February 23, 2001
NET FARM INCOME COULD DROP $9 BILLION
IN NEXT TWO YEARS; BY NEARLY 25% BY 2010
"It would be a disaster of a magnitude that would be well beyond political acceptability," is the way University of Tennessee economist Daryll Ray recently described to a Congressional committee the future of crop agriculture. "Left to itself, it would continue its downward spiral, bankrupting successive farmers on a given piece of land, forcing bank foreclosures and, in general, wreaking devastation on all rural areas.”
Other studies and testimony also underscored Ray’s gloomy forecast.
Predicting that U.S. net farm income could drop more than $9 billion in the next two years, taking a triple hit from reduced government payments, rising production costs, and lower prices for milk and hogs, a report prepared by the Food and Agricultural Policy Research Institute (FAPRI) was also presented to Congress.
"The projections represent our best estimates of what the world
would look like under a very specific set of assumptions," says Robert Young,
codirector of FAPRI at the University of Missouri, who was chief briefing
spokesperson in the presentations to the agricultural committees of the U.S.
Senate and House of Representatives. "The principal purpose of a baseline is not
to predict the future, but to serve as a benchmark for
analyzing alternative policies," Young says.
The FAPRI baseline is prepared by agricultural economists at the University of Missouri-Columbia and Iowa State University in collaboration with economists from other universities.
In addition, federal farm subsidies radiate in a vicious circle as tax money spent to prop up farmers leads to overproduction, lower crop prices and the need for even more taxpayer payments, according to a study by Sparks Companies Inc. of Memphis, Tennessee, a global consulting firm whose clients include large agribusiness firms, investment banks and government agencies. .
The study said that large farmers benefit disproportionately from the bailouts. and that the government bailout money helped skew market conditions. "The current programs nail the little guy," agreed Iowa State University economist Michael Duffy. "We're propping up a system that is not working."
The Sparks study questioned the need for the $70 billion the government has spent since 1996 to bail out farmers going in part to large, highly efficient farm operations. Many big operators can compete successfully in domestic and global markets on their own, it said. If the current system of annual bailouts continues, the study cautioned, the fruit, vegetable and livestock industries, currently kept out of the public money trough, "will seek a slice of the pie."
Iowa State University economist Neil Harl sees the FAPRI projections signaling for the agricultural economy a "clear and present danger." Farming, Harl said, "is extremely vulnerable. We could have a replay of the 1980s," he adds.
The FAPRI study looked at 80 composite farms across the country, which are designed to replicate real-world conditions.
The annual 10-year baseline projections, used in legislative policy-making, show net farm income declining from the present $45.4 billion to $36.3 billion in 2002, the lowest level in a decade. That is a decline from $55 billion net farm income in 1996, when world grain supplies were low and commodity prices were high.
The FAPRI baseline projects net farm income beginning to recover after 2002. By 2010, it will climb back to $45 billion, well below previous peaks. Other projections in this baseline are that direct government payments to producers will fall by more than half between 2000 and 2002.
FAPRI projects crop prices in the near term to average 20% below the 1995-99 levels. The brightest spot in the outlook is a continued increase in cattle prices through 2003.
Leading the increased production costs are rising prices for natural gas used in the manufacture of nitrogen fertilizer, felt essential for corn production. Expenses for fuel, fertilizer and other manufactured inputs increased more than 10% in 2000. "Expenses are expected to show another significant increase in 2001 due to higher fertilizer prices," the report said.
On the income side, plentiful world supplies of crops keep prices under pressure. The baseline projections are based on assumptions that include normal weather, continuation of present farm programs, and that government loan rates continue at their maximum levels through the baseline period.
The Sparks study cites Census of Agriculture data that show the largest farmers in 1997 got 12% more for corn and 16% more for soybeans than the smallest. The largest farmers, said company vice president J.B. Penn, "are really efficient in terms of having a very low unit-cost structure. And nobody has paid attention to that."
Output, Sparks said, should have dropped, too. It didn't
because "as long as production is profitable at the subsidized price, farmers
will continue to produce." Iowa State’s Duffy disagreed with that piece of the
analysis. Farmers boost production as prices drop, he said, because they need to
boost their incomes with higher volumes.
LIFE AFTER USDA
JOINS ADM FRIENDLY LAW FIRM
While it came as no surprise to those that know how U.S. agricultural policy is formulated and administered, the announcement recently that former USDA secretary Dan Glickman has joined Akin, Gump, Strauss Hauer & Feld, one of Washington’s major lobbying and law firms to “advise” the firm’s client on food and food safety, health, biotechnology and international trade issues, his joining that particular firm has its curious aspects.
Glickman signed on as a partner in the public law and policy practice group and while he says he'll "probably play a role . . . one way or another" in new farm legislation next year, reports the Washington Post’s Judy Sarasohn, he will not actually be buttonholing his former colleagues, says partner Joel Jankowsky.
"We . . . didn't bring him on to occupy the halls of Congress. We have other people to do that," said Jankowsky, who heads the public law and policy practice group. "Virtually every one of our clients is affected by the intersection of government and business," Jankowsky said, and Glickman's "ability as a problem solver" will benefit the firm's clients.
"For 25 years, I've been involved in the public policy sector and this firm has the best public policy practice I've seen," Glickman told Sarasohn in a recent interview. He said he also admired how senior partner Robert Strauss, who held posts in both Democratic and Republican administrations as well as heading the Democratic Party at one point, has been able to "transcend" party politics.
It is that “admiration” of Strauss, a long-time personal friend of Dwayne O. Andreas former CEO and Board Chairman of Archer Daniels Midland (ADM) and current ADM board member, that makes Glickman’s new role with Akin, Gump, Strauss Hauer & Feld one of curiosity and might even suggest the answers to certain unanswered questions surrounding the ADM price fixing scandal and the negotiations surrounding the debarement issue.
As Nicholas Hollis, President of the Agribusiness Council points out it is common for companies entering guilty pleas in federal criminal cases to automatically be disbarred from doing government business for a period of time. In the ADM case, it appears that a shrouded deal was struck between USDA and Akin Gump (representing ADM), which enabled the price fixing company to maintain its lucrative federal contracts and subsidies, while a second legal team from Williams and Connolly (also representing ADM) hammered out other details of the $100 million fine/plea agreement with attorneys from the Department of Justice (DOJ)
“Later the USDA and the DOJ professed different stories on these negotiations,” Hollis adds, “particularly important over the fine point on whether the USDA actions in lieu of debarement were known by DOJ attorneys when the plea bargain was presented for approval before Federal Judge Ruben Castillo in Chicago. (See Issue #92). The DOJ emphatically says "NO" while USDA spokesman, Mike Dunn stated "Yes" in a public forum speaking (See Issue #30) to Joel Klein, DOJ's antitrust chief, who was in overall charge of the case from mid 1995.”
Additional details on this chapter in the ADM (“Supermarkup to
the World”) price fixing scandal can be found in Jim Lieber's book Rats in
the Grain: The Dirty Tricks and Trials of Archer Daniels Midland - The
Supermarket to the World, (2000) p. 318.
ANDRE & CIE:
LARGE SWISS GRAIN TRADER
TO UNDERGO “RADICAL RESTRUCTURING,”
EMPHASIS ON “VALUE-ADDED” BUSINESSES
Andre & Cie, one of the world’s five largest grain companies, has announced that it plans a radical restructuring for the second time in a year reflecting the need to move toward more value-added businesses with the "start of a brand new company," according to a senior company official.
Yves Cuendet, Andre's secretary general, told Dow Jones Newswires’ Claire Wilkinson that after the company posted losses in excess of $200 million in 1999 and 2000, the need for the company to streamline its operations "went much deeper than originally foreseen." The latest move comes a year after Andre announced similar restructuring plans when 225 employees lost their jobs and the company moved to "substantially diminish" its vegetable oil, sugar and energy trading divisions.
He said the company would now only focus on its core trading areas ---namely wheat, feed grains, rice, oilseeds, cocoa and coffee --- but that within these areas more attention would be placed on trade that offered the most value-added opportunities. The anticipated restructuring measures should allow the group to post 2001 sales of $2.9 billion, the company said.
A family-owned private business the Swiss commodity trader, which currently has operations in southeast Asia, Europe, Africa and Latin America, said it would cut just over 60% of its 1,430-strong workforce and trim its number of companies from 80 to just 23. Cuendet said that the oilseed crushing facilities --- all of which are located in Argentina and Brazil --- would be offered for sale under the new restructuring plans, including crushing facilities in Argentina that were offered up for sale after its last round of restructuring.
The restructuring announcement came after the company reported losses of $209 million in 2000 on top of a $285 million loss in 1999. Management also hopes to cut bank debts to $361 million by the end of the year, down from $407 million at the end of 2000. At the end of 1999 bank debt stood at $623 million.
Though international wheat markets have been depressed for the past two years, the company told Dow Jones Newswires it believed that stocks "should strongly diminish" in the next years and added that "a strong price recovery should be conductive to better business opportunities for our group".
"A transition from a buyer's market to a seller's market will allow us to generate better margins with less performance risks during business execution," the company said.
Indeed, Wilkinson reports,.some market watchers attribute at least some of Andre's losses in 1999 to a trading "mishap" in the Chicago Board of Trade soybean futures trading pits that year. The Swiss newspaper Le Temps reported in late February 2000 that the losses amounted to $178 million and were run up by Andre's Italian subsidiary Saroc SPA.
At the time, Cuendet refused to comment on the accuracy of the
figures, saying only that those cited by the paper had come from the summary of
a presentation by Andre management to banks.
WORLD’S LARGEST PORK PROCESSOR
PREPARING TO GO “WHOLE HOG” IN EUROPE
Not satisfied with being the U.S.’s largest hog producer and processor, Smithfield Foods is now seeking to become Europe’s dominant force in the production and packaging of pork.
"There's no reason whatsoever that Animex cannot be the largest pork packer and hog producer in all of Europe," Luter said recently during a meeting of the Consumer Analyst Group of New York, held in Naples, Florida.
Animex, is the unprofitable operation in Poland that Smithfield purchased over the objection of Polish farmers in April, 1999 and is now the country’s largest pork producer. Although still unprofitable, Luter claims "we can afford to take losses for a couple of years. We have always been a long-term player, and that's a big part of the success of Smithfield Foods."
Smithfield bought the operation during a hostile takeover in April 1999 for $55 million. Luter said the company was worth $500 million, so Smithfield can afford to give the operation time.
While many restrictions are imposed on U.S. agricultural products, including Smithfield's, from entering the rich countries of Western Europe, Luter sees Poland poised to become, within the next five years, a member of the European Union, a union that breaks down economic barriers between countries and thus Smithfield's Polish subsidiary may have a good shot at access to those rich countries.
"Europe is pretty well closed to the United States, but we'll be coming in the back door through Poland," Luter said.
As Newport News (Virginia) Daily Press’s Peter Dujardin reports, at the conference, Luter laid out several strategies for the growth of Smithfield Foods, already the world's largest pork producer, at 12 million hogs a year, and the largest pork processor, at 19 million hogs a year.
The company, which had once purchased from other sources most of the hogs it processes, recently bought out three large hog producers. Doing that, Luter explains, takes away some of the industry's cyclical nature: When hog prices are up, the hog producing side of the house does well. When hog prices are down, the hog processing side of the house does well.
But controlling production is about more than taking out that profit cycle, he adds. It also means the company can better control the consistent quality of its meat.
"The way to have a strong brand name is to have consistent product," Luter said. "McDonald's may or may not have the best hamburger, but it's been consistent, consistent, consistent." And Luter contends that Smithfield's Foods meat is not only consistent, but "consistently the best in the world."
Luter said the company also will continue its strategy of providing "case-ready" meats, meaning it will pack lots of its own meat so companies like Wal-Mart won't have to hire a butcher to chop up the hog on site. Wal-Mart is concerned about the bacteria involved in the butcher business, and wants to buy all its food ready to sell. Luter predicted lots of grocery chains will soon follow Wal-Mart's lead.
Smithfield's Lean Generation pork, the name for its low-fat pork, was also discussed by Luter, according to Dujardin. Smithfield obtained exclusive rights in the United States and Mexico for the genetically modified lean hog from the National Pig Development Company, a British firm, in 1991.
The company says the hog is the leanest in large-scale commercial production in the United States as Smithfield is going all out for lean pork. The process began in 1991 with 2,000 lean hogs, which now number 385,000 or nearly half of all of Smithfield's hog stock. A 3.5-ounce piece of Lean Generation "sirloin roast" has 122 calories, as opposed to 172 calories for the same size piece of a typical chicken breast, Luter said, a study by the Sarah W. Stedman Center for Nutritional Studies at Duke University.
Luter also said he was not too bothered that Smithfield lost
out to Tyson Foods in its bid for IBP, saying that the bidding got higher than
Smithfield thought IBP to be worth. He said he was happy to take as a
"consolation prize" the $75 million Smithfield got for selling its shares of
WILL TAKE A PRETAX CHARGE OF $108 MILLION;
THROWING TYSON FOODS BUYOUT IN DOUBT
Originally, in responding to a Securities and Exchange Commission (SEC) inquiry regarding its Foodbrands America's DFG unit, a Chicago hors d'oeuvres maker, IBP Inc. said a company charge could be as much as $47 million before taxes, an amount that did not include possible reductions for impairment of goodwill or other long-lived assets associated with DFG.
Now after further SEC inquiries, in light of its impending purchase by Tyson Foods, the nation’s largest meat packer, has said it will instead take a pretax charge of up to $108 million related to the write-down of assets at its DFG unit. IBP, once branded the nation’s number one ”corporate outlaw,” said the charge “may affect” its previously reported results.
In late December, the SEC questioned, among other things, the company's accounting methods for acquisitions, including DFG, which was purchased in October 1998 for an undisclosed sum.
Additionally, IBP said it will take a charge of $44.9 million, or 26 cents a share, against last year's financial statements, slightly below the company's earlier indication. Specifically, the company said it will take a $15.5 million charge for its 1999 fourth quarter, $17.4 million in charges for the first three quarters of 2000, and a $12 million charge for the just-completed fourth quarter.
Also, IBP said it will also apply "variable plan" accounting principles to account for options to acquire about two million shares granted to officers between 1993 and 2000 under its stock option plan. The company said these changes will produce a charge or credit, but the amount hasn't yet been determined.
IBP, Dow Jones Newswires reports, also says it is finalizing a forensic investigation into the causes and responsible parties that led to the misstatements and irregularities at DFG and has provided detailed updates to Tyson after having thrown into jeopardy its $3.2 billion deal with Tyson and causing Tyson to extend its tender for IBP shares four separate times.
Tyson Chief Executive John Tyson vowed Wednesday that "we're
going to buy" IBP, but said the deal wouldn't be completed until the accounting
issues are resolved. Tyson, the nation’s largest U.S. poultry processor,
extended its cash offer to February 28. Tyson has yet to launch the stock-swap
portion of the offer, which is part of its Jan. 1 pact to acquire IBP.
“MERCHANTS OF LABOR”
MEXICAN GOVERNMENT TO LAUNCH PROBE
OF MISSING BRACERO WITHHELD WAGES
Between 1942 and 1964 nearly five million Mexicans harvested U.S. crops mostly in California, Texas and other Southwestern states.
It was immediately after the beginning of World War II that California agribusiness interests, pleading a domestic labor shortage, sought to make it possible for more Mexican farm laborers to enter the U.S. After Mexico declared war on the Axis powers the U.S. and Mexico entered into such an "executive agreement" which was ratified by only an exchange of diplomatic notes in August, 1942.
The provisions of the agreement included: Mexican workers were not to be used to displace domestic workers but only fill proved shortages; recruits were to be exempted from military service and discrimination against them was not to be permitted; the round trip expenses of the worker were guaranteed, as well as living expenses en route; hiring was to be done on the basis of a written contract between the worker and his employer and the work was to be exclusively in agriculture.
These braceros (literally "arms," the Hispanic equivalent of the Anglo word "hand," meaning a laborer available for hire), were free to buy merchandise in places of their own choosing. Housing and sanitary conditions were to be adequate. Work was guaranteed for three-quarters of the duration of the contract and wages were to be equal to those prevailing in the area of employment, but in any case not less than 30 cents per hour. Deductions amounting to ten percent of earnings were authorized for deposit in a savings fund payable to the worker on his return to Mexico.
As Ernesto Galarza recounts in his epic book, Merchants of Labor: The Mexican Bracero Story, what followed in the some 21 years of the bracero program is one of the more shameful chapters of American agriculture and U.S. history where laws were blatantly abused and the program was extended far beyond the purpose for which it was created by corporate agribusiness interests interested solely in maintaining a cheap labor market.
The legacy of that shame has again come to public attention with the announcement that Mexican government officials will now investigate the alleged disappearance of millions of dollars earned by the braceros used in the U.S. during the war and after.
Although the surviving braceros and their families failed in their first attempt to recoup hundreds of millions of dollars that the U.S. Farm Security Administration withheld from them and deposited in the Farmworker Savings Program in Mexican farm banks, their cause has gained momentum in the past few years but generated little Mexican government interest.
However, in a sign of the changes since the defeat of the deeply rooted Institutional Revolutionary Party, a point man for President Vicente Fox said the new administration strongly endorses the investigation. "We need to find out exactly what (is) or is not owed," said Juan Hernandez, director of the president's office on Mexicans living abroad, told the Los Angeles Times’ Rich Connell and Robert J. Lopez.
Galarza points out that a Presidential Commission on Migratory Labor in 1951 noted that "in effect the negotiation of the Mexican International Agreement is collective bargaining in which the Mexican Government is the representative of the workers and the [U.S.] Department of State is the representative of our farm employers."
Finally, weary of such informal agreements during the war years the Mexican government insisted in the early 1950's that any further contracting of Mexican labor must be done under the supervision of the U.S. government. Such action was taken under what was know as Public Law 78. The declared purpose of the law, enacted on July 12, 1951, was to assist "in such production of agricultural commodities and the products as the Secretary of Agriculture deems necessary, by supplying agricultural workers from the Republic of Mexico."
It authorized the Secretary of Labor to recruit such workers, established and operate reception centers, provide transportation, finance subsistence and medical care in transit, assist workers and employers in negotiating contracts and guarantee the performance by employers of such contracts. The law also established the policy of the Federal Employment Service "to provide for the recruitment of workers for employment in the U.S. . . . only when such recruitment is in accordance with provisions of an agreement between the U.S. and a foreign government."
But, as Galarza showed, Public Law 78 simply allowed agribusiness to mold the law to its own purpose, controlling how many braceros it used, how it distributed them geographically and by crops, the economic uses to which they were put, the ways in which the contract labor pool was manipulated, and the administrative procedures that were devise to insure, from the industry's point of view, an almost ideal cheap, subservient and government sponsored labor market.
Today more than two million braceros, who spent years performing back-breaking labor for U.S. agricultural companies from 1942 to 1964, now find themselves well past retirement age and back where they started before crossing the border: no pension plan, no social security, no money.
In addition to the Mexican government investigation , attorneys in the U.S. are preparing to file a class-action lawsuit on behalf of ex-braceros on both sides of the border. Even if the funds can't be found, lawyers hope to build a case proving that the governments and banks are still liable.
Investigating the savings fund will be complicated by the passage of time and the possibility that records no longer exist. One of the Mexican banks has said it does not know what became of the workers' savings.
While much of the controversy has focused on Mexico, under the international accord, the U.S. government was responsible for ensuring that workers received proper benefits. Federal agencies were officially the "employer" of the braceros, a requirement Mexican officials sought to help protect the workers' rights.
Public records reviewed by the Los Angeles Times show problems soon developed on both sides of the border with oversight of the contracts and the savings program. Part of the oversight problems stemmed from the limited number of Mexican government officials in the United States to monitor contracts and work sites. "It is impossible for these officials to meet the demands for their services," concluded a 1945 analysis by the Pan American Union, now the Organization of American States.
Scholars who have examined the issue, Connell and Lopez report, say it is not clear that all of the workers' money made it to Mexico.
“Under the agreement, employers were to deduct the funds and
forward them to the U.S. government, along with records showing how much each
worker was owed. The monies were then to be credited to Mexico's Central Bank
and sent to two other financial institutions. But Mexican banking officials
complained that the United States was lagging in forwarding the documentation
needed to promptly disburse the savings to workers, according to Mexican news
accounts from the period.”
FABLE OF ENDLESS WELFARE:
FAIRY GODFATHER OF WESTLANDS
Once upon time, there were these Great Lords of Westlands: Giffins, Pecks, Harrises, Dieners, Stones, ONeills, Boswells, Southern Pacific, Standard Oil, Wolfs. They had many lands and an unlimited supply of water to make these lands fertile, or so they thought in the 1920s, when they were young and brash.
By the mid-40s they were running out of water. Pumping too much.They stormed the Federal Fairy Godfather demanding water to save their empires from disaster. Cheap water. Water paid 95% by taxpayers throughout the whole land. Water which was in limited supply. Water the supply of which Godfather could not guarantee... For long.
So it came to pass. Other Lords, Sub-Lords and Sub-Sub-Lords throughout the land became agitated by this proposed great largesse Godfather was giving to the Lords of Westlands. To quiet these objections, Godfather required that the Lords of Westlands sign a pledge to him that after they became rich from this nearly free water, they would share said water with Sub- Lords and Sub-Sub-Lords from across the land at the same prices they paid for the water. The Lords of Westlands gladly signed these pledges, all the while giggling behind their other hand, because Godfather had secretly promised them never to call in the pledges.
So it came to pass. Another glitch appeared. All of the Godfather seers foretold that more water brought to Westlands would pollute the lands and the waters therein. So the Lords directed Godfather to take away the pollution and dump it out of the Westlands . . . Without consent from the other places which were to be polluted.
So it came to pass. Godfather delivered much water at 5% of actual costs. The Westlands and its waters became polluted. Godfather tried to take the pollution away, but the other places to be polluted objected. Pollution spread to other lands and waters. Birds became deformed. People feared for their health. A great outcry across the land forced Godfather to stop moving the pollution away.
So it came to pass. Much land of the Westlands Lords itself became polluted and unfertile. And Godfather himself began to run out of water. So the Lords of Westlands directed Godfather to rescue them from mounting financial ruin.
So it came to pass. Godfather is buying much land of the Lords so they can move elsewhere to grow surplus crops. Godfather is not paying the Lords what the land is worth without the water. Maybe $200/acre. He is paying $2,000-$3,000/acre, a price which assumes the land is fertile and adequately watered. Neither of which is true. It is saline, polluted and desert.. Godfather does not really care about the price because it is not his money. It is our money.
So it came to pass. Godfather again lines the pockets of the Lords of Westlands... At our expense.
Many Westlands Lords are upslope from the pollution. They will remain with super cheap water and fertile lands. They will expand their riches. They will laugh all the way to the bank. They will whine about Godfather in public places because he likes birds and a few other Sub-Sub-Lords and tiny animals. However, all the while, they are plying him with $$ and other favors in private so he is readily available next time they have a great need.
Reprinted from the February 19, 2001 SunMt Chronicles: Weekly
Web Notes email@example.com at
(The infamous federally susidized Westlands Water District
is located on 650,000 acres of land in California’s southwestern San Joaquin
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