Drought, ethanol hangovers only blemishes on Cargill's second quarter earnings

By Hank Schultz

- Last updated on GMT

Related tags: Agriculture

Drought, ethanol hangovers only blemishes on Cargill's second quarter earnings
Cargill has reported a more than 300% increase in year-over-year second quarter net earnings, from $100 in 2012 to $409 million in 2013.  The only blemishs on the earnings report were lingering effects from the 2012 drought in the US and overcapacity in the agricultural sector related to US policies to promote the product of ethanol for fuel.

“The steps we've taken over the past months to focus attention on what our customers value most, change how we work, instill more cost discipline and invest in growth are paying off in the current year,”​ said Greg Page, Cargill chairman and CEO.

Cargill’s food ingredients business was the only one of the company’s five sectors to show negative results from a year earlier.  Policies pursued in recent years by the US government to boost the production of ethanol have distorted grain markets to some degree, and a drop in US fuel consumption attributable to both the lingering effects of the recession and an a slow increase in the fuel efficiency of the US vehicle fleet has had an effect.  According to the Nebraska state government, the US installed ethanol production capacity as of Sept. 2012 was about 14.7 million gallons, of which about 13.6 million gallons was in production.

Internal reinvestment

The company said it  spent more in 2012 on investments in internal operational improvements.

"We have a record $2.4 billion of large projects under construction in 13 countries,"​ said Page. "As these facilities come on line, they strengthen Cargill's supply chain, risk management and innovation capabilities.”

The company had been in acquisition for the two years prior, Page said.  Included in those acquisitions was Cargill’s $2.1 billion purchase of Provimi, a global animal nutrition company, a deal that closed in late 2011.

Sustainable palm oil award

Among Cargill’s overseas operations are large palm oil plantations in Southeast Asia, especially in Indonesia in the state of West Kalimantan.  These plantations were recognized by the state government in late December with a “Best Investor” award, recognizing the company’s achievements in the areas of corporate social responsibility, technology in environmental management, employee-employer initiatives and employment practices, as well as business stability and compliance with regulations. Cargill has received similar awards from district governments in Sulawesi and Sumatra.

“The future of Indonesia as the world’s largest producer of palm oil must be considered in terms of environmental sustainability as a fundamental guiding principle,”​ said Cargill executive Angeline Ooi in a recent interview with the Jakarta Post.​  Ooi is CEO of Singapore-based Cargill Tropical Palm Holdings Pte. Ltd.

“What is good for the environment is good for business and sustainable farming is the key to the livelihoods of the smallholder farmers as well as to Cargill, our customers and consumers,”
​she said.

Cargill is a member of the Roundtable on Sustainable Palm Oil, an international organization founded in 2004 with the participation of the World Wildlife Fund.

“Prior to the establishment of the RSPO criteria, Cargill had already committed not to plant high conservation value forests [HCVF] and to only develop new plantations on degraded land,”​ she said.

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