OCM-N-8

OCM Newsletter

November, 1999

FB and NCBA oppose Merger Moratorium…

            Paul Wellstone, the senior Senator from Minnesota, introduced a bill calling for an 18-month moratorium on agribusiness mergers.  The Agribusiness Merger Moratorium Act would have applied to proposed mergers where one party had annual net revenues or assets of more than $100 million and the second party had net revenues or assets of more than $10 million.

            Big agribusiness groups were reportedly surprised by the amount of support the Merger Moratorium bill has drawn.  But the Farm Bureau and the National Cattlemans Beef Association worked to defeat the law in concert with some industry associations.

            Senate leadership refused to allow a vote on the Merger Moratorium bill until Wellstone threatened to shut down the Senate with a filibuster.  On November 17, 1999, the bill was defeated by a vote of 27 to 71.

… And the Ban on Packer Ownership

            The simple fact is: If meat packers own and control all the livestock production, there is no need for independent farmers and ranchers.  Smithfield Foods and Seaboard are leading the way towards full integration.  The other packers are also on the bandwagon.

            In a delayed response, a bipartisan bill has been introduced in the U.S. Senate to ban packer ownership of livestock. The bill is sponsored by Senators Tim Johnson (D-SD), Chuck Grassley (R-IA), Bob Kerrey (D-NE) and Craig Thomas (R-WY).  Significantly, the bill would be retroactive.  It would require divestment of all current ownership of livestock.  This is the most important bill of the session.

            Unfortunately, the Farm Bureau and the National Cattlemans Beef Association have again betrayed farmers and ranchers.  In support of the Packer Cartel, the two organizations have sent letters to Congress stating their opposition to the bill.

            It is sad commentary that this bill is even necessary.  The Packers & Stockyards Act prevents any preference in packer procurement of livestock.  The Act was supposed to guarantee a well functioning marketplace on fair terms for all farmers and ranchers.  Packer ownership is inherently preferential and anticompetitive.  But with USDA either asleep or in the packers' pockets, the bill is desperately needed.

Farmland's Damage Control

            Facing criticism for selling out its membership, Farmland Industries has been holding meetings with farmers and local coop board members in an attempt to persuade them that their CEO, Harry Cleberg, really deserves nearly $3 million when Farmland merges with Cenex-Harvest States cooperative.  Their well choreographed presentation included smiling coop management dismissing concerns about poor management and explaining that they won't forget the little guy as they go global. 

The facts speak otherwise.  While engaging in production competition with their member-owners, Farmland management has systematically taken away the institution built by farmers to feed their egos and their personal bank accounts as their member-owners go broke.

            OCM member David Kruse, market analyst and owner of CommStock Investments in Iowa, has been scrutinizing the improper conduct of the big ag cooperatives.  He has called on them to stop engaging in production agriculture and competing with their membership.  He has also asked the big coops to focus on cooperative ideals of acting in the interests of farmers, not management.

            With millions going to the upper management of Farmland and Cenex-Harvest States alone, the drive to merge is potently fueled by the personal greed and conflicts of interest of management.  Greed is a formidable opponent.

Biotech update

·                    The renowned British medical journal, Lancet, will publish a recent study showing that rats fed GM potatoes experienced a thickening of their stomach and other changes in their intestines.  Such thickening reportedly suggests a bodily reaction to a toxin or irritant.

·                    Dr. Mike Duffy of Iowa State University reported results of a study which found that farmers planting GMO corn and soybeans in 1998 received little or no economic benefit over conventional plantings.

·                    Big Biotech announced plans to defend their products with an $80 million ad campaign.  They claim that the more consumers know, the more they will like eating Roundup Ready soybeans and Bt corn.  However, consumer research leads to the opposite conclusion, i.e. more info means more rejection.

Drabenstott's New Research Mill

            Mark Drabenstott, Vice President of the Kansas City Federal Reserve, has been no friend of independent agriculture.  He has been outspoken and misleading in championing the virtues of consolidating agriculture.  Now he is presiding over the creation of the Center for the Study of Rural America which, under the auspices of the Federal Reserve, performs economic research into nonagricultural economic issues for Rural America. 

            Drabenstott has spoken and written on topics concerning firm size in agriculture.  In January 1999, he told the Senate Ag Committee that vertical consolidation delivered lower food prices and increase economic efficiencies, findings which are directly contradicted by other ag economists and rural sociologists.  It is troubling for the Federal Reserve to create a new Rural America research mill and place it under the control of one of the champions of the food cartels.

The Nike's of the Livestock Industry

            "We could soon be in McDonald's and the steakhouses of New York," said Enrique Mendoza, manager of a Brazilian slaughterhouse.  Brazil produces more cattle than the U.S. and Argentina combined.  But Brazil has been banned from many export markets, including the U.S. and Europe due to foot-and-mouth disease.  But Brazil claims to have nearly eradicated the disease and may soon be cleared for exports of beef.

            With export clearance, the big feedlots of the U.S. will likely export their beef production to other countries.  King Ranch feeds at least 20,000 cattle in Brazil.  The packers will probably follow as Smithfield is already leading the way with plants in Poland, France and Mexico.  European bans on beef produced with hormones may be irrelevant because, if dropped, EU consumers will have ready access to Brazilian beef produced without hormones.

            The urgency for country-of-origin labeling has never been greater.  Consumers deserve to know who produces their food and how it is produced.  Local and regional food systems are a powerful antidote to some of the problems of globalization - as the small farmers producing in the quickly growing direct marketing sector have found. Otherwise, the food industry will careen towards the Nike shoe factory system with low wage, indentured third-world employees producing the raw materials in dire working conditions for high priced, branded global food purveyors.

Checkoff battle

            The National Pork Producers Council (NPPC) recently lost an effort to gain access to all the names and addresses of the more than 15% of the nation's hog producers who have signed petitions seeking a referendum on whether to continue the pork checkoff program.  U.S. District Court Judge John R. Tunheim issued the decision protecting the names from disclosure.

The Campaign for Family Farms - which has been coordinating the checkoff recall effort - said that the producers who signed the petition fear retribution in the marketplace if their names are disclosed.  CFF claims that disclosure to the NPPC will result and has resulted in marketplace discrimination. 

Separately, the Livestock Marketing Association turned in over 120,000 signatures to the USDA calling for a vote on the beef checkoff.

Cargill stole Pioneer seed

            According to The Wall Street Journal, Cargill gave back at least $200 million of the $1.4 billion purchase price Monsanto paid in 1998 for Cargill's overseas seed business.  The reason for the post-transaction refund is that Cargill, the world's largest privately held corporation, admitted that an employee it hired from Pioneer Hi-Bred brought valuable corn germplasm with him.  Pioneer sued Monsanto and Cargill for the theft.  Without the germplasm, Cargill's seed business is less valuable.

            Industry rumors are that Cargill decided to sell its seed business because it could not afford to get into the expensive biotechnology business.  The high cost of research and development of genetically altered germplasm has resulted in an unprecedented consolidation of the seed industry.  The consolidation has prompted environmentalist Jeremy Rifkin and the National Family Farm Coalition, to organize a host of high-powered lawfirms across the globe to sue the seed industry for antitrust violations.  If farmers and ranchers are willing, they may find allies in new corners as environmentalists and food safety groups worry about globalization of the food system as well.

CFTC's new plans

            The new chairman of the Commodity Futures Trading Commission, William Rainer, has proposed to "get off the backs" of the futures trading exchanges.  Rainer recently replaced Brooksley Born who angered some lawmakers for attempting to regulate over-the-counter derivatives.  He now proposes to allow exchanges to make their own rules.

            Despite the fact that the CFTC was created to oversee commodity futures trading, as per its name, the agency has been steadily drifting towards a focus on the sexier financial futures and options.  The fact that financial futures are not commodity futures has escaped the CFTC.

            Just as the Packers & Stockyards Administration has been an ineffective poor cousin to the Department of Justice in addressing competition problems in agriculture, the CFTC is a poor cousin to the Securities & Exchange Commission which regulates the equity markets.  Maybe the government should downsize and focus these four branches into two.  As to futures, the markets could use an SEC-style focus on the dynamics of insider trading, fraud, dominant power in a commodity, and other improprieties.

Some Big Boys getting hurt too

            What is a "farm crisis"? According to Dr. Michael Bell, rural sociologist at Iowa State University, there has been a perpetual farm crisis which has, for decades, continuously driven small and mid-sized farmers from the land.  However, Dr. Bell says that the words "farm crisis" are only used when the big boys feel the pain.  Many big boys are now feeling the pain. 

            Purina Mills, the nation's biggest maker of feed for everything from hogs and horses to rabbits, filed for bankruptcy on October 28, 1999.  Purina was purchased by Koch Industries, the nation's second largest privately held corporation, in March, 1998.  The farm crisis has not only caused its feed sales to plunge, Purina's hog contracting division was also pummeled by low hog prices.  Koch will lose at least its $109 million investment.

            Last month billionaire Wendell Murphy decided to take his money and run by selling out to Smithfield.  Tyson and Carroll Foods also sold their hog production to Smithfield at bargain basement prices.  Land'O'Lakes, the big ag cooperative producing hogs in competition with its members, has suffered tremendous losses.

            Are big producers really so efficient?  Independent studies say no.  Now the bankruptcies and divestitures are also saying no.  Mergers are about market power, not efficiency.

Small Cooperatives may work

            Cornell University researcher Duncan Hilchey, a specialist in City and Regional Planning, reported that the number of fruit and vegetable cooperatives in the Northeast had increased from 27 to 42 from 1987 to 1996 - a 56% increase.  That growth starkly contrasted with a 44% decline in the number of grower cooperatives nationwide.  But New England also has some small dairy cooperatives.

            While Suiza and Dairy Farmers of America are consolidating dairy processing, Vermont Milk Producers cooperative hang tough.  Made up of 12 families, the members impose a long list of rules on themselves including prohibiting hormones and mandating crop rotation.  Their milk sells at about 25% over the cheapest brand, according to Mother Jones magazine.  The money goes directly back to the farmer-members.  Farmland Industries should take a lesson from these folks.

New Cargill/Excel Beef Plant in Iowa

            Cargill's wholly owned subsidiary, Excel, may build a new beef processing plant in Iowa.  Iowa was once the number one cattle producing state and has been seeking a new producer-owned plant.  Iowa has no beef packing plants currently.  The state's government and cattle producers will help foot the bill.

            In 1998, the Iowa Agricultural Industry Finance Corp. was created to help finance farmer-owned, value-added processing projects.  State officials say that this plant fits right in.  The Iowa Cattlemen's Association will try to recruit cattle producers to invest cash and cattle in the new plant.

            While more processing capacity can increase competition for cattle, it is troubling to see the nation's number two beef processor building the new plant.  New competitors are needed, not the same old ones who are bigger.  As Cargill receives checks from the Iowa state government and Iowa cattle producers, will it commit to returning farmers and ranchers a fairer share of the consumer dollar?  Or will it take the corporate welfare money and run? 

License plates against consolidation

            Several Minnesota state legislators, including Rep. Ted Winter, introduced legislation to create a new "Support Family Farms" license plate to raise money for a legal assault on corporate concentration in agriculture.  Minnesota Attorney General Mike Hatch said the money is needed to effectively monitor and enforce antitrust laws in the farm market.  The Minnesota House of Representatives leadership was skeptical about the proposal.

            Few, if any, states have the resources to mount an effective challenge to the merging agribusiness giants which are squeezing competition, and profits, out of the agricultural marketplace.  The license plate purchasing plan would be a voluntary way for citizens to contribute towards correcting the core problem in agriculture while also publicizing the dilemma family farmers are currently facing.

Monsanto may be sold

            Big Biotech is in trouble.  Despite the rhetoric of the biotech cheerleaders, clinical trials in medical biotechnology have shown little benefit and several deaths.  Plant biotechnology has suffered from spreading consumer rejection and a risk of farmer rejection if a segregated marketplace develops.  Investors have been abandoning biotech companies and choosing other options to target their money.

            Now Monsanto, under pressure from shareholders, is reportedly in talks to sell itself to Novartis AG of Switzerland.  Monsanto is an agribusiness company with a pharmaceutical business, G.D. Searle.  Investors argue that Searle alone has a potential market capitalization higher than an intact Monsanto. "The whole controversy over biotech is weighing down the stock," said one mutual fund manager.  The sum of the parts is worth far more than the current stock price.  Monsanto and Novartis are two of the top three seed companies in the world.

            With 20 top-notch plaintiff law firms, organized by the National Family Farm Coalition and Jeremy Rifkin, planning to launch antitrust actions worldwide against the consolidated seed industry, more evidence that Big Biotech controls too much of the seed market and too many biotech patents will become public.  A sale of Monsanto to Novartis should be viewed as very worrisome by row crop farmers.

ITC rules against R-CALF

The United States International Trade Commission determined on November 9, 1999, that domestic cattle producers are not injured by dumped Canadian cattle. The ITC’s decision, which was reached by a vote of 5 to 1, is the final step in the year-long investigation brought by the Ranchers-Cattlemen Action Legal Fund ("R-CALF"). The negative determination means the investigation is terminated.

This finding came despite an October 13, 1999 U.S. Department of Commerce finding that Canadian cattle were being sold at dumped prices ranging from 3.86 to 15.69 percent.  But the finding of dumping practices was not enough.  The ITC had to take the additional step to find that the U.S. cattle producers were economically injured.  The ITC failed to do so.

In an incredible organizing effort for a fledgling organization, R-CALF studied and framed the complex issues, mustered the funds to hire high quality international trade attorneys, and attracted the support of 25,000 petitioning individuals and 124 associations.  Leo McDonnell, R-CALF's president, said in a press release that he was very disappointed but that R-CALF will continue their efforts.  Agriculture needs more effective leadership like that of McDonnell and others active in R-CALF.

 OCM Website

            Remember that the OCM web site has a library of information, both academic and nonacademic, in full text relating to competitive markets, agribusiness consolidation and the affect to independent agriculture.  Designed by OCM Board Member Dr. John Helmuth, the web site should be used as a resource by members and nonmembers needing information to refute the misleading claims of the Food Cartels and their supporters.  It can be found at www.competitivemarkets.com.

[Edited by Michael C. Stumo]