US agribusiness giant Bunge Ltd announced at the end of December that it was buying Brazilian sugar and ethanol producer Usina Moema Participacoes SA for US$452M.

The move comes three months after French commodities group Louis Dreyfus unveiled plans last October to acquire Brazil's Santelisa Vale to create the world's second largest sugarcane processor.

The Bunge deal would more than double Bunge's cane milling capacity in Brazil, said a Reuters report. Bunge already has two mills and is building a third.

It now takes on full ownership of five of Moema's six mills and may reach agreement on the sixth shortly. The mills are clustered in the north of Sao Paulo state, the heartland of Brazilian sugarcane country.

The deal will give Bunge some 89% of the 15.4M tonnes of Moema’s annual crushing capacity.

Brazil's Cosan, the world's largest sugar and ethanol producer, has an annual crushing capacity of around 60M tonnes. The Louis Dreyfus venture in Brazil, called LDC-SEV, has an annual capacity of 40M tonnes.

Reuters said foreign companies had been securing a stronger foothold in Brazil's sugar and ethanol sector, long dominated by family-owned firms reluctant to share ownership, but whose heavily-leveraged mills were struggling to cope with the global economic crisis, and with high production costs this season caused by excess rains hitting cane yields.

Demand for sugarcane-based ethanol in Brazil has soared this decade with the advent of so-called flex-fuel cars, which can run purely on ethanol, gasoline or any mixture of both (see also Keeping up with global demand, p?).

Bunge expects ethanol demand in Brazil to rise sharply in the coming years, based on forecasts that the country's flex-fuel car fleet could expand at about 18%/year by 2015.

"For sugar and energy, Brazil is the ideal place to invest," Bunge chairman and chief executive Alberto Weisser said in a statement. "Its domestic market is growing rapidly. Since the country has the lowest production cost in the world, it is well positioned to increase its exports as much for sugar as for ethanol."