June 21, 2002   #170
Monitoring Corporate Agribusiness
From a Public Interest Perspective

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SCOTT KILMAN, THE WALL STREET JOURNAL: The Seventh U.S. Circuit Court of Appeals reinstated a seven-year-old civil lawsuit alleging Archer Daniels Midland Co. and its rivals rigged what is now a $2.4 billion market for a corn sweetener used in everything from soft drinks to candy.

The decision Tuesday resurrects what has long been the stepchild of the price-fixing scandal that embroiled the Decatur, Illinois, grain-processing company in the 1990s. The Justice Department wrung a $100 million fine from Archer Daniels in 1996 for rigging prices of two much smaller products --- lysine and citric acid --- and a federal jury here sent three Archer Daniels executives to prison in that case.

But the federal government dropped its inquiry into high-fructose corn syrup, leaving plaintiffs lawyers to do a lot of digging on their own. Unimpressed by what they found, federal Judge Michael Mihm in Peoria, Illinois, finally threw out the case last year, concluding that "no reasonable jury" would find that there had been a conspiracy to rig the price of high-fructose corn syrup in the early 1990s.

"I have no idea about the merits of the case," said David Nelson, an analyst at Credit Suisse First Boston. "But a trial would bring back that taint."

The plaintiffs, a group of about 30 companies that make everything from candy and soft drinks to baking goods, are seeking billions of dollars in damages, said Robert N. Kaplan, of Kaplan Fox & Kilsheimer of New York, which is co-lead counsel for the plaintiffs.

Without taking sides on the guilt or innocence of Archer Daniels and its rivals, the circuit court here concluded that there is enough evidence for a jury to consider. The decision, which was written by Circuit Judge Richard A. Posner, noted among other things that the plaintiffs lawyers had presented evidence showing the structure of the high-fructose market, which is dominated by a few manufacturers, is "auspicious for price fixing" and that the defendants "avoided or at least limited price competition." Much of the evidence presented in Peoria has been kept under seal.

A spokeswoman for Archer Daniels, which controls roughly one-third of the high-fructose corn-syrup market, said Tuesday that the company is still studying the decision, and didn't comment on whether it plans any appeal.

The lawsuit also names Cargill Inc., the Minneapolis grain-processing company, which, too, controls about one-third of the U.S. corn sweetener market. "We agree with the judge at the trial-court level that there shouldn't be a trial," said Bonnie Raquet, a Cargill spokeswoman. "We believe that there are absolutely no facts to support going to trial in this case."

The plaintiffs lawyers, who last year won access to piles of tapes from the        government's undercover investigation of Archer Daniels, have mined them for tidbits about high-fructose corn syrup. According to Tuesday's decision, Michael Andreas, a former Archer Daniels executive convicted in 1998, talks on one tape about a deal with the company's two biggest competitors that hurts soft-drink company Coca-Cola Co., a major buyer of high-fructose corn syrup. Coca-Cola isn't a plaintiff in the lawsuit.


MICHAEL MCHUGH, DOW JONES NEWSWIRES: Archer Daniels Midland Co. (ADM) and Cargill Inc. are reviewing an appeals court decision Tuesday that threw out a summary judgment dismissing a 1995 class action lawsuit against the principal makers of high fructose corn syrup over alleged price fixing in the sweetener.

The U.S. Court of Appeals for the Seventh Circuit said in its ruling it does not mean to prejudge the outcome of any trial. "We hold only that there is sufficient admissible evidence in support of the hypothesis of a price-fixing conspiracy to prevent the grant of summary judgment to the defendants," the court said.

Last July, Judge Michael M. Mihm of the U.S. District Court for the Central District of Illinois granted a summary judgment in favor of the defendants, which also include A.E. Staley and American Maize-Products, throwing out the case launched in 1995 alleging collusion between 1989 and 1995.

The appeals court ruling said that an enormous amount of evidence was brought together during pretrial discovery and, quoting the initial ruling, said the district judge concluded that no reasonable jury could find in favor of the plaintiffs without "resorting to pure speculation or conjecture." "The soundness of this conclusion is the basic issue presented by the appeal," the appeals court said.

Plaintiffs in the case include named parties, such as the Coca Cola Co.and PepsiCo Inc. and other users of the sweetener as part of a class action lawsuit. "We respectfully disagree with the appellate panel's decision," said Bonnie Raquet, corporate vice president for public affairs at Minnesota-based Cargill. "We believe the district court correctly analyzed the factual and legal issues under current legal precedent," she continued. "We believe there are no facts to support going to trial in this case."

A spokeswoman for ADM said the company is in the process of reviewing the decision. A spokesman for Pepsi declined to comment and a Coca-Cola spokeswoman couldn't immediately comment.

Robert Kaplan, of Kaplan Fox & Kilsheimer LLP, co-lead attorneys for the class, said the plaintiffs' experts estimate that the alleged price fixing boosted prices 15% per year over the period of time in the $1 billion per year industry. That leads to damages of $1.4 billion, said Kaplan, adding antitrust violations result in a tripling of the damages.

High fructose corn syrup is used to sweeten a variety of foods, including soft drinks, candy and baked goods.

In the ruling, the appellate court said "there is evidence that the defendants were not competing; we might go so far as to say they had tacitly agreed not to compete, or at least to compete as little as possible; but the plaintiffs must prove that there was an actual, manifest agreement not to compete."

No trial date has been set.

The defendants have a couple of options. They could ask for a rehearing by the appellate court, or essentially appeal the appeal to the U.S. Supreme Court.

The appeals court said in view of the complexity of the case --- sealed exhibits alone filled 14 large boxes --- the district judge may want to split the case in two, having a trial on the liability first, and then if a jury finds the defendants violated the law, then conduct a trial to determine damages.

Along with other suggestions, the appeals court said "we think the case can be tried in a reasonable amount of time and be made comprehensible to a jury." The court said much of the nonstatistical evidence is not in dispute, but merely the inferences drawn from individual pieces of evidence and from the evidence as a whole. Given it found sufficient evidence to proceed with trial, the appeals court said it trusts the parties "will make every effort to settle the case in advance of trial."

David Nelson, equity analyst at CS First Boston, said he doesn't see the case having a "big impact" on ADM, adding the worse that could happen would be some sort of fine. Shares in ADM closed 1.1% lower at $12.74, down 15 cents. Volume was 1.2 million versus an average daily volume of 1.3 million.

In 1996, ADM pleaded guilty to fixing prices in animal feed additive lysine and citric acid, a food additive, and paid a $100 million fine. The case involving high fructose corn syrup was part of that investigation.


DAVID HOECH: Just nine days shy of the seven-year anniversary of the raid on Archer Daniels Midland corporate headquarters for price rigging, the Seventh Circuit Court of Appeals deals a devastating blow to High Fructose Corn Syrup producers, ADM, A.E. Staley, Cargill, American Maize-Products, and CPC International.  In the ruling Judge Posner sends the case back to the courtroom of Judge Michael M. Mihm, whose summary judgment ruling last August led the HFCS price fixers to believe they would not be held accountable.

In the book Rats in the Grain author James Lieber wrote, "On May 29, 1996, Mihm ordered WAND-TV in Decatur to comply with a subpoena from ADM seeking all notes, tapes, out-takes, and other documents pertaining to the station's interviews with Mark Whitacre.  The station claimed protection under the state's shield law known as the Illinois Reporter's Privilege Act.  But Mihm ruled the law inapplicable since Whitacre was not a confidential source and ordered that all material be turned over to ADM."  Judge Mihm's decisions regarding ADM show him to be a Moral Midget. If you read this, Judge, do the respectful thing and retire.

Sources at ADM say ex-convict and former ADM Vice Chairman Michael Andreas released from prison last fall is running ADM from a downtown office in Decatur located at One Main Place, 101 S. Main Street.  Michael who served time for price rigging in lysine could be up to his old tricks. Sources say the price of HFCS increased five percent in the last six months.

This was also confirmed by Larry Pillard in a speech June 7 this year. Pillard at the time CEO of Tate & Lyle and the former president of A. E. Staley stated, "In the last quarter of the financial year to 31 March 2002 Staley has reported a further average five percent increase in sweetener prices for the calendar year 2002 but Amylum saw a slight weakening in prices of some products."

Staley and Amylum are both owned by Tate & Lyle. ADM is also a large stockholder of Tate & Lyle.  Some estimate the total to be 13% through its intricate web of investing in Amylum, Staley and direct investment in Tate & Lyle.  According to a Tate & Lyle press release last Friday, June 14, Pillard relinquished his position as CEO of Tate & Lyle.  For the present he will remain as a Non-Executive Director.  Some allege the defrocking was due to Staley's involvement in HFCS price fixing while he was CEO of Staley.

The multi billion-dollar class action lawsuit against the producers of HFCS is going to cost them a hefty amount. The HFCS market is $2 billion a year, and price fixing for four years with an illegal gain of 16% per year equals $1.280 billion. In price fixing, this amount is tripled for damages giving the producers a potential exposure of $3.84 billion.  Of course, you didn't hear about this on CNBC.  Could it be because ADM is an advertiser? You decide.

As Attorney General, Janet Reno turned Lady Justice into a street prostitute with justice for sale, and the lawyers for ADM, Williams & Connolly, were more than willing buyers. In letters to Reno dated October 4, 1996 and again on February 3, 1999 we asked her office to use the opportunity to insure that justice be delivered and send a message to corporate America that corporate crime doesn't pay.

Instead, her office gave credence to the fact that if you're white, rich and influential, or work for a politically connected company, you can break the law with impunity.  We also sent her some of the transcripts of FBI tapes recorded by the government witness Mark E. Whitacre while working at ADM.

These transcripts show why Judge Mihm would seal all the documents in the HFCS case protecting his friends, the Andreas Crime Family.  One transcript has Michael Andreas quoting his father, Dwayne Andreas, referring to the 27,000 Mexicans working at IBP as  "Fucking Wetbacks."  Another ex-convict, Terrance Wilson, quoted Dwayne Andreas as saying, "You have to write down the lies you told so you will remember them."

In his ruling Judge Posner quoted from one of the transcripts where Michael Andreas, the vice chairman and executive vice president of ADM said: "What are you gonna tell [Keough, the recently retired president of Coca-Cola], that we gotta [i.e.,have a] deal with . . . our two biggest competitors to fuck ya over[?]"

Yet, Judge Mihm gave the HFCS producers a free pass. Shame on Judge Mihm.  The public should hear all the tapes to show what is wrong with corporate America and the DOJ's involvement in depriving the people of justice. Howard Buffett, the son of the famous Warren Buffett, worked at ADM as assistant to the chairman Dwayne Andreas.

Howard resigned on July 7,1995, as he was astounded at the conduct of ADM after the raid.  He told FBI agents, which is all recorded on FBI-302's, that ADM was destroying documents by the tubloads burning them in the co-generation plant. Yet, DOJ did nothing. Joshua Hochberg, the assistant attorney general for fraud, was well aware of this and did nothing. Yet, he goes after Andersen when they had not even been subpoenaed.

Judge Posner recommended that the defendants try and settle this out of court.  Trust me that if the public were to hear what is on the tapes, they would not only want to run the Andreases out of the country, but also all of those who protected them using shareholder money. If justice were served in 1996 instead of plea-bargained away, maybe it would have sent a message to other companies that this sort of conduct will not be tolerated. No, DOJ sold out the ADM shareholders, protected the auditing firm of Ernst & Young who knew the books were dirty, and then sent the whistleblower to jail for ten years.

David Hoech is president of Global Consultants, Inc. and was an industry consultant in agribusiness during the late 80's and 90's.  He resides in Hallandale, Florida with his wife and business partner, Carol, who co-founded the ADM Shareholders Watch Committee.


SHERRI DAY, NEW YORK TIMES: Nestle agreed to merge its United States ice cream business, which includes the Hagen-Dazs and Nestle Crunch brands, with Dreyer's Grand Ice Cream . . . . in a $2.4 billion deal that will give Nestle control of the new company. If the merger with Dreyer's is successful, Nestle, which already has brands like Drumstick novelty cones, will gain ice cream brands like Edy's, Starbucks, Godiva and  M&M/Mars.

It would give the merged company the largest supermarket sales share in the United States, other than combined store brands. Unilever, with such brands as Breyers and Ben & Jerry's, would fall behind the Nestle-Dreyer's company, into third place in supermarket sales. The sales of the merged company would nearly equal total store brand sales.

Before announcing the merger, Nestle already held 23% of the shares of Dreyer's, which is based in Oakland, California But a 1994 agreement precluded Nestle which is based in Vevey, Switzerland, from buying any  additional Dreyer's stock until 2004, a provision that the company renegotiated for yesterday's deal.

"Nestle wanted to try and basically move towards owning the rest of Dreyer's sooner than later because it's a very unique asset," said Andrew Lazar, a packaged foods analyst at Lehman Brothers. "No other ice cream player has a direct store-door distribution system that is national except Dreyer's."

Under the terms of the merger, Nestle will hand over its American ice cream operations for 55 million shares of Dreyer's stock. The transaction gives Nestle control of 67% of Dreyer's shares.

In 2006, Dreyer's shareholders will have the opportunity to sell their stock to Nestle for $83 a share, almost twice what they were worth before the merger was announced. Nestle also received the right to buy any  outstanding Dreyer's shares for $88 each in 2007, the companies said. . .. .

The proposed merger, which will help Nestle to compete with Unilever for the $25 billion global ice cream market, is the latest in a flurry of acquisitions by Nestle. In December, the company bought the 50% of Haagen-Dazs that it did not own for $641 million. Nestle acquired Schoeller, an ice cream business in Germany, for an undisclosed amount in February.

Last year, Dreyer's net income was $8.8 million, down from $25.3 million in 2000, because of the higher cost of raw ingredients. Sales at the company increased 17% in 2001 to $1.4 billion. The merger's buyback provisions have led analysts to believe that Nestle will ultimately seek to acquire Dreyer's.

Francois Perroud, a spokesman at Nestle in Vevey, declined to speculate about what the company would do in 2006 or 2007, but he said Nestle's plans did not matter at this point since Dreyer's would continue to operate as an independent company.

T. Gary Rogers, the chairman and chief executive of Dreyer's Grand, will retain his posts after the companies combine. Peter Brabeck-Letmathe, the chief executive of Nestle, will serve as vice chairman. Dreyer's president,  William F. Cronk, 59, will retire when the merger is completed, the companies said. Executives at Dreyer's said they expect the transaction to be completed by the end of the year. But first, the companies must gain approval from federal regulatory agencies and from Dreyer's  shareholders. In combining forces, both companies offer each other growing brands.

In the frozen novelty business, for example, sales of Nestle's Drumstick cones rose 12.7% last year, while sales of Dreyer's sherbet, sorbet and ices jumped 23.7%, according to Information Resources, a market research firm. The merger also allows both companies to compete more  forcefully in distribution channels where each had been working to gain share. Nestle's products traditionally do well in convenience stores, while Dreyer's brands sell more heavily in grocery stores. Industry analysts said the merger is indicative of continuing consolidation in the food industry.


STEPHEN KRUPIN, COX NEWS SERVICE: Fast food consumers who spend a few extra cents upgrading their value meal may also be supersizing their health risks, a coalition of nutrition organizations said yesterday.

The study by the National Alliance for Nutrition and Activity found that Americans are substantially increasing their calorie and fat intake as chains make it more economical and enticing to order larger serving sizes. The group said the resulting rising rates of obesity, responsible for 300,000 deaths annually, lead to diseases such as cancer and diabetes.

"Americans are quite literally eating ourselves into an early grave," said Carol Tucker Foreman, director of the Food Policy Institute at the Consumer Federation of America. "We are plagued with portion distortion, and it is ubiquitous in the American food supply."

The coalition said that obesity rates have increased by 60% over the last decade and doubled in children during the last 20 years. Diabetes diagnoses --- which Foreman said are mostly traced to poor diets and physical inactivity --- have grown 50% over the last decade.

The coalition placed some of the blame on fast-food chains' efforts to push larger and unhealthier portions. Because value meals include larger servings of french fries and soft drinks, the report found that it costs more at McDonald's to buy separately a Quarter Pounder with Cheese, small fries and a small Coke --- totaling 890 calories --- than a Quarter Pounder with Cheese Extra Value Meal, which comes with a large fries and drink and packs 1,380-calories.

"As a result of their marketing practices, it costs more to get less," said Melanie Polk, director of nutrition education at the American Institute for Cancer Research. "If I want to control my calorie intake, I pay a penalty for requesting a burger with a small order of fries and a small soft drink. That's wrong, that's backwards, that's bad for our health."

The coalition also reported that choosing a 7-Eleven Double Gulp drink over the smaller Gulp costs just 37 cents more, but the larger version boosts the caloric value of the drink by 450 additional calories --- more than in an entire Quarter Pounder.

One fourth of all heart disease, a third of cancer cases and up to 80% of diabetes diagnoses are related to obesity and physical inactivity, the study said.

"The effects of poor health and physical inactivity kill 1,200 people a day," said Margo Wootan, director of nutrition policy at the Center for Science in the Public Interest. "We're not just talking about how we're going to look in our bathing suits this summer. We're talking about preventing early death and reducing health care costs."



DW: Following Enron's collapse, you vowed to make the phrase "corporate reform" ring throughout our land. Yet the public seems to have reacted with resignation rather than with revulsion. To quote Bob Dole, "Where's the outrage?"

RN: It comes from a deep sense of powerlessness. When you feel powerless, your attitude reflects apathy, withdrawal, resignation, and that is a telltale sign of the degree to which our democracy has declined in the last 20, 25 years.

DW: Why is it that, comparatively, the so-called welfare queens of the Reagan years provoked much more anger on Main Street than white-collar criminals do now?

RN: This outrage was fueled by people like Reagan. There are not many top politicians who are fueling outrage against corporate crime and white-collar crime, so that's one difference. The second difference is that people can identify with someone who's ripping off welfare, i.e., their taxes, rather than a very complex corporate scheme, off-the-books partnerships, that are very remote. There is plenty of outrage out there, but the political system is not organized, because the political system is funded by corporate interests.

DW: Tyco's C.E.O. was just indicted for failing to pay sales tax on paintings worth $13 million. He's also going to get a huge severance package.

RN: Like all of them. When C.E.O.'s are expelled they get huge payments --- for not doing their job they get rewarded! Ovitz gets thrown out of Disney and gets $100 million. The head of Columbia/HCA, a health-care company, got $10 million. It's all hush money. I would like to give shareholders the right to determine how much they want to pay their employees at the top. You can be sure that shareholders would never approve these crazy, wild, huge compensation packages that have nothing to do with performance.

DW: What product on the market today makes you think Corvair every time you see it?

RN: McDonald's double cheeseburgers, a weapon of mass destruction.

DW: You've blasted corporate America for "commercializing everything it touches." What strikes you as the most obscene example of commercialization?

RN: The commercialization of childhood is truly the most offensive. Basically, corporations have decided that kids under12 are a lucrative market, and they sell directly to them, subverting parental authority. The idea is to reach these millions of kids who are in a vulnerable, impressionable state, even starting at two, three, four years old, to get them to nag their parents to buy the products. What are they selling these kids? Bad diets, fat and sugar, teaching them to be addicts. They are addicting them to watching 30, 40 hours of screens --- video, television, computer screens. The commercialization of childhood is a pervasive form of electronic child molestation.

DW: Has anyone ever approached you to become a TV pitchman?

RN: Years ago, someone wanted to put my name on a chain of restaurants.

DW: McNader's? Is there any product that you would endorse?

RN: Southwest Airlines. Superb airline. The lowest fares, the highest profits, the best service.

DW: You go to great pains to deny that you cost Al Gore the election. Why not just say: "I cost Al Gore the election, and I'm proud of it. I persuaded the Democratic Party to take notice of progressives."

RN: Did Tennessee cost Gore the election? Did Gore's performance on the debates cost Gore the election? There are a lot of what ifs. It's a sterile  debate. The whole thing was satirized beautifully in a cartoon, which showed George W. Bush looking at a guy holding up a sign: "A Vote for Nader Is a Vote for Bush.'" And Bush says: '"Really? I think I'll vote for Nader."

DW: Are you more or less optimistic than you were when you came to Washington at age 29?

RN: I am not afflicted by optimism or pessimism. They are not in my lexicon. I'm not in the mood game, because moods affect your output, and the thing is, you must keep striving because there is no alternative to striving for greater justice.

DW: At 68, you can say that age has not mellowed you one bit?

RN: Why should it? Experience informs one's judgment. Judgment is very motivational.


JANET KUBAT WILLETTE, AGRI NEWS: Farmers lament concentration in the packing industry, but concentration in food retailing may be the place to cast blame. Increased consolidation in the retail sector drives the trend among suppliers, processors and packers, said Mike Swanson, agricultural economist with Wells Fargo Financial Services.

Swanson and Neil Harl, an Iowa State University economics and agriculture professor, spoke about increasing concentration in the food industry at last week's National Farm and Ranch Business Management Education Association conference in Owatonna, Minnesota.

Farmers don't talk about retail consolidation enough, Swanson said. "Those retailers control a critical step in the process," Harl said.

An example of suppliers growing to compete is the Pillsbury and General Mills merger, Harl said. The two firms said a major reason for their pairing was to position the company better to negotiate with major food retailers for shelf space. "You can't be small anymore," Swanson said.

Wal-Mart is one of the major retailers driving the change. In 1995, the Arkansas-based company had $23.9 billion in grocery sales. Swanson estimates 2001 sales at $56.1 billion. The company has 9,600 acres of food retailing space, or 15 square miles, and is on pace to overtake the federal government as the nation's largest employer in a couple years. "Who's driving the U.S. food market?" he asked.

Manufacturers say retailers are gouging them, charging fees just to meet and discuss selling their product and more fees for shelf space. This consolidation filters down to producers, who operate in nearly perfect competition, Harl said.

Besides consolidation on the output side, where the top four firms have 60% of terminal grain handling, 80% of soybean crushing and 61% of flour milling capacity, farmers face consolidation on the input side.

The number of seed corn companies has declined from more than 300 in the early 1990s to five main transgenetic producers. In another few years, that will likely dwindle to three or four, Harl said. "I'm convinced that in our type of economy, competition is the most important thing we have going for us," he said. And in some areas, competition for farm products is already nonexistent. Harl cites the broiler industry in the southern and southeastern United States as an example of what happens when the highest level of integration is reached.

"We're moving away from competition," he said. "I think we'll pay a price for it down the road." He's concerned about the trend toward monopolies, and finds it particularly disturbing in the face of his work in the former Soviet Union.

All farms and cooperatives in the Soviet Union were state-owned and competition was deliberately eliminated. Competition is slowly being restored by eliminating state ownership and privatizing agriculture, Harl said. He sees that as a positive, while the United States continues to move toward consolidated.


"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

 --- Dr. John Helmuth, Adjunct Associate Professor and Assistant Director, Center for Agriculture and Rural Development, Iowa State University, Ames, Iowa, June, 1990


REUTERS: One in six children living in rural regions of the United States is trapped in deep poverty, suffering from poor education and health care, according to a report released on Wednesday.

The report by Save the Children found extreme pockets of rural poverty concentrated in six regions --- the Rio Grande area along the U.S.-Mexican border, the Southwest, the mountains of Appalachia, American Indian reservations, the Mississippi River Delta and the Central Valley of California.

In those pockets, child poverty rates were two to three times worse than the national average. In total, the international child welfare organization said some 2.5 million rural children in the United States lived in poverty. The report defined poverty as an income of $17,601 or less for a family of four versus the U.S. median income of $50,892. "Unless something is done, we are seeing the emergence of a permanent underclass in rural America,'" said Save the Children Vice President Terry Russell.

"Those who can get out of these areas do get out, leaving behind those who cannot escape. The death rate for people aged 24 or less in rural counties is 50% higher than in urban areas," he said. Rural children were 50% more likely than their urban peers to lack health insurance, and 68% of areas designated by the federal government as "health professional shortage areas" were in rural America.

The report described a "Catch 22" situation: families were poor because there were few jobs offering decent wages and benefits. Meanwhile, businesses with good jobs did not locate in rural areas because the communities did not offer a strong, educated work force. The report said child poverty rates were higher in rural America than in urban areas. Of the nation's 200 consistently poor counties, 195 were rural, and child poverty rates in those jurisdictions often exceeded 35%.

It said rural poverty was increasingly affecting black and Hispanic children, who often suffered from poor health care and substandard education and lived in communities unable to support essential services such as libraries, child care centers, health clinics and community centers.

"Poor rural communities lack basic services that people in urban areas take for granted, from safe drinking water, adequate plumbing and sewer conditions to telephones and public transportation," the report said. In several regions, rural poverty rates had actually increased, spurred partly by an influx of legal and illegal immigration, Russell said. The Rio Grande Valley in Texas along the Mexican border is dominated by "colonias" --- poor neighborhoods built as temporary housing for migrant farmworkers in the 1950s that have developed into rural ghettos with high crime, drug trafficking, illiteracy and high rates of teen pregnancy.

In Starr County, Texas, with a 98% Hispanic population, the unemployment rate was 21%, the median household income was about $16,500 and only one-third of those 25 or older had finished high school. In Quitman County in the Mississippi Delta, where the population was 69% black and 30% white, 43% of the children lived in poverty, only 27% of adults had completed high school and 75% of births were to single mothers.

Rural eighth-graders were 104% more likely than their urban counterparts to use amphetamines, 50% more likely to use cocaine and 34% more likely to use marijuana, the report said. Gangs were also spreading in rural areas, especially Hispanic gangs in central California. In 1997, 75 gangs were reported active on Navajo nation reservations.


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