The
AGRIBUSINESS EXAMINER
Montioring Corporate Agribusiness From a Public Interest Perspective
A.V. Krebs  Editor\Publisher
 

Issue #115                                                                          May 7, 2001
 

DAIRY FARMERS ASK:
KRAFT "CHEESE"?: ADULTERATED FOOD?
FDA: "DON'T ASK! DON’T TELL!"

America’s dairy farmers already besieged with a chaotic national milk price structure, increasing concentration within the dairy industry, growing energy costs, corporate pressure to employ a questionable bovine growth hormone (rBGH). and the ever-present threat of foot and mouth disease are now being menaced by still another threat to their economic livelihood.

Milk Protein Concentrate (MPC) is today being widely used in the making of so-called cheese products, principally by Kraft, the nation’s largest cheese manufacturer, and Land O’Lakes. The general definition of MPC is a blend of dry dairy ingredients from 42% to 90% casein (pure dairy protein). The World Trade Organization (WTO) has two Harmonized Trade Schedule (HTS) numbers to designate MPC --- 04049 and 3501.

HTS04049 is made by ultra filtering skim milk, retaining anything the size of a protein or larger (bacteria, somatic cell, etc.) and then drying that to form a powder. With HTS 3501 proteins obtained in other ways can be added (i.e., casein). Neither of these two products are considered milk by the Food and Drug Administration’s (FDA) definitions.

"MPCs are cheaper than domestic forms of dairy proteins (farm milk, nonfat dry milk, etc.). Not manufactured in the U.S. MPC’s are added to cheese vats --- on the cheap yielding more end products with `savings' retained by the manufacturer," according to John Bunting, a Delaware County, New York dairy farmer. Traditionally, half of all U.S. milk is destined to go into cheese production.

Imported MPCs come from traditional dairy countries such as New Zealand, which provides the U.S. with 45% of its imports. Other countries importing MPC’s into the U.S. include Argentina, Poland, India, China and the Ukraine, home of the city of Chernobyl. Between 1996 and 2000 imports of MPCs into the U.S. increased by 400%.

Recently the USDA announced that it was scrapping plans to tighten restrictions on dairy imports posing a risk of foot-and-mouth disease. Any further restrictions on dairy imports will not take effect until a public comment process and publication of a final rule, USDA said May 4. European Union officials announced written confirmation of the decision.

The import restrictions would have primarily affected some European soft cheeses and products containing casein. Casein would have had to be treated at ultra-high temperatures needed to kill the FMD virus. Cheeses would have been required to be similarly treated or to have aged sufficiently to kill the virus.

Under U.S. law, using an ingredient not approved by the FDA is one form of food adulteration. FDA defines food additives as “all substances . . .the intended use of which results or may reasonably be expected to result . . .in their becoming a component or food otherwise affecting the characteristic of food.”

MPC is a food additive without exemption. FDA has no standard for MPC. The FDA does not list MPC among food additives "Generally Regarded As Safe" (GRAS). Thus, using MPC in any human food constitutes adulteration, EXCEPT when individual manufacturers have followed exact costly and complex rules for properly self-determining unapproved food additives to be GRAS.

If a food manufacturer like Kraft, which has 56.8% of the nation's cheese market and 62.2% of the “American” cheese market, and Land O’Lakes completes a self-GRAS determination then use of MPC in a non-standard food would be legal. FDA’s GRAS self-determination rules require each food manufacturer using an unapproved food additive to conduct its own self-determination.

“As of late January, 2001,” Bunting notes, “no food manufacturer has voluntarily submitted any GRAS self-determination to the FDA. Nor has FDA reviewed any GRAS self-determinations by firms listing MPC in human foods. Don’t ask! Don’t tell!”

As Peter Hardin, editor and publisher of the authoritative monthly The Milkweed, who along with Bunting has done much of the investigation of MPC use in the U.S., shows “virtually EVERY Kraft processed `cheese’ product in the supermarket contains MPCs. Add up the Kraft products listing MPC as an ingredient: Cheez Whiz, Velveeta, the array of processed Singles products, Kraft emerges as a huge user of the 100-120 million pounds of MPCs that entered the U.S. in 1999. Kraft now spells processed cheese products `M-P-C’.”

Hardin also has demonstrated that certain claims about Kraft’s processed “cheese” products “appear to be less than truthful.” For example, Kraft uses the word “Cheez,” not cheese in Cheez Whiz, but still claims that Cheez Whiz is a “cheese dip.” And, he adds, “good luck finding cheese in Velveeta, a Pasteurized, Prepared Cheese Product.’

“Kraft has intentionally `dumbed down’ the quality and integrity of the “processed `cheese’ products by using MPC,” he adds. “But Kraft (and others) want more. The National Cheese Institute (NCI) has petitioned the FDA to allow ANY dairy ingredient (foreign or domestic) to be used in cheese manufacture. Kraft --- NCI’s largest member --- wants to make it legal for all cheese manufacturers to `dumb down’ all cheeses, processed, natural . . whatever. Why? Cheaper ingredients boost corporate profits.”
 

KRAFT FOODS:
NATION'S SECOND LARGEST IPO
PLANS TO RAISE $8 BILLION FROM PUBLIC STOCK SALE 

In the second largest initial price offering (IPO) in U.S. history, Kraft Foods, the food division of tobacco giant Philip Morris, has revealed plans to raise $8 billion from a public launch, selling 280 million shares of common stock for between $26 and $31 per share before July 1. According to a Securities and Exchange Commission (SEC) filing the stock would pay an initial annual dividend of 52 cents per share.

"The numbers are staggering," Kyle Huske, market analyst for IPO.com. told the Chicago Tribune’s Ameet Sachdev. "You just don't think you're going to see something of that size come out when the market is still limping along at best."

Analysts point that the strong initial offering suggests that the cloud over Kraft from its association with tobacco has lifted. In the prospectus, as the company has noted that the risk of its assets being seized to satisfy judgments against parent Philip Morris is "remote."

Kraft’s very profitable collection of popular food brands, extends from its processed “cheese” products to Oscar Mayer meats to Post cereals and Maxwell House coffees. It’s Year 2000 acquisition of Nabisco Holdings rounded out its pantry with big snack brands, including Oreo cookies and Ritz crackers.

Combined Kraft and Nabisco operation had sales of $34.7 billion in 2000, making it the nation's largest food company and the second worldwide only to Nestle SA of Switzerland.

In its SEC filing, Philip Morris said it planned to keep 275 million Class A shares --- about half of the total --- and all 1.18 billion of the Class B shares in Kraft after the offering meaning Kraft shareholders would own about 16% of the 1.7 billion total Kraft shares while Philip Morris would control 97.7% of the voting rights in Kraft..

Kraft intends to use the proceeds to pay down some of the debt resulting from the Nabisco deal. Kraft has applied for a New York Stock Exchange listing under the symbol "KFT."
 

SUPERMARKETS AND MILK PROCESSORS
SEEK TO SCUTTLE NORTHEAST DAIRY COMPACT
CONGRESSIONAL SHOWDOWN LOOMS

Legislation that would ratify regional dairy compacts in 25 states that have already enacted the compacts and in others that are still considering is being introduced in the U.S. House of Representatives.

Currently the Northeast Dairy Compact --- which the Clinton administration allowed to be created originating from a provision in the 1996 farm bill --- sets the price of milk in New England. The new legislation being proposed by 19 House members, led by Rep. Asa Hutchinson, Rep.-Arkansas, would permanently ratify the Northeast Dairy Compact, which is set to expire on September 30, and allow a Southern Dairy Compact, stretching from Florida to Kansas and Oklahoma, perhaps including Texas and Nebraska as well.

Dairy producers in the West --- Utah, Washington and Oregon --- hope to also create a compact, but are not included in the present legislation. A Northwest dairy producers representative said that will urge their House members to add their states to the bill since Pacific Northwest dairy farmers want a compact because it would help them to raise prices since they have had high costs in dealing with environmental cleanup.

A States Ratification Committee, a coalition made up of state departments of agriculture and farmer organizations, are also currently seeking to come up with a “compromise" with Midwesterners who are opposed to the compact idea. Proponents of the compact concept point out that the current legislation would hold the Women, Infants and Childrens (WIC) feeding program harmless from price increases and that compact boards would include consumer representation.

Meanwhile, some 100 members of Congress have circulated a letter emphasizing a large congressional coalition in opposition to the dairy compacts. The letter was sent to Speaker Dennis Hastert (Rep.-Illinois) and voiced the member's concerns and unified opposition towards any legislation authorizing the extension and expansion of regional dairy compacts.

Concerning the letter, Congressman Pete Sessions (Rep.-Texas) said, "This letter sends an early signal to compact proponents that there is a large and committed number of Congressional members focused on opposing dairy compacts. As we work to tear down foreign trade barriers, we should not put up trade zones within our own borders. It's time to eliminate compacts ---  they are the antithesis of a free market."

In their letter the representatives state: “Since July of 1997, the Northeast Interstate Dairy Compact has held milk prices artificially high by blocking the entry of lower priced, competitive milk into that region.  This subversion of the basics of interstate commerce has resulted in higher consumer costs within the region and increased milk production, yet dairy farm numbers have continued to decline.  In summary, this unprecedented use of interstate compacts to wall off competition not only flies in the face of the precepts of our constitution but also fails to stem the decline in the number of dairy farms.”

Supermarkets and dairy processors are also seeking to kill the Northeast Dairy Compact, a four-year-old program that sets a price floor for milk sold by farmers and passes the charge, about 4.5 cents per gallon, on to consumers.  Some supermarkets have put signs in milk cases blaming prices of close to $3 a gallon on the subsidy program.

''Without the dairy compact, a lot of local dairy farmers will close up shop,'' said Rep. James P. McGovern, (Dem.-Massachusetts), a cosponsor of the bill, which would reauthorize the compact and include five other states from New York to Maryland. ''It also means fresher milk for New England consumers,'' McGovern said. ''You shut down one of these dairy farmers, you could see a strip mall the next day. No one wants that.''

A recently released independent University of Connecticut study, however, says milk prices went up, in large part, to increase leading supermarket and milk processors' profits, giving them an extra 11 cents a gallon. The study, by Ronald W. Cotterill and Andrew W. Franklin of the Food Marketing Policy Center, found that of the $130 million more that consumers across New England paid for milk, about $50 million has gone to supermarkets and dairy processors during the first three years since Congress passed the Northeast Dairy Compact. The price of milk went up about 29 cents a gallon from July 1997 to July 2000, according to the researchers.

''If people are concerned about consumer price levels of milk, the price-taking by these large retail [businesses] makes the price-taking by the dairy farmers pale in comparison,'' said Jay Healy, commissioner of the Massachusetts Department of Food and Agriculture. ''I find it to be the height of hypocrisy.''
 

"THIS IS AS BIG AS IT GETS":
SUIZA AND DEAN FOODS ANNOUNCE MERGER
CREATE NATION'S FIRST NATIONAL DAIRY COMPANY

Creating what will become the nation’s first national dairy company Suiza Foods Corp. has announced its intention to purchase its chief competitor, Dean Foods, enabling it control approximately one-third of the nation’s $25 billion dairy market.

“This is as big as it gets,"  Prudential Securities Inc. noted food stock analyst John McMillin told Dow Jones Newswires’ Cathleen Egan.. "This builds a powerhouse dairy company."

With combined annual sales of $10 billion and earnings before interest, taxes, depreciation and amortization of about $900 million, the combined  company, will be called Dean Foods.  It would have 37 plants and roughly 30,000 employees. Suiza holders will own 65% of the new company, with Dean holders taking the remaining 35%.

Upon approval by anti-trust regulators, Dean Foods would create a dairy giant with annual sales of $9.5 billion, operations in 39 states and 30% of the U.S. beverage milk market. Anticipating antitrust concerns, Suiza and Dean already have agreed to sell six dairies to Dairy Farmers of America Inc. in states where they have overlapping operations.

During the late 1990’s the current Dean Foods went on an acquisition binge swallowing more than 20 companies. Since it was founded eight years ago, Suiza has engineered 43 acquisitions to grow to nearly $6 billion in annual sales. It has a 20% share of the beverage milk market, with Dean Foods holding a 14% share. Sale of the six dairies would reduce their combined share.

A large dairy processor like Dean Foods, according to Suiza Chairman and Chief Executive Gregg Engles, would make distribution, managing accounts and stocking shelves more efficient since currently there are some 200 fluid milk processors in the U.S. and any one retailer can themselves be dealing with dozens of processors at a time.

The dairy industry, Engles told Egan, is "extraordinarily  complicated." Pricing alone changes monthly.

While the new Dean Foods will continue national marketing programs while developing national brands with other food partners, i.e., Suiza already has an agreement with Hershey Foods Corp. to make flavored milks, Engles said he doesn't see the development of a national milk product.

Doing so would be expensive, he adds, since consumers already identify with their current milk brands, which are sold and marketed on a regional basis. That means advertising will remain regional.

The proposed merger has alarmed many of the nation’s dairy farmers since the new company will have the clout to dictate dairy prices to farmers --- prices that had just started to rebound after hitting historical lows last year and driving some farmers out of business.

In Wisconsin alone, the nation’s second largest dairy state, 1,000 dairy farms went out of business or were sold last year, according to the Wisconsin Agricultural Statistics Service. "Current prices haven't covered the cost of production," said Bill Brey, a Wisconsin dairy farmer for 27 years. "The prices that we are receiving will continue to drive farmers out of business."

National Farmers Union (NFU) President Leland Swenson in a letter to U.S. Attorney General John Ashcroft has urged the Justice Department to conduct a comprehensive investigation concerning the antitrust and market implications of the merger.

“NFU is extremely concerned about the prospect that such a transaction would lead to further horizontal and vertical integration within dairy production and processing sectors, enhancing the market power of the purchasing company to the disadvantage of independent producers and consumers alike,” Swenson points out.

He also urges the Justice Department to review the holdings of Suiza and Dean Foods and investigate the relationship between Suiza, Dean Foods and their joint ventures and strategic alliances. Noting that Suiza already controls 30% of U.S. fluid milk Swenson questions “whether this 30% statistic, albeit alarming per se, reflects the accurate level of market concentration that would occur. We need to have a clear understanding of the relationships of these joint ventures and alliances and how they influence the level of concentration in the proposed merger between Suiza and Dean Foods.

“I am particularly troubled that Suiza is attempting to evade antitrust laws through its relationships with dairy cooperatives.  According to a Reuters News Service article, Suiza stated that it has anticipated antitrust concerns and has already agreed to buyout a 34% interest in its dairy operations owned by DFA, in exchange for $165 million and six plants in states where Dean Foods and Suiza overlap.  These plants are located across the nation in Alabama, Florida, Ohio, South Carolina and Utah.”

Swenson pointed to another significant consideration  ---- the impact of the proposed mergers on consumers.

“We have already witnessed the effect of Suiza’s control of the fluid milk market in Massachusetts. Last November, Massachusetts sought bids to contract milk for its school lunch programs.  To increase competition, the state was divided into eight regions to allow smaller dairies to bid. The result: the state received only a single bid from Suiza for seven of the districts and none for the eighth. Furthermore, the bids were on average 16% higher than those two years previous.  Clearly, markets for both producers and consumers work best when they are competitive. It is extremely difficult to foresee how the proposed Suiza-Dean Foods merger increases competition.”
 

NFU REPORT:
GIANT FOOD CLUSTERS BEING EXTENDED
THROUGH INCREASINGLY CONCENTRATED RETAIL STAGE

Reflecting on the growing alarm among dairy farmers and consumers concerning a corporate dominated processing and retailing system that continues to become increasingly concentrated, the National Farmers Union recently released a report Consolidation in Food Retailing and Dairy: Implications For Farmers and Consumers In a Global Food System.

The report was prepared for the NFU by Mary Hendrickson, Ph.D., William D. Heffernan, Ph.D., Philip H. Howard and Judith B. Heffernan

The authors note at the out set that “two years ago, we discussed this emerging food system which we suggested would be organized around five or six global food chain clusters. It has become increasingly clear that food chain clusters are being extended through the retail stage. The is the result of the three processes of horizontal integration, vertical integration and globalization.”

In the report’s “Executive Summary” they demonstrate the results of such processes:

The Retail Sector

* Horizontal integration through consolidation has occurred very rapidly in the last three years. Today, Kroger, Albertson's, Wal-Mart, Safeway and Ahold USA account for 42% of retail food sales in the United States, whereas in 1997 the top five food retailers had only 24% of the market. In the last two years, Kroger bought Fred Meyer to match Albertson's acquisition of American Stores. Ahold USA and Safeway continued a string of smaller acquisitions, while increased grocery sales at Wal-Mart Supercenters makes it a challenger for the top position in US food retailing.

* Vertical integration formally connects retailers back to the production and processing stages of the food system.  Kroger has case-ready beef supply agreements with Excel (Cargill), while Stop and Shop (Ahold USA) has a dairy supply agreement with Suiza Foods, and Wal-Mart obtains case-ready meats from IBP, Farmland, and Smithfield.

* The impacts of global forces that will drive further restructuring in the agro/food system are just beginning to become evident. Trends suggest six or fewer global food retailers will evolve over the next few years.  Most of them will likely be European-based transnational firms, such as Tesco (UK), Ahold (Netherlands) and Carrefour (France).  At this time, Wal-Mart, who triggered much of the consolidation in the European retail sector, will be the only major United States based global retail firm.

* Retailers are now in a position to dictate terms to food manufacturers who then force changes back through the system to the farm level.  Perhaps 50-75 percent of the total net profit for large retailers comes from retailer fees from slotting allowances, display fees, presentation fees, "pay-to-stay" fees and failure fees.

* As the balance of power shifts to the retailers, smaller entities in all parts of the food system are being left out. The retailer fees in place at most of the larger retail stores present barriers to smaller processors and/or farmers wishing to place products on the retail shelf. Such restructuring presents critical problems for consumers and communities in inner urban and rural areas that are no longer profitable for global food clusters.

Specifically in the dairy industry the report, which was released prior to the announcement of the recent merger between the nation’s two makor dairy processors --- Suiza Foods and Dean Foods --- notes:

For decades dairy farmers seemed immune to the consequences of restructuring because, through their local or regional cooperatives, they were also a dominant processor of milk for their local or regional markets.  National markets did not exist.  Even most of the investor-owned firms operated at a regional level.  That structure began to change a couple decades ago, but like the retail stage, the most dramatic changes have occurred in the past three or four years as a result of horizontal integration, vertical integration and globalization.

* Horizontal integration occurred as four firms consolidated a host of cooperatives and investor-owned firms and then formalized their own working relationships. For years, Philip Morris (Kraft) has been the only dominant firm in the dairy sector, especially in cheese.  This past year it was almost overtaken in total dairy sales by Suiza Foods.  If one considers the close working relationship between Suiza Foods/Dairy Farmers of America and the less commingled Dean Foods/Land O' Lakes operations as two management units, Kraft ranks third in dairy sales.

* Vertical integration, which formally connects the dairy processing stage to the retail stage, is probably the major driver of the restructuring at this time. Through acquisitions, Kroger and Safeway own and operate their own dairy processing facilities to supply some of their needs.  But Kroger and Safeway, as well as Wal-Mart and others are seeking long-term agreements which guarantees them consistent product to serve a coast-to-coast retail operation. Most processors now see the retail firms as their consumer.

* The three largest global food processors (Nestle, Unilever and Philip Morris) are directly involved in dairy processing in the United States. These firms will "source" their raw milk from wherever they can obtain it at least cost.  Already there are calculations estimating the world price of raw dairy products if the United States produced none.  In the past couple of years, the importation of milk protein concentrates, which do not face any import restrictions, has greatly increased.

* Cooperatives are struggling to adjust to the above changes. Through joint ventures with investor-owned firms they become part of a food system cluster and survive. However, because a cooperative is not the dominant firm in the cluster, it may not be able to assist its farmer members to receive any more for their milk. The very rapid restructuring of the dairy sector raises many questions about the future role of cooperatives.

As the report’s authors demonstrate throughout their study the nation and the world’s food system remains dynamic..

“Although we can predict that the current direction of change will probably continue in the short- term, many questions arise to the sustainability of this system over the longer term given the many potential external factors that could have a serious impact on it.  A variety of individuals and organizations are already raising serious questions. Even the neoclassical economic theory, which provides the academic legitimacy for the evolving economic order, is being challenged.

“Some economists point to globalization and question whether we need U.S. farmers. Although U.S. farmers may be very efficient, they have integrated the cost of environmental, health and safety standards into their costs of production, and are therefore high cost producers, compared to countries that do not require such standards.  Thus, we can  (and do) import much of our food cheaper than we can produce it.

“At some point, citizens must ask what kind of a food system they want and then design our food and farm policies to create and encourage that system. Even though the food system is becoming more like --- and not different from --- other economic sectors, such a question will probably force us to grapple with the question:  Is it possible that food is so unique that it requires special public policies?”
 

HOUSE AGRICULTURE CHAIRMAN:
GROUPS CALL FOR NEW FARM LEGISLATION
TO CONSIDER "COMPREHENSIVE COMPETITION TITLE"

In a May 1 letter addressed to Rep. Larry Combest (Rep-Texas), Chairman of the House Committee on Agriculture, some 63 farm, environmental, church and public interest organizations have called for a “comprehensive competition title” in the Congress’ process of reauthorizing new farm legislation.

“We believe equal attention should also be given to the issues of market access and competition, since the income of farmers, ranchers and workers, including those affected by the commodity titles of the bill, is dependent on the strength of the markets for their production,” the letter noted at the outset.

The organizations urged Combest to hold hearings necessary to include a comprehensive competition title in the farm bill, including attention to amendments of existing USDA authorities to address anti-trust enforcement, price discrimination and transparency, protections and bargaining rights for contract producers, and agricultural marketing innovations and alternatives.  Representatives, they added, of diverse interests from throughout our nation’s food and agriculture system should be allowed and encouraged to participate in these hearings.

“The trend toward concentration and vertical integration in agriculture has forced competition policy to the top of the list of concerns for many producers.  As agribusiness firms consolidate, producers find themselves with a dwindling list of options for marketing their products.  For example, the top four processing firms for beef, pork and chicken control from 55 to 87 percent of the U.S. market for their commodity.  At the local level, this means a single processing firm is often the only marketing option for a
farmer.  This lack of competition in the marketplace is of great concern to producers and consumers alike,” the letter continued.

“The fears are valid.  With the spiraling consolidation of both the processing and input sectors, the likelihood of anti-competitive conduct increases sharply.  For instance, the sellers of important livestock ingredients such as lysine and certain vitamins have recently been found to collude to increase prices to the detriment of farmers.  Consolidated
industries also lack the incentive to continue to innovate and to address consumers' desire for an economically and environmentally sustainable food system.  With no real competitive threats, these major players refuse to change.  The powerful position of large processors also puts them in a perfect position to utilize forceful practices in contracting with producers.

“In an effort to insulate themselves from the risks associated with price volatility and shrinking markets, a growing number of producers are giving up their independent operations, and moving toward contract arrangements with vertically integrated agribusinesses.  By 1998, over a third of the total value of U.S. agricultural production was under contract agreements, and the percentage continues to increase.  This year an estimated 80-85 percent of flue-cured tobacco is being produced under contract as compared with less than 10% last year.  The percentage of hogs produced under contract has increased significantly over the past five years.

“For some commodities, such as poultry, the contract production model is nearly universal, and growers neither own the product they produce nor control the inputs necessary for success.  Once entangled in these arrangements, producers find that they have no power to negotiate the terms of their contracts.  The debt burdens that they incur in order to build the facilities required by the contracts leave them very vulnerable to abuses. Growers are offered take-it-or-leave-it contracts, and have little choice but to accept highly unfavorable terms or face bankruptcy.

“In addition, contract models of production carry with them a reduction in price transparency, as producers are often required to keep their contract terms confidential.  For commodities where contract production is predominant, it is impossible to know what a true market price is for that commodity.  For commodities produced using a mixture of both independent and contract production, concerns have been raised that processors use the contracted portion of their supply as a tool to manipulate the market price, exerting downward pressure on price for those under contract as well as those who are not.  In both cases, contract terms are hidden, and the producers themselves are often kept in the dark regarding the calculation of their pay.  In addition, small- and moderate-size producers face discrimination in the prices they receive for their products from processors, unable to receive premiums solely due to their size.

“Increased consolidation and lack of competition have negative implications for consumers, as well.  Non-competitive markets can lead to increased costs and reduced choices for consumers.  When too few companies dominate a market, the long-term result for consumers is negative.”

In conclusion the groups stress “that without addressing the competitive structure of agriculture, we are concerned that necessary efforts to increase farmers’ income will be undermined by the anti-competitive conduct of the few corporations that dominate the domestic and global markets.  As long as these few corporations dictate the means and costs of production, the prices paid for farm products, and the prices commanded from consumers, the economic position of our nation’s farms, ranches and agricultural communities cannot improve.”
 

MCGOVERN-DOLE PLAN:
USING U.S GOVERNMENT "SURPLUS" FOOD FOR
SCHOOL LUNCHES FOR POOR COUNTRIES CHILDREN
DENOUNCED AS CORPORATE AGRIBUSINESS SUBSIDY

Former U.S. Senators George McGovern (Dem.-South Dakota) and Robert Dole (Rep.-Kansas), writing in a May 1 Washington Post opinion essay have recommend a major program to provide school lunches for children in poor countries by using primarily U.S. government "surplus" food.

In a subsequent Post letter to the editor, Philip D. Harvey, who served as the deputy director of CARE's program in India from 1969-1969 took issue with McGovern and the former Senate majority leader.

Noting that India’s CARE program focused on school lunches, and by the time he left India in 1969, it was providing school lunches for nine million children.

“That sounds pretty good too,” he writes, “but we were doing it as part of a program of massive food shipments of U.S. agricultural "surplus" foods, and everything about that was wrong.

“Shipping massive quantities of U.S. food as a form of aid to developing countries undermines local farmers. U.S. agricultural officers at our embassy in New Delhi in those days were scratching their heads over India's inability to become self-sufficient in food grains. Why couldn't Indian farmers grow more food? The answer was that India was importing so much American food that India's farmers were unable to get good prices for their crops (the Indian government was at fault here too). When the shipments stopped, India became self-sufficient in food grains in two or three years and now even exports small quantities of food.”

The second thing bad about using American food for aid programs, Harvey continues, “is that the process is corrupting. Those who run the food aid programs --- in league with agribusinesses, big farmers, processors, packagers and others --- will lobby Congress to make such programs bigger, regardless of their effect overseas, because of the big bucks they provide to a lot of not-needy people in the United States. Back in the '60s the food program was corrupting for the agribusinesses involved, for CARE and even for the packagers who put the labels on bags. Sweetheart contracts were finagled. Money changed hands. In a few cases indictments were handed down.

“The third reason this is a bad idea,” he adds, “is because shipping food halfway around the world is expensive and wasteful. I have vivid memories of standing ankle-deep in what must have been an acre of spilled milk powder in a Bombay warehouse, composing a memo about why food bags must be made stronger. But the bags were already seven-ply and very expensive.

“If McGovern and Dole are serious about helping schoolchildren in developing countries, they should recommend a straightforward program of funds to purchase school-lunch foods in the recipient countries. When food is purchased locally, waste is minimized, and packaging and transportation costs are nearly eliminated. More important, such a program helps rather than harms local agriculture. The students get foods that are indigenous to their area and compatible with their regular diets.

“Instead, these two former senators (both from agricultural states) seem bent on yet another program of corporate welfare for American agribusiness, agricultural interests and even (as they cheerfully admit) packers, shippers, railroads and ocean carriers. American farmers don't need any more subsidies. They are already being paid $7 billion a year in `emergency’ farm welfare payments by Congress. It is a disgrace that low- and middle-income American taxpayers should be subsidizing the huge farm businesses that receive the bulk of this largess. Let's not make it worse.”

Harvey concludes, “School lunches may be useful. But using American `surplus’ food is a nightmare. Been there, done that. Bad idea.”
 

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