Corporate profile: Cerestar
June 01, 1996
by Teresa Acklin
Europe's leading starch processor sees global expansion of operations, markets.
By Diane Montague, European correspondent
When Eridania Beghin-Say of France finalized the acquisition of American Maize-Products last November for U.S.$430 million, the purchase marked a major expansion in the worldwide development of E.B.S.'s starch processing business, Cerestar.
E.B.S. is one of Europe's leading agro-industrial groups and one of the largest in the world in the starch sector. With sales of over U.S.$10 billion and employment of nearly 20,000 people, the group is one of the biggest producers of sugar, starch-based products, vegetable oils and animal feeds. It is also the third largest oilseed processor in North America through its ownership of Central Soya and the joint venture CanAmera.
Cerestar, with headquarters in Brussels, Belgium, is Europe's leading producer of starchy products with a market share of more than 30% of the European Union's 6-million-tonne output. In 1994, Cerestar's turnover was U.S.$1.642 billion and its operating income was U.S.$171 million, accounting for 16.2% of E.B.S. group turnover and 21.5% of group operating income.
American Maize was Cerestar's first acquisition outside Europe and its largest acquisition by far. The fifth largest starch producer in the U.S., American Maize annually processes more than 1 million tonnes of maize in three plants at Hammond, Indiana; Decatur, Alabama; and Dimmitt, Texas.
The starch processing operations of E.B.S. through Cerestar are based on the former European industrial division of the U.S. company CPC International, which was acquired by the Italian conglomerate Gruppo Ferruzzi in 1987 for U.S.$630 million.
Starting in the 1920s, CPC built up a network of starch processing companies in most European countries. By the early 1980s, it had 13 plants in eight countries and marketing offices in another seven.
Meanwhile, in the 1970s, Gruppo Ferruzzi was developing a strategy for “green chemistry” within the European Community. At a time when the problem of agricultural surpluses was beginning to arise, Ferruzzi argued against the concept of set-aside. Rather than leave land idle, Ferruzzi said it made more economic sense to use a valuable resource not just for food production but also as a source of renewable raw materials for industry and energy. This had the advantage of reducing reliance on fossil fuels and minerals and being better for the environment.
Ferruzzi's first major acquisitions in 1979 were Italy's leading sugar producer Eridania and a shareholding in the French producer Beghin-Say subsequently increased to a majority share-holding in 1986. This was followed in 1987 by the acquisition of CPC International's starch processing operations in Europe, Central Soya in the U.S., the oil processing companies Lesieur in France and Koipe in Spain and the Italian rice processor Industrie Risi. These formed the basis of the Ferruzzi plan to focus on the processing and use of sugar, starch and oilseeds. Ferruzzi renamed CPC's starch processing business to Cerestar at the end of 1987.
Following the financial crisis of 1993, Gruppo Ferruzzi was restructured. The crisis was brought about by huge commodity trading losses at the end of the 1980s and by the battle with Enichem for control of the Italian chemical group, Enimont.
Eridania Beghin-Say became the holding company for Ferruzzi's six operating divisions. Ownership of E.B.S. itself was split between the Italian industrial group Montedison, with 51% of the shares, and the public. Ownership of Montedison was split between Ferruzzi Financiaria, a group of international banks and the public.
The purchase of American Maize is the E.B.S. group's biggest acquisition since the structural and financial reorganization. It increased Cerestar's maize-based starch processing capacity by one third, to well over 3 million tonnes; the company also processes some 600,000 tonnes of wheat and 180,000 tonnes of potatoes.
Cerestar currently has 15 plants in Europe; nine are grinding plants and the other six carry out further processing of specialty products such as citric acid, sorbitol, polyols and modified starches.
Among the variety of facilities is a modern glucose refinery in Manchester, U.K., producing a wide range of glucose syrups, caramel, dextrose and starch; a plant at Sas van Gent, the Netherlands, designed to process waxy maize, the starch from which is particularly suitable for use in foods; and a plant in Spain that concentrates on materials for the pharmaceutical industry. Products for the paper industry are manufactured at Krefeld, Germany, and Haubourdin, France.
Cerestar's aim is to be able to produce starch from a wide range of carbohydrate sources to take advantage of economic developments and the structural differences in the starch molecules themselves. Although maize remains the main raw material for starch production, use of wheat is increasing. Most of Cerestar's plants process only maize, although the Netherlands plant processes both wheat and maize and the Zulpich, Germany, plant processes only wheat.
In addition, the new plant at Barby in eastern Germany (see accompanying article) has developed production processes to produce a wide and flexible range of sweeteners for the food, drink and confectionery industries based on wheat starch. The company's newest plant, Barby is the largest dedicated wheat starch plant in the world, but its core equipment has been designed to switch to maize processing if this becomes a better economic proposition.
Cerestar's president and managing director, Silvio Kluzer, says the company's strategy is to maintain a balance between wheat and maize to hedge its bets against the political uncertainties of the Common Agricultural Policy.
“Some people believe in corn (maize) and some in wheat,” Mr. Kluzer told World Grain in an exclusive interview recently. “It is difficult to see which will be the most competitive in the future. At the moment wheat has the edge because it costs less. But we believe it is prudent to be able to handle both grains because the economics of wheat are very dependent on the market price of its co-product vital wheat gluten, which in itself is very volatile.”
POLICY, RESEARCH AND MARKETS.
So far, the industry has not been affected by changes in trade as a result of the General Agreement on Tariffs and Trade. It is still the CAP itself which has the strongest influence on the operations of the industry and the raw materials it uses. However, the market for all starch is increasing.
Mr. Kluzer said demand for starch acted as a barometer of economic trends. Average annual growth in demand in the European Union is running at 3% to 3.5%, of which 1% is generated by new products and applications and the rest by actual increases in industrial production.
Mr. Kluzer said research was given a high priority in the company's strategy, with between 1.5% and 2% of turnover allocated to technical research and product research and development. Cere-star's Application Centre Food at Vilvoorde just outside Brussels has recently been expanded and is, according to Cerestar, one of Europe's most advanced centers for food application studies and process and product development.
Initially concentrating on starch-based materials, the Centre is now drawing in researchers from other parts of the E.B.S. group, creating new opportunities for exchanging ideas on uses of raw materials and technology. A similar research and development facility for application research on paper is located at the Euro Centre Paper at Krefeld, Germany.
Much of Cerestar's philosophy is based on the huge range of uses for starch-based products because of the adaptability of starch molecules. One of the company's most exciting recent developments is a functional sugar produced from glucose by industrial fermentation.
The product, erythritol, has specific characteristics that allow its use in sugarless food and drink where traditional polyols are unsuitable for the finished product. At the moment, this product is commercially available only in Japan where it is being used in a wide range of sugarless food, drink and confectionery. Marketing in other countries is on hold until the product is approved by the U.S. Food and Drug Administration expected soon.
On the processing side, Cerestar has developed a method of continuous processing for crystallization of dextrose, which until now has been possible only in batch processes.
Longer term, Mr. Kluzer said the potential for starch as a base material for whole sectors of “green” and environmentally friendly products was very exciting. In the chemical industry, starch can provide a feedstock that functions better and is better for the environment than fossil-based materials. Two major areas of potential expansion are in detergents and biodegradable plastics where the technology already exists but at the moment is considered too expensive compared with traditional mineral-based products.
One of the attractions of American Maize to Cerestar was its product range, which dovetails well with the company's European plants. American Maize also provides some other products not in the Cerestar range.
Of particular interest is American Maize's development of cyclodextrins. Still in the very early stages of development, cyclodextrins contain molecules that can encapsulate other molecules; this feature has very important applications in human health for slow release of drugs and as a filter to remove cholesterol in high fat foods. Cyclodextrins also are awaiting F.D.A. approval.
Other American Maize products and technology that attracted Cerestar are spray dried food modified starch and the company's hybrid maize breeding program, which is producing strains of plants with different starchy characteristics.
Cerestar also was attracted to the philosophy, shared by both companies, of producing specialty high-added-value products alongside simple, high-volume materials relying on efficient production technology for their margins. Another area of interest to Cerestar was American Maize's presence in the high fructose corn syrup market, which enjoys a healthy rate of growth.
“We are the leading starch producer in Europe and intend to maintain this position,” says Mr. Kluzer, “but with limited opportunities for organic growth in the European market we have to grow from acquisition geographically. So we decided to invest in the U.S., which is still the largest market in the world.
“We are not going in with an aggressive attitude because our strategy is to grow with the market, but the U.S. still maintains a faster rate of growth than Europe and is still expanding. It is also a country where the market for products like HFCS has grown faster than in Europe.”
The starch processing industry is becoming more and more global, Mr. Kluzer said, with only five major processors in the United States and five in Europe. By having a base in the United States, Cerestar will be in a position to benefit from the expanding markets for starch products likely to come from the North American Free Trade Agreement. A further advantage of the U.S. business was the opportunity to learn more about markets in South America.
Another area of expansion for Cerestar is in Asia, Mr. Kluzer said.
“We believe Southeast Asia is going to be the area of the world where there will be the biggest expansion in demand for starch products in the next 20 years,” he said.
As a first step, Cerestar is in the process of establishing two joint ventures in the area, consisting of a maize wet milling plant in China and a plant in Thailand for producing food modified starch from tapioca. With Cerestar's aim of building production on the widest possible raw material sources, the Thai plant will provide a new link in the Cerestar range, producing starch with a different structure that has particular uses in processed foods.
Despite the potential in Asia, Cerestar is by no means overlooking developments in Eastern Europe. It is this market that led to the decision to build the new plant at Barby in the Sachsen-Anhalt region of eastern Germany about 100 km southwest of Berlin.
Mr. Kluzer believes there is still a lot of uncertainty surrounding the economic developments and consumption of starchy products in East European countries. But Barby, situated on the far eastern edge of the European Union, provides a good strategic position from which to develop markets in these countries when opportunities arise.
“Barby gives us good access to East European countries,” Mr. Kluzer said. “If the E.U. develops a customs union with these countries, Barby is in a very good location to supply them. So rather than go directly into Eastern Europe we prefer to remain in the west, but as far east as possible.”