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Since the start of the year the price of sugar futures has almost doubled. This is welcome news for Brazil, the world’s largest producer of the stuff. The price spike is mainly explained by unfavourable weather—too little rain in India and too much in Brazil. India’s sugar production fell by almost half last year, turning the country from the second-biggest producer to the biggest importer. For Brazil’s big sugar companies the timing is perfect: the credit crunch set off a wave of consolidation in an industry that had been resistant to it. The firms that have survived now have more scale and lots of cash.
Louis Dreyfus, a French commodities giant, bought Santelisa Vale, a large processor of sugar cane, in April. Santelisa had expanded fast and taken on too much debt, a common mistake in an industry that had the highest levels of investment of any industry in Brazil before the crunch. Dreyfus, which already trades sugar, soya beans and other Brazilian agricultural goods, wanted to bolster its position. At the other end of the spectrum is Copersucar, a giant cooperative that unites lots of small growers in Sao Paulo state.
The biggest of the lot is Cosan, which alone produces 2.5% of the world’s sugar. Last year it bought Exon Mobil’s distribution and retailing business in Brazil to help it sell its ethanol. This year it bought Nova America, a smaller sugar company. Like many of Brazil’s big companies Cosan mixes family ownership with capital from BNDES, Brazil’s government-owned development bank. And like many other Brazilian giants, it has suffered a vicious feud within the founding family over who should run the business.
Rubens Ometto Silveira Mello fought the other members of his family for ten years in Brazil’s courts before winning control of Cosan. In 2007 he strengthened his grip by setting up Cosan Limited, a company with a dual share structure that accords some of Mr Mello’s shares ten times the voting weight of ordinary ones. To do this, he listed Cosan Limited on the New York Stock Exchange, since Brazil’s Novo Mercado, where Cosan was listed at the time, does not allow such arrangements.
Mr Mello, who is splendidly forthright, did not let the subsequent controversy bother him overly. “You’re pissing on sludge and you don’t know what’s under your feet,” he once told Dilma Rousseff, one of the front-runners for next year’s presidential election, during a discussion of the government’s energy policy. Marcos Lutz, an executive at Cosan, argues that the fuss about corporate governance is a distraction. The firm is professionally managed, he insists, and it was no surprise to shareholders that Mr Mello wanted to preserve an outsize say in the firm’s strategy.
The market for ethanol has been growing at 17% a year, much faster than that for sugar, points out Luiz Pereira de Araújo of ETH Bioenergia, another fast-growing sugar firm. Such growth is likely to persist, thanks to increased sales of flex-fuel cars, which can run on petrol or ethanol. What is more, the Brazilian sugar-cane growers’ association is optimistic that Europe and America will eventually reduce tariffs on Brazilian ethanol. If that happens, Brazil’s growers, crushers and distillers will be even happier than they are already.
1. The main reason for the boom of sugar futures in Brazil is ______.
A) India’s withdrawal from the market
B) the credit crunch
C) the irregular global distribution of rain
D) the industrial consolidation
2. Which of the following is NOT a similarity between Cosan and other companies?
A) State-owned.
B) Family conflict.
C) Initially private ownership.
D) Including state capital.
3. The word “feud” (Line 5, Paragraph 3) in the article most probably means ______.
A) relationship
B) fault
C) circle
D) hostility
4. Which of the following problems may exert the most negative influence on Cosan?
A) The dual share structure is not permitted by Brazil’s Novo Mercado.
B) The fight for an absolute control of the company.
C) The switch to ethanol falls short of strategic foresight.
D) The controversy concerning Cosan Limited’s listing in New York Stock Exchange.
5. Toward the prospect of Brazil’s sugar industry in the foreseeable future, the writer’s attitude can be said to be ______.
A) indifferent
B) doubtful
C) objective
D) optimistic