bunge 2004 annual report management’s discussion and analysis of financial condition and results of operations translation adjustments in our consolidated balance sheets as a component of accumulated other comprehensive income (loss). Included in other comprehensive income for the year ended December 31, 2004 and 2003 were foreign exchange net translation gains of $217 million and $489 million, respectively, representing the net gains from the translation of our foreign subsidiaries’ assets and liabilities. Included in other comprehensive income (loss) for the year ended December 31, 2002 were foreign exchange net translation losses of $403 million representing the net loss from the translation of our foreign subsidiaries’ assets and liabilities. Foreign Currency Transactions Certain of our foreign subsidiaries, most significantly those in Brazil and Argentina, have monetary assets and liabilities that are denominated in U.S. dollars. These U.S. dollar monetary items are remeasured into their respective functional currencies at exchange rates in effect at the balance sheet date. The resulting gain or loss is included in our consoli- dated statements of income as foreign exchange gain or loss. Due to the global nature of our operations, our operating results are vulnerable to currency exchange rate changes. However,  our inventory of agricultural commodities, because of their inter- national pricing in U.S. dollars, provides a natural hedge to our exposure to fluctuations in currency exchange rates. In addition, historically, our fertilizer and food products divisions also have been able to link sales prices to those of U.S. dollar-linked imported raw material costs, thereby minimizing the effect of currency exchange rate fluctuations in those segments. Argentina and Brazil The volatility of the Argentine  peso and Brazilian  real affects our financial performance. Devaluations of these currencies against the U.S. dollar generally have a positive effect on our results, as local currency-denominated costs are translated to U.S. dollars at weaker  real or  peso to U.S. dollar exchange rates resulting in lower U.S. dollar costs. In addition, commodity inventories in our agribusiness segment are stated  at market value, which is generally linked to U.S. dollar-based international prices. As a result, devaluations cause gains based on the changes in the local currency value of the agribusiness inventories. Conversely, devaluations generate offsetting net  foreign exchange losses on the net U.S. dollar monetary position of our Brazilian and Argentine subsidiaries, which are reflected  in foreign exchange losses in our consolidated statements of income. Our effective tax rate is also favorably affected by the devaluation of the Brazilian  real as we recognize tax benefits related to foreign exchange losses on certain intercompany loans. Appreciations generally have a corresponding negative effect  on our results when local currency costs are translated to U.S. dollars at stronger  real or  peso to U.S. dollar exchange rates and losses are generated based on changes in the local currency value of our agribusiness segment commodity inventories. Conversely, the appreciation of the  real and  peso generates  offsetting net foreign exchange gains on the net U.S. dollar  monetary position of our Brazilian and Argentine subsidiaries, which are reflected in foreign exchange gains in our consolidated statements of income. Our effective tax rate is unfavorably affected by the appreciation of the Brazilian  real as we incur income taxes related to foreign exchange gains on certain inter- company loans. However, as management deems prudent, we use derivative instruments to offset the foreign exchange gains on intercompany loans, which reduces the income tax expense resulting from the appreciation of the Brazilian  real . The  real appreciated 9% and the  peso devalued 2%, against the U.S. dollar in the year ended December 31, 2004, compared to an appreciation of the  real and  peso of 22% and 15%, respectively, in the same period in 2003. We use long-term intercompany loans to reduce our exposure  to foreign currency fluctuations in Brazil, particularly their effects on our results of operations. These loans do not require cash payment of principal and are treated as analogous to equity for accounting purposes. As a result, the foreign exchange gains or losses on these intercompany loans are recorded in other com- prehensive income (loss) in contrast to foreign exchange gains or losses on third-party debt and short-term intercompany debt, which are recorded in foreign exchange gains (losses) in our consolidated statements of income. European Operations We operate in countries that are members of the European Union and several countries that are not mem- bers of the European Union. Our risk management policy is to fully hedge our monetary exposures in those countries to mini- mize the financial effects of fluctuations in the  euro and other European currencies. acquisitions In 2004, we acquired the remaining 17% of the outstanding capital stock of Bunge Brasil that we did not already own for $314 million in cash. As a result of the acquisition, we now 30