April 29, 2002 #159
Monitoring Corporate Agribusiness
From a Public Interest Perspective
EDITOR\PUBLISHER: A.V. Krebs
ADDRESS: PO. Box 2201, Everett, Washington 98203-0201
WEB SITE: http://www.ea1.com/CARP/
TO RECEIVE: Name and e-mail address
2002 FARM BILL AWAITS FINAL CONGRESSIONAL VOTE
FAMILY FARMERS ASK SELVES "WHO NEEDS ENEMIES WHEN WE HAVE FRIENDS LIKE THESE"
A.C. Townley, the co-founder of the early 20th century progressive populist Non-Partisan League once reminded a farm audience:
"I have been told all my life that you are independent American farmers. I know that you are independent farmers, because all those fellows that handle the wheat and potatoes say you are. They tell it from morning until night, that you are independent American farmers. You know that they never lie. I heard a farmer the other day say that his interpretation of an `independent' American farmer was that he was `in' about as far as he could get, and `dependent' upon everything in sight."
If anyone doubts Townley's wry observation all they need to do is look at the results of the House-Senate conference committee farm bill now awaiting both houses approval and President-select George W. Bush's signature.
ADM got what it wanted, the Big Four meat packing companies got what they wanted, corporate agribusiness got what it wanted, the National Pork Producers Council got what it wanted. Meanwhile, conservationists, food stamp advocates and farm state politicians up for re-election this year managed to also scrape a few crumbs off of the table.
Yes, everybody, including the so-called "friends" of family farm agriculture, seems to have gotten something from this new farm bill, however odious other parts of the bill may have been to them, everybody that is with the exception of the nation's family farmers !!!
Indeed, many farmers might well be asking themselves right about now, "who needs enemies when I've got friends like these???"
That question, however, is destined to be asked again and again in the future when it comes to farm legislation until such time as a bill comes before our lawmakers that is a bill of the family farmer, by the family farmer and for the family farmer.
Such a bill has been written --- Food From Family Farms Act (see Issue #124) --- and it is now incumbent that family farmers begin to move heaven and earth to not only get the thinking behind and the language contained in that bill before the public and the two major issues it addresses --- a fair market price for farm-produced goods and the increasing threat of corporate agribusiness consolidation --- but to educate both friend and foe alike, beginning at the grassroots, on the economic and social fundamentals of family farm agriculture.
The stakes are high for the very survival of family farm agriculture hangs in the balance. In short family farmers are going to have to embark on a massive education and public relations campaign, aimed not only at their heretofore passive neighbors, but their elected representatives, consumers and environmentalists. And in embarking on such a crusade they need to make a simple political axiom abundantly clear to one and all:
If you are not part of the solution, you are part of the problem!!!!
NEW SENATE-HOUSE FARM BILL TESTAMENT
TO CORPORATE AGRIBUSINESS POLITICAL INFLUENCE
DAN MORGAN, THE WASHINGTON POST: House and Senate negotiators [Thursday] jettisoned a six-year attempt to wean farmers off government subsidies and approved a high-priced farm bill that would expand payments to producers of basic agricultural commodities by nearly $50 billion over the next decade.
The bulk of the extra money would go to some of the largest and wealthiest wheat, corn, cotton and rice growers in 10 central and southern states. The measure would also sharply increase funding for environmental and land conservation programs and extend food stamp benefits to adult legal immigrants who have been in the United States for at least five years and to all children of legal immigrants.
The agreement is a testament to the continuing political influence of the agriculture lobby, even as the number of full-time commercial farmers has dwindled to a few hundred thousand. With world and domestic farm prices often fluctuating, the lobby has argued that hefty government payments remain essential to a wide range of rural interests. The new six-year legislation would replace the 1996 Freedom to Farm Act, a radical measure that was supposed to phase out 60 years of hands-on government management of agriculture.
The House and Senate must ratify the deal before it can be sent to President Bush. Given the importance of farm states in this fall's battle for control of the Senate, GOP aides said Bush is virtually certain to sign it.
But Agriculture Secretary Ann M. Veneman said the administration still needs to study the details. Although the farm legislation itself covers only the next six years, the conferees allocated 10 years of spending for farm programs. Yesterday, the Congressional Budget Office was still studying the price tag on such things as a new national dairy program and a 9-cents-a-bushel increase in corn price supports.
Adding drama to the process was the knowledge that thousands of farmers were delaying decisions on what to plant pending final word on the subsidy levels being set by negotiators meeting behind closed doors on Capitol Hill. "They've been on pins and needles," said one farm consultant.
"We've done it," said Sen. Tom Harkin (Dem.-Iowa), chairman of the Senate Agriculture Committee. He said the bill would put a strong safety net under farmers. "I hope this stems the tide of those going out of farming," he said. Some outside experts were less enthusiastic.
"It's a disappointment to those of us who hoped [the previous farm bill] would lead to a smaller government role," said University of Maryland economist Bruce Gardner. "It clearly hasn't done that."
The Freedom to Farm Act ended the mandatory idling of crop acreage and the federal purchases of surplus commodities. Although it retained price supports and added cash payments to growers to tide them over through a transition, its goal was to have the world market, not the federal government, telling farmers how much and what to plant.
But as world prices plummeted in the late 1990s, Congress rushed to the rescue with huge "emergency" bailouts that ran up the federal deficit. The new legislation, in effect, acknowledges the failure of the previous policy by setting up a new counter-cyclical program that would provide advance payments to growers based on estimates of future price trends.
The combined payments to growers of staple crops would consume by far the largest share of the $73.5 billion in extra money that Congress has made available for farm programs between now and 2012. Peanut growers alone would collect about $4 billion more. The corn support price would rise from the current $1.89 a bushel to $1.98 this year and next, and then drop by two cents a bushel.
"I recognize it's extremely difficult to put together a meaningful farm bill in an election year with different regions, different priorities and different perspectives," said Rep. Ron Kind (Dem.-Wisconsin), who fought for greater conservation funding in the House bill. "But it's disheartening to see that 75% of the new money will go into crop programs that benefit less than 30% of the farmers in our country."
To limit the benefits going to the most affluent farmers or corporations, Senate Democrats fought to cap payments at $275,000 annually. But that effort failed when House GOP conferees resisted, even though the House had passed a nonbinding resolution backing the Senate position.
Under the compromise agreement, top payments were set at $360,000, down from the current $460,000 ceiling. But loopholes that allow several entities to receive the payments were retained. Harkin promised to work to bring more "transparency" to the farm payment system. Industry officials said the torrent of funds going to the heartland would likely have the effect of sustaining --- or increasing --- land values, a development that would not help thousands of farmers who rent their land from others.
"It's going to put more money into the agriculture economy, probably," said John Campbell, vice president of Ag Processing Inc. of Omaha. "If you're a banker or own land, that's great. If you're a tenant farmer, it may not be." Campbell served on a commission last year that studied the farm economy. Along with providing traditional supports for farmers, the new legislation would shape conservation, nutrition, research and rural development programs. Negotiators set aside a proposal to bar meatpackers from owning livestock.
A major compromise involved midwestern and northeastern dairy farmers, at odds for years. Midwestern dairy farmers have charged that unduly high northeastern milk support prices have barred them from that region's market. The agreement would establish a 3 1/2-year, $1.3 billion national dairy program. Under a complicated formula, the price of milk would be supported at $16.94 per 100 pounds.
U.S. livestock and hog producers won a battle when House negotiators accepted
a Senate plan to require that all meat be labeled by country of origin. It was
pushed by livestock operators in the Northern Plains who fear Canadian and
Mexican imports. Fish, fruits and vegetables would also be covered. The final
bill provides major gains for those pressing for conservation programs for which
all farmers are eligible. It authorizes a record $17.1
billion over 10 years for improving water quality, protecting wetlands, safeguarding open spaces and setting aside marginal land.
CAMPAIGN FOR FAMILY FARMS:
"WE'VE GOT TO KILL THIS BILL
BEFORE IT KILLS US"
CAMPAIGN FOR FAMILY FARMS: . . Early statements indicate that farm bill negotiators have rejected key provisions supported by family farmers and farm groups from all across the nation, including a ban on packer ownership of livestock and restrictions on large payments being made to factory farms and meatpackers.
"This is a travesty, a boondoggle, and an outrage," said Minnesota farmer and Land Stewardship Project member Monica Kahout. "Family farmers have consistently called for a ban on packer ownership of livestock, but congress is responding to corporate lobbyists rather than the people with this bill. This is a farm bill that directly supports corporate livestock factories, pure and simple."
The Environmental Quality Incentives Program (EQIP), which currently pays for effective conservation practices on family farms, will also face significant changes as a result of the farm bill deal. "The Bill would turn the EQIP into a huge new subsidy for factory livestock producers," said Phil Wright CFF spokesman and Illinois Stewardship Alliance member. "If the conferees go with the House version of EQIP, it could mean up to $50,000 a year for every factory farm in America."
"I don't know if I've ever seen a worse example of corporate special interests at work than through this so-called farm bill process," said Iowa farmer and Iowa Citizens for Community Improvement member Larry Ginter. "This is a Factory Farm Bill that rips off family farmers and taxpayers, and lines the pockets of the packers and grain traders. Who in America, besides the lobbyists, politicians and agribusiness corporations, actually supports this bill?
Rhonda Perry, a Missouri farmer and Missouri Rural Crisis Center member,
agrees. "What we're facing is a farm bill that refuses to ban packer ownership
of livestock, provides millions of dollars in funding to support corporate
livestock factories, and facilitates cheap grain prices that will continue to
fuel the construction of new factory farms. The American public is sick and
tired of paying for bad policies that foot the bill for corporations. We've got
to kill this bill before it kills us."
GRAIN CORPS. CONTINUE TO CONSOLIDATE
AS TRADE TRANSPARENCY SUFFERS SETBACKS
MICHAEL J. STRAUSS, OSTER DOWJONES: The gradual move toward transparency in the historically secretive international grain market has suffered some setbacks, and the trend toward consolidation among large grain traders is shaping up as one of them.
Grain firms have never been eager to share information about transactions and market-influencing events. But they have been forced to improve transparency as trade has grown and as futures have drawn in participation from investors accustomed to more regulated --- and more open --- financial markets. As the number of firms involved in the business falls, this process is being reversed.
In the last few years, many global grain trading firms have disappeared, either going out of business or being absorbed into other companies through mergers, and the process is continuing --- perhaps even accelerating. A sustained slump in grain prices has taken its toll on some firms, a few have fallen victim to losses by rogue traders and still others have been bought and sold in corporate maneuvers that had little to do with the trading business itself.
Trading giants like Continental and Andre and second-tier firms that had gained prominence by their importance in the grain markets, like Tradigrain, are among those that have been caught in the trend. It's not that business is shrinking --- the International Grains Council says the amount of grain traded internationally has grown 6% in the last three years --- it's that the number of players is falling as margins have become tighter.
This isn't just affecting the grain sector --- industries like airlines and telecommunications have been undergoing the same thing. But what makes the grain trade different is that so much of its activity is done by entities that don't have to say much about what they do, either to the public or to each other.
These include the trading giants that began years ago as family-run
businesses, like Cargill and Dreyfus. Family firms continue to dominate much of
today's world's grain trade, and some are thriving. Most are still privately
held, so don't fall under disclosure rules that many governments enforce for
firms with publicly traded securities. Cooperatives, which move large amounts of
grain in many countries and are not subject to rigorous
disclosure rules, have also been merging.
The other players in the grain trade that don't have to say much are state-run or quasi-governmental sellers and buyers. State-controlled sellers like the Canadian Wheat Board and official importers in countries like Egypt and Algeria are among the biggest traders.
The fall in the number of entities trading grain is not the only direction the threat to transparency is coming from. Cargill's recent acquisition of one of the world's largest starch producers, Cerestar, is indicative of moves by some agribusiness companies to become more vertically integrated. Those on the outside of such corporate structures may become less privy to the kinds of transactions that are done between companies within them.
Grain brokers who are used to arranging deals between firms at different vertical levels have already expressed concern that their business will be eroded as more trades get done "in house." This would also mean the erosion of the brokers' place in the information chain, since it is often through brokers that word of specific grain needs or availability will reach the broader markets.
While the grain sector's consolidation may make it more difficult for some of this information to get out, it is occurring amid a longer-term counter-trend that might limit its impact.
Some of the world's leading grain-importing countries have been gradually
liberalizing their grain sectors, and this is fostering the emergence of more
private-sector trading firms to co-exist with state-run entities. Also, the U.S.
aims to use the World Trade Organization's upcoming agricultural trade talks as
a venue to broaden this process, by fighting to get state-run agricultural
trading firms that act as monopolies outlawed in favor of multiple players. As
new trading firms enter the grain markets from scattered points around the
world, they may be critical to keeping the market's information flow intact.
GLOBAL TRADE AGREEMENTS WILL NOT SUCCEED
HELPING FARMERS AND RURAL DEVLOPMENT UNLESS
IT ADDRESSES TRANSNATIONAL'S MARKET POWER
BEN LILLISTON, INSTITUTE FOR AGRICULTURE AND TRADE POLICY: The current global agriculture trade agreement will not succeed in helping farmers and broad-based economic development until it addresses market power by transnational corporations, finds a new report released . . . by the Institute for Agriculture and Trade Policy. The report, Managing the Invisible Hand: Markets, Farmers and International Trade, is by the Institute's Trade Director Sophia Murphy. The report was produced by IATP for the Canadian Foodgrains Bank.
The report examines the World Trade Organization's (WTO) Agreement on
Agriculture, which is the primary trade agreement governing global agricultural
trade. Between now and March 31, 2003, governments will draft revisions to the
current agriculture trade rules. Government delegates at the WTO will discuss
issues such as export subsidies, market access, domestic support programs, food
security, and special treatment for
The report examines the weaknesses in the Agreement on Agriculture and argues that the agreement itself, whose structure is reflected in the negotiations, is fundamentally flawed. The Agreement ignores:
* the inelastic nature of demand in agriculture;
* the relatively inelastic nature of supply in agriculture;
* the political and economic weakness of most farmers;
* the vertical integration of the agricultural system;
* the fact that countries do not trade; farmers do not trade; transnational
"Until multilateral trade rules take account of the concentration of market power in transnational agricultural trade, they cannot manage an open and fair trading system," Murphy writes in the report. "Agricultural trade rules need to take into account the rapidity of change in the whole agricultural sector, from seed production to food processing to retailing. These rules must allow countries, particularly developing countries, the flexibility to block dumped agricultural products, protect food security and preserve the livelihoods of low-income farmers."
The paper proposes several revisions to the WTO Agreement on Agriculture including:
1. Investigating and publishing the scale and scope of transnational
agri-business activities in member states;
2. Evaluating the sources of market distortion, public and private, and discussing how best to address them;
3. Creating a WTO working group to discuss competition issues specifically related to agriculture.
Murphy will present the paper at the "World Trade Organization Symposium: The Doha Development Agenda and Beyond," being held from April 29-May 1 in Geneva, Switzerland. IATP is one of half a dozen Non-Governmental Organizations sponsoring an April 30th workshop in Geneva titled: "Dumping and the WTO Agreement on Agriculture: The Food Security Implications."
Sophia Murphy is the director of IATP's Trade and Agriculture Program, which focuses on multilateral institutions and food security. She is a former Policy Officer at the United Nations in Geneva, Switzerland, and Policy Officer at the Canadian Council for International Co-operation in Ottawa. She is a graduate of Oxford University and the London School of Economics. She has written frequently on food and trade issues and has spoken to many international panels on these topics --- most recently at the United Nations Financing for Development meeting in Monterrey, Mexico.
The Institute for Agriculture and Trade Policy promotes resilient family
farms, rural communities and ecosystems around the world through research and
education, science and technology, and advocacy. The full report and executive
summary can be viewed at: http://www.tradeobservatory.org
UFW SEEKS TO STRENGTHEN CALIFORNIA LABOR LAW
ALLOWING THIRD-PARTY NEGOTIATORS TO IMPOSE
BINDING ARBITRATION WHEN UNIONIZED WORKERS
AND GROWER CONTRACT TALKS REACH AN IMPASSE
LESLI A. MAXWELL, SACRAMENTO BEE: The United Farm Workers' campaign to revamp a 27-year-old state labor law could set up a standoff between the union and growers that hasn't been seen since Cesar Chavez led boycotts and strikes against the powerful agriculture industry.
A bill by Senate leader John Burton, Dem.-San Francisco, would change the
Agricultural Labor Relations Act to allow third-party negotiators to impose binding arbitration settlements when contract talks between growers and unionized farm workers reach an impasse.
The UFW says the act --- signed by Gov. Jerry Brown in 1975 --- adheres to a quasijudicial, bureaucratic process that has allowed growers to thwart contract negotiations indefinitely. The effect, say UFW leaders, has been thousands of farm workers working without labor agreements for years or even decades after they voted to unionize.
"We want to restore the faith of farm workers in this law," said UFW President Arturo Rodriguez. "We want to make sure that if workers take the risk to vote for union representation, that they have some guarantee of getting contracts that will vastly improve their lives."
Since 1975, workers at more than 400 ranches and farms voted for UFW representation, but Rodriguez said that only 185 of those employers signed contracts with the union. Many of those agreements no longer exist, and the union estimates it now has roughly 50 contracts that cover 27,000 workers in California, Washington, Florida and Texas.
Grower groups such as the California Farm Bureau Federation and the Western Growers Association say binding arbitration would burden farmers with rules that no other private enterprise that negotiates with labor unions must shoulder. In California, public employee unions such as those which represent local police officers and firefighters can call for binding arbitration when labor negotiations stalemate.
"Nothing like this exists in the private sector," said Roy Gabriel, the Farm Bureau's legislative director for labor affairs. "The union would certainly have a big club over employers to reach an agreement or run the risk of having a contract imposed on them. The economic survival of California agriculture is at stake here." Grower groups, which have sided with the UFW in recent years on farm worker transportation reforms and water policy, say it's unlikely a compromise can be reached.
What the two parties do agree on, however, is that the issue will likely force Gov. Gray Davis to make an election-year choice between two interest groups he has worked hard to please. Davis spokesman Russ Lopez said the Democratic governor has no position on the bill but will closely follow its progress.
This is the first time the UFW has sought to change the Agricultural Labor
Relations Act, and even growers expect the measure to succeed at the Capitol,
where farm workers rallied in support Tuesday. It has already been approved by
the Senate Labor and Industrial Relations Committee. Their effort, says
Gabriel, is unnecessary because the labor law already compels growers to
negotiate in good faith. Growers who are found avoiding contracts are required
to compensate farm workers for economic losses that result from the absence of
CONTINUES CONSOLIDATION AS IT TRIMS DOWN
ON DUPLICATE PRODUCTION AND CONSUMER LABELS
CRISTAL CODY, ARKANSAS DEMOCRAT-GAZETTE: After several plant closings and the announcement that Tyson Foods Inc. was looking to sell its Specialty Foods line, picked up in the IBP Inc. purchase, investors may wonder what's left. Consumers may be surprised to find there's plenty.
Tyson Foods has more than 40 brands, including those recognized in supermarkets and those more familiar to food-service customers such as hotels and restaurants. Earlier this month, Tyson confirmed it will sell California-based Specialty Brands, which produces frozen food products for the food-service industry.
Included in the sale are Butcher Boy meats, Jose Ole and Posada Mexican
foods, Rotanelli frozen filled pastas and Fred's appetizers. Little Rock-based
investment firm Stephens Inc. is handling the transaction. Tyson also said
earlier this month that it will close a bacon-processing plant in North
Carolina, the fifth plant closing since it acquired IBP in
Since the merger, Tyson also has consolidated IBP's DFG Foods unit into its culinary foods plant in Chicago. DFG Foods makes food for food-service customers such as hotels and restaurants. Tyson still has more than 100 beef-, pork-and chicken-processing plants in the United States.
Analysts were surprised at the divestiture of Specialty Brands, which made up about 10 percent of IBP's former food-service division. "They can only juggle so many balls, and that $ 3 billion food-service division had a lot of brands," said John McMillin, an analyst with Prudential Securities. "They've decided what they want to keep and what they want to get rid of. Ten percent is more than I thought, but it's not that big of a deal. I don't think there will be much more after that."
The company cautions, though, of further cuts as it trims down on duplicate production or labels that don't move off the store shelf. Tyson spokesman Ed Nicholson said there may be "some brand consolidation as the integration moves forward." John Tyson told analysts in January that the Thomas E. Wilson labels will remain the company's main brands in the retail sector. He also said the Tyson brand allows the company an extension into turkey as well, so don't be surprised if Tyson turkeys show up in the future.
The Thomas E. Wilson line has turned into a "jewel" in a short period of time, McMillin said. "I've never seen a billion-dollar brand built so quickly," he said. Tyson Foods expects $ 1.3 billion in sales alone from the line, which includes fresh, branded, beef and pork cuts and cooked roasts. IBP picked up Wilson & Co., founded by the namesake of the new line, which includes brands such as Wilson's Corn King and Wilson Certified Hams. Tyson markets bacon under Thorn Apple Valley, Wright Brand, Corn King, Colonial and Wilson Certified brands.
Other deli meats brands for bacon, hot dogs, lunch meat, sausage and ground meat include Russer Foods, Thorn Apple Valley, Colonial, Cavanaugh Lake View Farms, Jac Pac, Reuben, Deli Slices Premium, Bonici, Jordan's, Continental Deli and Iowa Ham.
To go with all those sandwiches, Tyson's Mexican Original operations produce corn tortillas, flour tortillas and nacho chips. Food-service brands include Bruss Co., which sells beef and pork cuts to restaurants; Lady Aster, which produces products for the catering industry; bacon-topping maker Winchester Food Processing; Doskocil, a leading provider of meats for the pizza industry; and H&M Foods Systems, which makes pre-cooked meats and prepared foods. Tyson's products compete with lines from companies including ConAgra Inc., Pilgrim's Pride Corp., Cargill Inc., Smithfield Foods Inc. and Hormel Foods Corp.
The array of brands is a bit dizzying. Tyson controls about 27% of the beef
market, 23% of the poultry market and 18% of the pork market. "It just took them
awhile to get their arms around those transactions and know exactly how those
operations might fit together," said Christine McCracken, a food analyst with
Midwest Research. "They are very focused on value-added meat."
ADM DECADE-LONG EFFORT TO IMPORT
SUBSIDIZED LOW-COST WINE-BASED ETHANOL,
SET TO COMPETE WITH U.S. CORN-BASED ETHANOL
GLENN R. SIMPSON & BRANDON MITCHENER, THE WALL STREET JOURNAL:
Archer-Daniels-Midland Co., the big U.S. agricultural processor that cultivates
an image as an ally of the American farmer, has for a decade quietly worked to
import low-cost wine-based ethanol from Europe to compete with corn-based
American ethanol in the U.S. ethanol market.
The convoluted operation, which was set up in the early 1990s by top ADM executives including current chairman G. Allen Andreas, benefits from subsidies, tax breaks or price supports at every step. It is detailed in hundreds of pages of confidential documents from ADM and its business partners that are now spilling into public view for the first time, as the U.S. Congress debates whether to expand tax breaks for ethanol and mandate its use. It also raise questions about how ADM obtains its wine alcohol from the European Union.
Two members of Congress, critics of ADM and the U.S. subsidies of ethanol, earlier [last] week said the documents raise questions about whether ADM colludes with others bidders at wine-alcohol auctions to reduce the price it pays. In response to inquiries from The Wall Street Journal, the EU confirmed Wednesday that it suspended its auctions of wine alcohol late last year.
A European Commission official said sales were halted after EU officials learned of allegations that "some people made a lot of money off it," and that an investigation is under way. But George Fitch, a Virginia consultant who lobbies the EU to make wine sales, said the EU is simply trying to determine how to increase revenue. He called allegations of collusion in the bidding process "utter nonsense." Alessandro Buttice, a spokesman for the EU's antifraud office, had no immediate comment.
ADM on Wednesday minimized its involvement in the wine-alcohol deals, saying they are a tiny part of a huge market and an even smaller part of the affairs of the $20 billion-a-year-in-revenue (22.41 billion) corporation. Some of the records support that: One tally of deals between December 1999 and September 2000 indicates the gross value of the wine-alcohol cargo supplied by ADM was only about $6 million. ADM stock dipped only slightly Wednesday on the congressional allegations, in part because ADM already has a reputation for not being able to always steer clear of legal problems.
The U.S. tax code partially exempts from federal excise taxes motor fuels that are a blend of gasoline and ethanol, which is produced primarily from corn and sugar. The exemption will cost $6.4 billion over the next 10 years, according to the Congressional Budget Office. The initial justification for the tax break was to reduce U.S. demand for imported oil and increase demand for U.S.-grown corn. Proponents today argue that using the gasoline mixed with ethanol --- or its competitor, methyl tertiary butyl ether, or MBTE, a petroleum product --- reduces air pollution. ADM's antagonists, including MBTE makers, are helping to fuel the current controversy over ADM.
The elaborate process whereby ADM takes the water out of wine begins in Brussels, where the EU annually buys huge vats of low-quality wine from massive overproduction in Spain, Italy and France to support high retail prices. This oenophilic ocean --- it is often called Europe's "wine lake" --- is boiled down to a potent brew that is more than 95% pure alcohol. A few times a year, the EU auctions it off to industrial buyers, typically selling it at a loss.
Along with a few other firms, ADM bids for large allotments at prices as low as 23 cents a gallon, ADM's product is typically resold to an allied firm, Regent International of Brea, California. Regent ships the liquid to El Salvador and other Caribbean countries, where it converts the liquid into commercial ethanol. The product is then imported into the U.S. duty-free under the Caribbean Basin Initiative; ethanol from most other foreign producers is subject to a 54-cent-a-gallon tariff. The ethanol is resold to domestic distributors who enjoy a final subsidy in the form of a tax exemption.
The trans-Atlantic operation began after Congress in 1989 passed legislation allowing importation of ethanol from the Caribbean basin countries and the EU announced its plans to sell wine alcohol for use as ethanol. According to a November 28, 1991, memo on ADM International Ltd. stationery from G. Allen Andreas to Richard Vind of Regent International, a meeting was held December 3 at a London restaurant, Le Garroche, for "a discussion regarding CBI ethanol strategy."
G. Allen Andreas, now chief executive officer of ADM, took the reins of Decatur, Illinois, company in the late 1990s from his uncle, Dwayne O. Andreas, whose last years at the helm were tarnished by the imprisonment of his son for price fixing. Allen Andreas worked in London and Rotterdam from 1989 until 1994, when he served as chief financial officer of ADM's European operations. Trying to put the 1990s scandal behind ADM, Allen Andreas has publicly promoted a companywide ethics policy and has taken some steps to be more open to Wall Street analysts.
On March 18, 1992, Regent sent ADM a proposal for entering several auctions, as well as a strategy and suggested prices to be offered on individual bids. Mr. Vind, the documents show, developed a long-term relationship with ADM over the following years, acting as a buyer of wine alcohol and coordinating bidding activities. In a few cases during the mid-1990s, he appears to have been in direct contact with then-chairman Dwayne Andreas.
The following year, just as the operation was maturing, a threat to the ethanol project emerged when ADM apparently learned that Israel was also seeking to buy Spanish surplus wine alcohol, process it in Israel, then ship it to the U.S.
Citing "the Chairman of the Archer Daniels Midland Company (ADM), Dwayne Andreas," Mr. Vind wrote in an "EXTREMELY CONFIDENTIAL" memo to a Spanish business associate, "The U.S. ethanol industry cannot agree to the sale of wine alcohol to be processed into fuel ethanol in Israel for duty-free entry into the United States." Mr. Vind worried that the Israeli effort could lead to the exposure of his own operation. "The real problem would be the political backlash that would occur in the U.S. whereby the entire offshore wine-alcohol dehydration industry could be destroyed if the [U.S.] Corn Growers were to reopen this issue and demand congressional action."
He demanded a meeting with Spanish officials "for myself and Mr. Allen Andreas of ADM/Europe, who wishes to personally convey; the seriousness of this issue." Israel ultimately abandoned its plan. The business developed gradually, with Mr. Vind conducting extensive negotiations with the EU and ADM competitors such as ED&F Man of the U.K. and Hogan & Co. of Greenwich, Connecticut.
In 1993, Mr. Vind made a major pitch for a "long-range supplier-customer relationship" with the European Economic Community in a memo that noted, "The CBI [Caribbean Basis Initiative] fuel-ethanol industry has matured and has proven itself to be a viable long term market for EEC wine alcohol." The offer was apparently not accepted, but the CBI players formed an informal organization, referred to in documents as the CBI Producers Group, whose members have appeared to have sometimes shared information on their bid prices for EU auctions.
The group was represented in Brussels by Mr. Fitch, the Virginia-based lobbyist, who said he never negotiated the prices. "What I do for them is basically encourage the EU to make available more wine alcohol," Mr. Fitch said. He along with other members of the group worked extensively with an EU official in Brussels, Rudy Van der Stappen, on the procedures for bidding on auctions of wine alcohol.
The relationship was cozy. Mr. Van Der Stappen had frequent contacts with Mr. Fitch and another member of the group, Jeff Tuite of ED&F Man in London, the documents show. Following a trip to Brussels in September 1994, Mr. Fitch wrote the CBI Group, "Rudy deserves a lot of credit and a big attaboy for promoting our cause within the commission. Since he mentioned he finished the last drop of Appleton rum, I am arranging to get him half a case of Appleton's finest shipped by DHL from London."
Mr. Fitch said he didn't remember giving Mr. Van der Stappen half a case of rum, but did give him a single bottle as well as join him for meals. Mr. Van der Stappen, after initially agreeing to an interview, didn't answer when called back. Mr. Tuite didn't return several messages left at his office in London during working hours.
While Mr. Fitch lobbied the EU for more wine alcohol, the CBI group apparently talked among themselves about prices they would bid. In one 1996 memo to an ADM official in London, Dick Bok, Doug Vind, Richard Vind's son, wrote, "This will confirm that ADM will be bidding 5.9 [European currency units] on Spanish tender;" He added, "I assume you have discussed with Man, and all is OK. Please call if this is not the case."
Frequently, it appears, one firm would act as the buyer, and the goods would
be divided subsequently. "Regarding the upcoming wine alcohol lot, we agree to
Man buying the lot and disbursing it to the three parties. We agree to a 1/4
allocation," Dick Vind wrote to Mr. Tuite at Man.
EU ANTI-FRAUD UNIT INVESTIGATING
WINE-ALCOHOL TRADE FOR POSSIBLE CORRUPTION
BRANDON MITCHENER, THE WALL STREET JOURNAL: The European Union's main antifraud office is investigating the wine-alcohol trade for possible corruption, the office confirmed.
The EU sells undrinkable wine alcohol to bidders at public auctions several
times a year to stabilize prices for regular wine in Europe. Investigators are
looking into whether certain traders manipulated the system. European wine
alcohol is used in the U.S. by Archer-Daniels-Midland Co. and others to make
ethanol, which is blended with gasoline to reduce pollution. The EU confirmed it
was investigating the issue after allegations were raised in the U.S. Congress
that ADM colluded with other bidders at European wine auctions.
The European Anti-Fraud Office started its investigation in 1998, said spokesman Alessandro Buttice. He said the office "is investigating suspicions of fraud and possible manipulation of the market."
People familiar with the case said the probe was looking into possible corruption of EU officials, and into whether some of the wine alcohol had been doctored and sold as regular wine in the Caribbean, where some wine alcohol destined for the U.S. is processed. The EU props up wine prices by buying huge vats of low-quality wine from massive overproduction in Spain, Italy and France. That wine is distilled to a brew that is over 95% pure alcohol and is auctioned a few times a year, typically at a loss.
The wine-alcohol auctions are run by the Wine Management Committee of the
EU's executive arm, the European Commission. The commission said an auction
scheduled for last October was suspended after the commission's agriculture
service became suspicious.
For example, a Swedish company paid as much as 22.98 ($20.51) per hectoliter for 50,000 hectoliters in a June 2001 auction held for those who would use the product within the EU, commission records show, at a time when wine alcohol at auctions for export was fetching less than 10 per hectoliter.
Commission records also show that at one auction for exporters held last July, ED&F Man Alcohols Ltd. paid between 10.03 and 10.48 per hectoliter for wine alcohol to be processed in El Salvador, Jamaica and Costa Rica and then exported to the U.S. At the same auction, ADM Ingredients Ltd., a U.K. unit of Archer-Daniels-Midland, bought 50,000 liters for processing in Costa Rica for 10.51 per hectoliter.
In light of the allegations in the U.S. Congress, the EU antifraud office said it may seek the cooperation of the U.S. Customs Service, the U.S. Federal Bureau of Investigation or other authorities. The EU office has no power to pursue criminal prosecutions.
ADM is "looking into" the allegations raised in the U.S. but hasn't found
relevant company documents, Larry Cunningham, ADM's senior vice president of
corporate affairs, has said. George Fitch, a Virginia consultant who lobbies in
Brussels to make more wine available to ADM and others, has said the EU's action
is part of an effort to increase revenue. He has called allegations of collusion
in bidding "utter nonsense." ED&F Man didn't return calls seeking comment on
a story published in Thursday's Wall Street Journal.
CALIFORNIA SEN. DIANE FEINSTEIN:
ASSAILS IOWA SENATORíS VOTE ON ENERGY BILL AS
"I'M FOR THE FARMERS IN THE MIDWEST,
AND THE REST OF YOU BE DAMNED"
ZACHARY COILE, SAN FRANCISCO CHRONICLE: The Senate overwhelmingly passed an energy bill [Thursday] over the objections of California's two senators, who said a requirement to boost ethanol in gasoline could lead to gas shortages and sharp price increases for the state's consumers.
On the last day of the six-week debate on the bill, Sen. Dianne Feinstein blasted farm-state lawmakers for pushing a measure she said would help Midwest producers of the corn-based fuel additive at the expense of drivers in California and elsewhere. "I represent 34 1/2 million people, the fifth-largest economic engine on earth, and we are being told it's good for corn farmers, so you guys lay down and take it," the California Democrat said. "Yes, you've all cut your deal," she told her colleagues, "and both coasts are going to suffer because of it."
The requirement to triple the use of ethanol by 2012 and phase out the fuel additive MTBE was the most controversial provision left in a 580-page energy bill. The most far-reaching proposals --- to allow oil drilling in the Arctic National Wildlife Refuge and to require automakers to increase fuel-efficiency standards --- were both defeated. Without significant new domestic energy supplies or reductions in fossil fuel demand, critics say, the bill won't lessen the country's dependence on foreign oil.
Instead, the Senate's 88-to-11 vote essentially approved an amalgam of $14 billion in tax breaks. About half the money would go to producers of oil, gas, coal and nuclear power, and the other half would support renewable energy sources and conservation programs. The Senate now will have to reconcile its legislation with a House bill passed last summer that focused heavily on boosting energy supplies and included about $33 billion in tax breaks.
The House approved oil drilling in the Alaska wilderness, which the Senate defeated 54 to 46. The White House is promising a fight to keep the oil drilling provision when a conference committee meets this summer to produce one new energy bill. "We fully expect a dogfight," said Jay Watson, the Western regional director of the Wilderness Society. "But I think the Senate sent a clear message that drilling in the Arctic is a nonstarter."
The Senate bill included tax credits of $2,000 for consumers who install solar panels and as much as $4,000 for those who buy hybrid cars, as well as incentives to encourage greater energy efficiency in buildings and appliances.
Taxpayer watchdog groups complained that the bill was loaded with government giveaways, and environmentalists said too many of the subsidies will go to polluting industries. Sen. John McCain, Rep.-Arizona, the Senate's chief pork watcher, said he was surprised that no one had proposed tax credits for energy derived from dog waste.
The most contentious debate surrounded the ethanol requirement. California and New York senators led the attack on the provision, which was put together in a deal between oil companies and the corn lobby, and backed by the White House and Senate Majority Leader Tom Daschle, (Dem-South Dakota)
Feinstein argued that California's refineries were nearly at full capacity now and could not blend enough ethanol into gasoline to meet the requirement, which could lead to shortages and price increases of up to 10 cents a gallon. She proposed delaying by one year to 2005 the start of the requirement to use more ethanol. The Senate rejected her idea 59 to 40. Feinstein and her Democratic colleague, Sen. Barbara Boxer, later voted against the overall bill.
In opposing Feinstein's amendment, a chief ethanol advocate, Sen. Charles Grassley (Rep-Iowa) said California would have itself to blame for any big gas price increases. "How long has it been since you built a refinery in California? Well, it's been decades," he said. "That's not our problem, that's your problem that you don't have refinery capacity because of this attitude, `not in my backyard.'"
The comment left Feinstein seething. On the Senate floor, she said she resented Grassley's statement, and described his position as: "I'm for the farmers in the Midwest, and all the rest of you be damned." "I'll tell you something: When the price of gasoline does spike and people are calling, I will refer them to your office, senator," Feinstein said, her voice quivering with anger.
Boxer, who failed in her bid yesterday to strip the bill of a liability
waiver for ethanol producers, praised Feinstein for chastising her colleagues.
"She had every right to exhibit the feelings that she did," said Boxer. "Our
state has gone through the proverbial nightmare with electricity prices because
they were manipulated, because the supply was manipulated, because there was no
transparency, because a few companies got together and did it to us. Now we're
walking into this situation because our colleagues have a special interest in
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