EXAMINER Issue # 43 August 16, 1999
Monitoring Corporate Agribusiness From a Public Interest
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TANTRUMS AT THE TOP
Apparently the urge to merge and the dash on the road to form new and even larger "strategic alliances" have hit a few recent speed bumps judging by rumblings of late emanating from the boardrooms of corporate agribusiness.
On August 10 Cargill Inc., the nation's largest grain trader, reported that a lawsuit filed by Pioneer Hi-Bred International alleging misappropriation of genetic materials was primarily responsible for Cargill's $182 million loss in the fourth quarter.
Five days prior to Cargill's announcement, the Associated Press reported from Fayetteville, Arkansas that Tyson Foods, the nation's largest poultry producer, was suing ConAgra, claiming the nation's second largest food manufacturer was making a concerted effort to raid Tyson Foods of key personnel to obtain trade secrets.
The suit, which was filed in Washington County Circuit Court
against Con-Agra, based in Omaha, Nebraska and four former
Tyson employees, alleges that the former employees
cannot perform their jobs at Con-Agra without the disclosure
of trade secrets and asked for a preliminary injunction to prevent
the inevitable release of such information,
The four employees --- including three senior vice presidents --- left Tyson between May 28 and July 30 and immediately went to work for Con-Agra, each of them possessing, according to the suit, confidential information that constitutes trade secrets and causing Tyson to suffer irreparable harm unless a preliminary injunction was granted.
In the Pioneer-Cargill lawsuit Pioneer, based in Des Moines, Iowa charged that the nation's largest private corporation and two other seed companies bred corn hybrids using genetic material developed by Pioneer. Cargill, however, sought to try and settle the lawsuit claiming it had traced suspicious genetic material in its breeding program back to Thomas Ishler of Leola, Pennsylvania, a former Pioneer employee hired by Cargill. Meanwhile, Cargill was forced to pull one of its hybrids off the market.
While Cargill was lamenting its fourth quarter loss it was also reporting that for the full fiscal year it earned $597 million, including a one-time gain from the sale of its international seed business to Monsanto. Yet its operating earnings were down 53% from the previous year to $220 million, and revenues were down 11% to $46 billion, the company said. Cargill earned $468 million in fiscal 1998.
"On the operating side, our earnings and revenues continue to reflect the tough economic climate for agriculture that began in Asia two years ago and spread to other parts of the world," Robert Lumpkins, Cargill's vice chairman and chief financial officer, explained to the Associated Press.
"Commodity prices suffered their third straight year of decline due to the mismatch of weakened purchasing power in key markets and successive big global harvests --- a situation aggravated by trade barriers to agricultural goods in importing countries," Lumpkins said. "We realized long ago that this will be a difficult, slow road to recovery. Hard-hit countries must institute the reforms needed to help their economies heal, and much more work is necessary to lower trade barriers to agricultural and food products," he added.
Cargill, however, also noted that its meat, fertilizer and animal nutrition businesses were among several of its divisions that turned in strong performances. Cargill's financial businesses, which suffered losses last August when Russia defaulted on its debt and devalued the ruble, were restructured, and profitability improved in the second half, Lumpkins said.
Cargill is based in Minnetonka, Minnesota and markets,
processes and distributes agricultural, food, financial and industrial
products worldwide. The company employs some 82,000 people in
FOR "BREACHING HIS FIDUCIARY DUTY TO ADM"
AND EXPOSING THE
"BEST DOCUMENTED CORPORATE CRIME IN U.S. HISTORY"
In yet still another chapter in a bizarre unfolding story Mark Whitacre, the former Archer Daniels Midland (ADM) executive, has been ordered to pay back the salary he earned at ADM while he was tape recording his fellow executives for four years while they engaged in a price fixing scheme in what has been called "the best documented corporate crime in U.S. history." The latest ruling is part of a civil case filed against Whitacre by his former employer.
Whitacre has already received two jail sentences totaling 128 months and was ordered to pay back millions of dollars that he allegedly bilked from the company.
U.S. District Judge Michael P. McCuskey recently granted the request by ADM to recover $1.17 million of Whitacre's salary from 1991 to 1995. "The evidence," he said that Whitacre defrauded ADM of over $9.5 million was sufficient to show that he breached his fiduciary duty to ADM. This court therefore finds that ADM is entitled to recover salary and benefits," McCuskey wrote. McCuskey, however, turned back an attempt by ADM to recover Whitacre's stock options.
Whitacre's attorney, Bill Walker of Granite City, Illinois said the ruling will likely send an unfortunate message to whistle-blowers in other situations.
Judge McCuskey's order states that Whitacre must pay a total amount of $6.32 million, but it does not explain how the figure was reached. Walker said he would be filing a "motion to clarify" the order because he also does not understand the six million dollar figure. Whitacre had to pay back $11 million in connection with his guilty plea to allegedly embezzling funds from ADM, and owes the Internal Revenue Service more than $5 million.
The judge also noted that Whitacre, through his attorney Walker, failed to comply with rules of law and did not file objections to each point of ADM's requests. Walker said he was unable to file appropriate responses because Whitacre's attempts to seek evidence from ADM ("Supermarkup to the World") early in the lawsuit had failed and Whitacre had not pursued the evidence.
"There's a stone wall put up," Walker said. "They
(ADM) had all the bullets and the guns."
"I have a very educated client," Walker added in noting Whitacre has two law degrees. "He and I agreed to file the response in this way."
In 1996 ADM pleaded guilty to price-fixing and was fined $100 million while in 1998 Whitacre and ADM executives Michael Andreas and Terrance Wilson were found guilty of price-fixing. It was Whitacre's tape recordings that were the Department of Justice's key evidence in all cases.
In the Andreas-Wilson-Whitacre trial Judge Blanche Manning sentenced both Andreas and Wilson to two years in jail and a $350,000 fine, but determined that Whitacre was a manager of the conspiracy -- and thus liable to heavier penalties -- even though he was outranked by at least one of his co-defendants, whom she found to have no managerial role.
The fact that Whitacre wound up with the longest jail sentence stemmed from the fact that after raids on ADM in 1995, Whitacre was soon discredited as a witness, losing his immunity from prosecution, when it was learned that he had been allegedly illegally taking millions of dollars from the company, even while working as an informant. Whitacre, however, claims the so-called "illegal" money was actually "kickbacks" that was part of ADM's corporate culture.
But the fact that Whitacre was judged guilty helped to account for some part of the odd outcome in the price-fixing sentence. In 1997, Whitacre pleaded guilty to fraud charges and was already serving a nine-year sentence. As a result, under the sentencing guideline calculations, Whitacre was treated as a repeat offender which automatically added to the sentences under the guidelines.
In addition, by ruling that Whitacre was a manager in the conspiracy,
while his co-defendants were not, the judge increased Whitacre's
"offense level" to the highest of any of the three executives.
RULES IN ANDREAS\WILSON BOND APPEAL
CAN A MINIMUM-SECURITY PRISON BE FAR AWAY?
Michael D. Andreas and Terrance S. Wilson, the two former ADM executives who were convicted last year of price fixing have been denied a bond pending an appeal of their conviction by U.S. District Judge Blanche Manning.
The two had argued that their case involved "several substantial and novel questions of law," that their Fifth Amendment rights were violated, that government prosecutors committed misconduct, and that certain evidence and testimony and the tape recordings done by fellow former ADM executive Mark E. Whitacre should not have been admitted.
Judge Manning, however, ruled that none of the arguments constituted a reason to allow bond.
Randall Samborn, spokesman for the U.S. Attorney Northern District office, said the denial of bond could mean Andreas and Wilson will begin serving their sentences in early September, though additional appeals are still possible. He added that the U.S. Bureau of Prisons will ultimately decide where and when Andreas and Wilson must report to prison."I would think a minimum-security prison would be a reasonable request," Samborn said.
Andreas and Wilson, who were convicted in September 1998 of conspiring to fix the price of lysine, a feed additive and were sentenced and also fined $350,000 each by Judge Manning and now face up to 34 months in prison will have to serve at least 85% of their sentence, according to Samborn.
Federal prosecutors contended the scheme affected $193 million worth of lysine sales in the United States and even more worldwide during 1992-1995. Andreas challenged the method the court used in determining how much of an impact the price fixing had on the market.
Manning, however, ruled that the court had used the correct method and chided Andreas for his argument that making agreements on sales volume allocations were not against the law.
". . . The overwhelming evidence from the videotapes establish that Andreas was fully aware that the sales volume agreement was used to further the price agreement," Manning wrote. "Surely a sophisticated company (ADM) and its executives --- Messrs. Andreas and Wilson --- cannot convincingly claim that they were unaware that price agreements are illegal."
Yet, Judge Manning agreed that government prosecutors came close to causing a mistrial with "inflammatory" closing arguments highlighting the fact that both men invoked their Fifth Amendment rights against self-incrimination at trial and during the 1995 FBI raid at ADM's Decatur, Illinois headquarters. But she ruled the videotaped evidence and the court's "strong admonishment" to the jury to disregard those comments "purged the taint, if any, created by the unfortunate fiasco created by the government's momentary lapse of judgment."
The remainder of Andreas and Wilson's claims, Manning stated, revolved around the reliability and admissibility of audio tapes secretly recorded by Whitacre. Manning termed this aspect of the case "the Whitacre debacle," referring to the unusual course of events that saw Whitacre go from government informant to a convicted alleged embezzler. Yet, Judge Manning stated that she "remains convinced that . . . the defendants were afforded every possible opportunity to challenge the authenticity of the Whitacre tapes as permitted under controlling Seventh Circuit authority."
EXCEL, CONAGRA FARMLAND NATIONAL, ET. AL
DUMPING MEAT IN MEXICO
Claiming that U.S. meatpackers were selling everything from fine cuts to tripe, tongue and liver at artificially low prices in their country Mexico has levied preliminary tariffs of as much as 215% on U.S. beef imports
However, that nation's trade authorities took the extraordinary step of singling out four big U.S. meatpackers for less severe treatment. In several product categories, lower tariffs will be applied to goods shipped by Excel Corp., IBP Inc., Farmland National Beef Packing Co. and ConAgra Inc., because Mexican trade officials said the companies provided evidence that their prices were closer to the market norm.
Together these four firms now control 89% of the U.S. meat packing industry.
Thad Lively, vice president of international programs at the U.S. Meat Export Federation, told the Wall Street Journal's Jonathan Freidland that it isn't clear how severe the impact of the ruling will be on either U.S. producers or Mexican consumers, but he added that it will probably affect the structure of the beef trade between the two countries.
IBP and the other cited companies, he noted, often import by third parties that under the ruling will be obliged to pay the higher tariffs.
After reviewing some 600,000 commercial transactions Mexican trade officials said their analysis led them to the imposition of the new and precision in setting duties. For instance, in the case of edible beef strippings, bits shunned by most U.S. consumers but a regular feature of taco stands in Mexico, the import tariff was set at 214.52%. In the case of the individual companies named, however, the tariffs are much lower. For example, IBP will face a tariff of 36.22%, while Farmland will be asked to pay 2.67%.
U.S. trade officials, while admitting that they hadn't had a chance to review the ruling, believed that at first glance, the tariffs appeared too high. U.S. beef industry executives, who have argued that the price of their product isn't artificially low, but rather reflects economies of scale and the fact that feed is cheaper in the U.S. than in Mexico, said the outcome of the Mexican investigation was "disappointing."
U.S. exporters have until mid-September to contest the tariffs, which Mexico's Trade Ministry said will spare the local beef industry from the effects of "unfair international trade practices." A final ruling will be issued within six months.
Consumption of U.S. beef has increased in Mexico since the 1994 passage of the North American Free Trade Agreement (NAFTA), with U.S. imports now at about 13% of the total market, making Mexico the second-largest importer of U.S. beef. Last year, beef imports from the U.S. totaled $452 million, an increase of more than 200% since NAFTA was signed. The push has been backed by a campaign that touts U.S. beef as safer and tastier than the local product.
Such claims have understandably upset Mexican cattle producers, who, in addition to the increase in imports, are suffering from a lack of credit, poor weather and low livestock prices.
Jesus Anchieta, a Sonora rancher and official of the Mexican Cattleman's Union, observed to the Journal that he didn't think the tariffs would be enough to turn the tide in favor of Mexican producers. "Companies like IBP and National Beef think long term," Anchieta said. "They'll pay a few pesos now, but the benefit to small cattlemen will be minimal."
The cattlemen said they will step up efforts to expand antidumping tariffs on U.S. beef imports, particularly for the four U.S.-based meatpackers that were largely exempt from the announced preliminary tariffs. Representatives said the Commerce Ministry's decision to slap tariffs of up to 214% on U.S. beef imports will only lead to monopolistic practices and product reclassification by a small group of large U.S. beef producers.
"U.S. meat imports could now be concentrated in four companies," said Gustavo Torres, head of the National Cattle Confederation. The ministry said a dumping probe showed that imports of fresh and frozen beef from the U.S. had either damaged or threatened to damage domestic producers in the near future. Mexican cattlemen say about 400,000 jobs have disappeared because of unfair commercial practices by U.S. producers.
Although the trade groups welcomed the preliminary antidumping
ruling, they said additional measures are needed to avoid product
reclassifying. "If the tariff for an exporting company is
75% for boneless cuts, and 12.8% for boned beef cuts, the company
will just export more boned products to the country,"
Torres added. Such reclassification could be done by introducing
cuts "with a pretty small piece of bone," he countered.
"THE SAME SYSTEM IS IN PLACE,
NOBODY HAS BEEN HELD ACCOUNTABLE"
"The same system is in place, nobody has been held accountable."
Once again the U.S. Department of Agriculture's long and sorry record of racial injustice is being called into question as John Boyd, president of the National Black Farmers Association, recently noted during a demonstration in front of USDA's Washington, D.C. headquarters.
About 120 people, including many farmers, marched around the USDA's offices, accompanied by two mules and chanting slogans such as "No Justice, No Peace" and "Stop Stealing our Land."
Their complaints, among many, are that black farmers are currently and improperly being denied disaster assistance by three of the Farm Service Agency's county offices in Arkansas and two in Georgia --- even as USDA is attempting to settle a multimillion dollar civil rights lawsuit.
Rosalind Gray, director of the department's civil rights office, said the department would "take appropriate action" when investigations are completed. Fourteen of the aforementioned protesting farmers recently met with Gray for 1 1/2 hours.
The Arkansas and Georgia cases are, however, among a number of complaints of racial discrimination that the department has received in distributing the disaster aid. Many of the complainants, however, declined to cooperate with investigators, Gray said.
In April, a federal judge approved the settlement of a class-action lawsuit alleging that USDA had regularly denied black farmers loans and other assistance because of their race. At the time USDA Secretary Dan Glickman, echoing a familiar refrain from many of his predecessors, pledged to root out discrimination in the department and said the settlement put a "painful chapter of history" behind the department.
While USDA employees have since reportedly undergone training on the department's anti-discrimination policy some black farmers have declined to participate in the settlement, saying it was inadequate, and allege that the department hasn't disciplined many of the department's local officials who are responsible for the discrimination.
Boyd points out that he has received complaints recently from producers who say they were told by department officials that they didn't need disaster grants or loans because they were benefiting from the settlement.
Gray said some department employees have been fired or disciplined
but she declined to identify them or even to say how many were
involved. The department has 1,500 county offices around the country
managing USDA's various farm programs.
WHO SAID THAT ????
"For many Americans, these are the best of times. Unemployment and interest rates are low, prices are stable, and on Wall Street the bulls have been running wild. But not everyone is marching in the great parade of American prosperity.
"Look past those brimming silos and fields of corn, and you'll see a harvest of heartache in the heartland of America. Those silos store last year's crop that was packed in because prices were too low to turn a profit. As for those full fields, some of that crop may rot on the ground because farmers can?t afford to harvest it.
"This year, the price of cotton is down 46%; wheat prices are off 61%. Corn has reached the lowest price in two decades, and soybeans that sold for $8 a bushel three years ago bring just $3.50.
"The specter of depression haunts the farmlands of America. But this crisis is different. It has struck Iowa when the growing conditions are good and farmers anticipate a record soybean harvest and the third greatest corn crop ever. The problem is price.
"The Asian economic disaster that spread to Russia and Latin America sent foreign demand for U.S. farm products crashing 40%. Desperate to offload their own subsidized oversupply, countries began dumping into the U.S. market. Invoking the Global Economy, Mr. Clinton refused to take action. America's farmers are paying the price, as are implement companies and hardware stores, coffee shops and car dealerships across the great American breadbasket.
"Washington and Wall Street may believe it inevitable that the family farm must pass away. But, as a conservative, I believe that family farms and rural towns must be conserved. So, today, I offer this ten-point pact, a Bill of Rights for the Family Farm:
"First, I will, as President, abolish all inheritance and capital gains taxes on family farms. Americans over the age of 55 own half of our farmland. But inheritance taxes prevent these farmers from bequeathing a birthright to their children. . . .
"Second, we must repeal NAFTA. Since NAFTA passed, U.S. agriculture imports from Canada and Mexico have increased 57%, and our agriculture trade surplus with the two countries has shrunk by two-thirds. . . .
"If prices remain at these levels for any extended period of time, every family farm in this country will face bankruptcy and ruin. Therefore, as President, I would impose this policy: Whenever the price of a commodity falls below the cost of production, we stop importing that commodity into the United States, to save our family farms. It is time Republicans and Democrats both put the American economy before the Global Economy and America's farmers ahead of the claims of any and all foreign regimes.
"Third, I will abolish the IMF and end these taxpayer bailouts of foreign competitors of U.S. farmers. Twenty years ago, we produced 70% of the world's soybeans, Brazil 5%. Today, our share has fallen to 47%, Brazil's has risen to 20%. And Brazil has lately cleared 150 million new acres for soybean production. Yet, in 1998, the U.S. led a $41 IMF bailout of Brazil, which then devalued its currency by 40%, giving Brazilian farms a new 40% price advantage over Iowa farmers. . . . .
"Fourth, I will stop using food as a weapon, and review all existing embargoes and sanctions of foreign countries. The denial of food does not hurt dictators; it hurts their subject peoples and American farmers, while our faithless allies rush in to fill the orders.
"Fifth, I will enforce existing anti-trust laws to prevent the mega-mergers that are forcing vertical integration of American agriculture. In 1921, the Packers and Stockyards Act was passed in response to near 50% consolidation of the U.S. meatpacking industry by five packers. Today, four corporations control 89% of all beef processing. . . . Family farms cannot compete against transnationals that fix prices by closed contracts, leverage trade deals, secure tax benefits that are unavailable to independent producers, and operate branches of their empires at a loss until small competitors collapse. . . . .
"Sixth, just as resisting consolidation will encourage fairer competition, so, too, will requiring price disclosure. Last year, when pork producers were getting eight cents a pound -- $20 for a hog that cost $75 to raise, IBP, the country's second largest pork processor, reported quadrupled earnings in the fourth quarter, and Hormel Foods enjoyed the most profitable year in its 107-year history. . . .
"Seventh, just as I support the independence of the family farm, I support a policy of U.S. energy independence that includes a strong stand for ethanol. This industry creates 40,000 jobs, adds $12 billion in net farm income each year, and decreases the demand for foreign OPEC oil. . . . . .
"Eighth, saving the family farm will require a rewrite of the Endangered Species Act so that Congress is forced to vote on every species that is listed as endangered. . . . .
"Ninth, we should exempt family farms from OSHA and begin a regulatory revolution to restore sanity to federal regulation. I will impose a moratorium on new regulation, require a sunset provision of five years on all regulation, and institute a defined annual cutback in paperwork for family farms.
"Tenth, we must restore farmers' property rights under the Fifth Amendment and end the regulatory theft of property rights without just compensation. . . . .
"In 1785, Jefferson wrote to John Jay that America's farmers were our `most vigorous, most independent, most virtuous' citizens, who are `tied to their country and wedded to its liberty and interests with the most lasting bands.'
"We must keep faith with these Americans, by ensuring that their dreams are not buried beneath dumped imports, or plowed under by transnational corporations with no allegiance to anything but their own bottom line. Family farmers are not begging for federal handouts. Proud, hearty stock, they have, for love of the land, weathered droughts, overcome disease, and outlasted depression. They simply want their labor to be valued, their products to be competitive, and their own government to take their side in the global marketplace. America's farmers are asking nothing more. They deserve nothing less."
Abridged version of an address --- "A Family Farm Bill of Rights" --- given to the Principle Group, Des Moines, Iowa on August 9, 1999 by Patrick J. Buchanan
Yes, let me repeat that --- Patrick J. Buchanan
Before the recent National Governor's Association meeting in St. Louis, Missouri, Iowa's Governor Tom Vilsack, a Democrat, stunned his fellow statehouse executives by reading a letter he had received the week before from a farm woman whose name he declined to make public. The letter read:
"Dear Governor Vilsack. I felt I needed to write to you about the farming situation in the United States. I live on a farm south of [a certain town]. On Monday, July 26th, my husband killed himself because of the low grain prices, the mounting bills and the unavoidable bankruptcy we were facing this year.
"My husband lost money farming the last two years and could not face the third. It's a long story that involves the family farm which has been in the family for well over 100 years. It was where he was born, where he worked and lived, where he dreamed and died. It is the home where I now reside alone with our two young children, age 6 and age 3.
"I don't have the answers or my husband's senseless death would have never happened. I just feel there is not enough attention or action on this subject, and I don't want other farming families to have to go through what I am going through right now and will have to live with and deal with the rest of my life.
"I am convinced from evidence in our house that my husband listened to the grain markets on Monday at noon, as he usually did, heard them go lower again, and then committed suicide. I have enclosed a copy of the letter he left me. I only share it with you so you can perhaps in some way realize the desperation and suffering farmers are facing."
A suicide note, neatly printed with a steady hand read:
"The only thing I will regret is leaving [the children] and you. This farming has brought me a lot of memories, some happy, but most of all grief. The grief has finally won out -- the low prices, bills piling up, just everything.
"The kids deserve better and so do you. I just don't know how to do it. This is all I know and it's just not good enough anymore. I'm just so tired of fighting this game, because it is a losing battle. Everything is gone, wore out or shot, just like me.
"All I ever wanted was to farm since I was a little
kid, and especially this place. I know now that is never going
to happen. I don't blame anybody but myself for sticking around
farming for as long as I have. That's why you have to get away
with the kids from this and me. I'm just a failure at everything,
it seems like. They finally won."
. . . AND THE WINNERS ARE !!!!!
"Corporate America," the Wall Street Journal recently reported, is being "amply rewarded" in the 10-year, $792 billion tax bill presently being considered by Congress. As much as 20% of the tax benefits in the package would flow directly to businesses, boosting a cross-section of the economy that includes real-estate, oil and gas, timber and other sectors.
"Moreover," the Journal notes,"many preferences designed to help individuals, such as a deduction to purchase health-care insurance and expanded retirement-savings incentives, are carried out through the private sector and would create business opportunities while at the same time accomplishing social goals."
Republicans emphasize that a central goal of the legislation is to continue the economy's expansion, and the GOP is expecting their business allies to rally behind the message as both sides try to win over voters during Congress's August recess.
Some of the tax bill's key business provisions and their estimated
* Liberalized tax rules on "interest expenses" for multinational corporations, $24 billion
* Scaled-back corporate minimum tax, $7.9 billion
* Higher tax write-offs for timber replanting, $277 million
* Oil and gas production incentives, $654 million
* 60% deduction for business meals, up from 50%, $3.8 billion
* Increased annual write-offs for small business investments, $2.5 billion
* More generous foreign-sales tax benefits for defense contractors, $1.1 billion
* Five-year extension of R&D tax credit, $13.1 billion