Tuesday, September 16, 2008

Sugar Company Poised To Profit As Florida Buys Its Rival

By Mary Williams Walsh

In June, Governor Charlie Crist announced that Florida would buy U.S. Sugar, one of the two big sugar enterprises in the state.

He billed the purchase as a "jump-start" in the environmental restoration of the Everglades - a national park encompassing 4,000 square miles, or 10,360 square kilometers, of marshes and sawgrass prairies in southern Florida - which cane growers are accused of polluting with fertilizer runoff.

But in the end, the $1.7 billion buyout, scheduled to be completed in early 2009, may also prove to be a financial boon to the state's remaining sugar superpower, Florida Crystals.

One of the country's wealthiest families, the Fanjuls of Palm Beach, controls Florida Crystals and today touches virtually every aspect of the sugar trade in the United States.

If you buy Domino Sugar, you're buying from the Fanjuls. Ditto C&H Sugar. U.S. national retailers prefer dealing with coast-to-coast vendors, so anyone buying a bag of sugar at Wal-Mart or Safeway is patronizing the Fanjuls.A pill or a granola bar probably contains special, high-end sugars that Florida Crystals produces for the pharmaceutical and packaged-food industries.

Sugar imported into the United States from Mexico and the Dominican Republic also stands a good chance of coming from Fanjul companies.

Now, some people in Florida are saying that if the state completes its takeover of U.S. Sugar, the opportunities that the deal presents may be a capstone to the life's work of the family patriarch, Alfonso Fanjul Jr.

"This is going to be a really good deal for the Fanjuls," said Dexter Lehtinen, a former federal prosecutor whose 1988 lawsuit against the state led to a settlement instituting tough clean water standards. "The state embarked on a nonachievable goal, and now, in desperation to wrap up some package, they're going to have to give access to Florida Crystals on favorable terms."

Others, like makers of candy and cereal, say the Fanjuls already control too much of the sugar trade. They want cheap sugar and say the Fanjuls have long charmed Congress into legislating price supports that keep it expensive.

Free-trade advocates also complain, saying that a private business has used the shelter of the federal sugar program, created in the Depression to nurture struggling farmers, to increase its corporate hammerlock.

"These people have been absolutely extorting consumers for decades, and the only reason they're existing in the first place is, they were able to get sweet deals from governments that were propping them up," said Sallie James, a trade policy analyst with the libertarian Cato Institute, referring to Florida Crystals and U.S. Sugar.

But Florida Crystals executives scoff at the notion that their company has weaved together a profitable and all-powerful sugar monopoly.

"Anyone who thinks this isn't one of the most competitive, fiercely won industries just doesn't know," said Brian O'Malley, chief executive of Domino Foods, a marketing concern in which Florida Crystals has a major stake.

Whether or not the Fanjuls have crafted a monopoly, they have certainly re-created a very lucrative business dynasty.

Fidel Castro chased the Fanjuls from Cuba in 1959, ending five generations of the family's controversial rule in the sugar industry there. Starting with cash moved out of Cuba and worn-out milling equipment bought second-hand in Louisiana, the Fanjuls spent recent decades buying refineries and related businesses.

When Crist announced the sugar buyout in June, he called the deal "as monumental as the creation of the nation's first national park."

Environmentalists were overjoyed, and the proposal made national headlines. Plans to restore the Everglades have been floated, fought over and delayed for years, often amid lobbying by the sugar companies.

Millions had been spent, reservoirs dug, water moved this way and that, but the Everglades continued to grow sickly, largely because of what analysts say is rampant overdevelopment and the loss of regular flooding that wetlands need.

Then, in one grand gesture, Crist offered a buyout that the state said would knock out a major obstacle preventing reclamation of the Everglades.

"I can envision no better gift to the Everglades, the people of Florida and the people of America - as well as our planet - than to place in public ownership this missing link that represents the key to true restoration," he said when he announced the deal.

The "missing link" was an expanse of sugar land south of Lake Okeechobee and north of the Everglades National Park. For eons, Lake Okeechobee served as the Everglades' giant wellspring, until Washington diked the lake and drained lands around it after devastating hurricanes in 1928 and 1947.

The array of earthen bulwarks and pumping stations crisscrossing that territory cut off the Everglades from Lake Okeechobee, denying the marshlands their source of freshwater floods. To make environmental matters worse, the cane planters who moved onto the newly dry land used fertilizer that leached phosphorus into what little water still made it from Lake Okeechobee to the Everglades, further degrading the marshlands.

The Crist plan initially promised to send fresh water streaming into the Everglades through a wide, shallow expanse called a flow way. To do that, the state offered $1.75 billion for the land and assets of U.S. Sugar, giving the company six years to end its operations.

But the state needs only about 24,000 acres, or 9,700 hectares, of U.S. Sugar's farmland to create a flow way, according to David Reiner, a spokesman for the environmentalist group Friends of the Everglades. He said the flow way approach was abandoned as unworkable in the 1990s, and people were surprised when Crist revived it.

For its part, the South Florida Water Management District, the state agency in charge of the Everglades restoration, recently said the flow way might require 100,000 acres.

To that end, Florida is buying all of U.S. Sugar's land - 187,000 acres - as well as a new cane-grinding mill, a large refinery and a 200-mile railroad that carries cane to the mill.

Still, taking title to U.S. Sugar's acres will not by itself enable the state to build the flow way. The state would still need an additional 40,000 acres now standing in the way - land owned by a Fanjul company, Okeelanta Corp., and home to cane fields, a grinding mill, a sugar refinery and a cane-fueled power plant.

Much of the land that U.S. Sugar owns around Lake Okeechobee is more desirable than Fanjul-owned land nearby because it's richer in sediment favorable for growing cane. Many in the sugar trade expect and even hope that the Fanjuls will use the U.S. Sugar buyout as an opportunity to expand their holdings in southern Florida, trading some of their land for U.S. Sugar's in a swap orchestrated by the state.

"If they're trying to drive a bargain, more power to them," said Ardis Hammock, a local cane planter whose family has been selling cane to U.S. Sugar since the 1930s. "It would bring some stability."

Gaston Cantens, a spokesman for Florida Crystals, said the Fanjuls did nothing to help engineer Crist's buyout of U.S. Sugar. On the contrary, he said, the family knew nothing about the deal until just a few days before it was announced. Nonetheless, Cantens said, the Fanjuls have let negotiators know that if the state ends up with more land than it needs, Florida Crystals is ready to take the excess and the new mill off its hands - but only on terms that make sense financially.

For now, Cantens said, the Fanjuls are like everyone else in Florida: They are waiting to see exactly what sort of restoration the state has in mind.

Source: Iht.Com

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