The
AGRIBUSINESS
EXAMINER
December 2, 2002   #205
Monitoring Corporate Agribusiness
From a Public Interest Perspective

EDITOR\PUBLISHER: A.V. Krebs
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CANADIAN STUDY SHOWS
"STRUCTURAL ADJUSTMENT" OF AG POLICIES
REAP DEVASTATING EFFECTS FOR FARMERS

The term "structural adjustment" is most commonly used to describe the onerous "free market" programs imposed on highly-indebted developing nations by the World Bank and International Monetary Fund as conditions for receiving further loans. But a new Canadian Centre for Policy Alternatives (CCPA) study finds that Canada's agricultural industry has also been structurally adjusted, with the same disastrous results that similar programs have inflicted on poor countries around the world.

Written by Darrin Qualman and Nettie Wiebe, the study --- The Structural Adjustment of Canadian Agriculture --- concludes that "two decades of structural adjustment have devastated farm families and rural communities."

The authors describe the various ways that Canadian agriculture has been transformed to meet market demands and promote the interests of large agribusiness corporations at the expense of farmers and farm communities.

"Many Canadians think that the IMF and World Bank impose their structural adjustment programs only on debt-ridden Third World nations. But the Canadian government has restructured agriculture and rural Canada by using policy tools remarkably similar to those of the IMF/World Bank. These tools include the WTO, NAFTA, deregulation, privatization, cuts in government subsidies, increased foreign investment, and a much greater emphasis on production for export."

The study finds that these policies are almost identical to the main components of an IMF-style structural adjustment program, and that the intent is also the same: to accelerate the transfer of wealth from local farmers to transnational corporations. Each of these policies is examined, and their detrimental effects on farmers and their communities starkly detailed.

"Structural adjustment programs around the world have served to concentrate wealth in fewer hands, drive small farmers into bankruptcy, and force migration from rural areas to the cities. All of these effects are discernible in Canadian agriculture.

"Between 1981 and 2001, the number of farms in Canada declined from 318,361 to 246,923, a drop of 22%. In just the past five years (1996 to 2001), Canada lost 11% of its farmers. The farm income crisis has decimated many rural communities. The profits in the food production system are increasingly going to transnationals with head offices in distant (and mostly foreign) cities.

"The farm crisis in Canada and around the world is caused by the corporate-driven extraction of wealth from the rural areas. Structural adjustment removes the barriers to such extraction and accelerates the outflow of profits and wealth."

Qualman and Wiebe accuse the Canadian government of using the tools of free trade agreements and other neocon policies to "turn the country's farm families over to the market. Since the 1980s, Ottawa has systematically imposed a radical restructuring on Canadian farmers and rural Canada. The result has been a seven-fold increase in exports, a transfer of the agri-food processing sector to foreign transnationals, the decimation of rural communities, and the worst farm income crisis since the 1930s."

The study warns that the toll of this structural adjustment goes far beyond the impoverishment of many farm families and the loss of their communities. "It includes human, cultural, and environmental costs which all Canadians, no matter where they may live, must pay. Structural adjustment of this magnitude forces everyone to adjust to greater economic instability, less democratic control, depletion of natural resources, and an increased dependence on a few corporate giants for jobs, investment, and even food.

"For Canadian farm families --- as for peasants and farmers everywhere --- structural adjustment often means being adjusted out of their way of making a living by growing food. It's an adjustment right out of their way of life."

Darrin Qualman is executive secretary of the National Farmers' Union (NFU) and a research associate with the CCPA. Nettie Wiebe teaches at the University of Saskatchewan and is a former NFU President.
 

MEXICAN FARMERS FACE DISASTER,
MASS MIGRATION WHEN NAFTA TARIFFS
ON U.S. FARM PRODUCTS LIFTED IN JANUARY

MARK STEVENSON, ASSOCIATED PRESS: Anti-globalization activists warn that millions of Mexican farmers will stream into the United States when Mexico lifts tariffs on U.S. farm products in January.

The government has said the import opening will make Mexican farms more competitive, bring new investment to the countryside and give factory jobs to those who now eke out a living on antiquated, overpopulated farms. But President Vicente Fox has come under pressure to rip up free trade accords and spend more subsidy money to protect Mexican farms. Fox, a free trade supporter, has begun to concede that the opening could create problems.

Trying to help Mexican farmers, who fear they will be wiped out when most agricultural tariffs are lifted in January under terms of the North American Free Trade Agreement (NAFTA), Fox last week announced a $10.25 billion plan to offset U.S. farming competition.

Fox said . . . . he was sending the legislation to Mexico's Congress for speedy approval. The plan is aimed at providing subsidies along with levying tariffs on U.S. farm exports that Mexican farmers say are sold below production cost in Mexico since the Bush administration approved a $180 billion U.S. farm-subsidy bill this year.

International trade law recognizes the rights of nations to impose protective tariffs when goods are being dumped on their markets below cost, though imposing tariffs in this case would go against the spirit of the NAFTA agreement, as do the subsidies in both countries.

Under the terms of NAFTA, the tariffs that remain ten years after the United States, Mexico and Canada signed the accord will be lifted in January. Only duties on corn, dairy and sugar will remain. As the date nears, Mexican farmers are pressing the government for help.

"For the Mexican countryside, this is going to be devastating," farm activist Luis Hernandez said. He predicted "an increase in migration, in bankruptcies, violence and drug-growing" as Mexican farmers turn to the only crops that can be profitable for them.

Farmers have already slaughtered cows and dumped pineapples on Mexico City streets, seized highways and blocked bridges to defend a way of life on the hardscrabble farms where corn was first domesticated 4,000 years ago.

Today, Hernandez said, those farms largely serve as "vast parking lots for the unemployed." And there are many: While urban Mexican families have an average of 2.4 children, women in poor rural communities continue to have an average of four to five. That growth --- coupled with gradually disappearing farm jobs --- is the main engine for the exodus. In 1990 Mexico had 9.8 million farmers; in 2000, there were only 8.6 million.

Many go to Mexico's burgeoning cities. Others leave for the United States, and could help swell migration from 300,000 a year to 500,000 a year by 2030, according to Mexico's National Population Council.

The farms migrants leave behind are tiny. Seventy percent of farmers have fewer than 12 acres. Many are communal plots that lack clear titles, making it hard for farmers to modernize, get loans, or combine smaller plots into viable farms. As a result, many don't live off their crops, and haven't for years.

"A lot of people who call themselves farmers really aren't," says Ricardo Celma, Mexico representative of the U.S. Grains Council. "They're taxi drivers with some land." Mexico does have highly productive commercial farms, especially in the north of the country, but they pay laborers as little as $2 a day and sometimes employ children. With farmers in such straits, NAFTA is an easy target --- even though most of the tariffs to be removed in 2003 already are as low as two percent.

Some people are threatening social unrest unless NAFTA is overturned. The radical farm group El Barzon is among those that say NAFTA creates unfair competition and could cause widespread poverty that will result in acts of desperation.

Fox's $10.25 billion agricultural-spending plan is about four percent higher than had been expected, but the National Council of Agriculture and the National Confederation of Farmers said that the announcement was too little too late. Agricultural council president Armando Paredes said at least $48 billion would be needed. Mexican farmers grumble that the United States has a much larger budget for farm subsidies.

Yet while U.S. subsidies are an easy target, they may not be the real problem. Mexico's corn subsidies average $150 a ton, well above the $85 that U.S. farmers are paid.

The problem is that most Mexican farmers produce so little they cannot get by even with subsidies. Mexico's 8.6 million farmers produce about one-seventh as much as their three million U.S. counterparts. "No country in the world could provide jobs for this many people in the farm sector," said Humberto Jasso, of Mexico's Economy Secretariat. "We have to provide non-farm jobs in rural areas, and that's an area where NAFTA can help."
 

WAL-MART WORKERS TESTIFY
COMPANY'S HEAVILY ADVERTISED IMAGE
OF HAPPY, SMILING EMPLOYEES IS A SHAM

ASSOCIATED PRESS: Testimony in the first of 39 class-action lawsuits to go to trial against Wal-Mart has shown a sharp contrast between actual working conditions and the retailer's heavily advertised image of happy, smiling employees.

Carolyn Thiebes, who works at a Wal-Mart store in Salem, Oregon testified that when her department failed to meet company expectations, her boss singled out the personnel manager by hanging a red bandanna near her door for a month for co-workers to see. Managers also circulated a trophy, sculpted in the form of a donkey's rear end, called "the horse's ass award," Thiebes said.

"It was humiliating," Thiebes testified in tears last week to open a wage-and-hour lawsuit against the company. "That trophy was given so many times. . . . anytime a department failed."

She and four other employees testified that reprimands created an environment of fear that compelled them to work off the clock --- without pay --- to finish assigned tasks. The pressure worked, they said, because Wal-Mart often built stores in communities that offered residents few alternative jobs.

But the tactics also have made the store a target of unions and advocacy groups, who picketed stores last week in 100 U.S. cities, including Portland, Oregon to call for better wages, health benefits and working conditions.

Experts said the management approach arises out of a corporate culture forged by company founder Sam Walton, who, in his drive to keep prices and costs low, put the company's fortunes above all else.

"While I can't say it's a great way to spread a message, it sends a clear message --- if my department's hurting the performance of the store, ultimately I'm hurting the performance of the stock and my retirement," said Hal Koenig, associate professor of marketing at Oregon State University's College of Business.

A Wal-Mart spokesman, Bill Wertz, declined to comment, citing last week's order of U.S. District Judge Garr King that all parties to the lawsuit refrain from speaking with the media during the trial.

The $218 billion company employs 1.3 million worldwide, operates 3,300 stores in the United States and made $6.7 billion in 2001. Its aggressive expansion plans during the next five years call for hiring 800,000 more workers, giving the company a work force larger than the U.S. military.

Thiebes and Betty Alderson filed suit against Wal-Mart in 1998, alleging violation of federal and state wage and hour laws. More than 400 Oregonians from 24 stores have joined the class-action complaint.

Thiebes was personnel manager in charge of payroll at Wal-Mart stores in Salem and Dallas. She testified that she routinely docked overtime hours from workers' paychecks, at least once at the direction and in the presence of her managers.

One group of customer-service and snack-bar workers in both stores worked without pay beyond the regular 40-hour work week so often, Thiebes and Alderson testified, that they became known as the "Over 40 Club."

Wal-Mart's attorneys acknowledged in court that employees occasionally worked after clocking out. But they contended workers did so by choice, in violation of company policy. In opening statements last week, Rudy Englund, an attorney for the company, spent several minutes describing an atmosphere at Wal-Mart of trust, sharing, teamwork and integrity.

Attorneys for the workers described a different situation, which they called the "Wal-Mart dilemma." Top store managers, they said, routinely gave lower managers and workers too much to do while reprimanding them for claiming overtime or leaving work undone.

To avoid losing their jobs, the attorneys said, workers clocked out, then returned to complete their tasks. Daniel Corey, a former lawn and garden department manager for Wal-Mart in Pendleton, said he worked off the clock because he had few options.

"Because it's such a small community, jobs aren't that good there," Corey testified. "You held on to your job. I feared losing my job. I feared getting fired."
 

CARGILL FINED $286,778
FOR DUMPING HOG WASTES,
POLLUTING MISSOURI RIVER

ENVIRONMENTAL NEWS SERVICE (ENS): Cargill Inc., the nation's largest private corporation, will be held responsible for a July 2000 accident that killed thousands of fish and other aquatic species in the Loutre River.

The Audrain County [Missouri] Circuit Court has ordered the company to pay $286,778 in damages for the fish kill resulting from a hog waste spill. Several thousand fish died between July 27 and July 31, 2000 when Cargill spilled hog wastes from a lagoon at its McCaw Farm storage facility, contaminating more than three miles of the Loutre River.

An inspector from the Missouri Department of Natural Resources (DNR) discovered the spill on July 31, 2000, during a follow up inspection at McCaw Farms, which had experienced another hog waste spill in June 2000. McCaw Farms, which works under contract with Cargill Pork operations, has a state permit allowing it to operate a concentrated animal feeding operation with as many as 16,800 hogs in 24 barns.

The fine assessed against Cargill includes payment for the economic value of the fish killed and costs incurred by the Missouri Department of Conservation in investigating the spill. The Conservation Department will receive $62,687. Cargill must pay $160,000 to the Audrain County School Fund and $54,091 to the Missouri DNR for violating the Missouri Clean Water Law.

Cargill, a diversified company with more than 80,000 employees worldwide, also was ordered to pay $10,000 to cover the legal and investigative costs incurred by the Missouri Attorney General's office.

Cargill's interests include food production and processing, trading in oil and agricultural commodities, futures brokering, feed and fertilizer production and steelmaking. The company is the nation's top grain grower and second largest meat packer.
 

KELLOGG JOINS  KRAFT FOODS
RAISING PRICES ON FOOD PRODUCTS
CITIES "HIGHER COSTS FOR INGREDIENTS"

DOW JONES NEWSWIRES: Kellogg Co. plans to pass on higher costs for ingredients to its customers at the start of next year.

Prices for Keebler cookies and crackers and for its snacks such as its NutriGrain cereal bars and Rice Krispies treats will be increased by three percent to four percent effective December 30, a Kellogg spokeswoman said.

The move makes Battle Creek, Michigan-based Kellogg the second major food company to increase prices as the prices of wheat, cocoa, corn and soy oil rise. Drought conditions in the Midwest contributed to the sharply higher price of wheat.

More than a week ago Kraft Foods Inc., the largest U.S. food company, said it would raise prices on most of its Nabisco cookies and crackers by about three percent, also citing the higher commodity costs.

In Kellogg's case, higher employee benefit costs also are a factor in the company's decision to implement a price increase, the spokeswoman said.

Cereal prices will not be increased at this time, she said.

In a research note published after the Nabisco announcement, Merrill Lynch & Co. analyst Leonard Teitelbaum anticipated Kellogg would follow Nabisco's lead. "About 50% of Kellogg's cost of goods sold are attributable to commodity products and packaging," Teitelbaum wrote.  Wheat prices are up 44% and cocoa prices have climbed 59%, he said.

Nabisco leads the biscuit category with a 40% market share in cookies and a 47% share in crackers, he said. Kellogg has an 18% share in cookies and 26% share in crackers.
 

UNIVERSITY OF MINNESOTA AG ECONOMIST
WARNS "PLOW TO PLATE" LACK OF COMPETITION
MAY LEAD TO HIGHER FOOD PRICES

RICHARD A. LEVINS: For the past several decades, the United States has enjoyed relatively inexpensive food. But we need look no further than prescription drugs to see danger signs ahead. Instead of addressing the fundamental problems plaguing competition in the pharmaceutical industry, we search for ways to give seniors enough money so they can afford to be gouged.

How much worse will it be when competition in our food system is similarly compromised?

Our farming system is rapidly evolving into one of enormous off-farm corporations that own and raise millions of animals in confinement facilities scattered around the country. Four so-called farms now account for 46% of the nation's hog production. More than one million breeding hogs with only four owners is something we have never seen in U.S.
agriculture. The largest of these four hog production giants is also the nation's largest pork packer.

Senator Tim Johnson, Dem.-South Dakota, tried to bring the competition question into the latest farm bill debate. His amendment prohibiting corporations from both raising animals and slaughtering them for market passed the Senate by a 53-46 margin, but it disappeared in conference committee.

At a hearing in Sioux Falls, South Dakota, hundreds of farmers turned out to express their continuing support for Johnson's proposal. Understandably, independent farmers feel that with so few meatpackers, they face take-it-or-leave-it pricing when they bring their animals to market. Then, if the packers are also raising animals, the opportunity for independent farming can vanish altogether.

The poultry industry is a perfect example: Virtually all farmers who grow broilers in the United States function more as employees of corporations that own and slaughter birds than they do as independent farmers.

These are the questions facing farmers.

The rest of us need to ask: How much longer will our relatively inexpensive food costs last when increasingly large corporations assume "plow to plate" control of our food system?

Every freshman economics student learns early that the demand for food is inelastic --- that is, we will pay whatever it takes to keep from going hungry. They also learn that free-market systems rely on competition to keep prices in check. With so few corporations controlling our food system, we must be concerned that competition can no longer play its vital role.

The consolidation worrying the farmers in Sioux Falls is real. The top five corporations in beef packing, pork packing, pork production, chickens and turkeys account for at least 40% of sales.

The same can be said for many other vital links in our food system, including corn exports, soybean exports, flour milling and food retailing. These numbers are changing by the week, and always in the direction of fewer, ever larger, corporations.

Evidence is building that large food corporations and low food prices are not a good mix.

For example, a study published in the Review of Industrial Organization found that mergers and acquisitions in food processing industries were more often leading to higher prices than to higher efficiency. And Purdue University agricultural economist John Connor's title for an address last summer spoke for itself: "The Globalization of Corporate Crime: Food and Agricultural Cartels of the 1990's." (Eighty-five percent of all fines
imposed on global price-fixing operations in the past several years were paid by food and agricultural cartels.)

During the Kennedy years, Secretary of Agriculture Orville Freeman warned that dwindling competition would someday lead us down the road to higher grocery bills. Our experience with prescription drugs reminds us that it is time to take his warning seriously.

We must support sensible measures, such as banning packer ownership of livestock, that will keep our food system competitive and our food prices reasonable.

Richard A. Levins is a professor and extension agricultural economist at the University of Minnesota and a senior fellow with the Institute for Agriculture and Trade Policy.
 

TYSON FOODS REOPENS
WASHINGTON OFFICE, BELIEVES IT IS "IMPERATIVE"
TO RUNNING BUSINESS TO HAVE A "PRESENCE"
ON "BOTH SIDES OF PENNSYLVANIA AVENUE"

JUDY SARASOHN, WASHINGTON POST: After laying low for a couple of years, what with all that unpleasantness with former independent counsel Donald C. Smaltz, Tyson Foods Inc. has opened a new Washington office that is headed by veteran meat industry lobbyist Sara Lilygren. She was hired away from the American Meat Institute, where she was senior vice president for legislative and public affairs.

Archie Schaffer III, senior vice president of external relations for the giant Arkansas poultry company, noted that Tyson Foods acquired the nation's largest beef and pork company, IBP Inc., last year and both the meat and poultry industries face substantial federal government oversight. Schaffer said Tyson Foods is now the country's largest meat and poultry firm and has $23 billion in annual sales and 120,000 employees.

"The federal government touches our operations and business in many ways. We feel it's imperative to running our business to have a presence in Washington, to get our story told on both sides of Pennsylvania Avenue," Schaffer said.

Joining Lilygren will be Nora Venegas, who worked for SBC Telecommunications Inc.'s Washington office and earlier served as executive assistant to the executive director of the Congressional Hispanic Caucus Institute. "It's a great opportunity. [Tyson Foods] is a leader in the industry I've been working for for the last 18 years," Lilygren said.

She noted that the American Meat Institute also represents turkey companies. "I have some familiarity with feathers," she said.

The last couple of years, the company has generally relied on trade associations for its lobbying in Washington. Earlier, it depended on lobbyist Jack Williams.

Caught up in the Smaltz probe into former Clinton agriculture secretary Mike Espy, Tyson Foods pleaded guilty in December 1997 to providing about $12,000 in illegal gifts to Espy, Williams was convicted of lying to investigators and Schaffer was convicted of providing an illegal gratuity to Espy. Schaffer's and Williams's convictions were thrown out and then reinstated. They were pardoned by President Bill Clinton. Espy was acquitted of bribery charges.
 

USDA SEEKS TO SAVE 91 PORK BOARD JOBS
BY APPEALING COURT DECISION THAT DECLARED
NATIONWIDE PORK CHECKOFF UNCONSTITUTIONAL

ALAN GUEBERT, THE FINAL WORD: File this one under the heading "If you live long enough, you'll see everything." On Wednesday, November 13, USDA filed an emergency motion in the Sixth Circuit Court of Appeals to "stay" an October 25 federal court ruling that declared the nationwide mandatory pork checkoff unconstitutional.

First Amendment notwithstanding, USDA wants the ruling overturned and the pork checkoff kept in place. Why?

Because, as USDA notes in the second paragraph of its 20-page filing, killing the checkoff "will end a Congressionally enacted program and result in the dissolution of the National Pork Board, causing the immediate loss of at least 91 jobs, the breach of existing contracts, and the loss of assets and employee expertise that cannot be replaced."

Hmm, let's see if we understand this logic.

First, pork producers succeeded in their petition drive to force USDA to hold a vote on the pork checkoff. Next pork producers succeeded in winning the vote to end the checkoff. Finally, pork producers succeeded in defending both victories in federal court. (Remember, they didn't go to court; they were named as defendants by checkoff backers who brought the suit to keep the checkoff.)

Now, after years of struggle and victory after victory, pork producers are told by USDA that the checkoff really exists so 91 people --- "with expertise that cannot be replaced" --- can keep their jobs?

And we thought lawyers lacked a sense a humor.

But USDA is not joking; it's deadly serious. So let's be serious, too. If USDA seriously believes the checkoff must be reinstated to save 91 jobs at the National Pork Board --- most of which are held by former National Pork Producer Council employees who simply moved to the Board after the NPPC lost the 2000 checkoff vote- --- exactly what does USDA believe should be done for the more than 200,000 pork producers who lost their jobs since the pork checkoff was imposed in the mid-1980s?

And one more question while we're at it: What has USDA's rigorous court defense of all checkoffs in the last three years cost U.S. taxpayers? We know what's its costs U.S. farmers --- $1.3 billion per year.

The Final Word is published weekly by the American Corn Growers Association (ACGA) by special arrangement with Alan Guebert's regular column.
 

LETTER REVEALS SMITHFOOD FOODS EFFORTS
TO SAVE FARMLAND INDUSTRIES FROM BANKRUPTCY:
BUY ITS PORK AND BEEF PROCESSING OPERATIONS,
17TH LARGEST PORK PROCESSOR IN U.S.

BRYAN SAVAGE, MEATINGPLACE.COM: Smithfield Foods Inc. confirmed .. . . . that it sent a letter . . . . to Farmland Industries Inc. requesting a meeting on May 31 to discuss the possible combination of Smithfield Foods and Farmland's Refrigerated Foods Group (pork and beef processing).

Smithfield said that it was prepared to deliver full value to Farmland in any such transaction and to advance the funds to Farmland to enable them to pay the required principal payment to their lenders  . . . ..

"Our proposal provides Farmland with an alternative that we believe will enable it to avert a bankruptcy, preserve its members' equity and any attendant uncertainty regarding their businesses, protect the interests of Farmland's creditors (including holders of subordinated debt) and solve Farmland's liquidity crisis," said Richard J.M. Poulson, Smithfield Foods' executive vice president and senior adviser to the chairman.

A complete text of the letter follows:

May 30, 2002

Mr. Robert B. Terry
President & Chief Executive Officer
Farmland Industries, Inc.

Dear Mr. Terry:

I am writing in response to our recent telephone conversation of 23 May, 2002, in which you declined Smithfield's request for a meeting to discuss a possible business combination between Smithfield and Farmland's Refrigerated Foods Group.

As I stated in my letter of May 16, Smithfield is prepared to deliver full value to Farmland in any such transaction, and will commit all the necessary resources to complete a transaction quickly. I want to reiterate what I said in my letter of May 16: We at Smithfield have great respect for your company, your member cooperatives and your farmer members.

Recent press reports and industry sources indicate that Farmland faces a critical liquidity crisis and that a bankruptcy filing may be imminent. Indeed, reports state that you have paid your employees early, urging them to cash their paychecks within the next 24 hours, and that you have suspended meat processing operations after this Friday.

We believe, based on the unfortunate history of bankruptcy filings by agricultural cooperatives; that the hard-earned equity and the interests of your farmer-members could be wiped out by a bankruptcy filing. Moreover, we are concerned that the bankruptcy of America's largest agricultural cooperative could jeopardize the developing economic recovery, damage the agri-business sector, and would be contrary to our national interest.

We stand ready with an alternative that we believe will avert a bankruptcy, preserve your members' equity, protect the interests of your creditors (including holders of subordinated debt) and solve Farmland's liquidity crisis.

To outline our proposal:

* We are prepared to meet [May 31] to discuss a business combination involving your Refrigerated Foods Group or, if you prefer, your entire company. Subject only to our prior review of a current balance sheet for the business, we will be prepared to execute a letter of intent regarding our purchase of the Refrigerated Foods Group or the entire company that would include a definitive cash price reflecting full value. We would welcome the involvement of your lenders at that meeting, who would be assured about the seriousness of our proposal, our commitment to deliver full value, and our willingness to proceed quickly.

* Upon our execution of a letter of intent, and subject to any required consents of your bank group, we are prepared to make available to Farmland a line of credit to enable you to meet your short-term liquidity needs, including the $10 million of principal payable to your banks tomorrow.

* We are prepared to pay full and fair value for your assets. Towards that end, we understand that any definitive agreement will include a customary "market check" to ensure that Farmland is obtaining the best price available for the business.

* We are prepared to be flexible and creative to effect a mutually beneficial transaction. Among other things, we are amenable to exploring an opportunity for U.S. Premium Beef and its members to continue to participate in the future of Farmland National Beef Packing Co. by retaining an equity interest.

* We are prepared to discuss various structural alternatives for combining our businesses that would minimize or defer the tax consequences for Farmland and its members, if any. We also believe there are other potential long-term business relationships (such as supply agreements) that could be developed between Smithfield and Farmland's remaining          operations for our mutual benefit.

We cannot overemphasize that time is of the essence if Farmland hopes to preserve maximum value for the benefit of your members and creditors. Smithfield is a qualified buyer with the ability to execute a cash transaction quickly to preserve that value.

Moreover, with our leadership positions in the pork and beef industries, we are uniquely positioned to serve the interests of your producers, customers, employees and communities after a transaction. Indeed, we believe our offer provides your constituents with greater financial security and certainty that they will have should Farmland choose to attempt to restructure its considerable debt obligations on its own.

Given the importance of this matter to our respective shareholders and members, we believe that we may need to make a public release of this letter but will delay doing so until you have had the opportunity to consider our proposal through the end of the day today. I trust that, upon reflection, you will conclude that a mutually beneficial transaction is greatly preferable to a bankruptcy filing.

I look forward to your earliest response and hope that we can work together to effect a successful transaction that permits Farmland to avoid bankruptcy.

Sincerely yours,

Richard J. M. Poulson
cc: Members of the Board of Directors of
Farmland Industries Inc.
UBS Warburg
Bank Lending Group

                                           EDITOR'S NOTE

Preparing to post this 205th edition of THE AGRIBUSINESS EXAMINER it is
gratifying to know that over 1100 people throughout the world are currently receiving it

on a regular basis and judging from comments received feel it is a valuable source of
information. However, it is also quite troubling to realize that less than 4.5% of that
readership has ever seen fit to make any contributions toward its continued existence.

To that small cadre of contributors this editor can only express his profound gratitude
and appreciation for I realize that in some cases even a small donation was a sacrifice for
them.

From the outset it was never the purpose of THE AGRIBUSINESS EXAMINER to
charge a subscription fee for the original intention of this newsletter was to get it into as
many hands as possible as a vehicle for monitoring corporate agribusiness from a public
interest perspective, just as was the establishing of a web site
[http://www.ea1.com/CARP/] to provide facts, background, analysis and educational
information on corporate agribusiness.

Thanks to the generosity and creativity of the editor's oldest son David and his business
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Having said all this, may I repeat CONTRIBUTIONS FROM READERS are always and
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