ADM sells off ethanol operation in Brazil

The company said its lack of scale in Brazil’s ethanol market drove the decision to sell off the production facilities and sugar plantation.

One of the world’s biggest agricultural products processors, Archer Daniels Midland (ADM), has sold its Brazilian sugarcane ethanol operations to JFLim Participações.

The sale includes a 37,000 gallon a year capacity distillery and a sugarcane plantation located in the state of Minas Gerais, employing roughly 650 workers, and is expected to close in Q2 this year pending regulatory approval.

The limited scale and low expected returns from the company’s sugarcane ethanol operations in Brazil prompted the sale, said the president of ADM’s corn processing business Chris Cuddy.

“We regularly review our asset portfolio to determine how best to maximise shareholder returns, and in this case, we have determined that our sugarcane ethanol operations in Brazil are unlikely to meet our long-term returns objectives,” said Cuddy in a statement. “As our sole sugarcane ethanol operation in Brazil, this asset is too small for ADM to compete effectively in a challenging ethanol environment.”

ADM representatives said the exit from its ethanol assets is not indicative of a broader move away from Brazilian assets.

“ADM is continuing to invest in Brazil, which is a major [centre] for our global operations,” Cuddy said. “Brazil is one of the world’s most important producers of agricultural products, and will be critical to feeding a growing global population in the coming years.”

ADM holds soybean processing, bottled oil, biodiesel and logistical operations in Brazil that employ 3,900 employees.

Global ethanol consumption quadrupled between 2003 and 2010, but stagnated in the next three years according consulting firm Bain & Company. Private equity interest in ethanol projects has been tepid since the end of the previous decade, when the sector saw significant losses due to rising food prices, falling oil prices and overbuilt capacity.

The $10 billion US subsidiary of Spain-based multinational Abengoa filed for bankruptcy on six bioenergy and ethanol holdings in February this year.

Investment groups with exposure to Brazilian ethanol production include Performa Investments, DGF Investimentos and Lehman Brothers subsidiary Neuberger Berman Group.