Agricultural giant Cargill Inc. is buying out Dow Chemical Co.'s 50 percent stake in the Cargill Dow LLC joint venture, an operation that has been an active and vocal champion of biodegradable plastics since its formation in 1997.
No purchase price was disclosed in the deal, which was announced by Cargill in a Jan. 20 news release. Officials with the venture and with both companies declined further comment until the release of Dow's fourth-quarter and full-year financial results Jan. 27.
Cargill Dow, based in Minnetonka, Minn., uses corn as its primary feedstock to make NatureWorks-brand polylactic acid resins at a 300 million-pound-capacity plant in Blair, Neb. That plant is operating well below capacity, with half of its output going into fibers and the other half used in biaxially oriented film, rigid applications and bottles. Most recently, the material was used in blow molded containers for bottled water sold in Colorado and for organic milk in Iowa.
NatureWorks PLA was selling for about $1.25 per pound in mid-2002, a sizable drop from its initial price, but still well over the prices of competing materials such as polyethylene and polypropylene.
The relatively high price, as well as Midland, Mich.-based Dow's rethinking of its business strategy, probably played a role in Cargill's buyout decision, according to Faisal Syed, a market analyst with consulting firm Chemical Market Resources Inc. in Houston.
``The [Cargill Dow] business is more of a fit for Cargill than for Dow,'' Syed said. ``It's back-integrated into what Cargill does [in agriculture]. Dow has been hunkering down and getting rid of businesses that are not strategic for them.''
Syed added that, as a private firm, Cargill of Minnepolis would have more time to nurture a product such as NatureWorks than would a public firm such as Dow.
Biodegradable plastics ``have potential value, but for the short run, they may not make a major return,'' he said.
Other firms participating in the North American biodegradable plastics market are Eastman Chemical Co., BASF Corp. and DuPont Tate & Lyle Bioproducts LLC, a joint venture between plastics and chemical leader DuPont Co. and London-based agricultural firm Tate & Lyle PLC.
Cargill Dow employs a total of 230 in Minnetonka and Blair. In early 2004, longtime Dow executive Kathleen Bader was named president, chief executive officer and chairman of Cargill Dow.