THE
AGRIBUSINESS
EXAMINER
January 30, 2003, Issue #220
Monitoring Corporate Agribusiness
From a Public Interest Perspective

EDITOR\PUBLISHER; A.V. Krebs
E-MAIL: avkrebs@earthlink.net
WEB SITE: http://www.ea1.com/CARP/
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CONTRIBUTION$ WELCOME!!!
 

ADM-MCP MERGER OCCASIONS
MINNESOTA LAWMAKERS TO CONSIDER
CUTTING ALL STATE ETHANOL SUBSIDIES

JOY POWELL, MINNEAPOLIS STAR-TRIBUNE: The September sale of Minnesota Corn Processors to Archer Daniels Midland has heightened concerns among antitrust experts over market concentration in two key agricultural markets --- ethanol and fructose.

Now, an influential group of law professors and economists contends that the Justice Department has failed to disclose essential facts about the merger of the nation's top ethanol producers.  A federal judge in Washington, D.C., must review that challenge and a Justice Department response before approving the sale.

Meanwhile, the acquisition of farmer-owned Minnesota Corn Processors (MCP) by the Illinois-based agribusiness giant has drawn attention at the state capital, where lawmakers are considering cutting ethanol subsidies as they try to balance the budget.

ADM will not qualify for state subsidies, which MCP exhausted in 2000 after receiving $33 million over 13 years. The subsidies were intended to help new plants get started and foster Minnesota's pioneering ethanol industry.

ADM, the nation's leading ethanol producer, gained market share by buying Minnesota Corn Processors, the No. 2 producer, for $756 million --- a move that gave ADM more than a 40% share of the ethanol market, Larry Cunningham, senior vice president of ADM corporate affairs, said Friday.

But ADM's share will drop significantly as more ethanol plants start production around the nation, Cunningham said. He expects the judge to approve the consent decree worked out between the companies and the Justice Department. "We don't expect any difficulty," he said.

The acquisition --- the biggest in ADM's 101-year history ---  also heightens competitive concerns in the market for high-fructose corn syrup, a sweetener used in soft drinks, candy and hundreds of other food products.

Some Minnesota legislators say they hope the sale won't be followed by more farmer owned ethanol plants being bought by agribusiness giants after years of subsidies.

While lawmakers would prefer that the plants remain farmer-owned, they also realize that too much government control can handcuff private investors, said Rep. Elaine Harder, chairwoman of the agriculture and rural finance committee.

"I don't think there's many of us who believe in the ethanol program who are anything but upset that this sale happened," said Harder, Rep.-Jackson. "We certainly don't want this to happen again, but so far I haven't heard a convincing argument that there needs to be any intervention."

ADM already has cut costs and increased profits at the Marshall and Columbus, Nebraska, plants, Cunningham said. "The [Marshall] plant is profitable now, already, which it hasn't been for some time," Cunningham said.

Martin Andreas, assistant to ADM's chief executive, said he has met with Marshall's city leaders. About 110 administrative jobs were eliminated, but ADM is keeping the workforce at the plants in place, he said. "We kept the majority of all the jobs, and the plants are up and running at capacity, and I'd say most everybody's happy about that, including us," Andreas said Friday.

Increasing concentration in agribusiness can lead to lower prices for farmers and fewer marketing choices,  experts say.

Last month a group of law professors, economists and two major farm organizations filed documents with the Justice Department, saying its antitrust division has not fully disclosed the potential impact of the sale. Officials with the Organization for Competitive Markets, which filed the challenge, call ADM a "serial price-fixer." Cunningham declined to comment on that.

The group contends that the Justice Department failed to provide key information to a federal judge on market concentration and other implications of the sale.

"We think the Justice Department has reached a new low in omitting very important information that the judge needs to know," said Michael Stumo, an attorney for the Organization for Competitive Markets. The Justice Department will respond to the comments, a spokeswoman said.

Officials with ADM and MCP said they gave the Justice Department all the information that it requested, including production records and market share. Cunningham said that two years from now, as more ethanol plants start production, ADM's share will drop. "That market's going to get more competitive, not less competitive," he said.

Though the judge hasn't signed the final decree, the Justice Department allowed ADM to take over the Marshall-based business after the farmers voted overwhelmingly to sell on September 5. The next day, the Justice Department filed suit to block the proposed transaction, saying it would substantially weaken competition in the corn-sweetener market.

But at the same time, the Justice Department filed a proposed consent decree that, if approved, would resolve the lawsuit and the department's competitive concerns. The stipulation called for the dissolving of a joint venture that MCP had with Corn Products International to market corn sweeteners.

But the Organization for Competitive Markets argues that ADM's acquisition will substantially change the structure of the highly concentrated markets for corn-syrup sweeteners and ethanol . . . . U.S. District Judge John Bates, who will review the case, can reject the settlement or order a hearing to obtain additional testimony.

The group argues that the Justice Department focused only on the corn-sweetener market and did not address issues of concentration in the ethanol market. Further, the Justice Department's competitive impact statement doesn't explain how the consent decree can protect markets from anticompetitive conduct, the organization says.

"The government has not explained why the public shouldn't be concerned about this merger," said Peter Carstensen, a professor at the University of Wisconsin Law School in Madison, who filed the challenge. Already, he said, the high-fructose corn syrup market has been allowed to merge under the control of a handful of corporations, including giants ADM and Cargill Inc.

In the September acquisition, ADM acquired the 70% of MCP that it didn't already own.
The Justice Department says ADM and MCP represent the two largest corn wet millers in the United States.

ADM, with about $23 billion in annual sales, has 268 plants and is the world's largest processor of corn, soybeans, wheat and cocoa. Its roots are in Minneapolis, where it began as a linseed oil company in 1902.

The Justice Department's stipulation keeps five independent competitors on the corn-sweetener market.

ADM for years has been entangled in antitrust litigation. In 1998, two former ADM executives were convicted in federal court for fixing prices of lysine, an amino acid used to enhance livestock growth. The company in 1996 pleaded guilty to two criminal charges and paid a $100 million fine in connection with the same price-fixing probe.

ADM is now named as a defendant in another price-fixing case involving high-fructose corn syrup.

Minnesota Gov. Tim Pawlenty has proposed eliminating a 20-cent-a-gallon subsidy to the state's 13 other ethanol plants to help cover a $356 million budget deficit through June 30. Lawmakers are discussing much-smaller cuts for now. More proposed trims are expected in July, when fiscal year 2004 starts.

Officials at smaller, farmer-owned ethanol plants such as those in Benson and Preston, Minn., say they hope any backlash over the MCP sale won't affect them. "We're not ADM," one of the plant managers said recently.

Proponents hail ethanol-producer subsidies as a way to increase the value of corn and boost local economic development. Others see them as corporate welfare for an inefficient industry. Former state Rep. Dick Mulder of Ivanhoe is among those suggesting that state subsidies should be repaid when farmer-investors sell their ethanol businesses.

But Jerry Jacoby, who was chairman at MCP, said it's "silly" to suggest repayment. "The state got back its money twentyfold through taxes," he said. "In Marshall, we had 300-some jobs with a payroll of $40 million." Nationwide, he said, MCP provided about 900 jobs through the Marshall and Columbus plants and a dozen  spinoff businesses.

"Minnesota legislators should be super-pleased with the Minnesota ethanol program and how it's worked," said Jacoby, who also served as the first president of the Minnesota Ethanol Coalition. "It's returned to the state far more than it's ever cost the state."
 

HOLLYWOOD SETS OUT TO TELL
MARK WHITACRE STORY, BASED ON
KURT EICHENWALD'S "THE INFORMANT"

CATHY DUNKLEY AND JONATHAN BING, VARIETY: Matt Damon will star in the feature adaptation of "The Informant" for Steven Soderbergh and Warner Bros. Pictures.

Warner bought feature rights to the book by New York Times investigative reporter Kurt Eichenwald in a high-six-figure deal last February (Daily Variety, February 6, 2002) for Soderbergh to develop at his Section Eight shingle.

Soderbergh has since committed to direct the pic and secured Damon to star. Scott Z Burns is penning the adaptation of the book.

It is unclear when pic will start shooting, as Soderbergh first will  direct "Ocean's Twelve" for Warner Bros. Studio and Village Roadshow Pictures are eyeing a March 2004 start date for the "Ocean's Eleven" sequel, with Soderbergh, star George Clooney and producer Jerry Weintraub  locked in. Some other original cast members will return, accompanied by new actors for the second pic.

"Informant" centers around the story of Mark Whitacre, a high-level mole at the self-declared "supermarket to the world," Archer Daniels Midland. Whitacre wore an FBI wire for more than two years to uncover a major price-fixing scam with ADM's Japanese competitors that brought the company millions of dollars in profit. ADM pled guilty in 1996 and paid a $100 million fine.

Pic is being produced by Soderbergh, Clooney, Howard Braunstein and Michael Jaffe. Section 8's Jennifer Fox and Ben Cosgrove serve as exec producers.

Burns identified the property after hearing about it on Ira Glass' weekly Public Radio Intl. program "This American Life." Property had been optioned by Michael Jaffe of Jaffe/Braunstein Films to turn it into a TV movie, but Burns convinced Jaffe to let him try to set it up as a feature. Burns took it to Jennifer Fox, co-prexy of Soderbergh and Clooney's  Warners-based Section Eight.

Broadway Books published The Informant in July 2001.

EDITOR'S NOTE: For an analysis of Eichenwald's book see:

ADM STOCKHOLDERS WATCH COMMITTEE CHARGES
"THE INFORMANT" AUTHOR KURT EICHENWALD,
"PAPER OF RECORD" NEW YORK TIMES
CONSPIRED WITH WILLIAMS & CONNOLLY, DOFJ
TO COVER UP SCANDAL-RIDDEN ADM ACTIVITIES
http://www.ea1.com/CARP/agbiz/111.htm
 

CIRCLE FOUR WORKERS
QUIT, DECRY "INHUMANE" CONDITIONS
IN UTAH HOG PRODUCTION FACTORY

BRENT ISRAELSEN, THE SALT LAKE TRIBUNE: A couple from Cedar City who worked briefly for Circle Four Farms say they quit in disgust after seeing what they called "inhumane" conditions at the hog production complex in southwestern Utah.

Wayne Jenson and his wife, Krysta Jenson, said they witnessed workers slamming small pigs against the wall or floor, beating uncooperative sows with metal rods and improperly castrating newborn pigs. They also said they were disturbed by the assembly-line efficiency of the operation, saying it gave animals little freedom or space to move around.

Circle Four officials did not respond to repeated requests for comment.

Paul Sundberg, assistant vice president of veterinary issues for the National Pork Board, based in Washington, said he could not comment on the veracity of the Jensons' allegations but noted some of the practices they cited are acceptable in the meat industry.

The Jensons began work at Circle Four on November 28, 2001. They soon decided it was a bad career move. "One day as we drove out [to work], I told Wayne I just couldn't do it any more, and he said, 'You know what? Neither can I,' " said Krysta Jenson.

That was December 14, 2001. Since that time, the Jensons, now living in Salt Lake County, say they have tried to put the Circle Four experience out of their minds.

They are now venting their concerns publicly after seeing news reports last week in which Circle Four defended itself against allegations of abuse lodged by the United Animal Rights Coalition. Members of the Salt Lake City-based animal-rights group covertly visited the pig production facility last fall, documented alleged abuses and took two pigs that they said appeared to be ill.

"When [Circle Four officials] say there is no harm done to the pigs out there, that's nothing but a bald-face lie," said Wayne Jenson. "They are very money oriented. . . . They don't have any concern for the care of the animals." The Jensons' allegations come at a time when traditional family farms are giving way to larger corporate operations, or "factory farms," which can produce millions of animals each year.

With about 500,000 sows currently in production, Circle Four annually ships one million hogs to market. It is the 15th-largest hog producer in the United States.

As the industry grows, so has scrutiny from environmental groups, which decry the water and air pollution created by the factory farms. Animal rights groups complain the pigs are housed in cramped quarters that can cause respiratory and neurological disorders.

Although Circle Four was diligent about keeping the animals clean and well fed, the Jensons say, at least four situations caused them concern:

* Questionable castration methods.
Wayne Jenson, who grew up on a sheep farm in Iron County, said the castration tools and training that workers received at Circle Four were inadequate. As a result, young pigs suffered unnecessary pain and, in a few cases, death when intestines were pulled out of the animals along with testicles. Jenson said he saw a lot of ruptures during the procedure.

Clippers used to cut into the pig's scrotum often were dull, adding to the pain, he added.
Sundberg said industry guidelines call for workers to be properly
trained and to use proper equipment.

* Blunt trauma to kill unwanted pigs.
If a piglet did not weigh at least five pounds after a week, it got "knocked," a euphemism for "beaten to death. " They estimated about six  piglets were killed each day.

The most common "knocking" method was to grab the animal by its hind legs and slam it into a wall or concrete floor. Sometimes, they said, it took two or three such blows to kill the animal. Krysta Jenson said the sound of pig-knocking made her physically ill
and she refused to do it.

The practice of slamming pigs against a hard surface, or knocking them in the head with a club, is known as "blunt trauma," an acceptable method for euthanizing unwanted animals that has passed muster with the American Association of Swine Veterinarians, said Sundberg. "It is not a pleasant proposition. It is, however, humane." Ideally,
Sundberg said, the pigs die from the first blow.

* Beating of sows.
The Jensons say they observed workers beat uncooperative sows twice. On one of those occasions, a sow that refused to be transferred from one shed to another was pummeled with an 18-inch-long piece of re-bar. "They bloodied her up pretty good," said Wayne Jenson. Sundberg said pork industry guidelines do not support beating animals. "There can be nothing but zero tolerance for any abuse."

* The general treatment of sows.
After sows are impregnated artificially they are placed in cramped pens to birth and nurse their young, Krysta Jenson said. After the piglets were taken away, the sows were visibly upset, she said. Sundberg acknowledged that spatial issues are still an inexact science. But an international panel of experts in animal welfare will soon publish an article concluding that a stall in which a sow cannot turn around is no more or less humane than a sow in a pen or in a pasture.

As for taking away a sow's babies, Sundberg said there is no science to say whether it is deleterious to the sow, but "I'm not so sure I would subscribe to the theory that it is a traumatic experience to the mother."

The Jensons said they are not anti-meat but hope their statements will help change how farm animals are treated. Currently, farm animals raised for food in Utah are exempt from animal-cruelty laws. "They [Circle Four] could change a lot of their practices, and be more humane," said Wayne Jenson.

Sundberg said the National Pork Board is developing a certification program in which producers will be able to assess the humaneness of their operations according to a set of objective criteria. So far, however, there are no plans for independent audits of animal
welfare at factory farm operations.

EDITOR'S NOTE: Curiously, in this Salt Lake Tribune story there is no mention of the fact that Circle Four is owned by Smithfield Foods, the nation's largest pork producer and processor.
 

TYSON FOODS PROFITS FALL, BLAMES
"SLOW ECONOMY, MEAT OVERSUPPLY
AND INCREASED GRAIN COSTS"

CHUCK BARTELS, ASSOCIATED PRESS: Meat producer Tyson Foods Inc. reported January 27 its earnings fell sharply in its first fiscal quarter, citing a slow economy, a meat oversupply and increased grain costs. The results fell short of analysts' consensus forecast, but were within the company's projections that it revised lower last month.

Springdale-based Tyson earned $39 million, or11 cents a share, for the three months ended December 28, down from $127 million, or 36 cents a share, a year earlier. Excluding one-time items, Tyson earned 15 cents a share. That was a penny per share below the consensus forecast of analysts surveyed by Thomson First Call.

Sales were $5.8 billion compared to $5.9 billion for the period a year prior. Tyson shares were down $1.09, or 9.5 percent, at $10.40 in midday trading Monday on the New York Stock Exchange.

Analyst Christine McCracken of Midwest Research said Tyson is trimming supplies to help increase prices. This month, Tyson launched a $100 million campaign to sell lines of beef and pork products under the Tyson name, which had been reserved for its chicken products.

"That was an extension of things they talked about in the past," McCracken said. "That's what they need to do to improve the brand image across the board."  Tyson chairman and chief executive John Tyson said the company is making improvements and is working to increase earnings over the long term.

The world's largest meat producer, which gained that status with its 2001 acquisition of meatpacker IBP Inc., last month lowered its projected first-quarter and annual earnings in light of ending its live swine operations, plant closures and difficult market conditions.

Tyson's revised earnings forecast called for profits of between 14 cents to 18 cents per share for the first quarter and $1.00 to $1.10 for the year.  Before the revision, Tyson had projected quarterly earnings in the range of 22 cents to 26 cents per share.

"The results of the first quarter were challenging, but our decision-making process leads us to believe that the future is on track," John Tyson said.  "We are confident our branding and new product initiatives will help us continue improving our product mix, and are optimistic that market conditions will get better as protein supplies tighten in the second half of the year."
 

TYSON FOODS LAUNCHES $40 MILLION
ADVERTISING CAMPAIGN MARKTING
MEAT \ POULTRY UNDER ONE LABEL

JIM KIRK, CHICAGO TRIBUNE: America's largest chicken purveyor is about to spend $40 million telling people that it now sells beef and pork under the same name.

Beginning [last] week, Tyson Foods Inc. launche[d] its biggest advertising campaign to date following its decision last year to fold all of its recently acquired IBP pork and beef brands under the Tyson name.

The new campaign, from DDB Chicago, is the first consolidated ad campaign since Springdale, Arkansas.-based Tyson was forced by a judge to complete a deal to buy IBP Inc. for $3 billion in 2001 after it tried to back out.

And while there are certain synergies to be gained from marketing everything under the stronger Tyson name, the move is risky in that most food companies that specialize in a commodity rarely change brand names, let alone spend as  much money as Tyson is saying it is spending in support of it.

Tyson isn't the first. Chicago-based Sara Lee Corp. over the past few years began consolidating several products, including deli meats, under the Sara Lee name with some success. Northfield-based Kraft Foods Inc. also has extended its moniker throughout its crowded cupboard.

Tyson said that because 95% of consumers tested recognized its brand name, it feels that it can extend the name without consumer backlash.

"By having the same look and feel, it starts to build out what we already have as a foundation," said Bob Corscadden, senior vice president and chief marketing officer. "It allows us to talk about all the products at once."

Tyson says that, overall, it is spending roughly $100 million to market new products and build the Tyson name in other categories. That represents a 20% hike over last year's budget.

Tyson, like other food companies, will focus more on new convenience foods.

This month, it is launching a line of 31 chicken, beef, ham and turkey deli meats in the self-service deli section at grocery stores. And in February, the company will begin shipping a line of 14 heat-and-eat beef and pork roasts, hams and pork tenderloins.

It also has a line of Tyson-branded individually wrapped frozen steaks and pork chops on the West Coast, which it says it will take national.

Corscadden wouldn't comment on what other products the company has in store, but he didn't rule out a whole new line of convenience products that could be made available for consumers who eat on the go.

Supporting the initiative is new advertising work from DDB. Corscadden had two different teams from the agency work on a campaign using a new theme line and the current "Tyson, it's what your family deserves" line launched in 2000. Following consumer testing, Tyson decided to stick with the current line for the new campaign.
 

NEBRASKA BEEF LTD  BARGAINS
TEMPORARY RESTRAINING ORDER
WITH USDA;  CRITICS CHARGE DECISION
PUTS MEAT CONSUMERS AT RISK

REUTERS: A Nebraska beef company, cited for a series of food safety violations, reached an agreement with the U.S. Agriculture Department on Friday that will prevent a temporary shut  down of its operations.

The USDA on January 14 ordered the suspension of federal meat inspections at the Nebraska Beef Ltd. slaughtering plant in Omaha after reporting several instances of unsanitary practices, fecal contamination and condensation problems.

The company immediately obtained a restraining order from a federal judge to keep the plant open until a hearing took place.

In issuing a temporary restraining order last week, U.S. Judge Joseph Batallion said the company would suffer "substantial" and irreparable harm if USDA suspended inspections. The plant has been operating ever since.

"USDA believes that the terms of the agreement are sufficient to meet the requirements of the Federal Meat Inspection Act related to food safety and public health," said Michael Heavican, attorney for the U.S. Justice Department representing USDA. "The public health mission of (USDA) is preserved through this agreement."

USDA had no comment on the settlement. Nebraska Beef officials were not immediately available for comment. Some consumer advocates criticized the agreement saying USDA gave up to easily and placed consumers at risk.

"They have put the concerns of the company, and the cattlemen that supply it, and the stockholders ahead of public health," said Carol Tucker Foreman, food policy director for the Consumer Federation of America. "I simply don't understand why you (Nebraska Beef) continue to get another chance when you've demonstrated you can't meet the requirements."
 

PHILIP MORRIS, KRAFT NOW ALTRIA GROUP,
MOVE SEEN BY CORPORATE WATCHDOG
AS PR MANEUVER TO DISTANCE ITS IMAGE
FROM "ITS DEADLY BUSINESS PRACTICES"

ASSOCIATED PRESS: Philip Morris Companies Inc. on Monday changed its name to Altria Group Inc., a move critics  said was aimed at downplaying its tobacco interests.

The name Philip Morris isn't going away entirely. Philip Morris still will be used for Altria's tobacco companies, Philip Morris International Inc. and Philip Morris USA Inc. Its food group will continue to be called Kraft Foods Inc.

Chairman and Chief Executive Louis C. Camilleri noted that companies sometimes are criticized for changing their name, but said he believed in this case "this is the right thing to do and the right time to do it."

The move was criticized by Infact, a corporate watchdog group that favors international tobacco controls. It termed the name change "a PR maneuver meant to distance the corporation's image from its deadly business practices."
 

SCANDAL-PLAGUED WORLD COM TO SELL
500,000 ACRE DOUGLAS LAKE RANCH,
CANADA'S LARGEST WORKING RANCH

BLOOMBERG NEWS: WorldCom, the telecommunications company, seeking to emerge from bankruptcy protection, said [January 27] that it would sell Canada's largest working ranch after taking it over from the company's former chief executive, Bernard J. Ebbers.

WorldCom said that it took control of the 120-year-old, 500,000-acre Douglas Lake Ranch this month by exercising rights under financing  agreements with Mr. Ebbers.

Local real estate agents said in August that Mr. Ebbers paid 100 million Canadian dollars (currently $65.6 million) in 1998 for the property, which is about 200 miles northeast of Vancouver in British Columbia. It includes fly-fishing lakes and lodges for tourists, as well as cattle, logging and farm-equipment operations.

Mr. Ebbers's lawyer, Reid Weingarten, did not return a call seeking comment.

Mr. Ebbers resigned in April after he borrowed $400 million from WorldCom to cover bank loans backed by company stock, whose price was declining. The new chief executive, Michael D. Capellas, is cutting costs and selling assets to try to help the company emerge from bankruptcy reorganization by the third quarter. The company, which filed for bankruptcy protection in July, has admitted to misstatements of at least $9 billion in its financial reports.

The ranch stretches across 780 square miles on 164,000 acres and has exclusive grazing rights on 350,000 acres of government land. It has 11 stocked trout lakes, as well as 22,000 head of cattle, 300 wild horses, a church and a school for employees and their children.

Ranch employees said Mr. Ebbers, a native of Edmonton, Alberta, who was known for his penchant for cowboy hats and boots, visited the ranch two or three times a year with his family or business associates. He would often ride with the ranch hands and camp on the range, employees said.

Derek Trethewey, who runs a neighboring ranch, said a sale of the ranch would bring 50 million to 65 million Canadian dollars, or $33 million to $43 million.
 

300 U.S. CRUISE MISSILES A DAY READY,
AS CHEVRON, EXXON, BP AND SHELL DIVERT
EUROPEAN AND ASIA IRAQI OIL EXPORTS
TO U.S.,  DOUBLING NATION'S PER DAY IMPORTS

FAISAL ISLAM AND NICK PATON WALSH, THE OBSERVER: Facing its most chronic shortage in oil stocks for 27 years, the U.S. has this month turned to an unlikely source of help --- Iraq.

Weeks before a prospective invasion of Iraq, the oil-rich state has doubled its exports of oil to America, helping U.S. refineries cope with a debilitating strike in Venezuela.

After the loss of 1.5 million barrels per day of Venezuelan production in December the oil price rocketed, and the scarcity of reserves threatened to do permanent damage to the U.S. oil refinery and transport infrastructure. To keep the pipelines flowing, President Bush stopped adding to the 700m barrel strategic reserve.

But ultimately oil giants such as Chevron, Exxon, BP and Shell saved the day by doubling imports from Iraq from 0.5m barrels in November to over 1m barrels per day to solve the problem. Essentially, U.S.importers diverted 0.5m barrels of Iraqi oil per day heading for Europe and Asia to save the American oil infrastructure.

The trade, though bizarre given current Pentagon plans to launch around 300 cruise missiles a day on Iraq, is legal under the terms of UN's oil for food programme.

But for opponents of war, it shows the unspoken aim of military action in Iraq, which has the world's second largest proven reserves --- some 112 billion barrels, and at least another 100bn of unproven reserves, according to the U.S. Department of Energy. Iraqi oil is comparatively simple to extract --- less than $1 per barrel, compared with $6 a barrel in Russia. Soon, U.S. and British forces could be securing the source of that oil as a priority in the war strategy. The Iraqi fields south of Basra produce prized 'sweet crudes' that are simpler to refine.

On Friday, Pentagon sources said US military planners 'have crafted strategies that will allow us to secure and protect those fields as rapidly as possible in order to then preserve those prior to destruction'.

The U.S. military says this is a security issue rather than a grab for oil, after a 'variety of intelligence sources' indicated that Saddam planned to damage or destroy his oil fields --- which would inflict up to $30bn damage on the U.S. economy and cause irreparable environmental damage.

But the prospect of British and U.S.commandos claiming key oil installations around Basra by force has pushed global oil diplomacy into overdrive. International oil companies have been jockeying position to secure concessions before 'regime change'.

Last weekend a Russian delegation flew to Baghdad to patch up relations after Iraq's cancellation of its five-year-old contract to develop the huge West Qurna oil field --- worth up to $600bn at today's oil price. Lukoil was punished by Baghdad for negotiating with the U.S. and Iraqi exiles on keeping its concession in a post-Saddam Iraq.

The delegation of Ministers and oil executives returned to Moscow with three signed contracts. Oil is the state budget's lifeblood, and Russia requires an oil price of at least $18. Russians fear a U.S. grip on a large reserve of cheap oil could send prices tumbling.

But Saddam has offered lucrative contracts to companies from France, China, India and Indonesia as well as Russia.

It is only the oil majors based in Britain and America --- now the leading military hawks --- that don't have current access to Iraqi contracts.

Richard Lugar, the hawkish chair of the Senate Foreign Relations Committee, suggests reluctant Europeans risk losing out on oil contracts. "The case he had made is that the Russians and the French, if they want to have a share in the oil operations or concessions or whatever afterward,  they need to be involved in the effort to depose Saddam as well," said Lugar's spokesman.

A delegation of senior U.S. Republicans was in Moscow last Tuesday trying to persuade Kremlin officials and oil companies that a war in Iraq would not compromise their concessions. A leaked oil analyst report from Deutsche Bank said ExxonMobil was in "pole position in a changed-regime Iraq."

Washington is split along hawk-dove lines about the role of oil in a post-Saddam Iraq. Two sets of meetings sponsored by the State Department and Vice-President Dick Cheney's staff have been attended by representatives of ExxonMobil, ChevronTexaco, ConocoPhilips and Halliburton, the company that Cheney ran before his election.

The dovish line, led by Colin Powell, places the emphasis on "protection" of Iraq's oil for Iraq's people. His State Department has pointed to a precedent in the U.S. interpretation of international law set in the 1970s. Then, when Israel occupied Egypt's Sinai desert, the U.S. did not support attempts to transfer oil resources.

While the State Department is mindful of cynical world opinion about U.S. war aims, officials do not always stick to the script. Grant Aldonas, Under Secretary at the U.S. Department of Commerce, said war "would open up this spigot on Iraqi oil which certainly would have a profound effect in terms of the performance of the world economy for those countries that are manufacturers and oil consumers."

The U.S. economy will announce zero growth this week, prolonging three years of sluggish performance. Cheap oil would boost an economy importing half of its daily consumption of 20m barrels. But a cheaper oil price could have been reached more easily by lifting sanctions and giving the U.S. oil majors access to Iraq's untapped reserves.

Instead, war stands to give control over the oil price to "new Iraq" and its sponsors, with Saudi Arabia losing its capacity to control prices by altering productive capacity.

Paul Wolfowitz, Assistant Defence Secretary, and Richard Perle, a key Pentagon adviser, see military action as part of a grand plan to reshapethe Middle East.

To this end, control of Iraqi oil needs to bypass the twin tyrannies of UN control and regional fragmentation into Sunni, Shia and Kurdish supplies. The neo-conservatives plan a market structure based on bypassing the state-owned Iraqi National Oil Company and backing new free-market Iraqi companies.

But, in the run-up to war, the U.S. oil majors will this week report a big leap in profits. ChevronTexaco is to report a 300% rise. Chevron used to employ the hawkish Condoleezza Rice, Bush's National Security Adviser, as a member of its board.

Five years ago the then Chevron chief executive Kenneth Derr, a colleague of Rice, said: "Iraq possesses huge reserves of oil and gas --- reserves I'd love Chevron to have access to."

If U.S. and UK forces have victory in Iraq, the battle for its oil will have only begun.

                               EDITOR'S NOTE

Preparing to post this year-end 220th 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
colleagues at ElectricArrow in Seattle, Washington that sight is being maintained on a virtual
pro bono basis.

Having said all this, may I repeat CONTRIBUTIONS FROM READERS are always and will
always be most welcomed for editors of such publications as THE AGRIBUSINESS
EXAMINER can not always live on bread and water alone. Such checks made out to A.V.
Krebs can be sent to P.O. Box 2201, Everett, Washington 98203.