The
AGRIBUSINESS EXAMINER
Monitoring Corporate Agribusiness From a Public Interest Perspective
A.V. Krebs  Editor\Publisher
 
Issue #143                                                                      February 20, 2002
 

COMMENTARY:
"THE ADM WAY" --- TO INSURE THAT ADM'S BUSINESS
"IS CONDUCTED WITH THE UTMOST INTEGRITY"

A most extraordinary document  is currently being circulated to individuals and companies who "have done business with a subsidiary or division of the Archer Daniels Midland Company" --- its purpose to insure that ADM's business "is conducted with the utmost integrity."

In a covering letter from Scott A. Roney, Vice President of Corporate Compliance and Regulatory Affairs for ADM, he points out that "ADM's management has determined that THE ADM WAY Summary should be distributed to all suppliers of ADM in order to increase awareness of the standards of business conduct that ADM has established."

The pamphlet is scattered with quotations from Cato the Elder ("Those Who Do Not Prevent Crimes When They Could, Encourage Them") and Aristotle ("We Should Behave to Others as We Wish Others to Behave to Us"). No mention of the already familiar ADM mantra "The Competitor Is Our Friend, the Customer is Our Enemy" appears in the publication.

THE ADM WAY covers Environmental Principles, Fair Employment, Fair Trade Practices, Gifts, Gratuities & Entertainment, Government Regulations, Health and Safety, Electronic Communications, Insider Trading, Protecting Company Assets, Accuracy of Company Records, Confidential Information, Conflicts of Interest, Copyright & Intellectual Property, and Other Employee Responsibilities.

A "Dear Employee" letter from G. Allen Andreas, ADM's Chairman and CEO, and John D. McNamara, President, accompanies THE ADM WAY.

"To better explain ADM's operating standards, incorporating the highest ideals of character and business conduct, we introduce `THE ADM WAY,' our revised version of ADM's Code of Conduct Summary. With our growing worldwide network employing more than 23,000 members, we recognize the need to clarify our Code and communicate its message in various languages. `THE ADM WAY' explains, in easy-to-understand terms, expectations to better equip each of us to make clear-cut value-based business decisions. It is not designed to provide all the answers to every question. Our Code, along with annual training, provides the support necessary to make tough decisions with courage and confidence, even in difficult situations.

"ADM's success is based upon our reputation and expertise. Ultimately, our desire is for `THE ADM WAY' to be forever outdated by the example set by each of our committed employees. These employees, in the course of each day, will, routinely and without fanfare, exceed the standards set forth in `THE ADM WAY,' not because it is required, but because it is the right thing to do.”

Included in "THE ADM WAY" are such caveats as the following:

* Environmental stewardship is a corporate principle. We perform our business in strict adherence to our guidelines and all applicable laws and regulations governing environmental protection and safety. [See Issue # 102 --- "REVISITING ADM'S CORN GLUTTEN FEED SCANDAL RAISES `MAD COW' DISEASE FEED QUESTIONS"]

* It is important to respect our differences to insure our workplace is free from all forms of discrimination, intimidation and harassment. Individual behavior contributes to a positive work environment. [See Issue # 53 --- "PAINTING A PICTURE OF A ROGUE CORPORATION"]

* We make all decisions on pricing, terms of sales and whether to buy or sell based on supply and demand, our costs, ADM need and market conditions. Such decisions are never based in conjunction with any competitor. [See Issue # 85 --- "REVIEW: RATS IN THE GRAIN: The Dirty Tricks and Trials of Archer Daniels Midland The Supermarket to the World, by James B. Lieber, Four Walls Eight Windows Press, New York, New York: 2000"]

* No ADM employee, agent or other representative may give or accept gifts or favors that exceed local social and\or business customs. [See Issue #92 --- "ADM, USDA & U.S. DEPARTMENT OF JUSTICE: NEW EVIDENCE BEING SUBMITTED TO JUDGE CHARGING OBSTRUCTION OF JUSTICE AND COVERUP"]

* Being a good citizen on an international basis includes:
> Not seeking to influence any government employee's judgment by promises of gifts or loans or by any other unlawful inducement. [See Issue #110 --- "ADM OFFICIALS DENY IMPROPER INFLUENCE IN CALIFORNIA GOVERNOR'S MTBE BAN"]
> Conducting our business according to all applicable laws and regulations. [See Issue #136 --- "`THE NATURE OF WHAT'S TO  COME': EUROPEAN UNION FINES ADM . . . . . . .AGAIN !!!!!! FOR PARTICIPATING IN PRICE FIXING CARTEL"]

* The health and safety of our employees customers and the public is a top priority. We must abide by all safety rules and sound practices. [See Issue #63 --- "ADM: `SUPERMARKUP TO THE WORLD' AND THE FINES JUSTA KEEPA COMIN' !!!! "]

* Use 4-comm with the same level of care as hard copy communications. This information is potentially long-lived and may be subject to legal discovery.

* ADM is a public company. To promote fairness and integrity in financial markets, we must refrain from trading securities based on inside information.

* Employees raising, in good faith, issues relating to misconduct through these corporate channels can rest assured their concerns will be taken seriously and will be promptly investigated. The individual raising the concern, and all who are affected, will be treated fairly and protected from retaliation. [See Issue #111 --- "ADM STOCKHOLDERS WATCH COMMITTEE CHARGES `THE INFORMANT' AUTHOR KURT EICHENWALD, `PAPER OF RECORD' NEW YORK TIMES CONSPIRED WITH WILLIAMS & CONNOLLY, DOFJ TO COVER UP SCANDAL-RIDDEN ADM ACTIVITIES"]

* Accuracy of our business records is essential for continued, long-term business success. We must prepare all business records with care to ensure their completeness and accuracy. False, misleading, incomplete or inaccurate record keeping is unacceptable. [See Issue # 114 --- "JAMES B. LIEBER: LETTER-TO-THE-EDITOR AMERICAN BAR ASSOCIATION JOURNAL"]

* Under no circumstances should we personally speculate in agricultural commodities trade or processed by ADM. Our personal investment decisions may not be based on non-public information we possess as ADM employees.

* Just as we expect people having ADM's confidential information will protect it, we must respect the proprietary information and trade secrets of others, including our customers and suppliers. In addition, new employees may not use or divulge the proprietary information of their former employers. [See  --- AgBiz Tiller Online: TOP STORY: "The Continuing Saga: One Man's Family's `Supermarkup to the World'"]
http://www.ea1.com/CARP/tiller/archives/sept97/topstory.html

As one reads through THE ADM WAY with its pithy quotes  ("Individual Responsibility in an International Environment") one can not help but remember another popular refrain --- you know the one about locking the barn door after the horses have left !!!!
 

CUBA ROBBING EUROPEANS AND JAPANESE
TO PAY ADM, CARGILL, TYSONS FOR FOOD IMPORTS

ANTHONY DePALMA, NEW YORK TIMES: After 40 frozen years, direct exports of American food to Cuba have begun to flow again in the last few months.
 
So far it is just a trickle--- $35 million worth --- as companies take  advantage of a new law that grudgingly lifts part of the embargo that forbade American companies to sell almost anything directly to Cuba because of its Communist government. For a while it looked as if even that much would not get through because the law still forbids sales on credit and because the Cubans sent mixed signals for months about their attitude toward the new law and its restrictions.

But in recent months, thousands of tons of rice, corn, wheat, frozen chicken legs and pork lard have been delivered to Cuba by major American suppliers. And --- a crucial point ---  it has been paid for.
 
To seal deals, the American suppliers who lobbied for the right to sell to  Cuba had to overcome obstacles that ranged from the simple to the sublime. "The phone lines were so bad, and I had so much trouble getting through on the telephone or by fax, that we handled all the arrangements from our office in France," said Arthur Otto, president of Schouten USA in Minneapolis, which represents the American unit of Groupe Soufflet, a major French grain trader that has been trading with Cuba for a decade.

Such problems slowed everything, as did new bureaucratic delays and a business culture gap between the Cubans and the Americans. But when it came time for the American companies to be paid, problems disappeared. Though Cuban-American members of Congress added a cash-only  clause to the legislation, the Trade Sanctions Reform and Export Enhancement Act of 2000, with the intention of making it almost impossible for Cuba to buy any food under the law, Cuba has paid in full in each of the 13 largest deals so far.

"We had no trouble collecting payment," said Larry Cunningham, senior vice president for corporate affairs for Archer Daniels Midland, which has  shipped nearly 95,000 tons of grain to Cuba since November.

Other American suppliers have had similar experiences. "In some cases, payment was obtained when the products were loaded onto vessels in the United States," said John S. Kavulich II, president of the U.S.- Cuba Trade and Economic Council, a business group that tracks developments in Cuba. "In others, payment was obtained when the shipment reached Cuba."

The payment record is unusual for Cuba, which owes billions of dollars to  countries that have been selling it  food during the embargo.  The country is rated a very high debt risk by Dun & Bradstreet of 131 countries reviewed, only five --- Angola, Congo, Sierra Leone, Zimbabwe and Iraq --- are considered worse deadbeats. Critics of Cuba, who oppose lifting any part of the embargo, say the Castro government succeeded in paying the American companies only by diverting cash from grain suppliers in  other countries, suppliers that are already owed billions of dollars.

"They are robbing Peter to pay Paul," said Dennis Hays, a former American ambassador to Guyana and Suriname who is now executive vice president of the Cuban American National Foundation, which opposes trade with Fidel Castro's regime. "They are taking the money they had to pay down the debt to the Europeans and Japanese and using it to  make these purchases."

Mr. Hays said it was no coincidence that Cuba was buying food from American subsidiaries of international food suppliers with which Cuba has been doing business --- and piling up debts --- for years, like Groupe Soufflet and Louis Dreyfuss of France. The Cubans have also signed deals with companies like Perdue Farms, Pilgrim's Pride, Riceland Foods, Tyson Foods and Marsh Supermarkets. In all, their purchases exceed 220,000 tons.

Executives of some of the American companies said that they did not care where the money came from, as long as they were paid.

"We got no sense from them that the Cubans were paying for the purchases by transferring funds," said Jim Bohlander, vice president and general manager of the Cargill Americas Marketing Group, based in Miami Cargill was among the first to close a deal with the Cubans, for 26,400 tons of yellow corn. "They said the funds were coming out of some type of emergency reserve that was set aside to alleviate the impact of Hurricane
 Michelle," he added

Shortly after Cuba was devastated by Michelle last fall, officials in Havana sent faxes to a long list of American food suppliers asking for bids to sell Cuba a range of goods. That step abruptly reversed Cuba's previous policy of turning up its nose at American suppliers because of the financing restrictions in the law.

Hurricane damage gave Cuba a reason --- some critics call it an excuse ---  for reversing that stand, at least temporarily. But after the first round of sales in November and December, Cuba went back to Tyson Foods and other suppliers and placed new orders, a step suggesting that the change was more than temporary.

Always short of cash, Cuba has strong reasons for wanting the embargo on food sales lifted. It imports more than $1 billion a year in food and grain, most of that from Europe and Asia. Switching to American suppliers would save 15 to 20 percent on shipping, a large part of the total cost of the commodities, because the United States is so much closer. . . . .
 

SMITHFIELD FOODS DECRIES
BAN ON MEATPACKER OWNERSHIP

MICHAEL DAVIS, THE VIRGINIA-PILOT: Like an angry, cornered pig, a persistent amendment to Congress' latest farm bill could mean a snoutful of trouble for the world's largest hog farmer and pork processor. If proposed legislation bars Smithfield Foods from raising its own livestock, the company would have to get rid of a billion-dollar operation that yielded more than three-fourths of operating profits last year.

On Wednesday, the Senate voted 58-40 to approve its version of the farm bill, including a rider that prevents meatpackers from owning or managing cattle, hogs or sheep for more than 14 days before slaughter. Many observers believe the controversial amendment is unlikely to remain in the final version of the bill. But if the legislation does pass, it would drastically change the way Smithfield does business.

"Smithfield has deep reserves, they're strong, but this would be a major blow," said Wayne Purcell, a professor of agricultural economics at Virginia Tech. "It would be very disruptive."

The amendment, sponsored by Sen. Tim Johnson, Dem.-South Dakota, is designed to halt what he characterizes as unfair market control by corporate meat processors such as Smithfield and ConAgra Foods. "When packers own their farms and their own livestock, they do not make purchases from farmers who would otherwise be providing
economic contributions to our rural communities," Johnson said. "These people . . . want to turn America's farmers and ranchers into low-wage employees working on corporate farms raising livestock for a handful of huge, vertically integrated farms."

The House's farm bill does not include the restrictions. On Thursday, House Agriculture Committee chairman Rep. Larry Combest, Rep-Texas, said the Senate's ownership amendment should not make it into law. "I don't think it's a good idea," Combest said. So lawmakers are expected to clash over the ban when they negotiate a compromise bill to send to President Bush, probably by late March.

The measure is most popular in the agricultural Midwest. Resistance to processor-owned farms is far lower in Sunbelt states such as North Carolina --- the nation's No. 2 hog state, trailing only Iowa --- mainly because of Smithfield's dominance. The company's Bladen County, North Carlina, slaughterhouse is the world's largest, processing more than 30,000 hogs per day. Smithfield controls more than 1,200 company-owned and contract farms in North Carolina alone and, analysts estimate, three-fourths of the pork processing capacity in the Southeast and Mid-Atlantic.  . . . .

Despite the opposition, defeat of the ownership ban is not a given; the amendment was not expected to make it into the final Senate farm bill, either. Its passage, however, would jeopardize a crucial piece of Smithfield chairman Joseph W. Luter III's aggressive vertical integration strategy. For more than a decade, the company has been bolstering its hog-farming operations, allowing it to control product from before birth through arrival on store shelves.

The purchase of Rose Hill, North Carolina-based Murphy Farms Inc. in 2000 doubled Smithfield's hog output. It is now 3 1/2 times the size of its nearest competitor, ContiGroup Cos. of New York, and it accounts for 12% of the U.S. market. And Smithfield is now the most vertically integrated pork processor, raising almost 12 million of the 20 million hogs it slaughters annually. Its farms are in Virginia, North Carolina, South Carolina, Texas, Utah, Oklahoma, Colorado, Illinois, Iowa, Missouri and South Dakota.

Smithfield also has established smaller-scale hog production outside the United States, with farms in Mexico, Brazil and Poland producing about 300,000 hogs annually. And last year, the company entered the beef business with acquisitions that have already made it the industry's fifth-biggest beef packer, controlling about seven percent of the market.

Smithfield does not own cattle-raising operations, and officials say it has no plans to buy any. . . . .
 

SOUTH DAKOTA PORK PRODUCERS
ACCUSE SMITHFIELD FOODS
OF ECONOMIC AND POLITICAL BLACKMAIL

ASSOCIATED PRESS: Several farm and ranch groups have voiced support for a proposal by Sen. Tim Johnson, Dem.-South Dakota, to ban packer ownership of livestock. Members of the groups gathered [recently] in downtown Sioux Falls to respond to a full-page advertisement in state newspapers by Smithfield Foods Inc. In the ad, Smithfield threatened to close the John Morrell & Co. packing plant in Sioux Falls if Johnson's amendment to the farm bill passes.

"It is critically important to know that Smithfield is trying to blackmail the people of this city and state, threatening their own people with their jobs," said Brad Redlin, federal policy analyst for the Center for Rural Affairs. The amendment is being offered by Johnson and Sen. Charles Grassley, Rep.-Iowa. The amendment would prohibit meat packers from owning, feeding or controlling livestock for more than 14 days. It was approved by the Senate but is not expected to get through the House.

Smithfield is concerned that imposing limits on its supply of livestock could threaten the plant's viability. The John Morrell plant employs 3,200 people, making it one of the five largest employers in Sioux Falls. Some officials worry about how losing the plant would affect the city's economy.

Actions like Smithfield's threats have been seen before in other states, Redlin said. "They are cynical and empty threats or trumped up diversions to decisions already made," Redlin said. Charlie Johnson, a member of Dakota Rural Action, accused Smithfield of trying to bully Sioux Falls and South Dakota.. "I have message for them," he said. "The people of South Dakota are in charge."

Charlie Johnson also called on Sioux Falls groups such as the Chamber of Commerce and the Sioux Falls Development Foundation to get involved. Dan Scott, president of the Sioux Falls Development Foundation, was at the meeting and said he was there to listen. "The employees of the plant are our primary concern," Scott said after the meeting. "There is a danger of losing the plant. There are 3,200 employees and 5,760 indirectly who would lose their jobs, making it about 9,000 jobs." But Scott would not cast blame on anyone for the situation.

"We have to forget about blame and talk about saving those jobs," he said. "That is what the Sioux Falls Development Foundation is all about."
 

USDA SEEKS TO OVERTURN
JUDGE’S RULING NOT TO ASSESS
CARGILL CIVIL PENALTY FINE

KRISTEN DANLEY-GRENIER, AGNEWS: The U.S. Department of Agriculture's Grain Inspection, Packers and Stockyards Administration (GIPSA) has filed a Notice of Intent to appeal an administrative law judge's decision not to assess a civil penalty in a case filed against Excel Corporation.

Following a series of administrative hearings during 2000 and 2001, the  administrative law judge found that Excel had violated the Packers and Stockyards Act, but failed to assess any penalty for the violations. GIPSA stated Thursday that it disagrees with many of the factual and legal  conclusions reached and with the decision not to assess a civil penalty for Excel's conduct.

At issue in the hearings were GIPSA's allegations that Excel failed to notify swine producers prior to changing a formula that calculated the prices paid on a carcass merit basis. The judge found that Excel's failure to notify producers prior to changing the lean percent formula on which payment is calculated was illegal.

In its complaint, GIPSA alleged that Excel failed to notify its hog sellers that it had changed the formula by which it estimated the lean percent of hogs, prior to implementing the change and in violation of the Packers and Stockyards Act. Excel uses lean percent measurement to compute the purchase price of hogs that it buys on a carcass merit basis. As a result, Excel underpaid producers approximately $2.9 million for about 3.6 million hogs purchased between October 1997 and July 1998.
 

USDA TESTS 38 TURKEY PLANTS
SALMONELLA CONTAMINATION AVERAGES 13%

ASSOCIATED PRESS: Half the turkeys processed at a plant in Colorado tested positive with salmonella bacteria, and contamination rates exceeded 28% at four other facilities around the country, a consumer advocacy group says.

The average contamination rate in 38 plants tested by the Agriculture Department last year was 13%, the Center for Science in the Public Interest said . . . .  citing USDA records that the group obtained under        the Freedom of Information Act. Nine of the plants had contamination rates under two percent.

The ConAgra Foods plant at Longmont, Colorado, had the highest rate at 49.1%, followed by a Cargill Inc. plant in Waco, Texas, at 34.5%.

The tests were done on carcasses before the meat was processed. Heat can kill the bacteria.. "The government should set and enforce standards to reduce the amount of contaminated poultry reaching consumers," said Caroline Smith DeWaal of the advocacy group. "Although proper cooking will kill bacteria like salmonella and campylobacter, raw poultry can still contaminate other foods in the kitchen."

The government can shut down chicken processors that repeatedly exceed its salmonella limits, but USDA hasn't set similar standards for turkeys. The department is waiting for the National Academy of Sciences to finish a study of bacteria standards before deciding whether to set limits for turkey, said Carol Blake, a spokeswoman for the Food Safety and Inspection Service.

ConAgra spokeswoman Julie DeYoung said the company made changes on the farm and in the Colorado plant to reduce salmonella levels, and its tests show the contamination is now less than 20%. She said the company is studying its plants to determine why salmonella rates varied.

More than 90% of the turkey produced by the plant is cooked before it is sold. "Consumer don't eat turkey products raw or even rare. Proper cooking, handling and refrigeration eliminates the risk of salmonella," she said. ConAgra's brands include Butterball, Healthy Choice and Armour.

Cargill bought the Waco plant in 1998 and is making improvements to reduce bacteria levels, said company spokesman Mark Klein. A Cargill plant in Missouri had a rate of 1.8%. Other plants with the highest contamination rates were Bil Mar Foods in Storm Lake, Iowa, at 32.1%; Diestel Turkey Ranch at Chinese Camp, California, at 30.4%; and Farbest Foods of Huntingburg, Indiana, at 28.1%. One plant, a Perdue facility in Washington, Indiana, had no positive tests for salmonella.

(To be continued)