The
AGRIBUSINESS
EXAMINER                            Issue # 46      September 8, 1999

Monitoring Corporate Agribusiness From a Public Interest Perspective
 

A.V. Krebs
Editor\Publisher
 

                                                 Editors Note
Although there is no subscription fee for THE AGRIBUSINESS EXAMINER, donations will, as always, be gladly  accepted. One of my subscribers says he pays $30 a year for 12 issues of a Health  letter, and my weekly will hopefully go up to 52 so he feels it is worth at  least the cost of a monthly newsletter.  I hope you agree. Checks made out to A.V. Krebs, P.O. Box 2201, Everett, Washington 98203-0201 [NOT to "Agribusiness Examiner"] will continue to be received with much gratitude.

To those readers of THE AGRIBUSINESS EXAMINER who have already sent donations I want to express my sincere thanks for your continued support and interest in this venture. A reminder also to those who might wish to receive a weekly  e-mail edition of THE AGRIBUSINESS EXAMINER, please provide your NAME and E-MAIL ADDRESS. At this time THE AGRIBUSINESS EXAMINER is not available in printed form.
 

SMITHFIELD FOODS TO BUY MURPHY FAMILY FARMS
JOINS CORPORATE AGRIBUSINESS ELITE

"The vertically integrated companies like Smithfield are now the haves, and the unintegrated companies like Murphy Farms are now the have-nots. Murphy had become the biggest of the have-nots, so the company had to do something."

That "something," as Al Tank, chief executive officer of the National Pork Producers Council, and thousands of the nation's other pork producers learned last week was the announcement that the nation's two largest hog growers have announced a $290 million merger .
 
Smithfield Foods Inc., of Smithfield, Virginia, currently the world's largest hog producer and processor, agreed to buy the second largest producer Murphy Family Farms of Rose Hill, North Carolina. The purchase involves about 10 million shares of Smithfield Foods plus the assumption of about $170 million in Murphy Farms debt and other liabilities.

In 1998 Smithfield Foods had sales of $3.9 billion; owned 350,000 sows, according to Successful Farming's "Pork Powerhouses"; handled a volume of 5.5 million hogs a year with operations in North Carolina, South Carolina, Colorado, Virginia and Utah. A subsidiary, Carroll's Foods Inc., also produces hogs in Brazil and Mexico. Its products also are sold in Japan and Mexico. With six meatpacking plants capable of handling 77,100 head daily, Smithfield's more than 20 company brands include John Morrell, Smithfield Premium, Gwaltney of Smithfield.

Murphy Farms in 1998 had, according to Forbes Magazine's "Top 500 Private Corporations," had sales of $650 million, owning 325,000 sows, according to Successful Farming's "Pork Powerhouses" and handling a volume of 5.5 million hogs produced with operations in Iowa, Illinois, South Dakota, Oklahoma and Missouri.

Prior to the news of the sale the two companies have long been close business partners as Smithfield buys most of Murphy's hogs. The two companies were once partners in Circle 4, a joint venture now developing the world's largest hog farm on 50,000 acres in the high desert of southwest Utah. Smithfield bought out Murphy Farms' part of that venture two years ago.

Wendell Murphy, the former Duplin County school teacher, who built his hog business from a $10,000 loan co-signed by his father, who owns two-thirds of the company he sold for 10 million shares of Smithfield Foods stock, and who in October 1998, Forbes Magazine was named among the country's 400 richest people, with total holdings valued at an estimated $850 million,  sat on Smithfield's board of directors until recently, when he resigned for undisclosed reasons.

In a statement issued before Smithfield Foods' annual shareholders meeting last week, chairman and chief executive officer Joseph W. Luter III noted that the two companies are well acquainted. "Murphy Family Farms has been a long-term supplier of quality hogs to Smithfield Foods, and we will be delighted to have them join the Smithfield family of companies," Luter said. It is unclear whether Murphy himself will return to the Smithfield board.

Curiously at that same shareholder's meeting  Smithfield also announced that it will reduce the size of its board of directors, but increase the percentage of independent, outside directors. The board aims to have between five and nine members, with the majority being from the outside.

Accordingly, the board named former Harvard Business School Professor Ray A. Goldberg to his first term on the board. Goldberg is the man who first coined and defined the term "agribusiness," and in the past has served on the board of directors of Pioneer Hi-Bred International, Vigoro, Inc., Chicago, Illinois (a fertilizer company), and only recently, until he found the company immersed in a major price fixing scandal, served on the board of directors for Archer Daniels Midland (ADM) --- "Supermarkup to the World."

Smithfield, in purchasing Murphy Farms and reportedly having the ability to solely control nearly 20% of the nation's pork industry, will now become part of corporate agribusiness's elite class, joining IBP Inc. who solidly controls the beef packing industry, Tyson Foods, who controls the largest share of the nation's poultry industry, and Cargill and ADM, who totally dominate the nation's grain trade.

Industry analysts say that the merger was driven by a rapidly consolidating pork industry and a recent run of brutally low hog prices --- ironically both developments that in large part can be traced to Murphy himself for it was Murphy who got so "good" at turning out lots of cheap hogs that the market became overwhelmed.

With much more money invested in their infrastructure than smaller growers the only option for the big producers was to maintain their production levels and keep paying their growers the higher prices negotiated before the market crashed. The ensuing glut eventually forced hog prices down to historic lows late last year. Hogs that cost $40 or $50 to produce were selling for $20.
 

SMITHFIELD FOODS:
FROM A PIG'S BIRTH TO THE DINNER TABLE

By applying assembly-line techniques to the hog farming business, Wendell Murphy revolutionized pork production, getting hundreds of North Carolina farmers to take on as much as $300,000 in debt to build modern, climate-controlled hog barns to raise his animals. "For better or worse, Murphy changed the entire business," National Pork Producer Council's executive director Al Tank told the Charlotte News & Observer's Bob Williams. "Everyone else followed his model."

In the meantime, however, Murphy Farms was increasingly finding itself unable to compete with more vertically integrated agribusinesses such as Smithfield, according to Tank. "Smithfield controls the entire pork production process, literally from a pig's birth all the way to the dinner plate. Murphy raised hogs better and cheaper than almost anyone else, but that was all they did."

Tank points out that Murphy Farms got hit particularly hard when the bottom dropped out of the U.S. hog market last year. Murphy would not disclose how much his company was losing during the worst of the price slump in December 1998, but he said it was "considerably" more than $1 million a week. In contrast, vertically integrated companies such as Smithfield were able to cover big losses from their hog-raising operations with higher profits from their pork processing facilities.

The fact that Smithfield now becomes more solidly vertically integrated immediately gladdened the heart of stock analysts as Standard & Poor's notes:

"The company maintains a leading market share (about 20%) of the U.S. hog  slaughtering industry, slightly ahead of the number-two player, IBP Inc.  As a vertically integrated company, Smithfield is involved in hog  production, as well as hog processing, and controls about 60% of the hogs  that it slaughters, pro forma for the Murphy acquisition.

"This vertical  integration, combined with the company's access to genetically developed  breeding stock, ensures that the company has access to a reliable supply  of high-quality hogs, and results in increased efficiency relative to industry competitors. Vertical integration also helps mitigate the impact  of the cyclicality of hog prices, as the profitability of hog production  and hog processing are counter-cyclical. Historically, the company has been an active participant in the consolidation of the pork processing  industry," S&P adds.

It is that “active” participation and the consequences of being the nation's largest pork producer that has many hog farmers, state officials and environmentalists concerned.

For example, in Iowa, the nation's number one hog producing state, the Des Moines Register's Farm Editor Jerry Perkins reports that the state's attorney general's office has expressed immediate concern that Smithfield's buyout of Murphy Farms could violate a state law that prohibits packers from also feeding livestock.
 
Eric Tabor, assistant Iowa attorney general, told Perkins that the Smithfield buyout of Murphy's hog operations raises questions because Murphy owns hundreds of thousands of hogs in Iowa, which it finishes to market weight on contract with 220 growers.

A similar problem in Iowa presented itself earlier this year when Smithfield purchased Carroll's Foods of Warsaw, North Carolina.Carroll's Foods was the parent company of Carroll's Foods of the Midwest, an Everly, Iowa-based pork production company that had contracts with 15 Iowa farmers to raise 150,000 hogs a year to market weight.

The conflict with Iowa's corporate farm law was resolved when the Iowa operations were purchased by F.J. "Sonny" Faison, former owner of Carroll's Foods, and some other employees. The purchase of Carroll's made Smithfield the No. 1 hog producer in the United States and pushed Murphy Farms into second place.

In letter to Joel Klein, head of the Department of Justice's Anti-trust Division,  Iowa's Democratic Senator Tom Harkin asked the agency to take a close look at the deal.

"Without a doubt," Harkin wrote "if this merger goes forward it will drive one more nail in the coffin of this nation's independent family  pork producers --- by creating an insurmountable gap of opportunity between  farmers who are linked to vertically integrated companies and those who are not."

Harkin said the consolidation of the two top hog producers will "choke off" competition, affecting everyone in the pork industry. "As a result, not only pork producers, but consumers, other pork processing firms, and  our nation's food and agriculture sector in general will suffer the  consequences of diminished market competition."

As the News & Observer's Williams points out Murphy "has long maintained a love-hate relationship with both his supporters and his critics."
 

THE RIVER POLLUTERS:
SMITHFIELD FOODS & MURPHY FAMILY FARMS

As the Charlotte News & Observer's  Bob Williams recently pointed out Wendell Murphy "has long maintained a love-hate relationship with both his supporters and his critics."

A five-term North Carolina state senator, Murphy quietly led the effort to soften environmental laws in the state while serving in its legislature. He was also able to lobby through exemptions from zoning laws for intensive livestock operations. Since then, Murphy, a North Carolina State alumnus has pledged up to $10 million for naming rights to the new arena rising in West Raleigh, and has been a major patron of the state Democratic Party.
 
Critics blame Murphy Family Farms and other big hog companies for widespread pollution problems that have plagued Eastern North Carolina in recent years as environmentalists detest the open cesspools of pig waste that are the hallmark of the factory-style hog farms Murphy pioneered and many still hold him responsible for the extermination of the state's small, independent hog farms.

At the same time his defenders credit him with revitalizing the region's economy and helping wean farmers in the state from tobacco and praise him for bringing badly needed economic development to Eastern North Carolina as the fortunes of tobacco have declined.

Although there have been several waste spills at Murphy-affiliated farms during the last few years, it is Smithfield which has a much longer list of environmental abuses, both in North Carolina and in its native Virginia. Since 1994, the Smithfield slaughterhouse has been cited for polluting the Cape Fear River 38 times. In 1997, the federal government assessed a record $12.6 million fine against the company for years of pollution in Virginia's Pagan River.

Smithfield's environmental problems prompted state regulators earlier this year to cap production at the Bladen County slaughterhouse. Smithfield's critics in North Carolina see the buying up of a key supplier as one way to expand without confronting the growing environmental opposition in the state to starting up new hog factories.

"It was too good an opportunity to let pass, given the value of the assets and the current political and environmental barriers to further internal expansion," Smithfield CEO Joe Luter said. "We expect the industry to continue consolidating, and Smithfield Foods will continue to lead that consolidation."

Smithfield's past environmental record, however, raises serious questions about its future in North Carolina, according to Michelle Nowlin, an attorney with the Southern Environmental Law Center in Chapel Hill, a group that has regularly clashed with both Murphy and Smithfield.

"We will have to see if Smithfield tries to do better now that it is the dominant player in North Carolina's pork industry," Nowlin said. "We will be keeping a close eye on them." Bill Holman, a former Sierra Club lobbyist who recently became director of the state's Department of Environment and Natural Resources, said his agency will also keep tabs on Smithfield. "We have made it very clear to Smithfield in the past that we would aggressively enforce the state's environmental laws, and we will continue to do that," Holman said.

One of Smithfield's first orders of business after the sale was announced was to file a pre-merger application with the antitrust division of the U.S. Justice Department. Spokeswoman Jennifer Rose said the department has 30 days to complete an initial review of the application, and the lawyers can take another 20 days to gather more information from the companies.

Although Rose said it is too early to comment on the Murphy Farms buyout, pork industry analyst George F. Shipp of Scott & Stringfellow was predicting that the antitrust review would pose no problems for Smithfield. "Everybody is asking me that, and my pat answer is, I see no reason why it would," he told the Charlotte News & Observer's Carol Frey. "Tyson owns 30% of the chicken business and [IBP] owns about 50% of beef."

Shipp said the deal looked like a winner for Smithfield Foods because controlling the development of more hogs promises a better, more consistent product and more predictable earnings.
 

CITIZENS' RALLY DEMANDS
SMITHFIELD FOODS BE RESPONSIBLE CORPORATE CITIZEN

Protesting what they term "the legacy of factory farming, whether it be the pigs produced for Smithfield or chickens and turkeys produced for Purdue, Tysons and the other big corporations taking over American agriculture," southeast family farmers, environmentalists, concerned citizens and animal welfare advocates will be demonstrating on Saturday, September 11, 1999 at 11:00 am at North Church Street Park, in Smithfield, Virginia directly across the street from Smithfield Foods, Inc. Corporate Headquarters.

The group is demanding that it is time that Smithfield Foods, Inc. and its CEO Joe Luter  become a responsible corporate citizen.

Also joining the protesters will be a delegation of Polish farmers. In Poland, farmers are concerned about the impact of Smithfield's recent takeover of Animex, Poland's largest pork producer.  Farmers' union representatives are currently visiting the United States to observe Smithfield operations, and they will join the Sierra Club and the Animal Welfare Institute in the Smithfield demonstration . The Animal Welfare Institute,  a Washington, D.C.-based animal rights organization, is sponsoring the tour by the Polish representatives, which includes farmers' unions Samoobrona and Rural Solidarity.

Among the issues that the Smithfield demonstrators are protesting are processing plant where workers are dying or being taken sick from the heat on the killing room floor leading to high rates of injuries and disability throughout  the processing; family farmers losing out to unfair competition from giant corporations who care more about their bottom line than about people or animals; contract growers losing their farms when  their contracts are canceled, and rivers heavily polluted from dumping and runoff of massive quantities of animal waste.

Other issues include: groundwater depleted by overuse and contaminated by the land application of untreated waste; a stench so strong neighbors wretch if they leave their homes which are sealed up against the pervasive smell of pig manure; political contributions to powerful elected officials to buy influence; lax enforcement of environmental laws; animals routinely fed antibiotics to increase growth stimulating drug resistance in disease causing bacteria, and animals packed in small factory pens where their movement  is severely restricted and they never see the light of day.
 

TRACKING THE CORPORATE CRIMINALS OF THE 1990'S

It has been said that the difference between white collar crime and blue collar crime is that in blue collar crime the robbers enter the bank through the front door while in white collar crime they come in the back door.

Colleagues Russell Mokhiber and Robert Weissman can be numbered among the very few journalists in this country that concern themselves with white collar crime both in their regular "Corporate Watch" syndicated column and through their investigative research. Their latest noteworthy effort was the   Corporate Crime Reporter's list of the Top 100 Corporate Criminals of the 1990s, released last week at a news conference at the National Press Club.

As they point out "the criminal element has seeped deep into every nook and cranny of American society. Forget about the underworld --- these crooks dominate every aspect of our market, culture, and politics. They cast a deep dark shadow over life in turn of the century America."
 
By way of illustrating their point the two Washington journalists note that "we buy gas from them (Exxon, Chevron, Unocal), we take pictures with their cameras and film (Eastman Kodak), we drink their beer (Coors), we buy insurance from them to guard against financial catastrophe if we get sick (Blue Cross, Blue Shield), when we get sick, we buy pharmaceuticals from them (Pfizer, Warner Lambert, Ortho Pharmaceuticals), we do our laundry and buy washers and dryers from them (General Electric), we vacation with them (Royal Caribbean Cruise Lines), we buy our food from them (Archer Daniels Midland, Southland, Tyson Foods, U.S. Sugar), and we drive with them (Hyundai) and fly with them (Korean Air Lines)."
 
All of these companies and more turned up on Corporate Crime Reporter's list of the Top 100 Corporate Criminals of the 1990s, a list compiled using the most narrow and conservative of definitions --- corporations that have pled guilty or no contest to crimes and have been criminally fined.

"And still,"  Mokhiber and Weissman observe, "with the most narrow and conservative of definitions of corporate crime, we came up with society's most powerful actors. The point of releasing The Top 100 Corporate Criminals of the Decade, on the other hand, was to focus public attention on the pervasive criminality that has corrupted the marketplace and that is given little sustained attention and analysis by politicians and news outlets.

The two journalists, however, warn that companies that are criminally prosecuted represent only the tip of a very large iceberg of corporate wrongdoing.
 
"For every company convicted of health care fraud, there are hundreds of others who get away with ripping off Medicare and Medicaid, or face only mild slap-on-the-wrist fines and civil penalties when caught.  For every company convicted of polluting the nation's waterways, there are many others who are not prosecuted because their corporate defense lawyers are able to offer up a low-level employee to go to jail in exchange for a promise from prosecutors not to touch the company or high-level executives.
 
"For every corporation convicted of bribery or of giving money directly to a public official in violation of federal law, there are thousands who give money legally through political action committees to candidates and political parties. They profit from a system that effectively has legalized bribery.  For every corporation convicted of selling illegal pesticides, there are hundreds more who are not prosecuted because their lobbyists have worked their way in Washington to ensure that dangerous pesticides remain legal," they note.

"We point out that corporations define the laws under which they live," and Mokhiber and Weissman  add, "an argument can be made that the most egregious wrongful corporate acts --- the genetic engineering of the food supply, or the systematic pollution of the nation's air and waterways, or the bribery by corporate criminals of the political parties -- are totally legal."
 

CORPORATE AGRIBUSINESS ELITE
AMONG TOP 100 CORPORATE CRIMINALS OF THE 1990'S

Among The Top 100 Corporate Criminals of the 1990s, as compiled by "Corporate Watch's" Russell Mokhiber and Robert Weissman, are a who's who of corporate agribusiness's elite class. They include by overall corporate rank:

1) F. Hoffmann-La Roche Ltd.
Type of Crime: Antitrust
Criminal Fine: $500 million

7) Archer Daniels Midland
Type of Crime: Antitrust
Criminal Fine: $100 million

12) Hoechst AG
Type of Crime: Antitrust
Criminal Fine: $36 million

14) C.R. Bard Inc.
Type of Crime: Food and drug
Criminal Fine: $30.9 million

15) Genentech Inc.
Type of Crime: Food and drug
Criminal Fine: $30 million

17)(tie) Pfizer Inc.
Type of Crime: Antitrust
Criminal Fine: $20 million

27) Copley Pharmaceutical, Inc.
Type of Crime: Food and drug
Criminal Fine: $10.65 million

30)(tie) Ajinomoto Co. Inc.
Type of Crime: Antitrust
Criminal Fine: $10 million

30)(tie) Warner-Lambert Company
Type of Crime: Food and drug
Criminal Fine: $10 million

50) ConAgra Inc.
Type of Crime: Fraud
Criminal Fine: $4.4 million

52)(tie) Borden Inc.
Type of Crime: Antitrust
Criminal Fine: $4 million

52)(tie) Southland Corporation
Type of Crime: Antitrust
Criminal Fine: $4 million

52)(tie) Tyson Foods Inc.
Type of Crime: Public corruption
Criminal Fine: $4 million

58)(tie) United States Sugar Corporation
Type of Crime: Environmental
Criminal Fine: $3.75 million

70)(tie) Crop Growers Corporation
Type of Crime: Campaign finance
Criminal fine: $2 million

70)(tie) John Morrell and Company
Type of Crime: Environmental
Criminal Fine: $2 million

77)(tie) Odwalla Inc.
Type of Crime: Food and drug
Criminal Fine: $1.5 million

96)(tie) Adolph Coors Company
Type of Crime: Environmental
Criminal Fine: $200,000

96)(tie) Andrew and Williamson Sales Co.
Type of crime: Food and drug
Criminal fine: $200,000
 

DofJ OCTOBER 11 DEADLINE FOR PUBLIC COMMENT
REGARDING CARGILL\CONTINENTAL GRAIN PURCHASE

Growing indignation within the nation's farm community is building as more and more details of the U.S. Department of Justice's "Final Judgment" and consent decree relative to Cargill's announced purchase of the grain merchandising division of Continental Grain, becomes known.

Originally characterized as a DofJ "investigation" into whether the purchase violated any of the nation's anti-trust laws the inquiry in fact occasioned the DofJ to file a formal "Complaint" (Issue #45) with the U.S. District Court for the District of Columbia charging that Cargill's purchase would "substantially lessen competition for purchases of corn, soybeans, and wheat in each of the relevant geographic markets, enabling it unilaterally to depress the prices paid to farmers. The proposed transaction will also make it more likely that the few remaining grain trading companies that purchase corn, soybeans, and wheat in these markets will engage in anticompetitive coordination to depress farm prices."

However, the DofJ totally neutralized its "Complaint" by filing it on the same day (July 8, 1999) and at the same time that it furtively filed a consented "Final Judgment,"  agreed to by all parties. Thus, an indolent media practicing "press release journalism" rather than investigative journalism choose to ignore the seriousness of the Department's charges against the nation's largest grain trader in favor of highlighting the approval and divestiture terms of the purchase.

While the DofJ's "Final Judgment" now awaits the final approval of presiding U.S. District Court Judge Gladys Kessler, the public comment period regarding the Department's decision remains open until October 11, 1999, a date contrary to what was reported here last week based on erroneous information originally provided by the DofJ.

The "Antitrust Procedures and Penalties Act" (APPA) of the U.S. Code provides that any person may submit to the United States written comments regarding the proposed Final Judgment. Any person who wishes to comment should do so by October 11. The United States will evaluate and respond to the comments. All comments reportedly will be given due consideration by the Department of Justice, which   remains free to withdraw its consent to the proposed Final Judgment at any time prior to its entry. The comments and the response of the United States will be filed with the Court and published in the Federal Register. Written comments should be submitted to:

Roger W. Fones
Chief, Transportation, Energy & Agriculture Section
Antitrust Division
United States Department of Justice
325 Seventh Street, N.W., Suite 500
Washington, DC 20530

In evaluating the responses Judge Kessler, accordingly, with respect to the adequacy of the relief secured by the decree, may not according to the DofJ's "Competitive Impact Statement"  filed on July 23, 1999  "engage in an unrestricted evaluation of what relief would best serve the public."

Legal precedent, according to the DofJ, requires that "[t]he balancing of competing social and political interests affected by a proposed antitrust consent decree must be left, in the first instance, to the discretion of the Attorney General. The court's role in protecting the public interest is one of insuring that the government has not breached its duty to the public in consenting to the decree. The court is required to determine not whether a particular decree is the one that will best serve society, but whether the settlement is 'within the reaches of the public interest.' More elaborate requirements might undermine the effectiveness of antitrust enforcement by consent decree.

"The proposed `Final Judgment,' therefore, should not be reviewed under a standard of whether it is certain to eliminate every anticompetitive effect of a particular practice or whether it mandates certainty of free competition in the future. Court approval of a final judgment requires a standard more flexible and less strict than the standard required for a finding of liability. [A] proposed decree must be approved even if it falls short of the remedy the court would impose on its own, as long as it falls within the range of acceptability or is `within the reaches of public interest.'."

Whether or not Judge Kessler concludes that the consent decree is "within the reaches of public interest" the corporate audaciousness of Cargill in attempting to virtually own this nation's grain trade with its purchase of Continental Grain assets is breathtaking. One need only look at the facts brought to light in the DofJ's "Complaint" to see such covertness.

While encouraging farmers and those who are concerned about the growing corporate concentration in agriculture to communicate their concerns to the Department of Justice before the October 11 deadline established for comment on the Cargill\Continental purchase, Jon Lauck, the author of the forthcoming book American Agriculture and the Problem of Monopoly (University of Nebraska Press) believes that states need to also vigorously take up the anti-trust fight.

"Midwestern attorneys general can underscore the critical importance of competitive agricultural markets, a point often lost on Eastern enforcement officials," he adds. "Instead of employing the passive and generic merger analysis used by the DOJ, states can argue the importance of heightened judicial scrutiny in agricultural markets, which are already concentrated and susceptible to market manipulation by large agribusinesses.

"Given the grave consequences of the merger for farmers, state attorneys general should heed the call to arms," Lauck warns.

The states', he continues, should also note the range of statutes designed to address the problems in agricultural markets, which indicate legislative concern with concentration and anticompetitive behavior. There is still time to act on the Cargill-Continental merger.
 

CENEX, FARMLAND INDUSTRIES, LAND O'LAKES
JOIN THE "URGE TO MERGE" 

As corporate agribusiness's "urge to merge" continues unabated, as illustrated by Cargill's announced purchase of Continental Grain's grain merchandising division and Smithfield Foods purchase of Murphy Family Farms, the merger craze has also seized the farm co-op sector of U.S. agriculture.

The latest development on that front came last week with the announcement that Land O'Lakes, Inc., Cenex Harvest States Cooperatives and Farmland Industries revealed that they are working on a proposal to form a new joint venture company that as part of the agreement, according to PRNewsservice, the sales, marketing and distribution of plant food, crop protection and related products will be combined in a joint venture company owned by Land O'Lakes and the new company that will result from the proposed unification of Farmland Industries and Cenex Harvest States Cooperatives. At the effective date of the joint venture, a formula will be used to achieve 50/50 ownership of the new agronomy company.

The joint venture will include the current Cenex/Land O'Lakes Agronomy Company, Land O'Lakes eastern agronomy operations and Farmland's wholesale agronomy business. The partners in the proposed joint venture --- Land O'Lakes, and the unified Cenex Harvest States and Farmland -- would continue to hold separate ownership in fertilizer manufacturing facilities.

The three cooperatives are committed to completing the agreement prior to the time that Cenex Harvest States and Farmland, which are in the midst of merger talks, seek merger approval from their members later this year. (See Issue #25)

Land O'Lakes, Inc., based at Arden Hills, Minnesota, is a national food and agricultural cooperative reportedly owned by farmers, ranchers and local cooperatives in 29 states. It is a leading marketer of dairy products across the U.S.; provides international customers with a variety of food products and animal feed ingredients in addition to offering family farmers and member cooperatives with an extensive line of feed, seed, plant food and crop protection products.

Farmland Industries, Inc. is the largest farmer-owned cooperative in North America with 1998 company sales of $8.8 billion in all 50 states and 90 countries. Farmland is headquartered in Kansas City, Missouri. When including Farmland's share of the sales of its affiliated businesses, sales were $11.9  billion. Farmland with 600,000 farmer-owners in the United States, Canada and Mexico, is a highly diversified company with major business lines in crop production and crop protection products, livestock feeds, petroleum, grain processing and marketing, and the processing and marketing of pork and beef products.

Cenex Harvest States Cooperatives based at Inver Grove Heights, Minnesota, is a producer-to-consumer cooperative system owned by farmers, ranchers and their local co-ops from the Great Lakes to the Pacific Northwest and from the Canadian border to Texas. A fully integrated agricultural foods cooperative it operates oil refineries/pipelines and provides a wide variety of products and services ranging from grain marketing to food processing. Through a broad range of working partnerships, Cenex Harvest States also markets and distributes petroleum products, agronomic inputs and feed to rural America, as well as grain and processed food products to customers around the world.
 

BIG MAC IN WAR AND PEACE:
"DID SOMEONE SAY TRANSMOGRIFY"
 
New York Times' self-proclaimed foreign policy guru Thomas Friedman's recent sophistry that no two countries who have BigMac franchises within their borders have gone to war with one another failed, judging by the McDonald's Corporation's recent actions in Yugoslavia and France, to take into account the lengths  --- war or no war  --- the U.S. based company is willing to go to preserve its bottom line at the expense of Friedman's theory.

As the Wall Street Journal's Robert Block recently reported, vandalized at the outset by angry mobs, McDonald's was forced to temporarily close its 15 restaurants in Yugoslavia at the outset of the recent 78-day air war in that country. However, when local  managers opened the doors again, they accomplished an extraordinary comeback using an unusual marketing strategy --- puting the company's U.S.  citizenship on the back burner.

Not only did the local franchises promote the McCountry, a domestic pork burger with paprika garnish, but in a national flourish to evoke Serbian identity and pride, they produced posters and lapel buttons showing the golden arches topped with a traditional Serbian cap called the sajkaca (pronounced shy-KACH-a) and handed out free cheeseburgers at anti-NATO rallies.  The basement of one restaurant in the Serbian capital even served as a bomb shelter.

As Dragoljub Jakic, the 47-year-old managing director of McDonald's in Yugoslavia who masterminded the campaign to "Serbify" --- at least during the war --- an American icon, told Block with a grin: "We managed to save our brand."

On March 26, the day after the mob attacks, Jakic closed all his restaurants. He then called his top managers to Belgrade for brainstorming sessions to devise a survival marketing strategy. Within a week, Block reports, they had launched a campaign to identify the plight of ordinary Serbs with the big burger joint. "McDonald's is sharing the destiny of all people here," read a sign at one branch. "This restaurant is a target, as we all are. If it has to be destroyed, let it be done by NATO."

Now that the war is over and in spite of falling wages, rising  prices and lingering anger at the U.S., McDonald's restaurants around the country are again thronged with Serbs hungry for Big Macs and fries. And why not, asks 16-year-old Jovan Stojanovic, munching on a burger. "I don't associate McDonald's with America," he says. "Mac is ours."

In bringing back a low priced McCountry pork burger at a lowered priced, which was first released throughout Central Europe in early March, Jakic, while recognizing that the economy of preindustrial Yugoslavia was based on the pig trade and that pork is considered the most Serbian of meats, said his relaunch wasn't an attempt to pander to local sentiments, but to give people a break during hard times.

McDonald's spokesman Chuck Ebeling at the corporation's headquarters in Oak Brook, Illinois was quick to point out that the Yugoslav campaign was a product of local management and was in no way directed or encouraged by the head office. "Mr. Jakic was functioning as a hamburger guy and not as a politician," Ebeling added. "He was doing what he felt he should do, and needed to do, to be locally accepted and to maintain the support of local government and of his employees. He demonstrated how adaptive he could be under the circumstances."

While admitting he is happy that his campaign helped McDonald's to prosper during exceptional circumstances, Jakic was also quick to return to business as usual. As soon as the war ended, on June 10, the arches reappeared, without the green cap. "We simply believed that our message was received and there was no reason to continue," Jakic says.

Meanwhile Reuters NewsService reports that "bowing to pressure from angry gourmet food producers, McDonald's served up McDuck and Roquefortburgers to local farmers in southwest France Monday, a spokesman for the fast food chain said."

The company's chefs at Agen substituted locally produced duck breast and foie gras pate for beef in its Big Macs and swapped blue-veined Roquefort cheese and plums for processed cheddar in its cheeseburgers in response to a request from the local farm union. "We decided it would be nicer to do that than to have them dump three tons of tomatoes and manure in the restaurant," Eric Arnaux, manager of the restaurant, told Reuters.

For several weeks now BigMac franchises in Paris, Nantes and Grenoble and throughout southern France have become a target for French farmers protesting against U.S. trade sanctions on luxury foods, imposed after the European Union refused to lift its ban on U.S. hormone beef.

In their protests the French farmers have been dumping manure and rotting fruit at the outlets across France. One activist Jose Bove, was detained two weeks ago for his part in an attack on a new McDonald's franchise.

"I'm a hostage to global commercialization," Bove told reporters inside the courthouse at the same time some 500 farmers shouted their support for their arrested colleague and denounced his arrest as a "scandal."

"We are here to defend the right of people to feed themselves with their own food in their own way and against the determination of the United States to impose their way of eating on the whole planet," farmer Guy Kastler told Reuters.