SOS And Bertolli Strike A Deal

The big news of recent days is the confirmation that Unilever will be selling its edible oils and vinegar businesses to the Spanish company SOS-Cuétara. The deal, reported by all news services to be worth 630 million euros, is actually a perpetual right to use the brand name 'Bertolli', along with various other labels owned by the Dutch company, solely in the sales of the above products. Unilever will continue to market various prepared foods in that name. In this regard, it is an odd arrangement, seeing as two independently run companies will be defending the integrity of one well-known brand. One can imagine a situation arising in which, for example, tomato sauce sold by Unilever as Bertolli were to encounter some sort of public health problem. How would olive oil from SOS escape implication in the eyes of the consumer?

Details as to how SOS is to fund the purchase are, so far, scant. Mentioned in a number of places have been the possibility of bridge financing. For the uninitiated, this is a loan that banks give you when you have expenses to pay now but will not be receiving income until some pointing the future. The loan provides a 'bridge' between the two dates and is typically - without even taking into account the currently problematic credit markets - fairly expensive, reflecting the risk that the future might not materialize as foreseen. The situation likely reflects a certain difficulty in locating willing lenders through normal channels. The proposed source of the funds to repay the bridge loan included the stock market (less than wholly appealing in the current environment) and the sale of assets. As an aside (and without declaring or implying that it is or might ever have been the case), were interested parties ever to consider entering into stock market transactions to defend the company's valuation, the sudden inclusion of Bertolli, conceivably with Caparelli included, would immediately make desired results much more expensive to attain.

As to the impact the completion of this deal might have on the market, one can only think that having one company controlling the bottling and marketing of 25 or 30 percent of worldwide olive oil sales will be less than happy news for producers, although it is possible that consumers may derive some benefit. Growers and co-ops should prepare to deal with an even more recalcitrant bid in the future. One can also imagine certain groups preparing presentations for competition tribunals at both national and the EU level.

Interesting (or perhaps, revealing) the Madrid stock exchange reaction to the news. The revelation on Monday produced a very muted reaction 0.1% gain. Although SOS' stock is since up 5% (as of the time of this post) the accompanying volume of sales has not been, by any measure, outstanding. One would have thought that SOS' commitment to spend around 35 or 40 percent of its current average annual gross revenues of the last few years (according to Reuters) on a single aquisition would have produced more excitement - were it to be positive or negative.

The Economic Slowdown Will Affect The Harvest

Today's online edition of El Ideal reports on the effects that the economic slowdown in Spain is having on immigrant labour. The headline says it all: 'The Crisis Feeds On Immigrants'.

In the context of a meeting of the Provincial Forum on Immigration, attended by various government officials and representatives of the Red Cross and other NGO's that deal directly with immigrant labour, the conclusion reached was that, with unemployment (led by the collapse of the construction sector) skyrocketing, much of the demand for manpower during the 2008-09 olive harvest will, for the first time in years, be met by the local labour force.

One wonders if olive growers in Jaén are not going to find themselves in the middle of an uncomfortable situation as a result of this. They can expect to see more documentation checks on the work site for two reasons. First would be to make sure no unregistered foreigners are depriving Spaniards of jobs. This is understandable, but the problem will arise if the Junta de Andalucía also starts, under mounting budgetary pressures, seriously enforcing laws requiring national day labourers to be registered as such. Experience proves that it is virtually impossible to contract labour under those conditions in this corner of Spain because all available hands are already receiving some sort of unemployment benefit, which would have to be foregone if the legalities were respected.

We'll see how this fact of life gets dealt with at the administrative level.

First Crop Predictions

The internet version of Diario de Cádiz reports that the Spanish agricultural co-op association, FAECA, estimates that olive oil production from the 2008-09 crop will fall some 8% in Andalucía, and 9% in Spain as a whole with respect to this year. This would place production at, more or less, 2006-07 levels. This would also go some way towards explaining the certain firmness of olive oil futures prices. Although at low levels, one notes a tendency to the upside, be it one cent at a time.

As happened a few weeks ago, PoolRed has again reported an unrealistically low price figure for lampante grade oil. In this case, it is less than 2.16€/kilo - 10 cents below July futures and not accompanied by any notable change in either virgin of extra virgin prices. This should not be taken as representative until further evidence presents itself.

Readers might have noticed that we have not updated cash or futures prices in the right hand sidebar over the last few days. The problem is that we cannot, for whatever reason, get access to our Google Docs spreadsheets. Logging in turns up a blank screen. If the situation persists, we will find other means. Thanks for your patience.