ABF to shake up China sugar industry with joint venture

ABF's British Sugar division already has four sugar cane refineries in the south of China, which are expected to produce more than 500,000 tonnes of sugar in the current financial year.

But having identified a "major opportunity" to improve beet sugar yields by applying the expertise it has garnered through British Sugar's activities in Europe, the group is stepping out into beet sugar by entering into an agreement with Tian Lu to form a new joint venture.

ABF is to contribute £70m (c €103m) to the venture, named Bo Tian, and will have a 51 per cent stake.

Tian Lu, which produced 145,000 tonnes of sugar at its four factories last year and saw sales of £34m (€50m), is contributing its entire beet business for a 49 per cent share.

In addition to the technology transfer, the JV will help promote better agricultural practices, and refinery capacity will be increased thanks to investments and improvements in efficiency, said ABF.

"This acquisition represents another exciting development for us in China," said ABF chief executive George Weston.

"Our experience in operating cane sugar factories in southern China, combined with our skills as the lowest cost beet sugar producer in Europe will enable us to introduce improvements quickly and efficiently to China's beet sugar industry."

Whereas China's sugar cane industry is largely in the south of the country, the beet industry is centred in the north east, where the weather conditions are well-suited to a high sugar content.

Tian Lu's four factories are in Wangkui and Yi'an in Hailongjiang province, Zhangbei in Hebei province, and Qianqi in Inner Mongolia.

Approval of the joint venture by the Chinese government is expected by the end of September.

The investment in Chinese sugar is also something of a sweetener to the bitter pill ABF has had to swallow in Europe, following the EU sugar reform that came into effect last year.

The group had to restructure its British Sugar operations, resulting in a one-off £97m (c €143m) charge against operations.

When added together with high energy costs, the charge contributed to a 21 per cent drop in operating profit to £413m (€608), Weston said last November.

According to the United Nation's Food and Agriculture Organization, China's beet sugar production was 7.9m tonnes in 2005 (the most recent year for which data is available) and its sugar cane and sugar crop production was 875.13m tonnes.