Business and Finance

Sugar cane stands at the intersection of food and fuel. It can end up in your morning coffee as table sugar, and at your local gas station in the form of ethanol.

In a bid to tap into growing demand for sugar and ethanol, Creve Coeur-based Monsanto will spend $290 million to buy a Brazilian company involved in breeding sugar cane.

Monsanto, one of the world’s biggest agricultural biotech companies, will acquire Aly Participacoes Ltda., which owns two key subsidiaries: CanaVialis, the world’s largest private sugar cane breeding company, and Alellyx, an applied genomics company focused on developing biotech traits for sugar cane. Monsanto wants to broaden its offerings of crops with biotech traits. Now, the company primarily focuses on corn, soybeans and cotton. Sugar could be a fourth leg of the stool.

"We consider the deal important as it signals Monsanto’s long-term commitment to sugar as a new, strategic growth platform," wrote Kevin McCarthy, a Banc of America Securities analyst.

Compared to Monsanto’s $2 billion in profits and $2.8 billion in cash flow from operations, the Brazil deal is modest. But it does show patience: The deal isn’t expected to add to earnings until the middle of the next decade, when Monsanto hopes to bring sugar cane traits to market.

Monsanto called sugar cane a "significant opportunity" to supplement the company’s involvement with corn as an ethanol feedstock. Like corn, sugar cane can be processed into fuel-grade ethanol, one of the leading forms of alternative energy.

Monsanto moved into Brazil’s sugar industry last year, when it signed an agreement with CanaVialis and Alellyx to develop ways to help Brazilian farmers protect their sugar cane from Monsanto’s Roundup pesticide.

Monsanto’s goal is to increase farmers’ yields when they grow sugar cane, while reducing the amount of resources needed to cultivate the crop and protecting the plants from herbicide and drought. Monsanto has a leg up: Much of the work to give sugar cane desired traits is already being done in corn programs.

Monsanto had earlier tipped off investors that it was looking for opportunities to use its vast cash supplies for international acquisitions. "Cash on hand gives you the ability to act quickly," Chief Executive Hugh Grant said recently.

Demand for raw sugar and biofuels are rising at a faster pace than sugar cane’s current production levels, Monsanto said advance cash loan month paid. It cited statistics showing that the world will consume 3.9 million tons more sugar than it will produce in 2008-2009, and that sugar consumption will outrun production over the next decade.

Both food and fuel are expected to play a role in sugar’s growing importance. More food-grade sugar is needed in China and India. Plus, global ethanol production is projected to reach 125 billion liters in 2017, twice the quantity produced last year, according to an agricultural outlook published by the Organisation for Economic Cooperation and Development and the U.N.’s Food and Agriculture Organization.

Sugar cane is key to meeting those demands and is a "significant-enough crop to warrant investment," said Carl Casale, executive vice president of global strategy and operations.

Grown in tropical climates, sugar cane is the world’s major source of sugar. The tall grass is planted on more than 50 million acres, more than 17 million of them in Brazil, according to Monsanto. Brazil is the world’s largest producer of sugar cane, the largest exporter of finished sugar, and the world’s second-largest producer of ethanol after the United States. It supplies one-third of the world’s ethanol.

Monsanto’s competitors are well aware of Brazil’s potential. Decatur, Ill.-based Archer Daniels Midland, the big ethanol processor, operates oilseed crushing plants, oilseed refineries and biodiesel plants in Brazil. Brazil also is the biggest market for the fertilizer division of Bunge Ltd. of White Plains, N.Y. Bunge entered the Brazilian fertilizer market in 1938; it mines phosphates and sells blended fertilizer there.

Casale said Monsanto is excited about Brazil, where sugar cane production is expected to rise 75 percent by 2017. There also are untapped acres that could be devoted to Monsanto’s soybean seeds. In addition, Monsanto likes the country’s improving support for intellectual property — crucial if the company is to make good on biotech investments.

"As the world needs more crops," Casale said, "I think Brazil will be a target."

jmcwilliams@post-dispatch.com

314-340-8372

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