Ledesma Sociedad Anónima Agrícola Industrial

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Ledesma Sociedad Anónima Agrícola Industrial

Avenida Corrientes 415
Buenos Aires, C.F. C1043AA3
Telephone: (54) (11) 4378 1155
Fax: (54) (11) 4378 1688
Web site: http://www.ledesma.com.ar

Public Company
Incorporated: 1914 as Nueva Compania Azucarera y Refineria Ledesma
Employees: 5,000
Sales: 790.45 million pesos ( $266.14 million) (2003)
Stock Exchanges: Buenos Aires; OTC
Ticker Symbols: LEDE; LMSA F
NAIC: 112111 Beef Cattle Ranching and Farming; 111310 Orange Groves; 111320 Citrus (Except Orange) Groves; 111334 Other Noncitrus Fruit Farming; 111930 Sugarcane Farming; 311311 Sugarcane Mills; 311312 Cane Sugar Refining; 311411 Frozen Fruit, Juice and Vegetable Processing; 322121 Paper (Except Newsprint) Mills; 322233 Stationery, Tablet and Related Product Manufacturing; 325193 Ethyl Alcohol Manufacturing

Ledesma Sociedad Anónima Agrícola Industrial, Argentina's largest sugar producer, is a model of stability: it has had only four presidents in nearly 100 years. It is also one of the few large Argentine companies that remains in Argentine hands. Ledesma is a diversified company that also produces and sells cereals, meats, fruits and fruit juices, and paper products, sells electrical energy, and explores, develops, and exploits gas fields. These activities are closely tied to its original business as a sugarcane grower and sugar producer.

First Sugar, Then Fruit and Paper: 18301970

The history of sugar producer Ledesma may be traced back to the 19th century. Jujuy is the name of an Argentine province located in the extreme northwest of the country, and Ledesma is a department of that province, named for the Spanish general and governor who built a fort there. Around 1700, another provincial governor introduced sugarcane and sugar manufacture in Jujuy's San Francisco river valley. Members of the Ovejero family had established a mill in the department by 1830, and by 1864 that property was yielding 69,000 kilograms (759 tons) of sugar a year. In 1876 English machinery was brought in by oxcart from Tucuman and installed by an English mechanic, Roger Chadwick Leach.

The business did not really begin to flourish, however, until the railroad came to Jujuy in 1891. In 1908, David Ovejero and Angel Zerda founded Compania Azucarera Ledesma (The Ledesma Sugar Company), which they sold three years later to Enrique Wollmann and Carlos Delcasse, who incorporated in 1914 as Nueva Compania Azucarera y Refineria Ledesma. Wollmann was president until 1928, when he was succeeded by Delcasse's son Jorge. In 1938, Herminio Arrieta, an engineer with the company, was named president.

Some 40 years later, Ledesma had increased its production of sugar and alcohola byproduct of sugar productionsixfold. Much of this expansion resulted from the purchase, in the early 1960s, of a company called Calilegua, which consisted of the nearby La Esperanza sugar plantation and mill.

La Esperanza was founded in 1882 by the Englishman Roger Chadwick Leach and partners. The operation consisted of 2,500 hectares (about 6,175 acres) and a channel for irrigation water. In 1895 Leach and his five brothers bought out the last of the partners. For the harvest they imported indigenous Indian tribes from the remote Chaco region to work the fields. A community named La Esperanza flourished, with schools, hospitals, and sports facilities. Sugarcane production under the Leaches reached a peak of 67,865 metric tons in 1959, perhaps as much as Ledesma's own output. The property also included orchardschiefly of oranges and pomelosplanted as early as 1916. At some point Ledesma also acquired a smaller plantation, El Palmer de San Francisco, in another department of Jujuy.

In 1956, the company adopted its present name, Ledesma Sociedad Anónima Agrícola Industrial. Ledesma added a third sugar mill in 1963, increasing its capacity to refine sugarcane by 40 percent. The company opened a cellulose and paper mill in 1965, using as raw material bagasse, the residue from sugarcane. This made it one of the six larger paper producers that dominated the industry. In addition, some of the molasses obtained in refining sugarcane was converted to ethyl alcohol. The company's energy needs were being met by waterpower, natural gas, and burning its own bagasse. Mechanical equipment for the sugarcane harvest was introduced in 1967. Ledesma's goal was to process 2.4 million metric tons of sugarcane a year in order to yield 300,000 tons of sugar, 90,000 tons of bagasse pulp, 100,000 tons of paper, and 30 million liters of ethyl alcohol. (The company also had established by this time juice-concentrate and fruit-packing plants.)

However, these plans were frustrated by the perennial problem of sugarcane overproduction and the consequent low price of sugar that threatened the economic survival of small plantation and mill owners and thousands of field hands. The Argentine government first offered export subsidies, then established barriers to entry such as prohibiting new mills. Production caps began in 1967, to Ledesma's dismay, since smaller sugarcane crops meant not only less sugar production but also less bagasse for the paper mill that the company was planning to expand.

Vertical Integration: 19702000

Carlos Pedro Blaquier became the company's president in 1970. Ledesma now had 30,000 hectares (almost 75,000 acres) of sugar plantations and fruit orchards. It obtained over half of the sugarcane it milled from its own plantations. Since Jujuy did not receive enough rainfall to meet its crop needs, the plantations and orchards were irrigated by 120 kilometers (about 75 miles) of principal canalsmostly concrete and covered to avoid evaporationand more than 1,000 kilometers (620 miles) of secondary canals, the water being diverted from four rivers. The company employed 6,300 full-time workers and hired 7,000 more for the harvest, since the process still was only partly mechanized.

During the early 1970s the government raised sugar production quotas, but Ledesma's paper production did not benefit until fiscal 1977, when labor-union problems were finally overcome and machinery put in place for the planned expansion of the mill. Ledesma had record sugar production in 1976 and 1977 (263,362 metric tons in the latter year), but then quotas were cut because of low internal demand and export curbs which were imposed by a group of exporting countries. An important reason for low demand was competition from non-caloric sweeteners such as saccharine and cyclamates and corn-derived fructose for use in such products as snacks and soft drinks. Combined, these products had taken 30 percent of the sweetener market by the 1980s.

In the early 1980s Ledesma opened a milling plant in Villa Mercedes, San Luis, for converting wet corn to fructose, glucose, and other corn-based products. Challenges continued in the mid-1980s, when a new law intended to support prices prohibited new fructose plants, banned imports of the product, and put production caps on corn syrup. Seeking to diversify its operations, Ledesma established a factory on its Villa Mercedes property for making notebooks and other stationery from the company's paper mill. The alcohol plant had been modified in 1983 to produce anhydrous alcohol for combination with naptha into a motor fuel. In 1985, when Ledesma reported annual sales of about $110 million, 63 percent was derived from sugar, 32 percent from paper, and 4 percent from alcohol. Ledesma later acquired four farming/ranching tracts in the provinces of Buenos Aires and Entre Rios for the cultivation of grain crops and the raising of cattle. In addition, the company took a small share in an enterprise seeking to develop Argentina's abundant deposits of natural gas.

The free-market reforms urged by the administration of President Carlos Menem and enacted by legislation during 1991 and 1992 had profound effects on Argentine sugar producers in the 1990s. Fixed sugarcane prices, production quotas, and export taxes were eliminated. Capital goods such as machinery were allowed entry without tariffs until 1996. These changes resulted in a 15-percent growth in sugarcane production between 1993 and 1998, even though land devoted to sugarcane fell by one-fifth. Since domestic sugarcane consumption (fourfifths of the total) remained flat (while consumption of other sweeteners grew ten-fold between 1980 and 1999), the 1999 price was 70 percent lower than it had been in 1976. As a result, marginal producers were forced out of business. The number of cane producers fell by one-third in the 1990s, and 5 percent of the remaining growers were producing 70 percent of the crop.

2001 and Beyond

In the early 2000s, Ledesma's main agricultural complex at Libertador General San Martin included 35,000 hectares (about 87,000 acres) planted in sugarcane, and 2,000 hectares (about 5,000 acres) planted in oranges, lemons, pomelos, avocados, and mangos, plus the juice-concentrate and fruit-packing plants. Ledesma had become Argentina's chief producer and exporter of oranges. The complex also included factories for the production of sugar, alcohol, paper, and cellulose, facilities to generate more than 49,000 kilowatts of energy, 600 kilometers (about 370 miles) of roads, and 1,400 kilometers (almost 900 miles) of irrigation canals.

Company Perspectives:

Ledesma is guided by deep-rooted ethical convictions. Respect for human dignity is a hallmark of the Company's relations. Personal and professional development is a primary goal, and teamwork a rule. Ledesma encourages creativity and innovation, as fundamental values for a country and a world undergoing constant change. Both internally as well as externally, our word is our bond and commitments are honoured. Ledesma has a vital commitment to quality and to its clients, who are offered the best product and the best service. These are the principles that seek to boost earnings that reward intensive dedication and work and enable long-term growth.

In 2001 this complex milled 3.14 million metric tons of sugarcaneabout half from its own plantations, the rest purchasedand manufactured 333,899 metric tons of sugar, more than 20 percent of the national total. Some 61,175 metric tons were exported. Ledesma retained about half of the rest and sold the remainder to commercial customers. The sugar was packed in bags ranging from the "classic" one kilo (2.2 pounds) found in supermarkets to the "Big Bags" of 1,100 to 1,250 kilograms (2,420 to 2,750 pounds) for the industrial sector. The molasses obtained in manufacturing sugar yielded 29.21 million liters of alcohol, some one-fifth of the Argentine total. About one-tenth was exported. Fruit production came to 70,613 metric tons, of which about half was exported and one-third converted to concentrated juices. Paper production, in rolls, sheets, cut-size, and continuous printer paper, came to 69,848 metric tons, making Ledesma one of Argentina's leading paper producers, accounting for 30 percent of national output of printing and writing paper. This production consisted of bobbins and large reams for the graphic industry; small reams for photocopies, photoduplication, offset printing, and ink-jet and laser printers; and rolls for offset, dot-matrix, and laser printing.

Glukovil, Ledesma's factory at Villa Mercedes for processing wet corn, was yielding corn syrup, corn starch, glucose and other such products. Fructose, in syrup form, was being produced as a substitute for sugar in carbonated soft drinks, juices, liquors, and industrial processes requiring liquid sugar. Glucose, in syrup form, was being used in the manufacture of caramels, nougats, milk chocolate, and other confections. Mixed syrups were being used generally in the manufacture of sweets, marmalades, preserved fruits, and other confections. Malt syrup was destined primarily for the beer industry. Corn starch was being produced for use in the paper, textile, food, and petroleum industries. Gluten feed and gluten meal were being produced as additives in cattle fodder and poultry feed, respectively. Corn germ was being produced as an ingredient in the production of corn oil. Also at this location was the Grafex San Luis factory, producing school notebooks, notepads, loose-leaf paper, and office stationery from the company's paper.

La Biznaga S.A. was the name of Ledesma's agricultural enterprise that comprised 52,000 hectares (almost 130,000 acres) in four farms and ranchesone in the province of Entre Rios, the other three in the province of Buenos Aires. These facilities had a combined storage capacity of 53,000 metric tons of grain. La Biznaga beef was said to be enjoying a high level of acceptance in supermarket and hypermarket chains. Ledesma also held a 4-percent stake in U.T.E. Aguarague, a company dedicated to the exploration, development, and distribution of deposits of petroleum and natural gas in the province of Salta. Ledesma was receiving from Aguarague 80 million cubic meters of gas a year for use in its industrial plants.

Sales rose 23 percent between 2002 (fiscal year ending March 31, 2002) and 2003, reaching 790.45 million pesos ($266.14 million) in the latter year. As Argentina's economic crisis deepened, the net profit margin of only a little more than 1 percent in 2002 disappeared entirely the following year, which ended with a net loss of 12.9 million pesos ($4.34 million). Ledesma's small long-term debt indicated that it was not in serious financial difficulty, however. Blaquier was still president of the company in 2003.

Principal Subsidiaries

Bridgeport Investments L.L.C. (62%; United States); Calilegua, S.A.

Principal Competitors

Alto Parana S.A.; Celulosa Argentina S.A.; Ingenio y Refineria San Martin del Tabacal S.A.; Massuh S.A.; Witcel, S.A.

Key Dates:

The Ledesma sugar mill and plantation assumes a company structure.
Enrique Wollmann becomes president of Ledesma.
Record sugar production realized at La Esperanza, a plantation purchased by Ledesma soon after.
Ledesma adds a cellulose and paper mill, with sugarcane residue as the raw material.
Carlos Pedro Blaquier assumes the presidency.
Ledesma adds a wet-corn mill to produce sweeteners other than sugar.
Ledesma is producing about one-fifth of Argentina's sugar.

Further Reading

Craviotti, Clara, Azucar y conflictos en el Norte argentino, Buenos Aires: Centro Editor de America Latina, 1992.

"El gigante de Jujuy," Mercado, November 30, 1972, pp. 4144.

Garcia, Luis F., "El papel de la discordia," Mercado, November 26, 1987, pp. 12223.

, "La accion del mes," Mercado, March 21, 1985, pp. 7173.

Sierra e Iglesias, Jubino P., Un tiempo que se fue, San Pedro de Jujuy: Universidad Nacional de Jujuy, 1998.

Moyano, Julio, ed. The Argentine Economy. Buenos Aires: J. Moyano Comunicaciones, 1997, pp. 46869.

Rece, Lucio G., and Gabriel H. Pavellada, El sector agropecuario argentino. Buenos Aires: Editorial Facultad Agronomia, 2001.

Schleh, Emilio J., Noticias historicas sobre el azucar en la Argentina. Buenos Aires: Centro Azucarero Argentino, 1945, pp. 26569.

Silveti, Edgardo A., "Ledesma: Tecnologia y produccion," Mercado, June 7, 1973, pp. 3031.

Robert Halasz

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