Warren Watch: Brazilian investors help Buffett to big share of food industry pie
Warren E. Buffett takes part in a NADA Automotive forum in conjunction with the New York International Auto Show on March 31 in New York. He told attendees he envisions Berkshire Hathaway buying more car dealerships.
Steve Jordon
POSTED: SUNDAY, APRIL 5, 2015 1:00 AM
It’s no coincidence that investors from Brazil have made Warren Buffett a bigger player in the world’s food industry, Agence France-Presse reports.
When Brazil’s military dictatorship ended in 1985 after more than 20 years in power, barriers to world trade lifted. “The low cost of land and labor give Brazilian foodstuffs producers key comparative advantages,” said economist Maria de Albuquerque David of Rio University.
Demand for more meat from China and rising domestic buying power meant growth for Brazil’s food industry.
JBS of Brazil is now the market leader in meat and the No. 2 global food producer, by revenue, behind Nestlé, the story said. Brazil is the world’s second-largest producer of soy products, after Argentina. Another Brazilian company, BRF, is the world’s largest exporter of poultry and is building a $140 million production plant in Abu Dhabi.
Jorge Paulo Lemann, Brazil’s richest man with a net worth estimated at $26 billion, built his business empire on beverages, using a series of mergers to create AB InBev. The company brews about 20 percent of the world’s beer, including global brands Stella Artois, Corona and Budweiser.
“Jorge Lemann is not a brute, but he has his objectives,” David said. “He is an entrepreneur sniffing out profit and efficiency.”
Lemann’s investment fund, 3G Capital, acquired Burger King and partnered with Buffett’s Berkshire Hathaway Inc. to acquire H.J. Heinz and Canadian coffee shop chain Tim Horton’s. Heinz’ pending acquisition of Kraft Foods Group would create North America’s third-largest food and beverage company.
Lemann, 75, was born in Brazil to Swiss parents. He is a former Davis Cup tennis player and a graduate of Harvard University. In acquisitions, he and partners Marcel Telles and Alberto Sicupira deploy “cost killer” managers who eliminate non-productive spending so that savings can be reinvested in marketing and innovation, a 3G spokeswoman said.
On CNBC last week Buffett said such cost-cutting is “certainly a part of capitalism. ... Having excess cost is not a recipe for success in any business unless you have a monopoly, and you certainly don’t have it in food.”
In a 2013 Fortune magazine interview, Lemann said, “We are copiers, actually. Most of the stuff we’ve learned has been from Jack Welch, Jim Collins, from GE, from Walmart. We’ve sort of put it all together.”
Car dealers calling
Car dealers have been calling Buffett and Larry Van Tuyl to become part of Berkshire’s new automotive group.
“We have heard from a lot of dealers,” Buffett told CNBC last week. “We will hear from more, I’m sure, and I’d be very surprised if five years from now we aren’t a whole lot bigger.”
The auto group has 81 dealerships that sell 240,000 vehicles a year, with annual revenue of about $8 billion.
Van Tuyl, whose family auto business was acquired by Berkshire last month, said he’s looking for high-volume dealerships that are reasonably priced, owned by “somebody that wants to put it in good hands.”
He promised “a fair price. ... We will take good care of their people, and we think there is a lot of opportunity to do that. ... We’ve got to keep growing, we’ve got to keep doing the right thing. I personally think that Berkshire Hathaway just moves the bar.”
Greece euro pullout maybe not so bad?
If Greece pulls out of the euro zone, Buffett told CNBC last week, “that may not be a bad thing for the euro.”
“Over time, the countries in the euro zone have to have somewhat compatible labor laws, fiscal deficits, general management of their economy that don’t result in outliers that really aren’t playing the game the way the rules are supposed to be,” he said.
Greece’s departure might cause the remaining nations in the euro zone to “put real teeth in various items, such as limits on government debt,” he said.
“So the euro is not dead and it may never be dead,” Buffett said, “but it does have to work on greater harmonization of financial matters in its constituent countries because it can’t live with people going dramatically different directions. The Germans are not going to fund the Greeks forever.”
Farmers need more say, Howard says
Farmers in underdeveloped countries need a bigger voice in farm policy, Warren Buffett’s son Howard said recently at a conference in Chicago attended by about 700 U.S. farmers.
“Academics who have never been on a farm in their life are making decisions about ag policy,” he told Farm Journal editor Charlene Finck. “If farmers had more say in what policy turned into, it would allow us to do a better job.
Buffett said he owns a ranch 200 yards from the Arizona-Mexico border and recently had “six drug busts on our ranch. We have had border patrol arrest drug smugglers within 100 feet of our house. If you talk to ranchers down there about gun control, you are going to get a different answer than in other parts of country. It’s a matter of life or death in Arizona. They have to protect their lives and livelihoods.
“But it’s not a good feeling for them. They have a higher threat level constantly. They worry about their wife at home and their kids. Our border is not secure. It won’t be secure under the laws we have today.”
He said the United States’ temporary worker program known as H2A “is a disaster. If you are operating a farm, especially fruits and vegetables, you are almost forced under our system to hire illegal people.”
One of the problems with hunger in the United States is that people don’t believe it exists, he said, but he sees hunger while volunteering for a Meals on Wheels program.
“It’s amazing how many people are veterans or widows of veterans,” he said. “In rural areas, one of the biggest challenges is hunger, and it’s partly because they don’t have access to food, don’t have transportation, can’t buy gas. Most people are embarrassed to ask for help.”
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