THE
AGRIBUSINESS
EXAMINER
February 3, 2003, Issue #221
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/
TO RECEIVE: Send name and address
CONTRIBUTION$ WELCOME!!!
 

IOWA FEDERAL JUDGE GRANTS
TEMPORARY STAY MAINTAINING
STATE'S PACKER OWNERSHIP BAN

DTN AG NEWS: A federal judge has granted Iowa's request for a temporary stay to maintain the state's 27-year-old ban on packer ownership of livestock while the issue is decided in the courts.

"We are pleased that the court entered the stay," said Iowa Attorney  General Tom Miller. "The stay order means the law that bans meatpackers from owning livestock in Iowa will remain in effect until the conclusion of an appeal."

That appeal [was] scheduled to be filed [January 30], and follows a ruling from federal judge Robert Pratt last week that Iowa's law is  unconstitutional. Smithfield, the nation's top pork packer, successfully convinced Pratt that Iowa's law unlawfully hinders interstate commerce.  This week's stay also came from Pratt, who is based in Iowa.

Iowa is one of nine states that enacted a law on meatpackers owning livestock. In South Dakota last May, a federal court overturned a similar state law, calling it unconstitutional. That case is under appeal in a federal court in St. Paul, Minnesota.
 

NATION'S FARMERS LEARN HARD WAY
LOCATION, LOCATION, LOCATION MEANS
EVERYTHING WHEN IT COMES
TO APPLYING FOR FARM DISASTER AID
 
DAVID ROGERS, THE WALL JOURNAL: Location, location, location is the old real-estate adage. Who would ever think to apply it to farm disaster aid?
 
Yet that is what the Senate did last week, when it approved a $3.1 billion-assistance package, most of would go to producers depending on where they live --- not on whether they suffered losses.
 
Large Arkansas and Mississippi rice growers with healthy crops stand to reap bonus payments of more than $50,000 simply because their farms are in designated disaster counties. That that much less money for stricken Midwest and Great Plains producers, who are promised a fraction of what they would otherwise under more-traditional disaster-aid formulas.

"How could a rational government spend money so irrationally?" says John McFarland, a 44-year-old Arkansas farmer who lost most of his corn crop to drought and gets nothing, while his 63-year-old father in neighboring county gets money --- and lost little. "It's insane."

Speed is the big selling point for the Senate package, which promises checks can go out within four weeks after enactment. But at a time of widening budget deficits, there is the risk of another black eye for agriculture, which faces continued resentment inside and outside Congress over the cost of subsidies authorized last May.

Moreover, the rush to act now follows months of stalemate --- and what critics say has been a failure by government to respond to genuine stress among growers.

Net cash farm income dropped 15% last year, and for all the criticism of last spring's six-year farm bill, it has proven less generous than. Instead, drought has both cut production and raised grain prices to a point where fewer subsidies are available. The big growth in indemnity payments on government-supported crop-insurnace policies: An estimated $3.3 billion has been paid out already, and that is expected to grow by $1 billion more.

Yet there has been little creative thinking about marrying this data --- covering about 237,000 farmers --- with a disaster-aid program that would be more targeted.

Instead, the White House and Democrats argue more about the top budget line than the policies underneath. Republicans themselves complain the Agriculture Department has been "absent without leave," and even experienced lawmakers seem paralyzed by the fear that a more comprehensive disaster-aid package will be financed by reopening last year's farm bill.

In this void, the package reflects the Southern roots of the Senate's Republican leadership and new Agriculture Committee Chairman Thad Cochran of Mississippi, a major force as well in the Senate Appropriations Committee. Cotton, tobacco, sugar and even catfish growers get special treatment. In addition, about $2 billion would be out as a bonus on top of an existing nationwide income-supplement that tends to favor Southern crops.

What's more, these leaders propose paying for the aid with $3.1 billion of across-the-board cuts from other domestic programs.

"Half a Southern-baked loaf is better than none," says Republican Sen. Pat Roberts of Kansas, who won concessions for Western livestock producers. But Midwest Republicans in the House, who must negotiate now with the Senate, aren't happy with the across-the-board cuts --- or the formula for distributing aid. "We're just going to get into more political trouble," says Rep. Sam Graves of Missouri. "You just make the case for everyone that doesn't like the farm program."

Under the Senate plan, producers who live in designated disaster counties would automatically receive an extra 42% of the income supplement they received last year, whether they had losses or not. Farmers such as Mr. McFarland, who leased land that isn't enrolled in the direct-payment program, are left out. But as a practical matter, nearly 90% of those receiving payments will qualify because so many --- nearly 2,700 --- have been named disaster areas in the past years.

A disaster designation typically makes low-cost government loans to distressed farmers. But the Senate bill goes a big step by promising what amounts to cash grants from Washington.

"It's a pretty broad-brushed approach," says Mark Schwiebert, an Ohio farmer and leader in the state Corn Growers Association. He and other Midwest producers say there can be wide disparities within single counties in their region. Southern crop reports indicate
better-than-average rice yields in counties with disaster.

"That's the exception, not the rule," insists Ben Noble, a lobbyist for the USA Rice Federation. But it's a costly one. In four Arkansas and Mississippi counties alone, rice growers could receive as much as$10 million under the Senate bill, estimates the Environmental Working Group, a Washington-based nonprofit that was asked to conduct an for this newspaper. . . . .

No disaster-aid program is without problems. Farmers typically must show at least a 35% loss to qualify, but that can be unfair to those who have shallower losses, for example, losing 30% of their crop in two successive years. The Senate formulation does more to address that. But critics argue it would be better to target the aid to farmers with some proven losses and who are paying deductibles on crop insurance.

The government-subsidized insurance program has expanded enrollment. But most growers can't afford to buy coverage for more than 65% to 75% of their crop. To encourage producers to keep buying insurance --- while providing some relief --- one idea is to base assistance levels on the level of a producer's deductible.

Rep. Graves, who farmed himself before coming to Congress two years ago, has taken the lead for the National Corn Growers Association in promoting a plan that provides graduated aid to all those with more than a 20% loss. A farmer with a 25% loss might get aid trimming 2% from his deductible; a producer with a 35% loss would get more --- about six percent.

"It incentivizes crop insurance," says the congressman. But the cost of Mr. Graves's plan would be about $2.9 billion, leaving less room the additional set-asides for cotton, Senate bill. Adjustments could be made to meet budget targets in coming House-Senate negotiations. But the political temptation for farm-state lawmakers is still to grab any money offered -- and run.

"I don't think there's any question that we could develop a sounder, more efficient, more honest system," said Texas Rep. Charles Stenholm, the ranking Democrat on the House Agriculture Committee. "But time-wise, we're up against a fence."
 

U.S. CIRCUIT COURT OF APPEALS RULES
MANDATORY ADVERTISING CAMPAIGN
FOR CALIFORNIA GRAPES VIOLATES
FIRST AMENDMENT FREE SPEECH CLAUSE

KIM BACA, ASSOCIATED PRESS: A mandatory advertising campaign for  California's table grape industry violates the First Amendment guarantee of free speech, the 9th U.S. Circuit Court of Appeals ruled.

The ruling was a victory for Delano Farms, the Susan Neill Fresh Fruit and Lucas Brothers companies in Visalia, California, which sell under brand names. The companies argued the California Table Grape Commission violated their right to free speech because it required fees for generic advertising.

The companies sell their fruit under the brand names of Delano Farms, Silver King and Grape Royale, with Neill and the Lucas Brothers selling their fruit at higher prices to stores that would pay for them as opposed to selling them to chain grocery stores, according to court documents.

"This is a huge victory that will led producers and handlers to have the right --- absent government intervention -- to decide how to market their own fruit and their own agriculture products,"  said Brian C. Leighton, the groups' attorney.

The California Table Grape Commission in Fresno said it plans to file an appeal to [last] Monday's ruling.

"We will take action to give the courts an opportunity to look again at the facts and make a decision based on an accurate  of the facts -- that's what missing here," said Kathleen Nave, grape commission president.

Nave said the appeals court in San Francisco incorrectly made their decision by stating the commission did not have antitrust  status. The justices also misunderstood grape industry labels, mistaking them for consumer brands.

In 1996, the opposing groups stopped paying annual fees of 11.5 per 19 pound box of grapes to the commission. The fees are used for adverting and research and are paid by all table grape growers in California. The opposing groups' fees are now held in escrow while the case is in litigation.

Gerawan Farming Inc. in Sanger also contested the fees. The case was put on hold, pending the outcome of the Delano Farm decision, Leighton said.

In 1997, a U.S. District Court judge in Fresno ruled the grape commission's program did not violate free speech rights, based on U.S. Supreme Court decision that upheld mandatory advertising and promotion assessments by the California Tree Fruit Agreement.  The highest court said joint advertisements are constitutional in heavily regulated industries such as California fruit production.

However, the Supreme Court ruled a similar mandatory advertising campaign for the mushroom industry violated free speech last year. Justices said the mushroom case was different, because the mushroom market was less regulated and mushroom producers do not cooperate the way the fruit producers do.

United Foods Inc. argued a mandatory mushroom promotional campaign forced the company to pay for ads that benefited its competitors. The 9th U.S. Circuit Court said the Table Grape Commission was similar to the mushroom case.

"The business practices by the instant growers are governed by a statute similar to the one at issue in United Foods," Justice Kleinfeld wrote in the decision, "so they are entitled to
First Amendment protection against state compulsion to fund advertising."

The case is Delano Farms v. Table Grape, 00-16778.
 

GENERAL MILLS TO RAISE PRICE
OF CEREAL BARS 4%, TO "OFFSET
RISING COMMODITY COSTS"

CHRISTINA CHEDDAR BERK, DOW JONES NEWSWIRES: Following a move announced by Kellogg Co. in December, General Mills Inc. raised prices for its Milk n' Cereal and Nature Valley bars to help offset rising commodity costs.

The Minneapolis-based General Mills will charge retailers eight cents a box more for the bars, or a four percent price increase, said Goldman Sachs analyst Romitha Mally in a research note.

Quaker, a unit of PepsiCo Inc. (PEP), also has raised prices four percent for its Fruit and Oatmeal bars, Mally said.

Officials from General Mills and Quaker weren't immediately available to confirm the information provided by the analyst.

"Cost pressures, wheat in particular, led Kellogg to announce a price increase back in December on NutriGrain bars, and both its major competitors have followed, which we view as a positive," Mally said.

Earlier this [past] week, Kellogg, the leading U.S. cold cereal company, raised prices for Special K, Frosted Flakes and its other cold cereal brands by about two percent.

Analysts are waiting for competing cereal producers such as General Mills and Kraft Foods Inc. (KFT) to follow Kellogg's move.

Mally doesn't own shares of Kellogg, of Battle Creek, Michigan or of General Mills. However, Goldman makes a market in the stocks of both companies and is seeking an investment-banking relationship with the companies within the next three months.

Kraft, of Northfield, Illinois, is a subsidiary of Altria Group Inc. the former Philip Morris Cos.
 

CBS TELEVISION:
FROM "HARVEST OF SHAME" TO SHAMELESS

JOHN HANSEN, NEBRASKA FARMERS UNION: In TVs latest race to the bottom, CBS has proposed "The Real Beverly Hillbillies," a new reality program which may stain a great page in that networks history.

Four decades ago, in one of TVs finer moments, CBS broadcasted Edward R. Murrow's "Harvest of Shame," a documentary which placed the plight of the nations' farm workers squarely onto the national agenda.

The shame spotlighted by that program was an outgrowth of the vast social discrepancies involved. It was the whole nations shamea disclosure of the fact that here in the new country,land of opportunity, there were hardworking people that reminded us of our own great-grandparents who fled the brutality and tyranny of serfdom in the old country.

While affluent growers on large farms profited, the folks working in the fields were living in shacks like serfs. On the Thanksgiving evening Murrow's program aired, there was a gut reaction from millions of viewers that no one in America should still have to live that way.

While our nation's farm workers still have many challenges, the airtime CBS granted their plight made a difference in thousands of lives. CBS helped clothe, feed, and house the farm workers who benefited from the public sympathy generated by the program. Four decades later, CBS has gone from the integrity of "Harvest of Shame" to just plain shameless.

Once again, in "The Real Beverly Hillbillies," CBS will be clothing, feeding and housing some unfortunate rural citizens. This time, however, the attitude of CBS to the vast social discrepancies involved has changed from condemnation to ridicule. The premise of the program is to place a poor rural family of limited means and education into a Beverly Hills mansion with a maid and luxurious  amenities, and then laugh at their backwardness.

While it is important to bear in mind that no family has been found and the program is in the planning stages, the current climate of reality television suggests against giving the network the benefit of the doubt. Considering the highly contrived nonsense passed off as reality programming these days, it is doubtful that any good will come of "The Real Beverly Hillbillies."

Yes, there are still farm and rural families struggling to make a decent living, raise their children, and grow our nations food and fiber. In fact, if CBS was really interested in rural reality TV, they would follow up on the CBS evening news program I appeared on several years ago highlighting a growing problem in rural America --- staged accidents that were really suicides. Desperate farmers come to view suicide and cashing in their accidental life insurance policies as the only way to pay off their overwhelming debts, and escape their own unbearable sense of pain and failure.  How much pain does a hardworking, proud, and independent man have to be in, to let his combine slowly drive over the top of him?

Suicide, divorce, bankruptcies, forced farm sales, despair, and generations of hard work and sacrifice lost are not funny. Nor is it funny to make fun of folks our nation has left behind. It is even less funny to kick good, hardworking folks when they are down.

Shame on CBS for their shameless and callous exploitation of the folks whose ancestors fired the shot that was heard around the world, and on their sacred honor, pledged their lives and their fortunes to bring the hopes and ideas of the new country to life.

John K Hansen is President of Nebraska Farmers Union, a general farm organization representing nearly five thousand farm and ranch families.
info@nebraskafarmersunion.org
 

BUSH ADMINISTRATION SEEKS
TO UNDERMINE INTERNATIONAL BAN
ON METHYL BROMIDE CHEMICAL POISON

ANDREW C. REVKIN, NEW YORK TIMES: The Bush administration is moving to help industries keep using a pesticide that is to be banned under an international agreement to restore the earth's protective ozone layer, several government officials say.

Administration officials say they are prepared to ask that some of the pesticide users, which include farmers and golf course operators, be exempted from the ban on the pesticide, methyl bromide, called for in 2005 under the international treaty. The officials say the exemptions are justified under the treaty's language because there are no effective substitutes to methyl bromide and businesses would be harmed.

But advocates for the environment say that if too many exemptions are granted, efforts to undo damage to the ozone layer will be set back by years. They said exemptions from the ban would generally undermine the agreement, the Montreal Protocol, a 15-year-old pact that is widely perceived as the most effective environmental treaty ever negotiated.

The debate leaves the administration caught between the demands of the  industries, the obligations of the protocol, which the United States signed, and the need to limit political damage from persistent criticism of its environmental policies.

The White House has until tomorrow to decide how many exemptions to request from the international environmental body that administers the treaty, the Ozone Secretariat of the United Nations Environment Program.

Fifty-six requests for exemptions have been made to the administration, totaling about 26 million pounds of methyl bromide. Senior government officials said that while no decision had been made on how many requests to submit to the United Nations committee, they saw no reason to limit the number as long as each was justified.

Under a timetable set by the treaty, industrialized countries have steadily decreased use of methyl bromide since 1999 and are to end all use by 2005, except in situations where there are no effective substitutes or markets would be disrupted.

The 56 applications for "critical-use exemptions" that have been submitted to the Environmental Protection Agency are from agricultural groups and businesses as varied as chrysanthemum and strawberry growers, flour millers, universities, and golf-course groomers. The applications are at epa.gov/spdpublc /mbr/cue_summaries.html.

A senior federal official involved with assessing the proposed exemptions said that most of the agricultural users had legitimate reasons.

"I think they have a case for needing it," said the official, who spoke on condition of anonymity. "The Montreal Protocol has expressed in this exemption the notion that there are cases where the impact of losing the chemical is so great that they won't force the ban on people."

Some countries plan to join the United States in seeking many exemptions, including Australia and Spain. But government officials in other countries, including Britain, said they planned to strictly limit their proposed exemptions to insure that overall use of the gas continued to fall.

"A critical use should be a critical use," said one European government official. The official, speaking on condition of anonymity, noted that exemptions granted for other ozone-depleting substances were extraordinarily limited. One allows continued use of banned CFC's in powering asthma inhalers. Methyl chloroform, another banned chemical, is still allowed for cleaning the O-rings on the space shuttle's booster rockets.

In a related effort, the American Farm Bureau, Florida State officials and other lobbying groups wrote members of Congress this week seeking an amendment that would allow the use of methyl bromide to rise 20% from the amount currently permitted under federal law and the treaty.

Environmental groups say the chemical needs to be banned and the treaty honored. They are pressing the White House to greatly reduce the exemption requests, pointing to some businesses that are seeking to increase, not simply maintain, their use of the chemical.

"If the Bush administration abandons the phase-out of methyl bromide, the safer alternatives will wither on the vine, and the hole in the ozone layer will keep growing," said David Doniger, an expert in international environmental policy at the Natural Resources Defense Council. Companies producing substitutes contend that any significant exemptions will simply delay shifts toward other methods of controlling pests.

Methyl bromide is one of a variety of chemicals that are being phased out under the treaty because they break down the high-altitude veil of ozone molecules that blocks harmful ultraviolet rays. This shield had diminished significantly by the 1980's, and still disappears almost entirely over large areas of both poles in certain seasons.

Scientists say that the continued reductions in the use of the ozone-depleting compounds, dominated by chlorofluorocarbons, or CFC's, should lead to restoration of the layer later in the century.

Methyl bromide is a much more potent destroyer of ozone, molecule for molecule, than are CFC's, but unlike those compounds does not persist long in the air and is also much rarer. Over all, scientists have estimated it accounts for no more than 7 percent of the total erosion of the ozone layer.

Once submitted, any exemptions sought by the United States and other industrialized countries will be reviewed this spring by a technical panel consisting of three dozen experts, including American government scientists. The panel will make recommendations to the Ozone Secretariat, which represents the interests of the 160 signers of the treaty, who make the final decision. .

Administration officials said they were concerned that the isolation of the United States on other international issues, including the Kyoto climate treaty and the possible attack on Iraq, could result in the exemptions being rejected even if they are justified.

Methyl bromide is a toxic gas that has been used since the 1960's to sterilize soils, fumigate grain-milling operations, and treat exports and imports to kill invasive pests. It kills weeds, insects, nematodes and all manner of other pests.

Under the Montreal treaty, industrialized countries agreed to a 25% reduction below the amount used in 1991 starting in 1999; a 50% drop, from that level starting in 2002; a 70% reduction starting in 2003; and finally the 100% ban starting in 2005. The United States has been meeting its reduction goals set out in the treaty. (Developing countries have a ten-year delay before they must stop using the gas.)

Applications from American companies include some that are very small, like that from Stroope Bee and Honey Company of Alvin, Texas, which seeks to continue using about 400 pounds of the chemical in 2005 and beyond to prevent moths from attacking honeycombs.

"I know of nothing else that will even come close to controlling the greater wax moth in stored honey combs," said Garland Stroope, the business owner, in his application. But they also include requests for large, and increasing, uses of the chemical.

Auburn University in Alabama is seeking to use 542,408 pounds of methyl bromide a year on 1,600 acres where it plants tree seedlings, saying it has found "no possible alternatives."

The California Grape & Tree Fruit League, in Fresno, has submitted a request for its membership to use 1,579,500 pounds of methyl bromide annually after 2005, although its members typically used less than 650,000 pounds of the chemical in the late 1990's.

In interviews, several government officials involved with compiling the applications said there are other important issues to consider when weighing the importance of the chemical to a particular business.

Mexico is among countries that compete with American farmers in fruit and vegetable trade that are exempt from the methyl bromide ban for another decade, officials said. These countries also use cheap labor to clear fields of weeds that American growers clear with methyl bromide. Labor in this country is too costly for that task. "Methyl bromide helps level the playing field," said a senior Department of Agriculture official.

Marco Gonzalez, the executive secretary of the Montreal Protocol, said he was confident that the international review of exemptions from the methyl bromide ban would be fair and not roll back efforts to repair the ozone layer. "The Montreal Protocol so far has been a success story and is paving the way to other conventions," Mr. Gonzalez said. "We don't see any reason why progress and success should not continue."
 

NEW  YORK TIMES EDITORIAL:
DECRYS ELEVATING ECONOMIC INTERESTS OF
MEAT COMPANY OVER THE PUBLIC HEALTH

A court ruling last week in Nebraska has dealt a devastating blow to the nation's program for policing meat safety. It calls into question the government's authority to shut down meat plants for repeatedly violating sanitary standards designed to combat bacterial contamination and outbreaks of food-borne illness.

Judge Joseph Bataillon of the Federal District Court rebuffed an Agriculture Department effort to shut down the operations of Nebraska Beef, an Omaha slaughterhouse with numerous citations for violating standard sanitary operating procedures. The plant was chosen for special scrutiny after the discovery last year of deadly E. coli bacteria in ground beef produced by a Nebraska Beef customer. In granting a temporary restraining ordering blocking the closure, the judge elevated the economic interests of local employer over public health while questioning the government's power to act under current law.

All this has a familiar ring. Just two years ago, in a different case, a federal appeals court in New Orleans declared that the Agriculture Department lacked the power to close a Dallas beef processing plant that had failed three rounds of tests for Salmonella contamination in a year. Unfortunately, Congress and the Bush administration failed to heed the message of that misguided decision by passing a law that reaffirms the government's authority to enforce health standards.

Reacting to the new ruling, the Agriculture Department has decided to reach a settlement with the meat packer that allows the plant to continue to operate. It is hard to fault the department's lawyers for wanting to avoid a drawn-out court fight likely to result in an adverse final decision by the judge. But even now, Agriculture Secretary Ann Veneman refuses to acknowledge the grievous damage inflicted on her department's food safety efforts by the courts' suggestion that the government has no authority to close a plant based on public health considerations. She still hesitates to get behind legislation sponsored by Senators Tom Harkin of Iowa and Richard Durbin of Illinois Representative Rosa DeLauro of Connecticut and others that would close this and other gaping holes in the nation's food safety system. That is inexcusable.

To her credit, Ms. Veneman has said she will seek $42 million more in funding next year for increased microbial testing of meat and poultry and other needed food safety initiatives. But more money and good intentions are no substitute for strong legislative action clarifying the government's power to enforce stringent safety standards.

February 2, 2003
 

KRAFT FOODS POSTS 70% PROFIT
WARNS OF 2003 PROFIT DEPRESSION OWING
IN PART TO ECONOMIC CRISIS IN LATIN AMERICA

DELROY ALEXANDER, CHICAGO TRIBUNE: Kraft Foods Inc. dished up a surprise late [last] Tuesday, warning that 2003 earnings will be depressed by higher-than-expected benefit costs and the economic crisis in Latin America even as it reported a jump of 70% in fourth-quarter earnings.

Northfield-based Kraft, known for its steady profits and sales growth, said it now expects 2003 earnings to range from $2.10 to $2.15 a share --- well below the $2.25-per-share consensus estimate of Wall Street analysts.

In a conference call, Kraft officials urged investors to focus on the company's underlying strengths --- and not on changes outside of its control.

"We feel good about the fundamentals of the business," said Co-CEO Betsy Holden. "Three percent volume growth in 2003 is positive in very challenging times."

Co-CEO Roger Deromedi added that all six of Kraft's divisions had higher sales volumes in the fourth quarter and new products did well. Contributions from Kraft's December 2000 acquisition of Nabisco are largely responsible for the increase in quarterly profits, he said. Still, some analysts took a dim view of the news.

"This doesn't play that great to us," said Jaine Mehring, a Salomon Smith Barney analyst, who added that early e-mails from investors were not positive. "The lower guidance is a shock," added another analyst immediately after the call. "Nobody is happy. Several of these things were unexpected."

Kraft, the maker of Oscar Mayer meats and Oreo cookies, said that an increase in pension costs and employee stock awards will cut into this year's profit by about nine cents a share.

Kraft said a $100 million, or seven cent-per-share, "incremental" hit would be taken against its benefit assets. The company, whose $6.3 billion of pension assets far outweighed liabilities, added that further non-cash charges could be required going forward. Kraft's benefits plans were hurt on two fronts, officials said.

It had assumed a return of nine percent on its pension assets, but "actual performance was much less than that ... our return was down in the order of 13%," said Chief Financial Officer James Dollive. "That takes away from the value of the asset we had." At the same time, anticipated liabilities --- or payments --- due to retirees increased.

And after a year that saw several companies criticized for failing to adequately account for the cost of stock options to executives and other employees, Kraft said it will do away with options in favor of a program that rewards employees with stock if they meet performance benchmarks.

As a result, the stock grants will be treated as compensation and Kraft will incur an expense of two cents per share in 2003 for buying the stock. "Accounting for restricted stock is very clear," Holden said.

Kraft also said it had struggled with currency depreciation in Argentina and Venezuela --- where its operations have been virtually shut down for two months.

For the quarter, net earnings were $931 million, or 54 cents a share, compared with $548 million, or 32 cents a share, a year earlier. Excluding certain items on a comparative basis, Kraft put its pro forma earnings at 51 cents a share --- a penny lower than the consensus estimate of analysts surveyed by Thomson Financial. Revenues increased four percent to $7.8 billion.

For the full year, net earnings were $3.39 billion, or $1.96 a share, compared with $1.88 billion, or $1.17 a share, in 2001. Revenues rose 1.7 percent, to $29.72 billion from $29.23 billion. Kraft shares fell more than five percent in after-hours trading. It closed down 69 cents at $36.11 on the New York Stock Exchange before the earnings report was released.
 

AMERICAN ENTERRPISE INSTITUTE STUDY
SEEKS LINK BETWEEN OBESITY AMONG POOR
AND GOVERNMENT FOOD PROGRAMS,
CRITICS CHARGE NO "SOUND CONNECTION"

CHRISTIAN BOURGE, UNITED PRESS INTERNATIONAL: The U.S. government's food aid programs for low-income people are contributing to the high obesity rates of America's poor, according to a recent report from a Washington think thank.

"Today, the central nutritional problem facing the poor --- indeed, all Americans --- is not too little food, but too much of the wrong food," writes Douglas Besharov in his paper, "We're Feeding the Poor as if They're Starving." The paper was published by the conservative American Enterprise Institute.

"But despite a striking increase in obesity among the needy, federal feeding programs still operate under their nearly half-century-old objective of increasing food consumption," he writes.

Other experts on federal food programs for the poor say that although Besharov's thesis has received some press attention lately, his analysis is flawed and not supported by data.

In his paper, Besharov, director of AEI's social and individual responsibility project, notes that that the U.S. government now spends billions annually on its three major programs to help feed the poor: $18 billion on food stamps; $8 billion on school breakfasts and lunches; and $5 billion on the Special Supplemental Nutrition Program for Women, Infants, and Children, or WIC, which provides food directly to mothers and children.

He says these programs are driven not by an emphasis on healthy eating habits that could help stymie the costly problem of obesity, but by outdated policies that contribute to obesity. Such policies ignore the fact that Americans are much more likely today to be at risk from health problems related to overeating and obesity than those that arise from lack of food.

"We have research, which I describe in the article, that shows that food stamps increase food consumption by as much as ten to 20%, depending upon what research study it is," Besharov told United Press International.

When asked to explain how increased consumption, a goal of the food stamp program, negatively affects recipients or contributes to increased obesity,  Besharov, who appeared reluctant to comment on his report, said only, "of course it is negative," and said the impact of is explained in his analysis.

In his article, Besharov says that although around 65% of Americans are overweight, with more than half of them obese, the best estimates place the rate of obesity among the poor at five to ten percent higher.

He writes that despite this high rate of obesity among the poor, low-income families have access to more free or low-cost food than ever before through federal food programs. They are even allowed to use all three programs at the same time while receiving welfare assistance.

Phyllis Busansky, a senior fellow at the conservative Hudson Institute and an expert in welfare policy, said that Besharov's criticisms of federal food programs are on the mark in many ways.

"I think he is willing to take a very hard look at some of the things we have been doing for a while, and some of those things are going down the wrong path," said Busansky. "Obesity is one of the major problems in this country. It costs us millions upon millions of dollars (in healthcare and other costs)."

Critics of Besharov's thesis said that there is little or no proof linking obesity and government food programs.

Robert Greenstein, founder and executive director of the Center for Budget and Policy Priorities, a liberal-leaning think tank dedicated to exploring how fiscal policy affects low-income people, said that Besharov's arguments are not realistic.

"I think he tossed together some arguments on food stamps and the presence of obesity and concluded on the basis of little or no evidence that food stamps are contributing to obesity," said Greenstein, who ran the food stamp program during the administration of President Jimmy Carter.

"In fact, there is virtually no research that establishes a connection between the two, and there is some recent research that has looked specifically at the question of whether food stamps cause obesity and found that (they do) not," he said.

Besharov points out in his report that under the food stamp program, the largest of the federal efforts, a household of four can receive a benefit of up to $465.

Other analysts said that Besharov's arguments misinterpret the reality of the food stamp program. Just because $465 in monthly assistance is possible doesn't mean that is what a family would receive, or that even at the highest level the program provides the poor with too much food.

The value of the food stamp benefit is based upon a host of factors including family size and income, experts in the program at the Agriculture Department's Food and Nutrition Service told UPI. According to USDA data, the average benefit per person in 2001 was just under $76.

Anne Kim, director of the work, family and community project at the centrist-liberal Progressive Policy Institute, said that the threshold amount does not represent the reality of the program's impact on working families. (PPI is affiliated with the Democratic leadership council)

"That (75 dollars per person per month) is not very much money if you are talking about a family that has one income," said Kim.

Besharov, however, compares the program's ticket-based design --- in which recipients receive vouchers on a credit card that can be used only to buy food --- to tickets purchased for rides at an amusement park. He says the general tendency for most people is to buy more tickets than they need, which leads them to go on more rides than they planned in order to avoid wasting the extra tickets.

In the case of the food stamp program, he says the phenomenon results in over-consumption because recipients purchase food they would not otherwise buy. Besharov recommends fixing the problem by switching the program to a direct cash payment system.

Citing USDA studies, he says that a so-called "cash out" of the program would help address over-consumption while still retaining the high levels of daily nutritional intake recommended by the federal government.

Kim, however, who is an advocate of reforming the program to make it more efficient to better serve the needs of working families, says, that the basic benefits it provides are still badly needed by America's poor.

She has noted in her own writings that only about 37% of all households below the poverty line, and about one-third of female-headed household with children, were categorized by the USDA in 2000 as "food insecure" (unable to afford or unsure about their ability to afford) the basic food needs of their families.

Kim also said that a major factor influencing high rates of obesity among the poor is that it is much cheaper to purchase unhealthy food than items like fresh fruit and vegetables. Government food programs do not address this.

Greenstein, Kim and other analysts also said that Besharov's arguments about over consumption in relation to food stamps are off the mark.

In a paper published last year, Diane Whitmore, an economist doing post-doctorate work at the University of California at Berkeley, examined two food stamp cash-out experiments conducted in Alabama and California. She found that between 70% and 80% of all food stamp recipients had to spend more on food than their food stamps are worth.

"If it costs $150 to feed a family and they get $100 worth of food stamps,  his (Besharov's) argument that you are forced to over consume doesn't make any sense," said Whitmore, adding that the program is actually designed to supplement food spending.

In examining the cash-out experiments, she also found that this basic purchasing pattern remained relatively stable among those who were given no-strings-attached cash payments that could be used for other purchases.

Among the 20% to 30% of cash recipients who spent less than their total benefit amount on food, Whitmore found that their caloric intake was reduced on average by about only 3 percent. Even if there were a sound link between obesity and the food stamp program, she said, cashing out food stamps would have little impact on most beneficiaries.

Whitmore also noted that her research shows that the percentage of people who fail to meet their daily nutritional requirements rises quite a bit among the 20% to 30% of cash recipients who did change their spending patterns. "I think this is some evidence that people who change their behaviors would get worse nutrition, and not better, as he suggests," she said.

Robert Lerman, director of the Labor and Social Policy Center at the liberal Urban Institute, said that although Besharov presents an interesting case, he fails to establish a sound connection between federal food programs and obesity in the poor.

Nevertheless, he said that it is worth pursuing Besharov's assertion that better dietary habits among the poor might be achieved through efforts to provide better nutritional counseling.

"It is not obvious to me that it would work. But on the other hand, if it were to work it could have a pretty good long term payoff because we know the health costs (of obesity)," he said. "From a government cost-benefit perspective, the relief to long-term health outlays might make it worthwhile."
 

WAR  CRIMES, OR AN ACT OF WAR?
MIXING OIL AND WATER

STEPHEN C. PELLETIERE, NEW YORK TIMES: It was no surprise that President Bush, lacking smoking-gun evidence of Iraq's weapons programs, used his State of the Union address to re-emphasize the moral case for an invasion: "The dictator who is assembling the world's most dangerous weapons has already used them on whole villages, leaving thousands of his own citizens dead, blind or disfigured."

The accusation that Iraq has used chemical weapons against its citizens is a familiar part of the debate. The piece of hard evidence most frequently brought up concerns the gassing of Iraqi Kurds at the town of Halabja in March 1988, near the end of the eight-year Iran-Iraq war. President Bush himself has cited Iraq's "gassing its own people," specifically at Halabja, as a reason to topple Saddam Hussein.

But the truth is, all we know for certain is that Kurds were bombarded with poison gas that day at Halabja. We cannot say with any certainty that Iraqi chemical weapons killed the Kurds. This is not the only distortion in the Halabja story.

I am in a position to know because, as the Central Intelligence Agency's senior political analyst  on Iraq during the Iran-Iraq war, and as a professor at the Army War College from 1988 to 2000, I was privy to much of the classified material that flowed through Washington having to do with the Persian Gulf.  In addition, I headed a 1991 Army investigation into how the Iraqis would fight a war against the United States; the classified version of the report went into great detail on the Halabja affair.

This much about the gassing at Halabja we undoubtedly know: it came about in the course of a battle between Iraqis and Iranians. Iraq used chemical weapons to try to kill Iranians who had seized the town, which is in northern Iraq not far from the Iranian border. The Kurdish civilians who died had the misfortune to be caught up in that exchange. But they were not Iraq's main target.

And the story gets murkier: immediately after the battle the United States Defense Intelligence Agency investigated and produced a classified report, which it circulated within the intelligence community on a need-to-know basis. That study asserted that it was Iranian gas that killed the Kurds, not Iraqi gas.

The agency did find that each side used gas against the other in the battle around Halabja. The condition of the dead Kurds' bodies, however, indicated they had been killed with a blood agent --- that is, a cyanide-based gas --- which Iran was known to use. The Iraqis, who are thought to have used mustard gas in the battle, are not known to have possessed blood agents at the time.

These facts have long been in the public domain but, extraordinarily, as often as the Halabja affair is cited, they are rarely mentioned. A much-discussed article in The New Yorker last March did not make reference to the Defense Intelligence Agency report or consider that Iranian gas might have killed the Kurds. On the rare occasions the report is brought up, there is usually speculation, with no proof, that it was skewed out of American political favoritism toward Iraq in its war against Iran.

I am not trying to rehabilitate the character of Saddam Hussein. He has much to answer for in the area of human rights abuses. But accusing him of gassing his own people at Halabja as an act of genocide is not correct, because as far as the information we have goes, all of the cases where gas was used involved battles. These were tragedies of war. There may be justifications for invading Iraq, but Halabja is not one of them.

In fact, those who really feel that the disaster at Halabja has bearing on today might want to consider a different question: Why was Iran so keen on taking the town? A closer look may shed light on America's impetus to invade Iraq.

We are constantly reminded that Iraq has perhaps the world's largest reserves of oil. But in a regional and perhaps even geopolitical sense, it may be more important that Iraq has the most extensive river system in the Middle East. In addition to the Tigris and Euphrates, there are the Greater Zab and Lesser Zab rivers in the north of the country. Iraq was covered with irrigation works by the sixth century A.D., and was a granary for the region.

Before the Persian Gulf war, Iraq had built an impressive system of dams and river control projects, the largest being the Darbandikhan dam in the Kurdish area. And it was this dam the Iranians were aiming to take control of when they seized Halabja. In the 1990's there was much discussion over the construction of a so-called Peace Pipeline that would bring the waters of the Tigris and Euphrates south to the parched Gulf states and, by extension, Israel. No progress has been made on this, largely because of Iraqi intransigence. With Iraq in American hands, of course, all that could change.

Thus America could alter the destiny of the Middle East in a way that probably could not be challenged for decades --- not solely by controlling Iraq's oil, but by controlling its water. Even if America didn't occupy the country, once Mr. Hussein's Baath Party is driven from power, many lucrative opportunities would open up for American companies.

All that is needed to get us into war is one clear reason for acting, one that would be generally persuasive. But efforts to link the Iraqis directly to Osama bin Laden have proved inconclusive. Assertions that Iraq threatens its neighbors have also failed to create much resolve; in its present debilitated condition --- thanks to United Nations sanctions --- Iraq's conventional forces threaten no one.

Perhaps the strongest argument left for taking us to war quickly is that Saddam Hussein has committed human rights atrocities against his people. And the most dramatic case are the accusations about Halabja.

Before we go to war over Halabja, the administration owes the American people the full facts. And if it has other examples of Saddam Hussein gassing Kurds, it must show that they were not pro-Iranian Kurdish guerrillas who died fighting alongside Iranian Revolutionary Guards. Until Washington gives us proof of Saddam Hussein's supposed atrocities, why are we picking on Iraq on human rights grounds, particularly when there are so many other repressive regimes Washington supports?

Stephen C. Pelletiere is author of Iraq and the International Oil System: Why America Went to War in the Persian Gulf

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