The
AGRIBUSINESS EXAMINER
Monitoring Corporate Agribusiness From a Public Interest Perspective
A.V. Krebs  Editor\Publisher
 
Issue #144                                                                     February 27, 2002
 

JOHN LAUCK:
ANTI-TRUST LAWS IN U.S ORIGINALLY DESIGNED
TO PROTECT FAMILY FARMERS FROM MONOPOLIES

The coming of the trusts, the large corporations that dominated many sectors of the American economy, became a critical concern in post-Civil War politics, especially for advocates of the farmer. By 1878, for the most famous example, John D. Rockefeller's Standard Oil company controlled 90% of the nation's oil production. In the agribusiness sector, the American Sugar Refining Company controlled 85% of the nation's sugar refining. Perhaps the largest concern of farmers was the "Big Five," the group of Chicago meatpacking companies which dominated the slaughter of the nation's cattle.

In the words of capitalism's harshest critic, this alleged transformation of competition into monopoly [was] "one of the most important --- if not the most important --- phenomena of modern capitalist economy."  Long before Lenin advanced his diagnosis and radical solution, Senator John Sherman understood the implications of the "power and grasp of these combinations," fearing, without legislative action to reduce economic concentration, the coming of the "socialist, the communist, and the nihilist."

As economic concentration increased in the twentieth century --- helping to usher in totalitarianism in Nazi Germany and Soviet Russia --- some American political leaders feared that similar economic concentration jeopardized democratic government within the United States. Following in the tradition of Senator Sherman, who anticipated the dangers of economic concentration, Senator Estes Kefauver (Dem.-Tennessee) blamed business leaders for their shortsightedness and their failure to appreciate the "inevitable" coming of fascism or socialist nationalization of the economy.

Farmers have been a prominent voice in such criticism.  Throughout the late nineteenth century farmers feared the economic consequences of a powerful "tyranny of monopolies."  Farmers initiated demands for legislation that would reign in industrial concentration, an effort that produced the Interstate Commerce Commission to regulate the railroads, and contributed to the consideration of more broadly-based monopoly legislation.

In response to the fears of the "grave evil" of "vast fortunes in single hands," in the words of Senator George Hoar (Dem.-Mississippi) , Congress passed the Sherman Antitrust Act in 1890. The legislation, according to the historian Richard Hofstadter, was a "ceremonial concession to an overwhelming public demand for some kind of reassuring action against the trusts."

Such public demands were on display during the fall elections of 1890, causing Nebraskans, for the first time, to vote Democratic, sending to Congress the thirty-year-old lawyer from Lincoln, William Jennings Bryan, to make their case against the trusts. Unhappy with both political parties' efforts to address the trust question, many farmers helped form the Peoples's Party in 1892, adopting the famous Omaha Platform: "The fruits of the toil of millions are boldly stolen to build up colossal fortunes for a few, unprecedented in the history of mankind."

In 1896, a fusionist effort united Democrats and Populists, who both nominated Bryan and adopted antimonopoly platforms, losing an election in which Bryan won twenty-two states and captured nearly 49% of the vote.

The monopoly problem remained a prominent issue in early twentieth century politics.  President Theodore Roosevelt embraced the image of a trust-buster and initiated over forty antitrust suits between 1901 and 1909.  In 1911, the Supreme Court approved the divestiture of the Standard Oil and American Tobacco trusts and established a "rule of reason" analysis for future antitrust decisions.

The prominence of the monopoly question in the Presidential election of 1912 prompted a range of proposed solutions that were widely debated.  The election of Woodrow Wilson brought his "New Freedom" platform and a strengthening of federal antitrust legislation.

The Federal Trade Commission Act of 1914 established a new agency to help enforce the antitrust laws and impressed farmers with its large-scale investigations of the meatpacking industry.

The Clayton Act of the same year attempted to slow economic concentration by limiting corporate mergers and to aid the building of farmer market power by exempting non-stock farmer cooperatives from the reach of the antitrust laws. The dual approach of applying antitrust scrutiny to corporate activity and promoting the economic organization of farmers became a standard policy for addressing the concentration issue throughout the twentieth century.

The accomplishments of this policy are in doubt. The antitrust laws have proved to be a poor method of limiting and reducing corporate concentration and power. The judicial embrace of efficiency and pro-competitive rationales for the antitrust laws in the last twenty years has further limited their effectiveness in this regard. The use of farmer cooperatives and other means to develop the market power of farmers has also fallen short of expectations, leaving many sectors of agricultural production highly disorganized. The resulting imbalance in bargaining power between concentrated buyers and disorganized sellers requires recognition in antitrust analysis. . . . . . .

The same year that Congress passed the Sherman Act saw the collapse of the American Cattle Trust, an organization of farmers which attempted to build their bargaining power relative to meatpackers, highlighting the link between powerful meatpackers and poorly organized farmers.

In subsequent decades, persistent worries about the concentration problem and farmer bargaining power led to passage of the Clayton Act and the Federal Trade Commission Act in 1914.  Agrarian concerns are inherent in both statutes. The Clayton Act specifically limits the anticompetitive practices which contributed to the economic concentration that alarmed farmers and it confers an antitrust exemption upon farmer efforts to organize themselves economically.

The FTC Act created the Federal Trade Commission with high expectations that some action would be taken against the "Big Five" meatpackers. The resulting FTC report on the meatpacking industry became the rationale for Congressional efforts to closely scrutinize the workings of the meatpacking industry.
 
Congressional action took the form of a comprehensive federal statute entitled the Packers and Stockyards Act [P&SA] of 1921. The purposes and provisions of the statute require consideration when enforcing the Sherman, Clayton, and FTC Acts.  P&SA passed after these wider statutes became law and was specifically directed toward a problem that seemed to persist despite the existence of previous legislation.

The Congressional intent to promote the combined consideration and construction of the antitrust statutes is evidenced by the shared enforcement provisions of the P&SA.  Some courts have specifically held that the statute is designed to go beyond the broad language of the Sherman, Clayton, and FTC Acts, thereby recognizing the importance of construing the statutes together.

While refusing to purchase a farmer's livestock might be acceptable under the Sherman or FTC Acts, for examples, it would not be acceptable under the broad protective purposes of the P&SA.  In making such decisions, courts have recognized the problem of monopsony that farmers face and which Congress attempted to address in the P&SA.

Furthermore, given the remedial nature of the statute, it should be interpreted liberally to carry out its broad mandate and purposes.  When combined with the already broad language of the statute, enforcement agencies are given wide regulatory powers over the meatpacking industry, especially as it relates to injuries inflicted upon farmers.  One contemporary commentator described the legislation as "extending farther than any previous law in the regulation of private business." The transfer of such power indicates the heightened Congressional concern with meatpacker practices and the intent to intensely scrutinize potential antitrust violations within the industry.

The language of the P&SA makes clear that particularly close scrutiny should be given to the marketing problems of farmers. Borrowing heavily from the language of other antitrust laws, again confirming the interconnectedness of the antitrust legal regime, the legislation prohibits "any unfair" practices or "any undue or unreasonable preference or advantage" to certain sellers. The act also prohibits packer efforts to apportion supplies among them to avoid bidding against one another if apportionment "has the tendency or effect of restraining commerce or of creating a monopoly in commerce."

The statute also prohibits transferring articles or engaging in business practices "for the purpose or with the effect of manipulating or controlling prices in commerce." The number of practices that can have an "effect" on prices approaches infinity, indicating the intended sweep of the statute. The "effect" on price provision of the statute, it should be noted, does not involve the requirement that a practice have the "tendency or effect of restraining commerce or of creating a monopoly." This absence indicates, expressio unius, that the only requirement for a violation of the provision is that a packer practice have an "effect" on price.

The broad language of the statute has been used to advocate the close regulation of vertical contracting between farmers and packers.  One commentator has suggested that vertical contracting could reduce the number of buyers available to livestock sellers and therefore cause economic injury. The suggestion relies on previous court rulings that the broad mandate of the legislation obviates the need to prove an actual "competitive injury" or a "lessening of competition."

Some courts have found the plaintiff's burden is simply to show that a particular packer practice is "likely to reduce competition and prices paid to farmers." Although such liberal standards have been narrowed in other cases, the statute can still be used in an attempt to prevent a reduction in the number of packers that may reduce competition for the farmer's product. The possibility of such legal theories indicates the wide-ranging power of the P&SA and underscores the Congressional intent to take any antitrust concerns involving economic injuries to farmers very seriously. . . . . . . .

John Lauck is an anti-trust law scholar at the University of Minnesota Law School Class of 2000 and Editor-in-Chief, Minnesota Journal of Global Trade; Ph.D. and author of  American Agriculture and the Problem of Monopoly from University of Nebraska Press.
 

THE AIM OF AGRARIAN REFORMERS

"Agrarian reformers attempted to overcome a concentrating system of finance capitalism that was rooted in Eastern commercial banks and which radiated outward through trunk-line railroad networks to link in a number of common purposes much of America's consolidating corporate community. Their aim was structural reform of the American economic system."

--- Lawrence Goodwyn, The Populist Moment: A Short History of the Agrarian Revolt in America, Oxford University Press, Oxford, 1978.
 

HENDRICKSON-HEFFERNAN STUDY
REVEALS HIGH DEGREE OF CONCENTRATION
IN U.S AGRICULTURAL MARKETS
 
NATIONAL FARMERS UNION PRESS RELEASE: Concentration in agricultural markets is on a steady rise according to statistics released by the National Farmers Union.

In a Washington news conference, NFU President Leland Swenson released results from a NFU-commissioned study conducted by Drs. Mary Hendrickson and William Heffernan from the University of Missouri. The statistics revealed increased concentration in most agricultural markets.

The study showed the top four beef packers dominated 81% of the market, four pork packers controlled 59%, and the top four poultry processors accounted for 50% of the market. Tyson and ConAgra were listed among the top four in all three meat groups. Cargill was named in two of the three groups.

"Although these concentration percentages are staggering by themselves, they inadequately reveal the extent of vertical integration occurring in the food system or the complex web of interaction among the top firms," Swenson said.

The same three grain giants -- Cargill-Continental Grain, Archer Daniels Midland (ADM) and Zen Noh (a Japanese company) --- were shown in the study to control 81% of the corn exports and 65% of the soybean exports. ADM and Cargill were also among the top four in terminal grain handling, flour milling, soybean crushing and ethanol production.

Swenson pointed out that the only agricultural sector not increasing in concentration was ethanol production. The ethanol concentration ratio decreased from 67% among the top four producers in 1999, to 49% percent.  . . . .

According to Swenson, the recently-passed Senate farm bill includes provisions to remedy the growing concentration trends including:
* Prohibiting large meatpackers from owning livestock more than 14 days prior to slaughter;
* Mandatory country-of-origin labeling of fresh produce, meats, peanuts and farm-raised fish;
* Protection for producers in agricultural contracts by prohibiting confidentiality clauses;
* Capped EQIP funding for corporate confined animal feeding operations, and
* A ban on mandatory arbitration for farmers seeking legal recourse in contractual situations.

NFU is also urging the Senate Judiciary Committee to hold a hearing on the lack of competition in agricultural markets.

According to the Henrickson-Heffernan "Concentration of Agricultural Markets" the concentration ratio (relative to 100%) of the top four firms in specific food industries include:

* Beef Packers: 81% (Tyson [IBP], ConAgra Beef Cos., Cargill [Excel], and Farmland National Beef Pkg. Co.)
* Pork Packers: 59% (Smithfield, Tyson [IBP], ConAgra [Swift], and Cargill [Excel]
* Pork Production: 46% (Smithfield Foods, Premium Standard Farms [ContiGroup], Seaboard Corp., and Triumph Pork Group [Farmland Managed]
* Broilers: 50% (Tyson Foods, Gold Kist, Pilgrim's Pride, and ConAgra)
* Turkeys: 45% (Hormel [Jennie-O Turkeys], Butterball [ConAgra], Cargill's Turkeys, Pilgrimís Pride)
* Animal Feed Plants: 25% (Land O'Lakes Farmland Feed LLC\Purina Mills, Cargill Animal Nutrition [Nutrena], ADM [Moorman's], and J.D. Heiskell & Co.)
* Terminal Grain Handling Facilities: 60% (Cargill, Cenex Harvest States, ADM, and General Mills)
* Corn Exports: 81% (Cargill-Continental Grain, ADM, and Zen Noh)
* Soybean Exports: 65% (Cargill-Continental Grain, ADM, Zen Noh)
* Flour Milling: 61% (ADM Milling, ConAgra, Cargill, General Mills)
* Soybean Crushing: 80% (ADM, Cargill, Bunge, and AGP)
* Ethanol Production: 49% (ADM, Minnesota Corn Producers [ADM has 50% Equity Stake], Williams Energy Services, and Cargill)
* Dairy Processors: (Dean Foods [Suiza Foods Corp.], Kraft Foods [Philip Morris], Dairy Farmers of America, Land O'Lakes)
* Food Retailing: 38% (Kroger Co., Albertson's, Safeway, Wal-Mart, Ahold)
 

U.S. CONSUMERS,  WORKERS, FARMERS AT MERCY
OF CORPORATE AMERICA'S "URGE TO MERGE"

YOCHI J. DREAZEN, GREG IP & NICHOLAS KULISH, THE WALL STREET JOURNAL: Everywhere you look, powerful forces are driving American industries to consolidate into oligopolies --- and the obstacles are getting less formidable.

The rewards for getting bigger are growing, particularly in the world of technology, media and telecommunications, where fixed costs are especially large and the cost of serving each additional customer is small. Some snapshots:

* Twenty years ago, cable television was dominated by a patchwork of thousands of tiny, family-operated companies. Today, a pending deal would leave three companies in control of nearly two-thirds of the market.

* In 1990, three big publishers of college textbooks accounted for 35% of industry sales. Today they have 62%.

* In 1993, then-Defense Secretary William Perry told executives of more than a dozen big defense contractors that half their companies wouldn't exist in five years. He was right. Today, five titans dominate the industry, and one of them, Northrop Grumman Corp., Friday made a surprise $5.9 billion bid for TRW Inc., a maker of auto parts, defense and aerospace equipment. The offer includes $5.5 billion in assumed debt.

* In 1996, when Congress deregulated telecommunications, there were eight Baby Bells. Today there are four, and dozens of small rivals are dead.

* In 1999, more than 10 significant firms offered help-wanted Web sites. Today, three firms dominate.

Even as economic forces push these industries toward oligopoly, some of the forces that checked this trend in the 1990s are weakening. U.S. antitrust cops, regulators and judges seem less antagonistic toward bigness. Just last week, a federal appeals court opened the door to another round of media mergers by striking down rules that in effect barred cable companies from buying broadcast networks.

And investors are less eager to finance upstarts who challenge giants. In all, about $73 billion was raised for enterprises of all sorts through venture-capital financing and initial public offerings last year. That was robust by long-term historical standards, but it was less than half the $164 billion raised in the peak year of 2000.

The appetite for mergers is restrained by a sagging stock market and recession, but it probably will revive as the economy rebounds. "Even with the economic slowdown," President Bush's Council of Economic Advisers noted recently, "merger activity in 2001 was well above average levels during the past three decades."

An oligopoly, a market in which a few sellers offer similar products, isn't always avoidable or undesirable. It can produce efficiencies that allow firms to offer consumers better products at lower prices and lead to industry-wide standards that make life smooth for consumers.

But an oligopoly can allow big businesses to make big profits at the expense of consumers and economic progress. It can destroy the competition that is vital to preventing firms from pushing prices well above costs and to forcing companies to change or die. Rates for cable television, for instance, have soared 36%, almost triple the amount of overall inflation, since the industry was deregulated in 1996 and then consolidated in a few big firms.

The Organization of Petroleum Exporting Countries is a classic oligopoly. Members manipulate their control over the supply of oil to force consumers to pay prices well above levels at which market forces would otherwise set them.

"A certain amount of consolidation does generate a certain amount of efficiency and is good for customers," says economist Carl Shapiro, who served in the Clinton Justice Department's antitrust division and now teaches at the University of California at Berkeley. "That's what economies of scale are about. Particularly in a lot of these industries that have heavy fixed costs, it's natural to have some consolidation."

"Twenty [competitors] to four is good," Mr. Shapiro says. "It's four to two that is much more industries that are dubious," dominated by oligarchies.

The rise of early-21st-century oligopolies echoes the late 19th century. "They are both periods where there was a retreat from government oversight of the economy, a tremendous amount of entrepreneurial activity, lots of new technology --- and it wasn't clear who would be the winners and losers," says Naomi Lamoreaux, an economic historian at the University of California at Los Angeles. "Firms try to put some bounds on the chaos, to control some markets."

Many industries also face staggering costs.  . . .
 

A STATE PLANNED VS. CORPORATE PLANNED ECONOMY

"When fewer and fewer individuals make more and more of the economic decisions, whether those individuals are in government or big business, the result is anti-competitive, inefficient and harmful to the society as a whole; when more and more individuals make more and more of the economic decisions, the result is more competitive and more efficient and beneficial to the society as a whole.

"There is an even great irony in the principal advocates of centralized economic planning ---   the Soviet Union and Eastern European countries --- are abandoning it as an economic failure, at the very time American industries . . . are becoming more and more centrally planned by those few firms with greater and greater economic power resulting from ever increasing industry concentration."

--- Dr. John Helmuth, the late Adjunct Associate Professor and Assistant Director, Center for Agriculture and Rural Development, Iowa State University, Ames, Iowa.
 

STUDY REVEALS ANTI-CORPORATE FARMING LAWS
BRING ECONOMIC STABILITY TO RURAL COMMUNITIES

In a study released by Cornell University and Clarkson University, rural sociology researchers conclude that anti-corporate farming laws provide economic stability to rural communities. The research, led by Professor Thomas Lyson of Cornell University and Professor Rick Welsh of Clarkson University of Potsdam, New York, analyzed a variety of economic indicators for 433 counties located in the nine states which have adopted laws prohibiting corporations from owning or controlling farms.

Those nine states are Iowa, Minnesota, Missouri, North Dakota, Oklahoma, South Dakota, Kansas, Nebraska, and Wisconsin. Eight municipal governments in Pennsylvania have also adopted local laws identical to South Dakota's "Amendment E", adopted in 1998, and agribusiness interests have sued to overturn those local laws in Belfast Township, Fulton County.

Generally, those laws prohibit absentee corporate ownership and control of farms. The laws have been challenged in a variety of state and federal courts, and have been upheld by the U.S. Supreme Court. In their research, Lyson and Welsh discovered that "agricultural counties without corporate farming laws generally had higher poverty and
unemployment rates and lower cash returns to farming." The study found that Counties "suffer when industrial agriculture crowds out less industrialized forms."

Based on U.S. Census figures, the study was funded by the Rockefeller Family Fund.

Thomas Linzey, staff attorney for the Legal Defense Fund, stated that "this Study simply confirms what most rural communities already know: the invasion of communities by factory farm corporations results in real costs to local economies and communities. It is time to assert democratic and community control over factory farm corporations, and establish sustainable communities which support local economies."

The most famous study of industrial farming was by Walter Goldschmidt sixty years ago. The California anthropologist concluded that communities surrounded by large farms compared unfavorably to counties dominated by small and medium farms.

See Issue #76.
 

RURAL COMMUNITIES SUFFER DECAY
AS RAW MATERIAL PRICES
UNDERMINED BY CHEAP IMPORTS

PETER T. KILBORN, NEW YORK TIMES: All along the nation's back roads, hundreds of towns like this one are teetering in the recession, and some worry that  they may never recover. Uranium mining has stopped in Falls City, Texas. In Loving County, Texas, oil  exploration has stalled.
 
For farmers in Pima, Arizona., and Bartow, Georgia, cotton prices have sunk to 30-year lows. Here in Brady, the ranchers who raise goats for angora wool are victims of low prices and competition from New Zealand and Argentina.
 
Stretched across the southern tier, from Arizona and New Mexico through Texas and Georgia and into Virginia, these small rural communities form the base of the national supply chain. They produce most of the oil and much of the ore, fiber and food. In past recessions, even if they did not  bounce back entirely, at least they survived.

But this time around, as the overall economy begins to show some signs of healing, things are ominously different in many of these towns.
 
Since the last recession, in the early 1990's, China, Russia and the former Soviet republics have charged into the world's commodity markets. At the same time, new trade agreements have erased quotas and tariffs that long insulated United States industries from foreign competition.
 
While freer trade benefits American consumers and industries that can now buy cheaper imported commodities, it has been rough on the places whose livelihoods depend on raw goods. For these already-struggling communities, the first post-globalization recession may break the old sequence of boom-bust-boom, and erase any hopes of long-term survival.

Foreign potash and uranium are now cheaper than New Mexico's, and Australian wool is cheaper than that produced here in Brady, a ranching town of about 6,000 people in the Texas Hill Country. In part because of competition from Latin America, the copper mining that has stalled in Arizona and New Mexico might never return.

"All the rural parts of New Mexico are dependent on mining," said Terry Fletcher, chairman of the state's mining commission, "and almost all hard-rock mining is going offshore." Certainly, there are communities along these back roads that have found ways to rebound. Some are part of the expanding orbit of sprawling cities.

Heirs of the beleaguered peanut farmers of Floresville, Texas, are selling out to subdivision developers from San Antonio. Brady's game-stocked  woods bring in money from hunters. With museums and antique shops, other towns, like Silver City, New Mexico, hope to get along by selling their past.

But for many rural communities, industries that have been declining for years may be dying out. "We're just constantly losing without anybody filling in the blanks," said Joyce Patrick, a real estate office assistant in Halifax, Virginia., where the economic pillar was once tobacco and then became textiles, which are now in decline. . . . . .

About 330 miles east of Silver City is Loving, New Mexico, population 1,326. It has ranches, oil wells and, nearby, the nation's largest deposits of potash, a basic ingredient of fertilizer. A few years ago, seven 850-foot- deep potash mines operated in Eddy County, which includes Loving. Now there are three. Mining jobs in the county have fallen to 850 from 1,800 in 1993. Mining companies say most of those jobs may be gone for good.

Part of the reason is the depressed agricultural economy. But even if that economy revives, and farmers start using more fertilizer, the Loving area will be hard put to respond. Canadian potash is increasingly competitive, and the potash reserves here are old and run down. What remains is harder and more expensive to get. "You just run out of mineable ore," said Melinda Hood, spokeswoman for the Mississippi Chemical Corporation, a potash mine operator in Eddy County. . . . .

From Loving, New Mexico, Highway 285 winds east to a county in West Texas also called Loving, which is the nation's least populous county, with 67 people. Mentone, the county seat, has two businesses, a cafe and a gas station. Children are bused 36 miles to school in the town of Wink. In the 1980's oil boom, with so much oil and so few people, Loving was a very rich county. But with the oil bust of the late 80's, the West Texas  economy plunged. It has not helped that the county's oil, which was easy to retrieve, is harder and more costly to get. . . .

About 250 miles from Mentone as the crow flies is Brady. Here, the recession and globalization have hit mohair and wool. Tommy A. Quick, 68, and his wife, Wanda, 54, pulled into a McDonald's one Sunday morning, a black and white Nubian nanny goat nibbling straw in the back of their pickup.

The Hill Country was the "angora wool capital of the world," said Mr. Quick, who owns 125 goats, but now raises them for their meat instead of  their hair. "The whole wool business is shot," he said. "Every Japanese man wanted a mohair suit. It comes from angora goats." With the global recession, he said, no one wants the suits anymore.

"I worked at this wool plant, Roddie Wool Scouring, for 27 years," Mr. Quick said. "We washed two million pounds a week. It was the steadiest job ever in this town. Now it's shut down to three days a week." Four years ago, Sherri Tally, the office manager at the Roddie plant, wrote weekly paychecks for 105 workers. "I do 23 now," she said.

In Bartow, Georgia, the culprit is cotton. High production in countries like China has led to an oversupply and plunging prices. Raw cotton today sells for about 55 cents a pound, about 30% below the price five years ago.  As the American farms have gotten bigger and automated, the small- farm families that sustained Bartow have given up and moved.

Even the federal government's subsidies for cotton have not been enough to allow any but the biggest farmers to eke out profits. Though Georgia is one of the fastest-growing states, Bartow's population dropped to 223 in 2000 from 292 in 1990. "I just gave it up," said T. Murray Dukes, 72, who  raised 300 acres of cotton near Bartow for 40 years. "Cotton used to be your money crop. But you don't know what you're going to get for it now."
 

THE TRUE LIMITS OF MANUFACTURERS AND COMMERCE

"Manufacturers, sufficient for our own consumption, of what we raise the raw material (and no more). Commerce sufficient to carry the surplus produce of agriculture, beyond our own consumption, to a market for exchanging it for articles we cannot raise (and no more). These are the true limits of manufactures and commerce. To go beyond them is to increase our dependence on foreign nations, and our liability to war. These three important branches of human industry will then grow together, and be really handmaidens to each other."

--- Thomas Jefferson, letter to John Jay, 1809
 

CORPORATE FOCUS:
BREAKING THE LAW, PENALTIES, FINES VIEWED BY
CORPORATE MANAGERS AS "COSTS OF DOING BUSINESS"

RUSSELL MOKHIBER & ROBERT WEISSMAN, CORPORATE FOCUS: Frank Easterbrook and Daniel Fischel are University of Chicago law professors who believe that, when it comes to making profits, nothing --- not even the law --- should stand in the way. (For almost two decades, Easterbrook has also been a federal appeals court judge.)

Twenty years ago, writing about antitrust crimes in the Michigan Law Review, Easterbrook and Fischel, then both professors at the University of Chicago, wrote that managers not only may, but should, violate the rules when it is profitable to do so. And it is clear that they believed that this rule should apply beyond just antitrust.

In a nutshell, this is the Chicago School view of corporate law that has taken hold over the past 20 years. Under this view, if a Fed Ex truck needs to double park to make a delivery --- double park. No problem. Pay the $20 fine. Just as long as you are still making money, violate the law. Or course, when it comes to corporate crime and violence, we aren't talking about just double parking. We're talking about fraud, corruption, pollution, price-fixing, occupational disease, and bribery.

The Chicago School says these are "externalities" and related fines and penalties should simply be viewed as the "costs of doing business." We call these activities crimes, and we believe society imposes penalties for committing these crimes to deter and socially sanction those who would violate society's proscription.

Lawmakers of both parties are shamelessly portraying Enron and Arthur Andersen as rotten apples, even though those same lawmakers were just until recently on the take from both corporations, and doing the dirty work of defeating laws that would have governed both. But of course we are not talking about a couple of rotten apples here.

As Easterbrook and Fischel so clearly show, the corporate world is now governed by an ideology that is rotten to the core. After all, as the great Chicago professors teach us, it is the duty of managers to violate the law when it is profitable to do so. Now, the stink has risen. And slowly, but surely, and hardly noticed, a counter-Chicago movement in corporate law is bubbling up from law schools around the country.

At Boston College Law School, Professor Kent Greenfield points out that it used to be that corporations were created by the state to achieve specified public goals. The corporation was created to build a canal, for example. And then it was to go out of business. If the corporation decided to sell hot dogs instead, it was acting beyond its powers, and a shareholder or the attorney general could file an injunction under the "ultra vires" (beyond its powers) doctrine --- forcing the company to drop the dogs.

Then, the states started to compete with each other for more corporate business --- the infamous race to the bottom. As a part of that race, states stopped imposing strict limitations on corporate powers. The corporate lawyers set up Delaware as the Las Vegas of corporate chartering. And as a result, virtually no corporate activity was beyond a company's defined activity. Ultra vires was dead, was the common view.

Greenfield steps in and says -- wait a minute -- illegal activity is still "beyond the power" of corporations. State incorporation statutes and articles of incorporation almost invariably charter corporations only for "lawful" purposes. He wants attorneys general and trial lawyers to look carefully at the possibility of bringing ultra vires lawsuits against officers and directors of corporate criminals.

At Washington and Lee University, law professor David Millon says that underlying the assorted debates over the nature of the corporation are differences of political opinion. So, those who see the corporation as a creation of the state do so because we want to see strong public control.

Those who see in a corporation nexus of private contracts (the Chicago School) see it that way because they want to defeat public regulation. (The charter of incorporation is like a birth certificate, and nothing more, they argue.) This new breed of corporate law reformers, represented by the likes of Greenfield, Millon and Lawrence Mitchell of George Washington University Law School, does not go as far as we would in sending the corporation back to the public woodshed.

But it is good to note that, after years of bowing in subservience to the giant corporatists of the Midwest, a handful of law professors are beginning to agitate against the regressive theories of their Chicago School colleagues.

Their task is simultaneously difficult and easy. Difficult, because the Chicago School has been so successful in winning the academic --- and eventually legal --- debate about what corporations are and how they should be governed. Easy, because the Chicago School claims are so extreme that the reformers can win the debate --- or at least
significantly shift the pendulum in the field --- by convincingly arguing simply that corporations should follow the law.

Russell Mokhiber is editor of the Washington, D.C.-based Corporate Crime Reporter. Robert Weissman is editor of the Washington, D.C.-based Multinational Monitor,
http://www.essential.org/monitor.
They are co-authors of Corporate Predators: The Hunt for MegaProfits and the Attack on  Democracy (Monroe, Maine: Common Courage Press, 1999;
http://www.corporatepredators.org
 

CARGILL AND ITS EMPLOYEES NEW STRATEGY:
"I AM NOT A COMMODITY,
"I AM NOT AN EAR OF CORN, I AM NOT A SILO,
"I AM A VALUE CREATOR, I AM A PROBLEM SOLVER"

JOY POWELL, MINNEAPOLIS STAR TRIBUNE:  With fanfare that includes top executives in T-shirts that say "I am not a commodity," the global work force of Cargill Inc. is celebrating today. It's part of a campaign aimed at engaging employees in Cargill's new strategy: providing advice and assistance to farmers, food processors and retailers. The company is also trying to move beyond commodities trading by adding value to food, such as turning corn into a multitude of products.

"Two and a half years ago, Cargill began a journey to become more invested in solving our customers' problems and less dependent on buying and selling commodities," said Warren Staley, chairman and chief executive officer.

The blitz began this month with mysterious postcards and posters showing photos of employees. Among the strange captions: "I am not an ear of corn" and "I am not a silo." Today, banners and placards with employees' photos announce "I am a value creator" and "I am a problem solver."

According to a new vision statement, Cargill's mission is to become the world's leader in nourishing people by 2010.

Today's gala celebrates Cargill's evolution from a grain trader to a company focused on helping its customers succeed in business, said Dave Larson, Cargill executive vice president. It's a transformation that has quietly gathered momentum. But in doing so, the Minnetonka-based Cargill is not forsaking its roots. It began in 1865 with a single grain warehouse in Conover, Iowa. Cargill is building on that foundation to realign itself toward new markets.

All big commodity-oriented businesses want to expand from trading into other products, said Steve Denault, food research analyst for U.S. Bancorp Piper Jaffrey. "Inherent in a commodity-oriented business is the volatility that is out of your control," Denault said. "As you are trying to move up the value ladder, you can control the prices which you get for the value-added product because they are more differentiated."

Cargill is working to meet customers' specific demands and differentiate products, from meat to fertilizer to barley for brewing, Larson said. By differentiating, Cargill has become McDonald's sole egg supplier. And Cargill subsidiaries such as Excel supply meat sold under different brand names.

Employee surveys helped guide Cargill in its new direction, Larson said. Employees take pride in the company's integrity and safety record, but they want more innovation and ways to assist customers. Larson said many small changes will add up to dramatic results.

Cargill's new direction has led to an openness and a move to change the culture inside the company, which employs 90,000 people in 57 countries, including 4,785 in Minnesota. Like other grain merchants, the privately held company had historically held its business secrets tightly. It's dealings were full of maneuvers.

"When you have that constant fighting in that classic old trading game, where there's an adversarial relationship in a zero-sum game, everybody's holding everything close to the vest because knowledge is power," Larson said. Now, as Cargill focuses more on serving the needs of customers, it's offering services and advice to boost profits for all involved, he said. "It's just a recognition that we probably could create value for some of our customers by sharing our knowledge with them," Larson said.

In Stewart, Minnesota., farmer Curt Burns has used Cargill's new marketing services to earn a better profit. He gets daily e-mails on markets from Port Cargill and talks often with his Cargill market adviser. "They're calling me on things we can do to try to improve the price for our grain, and I really appreciate that," Burns said. He raises corn and soybeans in Sibley County, where for decades his parents and grandparents raised crops that were fed to livestock or sold after harvest.

They never dealt with Cargill, using local grain elevators instead. Burns realizes that the business of farming has changed. He now believes in searching out the best price far ahead of delivery. "You need to be looking at forward contracting because the futures market will let you lock in a price one or two years ahead, rather than growing the crop and trying to sell it," Burns said.

With help from his Cargill adviser, Burns recently offered a fourth of his 2003 corn crop for $2.50 per bushel. That would be a profit. The downside: if prices exceed $2.50 a bushel, he forgoes any profit above that. But either way, he earns a premium of a nickel a bushel on corn he already had contracted to sell to Cargill next summer. And he manages his risks on a rocky market.

"My expertise is in producing the crop," Burns said. "As long as they're making me money, I have no problem in delivering the grain to Cargill. Since I started with Cargill AgHorizons, I definitely have improved the profitability of my operation."

In many rural areas, farmers like Burns are turning away from their local elevators to pursue better prices and services with bigger companies like Cargill. Critics worry over the concentration of corporate power in agriculture, pointing to monoliths such as Cargill, the nation's largest private company. Sen. Paul Wellstone and others say conglomerates are squeezing out small farmers.

Burns' marketing adviser is Cargill's Craig Rohloff. He occasionally encounters farmers who believe that Cargill's influence has been detrimental, Rohloff said. "That's what Cargill's trying to change, to let people know that we're not the big bad company that some people think we are," he said. Rohloff rides in combines with his farmer customers, advising them about marketing strategies that they are too busy to research themselves.

"Cargill's attitude is, if farmers do better, Cargill does better," Rohloff said. "If we can help farmers market their grain well, they're going to be more interested in working with us. It's a partnership."

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