EXAMINER Issue # 33 May 12, 1999
Monitoring Corporate Agribusiness From a Public Interest
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CO-OPTING THE CO-OPS
Two of the nation's largest farm cooperatives --- Farmland Industries Inc. and Cenex Harvest States Cooperatives --- have announced they are talking merger.
While Harry Cleberg, Farmland's chief executive, points out that such a merger could save tens of millions of dollars annually in transportation costs through the "coordinating" of trucks, rail cars and barges in addition to saving money by eliminating some duplicate grain-handling operations the proposed merger signals yet another step in the corporatizing of farm co-ops and American agriculture.
Cleberg also claims that such a merger would be better able to coordinate the growing and processing of genetically engineered crops and accelerate a renewed interest in forming an alliance between the combined cooperatives and a crop biotechnology company such as DuPont Co. or Novartis AG of Switzerland.
The combined cooperatives would reportedly generate annual revenues of roughly $20 billion, processing everything from wheat to pigs, and would be "owned" by roughly 900,000 farmers located between the Rocky and the Appalachian Mountains. No cash would exchange hands and the joining of the two co-ops would be handled as a merger of equals. Shares in a new organization would be issued to farmers on a 1-for-1 basis for their existing shares, the cooperatives said. Farmland, of Kansas City, Missouri, and Cenex Harvest States, of St. Paul, Minnesota, each have a book value of roughly $3 billion.
Directors of the cooperatives, the Wall Street Journal reports, say they hope to complete a merger between Farmland and Cenex Harvest States by June 1, 2000. Cleberg and Noel Estenson, the chief executive of Cenex Harvest States, would serve as co-CEOs of the combined cooperative for a while. However, a single CEO would eventually be picked.
As farm columnist Alan Guebert observes: "Today's blockbuster deals are not solely corporate, they're cooperative. too. In a flurry of action, billion dollar regional co-ops are buying, merging and joint venturing with other billion dollar co-ops. In fact, the pace of co-op deal-making is so fast, most farmers can't explain the actual business structure of these new giants --- and they own them."
Not only are local and regional co-ops being rapidly absorbed by large co-ops and agribusiness corporations, but the character of many rural communities long associated with the local co-op is also being destroyed in that process. "Co-ops have been part of the identity of the community," Washington State University cooperative extension economist Jon Newkirk points out.
They have played such an important role, both economically and culturally, he adds, that in the past, local authorities have fought mergers vociferously. "Mergers strike another blow to the loss of identity in smaller rural communities."
Yet, as the Agribusiness Accountability Project's Linda Kravitz points out in an authoritative 1974 project study, "Who's Minding the Co-op?," in today's modern cooperatives, "the presence of management is overshadowing that of membership, and the pecuniary goal has become overriding. In short, the fact of profits has become more important than the way they are made."
She continues, the farmers are being left out in the cold by their own cooperatives, "and as a final step, cooperative `leadership' increasingly argues that the vast majority of farmers must be content to assume the role in big co-ops that shareholders assume in big corporations.
"To accept this view is to abandon the uniqueness of farmer cooperatives. The process of cooperation is as important as the result of cooperation, and to strip farmers of the former ultimately will strip them of the latter. There is no doubt that strong membership control is cumbersome from a business perspective, slowing down the decision-making process."
But, Kravitz concludes, "that is the price of being a
cooperative. Efficiency has rarely been argued to be a virtue
of democracy, but in this country a loss of efficiency has been
considered a cheap price to pay for democratic controls. If a
cooperative chooses to put efficiency over democracy, to put organizational
profits over farmer cooperation, then it is not a cooperative
at all, it is just another form of agribusiness."
Observing such a "flurry of action," in the merging of co-ops like Farmland and Cenex Harvest States, however, one also sees the ominous consolidating of co-ops with the very forces that they traditionally have opposed and which impelled them to be formed in the first place.
Farmland Industries, for example, currently is engaged in a grain-based alliance with ConAgra, the nation's second largest food manufacturer, providing grain marketing and export activities. That alliance consists of two entities --- Concourse Grain and Farmland-Atwood. Concourse operates two ConAgra export elevators and two Farmland elevators and markets wheat originated by the two companies.
In 1994 Harvest States, a regional Minnesota co-op, also formed a joint venture with ConAgra, through Peavey, the latter's grain company, to operate three elevators in Iowa and two export elevators in Louisiana. In 1998 Cenex and Harvest States officially merged to form a $10 billion co-op that now spreads from Canada to Mexico and from the Great Lakes to the Pacific Coast.
As the Cenex-Harvest States merger was being finalized Harvest States and Land O'Lakes, another large Minnesota co-op, were formalizing a six-state feed processing and marketing joint venture at the same time Land O'Lakes was also entering "much more complete unification" discussions with Countrymark, a regional farmer-owned co-op in Indiana, Ohio and Michigan.
In 1996, Countrymark had signed an agreement with Archer Daniels Midland (ADM) to market its grain and along with a similar relationship established in 1985 with Growmark, another regional co-op, the "Supermarkup to the World" gained access to 50% of the corn and soybean market region. ADM along with ConAgra also jointly operate the Kalama Export facility in Washington State, one of the most modern export facilities on the West Coast.
At the same time ConAgra also has an existing relationship
with DuPont whereby ConAgra is currently engaged
in the initial commercialization of DuPont's new high-oil
corn. United Agri Products, a ConAgra subsidiary,
contracts farmers to grow such corn with ConAgra's chicken
operations in turn buying the grain for feed. It is also
significant that in 1996 Novartis purchased a 50% interest
in Wilson Seeds Inc., a subsidiary of Land O'Lakes,
to assist in developing specialty corn hybrids for ADM's food
and feed markets.
"VERY COMPLICATED AND DIFFICULT TO DESCRIBE"
Clearly with the announcement of these new co-op mergers and those mergers taking place in the corporate world our food system, as the University of Missouri rural sociologist Bill Heffernan recently told an Alliance for Democracy-sponsored Food and Agriculture conference in Boulder, Colorado, "is becoming very complicated and difficult to describe; the complication resulting from the fact that there is not a group of individualistic firms out there competing with one another.
"We are especially interested in all the relationships that exist within the clusters and those crossing from one food chain cluster to another. Some of these are the result of firm A having a relationship with firm B and then developing a new relationship with firm C. But some of the relationships crossing cluster boundaries are new. The whole system is woven together by a host of working relationships between firms and, at least for the short run, the system looks pretty fluid. One if left asking the question: just how much competition is there in the system?"
In a study, prepared by Heffernan and colleagues Dr. Mary Hendrickson and Dr. Robert Gronski for the National Farmers Union, the rural sociologist from the University of Missouri showed how linkages in our current food system, through "strategic alliances," joint ventures, partnerships, mergers and other relationships "have formed a complex network of `clusters' of firms," each a vertically integrated "food chain," controlling the system from the gene to the supermarket.
The Heffernan-Hendrickson-Gronski study details the relationships forming the three major "clusters" --- Cargill\Monsanto, ConAgra and Novartis\ADM --- which currently dominate the nation's food system. Among the study's findings were:
* The complexity of the linkages in the system undermines market competition and makes it difficult to measure. The network of relationships is creating a seamless system with little market transparency along the various stages of the food system. Because of this complexity, a firm that does not hold a majority share of a specific market may still have great decision-making power within the food chain.
Examples of such "conglomerate concentration" which can be defined simply as the possession of a large share of a given industry's resources or activity by companies that are primarily engaged in other industries, but are not suppliers or users of the given industry's products. Two of the nation's three largest food manufacturers, tobacco companies Philip Morris and RJR Nabisco, are prime examples of this form of economic concentration.
* Technological advances are accelerating the process of vertical integration. Biotechnology and the "terminator" gene have put the farmer at the mercy of these food "clusters" for seed to plant the crop. Also, precision farming's (or "prescription agriculture" as it is now sometimes called) "global positioning system" separates management from the production of agriculture. With this technology, it is possible for "managers" in distance offices in different countries to make decisions about farm production, while the producers or the farmers simply become hired labor.
Farmers in India are committing suicide in record numbers due to the almost inevitable outcomes of the corporate model of industrial agriculture --- with its indebtedness, crop failures and systematic destruction of their agri-culture --- resulting from the corporate decisions that are being made far from them in St. Louis, Missouri and Minnetonka, Minnesota.
* This new structure threatens independent producers. The "clusters" influence opportunities are all along the food chain --- from production inputs to global trade --- and are severely hampering the farmers' ability to earn a fair return for their product. It also erodes the independence of farmers by shifting major decision-making to a handful of firms and corporate executives.
Expanding forcibly these "clusters" begin to absorb all that lies in their path. In mid-1997, for example, ADM began its entry into the nation's meat industry by first purchasing ten percent of the stock of IBP, the nation's leading meat packer (it now owns 13.3%) during the Hudson Foods scare. Coupled with its surprise buy-out of Moormans Manufacturing, a large, reputable animal feed producer in mid-September, 1997, ADM gained what the Agribusiness Council Inc. called a "jugular hold" on many IBP's suppliers. Today, for hundreds of miles encircling its processing centers, IBP finds itself in a "cozy relationship" with ADM, which controls the supply and price of animal feed.
* This new structure is also harming rural communities because corporate returns are reinvested in the firm, rather than in local economies where the crops are produced.
The fact that so many farm co-ops are in the process of being co-opted by corporate agribusiness is alarming to many others. The very act of such merging, explains Greg Stephens, a Kansas State University business professor, suggests today's American co-op "model" is flawed.
As he recently told columnist Guebert "Over time managers
have grown the co-ops through retained earnings. That growth,
arguably, is in the managers' self-interest: The bigger the co-op,
the more pay managers earn, the more they can justify expansion,
et cetra while farmers finance it all. But, you can never grow
to the size you need to be," Stephens warns. "It's like
buying technology. You never get enough of it and you can go broke
trying to stay on the cutting edge."
IGNORING THEIR HISTORY
Observing this increasing corporatizing of the farm co-op movement, however, one also sees an historic irony in that the very forces that co-ops have traditionally struggled against and which impelled them to be formed in the first place, they are now willingly joining while at the same time sacrificing still another degree of economic democracy in American agriculture on the unholy altar of corporate agribusiness.
Following the American Civil War the development of new manufacturing methods and the vertical and horizontal integration of the production, processing and market phase of many industries, including agriculture, by the "captains of industry," the infamous "Robber Barons," was resulting in the concentration of the nation's wealth into fewer and fewer hands.
As industry flourished, an over-productive agriculture, adapting innovations in farm technology, found itself laden with surpluses and in constant search of new markets. By the early 1870's the nation was in the midst of the most severe depression in its history. A farm surplus, a drop in commodity prices and another sharp contraction in the money supply all were major contributors to this collapse.
Agriculture began calling for a great emphasis on expanding export markets by improving and regulating the nation's transportation system. Believing that agriculture was the sure road to domestic prosperity, farmers argued that it was time for the nation to assert its economic independence. What followed was the export bonanza of the late 1870's, however, it did not bring about "a new order of things." Rather, in the words of historian William Appleman Williams, turned an agricultural majority "and a metropolitan plurality toward a policy of active overseas economic expansion. The exports that prevented domestic upheaval became the exports that required an imperial foreign policy."
With the advent of America's industrial revolution farmers were faced with the fact that while they had become increasingly dependent upon urban, industrial America, their living standards and income were often inferior to those in the city. As profound changes were taking place in the nation's cities farmers struggled to refinance their operations to expand and to cover increasingly higher input costs. There entire struggle, however, soon centered around the farmer's inequitable position within the economic system.
Out of that struggle emerged a variety of protest movements, including the Patrons of Husbandry, popularly known as the Grange, in 1867. Organized as farm social clubs to sustain the richness of rural life these clubs after their formal meetings would adjourn, only to reconvene an "anti-monopoly" meeting which, although shunning partisan political activity, was largely devoted to discussing the railroads, the bankers excessive interest charges and foreclosures, grain elevator operations, farm equipment companies and commodity middlemen.
Out of that milieu and in an effort to overcome these economic hurdles the Grange began cooperative buying and selling while seeking legislation to control the abuses of the railroads and while their cooperative movement suffered because of lack of access to capital they were successful in getting railroad reforms, including reduced fare, freight and warehouse rates, and seeing established the Interstate Commerce Commission.
Thus, as Southern farmers sought to escape the tyranny of sharecropping and the "furnishing merchants" system and western farmers fought the tyranny of burgeoning debt and mortgage foreclosures, both believed American agriculture was being driven into involuntary servitude. They also believed that the democratic promise was being destroyed and with it any possibility of individual respect and mass aspiration.
From a mass democratic movement, which had been generated by a cooperative crusade and which was to become the heart of the "agrarian revolt," and with the formation of the National Farmers Alliance and Industrial Union, emerged a political movement that came to be called populism, a progressive revolt that Ralph Nader has termed "still the country's most fundamental political and economic reform."
Populism, as noted historian Lawrence Goodwin reminds us, was characterized by an evolving democratic culture in which people could "see themselves" and therefore aspire to a society conducive to mass human dignity. In stark contrast to their efforts was the direction they saw being taken by the corporate state in the existing society.
Populism clearly recognized that condition and thus believed that it was imperative to bring the corporate state under democratic control. "Agrarian reformers," Goodwin points out, "attempted to overcome a concentrating system of finance capitalism that was rooted in Eastern commercial banks and which radiated outward through trunk-line railroad networks to link in a number of common purposes much of America's consolidating corporate community. Their aim was structural reform of the American economic system."
Reflecting on this history it is both curious and tragic that
the farm cooperative movement,, rather than become the spawning
ground for another attempt at a genuine structural reform of the
American economic system like it was a century ago, has instead
become a prostitute for corporate agribusiness.
COURT SCRUTINY TO "ACTIVITIES"
THAT "WORSEN THE BARGAINING POSITION OF FARMERS"
With the news of the Farmland-Cenex merger there is also the concern whether the action by the two co-ops will in turn undermine any action that the U.S. Department of Justice Anti-Trust Division might attempt to take to block Cargill, the nation's largest grain trader, from acquiring the commodity marketing division of agribusiness giant Continental Grain.
That Cargill purchase and the continuing urge to merge within American agribusiness was very much on the minds of the some 600 boisterous farmers from a dozen states when they met recently with Joel Klein, an assistant attorney general who directs the U.S Justice Department's antitrust division, and Mike Dunn, who oversees the U.S. Agriculture Department's Grain Inspection, Packers and Stockyards Administration. Both men attempted to plead for patience at the St. Paul, Minnesota agrarian populist rally while the government scrutinizes increasing market concentration in agribusiness.
Farmers from Texas, Colorado, Ohio, the Dakotas, Illinois, Indiana, Iowa, Kansas, Nebraska, Wisconsin and Minnesota waving placards reading "It's Time to Act!" and "Protect Independent Farmers," loudly cheered as speaker after speaker demanded that large corporations not be allowed to monopolize the food-processing industry. Many farmers also wore buttons carrying the slogan, "Enforce the Laws, Stop the Excuses," and a banner on the wall read "Corporate Hall of Shame" and listed corporate agribusinesses such as Archer Daniels Midland, Cargill and ConAgra.
"Now, USDA, I don't want to pick on you too much, but it wouldn't even be fair to say you stood by as an agency and let this happen," observed Rhonda Perry, a farmer from Howard County, Missouri. "Millions of taxpayer dollars were used to help finance this concentration in the form of corporate welfare, in the form of guaranteed loans to hog factories. We predicted this. It's no surprise to the people in this audience. It's only a surprise, apparently, to the people in this administration."
For his part Klein told the farm rally "I want to be straight with you and I want to listen. I know you want action ... but I've got to know the facts. And when we have the facts, we are not afraid to act."
Due to the fact that most of the current anti-trust enforcement is based on economic theories of "efficiency" and "price-fixing" theory, observers believe that the Department of Justice is unlikely to heed family farmers call for action in blocking the increasing concentration that is taking place today in agriculture.
Jon Lauck, a member of the University of Minnesota Law School Class of 2000 and Editor-in-Chief, Minnesota Journal of Global Trade, in an astute study, "Toward An Agrarian Antitrust: A New Direction For Agricultural Law," however, takes issue with such economic theories as being the cornerstone of anti-trust action.
"Farmers actively sought antimonopoly legislation in the late nineteenth century and have continued to support its application to the present day. Due to the judicial embrace of certain economic theories within recent decades, however, the antitrust laws have failed to meet their expectations. More recent developments in the interpretation of the antitrust laws offer the opportunity to more completely satisfy farmer expectations. Greater judicial recognition of the limits of economic theory and existence of power imbalances within markets, especially when considered in light of legislative policies designed to promote the bargaining power of farmers, presents the opportunity to establish an agrarian-specific antitrust analysis."
He also notes that, "among farmers in the late 19th century, a favored method of responding to the economic concentration of buyers was the marketing cooperative. Formal government efforts to aid farmer cooperatives came with the passage of the Clayton Act in 1914. In order to eliminate legal obstacles that might slow the growth of market power among farmers through cooperatives, the legislation specifically exempted non-stock agricultural cooperatives from the antitrust laws.
"The inclusion of the farmer cooperative provision within
an antitrust statute offers further evidence of the importance
Congress placed on considering the economic disorganization of
farmers when applying the antitrust laws. Doubts about the
effectiveness of the Clayton Act exemption triggered legislative
efforts to draft a stronger statute. The result was the
Capper-Volstead Act of 1922, which broadened the exemption from
the antitrust laws beyond non-stock cooperatives. For protection
from the antitrust laws Capper-Volstead required that cooperatives
only allow members one vote, that annual dividends be limited,
and that non-member products could not exceed member products.
"With the passage of Capper-Volstead," Lauck continues, "Congress demonstrated its intention to treat farmer cooperatives differently from the typical corporate form and to give farmers the opportunity to build their bargaining power relative to corporate buyers. By exempting farmer cooperatives from the antitrust laws Congress sought to help `farmers to compete with large corporations.' According to some commentators, the legislation was specifically designed to `counterveil the monopsony power then held by the corporate purchasers.'
"The Supreme Court agreed that `individual farmers should
be given, through agricultural cooperatives acting as entities,
the same unified competitive advantage --- and responsibility
--- available to businessmen acting through corporations as entities.'
Without fear of antitrust prosecution, farmers were to unify into
farmer cooperatives that could employ their bargaining power to
negotiate with large food manufacturers for better prices for
Lauck concludes: "In order to overcome the monopsony problem common to agricultural markets, Congress `deliberately set about to enable farmers to organize and band together in order to acquire and exercise marketing power.' If farmers can muster enough bargaining power a `bilateral monopoly' between seller and buyer will result, conferring on farmers a fair price for their products. The mirror image of promoting farmer bargaining power is close attention to economic activities that might increase the concentration among buyers and contribute to their collusive potential. Accordingly, the wider policy rationale of Capper-Volstead requires that courts apply strict scrutiny to mergers or other activities that enhance monopsonistic power of buyers and worsens the bargaining position of farmers."
DEMANDING THE RADURA
A new rule that will allow food manufacturers to sell irradiated food to consumers without any label warning is now scheduled to be handed down by the Food and Drug Administration (FDA) on May 18. Such a rule will, after many years, nullify consumer opposition, the last remaining obstacle to the expanded use of radiation, and pave the way for a significant expansion of the sale of irradiated food in addition to providing a significant boost to the nuclear industry.
Passage of the rule would see over 550 new facilities being built to irradiate various foodstuffs if the irradiating of food expands according to industry projections.
A Carnegie-Mellon study reports that operating irradiators just to treat meat and poultry (much less spices, wheat, and other foodstuffs) would be extremely risky, with a 99.7% chance of multiple major incidents at these facilities (a major incident is defined by the Nuclear Regulatory Commission (NRC) as "those that result in a release or spill of radioactive material, bodily harm, or a long term shut down of the facility").
The Department of Energy (DOE), not surprisingly a long-time supporter of food irradiation, has even advanced the idea of building mobile food irradiation units, which would move to different farm areas to irradiate crops immediately after harvesting. Not only would this lead to further centralization of agriculture as regional production would be required, but plant species would have to be further hybridized to facilitate radiation tolerance, thus possibly increasing crop vulnerabilities.
For farmers irradiating food would not only further concentrate the food processing and manufacturing industry, but it would also rob many of them of their traditional markets for it would make it infinitely easier for multinational corporate agribusiness firms to preserve a whole variety of perishable crops from distant countries. This would allow them to further exploit tenant farmers and peasant slave labor in those other nations while at the same time accelerating their planned and continuing permanent displacement of U.S. farmers.
U.S. food producers already are facing increasing competition from imports which are cheap only because they are grown and harvested by workers paid not even a subsistent wage. Irradiation of foreign produce would only add to this stream of imports while encouraging further economic and environmental exploitation of the poor in Third World countries.
In addition, the long term health effects of eating irradiated food are unknown. It is know that Irradiation reduces the vitamin content of food and creates new chemical substances called radiolytic products. Some of these substances are known carcinogens, like benzene, and others are completely new substances that have not been tested for toxicity.
Critics of the new rule are urging citizens to immediately write to the FDA and demand that the comment period be extended past May 18. At the same time, they stress, the FDA should be required to rule that food treated with radiation be indefinitely labeled with the radura (the international symbol for irradiated food) and a statement indicating it has been treated with radiation. The absence of such a statement, they argue, would be misleading because irradiation destroys vitamins and causes changes in sensory and spoilage qualities that are not obvious or expected by the consumer.
Letters generally criticizing irradiation should be avoided since the FDA has already approved irradiation. The major effort now is to fight to keep the public informed. When writing to FDA, refer to Docket #98N-1038, "Irradiation in the production, processing, and handling of food."
Send comments before May 18, 1999 to:
Dockets Management Branch (HFA-305)
Food and Drug Administration
5630 Fishers Lane, Room 1061
Rockville, MD 20852
Send e-mail to FDADockets@oc.fda.gov and/or FDADockets@fda.gov
(Put Docket #98N-1038 in the subject line) E-mail, however, is discouraged because e-mails are often thrown out. A written letter, since it is the most effective means of communication, should be sent to the FDA.
BUT WHAT THEN?
The American investment banker was at the pier of a small coastal Mexican village when a small boat with just one fisherman docked. Inside the small boat were several large yellow fin tuna. The American complimented the Mexican on the quality of his fish and asked how long it took to catch them.
The Mexican replied, only a little while.
The American then asked why didn't he stay out longer and catch more fish?
The Mexican said he had enough to support his family's immediate needs.
The American then asked, "but what do you do with the rest of your time?"
The Mexican fisherman said, "I sleep late, fish a little, play with my children, take siesta with my wife, Maria, stroll into the village each evening where I sip wine and play guitar with my amigos, I have a full and busy life."
The American scoffed, "I am a Harvard MBA and could help you. You should spend more time fishing and with the proceeds, buy a bigger boat. With the proceeds from the bigger boat you could buy several boats, eventually you would have a fleet of fishing boats. Instead of selling your catch to a middleman you would sell directly to the processor, eventually opening your own cannery. You would control the product, processing and distribution. You would need to leave this small coastal fishing village and move to Mexico City, then LA and eventually New York City where you will run your expanding enterprise."
The Mexican fisherman asked, "But, how long will this all take?"
To which the American replied, "15-20 years."
"But what then?"
The American laughed and said, that's the best part. "When the time is right you would announce an IPO and sell your company stock to the public and become very rich, you would make millions."
"Millions. Then what?"
The American said, "Then you would retire. Move to a small coastal fishing village where you would sleep late, fish a little, play with your kids, take siesta with your wife, stroll to the village in the evenings where you could sip wine and play your guitar with your amigos."
My appreciation to a loyal "subscriber" for sharing this story.