With the sugar market bullish and prices hovering in the range of 16-18 cents/lb, this is an ideal opportunity for many small and medium-sized companies to divert increased profits into diversifying their businesses and cushion themselves against market volatility. Big sugar companies, particularly those that produce 1 million tonnes of sugar or more, are heavily diversified, monetizing from a range of by-products and co-products as well as “out of the box” businesses (e.g. Cosan’s fintech (Payly), Südzucker’s pizza products, AB Sugar’s medical marijuana grown in a glasshouse). When times are good, small and medium-sized companies should ask themselves whether it is best to upgrade their sugar production operations and increase productivity or diversify.
Diversification options available to sugar companies are summarised in the table. These range from producing specialty sugars to looking at new opportunities facilitated by advances in science and technology.
|
Diversification routes for sugar companies
|
| Options |
Comments |
| Specialty sugars |
E.g. organic sugar, muscovado sugar |
| By-products |
E.g. molasses, beet pulp/cane bagasse, waste streams (soil tare, heat, CO2, vinasse) |
| Co-products |
E.g. cogen power, biofuels/biogas, bagasse-based paper, packaging |
| Industrial biotechnology |
Producing substitute petrochemicals e.g. itaconic acid, isobutene
High value, low volume
|
| ‘Outside the box’ |
E.g. vertical farming, single cell protein, recycling plastic waste into chemicals |
Each of the options is characterized by the extent to which it is capital-intensive and or knowledge-intensive. The choice will invariably be dictated by the market for the product in the company’s locality. However, in the case of opting for knowledge-intensive generated products, there is invariably the associated costs of acquiring the new knowledge as well as securing a license for proprietary technology (where applicable).
At the fourth biannual event CIS MOROCCO 2021, a hybrid event held in Casablanca, Morocco, on 10th March. In the next session, Sebastien Rexhausen, Boston Consulting Group, provided a compelling and engaging overview of 31 leading sugar companies that have diversified their businesses. Rexhausen broke down the diversification initiatives into 5 categories (see figure). From monetizing by-products and co-products to expanding into speciality sugars and sweeteners and moving on to industrial biotech space with the production of biobased chemicals/products as well as outside the box enterprises such as breeding and fish farming, trading and shipping, and real estate. Rexhausen offered no insights into why companies opted for a specific diversification strategy nor what portion of the business should ideally be diversified to cushion the sway of volatility in the commodity market against the backdrop of any support measures locally. But it is apparent from the figure, that the top companies have opted for ‘low hanging fruit’ diversification strategies (by-products, biofuels, specialty sugars and ingredients), with few seeking to go outside their relative comfort zone and enter the ‘risk-reward’ zone of new technologies (bioplastics) as well as a range of other non-sugar related businesses.
Diversification strategies of top sugar companies
Many of the diversification options, particularly those that do not fall into the “knowledge-intensive” bracket can be easily accessed and deployed by small and medium-sized companies. With industrial biotechnology maturing, and the gap between generation of new knowledge and application narrowing, there’s a compelling reason for these companies to explore and exploit the opportunity and rake in the rewards this may confer. All the top sugar companies have been bailed out by their diversified business units when low sugar prices have prevailed or reduced their losses. Not many small and medium-sized companies are well diversified. It’s time they followed suit.
For small and medium-sized sugar companies, the opportunity to diversify beckons
With the sugar market bullish and prices hovering in the range of 16-18 cents/lb, this is an ideal opportunity for many small and medium-sized companies to divert increased profits into diversifying their businesses and cushion themselves against market volatility. Big sugar companies, particularly those that produce 1 million tonnes of sugar or more, are heavily diversified, monetizing from a range of by-products and co-products as well as “out of the box” businesses (e.g. Cosan’s fintech (Payly), Südzucker’s pizza products, AB Sugar’s medical marijuana grown in a glasshouse). When times are good, small and medium-sized companies should ask themselves whether it is best to upgrade their sugar production operations and increase productivity or diversify.
Diversification options available to sugar companies are summarised in the table. These range from producing specialty sugars to looking at new opportunities facilitated by advances in science and technology.
Diversification routes for sugar companies
High value, low volume
Each of the options is characterized by the extent to which it is capital-intensive and or knowledge-intensive. The choice will invariably be dictated by the market for the product in the company’s locality. However, in the case of opting for knowledge-intensive generated products, there is invariably the associated costs of acquiring the new knowledge as well as securing a license for proprietary technology (where applicable).
At the fourth biannual event CIS MOROCCO 2021, a hybrid event held in Casablanca, Morocco, on 10th March. In the next session, Sebastien Rexhausen, Boston Consulting Group, provided a compelling and engaging overview of 31 leading sugar companies that have diversified their businesses. Rexhausen broke down the diversification initiatives into 5 categories (see figure). From monetizing by-products and co-products to expanding into speciality sugars and sweeteners and moving on to industrial biotech space with the production of biobased chemicals/products as well as outside the box enterprises such as breeding and fish farming, trading and shipping, and real estate. Rexhausen offered no insights into why companies opted for a specific diversification strategy nor what portion of the business should ideally be diversified to cushion the sway of volatility in the commodity market against the backdrop of any support measures locally. But it is apparent from the figure, that the top companies have opted for ‘low hanging fruit’ diversification strategies (by-products, biofuels, specialty sugars and ingredients), with few seeking to go outside their relative comfort zone and enter the ‘risk-reward’ zone of new technologies (bioplastics) as well as a range of other non-sugar related businesses.
Diversification strategies of top sugar companies
Many of the diversification options, particularly those that do not fall into the “knowledge-intensive” bracket can be easily accessed and deployed by small and medium-sized companies. With industrial biotechnology maturing, and the gap between generation of new knowledge and application narrowing, there’s a compelling reason for these companies to explore and exploit the opportunity and rake in the rewards this may confer. All the top sugar companies have been bailed out by their diversified business units when low sugar prices have prevailed or reduced their losses. Not many small and medium-sized companies are well diversified. It’s time they followed suit.
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