Presentation on theme: "Brazil Joint Venture Justin Guiles John Hand Tyler Hollenbach Lindsey Johnson Ben Ottenhoff."— Presentation transcript:
Brazil Joint Venture Justin Guiles John Hand Tyler Hollenbach Lindsey Johnson Ben Ottenhoff
Investment Tropicana is a subsidiary of PepsiCo and is the world’s leading producer of chilled juice. Citrosuco is the largest orange producer in Brazil and is a subsidiary of the Fischer Group. Tropicana will enter into a joint venture with Citrosuco to source a greenfield investment in Bahia, Brazil. Location strategically selected based on incentives offered by “Agência de Desenvolvimento do Nordeste” (ADENE)
Investment, Cont’d Tropicana to vertically integrate a key component of their United States operations value chain – FCOJ Investment will allow Citrosuco to expand their current market share as a global orange producer. Contribution to the LLC by the Partners will be 90/10 with profit sharing percentages at 50/50
Market Analysis Brazil exported $2 billion worth of orange juice to international trade partners in 2008, representing 80% of the world’s orange juice 60% of Brazilian orange juice went to the European Union, 20% to the U.S., and 10% to Japan Brazil exports 95% of their production
Regulatory Environment Brazil Stable political/regulatory environment Foreign investment in Brazil is not subjected to government authorization or approval. United States As a protectionist measure, the U.S. uses zeroing, an ad valorem tariff based on comparison of costs. Due to the fluctuation in the price of orange juice, the tariff rate tends to be between 27% and 49%.
Currency/ Spot Markets Brazil was plagued by hyperinflation from 1980 – 1995, but has since taken up monetary policy to significantly lower that risk. To mitigate against unexpected currency fluctuation, we propose that Tropicana purchase currency futures to hedge against possible inflation/deflation. Proposal will reduce Tropicana’s exposure to FCOJ spot market rates on the NYBOT.
Recommendation: Pursue the Joint Venture 1) The ability to realize profit despite U.S. tariffs 2) Diversification of product sources as a hedge against natural disaster 3) The ability to use oranges for product sold outside of the U.S. as those markets grow despite the current regulatory conditions in the U.S.