Bunge buys Rostov base to exploit Russian grain growth
in the last year alone, has lured a major international food
company to set up a new grain export terminal in the country,
despite industry fears over long-term harvest quality.
The terminal will be bought by US-based global agribusiness and food company Bunge to take advantage of Russia's grain exports, which are expected to almost double to 15.5 million tons in the next 10 years, according to United States Department of Agriculture figures.
Bunge intends to use the centre as a giant gateway able to service markets around the Black Sea and Mediterranean as well as in the Middle East, and the company will spend €7.8 million (RUR287.6 million) to extend the terminal and increase capacity.
"Russia and the neighbouring CIS countries possess tremendous long-term agricultural growth potential," said Jean-Louis Gourbin, president and chief executive officer of Bunge Europe. "As the first international company to own a dedicated export terminal in Rostov, Bunge will be better able to capture a share of this growth, improve its logistics efficiency and serve customers around the Black and Mediterranean seas, and in the Middle East."
Rostov is situated near the mouth of the Don river with easy access to the Black Sea, next door to the three major grain growing areas around Stavropol, Krasnodar and Rostov itself, meaning Bunge's terminal is positioned at the heart of Russia's main grain outlet.
The company is also interested in bringing grain from nearby Kazakhstan, a country which has just increased its grain harvest to 13.6 million tons, through the terminal.
Bunge's strategy appears sound; even the Russian government recognises the potential of the country's grain exports, reportedly planning to invest RUR33 billion (€900.2 million) in the industry from 2005.
But there is a lot of work left to be done in order to bring Russian grain, and especially wheat, up to the quality standards of major importing nations, according to Yuri Karpov, president of market research firm Ecotrans. "Only after the quality of Russian wheat has improved will the country be able to expand wheat exports to other nations," he said.
Karpov's statement was backed up by an estimate from Russia's State Bread Inspectorate that said that 72 per cent of this year's Russian wheat yield was considered good enough for milling, down from 80 per cent last year.
In the circumstances, Bunge's regional distribution strategy at Rostov may be sensible as its target markets of the Middle East and southern Europe are already the main importers of Russian wheat, allowing the group to exploit existing markets.
The company only entered the Russian grain market in 2004 by opening a series of offices in key production areas such as Moscow and Rostov. Bunge is active elsewhere in eastern Europe as well, currently building another grain terminal in Liepaja, Latvia and a grain-crushing plant in Ilyichevsk, Ukraine in an attempt to set up an efficient logistics network for imports and exports across the region.
Edible oils to boost Bunge business in former Soviet states
Bunge's grand expansion programme in Russia and eastern Europe has taken a further leap forward after the company announced it would buy the Ideal premium edible oils business in Russia, with rights to the popular Ideal brand in all former Soviet countries.
The company will buy Ideal for around €15.7 million (RUR575.6 million) from Molinos International, subsidiary of Molinos Rio de la Plata, and while expecting immediate gains from the brand's established reputation as a quality and healthy product, Bunge also sees a rosy future in store.
"Russia and the neighbouring former Soviet countries are a strategic priority for Bunge due to their long-term growth potential in consumer foods," said Jean-Louis Gourbin, president and chief executive officer of Bunge Europe.
"We are excited by the opportunity to grow Ideal in other former Soviet countries, where it has a high recognition, and by the opportunity to extend the brand into new, edible oil related categories," he said.
Bunge has been in the Russian oil market since October 2002 when it bought Cereol, producer of the popular Oleina brand of vegetable oil. Ownership of both Oleina and Ideal puts the company in a strong position to meet a variety of consumer needs and "it mirrors a strategy that Bunge has implemented successfully in markets such as Brazil, Poland and Hungary", according to Gourbin.
The company is already the largest seller of edible oils across global consumer markets and has a significant presence in parts of eastern Europe; its businesses in Hungary and Poland increased both sales and profit margins in 2004, helping to offset high raw material prices elsewhere.
The sale of Ideal is expected to be complete by January next year.
