(Repeats with no changes to text)
* Cargill, ADM, Barry Callebaut buy more than half the
* Chocolate makers worried potential merger could impact
* Cargill's interest in ADM Cocoa likely to raise antitrust
concerns in Europe
By Marcy Nicholson
NEW YORK, Oct 9 (Reuters) - This past summer, European
authorities took just six weeks to approve Barry Callebaut's
$950 million purchase of Petra Foods' cocoa business,
a deal that created the world's largest cocoa company with a
quarter of the $10 billion market.
The European Commission decided the deal did not require
deeper look partly because two other firms provided stiff enough
competition in the niche industry.
Now, those two rivals, Cargill Inc and Archer
Daniels Midland Co, are hammering out the final terms of
a deal in which Cargill would buy ADM's cocoa operations,
The move threatens to concentrate at least half of the
global 4-million tonne market in the hands of Callebaut and
Acquiring ADM's cocoa operations, which span Abidjan in
Ivory Coast to Singapore, would put Cargill roughly on par in
size with the newly expanded Callebaut.
That has dealers, grinders and confectioners worrying the
combination of Cargill and ADM's cocoa operations may exert too
much influence over the prices it pays for beans and how much it
charges for its products.
It would be a "formidable prospect" for independent grinders
and merchants, said Jeff Rasinski, corporate director of
procurement for Blommer Chocolate Co, the biggest grinder in
North America, in an email to Reuters.
Another wave of consolidation may raise antitrust flags too.
While Callebaut's merger sailed through the European Commission,
Cargill is unlikely to be so fortunate, legal experts say.
Regulators are likely to take a deep look at the firms' bean
processing operations in Europe, by far the biggest region for
grinding beans to make butter and powder that go into chocolate
bars and cookies.
"I would think that there's a reasonable prospect that
whichever agency takes it would give it a second request and
give it a serious look," Robert Skitol, a senior antitrust
partner in Drinker Biddle & Reath LLP said.
Scrutiny would likely center on the Netherlands and Germany,
where almost a quarter of global grinding output takes place and
the combined company would have nine production facilities,
market participants say.
In contrast, Callebaut's Petra Food deal gave it a share of
the Asian market, where there is still ample room to grow.
Unlike the farming sector that is still fragmented with many
small holder growers operating in Asia, Africa and South
America, grinding is already dominated by about ten players.
Removing one of the biggest players could force Cargill to
sell some assets to placate regulators, market participants
Olam International Ltd, Cemoi Chocolatier and Ecom
Agroindustrial Corp Ltd would be Cargill's nearest rival in
terms of bean grinding, but they only account for a fraction of
grinding volume, data shows.
The deal would also increase the gap between other big
dealers such as Noble Group.
"Big is not necessarily better and could lead to more
aggressive pricing strategy and approach to the market,"
Blommers' Rasinski said.
The deal is significant by any measure: in ADM, Cargill will
nearly double the estimated volume of beans it handles a year to
about one million tonnes, enlarge its grinding footprint in
Europe and the United States and nab a second plant in Asia, the
fastest-growing region measured by demand.
Confectioners like Hershey Co and Mars may be big
enough players in their own right to protect themselves from any
undue influence over prices, but small- and medium-sized buyers
may struggle to maintain market share.
"Less competition means they can dictate prices to suppliers
and customers alike," said one cocoa buyer.
"They can turn on or switch off capacity to influence prices
without worrying about the competition."
The deal comes as the highly volatile market is in the
throes of its biggest turnaround in over a year. Bean prices on
ICE Futures U.S. hit 13-month highs on Wednesday at
$2,733 per tonne on concerns about a shortage in the 2013/14
Confectioners in Asia and the United States are already
paying the highest prices in five and eight years respectively
for butter as they pick up the pace of buying after drawing down
GRAINS VS COCOA
For ADM, the departure from cocoa would cement a shift
towards the grains sector as it finalizes its $3 billion
takeover of GrainCorp, the largest bulk grain handler
on Australia's east coast.
After investing heavily in recent years, Cargill appears to
be betting on rising long-term demand as consumers in emerging
markets develop a taste for chocolate.
A growing appetite for chocolate in Asia and Latin America
is expected to spur an annual 2 percent rise in global retail
volume demand until 2017, according to a report by Euromonitor
International Ingredients published in July.
Some dealers have questioned why Cargill wants to expand in
the highly cyclical industry, but small dealers and processors
see even greater competition.
"When there is excess capacity, the goal of every dominant
firm is to drive firms with fewer financial resources and less
diversification out of its industry," said Steven Haws, analyst
at Commodities Risk Analysis based in Bethlehem, Pennsylvania.
(Additional reporting by Diane Bartz in Washington; Editing by