extent people will actually pay off their debts,” Mr. Cadilhac mused. “But today, the outlook is promising.”

For February, a survey by the Brazilian Federation of Banks (FEBRABAN), using consolidated data from the country’s major banks, shows a 0.5% growth in the total balance of the credit portfolio compared to January, driven by loans to families.

LCA Consultores forecasts an 11% growth in the balance of free credit to individuals in 2024, according to analyst Michael Burt. “What underpins this projection, besides the fall in the Selic rate [Brazil’s primary monetary policy instrument used to control inflation], is a unique moment in the credit market, characterized by a large number of people being banked, having access to checking accounts and other products,” said Mr. Burt.

He notes that despite the recent cycle of interest rate increases, the level of lending to families has remained historically high. Mr. Burt attributes that to the growth of digital banks and the resulting access to new products and banking relationships, such as the cash credit card. “People start with this one card and then graduate to other products. That boosts consumption,” he stated.

Mr. Burt cautions that, although it is decreasing, the rate of individual defaults remains high, and should there be any setbacks in the macroeconomic scenario, such as reduced economic activity growth, more persistent inflation, or less monetary easing, these defaults could increase again.

Igor Barenboim, chief economist at Reach Capital, anticipates a GDP growth of around 2% in 2024, with credit contributing approximately 1% to this growth.

The problem, according to him, is that this “turning point in the credit cycle” for individuals is not being extended to companies. That, for example, diminishes the chances of potential GDP growth in Brazil, Mr. Barenboim notes. It also does not aid in investment.

Credit, when offered under adequate conditions and used responsibly, is a “powerful lever for economic growth,” as it enables economic agents to realize their projects presently, states the Institute of Industrial Development Studies (IEDI) in its most recent letter.

“Brazil’s credit conditions remained unfavorable for boosting economic activity throughout most of 2023,” he noted. “However, by the end of the year, there were initial signs of improvement, which may become more robust,” he added.

For short-term GDP, the quality of credit that families are taking out matters less, Mr. Barenboim explains. “Ultimately, it’s spending; it’s going to finance consumption. However, in the medium term, it might not be incredibly beneficial. And the challenge will be to approach the election year with these levers already somewhat expended,” he said.

*Por Anaïs Fernandes — São Paulo

Source: Valor International

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Highway auctions in April to test market potential

Tenders for BR-040 and the Litoral Paulista Lot PPP are expected to generate R$9 billion in investments

04/01/2024

The market ended 2023 on alert after the cancellation of the auction of BR-381 in November, due to a lack of proposals — Foto: Alberto Ruy/MInfra

The market ended 2023 on alert after the cancellation of the auction of BR-381 in November, due to a lack of proposals — Foto: Alberto Ruy/MInfra

The highway concessions market will be tested in April, when two important auctions are scheduled, involving construction work estimated at R$9 billion. The federal auction for BR-040, connecting the cities of Belo Horizonte and Juiz de Fora, in Minas Gerais, is scheduled for the 11th. On the 16th, the São Paulo state government plans to carry out the bid for the Public-Private Partnership (PPP) for the Litoral Paulista Lot.

The highway sector is uncertain about the level of investor interest in the new projects being structured. The market ended 2023 on alert after the cancellation of the auction of BR-381 in Minas Gerais, in November, due to a lack of proposals. However, analysts point out that it was a particularly challenging and troubled project, and the scenario is not likely to recur in the April auctions. Both bids are expected to attract offers, but the level of competition remains uncertain.

“The market is tough but BR-381 is an outlier. The BR-040 southern stretch is attractive; more than nine companies have visited it. It is an asset with an interesting return and good traffic volume,” said Marcos Ganut, managing partner at Alvarez & Marsal.

He added that the project has challenges due to the highway’s characteristics, including a high flow of trucks, which demands high maintenance costs. “However, the balance between construction work, operational costs, and traffic risk is positive.”

The BR-040 concession runs from the capital of Minas Gerais to Juiz de Fora and provides for R$5 billion in construction work. Operating costs are estimated at R$3.53 billion, over the 30 years of the contract. The winner will be the competitor offering the biggest discount on the toll fee.

Among potential interested parties are companies such as CCR, Pátria, EPR (Equipav and Perfin), and Ecorodovias, as well as construction companies.

The auction is also emblematic because it brings a partial solution to the imbroglio surrounding the re-tendering of Via040, an Invepar concession that went wrong and is being returned to the government to be handed over to a new operator.

Invepar has been trying to return the concession since 2017, but only in 2020, it managed to sign the re-tender contract. A new auction was expected to be held by 2022, but the process faced a series of delays. In 2023, the court had to guarantee that Invepar would continue operating the route until the re-tender. However, the auction will not completely solve the problem as it does not include another stretch of Via040, from Belo Horizonte to Goiás, that is yet to be re-bid.

Although the project is linked to the re-bidding, the reading is that it should not pose a legal risk to the auction because the invitation to tender has detached the two processes, says Lucas Sant’anna, a partner at Machado Meyer.

The second auction scheduled for April, involving the Litoral Paulista Lot PPP, on the coast of São Paulo, has also faced ups and downs in recent years, but the expectation is that it will now be successful. “The private sector is familiar with and has studied these stretches for a long time. There should be interested parties,” Mr. Sant’anna said.

In the PPP, which involves R$4.3 billion in construction work, part of the funds will come from the government, which will pay the concessionaire an annual consideration of up to R$199 million per year. The winner will be the group offering the biggest discount on the amount. Should any interested parties offer a 100% discount, bringing the consideration to zero, the dispute will be defined by the largest grant.

The Litoral Paulista project was initiated by the São Paulo government in the past administration, which was unable to get the auction off the drawing board due to resistance from the municipality of Mogi das Cruzes, which is crossed by the tendered stretch. The solution found by the current administration was to transform the contract into a PPP, which allowed to reduce the toll rate and the criticism around it.

Ecorodovias is one of the groups analyzing the bid. The company has a special interest in the project as it currently operates the Anchieta-Imigrantes system, connecting the capital city of São Paulo to the coast, and whose demand competes in part with highways in the new lot. The market reading is that the company will likely try to ensure its hegemony on the route. CCR, EPR, and Starboard (which debuted in the sector in 2023 by winning the Rodoanel Norte auction) are also seen as possible competitors.

When contacted, Ecorodovias said it watches “with interest the concession programs announced by federal and state governments to evaluate opportunities.” CCR said it “analyzes all opportunities on the three platforms on which it operates, selectively.” EPR said “it has a habit of evaluating opportunities in the sector.” Starboard and Pátria did not comment.

While the market expects the April auctions to be successful, analysts pointed out that the scenario for highway tenders in 2024 will be tough, due to the high volume of new concessions currently being structured by governments.

“There may be an excess of lots in the calendar. On the one hand, there are multiple project profiles, which can attract newcomers. However, there is concern that the sector will not be able to handle so many bids. The April auctions will be a good barometer”, Rodrigo Campos, partner at Vernalha Pereira Advogados, said.

According to Mr. Ganut, the current scenario for attracting new investors to highway concessions is not optimistic. “It is not easy. Although Brazil’s economic fundamentals are good, the attractiveness for investors is limited. One issue is the return on projects measured in dollars. Furthermore, in recent years we have experienced changes in rules, which brings uncertainty,” he added.

*Por Taís Hirata — São Paulo

Source: Valor International

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International scenario, political risk keep foreign capital away

International investors have withdrawn R$22 bn from B3 this year, despite seeing opportunities in Brazil

03/28/2024

Foreign investors posted net withdrawals of R$22.19 billion in the secondary segment this year at B3 — Foto: Divulgação

Foreign investors posted net withdrawals of R$22.19 billion in the secondary segment this year at B3 — Foto: Divulgação

External uncertainties that have been hitting the domestic stock market are now combined with local interferences, weighing on important shares in Benchmark stock index Ibovespa such as Vale and Petrobras. As a result, the Brazilian stock market has underperformed its emerging peers, in a scenario that also includes a substantial outflow of foreign capital.

Uncertainties involving state-owned companies were added to factors that contributed to the outflow of funds from the Brazilian stock market, a trend observed since early this year. According to the most recent data released by the B3 stock exchange, foreign investors posted net withdrawals of R$22.19 billion in the secondary segment of the exchange (shares already listed) this year until March 22, the highest volume since 2020.

Statements made by people close to the government have been raising concerns since President Lula was elected, but the decision by state-owned company Petrobras not to pay extraordinary dividends raised a flag and led to significant losses in the market. The decision surprised most investors—on the day it was announced, the oil giant’s shares fell by 10%, leading the company to lose R$56 billion in market capitalization. As a result, the company’s preferred stock, which ended 2023 up 94%, is down 4% this year.

Overall, the performance of Brazilian shares is well below its peers. A survey by J.P. Morgan reveals that the MSCI Brazil index, measured in dollars, has posted the worst return in 2024, with losses of around 8%. In the same time range, the MSCI China is down 1% and the MSCI for emerging markets is up around 2%. The S&P 500, in turn, is up around 10%.

“We have seen a substantial outflow from the stock market since the beginning of the year. However, that should be put into perspective, since, at the end of last year, we saw a very positive inflow. The market rally in November and December was very strong,” said Luis Fernando Azevedo, equity manager at Oriz Partners. “Since earlier this year, the scenario has changed and the market has realized that the pace of interest rate cuts abroad may not be as intense as expected.”

“Here, we saw some interference involving state-owned companies, which raised concerns. Perhaps it is rather a one-off event than a change in the outlook for the broader market, but the then optimistic foreign investor may have been affected. It is an interference, a reason for an increase in volatility,” Mr. Azevedo said.

In this context, the recommendation made by Goldman Sachs strategists for investors to bet against Brazilian state-owned companies gained the market’s attention According to the bank’s analysts, the multiples of state-owned companies are too high compared to private sector companies, and possible political interference could lead to cuts in these companies’ ratings.

Renato Jerusalmi, founding partner and portfolio manager at Riza Asset, said that the four stocks mentioned by Goldman—Petrobras, Banco do Brasil, Sabesp, and Cemig—should not be placed in the same basket. According to him, BB has the lowest discount to its peers when considering the last ten years. Petrobras, however, when compared to the largest companies in the sector globally, has a discount of 44%, above the range seen in the last five years, which was between 30% and 34%.

“We are seeing greater intervention in Petrobras. We went from political effect to practical impact, as seen in the decision on the distribution of dividends,” Mr. Jerusalmi said. “The market digested it and became more defensive, seeking to increasingly reduce its risk [exposure] in Brazil.”

Affected by political interference in state-owned companies, since the multibillion capitalization of Petrobras in 2010, Rio Bravo Investimentos stopped buying assets that have this level of risk, said Evandro Buccini, partner and director of credit and multimarket management at the firm. “March was a scary month for the stock market, with Vale and Petrobras performing poorly due to the government’s attempt to interfere in large companies. That is not good at all.”

Mr. Buccini said the issue involving the B3 giants is one of the reasons why foreign investors left Brazil. “I don’t think it’s the only reason, but it certainly helps. Once bitten, twice shy,” he said.

*Por Victor Rezende, Augusto Decker, Adriana Cotias, Liane Thedim — São Paulo, Rio de Janeiro

Source: Valor International

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Antitrust watchdog greenlights Soma-Arezzo merger

Deal was approved in a summary procedure as it poses no harm to competition

03/28/2024

Operation is not expected to cause harm to the competitive environment, Cade said — Foto: Divulgação

Operation is not expected to cause harm to the competitive environment, Cade said — Foto: Divulgação

The General Superintendence of the antitrust watchdog Cade approved the Arezzo and Grupo Soma merger. The deal was approved in a summary procedure, an analysis in which the antitrust regulator considers a case has the least offensive potential to competition, due to the simplicity of the operation.

If the Cade tribunal does not highlight the merger for analysis or there is no appeal filed by any interested third parties within 15 days, the decisions of the General Superintendence will be final and the operations will receive final approval.

“The applicants’ reduced market shares in the markets identified above allow us to infer that the operation does not result in a significant increase in the portfolio to the point of causing damage to the competitive environment,” the Superintendence wrote in an opinion.

In the analysis, the superintendence informs that the market-share estimates of companies in horizontally overlapping markets (of the same segment) are below 20% and that market-share estimates in vertically integrated markets (in a chain) are below 30%. Therefore, the operation is not expected to cause harm to the competitive environment.

The deal includes a non-compete clause. It prevents the “Birman block” and primary shareholders Grupo Soma from engaging in any way as consultants, partners, or investors in any activities in the retail, wholesale, and industrialization and manufacture of clothing, articles of clothing, and other activities competing with the group. They are also barred from establishing any type of commercial relationship with the customers of the resulting company, aiming to provide direct or indirect services that are, in any way, related to competing activities.

The commitment covers the entire period up to two years after ceasing to be a shareholder of the resulting company, or for five years from the execution of the shareholders’ agreement, whichever occurs last, unless with specific authorization and in writing from the board of directors of the resulting company.

The deal creates an operation with 34 brands, 2,000 stores, and 21,000 sales channels. The two companies tried to combine their businesses for at least two years. The deal is the biggest in the retail segment since the Raia-Drogasil merger in 2011.

When the merger was announced, the market expected the new company to be placed among the top 20 in the sector in Brazil, becoming the second-largest fashion retailer by annual revenue, second only to Renner. The company emerges with R$11.8 billion in net revenue projected for 2024.

*Por Beatriz Olivon — Brasília

Source: Valor International

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Lula calls for increased cooperation with France; Macron attacks EU-Mercosur

French president follows opposite line of Brazilian businesspersons, who call for deal’s approval

03/28//2024

President Luiz Inacio Lula da Silva and Emmanuel Macron — Foto: Silvia Izquierdo/AP

President Luiz Inacio Lula da Silva and Emmanuel Macron — Foto: Silvia Izquierdo/AP

President Luiz Inácio Lula da Silva defended increased cooperation with France in the area of national defense, to ensure Brazilian sovereignty in the face of growing conflicts around the world. The statement was made on Wednesday, during French President Emmanuel Macron’s visit to Brazil.

“Our partnership reinforces Brazil’s resoluteness to achieve greater strategic autonomy, which is crucial in the face of the multiple crises and challenges faced by humanity in the 21st century,” he said.

Presidents Lula and Macron attended a ceremony launching the “Tonelero” submarine into the sea. It is the third of four conventional diesel-powered vessels built by the Submarine Development Program—a strategic partnership between Brazil and France. The event was held at the Itaguaí Naval Complex, located on the south coast of Rio de Janeiro.

The event was attended by ministers José Múcio (Defense), Mauro Vieira (Foreign Affairs), Silvio Costa Filho (Ports and Airports), and Nísia Trindade (Health), as well as the governor of Rio de Janeiro, Cláudio Castro. On the French side, Chancellor Stéphane Séjourné was also present.

In his speech, President Lula did not mention other countries, but pointed out the increase in conflicts around the world and the “animosities in the democratic process”, globally. He also stressed the need to maintain peace in Latin America and South America—a line of speech he had adopted when Venezuela and Guyana came into conflict at the beginning of the year.

In the afternoon, in São Paulo, Mr. Macron said the trade agreement between the European Union (EU) and Mercosur is “a terrible deal”, and therefore he cannot defend it as it is.

“The trade deal with Mercosur, as it is being negotiated now is a terrible deal,” he said, speaking at the 8th Brazil-France Economic Forum, in São Paulo. In his opinion, that is because negotiations began 20 years ago, which makes it invalid to face challenges such as climate change and the conservation of biodiversity.

“This deal, as it is, I don’t defend it,” he said. Mr. Macron added that, under the deal, French companies governed by stricter environmental laws—as in the case of pesticides—will face competition from rivals that do not follow the same standards.

“I say this from a country that produces with low carbon,” he said, adding that Brazilian companies have this consideration and the government is committed to fighting against deforestation. “We need to leave behind something that was built 20 years ago and look for a new deal, built on new goals, that considers the fight against deforestation, climate change, and the fight for biodiversity.”

The French president’s speech came in the opposite direction of the speeches of authorities and businesspersons attending the event, held at São Paulo’s Industry Federation (Fiesp) headquarters. Vice President Geraldo Alckmin, who spoke just before, pointed out the long-standing partnership between the two countries and added: “France is a great trading partner for Brazil, but we can make it [the partnership] grow even more.”

Mr. Macron started his speech by mentioning the strong presence of French capital and companies in Brazil and asking Brazilian investors to take a closer look at France. He defended a new deal that includes cross-partnerships for industry decarbonization and investment in cleaner economic activities and energy production.

“Brazil managed to face challenging periods. It has solid growth, it knew how to control inflation and resist the unrest that democracies around the world sometimes experience,” he said. “We believe in Brazil, in its growth model. We have to unite and I am convinced that this union is part of the solution to winning the fight for climate and biodiversity.”

Representatives of Brazilian industry defended the signing of the trade deal between the European Union and Mercosur. Ricardo Alban, the president of the National Industry Confederation (CNI), said the two countries need to move forward in exploring “win-win” situations. He said that Brazil is the ninth destination for French exports, but ranks 34th among imports by the country.

“We are confident that in the long term, the benefits of integration between the two regions will outweigh the problems,” Mr. Alban said.

Josué Gomes da Silva, the president of Fiesp, said Brazil and France relations go far beyond trade. “This 8th forum reopens and strengthens these relations. The Mercosur and European Union trade deal will benefit both regions. We believe that both regions can benefit a lot, especially France,” Mr. Gomes said. “President Macron’s visit to Brazil demonstrates the interest of both countries in increasingly strengthening their relationship.”

France is the most vocal European country in opposition to the trade deal, finalized in 2019 but never approved. In January, under strong pressure from farmers, Mr. Macron said he had even demanded that the negotiations be halted.

*Por Camila Zarur, Marcelo Osakabe — Rio de Janeiro, São Paulo

Source: Valor International

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Illy seeks $1bn fund for regenerative coffee

Brazil can ensure a sustainable supply of raw materials for years to come, company says

03/25/2024

Andrea Illy — Foto: Gabriel Reis/Valor

Andrea Illy — Foto: Gabriel Reis/Valor

Brazil will be able to guarantee illycaffè’s supply of coffee from regenerative practices in the next decade, said Andrea Illy, CEO of the Italian multinational. For him, sustainable cultivation is the key to increasing productivity, even in the face of climatic adversity. For this reason, the businessman is studying the creation of a fund of $1 billion a year “for coffee resilience.”

Illy wants to make it possible to renew coffee plantations in producing countries where farmers are unable to finance the transition to more sustainable production methods. With the “coffee resilience” fund, the company would also have more raw materials available for processing. But the main goal, according to Illy, is to “mitigate” the effects of climate problems.

Regenerative agriculture involves practices that restore soil, reduce carbon emissions, and manage water and biodiversity. With raw materials produced using these methods, illycaffè aims to double its share of markets outside Italy and the United States, which currently represent 0.3% of volume and 0.6% of sales.

Without a structured business model or defined partners for the fundraising phase yet, Mr. Illy is inspired by actions such as those of the Swiss bank Lombard Odier, which has contributed $150 million to transform farms into regenerative systems, and the Bill and Melinda Gates Foundation, which has invested nearly $6 billion over the last 17 years in initiatives to improve agriculture, particularly in Africa. Mr. Illy also mentioned the Mattei Plan, an initiative of the Italian government to support the development of African countries.

Should the fund materialize, its initial resources will be dedicated to renovating coffee plantations globally, facilitating their transition to regenerative practices. The businessman said that coffee plantations in India and Vietnam, aged between 80 and 100 years, are experiencing declining productivity. In contrast, in Brazil, where the average plantation age is 12 years, the situation is different.

Hence, Brazil might not be given precedence in the selection of countries to receive funding from the initiative, although Mr. Illy has not dismissed the possibility entirely. The primary focus would be on supporting micro-producers in vulnerable regions facing challenges in accessing financial resources.

“We’re currently exploring the feasibility of investing in equity, or a combination of equity and loans, to empower micro-producers to enhance and rejuvenate their plantations. The main challenge lies in determining the appropriate business model to elevate the project to the next stage,” said Mr. Illy.

Although talks have already begun to get the idea off the ground, the CEO admitted that it could take a while. Nevertheless, he expressed optimism and projected that the adoption of regenerative methods is expected to grow worldwide.

Today, Brazil is one of the leaders in this practice, which increases the company’s interest in local coffee. Today, Mr. Illy’s main suppliers of Brazilian beans are the Cerrado Mineiro, Matas de Minas, Sul de Minas, and Chapada de Minas regions.

Last year, the company launched the world’s first 100% coffee sourced from regenerative management. All the beans composing the blend come from the Cerrado Mineiro, a region that produces over 6 million bags per harvest.

As part of its commitment to fostering sustainability in the coffee industry, illycaffè is currently conducting tests on several experimental plantations to quantify the reduction in greenhouse gas emissions. The goal is to pinpoint effective practices that can be promoted as regenerative methods in coffee farming. Initial findings are slated for publication next year.

*Por Isadora Camargo — São Paulo

Source: Valor International

https://valorinternational.globo.com/
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Bauer invests in new factory to expand production in Braz

Facility is expected to increase production of pivots by 50%

03/25/2024

Rodrigo Parada and Luiz Alberto Roque — Foto: Divulgação

Rodrigo Parada and Luiz Alberto Roque — Foto: Divulgação

Bauer do Brasil, an irrigation equipment company, will invest R$40 million in the construction of a new plant in São João da Boa Vista, São Paulo. The investment is intended to expand the company’s operations in Brazil and Latin America and increase its share of the irrigation market. The new unit will occupy a plot of land opposite the site where the company has been operating since 2017. The land was donated by the local city government, and in return, Bauer committed to creating at least 100 new jobs over up to four years.

The Austrian company has been present in Brazil for 20 years, and today 95% of its turnover comes from the sale of pivots produced in the country. In 2023, according to the company, total sales will reach R$460 million.

In an interview with Valor, Luiz Alberto Roque, Co-CEO of Bauer do Brasil, said that with the new plant, the goal is to increase the capacity to produce pivots by 50%. In addition, the new plant will assemble reels, another irrigation model, and separators dedicated to waste and manure management. This equipment is currently imported from Austria.

According to Rodrigo Parada, also co-CEO of Bauer do Brasil, starting to manufacture other products from the catalog in the country means more than increasing profitability, as it reduces dependence on imports. “The whole issue of intellectual property and technology that characterizes Austrian quality is now coming to Brazil and Latin America,” he said.

Bauer’s sales in Europe are divided almost equally between the three products it offers, according to Mr. Parada. Brazilian executives hope to increase the share of reels and separators in the company’s sales and reduce the dominance of pivots.

Separators are used on livestock farms to separate solid waste from liquids.

Both pivots and reels are sprinkler irrigation systems that simulate rain. While center pivots are suitable for large areas and irrigate in circles, reels are more suitable for smaller areas as they work in a line. Bauer’s main customers are producers of soybeans, cotton, corn, and wheat.

Work on the new factory is expected to begin this year and be completed by 2025. The structure will include a new factory, training center, and offices.

The training center will be used to train sales staff and agents. Bauer works with a dealer system, with representatives spread throughout the main agricultural regions of Brazil and Latin America. Aiming to create a kind of “model” of best practices for selling its products, Bauer will open its first store in Campo Grande, Mato Grosso, in June.

Before the company recoups its investment, it expects its sales to grow by 23% to 26% this year. “The company has boomed during the pandemic. In the last four years alone, we’ve grown 7.6 times, mainly in the pivot market, but also in the technology solutions and services market,” added Luiz Alberto Roque.

Mr. Roque founded Irricontrol, an irrigation technology platform that manages and automates processes, which was acquired by the Bauer Group in 2019 to become its global technology arm.

(*Nícolas Damazio reporting was supervised by Alda do Amaral Rocha.)

*Por Nícolas Damazio* — São Paulo

Source: Valor International

https://valorinternational.globo.com/
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