Marubeni Plans Further Investment in Gavilon to Raise Grain Exports
Two years ago, in July 2013, Marubeni made its biggest investment in the group’s history when it acquired the U.S. grain trader, Gavilon for $2.7 billion. The goal attached to the acquisition was to increase the group’s share in global grain trade.
Prior to its purchase of Gavilon, Marubeni expected the company to contribute approximately US$160 million to the group’s overall annual net profit, however, for the fiscal year that ended in March, Gavilon contributed to a US$250 million loss after a marginal contribution to profits the previous fiscal year.
Since the 2013 purchase, disappointing harvests in the U.S. have dented Gavilon’s earnings, and the streamlining of operations has taken Marubeni longer than expected, leading many in the industry to expect Marubeni to divest itself of the grain trader.
However, Keizo Torii, chief operating officer for Marubeni’s grain division says that a sale is not being considered, and in fact, Marubeni will be investing to secure facilities that will increase its grain exports from the Gulf of Mexico by an additional 7 million tons per year.
Having already secured the necessary land for a grain-exporting elevator at the Mouth of the Mississippi River in Louisiana, Mr. Torii told the Wall Street Journal, “Exporting capability is one of the most necessary things to fully leverage Gavilon’s potential.”
Marubeni is currently examining the costs associated with building its own grain exporting elevator on the Gulf of Mexico, but the group has said it would not be against a long-term lease on an existing facility if it makes financial sense. Together with its elevators in Portland, Oregon and Sao Francisco do Sul in Brazil, Marubeni is planning to supply grain to high-demand markets in South America, the Middle East, and North Africa, and increase the volume of its annual grain handling from 70 million tons to 100 million tons by 2020.
“The plan to secure exporting capability on the Gulf of Mexico would be key,” said Kazuhisa Mori, vice president of Japanese equity research at J.P. Morgan. “Gavilon’s main strength is collecting grains from farmers in the Mid-West, while Marubeni’s strength is its global trading network. You have to link these capabilities to make better margins.”