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Merger mania (Friday, Sept. 13, 2002 -- CropChoice news) -- The following information comes courtesy of The AGRIBUSINESS EXAMINER (http://www.ea1.com/CARP). It includes the CropChoice story about Bunge's proposed merger with Cereol, S.A.
WALL STREET JOURNAL: Kellogg Co. said it is recalling nearly
350,000 boxes of cereal in the U.S. because they may contain ingredients
that weren't listed on the labels but can cause life-threatening reactions
in people with certain food allergies.
The food maker said the cereals may contain egg, milk or soybean ingredients.
No illnesses have been reported in connection with the problem, it said.
Kellogg is recalling 327,400 packages of certain lots of 17-ounce Cracklin'
Oat Bran cereal distributed at retailers nationwide and 22,176 packages
of certain lots of 41-ounce Smart Start cereal sold at Costco and BJ's
Club Warehouse stores.
A company spokeswoman said consumers complained that they found something
in their cereal that didn't look like it belonged. An investigation revealed
that a "noncereal product" was mixed in with the Cracklin' Oat Bran and
another type of cereal made it into the Smart Start boxes, said Christine
Ervin, a Kellogg spokeswoman. She wouldn't identify what the "noncereal
product" was. "We're making other products in the same plant, and some
of the other product got into the cereal," Ms. Ervin said.
The recall applies only to Cracklin' Oat Bran with a product code of
38000 04530 listing the following 2003 dates: June 19 and July 17 through
July 19. The Smart Start products being recalled list a product code of
38000 71550 and a date code of May 9, 2003 KNC. Ms. Ervin wouldn't disclose
the anticipated cost of the recall.
JAMES P. MILLER, CHICAGO TRIBUNE: Federal antitrust authorities
approved Friday Archer Daniels Midland Co.'s $396 million acquisition of
rival ethanol producer Minnesota Corn Processors Inc. but attached a condition
to the controversial agricultural industry combination.
The giant Decatur-based processor of agricultural commodities formally
completed its purchase of Minnesota Corn Processors Friday afternoon, shortly
after the antitrust division of the U.S. Department of Justice signed off
on the transaction. The combination "will provide additional operational
efficiencies and better position ADM" in the ethanol and other corn-related
markets, said ADM President Paul B. Mulhollem.
ADM is the nation's leading producer of ethanol, a gasoline additive
derived from corn, which makes fuel burn cleaner. Minnesota Corn Processors,
a farmer-owned cooperative based in Marshall, Minnesota, is another leading
player in the fast-growing ethanol sector.
The addition of Minnesota Corn's six percent ethanol market share boosts
ADM's market position from an industry-leading 37% to a dominant 43% And
the deal makes the Illinois company enviably situated to benefit from provisions
of proposed renewable-fuels legislation, under which U.S. ethanol consumption
is expected to triple over the coming decade.
ADM purchased a 30% stake in Minnesota Corn five years ago. In May,
the two companies disclosed that they were in talks on a deal that would
give ADM 100% ownership. The prospect of the nation's leading ethanol producer
further boosting its share alarmed some legislators, who urged the Justice
Department's antitrust arm to scrutinize any such deal.
"Of particular interest," they wrote in a June letter, "is the high
level of market concentration within the ethanol industry among a handful
of producers." That concentration, they said, "creates a favorable environment
for price manipulation."
ADM officials downplayed the market share issue. "Four or five years
ago, ADM's market share in ethanol was as high as 70%," said ADM senior
vice president Larry Cunningham Friday. But because the market's growth
has attracted so many new players, he said, ADM's share has dropped even
though production on a volume basis has continued to climb.
ADM's ethanol output simply "hasn't grown as fast as the market," he
said. Cunningham added that since ADM has no plans to significantly expand
its capacity beyond the Minnesota Corn purchase, "our market share is going
to drift down even further" in coming years.
On Friday, the Justice Department issued its determination on the proposed
merger. And while most attention has focused on the 140 million gallons
of ethanol Minnesota Corn produces each year, the department's focus was
elsewhere.
Minnesota Corn is also a commercial corn miller, and makes high-fructose
corn syrup and other corn-derived sweeteners that are used in soft drinks
and other foodstuffs. It sells those products through a marketing joint
venture with Corn Products International, a Bedford Park processor.
ADM, as the nation's leading processor of commodity grains, is also
a major player in the corn syrup industry --- and one of its marketplace
competitors is the Minnesota Corn-Corn Products International joint venture.
The Justice Department decided that ADM's acquisition was a threat to competition
in the corn-milling sector. The department said that if ADM agrees to dissolve
Minnesota Corn's joint venture, it was willing to approve the merger.
In a standard procedural move, the antitrust team filed a lawsuit in
U.S. District Court in Washington, asking the court to block ADM's acquisition.
At the same time, the department and ADM filed an agreement under which
ADM promises to dissolve the venture by year-end. Assuming the court gives
its approval, the issue is resolved.
NICHOLAS E. HOLLIS, AGRIBUSINESS COUNCIL: The recent merger between
ADM and Minnesota Corn Processors LLC --- which further tightens ADM's
control of the so-called ethanol sector --- reflects another example of
Department of Justice antitrust "oversight asleep at the switch."
Coming on the eve of an anticipated expansion of ethanol use --- thanks
to the energy legislation and Senate Majority leader Thomas Daschle's extra
effort --- the consolidation is bad news for smaller farmers and consumers
seeking to rein-in ADM's spreading greed within the ag/energy sectors.
ADM is also the largest corn processor in the world.
Less noticed amid all the confusion is the plummelling ADM's only real
rival in the ethanol sector --- Williams Companies of Tulsa, Oklahoma ---
is receiving partially due to fallout in the natural gas transmission business
in the post-Enron era. With Williams edging closer to Chapter 11
with each day of hemorraging, ADM may be circling for an even bigger sweep.
What DOJ Antitrust does not care to factor is the de facto control ADM
exerts across many farm-owned ethanol producing facilities and coops ---
as the primary purchaser, financer and distributor of ethanol. Curious
coincidence too that earlier ADM pricefixing tapes revealed company officials
(since convicted) of utilizing trade associations such as the Corn Refiners
Association, as facades to mask their illegal activities.
With everyone distracted this week watch for the energy/ethanol robbery
to expand with a quiet deal which sends the energy legislation forward
for presidential signature.
ROBERT SCHUBERT, CROP CHOICE http://www.cropchoice.com/leadstry.asp?recid=904: When Alberto Weisser, the head
of Bunge Limited, addresses a Prudential Securities conference [September
4], he'll no doubt discuss Bunge's intention to buy Cereol, S.A. for more
than $800 million, plus its $700 million debt load.
The purchase of the French corporation will transform Bunge into the
world's leading oilseed processor. But that's not a good thing, say
critics of the merger. On the contrary, it is more of the anti-competitive
behavior that free trade agreements and economic globalization have exacerbated.
They point to a recent study by the National Farmers Union of Canada to
support their assertions.
"This is just one more example of the economically dangerous, out-of-control
merger mania that is continuing under the agribusiness-driven globalization
agenda," says Dan McGuire, director of the Farmer Choice-Customer First
program.
"These mergers eliminate competition and lead to excessive political
and economic power. It's bad from a national security point of view because
safe American grown food is so important to American consumers and these
multinationals import soybeans and other commodities from countries with
lesser food safety regulations than the U.S. and will use imports in the
future to depress prices paid to U.S. farmers in our domestic market.
"These mergers further exacerbate an already negative situation wherein
the very companies controlling U.S. commodity supplies, processing, futures
trading, cash market pricing and shipping are also doing the same thing
in the countries that American farmers are supposedly competing with. They
seem to have no loyalty to America or American farmers."
After its founding by Dutchman Johann Peter Bunge in 1818, the company
grew into a major international commodities trader by mid-century and later
moved to Brazil. In 1999, management relocated the Bunge corporate
headquarters in White Plains, New York to "position itself for a new phase
of global growth," according to the company website.
Seven soybean processing operations in the U.S. South and Midwest make
Bunge the third largest soybean crusher in the country.
This deal will expand that capacity. With the purchase of Cereol
--- bringing with it ownership of Central Soya Co. and CanAmerica --- Bunge
becomes the largest oilseed processor in the world, with 34 million tons
of soybean and canola crush, according to a company press release. Central
Soya operates six soybean processing plants in Ohio, Indiana and other
eastern farm belt states. North of the border, CanAmerica is the
largest processor of canola.
The Cereol buyout gives Bunge control of 25% or more of the U.S. processing
capacity. Archer Daniels Midland and Cargill control 26.4% and 21%,
respectively. Add up those numbers and it works out to three companies
dominating nearly 75% of the market.
This bid appears to be part of a trend. More than 85,000 corporate marriages
(valued at $3.5 trillion) were consummated during the Ronald Reagan- George
Bush era (1980-1992), says A.V. Krebs, editor of the AGRIBUSINESS EXAMINER
and author of The Corporate Reapers: The Book of Agribusiness. Those
numbers increased to 166,310 mergers (valued at $9.8 trillion) between
1992 and 1999. That of course was a time marked by Democrat Bill
Clinton's presidency, the North American Free Trade Agreement and the rise
of the World Trade Organization.
Even those who see benefits in or are neutral towards economic globalization
detect problems with this and similar mergers.
"Dominant firms seem to react to the idea of more competition by merging
to try to restore their market power. And unless that trend is stopped,
no one will benefit from globalization," says University of Wisconsin law
professor Peter Carstensen. "This [Bunge deal] is a problem from
the soybean producer's perspective because we see that buyer power occurs
at a much lower level of market share than on the seller's side.
If the
[processor] buys 25% of the crop, they have more power to push down
the price and competitors have every reason to go along."
John Hansen, president of the Nebraska Farmers Union, agrees.
"In the case of tightly held markets, the intelligence networks of major
players are so finely tuned that they don't need to meet to collude and
conspire to manipulate the market," Hansen says. "They simply need
to read the body language of their market partners. So it becomes the dance
of the elephants."
Transnational companies --- they, not farmers, buy and sell grain ---
have all the access to the information driving one another's "body language."
For outsiders, including regulators, to gain access can be difficult, says
Mary Hendrickson, a University of Missouri rural sociology professor specializing
in the social, economic and ecological implications of corporate concentration.
Although the Bunge-Cereol deal is subject to the approval of anti-trust
regulators, Hansen points to recent history as he expresses doubt about
their ability or willingness to stop it.
In 1999, the U.S. Justice Department allowed Cargill, the number one
U.S. grain supplier, to acquire Continental Grain Co., which was number
two. Cargill is big. It's the nation's largest private corporation.
With 82,000 employees in more than 60 countries, the company markets, processes,
and distributes agricultural, food, financial and industrial products.
It's the third largest beef packer, fourth largest pork packer, number
three turkey processor and number two owner of animal feed.
Darrin Qualman, executive secretary of the National Farmers Union in
Canada, shares a story similar to Hansen's about government permissiveness
of big mergers. In the late 1990s, the Canadian government allowed
ICG and Superior, the country's only two propane distributors, to merge,
thus "attaining in many regions a near-monopoly status."
Only a decade ago, nine companies shared the Canadian grain handling
market, Qualman says. Four of those were farmer-owned cooperatives.
Today, three corporations --- Saskatchewan Wheat Pool, Agricore United
(ADM maintains a 19% stake), and Cargill --- control 75% of capacity
in the major grain-producing area of western Canada. (It appears that Saskatchewan
Wheat Pool may soon be taken over by a U.S.-based
transnational, possibly ConAgra). He predicts that three or four
transnational grain corporations will soon dominate the North American
market.
Policymakers seem to justify national monopolies as necessary to compete
with international conglomerates in a world of economic globalization and
standardization.
"In an Orwellian development, companies that are merging to reduce competition
are saying they're doing so to become more competitive," says Qualman,
who helped produce the Farmers Union report about the effects of free trade
on Canadian farmers.
Although its agricultural and food exports have increased from C$10.9
billion in 1988 to C$28.2 billion this year, farm income has risen only
marginally and farm debt has nearly doubled. All the farmer-owned
grain handling cooperatives were bought out or went bankrupt, and the percentage
of dairy products that co-ops are processing dropped from 60% in 1988 to
35% this year. The report is available at http://www.nfu.ca.
Before an alternative business model --- real competition, with more
than a few players --- can took root, the government must change its regulatory
approach, says Hansen of the Nebraska Farmers Union. Following the European
model might be the way to go. In that case, once a certain number of players
acquire a certain amount of market share, the government stops further
concentration and mandates divestiture. That would mean breaking up Cargill,
Bunge and other large transnational companies.
Once this new regulatory paradigm were in place, he says, farmer owned
cooperatives could play a big role in re-energizing rural economies and
communities without the threat of a big corporate buyout. But this isn't
going to happen with the Bunge-Cereol deal. A Justice Department
spokesperson says the anti-trust division "looked into it and the investigation
is closed." Bunge representatives would not return calls seeking comment.
FRANK J. PRIAL, NEW YORK TIMES: E.& J. Gallo, the world's
largest wine producer, has agreed to acquire the Louis M. Martini Winery
of St. Helena, California, one of the oldest premium wineries in the Napa
Valley. Terms of the deal, announced late Monday, were not disclosed.
The Martini winery produces 120,000 to 150,000 cases of wine a year;
Gallo, which is based in Modesto, Calif., produces about six million cases
a year.
Owning Martini will give Gallo a larger presence in the Napa Valley,
supplementing the company's already vast holdings in the neighboring Sonoma
County. The acquisition is the latest step in Gallo's efforts to change
its image from that of a producer of inexpensive blended and fortified
wines based in California's Central Valley to a maker of premium varietal
wines.
Carolyn Martini, the president and chief executive of the Napa winery,
will retain her title, as will her brother Michael, who is vice president
and winemaker. Ms. Martini said the new arrangement would lead to a
consolidation of wholesale distributors. "It's just getting incredibly
difficult for a small winery to get distribution and to control growing
its brand in the market," she said in an interview with The Sacramento
Bee.
Louis M. Martini, Carolyn Martini's grandfather, arrived in San Francisco
from Genoa, Italy, in 1899 and worked with his father in the fish business
before moving to Livermore, California, to try making wine. In 1922, he
formed L.M. Martini Grape Products in Kingsburg, California, to make
grape juice, grape concentrate and sacramental wines, all legal during
Prohibition. In 1933, on the eve of the repeal of Prohibition, he built
his Napa Valley winery in St. Helena, the same year that the brothers Ernest
and Julio Gallo started their business in Modesto.
Louis M. Martini, who died in 1974, was succeeded by his son Louis P.
Martini, who died in 1998. His daughter Carolyn joined the business in
1975. The Martinis own about 720 acres of vineyards in Napa and Sonoma
counties.
Robert Gallo, co-president of E.& J. Gallo, said the company "intends
to continue the tradition of fine Napa and Sonoma wine-growing and
winemaking established by Louis M. Martini and his family."
PIA SARKAR, SAN FRANCISCO CHRONICLE: When one of Napa Valley's
oldest wineries fell into the hands of the world's biggest wine producer,
hardly anyone flinched, as industry experts pointed to a larger trend in
the making.
E&J Gallo finalized its deal to buy the Louis M. Martini Winery
in St. Helena on Monday. Neither company would disclose the purchase price,
but Carolyn Martini, president and chief executive officer of the winery
and a granddaughter of founder Louis M. Martini, described how her company
got squeezed out of the market because of the shrinking number of distributors
that midsize wineries can now do business with.
Rich Cartiere, publisher of Wine Market Report in Calistoga,
said it is a trend that should come as no big surprise. "Everyone thought
it was going to happen eventually, and now it's here, finally," Cartiere
said.
Twenty-five years ago, there were around 45 distributors. Now they're
down to a handful. The numbers of supermarket chains that carry the different
brands of wine has also dwindled.
Cartiere said that retailers want to deal with as few distributors as
possible while still stocking a broad range of labels on their shelves.
This has forced distributors to consolidate while trying to preserve their
selection of wines.
"That's a bottleneck in the system," said Vic Motto, a St. Helena wine
industry consultant. "You have thousands of brands trying to reach thousands
of stores --- by a handful of distributors."
In the end, the large wineries that offer lower prices survive alongside
specialized smaller wineries that can afford to charge higher prices because
customers are willing to pay for the uniqueness of their product. Left
in the cold are the midsize wineries, which have to fight to distinguish
themselves.
"It's been difficult the last two years," said Mark Cave, general manager
of Edna Valley Vineyards in San Luis Obispo, who spends much time on the
road meeting with distributors to ensure that his product stays on store
shelves. Cave said it is crucial for wineries, especially midsize ones,
to keep their names out there for distributors to see. "If you're not letting
them know what's happening at the winery, you tend to get lost in the shuffle,"
he said.
One way that Edna Valley Vineyards has been able to keep up with its
larger competitors is by joining the Chalone Wine Group in Napa, which
handles marketing and sales for 13 independent wineries. Cave said this
gives his winery the advantages of the marketing budget of a big company.
Tom Selfridge, president of Chalone Wine Group, said all this consolidation
among distributors only creates new demand. Areas such as brand building
that are neglected because distributors have gotten too big might very
well lead to the creation of small distributors all over again. "This is
a free enterprise economy, and when there's a vacuum, there's a rush to
fill it," he said.
LISA BOSE McDERMOTT, TEXARKANA GAZETTE: Court filings are flying
between Pilgrim's Pride growers and the company in the dispute over how
growers are treated. Pilgrim's Pride chicken farmers upset with the company's
practices struck back at the nation's No. 2 poultry company by filing a
national class action lawsuit in July in federal court in Texarkana, Texas.
Cody Wheeler, Don Davis and Davey Williams, three Lufkin,Texas-area
chicken farmers, sued the Pittsburg, Texas-based poultry company on behalf
of the company's 3,000 to 4,000 growers nationwide.
Pilgrim's believes that the lawsuit --- if it is to be tried --- should
take place in Lufkin, where the named plaintiffs live. It has asked U.S.
District Judge David Folsom to move the lawsuit from Texarkana to Lufkin.
The farmers complain that Pilgrim's Pride's way of doing business is "manipulative,
coercive, fraudulent, overreaching, deceptive and unfair." They argue the
company forces them to modernize and controls all aspects of the growing
process which also dictates how much growers are paid.
The company owns the hatcheries, feed mills, processing plants and distribution
centers. The company also owns the birds, feed and medicine distributed
to the farmers. In return, the farmers provide the land, buildings, equipment,
utilities and labor involved in growing chickens.
Under what is described as the "vertical integration arrangement" farmers
put up half of the capital costs but have no say in the terms of the arrangement
of the growing of the birds. This is typical of the chicken industry but
the Pilgrim's Pride growers think it's wrong and contend their lawsuit
will end this practice.
Pilgrim's Pride argues that the lawsuit-which it argues is an attempt
for the growers to overtake the company-is without merit. They want the
lawsuit dropped. Growers deny this. "This action is an attempt to force
Pilgrim's to obey the law, not wrest control.
"Wresting control is padding out $10,000 checks to Senators as Bo Pilgrim
did on the floor of the Texas Senate in an attempt to gain control of the
Texas legislature. Wresting control is being the man to donate more money
to then Gov. Bush than any other person on Earth so Pilgrim can influence
Texas agriculture policies," the growers argue in recently filed court
documents.
ASSOCIATED PRESS: Tyson Foods Inc. lowered its earnings projections
for the fourth quarter and for fiscal 2002 [September 4], blaming a
restructuring of its swine operations and a marketing change. Its shares
fell.
The company, the world's largest processor of beef, chicken and pork,
said fourth-quarter earnings should be in the range of 13 cents to 15 cents
per share and that fiscal 2002 earnings should be in the range of 97 cents
to 99 cents per share. On July 30, Tyson had projected fourth-quarter earnings
in the range of 24 cents to 28 cents per share and fiscal 2002 earnings
in the range of $1.08 to $1.12 per share.
Analysts surveyed by Thomson First Call expected Tyson would earn 26
cents a share in the fourth quarter and $1.05 a share for the year. In
trading Wednesday, Tyson shares fell 1.8 percent, or 22 cents a share,
to close at $12.19 on the New York Stock Exchange. Tyson's earnings report
is expected November 11.
The company said its fourth-quarter projections changed because of a
planned charge of $20 million to $30 million before taxes to restructure
its swine operations and the $27 million cost of conversion from its Thomas
E. Wilson brand name.
Tyson is awaiting the outcome of a U.S. Department of Agriculture probe
into the company's decision to reduce its live swine production. The move
would end Tyson contracts with 132 hog farmers in Arkansas and eastern
Oklahoma, and the producers are also eager to learn the result of the federal
inquiry. Tyson plans to shed 200 jobs.
A USDA team from the Grain Inspection, Packer and Stockyard Administration
division visited the Tyson headquarters in Springdale on August 22 and
23. Nicholson said results of the investigation have not yet been released.
Tyson Foods last month that it will drop the Thomas E. Wilson brand
of meat it acquired after taking on meatpacker IBP Inc. and will replace
the brand name with its name on some beef and pork product lines. Tyson
said it will temporarily offer unbranded meat to stores wishing to use
their own label. Tyson last year acquired IBP Inc. of Dakota Dunes, South
Dakota, for $3.2 billion in stock.
SUNNI THIBODEAU, TEXARKANA GAZETTE: No one can deny Tyson Foods
Inc. is a giant in corporate America. It is the No. 2 food production
company in the US, earning more than $10 billion in annual sales, and ranks
No. 488 on the Global 500. With operations in 18 states and 15 countries
and exports to 73 countries worldwide, whatever move the company make is
high profile.
Lawsuits dog the company, from workers' grievances to the bitter quarrel
between rival ConAgra over trade secrets. Tyson won a $25 million settlement,
lost it and then lost it again in a series of court and Federal Trade Commission
findings.
The loss is hardly a glitch in the company portrait. Company stock is
on a roller coaster, with a 52-week high of $15.71 earned last June and
a low of $8.10 in September 2001. Now, stock prices are edging up as the
company looks to cut back its swine operations.
The stock market knew before hog producers knew, a move that Tyson Foods
Corporate Public Relations Manager Ed Nicholson said was necessary because
the decision was material to earnings. "We didn't wait around when the
decision was made," he said. "We had to tell the stock market before
the grower."
The cutbacks won't cause so much as a hiccup in the overall company
operations. But for those who placed their trust in the company and
hoped to make a living growing swine, the move is devastating. Although
company statements about the restructuring state most farms are diversified
and many are paid for, the farmers are telling a different story. Many
farmers claim the swine operations as their primary source of income.
Some are widows, some are young married couples and some are simply
couples who have sunk their life savings into expensive and now-useless
buildings, lured by a promise from a company they say they trusted. Hog
producers report feeling "stupid" for investing years of their lives and
hundreds of thousands of dollars into an operation that may have paid for
itself, but left them with nothing else to show for their time or investment.
Many will lose their farms. Many will leave the area to start new lives
elsewhere. And all are still responsible for the lagoons and holding ponds
installed at the farmer's expense to raise Tyson hogs. But the producers
are ready for battle. Scores of lawyers have descended on the quiet
area, briefcases in hand, ready to take the action into the courtrooms.
And although the company met immediately with growers one-on-one to make
offers concerning existing contracts, they are now hand-delivering a second
option to eligible growers. No word on what those secondary offers contained
was available at presstime. |