EXAMINER                            Issue # 48      September 28, 1999

Monitoring Corporate Agribusiness From a Public Interest Perspective

A.V. Krebs

                                                                   EDITORS NOTE
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What goes around, comes around!

Predictable and inevitable, the dire consequences of corporate factory farms with their large and concentrated hog containment facilities and their huge manure waste lagoons, aided and abetted by the fury and flooding of Hurricane Floyd are currently raining environmental and economic havoc upon the state of North Carolina.

While the state agriculture department estimates that Floyd killed some 30,000 hogs the manure waste from enormous hog farms has highly contaminated ground and surface water.

"We are certainly paying for our mistakes," Molly Diggins, director of the North Carolina chapter of the Sierra Club told the Associated Press. "No level of preparation would have prevented the tragedy, but we could have done far more to prevent the loss of life, the environmental damage and property loss," she added.

Steven Cohen, a spokesman for the National Pork Producers Council in Washington, however, noted that the floods also washed out municipal sewage plants and poultry and cattle farmers while chemical poisons, industrial chemicals and petroleum products have also been detected in the flood waters.

"Nobody from the pork industry would ever suggest there would not be some environmental ramifications from this storm," Cohen said. "For some of these groups, the issue of hogs in North Carolina is just obsessive."

Hogs in the Cape Fear basin alone produce 10 million metric tons of waste, equal to that produced by wastes of 40 million humans. A state law passed in 1998 prohibits new hog-waste lagoons from being opened in flood plains but does not address existing lagoons or whether they can be rebuilt in the same place.

In Duplin County,  for example, two million gallons of hog waste spilled when a lagoon ruptured at Lanier Farm in Rose Hill, a 1,200-pig facility owned by Jesse Lanier, and flowed into a tributary of the Northeast Cape Fear River while two other nearby lagoons were just short of overflowing. Lanier Farm produces hogs for Carroll's Foods, a subsidiary of Smithfield Foods (Issue #46), the nation's largest pork producer.

The spill is under investigation, according to Ernie Seneca, a spokesman for state Department of Environment and Natural Resources Division of Water Quality. State inspectors will also try to determine whether Lanier Farm's waste systems were maintained properly before Hurricane Floyd hit.

The Philadelphia Inquirer's Richard Lezin Jones reported Sunday that  "Floyd has created a public health threat unprecedented in the region and any day now, on the surface of this 18,000-square-mile cesspool, billions of mosquitoes will begin to hatch.

"At week's end, epidemiologists, health and environmental officials were expressing concern about the possibility of an outbreak of gastrointestinal and other diseases, such as pathogenic e. coli, caused by contaminated drinking water."

Hardest hit areas in the state were the cotton and tobacco crops in about 40 eastern counties, which were inundated by 20 or more inches of rain. But fields of soybeans, sweet potatoes and peanuts --- particularly in northeastern Halifax and Northampton counties --- also were flooded, and harvests are questionable.

At least 47 North Carolinians are dead, along with 2.5 million chickens and turkeys, 100,000 hogs, and 730 head of cattle, numbers, however, everyone expects to go up as the water goes down.

According to the North Carolina Dept. of Emergency Management, Professor Lawrence E. Band and Professor Peter J. Robinson, University of North Carolina, and Mike Smith, Weather Data, the state's rivers are now swollen with human and animal waste, and other pollution. Some 400,000 water wells, a key source of water for the state's rural population, are contaminated.

Some of the causes and concerns: Polluted runoff seeps into aquifers, contaminating wells. Canals designed to drain farmland conduct contaminated flood water back up into fields. Decomposing animal carcasses further contaminate flood water. Waste lagoons flood, releasing nitrates into ground water.

As rivers flow to the ocean through flat coastal plains, river banks are lower, and rivers are more prone to overflowing. Nitrogen in water encourages excessive algae growth, depleting oxygen and causing fish to die.

Early reports estimate damage to 22 water treatment plants, 209 sewage plants and 430 animal farming operations. For shrimp fishermen, who had anticipated the best fall harvest in years, the combination of pollution and fresh water has essentially wiped that out.

"I've never seen as much water," state Agriculture Commission Jim Graham told Charlotte News and Observer reporters Dudley Price and Adrienne Lu. "I don't know a strong enough word to say what it's done to Eastern North Carolina. "This is a knockout blow," Graham said. "We've got farmers hanging on the edge now."

The state's worst agricultural disaster may result in the staggering loss of 15% of its 52,000 farms as waters damaged or ruined more than two million acres of crops, according to Graham who estimates that the ultimate farm loss would exceed $1 billion. Coming after a poor growing year, the flood probably will drive 6,000 to 7,000 farmers out of business, Graham told the News & Observer.

As bad as it is, the New York Times David Firestone reports, the bacterial contamination from farms and sewers is considered only a short-term problem. The lasting effects of chemical poisons and petroleum swirling through farmland and business districts could take many years to clean up. An Occidental Chemical plant near Wilmington spilled more than a million gallons of waste water that might have contained chromium, the Federal Environmental Protection Agency reports, and mercury may have spilled from a nearby containment pond.

Water is also flowing freely through junkyards, warehouses of farm chemical poisons and underground storage tanks. Environmental officials, Firestone adds, are particularly concerned about the lasting effects on wildlife and coastal fisheries once the pollutants flow downstream to the ocean.

"This is devastating not just for our water quality but for the whole coastal environment," said Don Reuter, a spokesman for the state's Department of Environment and Natural Resources. "It's such a hodgepodge mix of all these different pollutants that it's a real significant mess."


"Based on the best estimates of analysts, economists and other sources interviewed by this publication, American agriculture must now quickly consolidate all farmers and livestock producers into about 50 production systems . . . each with its own brands . . . and several lines...

"However, putting these systems together will be a Rushmorean task that must begin now and be done with a sense of urgency.  It is time to say to the voices of anger and fear and resistance that they either need to join the process or get off the mountain."

--- "U.S. Agriculture needs leaders, not populists, to survive," Editorial, Feedstuffs, September 13, 1999.

"We were farmers, it was ours to make the farm worthwhile and be satisfied. We did not compare our lot with others. We went about our farming as the days came, the program being determined by the weather and the seasons. Nor do I recall laments about the weather; it will come out right in the end, we shall follow the Lord's will --- this was the attitude. Perhaps these practices and outlooks cannot develop the most skillful and productive farming, but farming was not a competitive business. We needed little and were never in want. We had not learned to substitute machines for men. We knew nothing about `efficiency' and cost accounting was not even in the penumbra of dreams. The men of that stripe and generation would have resented that farming can be measured by money; it was too good for that."

--- Liberty Hyde Bailey (1858-1954), Dean, Cornell College of Agriculture

Iowa's Buena Vista County Board of Supervisors, joined by many of the financially strapped farmers who elected them, have accused the area's leading employer --- IBP Inc., the nation's number one beef packer  --- of slaughtering not only meat, but of producing employees who are draining county tax money through excessive costs in jailing lawbreakers and treating physical and mental health patients.

IBP employs 1,700 people in its Storm Lake plant, the vast majority being immigrants from Mexico, Central America and Southeast Asia. County officials acknowledge that their conclusions are drawn mostly from anecdotal evidence, such as an increase in crime and other social problems.

In Iowa's southeastern Louisa County, however, where IBP's Columbus Junction plant is located, officials do track inmates by employer. Two years ago, monthly averages showed that up to 70% of the jail was filled with inmates who claimed IBP as their employer, according to Louisa County Deputy Curt Braby

"There is more crime in meatpacking towns and meatpacking counties, and I want to know why," Buena Vista County Supervisor Doug Bruns, a rural Alta farmer, told the Des Moines Register's Jennifer Dukes Lee.

In their resolution, the supervisors declared that IBP ought not only to help pay for a new jail and the old jail's operating costs, but the company should also provide child care and mental-health coverage for all employees. They also want IBP to offer medical insurance for employees from the date they are hired.

Many rural residents, Lee reports, and even many city folks, are relieved that someone finally said aloud what they've been thinking all along. "People have finally reached a point where they've had enough; that's the point I reached," said Jim Gustafson, a county supervisor and Storm Lake farmer. "We've been patient over the years, but things have come to a head. There is a frustration level that I have never seen before."

Gustafson said the supervisors have made little progress in closed-door meetings with IBP, who has in the past been branded as the nation's number one "corporate outlaw."  They took a more visible step this time, protesting IBP's policies but not its work force, he said.

"Concerns are best solved by all of us working together, not by publicly ridiculing the largest employer," IBP spokesman Gary Mickelson noted in responding to the supervisor's resolution.  From its headquarters in Dakota Dunes, South Dakota Mickelson questioned the fairness of the supervisor's requests.

He noted to the Register that even some county employees are not immediately covered by medical insurance. County employees wait up to 30 days before their coverage takes effect, depending on the time of month they were hired. IBP employees must wait several months before their health insurance coverage begins.

IBP, with a payroll in 1998 totaling more than $43 million, is the county's third-largest property taxpayer, and reportedly spends $500,000 locally each year on goods and services.

The supervisors have acknowledged that IBP is a major economic player in Storm Lake, helping two shopping districts stay afloat, including Wal-Mart and Hy-Vee stores and an area of fast-food restaurants and retail chains on the city's north side while closer to the lake for which the city is named, the downtown area accommodates gift shops, clothing stores, a bookstore and a bakery.

The five supervisors say they are doing only what they were elected to do: make tax revenues stretch as far as possible. "People say we'll never get anything out of them, and we probably won"t," Bruns told the Register's Lee. "We've been criticized for trying to run IBP out of town. We're just looking for answers, because normal citizens cannot afford this."


Lamenting what he termed "excessive divisiveness" in U.S. agriculture that "has a demoralizing effect" and which can harm a vital industry, ConAgra Inc. Chief Executive Bruce Rohde, recently warned that "that emotional issues -- such as organic food, biotechnology-altered grains and a belief that family farms are being threatened by large corporations -- should not interfere with the nation's food industry accomplishing its mission of feeding a growing world  population."

While competition is still healthy and will continue, Rohde claimed in a recent Omaha, Nebraska speech,  all parts of the food industry can have more success in the long  run if they find ways to settle issues without reacting emotionally and damaging each other in the process.

Currently, ConAgra is the nation's number two largest food manufacturer, behind Philip Morris, It advertises itself as a "diversified international food company" working "independently across the food chain in 34 countries around the world. Our mission is increasing shareholder value. Our job is feeding people better."

Garnering some six cents of every American food dollar the Omaha-based company has also recently announced "Operation Overdrive."

"`Team ConAgra' expresses what's happening inside ConAgra today. Teamwork --- across operating companies and across functions --- is gaining momentum. The fierce entrepreneurial spirit that's long been ConAgra's trademark is alive and well, and ConAgrans are working together to feed people better and increase shareholder value. We are a winning team, and we have a solid game plan for the next phase of our success.

"Our past success is remarkable. ConAgra has the best long-term earnings growth record among all major food companies in the world. Our 19 consecutive years of earnings-per-share growth at an average annual rate of 14.6%, excluding required accounting changes and non-recurring charges, is unequaled by any major food company."

In its 1999 Annual Report the company explains "Operation Overdrive" as "ConAgra's strategic thrust to achieve and sustain excellence. It is a ConAgra-wide initiative to improve sales, reduce expenses, improve margins and power premium earnings growth."

ConAgra spans the food system, literally from the ground to the table, with "agricultural inputs, crop protection chemicals, fertilizer and seed distribution; grain handling and storage; worldwide commodity trading and merchandising; flour, oat, corn milling and barley malting; natural spices, seasonings, flavors and food ingredients; food service and deli products; processed potato products; beef and pork products; branded chicken and turkey products; branded processed meets; branded table spreads, cheeses and dessert toppings; seafood products; branded shelf-stable foods, and branded frozen foods."

Each of the company's 25 branded foods has annual retail sales exceeding $100 million and its Food Service branch is the nation's largest provider of products for restaurants, fast-food outlets and other food service customers.


Characterized as a U.S. Department of Justice (DofJ) "investigation" into whether Cargill's announced purchase of the grain merchandising division of Continental Grain violated any of the nation's anti-trust laws the DofJ's inquiry in fact occasioned the government agency to file a formal "Complaint" with the U.S. District Court for the District of Columbia.

The complaint charged 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. 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 12.

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 12. 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

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.' [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 totally 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. (Issue #45)

Letters specifically demonstrating and\or documenting the impact of Cargill's monopoly of the grain trade and how the Continental purchase will affect that situation on one's own family farm operation or upon the rural community in which one lives will be most valuable.Copies of such letters should also be sent to the letter writer's state attorney general's office urging that office at the same time to utilize their good offices in not only calling upon the U.S. Department of Justice to revisit its "investigation" of the Cargill\Continental sale, but requesting that the deadline for comment be extended another sixty days to December 12.


A merger involving Suiza Foods Corp., the nation's largest processor of fluid milk, and Southern Foods Group, the nation's number three largest milk processor, forming a joint venture that will include all of their domestic fluid-milk processing activities, was recently announced.

The new venture will unite Suiza brands such as Country Fresh, Lehigh Valley Farms and Flav-O-Rich with Southern Foods names including Shepps, Foremost and Brown's Velvet Dairy. Southern Foods also holds the rights to the Borden and Elsie brands in several states. Suiza will own 66.2% of the joint venture, which will be known as the Suiza Fluid Dairy Group. Dairy Farmers of America Inc., a farm cooperative that owns 50% of Southern, will own the remaining 33.8%.

The combining of the two signals yet another "urge to merge" among cooperatives and between cooperatives and corporate agribusiness. Recently, two of the nation's largest farmer cooperatives --- Farmland Industries and Cenex Harvest States Cooperatives --- formally approved the terms of a consolidation, as proposed in May, 1999 (Issue #25) that will unite them in a new $20 billion company to be called United Country Brands.

Likewise, when the U.S. Department of Justice issued its consent decree relative to Cargill's purchasing of Continental Grain's merchandising division it ordered the divestiture of Cargill's 4.2 million bushel terminal in Seattle, presently leased from the local port authority. In turn,  the nation's largest grain trader will now operate in part the TEMCO three million bushel grain elevator at the nearly Port of Tacoma. TEMCO or Tacoma Export Marketing Corp. has operated the terminal as a joint venture for Continental and Cenex Harvest States Co-op.

Also, Land O'Lakes, Inc., Cenex Harvest States Cooperatives and Farmland Industries recently revealed that they are working on a proposal to form a new joint venture company that will distribute plant food and crop protection products to member cooperatives and other customers.

The Suiza Fluid Dairy Group, according to the Wall Street Journal, plans to obtain as much as $2 billion in financing, using the money to refinance existing debt of both companies as well as for future acquisitions and general corporate purposes."This transaction will accelerate our ability to serve our customers with the quality and value they expect and deserve across their operations," said Southern Foods President and Chief Executive Pete Schenkel.

A Suiza spokesman declined to give the value of the deal, saying only that it will create a $6 billion dairy company with processing and distribution operations in 46 states. Suiza's Morningstar subsidiary, which makes products such as coffee creamers, whipped toppings, and cultured dairy products, and its international businesses, which includes its Puerto Rico dairy and its European packaging operations, will remain separate.


In anticipation of the soon-to-be-issued National Organic Standards Act and an attempt to seize a sizable market share of the organic produce market the Salinas, California-based Tanimura & Antle, which ships over one million tons of conventionally grown lettuce each year as one of the nation's largest lettuce growers, has agreed to acquire a one-third stake in Natural Selection Foods, which sells organic bagged salads and vegetables to supermarkets.

Earthbound, based in San Juan Bautista, California, whose sales are expected to reach $60 million in 1999, up from $42 million last year, farms 5,800 acres in California and Arizona. Tanimura & Antle has 30,000 acres in the same areas.

"If sales are going to move from conventional to organic, we would be remiss if we weren't a part of that," Tanimura & Antle President Rick Antle told the Los Angeles Times Melinda Fulmer.

The company said it will convert five percent of its acreage to organic farming methods over the next three years and devote additional acreage as the business grows.

Tanimura & Antle also plans to sell other organic fruits and vegetables under the Earthbound label as it rotates crops on the land and negotiates with growers to sell other commodities under the Earthbound label.

The two top producers of bagged salads --- Dole Food Inc. based in Westlake Village, and Salinas-based Fresh Express Inc. --- don't sell organic products. Another leading producer, Irwindale-based Ready-Pac Inc., entered the organics business last year with three bagged salads.

Meanwhile, H.J. Heinz Co. announced that it plans to acquire a 19.5% stake in Hain Food Group Inc. in an effort to give it a foothold in the fast-growing natural and organic-food segment. Heinz will receive about 3.5 million shares of Hain, a leading natural-food company.

In turn, Hain, Uniondale, New York, will acquire from Heinz the trademark for Earth's Best baby foods which it has has been marketing and distributing for several years, but failed to build into a big brand.

The agreement will see Heinz providing procurement, manufacturing and logistic expertise, while Hain will furnish marketing, sales and distribution services. People close to Heinz, the Wall Street Journal reports, have said the company plans to be a significant player in the expected consolidation of the food industry and is on the lookout for acquisitions and investments in fast-growing areas, such as organic food.

Driven by consumer interest in a more healthy diet, sales of natural and organic foods are rising by about 20% a year, well above Heinz's annual sales growth rate of 3%. By making an investment in Hain, Heinz, of Pittsburgh, is expected to benefit from the natural-food maker's strong relationships with specialty distributors, who are key to doing business with natural-food stores.

Hain in the meantime will purportedly benefit from Heinz's larger size, which will give it more leverage in negotiating better deals from suppliers, in addition to utilizing Heinz's greater manufacturing capacity and longstanding relationships with the nation's largest supermarkets, such as Kroger Co. and Safeway Inc.

As sales of the more expensive organic produce has surged 20% in the past couple of years, the market for organics has become increasingly attractive for large growers, according to the Organic Farming Research Foundation. However, the niche represents less than five percent of all fresh produce sales, according to industry estimates. More large shippers, some analysts predict, are expected to invest in organic growers after the federal government issues its organic farming standards late this year or early next year.

"That will remove what has been a fairly significant level of uncertainty in the market,"  Mark Lipson, the Organic Farming Research Foundation's policy director told Fulmer.


Despite the fact that the U.S. Environmental Protection Agency (EPA) has classified one of its ingredients ---  acrylamide --- as a probable human carcinogen and despite the fact that the U.S. Food and Drug Administration (FDA) hasn't approved it, U.S. poultry producers continue to use a chemical called  polyacrylamide to rescue nutrients from the hundreds of thousands of gallons of waste water they expel each day to be used to fortify animal feed.

Yet, in spite of such uncertainty the poultry industry, including Tyson Foods Inc., of Springdale, Arkansas, the country's largest chicken processor, which uses polyacrylamide to recycle material for use in animal feed, has been using the process  for  the better part of the decade. The FDA, aware of the widespread use of the chemical, says it isn't going to enforce its ban.

"Current information suggests we don't have a safety issue with this," Daniel McChesney, the FDA's deputy director of surveillance and compliance and leader of the agency's animal feed safety team, recently told the Dow Jones Newswire's Chip Cummins and Daniel Rosenberg.

That stance, the journalists report, has confounded some scientists, consumer advocacy groups and even industry consultants who say the FDA is causing confusion by not  holding poultry processors accountable for violating U.S. regulations. "At  the very least, the blind eye the FDA has turned exposes companies that use the chemical to what could blow up into legal and public-relations  fiascoes."

"It's been very fuzzy and very gray, and in the 20 years I've been looking at it I haven't had a straight answer from anyone," recounts Roy Carawan, an independent consultant to the food-processing industry, who studied polyacrylamide earlier in the decade as a professor in the food science department at North Carolina State University.

Carawan told Dow Jones that he raised questions about use of the chemical with the FDA years ago and suggested tests be conducted to ensure carcinogenic residue from the process doesn't end up in animal feed, the chickens that eat the feed and eventually the humans that eat the chickens. So far, no one has conducted such tests, although one of the chemical's manufacturers concluded from a series of scientific studies it commissioned that "theoretical" levels of carcinogenic concentration would be too small  to present a health risk to humans.

"The FDA says it is satisfied with that assessment. But that isn't good enough for Carawan and others who maintain the only way to ascertain  whether the carcinogen can end up in humans is through actually testing  livestock which have eaten feed made with polyacrylamide."

Because of tightening environmental laws, the waste water used by plants can't just be discarded. Using polyacrylamide as a so-called "flocculent," proteins, fats and other nutrients can be extracted  from the water and reduced to a mealy sludge which can then be added to animal feed, sometimes making up as much as 50% of the resulting feed.

Ironically, the question concerning polyacrylamide come as the Europeans also struggle with a series of revelations about protein-rich "sludge" recovered from factory waste water that was being used in animal feed in France, Germany and the Netherlands.

In the U.S., besides Tysons, American Protein Inc., of Cumming, Georgia, one of the many renderers in  the U.S. southeast, said it adds material recycled with polyacrylamide to other material destined for inclusion in animal feed. "We do that with the FDA's knowledge," said a spokesman.

Without approval, companies that use polyacrylamide could be exposing themselves to legal risks, Wayne Bough, an independent industry consultant and former researcher at the University of Georgia told Dow Jones. "There's too much risk," Bough tells clients who frequently ask him whether they can use polyacrylamide. "Somebody might say, `I'm going to sue these turkeys'."

Bough agrees animal testing is the only way to make sure carcinogenic residue isn't being passed onto humans, but he doesn't blame the FDA for its ambiguous stance and wouldn't encourage chemical companies to spend money and time lobbying for new legislation. "It's very, very expensive research for a product that's going to sell for ten cents a pound," he said.


"The only time I felt truly comfortable about the food I put on my table was when I lived on the farm and grew most of my own . . . Now, I live in an apartment in the city, and am dependent on nameless, faceless strangers to grow, process and ship my food. It seems as if unethical and unsafe practices grow in direct proportion to how far we have lost the trail of accountability. So I don't always trust them to put my family's best interest over concern for their bottom line. I don't like feeling helpless, as if every trip to the grocery is a crap shoot. But I really don't know who to blame."

--- Vicki Williams, King Features columnist, USA Today, July 26, 1985.