The
AGRIBUSINESS
EXAMINER                            Issue # 54      November 3, 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.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. 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.
 

SPECIAL ANNOUNCEMENT:
CORPORATE AGRIBUSINESS RESEARCH PROJECT
WEB SITE AWAITS ITS AUDIENCE

Behold!!!

By the end of this week the long-promised"remodeled" Corporate Agribusiness Research Project (CARP) web site will be up and running and awaiting your patronage.

Three features highlight the website: THE AGBIZ TILLER, THE AGRIBUSINESS EXAMINER and “Between the Furrows.”

THE AGBIZ TILLER, the progeny of the one-time printed newsletter, now becomes an on-line news feature of the Project. Its initial essay concerns one Hillary Rodham Clinton, the almost declared candidate for a U.S. Senate seat in New York State.

In his recent book, Shadow, Bob Woodward recounts that Hillary Clinton reportedly told close friends after it was revealed that her husband had sex with a young White House intern: "I have to take this punishment. I don't know why God has chosen this for me. But He has, and it will be revealed to me. God is doing this, and He knows the reason. There is some reason." This bit of Hilliarism occasioned the Progressive Review's Sam Smith to report that "reached at his celestial headquarters, God told this reporter,`That'll teach her not to rig cattle futures'."

In "HILLARY RODHAM CLINTON'S $99,537 MIRACLE: IT'S THE PITS!!!" now available through THE AGBIZ TILLER you'll learn some of the messy details behind her cattle futures "miracle."

By popular reader demand THE AGRIBUSINESS EXAMINER  section includes not only an issue-by-issue and verbose index of the weekly e-mail newsletter, but an archive of all the past issues.

In "Between the Furrows" there is a wide range of pages designed to inform and educate readers on the inner workings of corporate agribusiness. In addition to CARP's "Mission Statement," "Overview" and Project director's "Publication Background," the viewer will find a helpful "Fact Sheet" on agriculture and corporate agribusiness; a "Fact Miners" page which is an effort to assist the reader in the necessary art of researching corporations; a "Links" page which will allow the reader to survey various useful public interest, government and corporate web sites; a "Feedback" page for reader input, and a page where readers can order directly the editor's The Corporate Reapers: The Book of Agribusiness.

On a personal note this web site would have been impossible without the fine design and  production skills of the staff of ElectricArrow of Seattle, Washington. http://www.electricarrow.com

It it with considerable pride that I should also note that ElectricArrow's President David Arevalo and Client Relations Director Leigh Arevalo are my son and daughter-in-law. Also to be acknowledged are Jennifer Donohue of Seattle, Washington for her beautiful graphic site designs and Todd Gantzler who not only volunteered, but did the outstanding job of creating (and will be maintaining) THE AGRIBUSINESS EXAMINER indexes and archive file. Be sure and visit his excellent website at: www.freedomportal.com

Now, simply by clicking on either of the addresses below all the aforementioned features and information will be yours to enjoy, study, absorb and sow. Bon appetit !!!

http://www.ea1.com/CARP/
http://www.ea1.com/tiller/
 

THIRSTY!!!!
THINGS GO BETTER
(AND MORE EXPENSIVE) WITH COKE 

It's hot and you are thirsty ! Ah, but there's a vending machine with cans of Coca-Cola on display. You place the necessary coins in the machine and out rolls the can! Ummm, satisfying! But wait a minute! Late last night in the cool, cool of the evening you got a can of Coke from this same machine and it was much cheaper than the one you just purchased. How can that be possible you ask?

It is possible because the folks at Coca-Cola believe as its Chairman M. Douglas Ivester described to Veja, a Brazilian newsmagazine, in early October how desire for a cold drink can increase during a sports championship final held in the summer heat "so, it is fair that it should be more expensive. The machine will simply make this process automatic."

In the past year, Constance L. Hays in the New York Times reports, Coca-Cola has in fact begun quietly testing a vending machine, with nothing more than a temperature sensor  and a computer chip, that can automatically raise prices for its drinks in hot weather.

"While the concept might seem unfair to a thirsty person, it essentially extends to another industry what has become the practice for airlines and other companies that sell products and services to consumers. The falling price of computer chips and the increasing ease of connecting to the Internet has made it practical for companies to pair daily and hourly fluctuations in demand with fluctuations in price -- even if the product is a can of soda that sells for just 75 cents," she notes.

With such innovations as adjusting prices based on demand at a specific machine, such machines appear to only be the first of many innovations by the nation's soft-drink manufacturers in an effort to exploit the highly profitable vending machine market, although a Pepsi spokesperson has indicated no similar thirst seeking machine is being tested at the No. 2 soft-drink company

"There are a number of initiatives under way in Japan, the United States and in other parts of the world where the technology in vending is rapidly improving, not only from a temperature- scanning capability but also to understand when a machine is out of stock," said Andrew Conway, a beverage analyst for Morgan Stanley.

Bill Hurley, a spokesman for the National Automatic Merchandising Association in Washington, added: "You are only limited by your creativity, since electronic components are becoming more and more versatile."

In addition to machines that now accept credit cards and debit cards for payment, Coke bottlers in Australia and in North Carolina use machines to relay, via wireless signal or telephone, information about which drinks are selling and at what rates in a particular location. The technology is known as "intelligent vending," Baskin told the Times, and the information gathered and relayed by Internet helps salespeople to figure out which drinks will sell best in which locations.

Industry reactions to the heat-sensitive Coke machine, Hays notes, ranged from enthusiastic to sanctimonious. "It's another reason to move to Sweden," one beverage industry executive sniffed. "What's next? A machine that X-rays people's pockets to find out how much change they have and raises the price accordingly?"
 

BOXED WINE:
IT'S THE WATER!!!!

"You cannot compete against the price of water," Barry Bedwell, president of the Allied Grape Growers, a 550-member California cooperative recently commented as a decreasing demand, coupled  with new plantings, has seen prices for wine grapes diminish by more than 50% this year.

Bedwell's lament comes as the the Bureau of Alcohol, Tobacco and Firearms (ATF) announced that it is reviewing the labeling standards for much of the $200-million-a-year boxed-wine category, as a loophole in the federal government's wine standards has allowed makers of boxed wines to add untold amounts of water to its products while still using classy varietal names such as Merlot and Cabernet Sauvignon on the labels. The practice has revived this stagnant segment of the wine business, which accounts for about 7% of all wine sales.

Art Libertucci, assistant director of the alcohol and tobacco division of the ATF, Melinda Fulmer reports in the Los Angeles Times, says his agency will also consider forcing certain brands to change their labels. However, Canandaigua Brands, which each year manufacturers some 30 million cases of boxed wine under the Almaden name, says it isn't giving up the category without a legal fight. The new formulas have not only been more popular with consumers, they can be less expensive to produce, claim executives from Canandaigua and E&J Gallo.

To consumers, the labels on these boxed wines are virtually indistinguishable from those on traditional table wines, using descriptions such as "Chardonnay with natural flavors." However, a large portion of the content of these formula popular boxed brands such as Almaden, Peter Vella, Carlo Rossi and Franzia can include water, sugar, fruit juice or a distilled grape alcohol in addition to actual wine.

Most consumers, however, don't know they're drinking something other than varietal wine, at least according to a survey commissioned by the ATF a year ago. "Our survey told us most consumers weren't making a distinction," Libertucci says. "We decided to see if we couldn't establish a special set of rules for these products so customers won't be confused."
 
Under the ATF's rules for traditional table wine, Fulmer's report points out, 75% of the product's volume must come from grapes of one variety. Under the specialty wine or "other than standard" category, which includes boxed wines, there is no minimum amount of wine they must contain. In order for the varietal name to be on the package, three-quarters of whatever amount of wine is in the product must contain grapes of one variety. So even if the beverage contains only ten percent wine, as long as 75% of that is Chardonnay, the label can say "Chardonnay."

The Wine Institute and the California Association of Winegrape Growers (CAWG), calling the labeling loophole a threat to California's wine-making reputation, are asking the ATF to remove the varietal designation from these products. "They are wearing a varietal [designation] that they didn't have to earn," Karen Ross, CAWG president told Fulmer.

Robert Sands, Canandaigua executive vice president,  in decrying the fact that "a government agency can't change their mind after companies have already made a large investment in developing these products,"  says his company changed the formula for Almaden in 1997 to give consumers more of what they wanted--a sweeter, milder-tasting wine. Other large companies, including Gallo, followed suit. Since its reformulation, Sands says, Almaden's sales have increased in the "double digits."
 

TROUBLE IN CORPORATE PARADISE:
SEED TITANS CARGILL, MONSANTO, PIONEER CLASH

In an agreement that promises to reduce by at least $200 million the $1.4 billion price that the Monsanto Co. paid Cargill for its overseas seed business, the nation's largest private corporation, in effect acknowledged that at least some of the seed lines it sold to Monsanto contained traits that were misappropriated from Pioneer HiBred International Inc., the nation's largest seed business.

The Wall Street Journal's Scott Kilman reports that "some of the seed lines have had to be destroyed, a move that reduced the value of the business  for Monsanto, the St. Louis crop biotechnology and drug company. Cargill has admitted that an employee it hired from Pioneer Hi-Bred brought with him corn-breeding material that ended up in some of the corn  seed that Cargill markets."

Soon after Pioneer Hi-Bred, which has been recently acquired by DuPont Co., filed lawsuits against Cargill and Monsanto for seed theft, AgrEvo GmbH, a Berlin, Germany crop-biotechnology concern, dropped its $650 million pact to buy Cargill's North American seed business. Cargill, however, Kilman reports, is still attempting to resolve Pioneer Hi-Bred's legal claims “so that it can put its domestic seed business up for sale again.”

According to the Journal the settlement clears the way for Monsanto to introduce into dozens of countries the genetically modified crops that have already gotten wide use in the U.S. Farm Belt.

Monsanto's acquisition of Cargill's foreign seed business gives it breeding operations in 24 countries and a sales force in 51 countries. Analysts have estimated that the business generated annual sales of about $300 million for Cargill.

Meanwhile, Monsanto and Pioneer Hi-Bred are still engaged in several other legal
fights with Pioneer Hi-Bred in one lawsuit accusing two seed companies recently acquired by Monsanto of routinely stealing certain seed.
 

CARGILL'S EXCEL
TO OPEN NEW PACKING PLANT IN IOWA 

Excel, a wholly-owned subsidiary of Cargill one of the nation's two largest grain traders, and the nation's second largest meat packer, has announced plans to build a $100 million beef processing plant somewhere in Iowa within the next year, according to Iowa Gov. Tom Vilsack, Iowa cattle producers and an Excel Corp. executive.

The plant, which will be the first new beef packing plant built in Iowa in about 35                      years, is expected to create 1,000 jobs and will be designed to turn 500,000 head of
cattle a year into high-quality cuts for the meat case and convenience foods.

The state's cattle producers, according to the Des Moines Register's Farm Editor Jerry Perkins, will play an important role, providing 200,000 cattle annually and a $40 million investment in the plant.

Iowa Senate Appropriations Committee Chairman Derryl McLaren said as much as $10 million to $13 million might be available as a loan to the project from the Iowa Agricultural Industry Finance Corp. The corporation was created in 1998 to help finance farmer-owned, value-added processing projects. "I can't think of a better project than this one," said McLaren. "This has all the elements we want."

The Iowa Cattlemen's Association will recruit cattle producers to invest cash and cattle in the new processing plant.

Wythe Willey, past president of the Iowa Cattlemen's Association and head of the organization's three-year drive to find another market for Iowa-raised cattle, told Perkins that the Association will recruit cattle producers to invest cash and cattle in the new processing plant.

The Hawkeye state's cattlemen hope that building the new plant will spark growth in Iowa's cattle industry, which ranks fifth in the country with one million head of cattle on feed.

The cooperative effort, Feedstuffs Magazine reports, would establish "a partnership" among Excel, ICA and Iowa to determine the feasibility of the plant in which Excel would evaluate engineering requirements -- from location and highway and rail access to power and water supplies to waste and wastewater issues -- as well as workforce staffing and training requirements and pay and benefit rates, according to the announcement.

ICA would organize a Beef Supply Network, which would be a business entity owned by beef cattle producers in Iowa and other surrounding states who would buy memberships in the cooperative and pledge to deliver cattle to the plant, according to ICA executive vice president Joel Brinkmeyer. He said the network would supply an estimated 25-45% of the cattle that the plant would need on a yearly basis for at least five years.

Brinkmeyer told Feedstuffs that the plant would be jointly owned by Excel and the network, and network members would market animals to the plant on a grid specifically created for them to recognize the value of their cattle. He said non-members would market on a secondary grid or other terms, including the cash market.

In 1996, the Iowa cattle production industry was devastated by the closing of ConAgra's Monfort Inc.'s beef processing plant in Des Moines. Cattle producers, Des Moines city officials and others looked for a major packing company to reopen the plant but couldn't find a taker. Recently, IBP Inc., the nation's largest meat packer, closed its Tama Packing beef plant because of a shortage of workers and a declining cow supply. About 425 employees will lose their jobs on December 20, when the plant closes.

As Perkins notes Iowa was the No. 1 beef producing state in the 1970s before cattle production and the beef packing industry moved to the Southwest. "If this gets done, we'll be No. 1 again," Willey said. "Iowa's cattle industry will be back."
 

PURINA MILLS TO BECOME PRIVATE COMPANY
FILES FOR BANKRUPTCY, ANNOUNCES REORGANIZATION
 
Purina Mills, once a part of one-time corporate agribusiness giant Ralston Purina and now currently owned by Koch Industries, the nation's second largest private corporation, has begun a corporate reorganization after filing for Chapter 11 bankruptcy proceedings.

According to the company announcement it will access financing and become an independent, private company. It emphasizes that its objective will be to complete reorganization and emerge from bankruptcy as quickly as possible, however, during the reorganization, the company's operations will not be affected. The company said it will continue to service its customers "without interruption."

In its statement, Purina acknowledged that the current downturn in agriculture markets and prices, especially in the swine sector, "has restricted the company's ability to service debt," principally that associated with Koch's acquisition of Purina last year.Purina said all operations were cash flow positive but listed unsecured debt of more than $350 million due mostly to the Koch acquisition.

Koch, which has $35 billion in annual revenues and interests ranging from agriculture to energy, bought Purina last year to match Koch's proprietary technology in ingredient processing with Purina's expertise in animal nutrition to develop novel feed ingredients that would improve animal productivity. It had plans of becoming a bigger player in the dairy industry as a way of establishing outlets for its feed business, Koch planned to build dairies that would milk up to 1,700 cows.

Koch structured the acquisition so that Purina would be responsible for debt on the purchase.

Low corn and other ingredient prices in 1998 and 1999 and the collapse in the hog markets got in the way of those plans. The two companies had no opportunity to match synergies and Purina began reporting losses and could not pay acquisition debt. Purina reported a loss of $51.5 million in 1998, compared with earnings of $6.9 million in 1997, and a first half loss of $35.0 million this year.

Koch Agriculture Co., a division of Koch Industries, and until 1998 the eighth-largest beef cattle rancher and 11th-largest beef cattle feeder in the U.S., announced last year it had "discontinued" efforts to establish an integrated beef production system and subsequently sold four of  the company's feedlots to Cactus Feeders Inc., the nation's largest cattle feeding operation. Currently Cactus Feeders is not only IBP's largest supplier, but feeds cattle for Excel, the Cargill subsidiary, from the lots that it reportedly purchased from Koch.
 

REP. HENRY B. STEAGALL:
LOOKING OUR FOR CONSUMERS AND FARMERS INTERESTS

The combination of a feckless U.S. Congress and corporate America's blank check in the White House last week reached an historic agreement that if enacted will remove all the firewalls between banks, insurance companies and investment firms. Arguing that the 1932 Glass-Steagall regulations were terribly old-fashioned by contemporary standards the nation's financial institutions ignored the fact that the Glass-Steagall bill was enacted during the Great Depression to help restore public confidence in banks and put the fickle stock market at arms length. That history seems to have played no part in the Congress and Clinton Administration's willingness to scuttle Glass-Steagall.

However, Rep. Henry B. Steagall of Alabama not only in his years in Congress sought to protect the public from investment firms, banking institutions and the insurance industry merging into one behemoth financial conglomerate , but he also sought to insure that the nation's farmers received a fair price for what they produced.

In October, 1942 Congress passed a Stabilization Act which brought about reductions in the levels at which ceilings could be placed in farm products; specifically no ceiling could be applied lower than the parity price for the commodity or the higher price paid between January 1 and September 15, 1942. The Act also set up tighter controls on wages and the implementation of post-war price support arrangements.

Prior to the passage of this Act, in 1941, Rep, Steagall attached a rider to the USDA's Commodity Credit Corporation’s (CCC) authorization bill which stated that any agriculture commodities for which the Secretary of Agriculture asked for increased production as a contribution to the World War II effort must be provided with support prices at 85% of parity.

Subsequently, in the Stabilization Act the Steagall Amendment was amended in Section 9 and, in what some commentators have called the most important single action taken during the entire war period, it raised the support level of the Steagall commodities from 85% of parity to 90%.

It also extended to these commodities the same post-war parity price guarantees (90%) that had been specified for the basic crops covered in Section 8 (cotton, corn, wheat, rice, tobacco and peanuts) for the two years immediately succeeding the first day of January following a presidential or congressional declaration that hostilities had ceased. This guarantee of a reasonable parity price would enable American agriculture to maintain an unmatched period of general prosperity for nearly an entire decade.

When it was recognized in 1946 that without new farm legislation agricultural policies would automatically revert to those of the early 1930's, a bipartisan congressional farm bloc, with the Republicans now controlling the House for the first time in 16 years, began a long struggle to find a new farm program equal to the challenge of the 1950s.

The task became even more critical on December 31, 1946 when President Harry S. Truman issued a declaration that WWII hostilities had officially ceased. Under the terms of the Steagall Amendment, this signaled that in two years the war legislation promising price supports at 90% of parity would end. Thus, a major confrontation loomed within Congress, deepening an already sharp division between corporate agribusiness advocating a "freer" agricultural economy and those determined to maintain a system of security through current close-to-parity supports.

Ironically, if Truman had waited another 24 hours to sign the declaration the Amendment would have still been the law of the land after he had won his shocking upset victory over Republican Thomas E. Dewey in the 1948 Presidential election. Instead, what Truman would characterized as the "80th Do Nothing Congress" set out to dismantle a successful farm economy.

After fierce lobbying by conflicting farm groups and considerable political intrigue in the House of Representatives, which earlier with only  three dissenting votes, had supported legislation calling for 90% of parity price supports, it was determined that new agricultural phase out legislation passed in 1949 would not become effective until January 1, 1950.

The new law  contained a provision that in the ensuing four year period the parity price of any "basic" agricultural product could not be less than "its parity price computed in the manner used prior to the enactment" of the 1949 law. Nevertheless, with the election of Gen. Dwight Eisenhower and the Republicans to the presidency in 1952 the dye had been cast and farmers began to suffer a reduction in parity price supports that continued until the passage of the 1996 Freedom to Farm Act which ended all price supports.

Reflecting on that period ten years later Rep. Harold D. Cooley, Chairman of the House Agricultural Committee told an Independent Bankers Association meeting in 1964:

"For eleven consecutive years prior to 1953 the average prices paid to farmers were at or above 100% of parity with the rest of the economy. There was prosperity on the farms --- and along Main Street, Rural America --- the countryside and Main Street  --- looked secure then and for all the years ahead."

The North Carolina representative went on to point out that the government, with broad cooperation from farmers, supported the prices of major storable crops for 20 years at an actual profit of $13 million, making such profits by selling the commodities --- such as wheat, corn, cotton, tobacco, rice and peanuts --- that it had taken over during its price-support operations.

"For eleven years --- 1942  through 1952 --- farmers had bargaining power in the market place. Supply and demand were in reasonable balance and farmers enjoyed price insurance through the farm program . . . [now} many farmers have turned against their own program --- the program that prevailed during the years of our greatest era of prosperity. Why, and for what reason, I shall never understand. Farmers have lost bargaining power in the market place, and 100% of parity for agriculture --- generally approved and accepted by the public a decade ago --- is hardly any more a dream."

After his address Rep. Cooley remarked to one banker that it was the American Farm Bureau Federation (AFBF) which had been responsible for gutting the Steagall Amendment farm support program, the very program many family farmers believed had accounted for their 1942-1952 prosperity. The Farm Bureau, the so-called "voice of American agriculture," had successfully convinced the conventional agricultural establishment's economists and their follow travelers in Congress that the farm price support program of that era was "un-American," and ultimately would lead to "socialism," or worse "communism." --------------47A0B5FA9339457C64041EE2--