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The Cargill approach

(Thursday, Feb. 26, 2004 -- CropChoice news) -- Caroline Daniel, Financial Times:Invitations to the first official banquet for Wen Jiabao, the Chinese premier, were in short supply last December in Washington. One of the few business leaders to receive one was Warren Staley, chief executive of Cargill, the largest private company in the US. He declined.

"You don't get to meet anyone [at these events], so I said I would send someone. So they said: 'If it was a smaller lunch?' There were about 30 of us and I had a chance to talk to him," says Mr Staley.

Two months later he met the Chinese vice-premier in China. They discussed what Cargill, one of the world's largest agriculture businesses, would do next in the country, where it has been active since President Richard Nixon's visit in 1972. The meeting, scheduled for 20 minutes, ran to 50.

"They encouraged us to continue in China and, in a way, it was to say thank you to us for being there for 30 years and for positively supporting their entry into the World Trade Organisation," says Mr Staley.

His admission could be seen by some as further evidence of the incestuous links between powerful agri-businesses and politicians. Even so, his comments are less a betrayal of arrogance than a simple reflection of the political reach - and trust - that Cargill has quietly accumulated over 140 years in business.

Moreover, with 101,000 people in 60 countries, including Brazil, Egypt and El Salvador, and revenues of more than $60bn last year, Cargill has considerable economic clout across the world. The China meeting was not a one-off: Mr Staley has dined with Fidel Castro of Cuba, and visited heads of state from Turkey to the Ivory Coast.

"When there is a new president of Central America, it would be courteous of me to call on them to explain our culture and investments," he says. "In the US, I don't have to do so much of that. A lot of people are very welcome with senators, with the administration and secretaries in Washington. In the UK, [as in] the US, I'm not going to call on heads of state."

Yet Mr Staley is sensitive to the dangers of being seen as "arrogant Americans over there, telling them how to run their business or government". He adds: "When we suggest to someone we have an issue and would like to meet them, the doors are almost always open because of the courteous manner in which we approach things, and our credibility. We don't present something as fact and they later find out it was wrong or biased."

At the heart of Cargill's philosophy is a belief in the benefits of free trade, which has led it to back China's drive to join the WTO and to support trade with Cuba. Such corporate beliefs are driven not by ideological imperatives but by economics, says Gregory Page, president and chief operating officer of Cargill.

The company tracks the evolution of diet across four components of food, including animal protein. "They show remarkable patterns. What they basically say is we need a wealthier world because there is a period from above $1,000 per capita [gross domestic product] up through $6,000 or $7,000, when diets evolve very interestingly for companies like Cargill.

"So we have been ardent proponents of free trade because we think it raises the per capita GDP of the world, and not because we have some pure political agenda," says Mr Page.

Sounding almost professorial, he offers the example of China. "The evolution of their diets has probably modestly succeeded historical trends we have observed elsewhere, which is to say that the Chinese love their food. It has created a huge opportunity, and we see that in wheat imports, imports of vegetable oil, total uses of chemical fertiliser. But it is all riding on the back of per capita GDP. So ours is a real simple business model."

That consistent focus has brought admirers in Washington. "What I appreciated was that they had a strong ideological position, and I mean that as a compliment. Their principles stayed true," says one former US government trade official. "They weren't simply looking in a short-sighted way at the bottom line but had an eye on the longer term. It made me more and more inclined to listen to them for trade negotiations."

For example, Cargill, drawing on its experience of operating around the world for more than a century during turbulent times, offers a nuanced and intelligent analysis of the problems that China faces in moving towards free trade.

"As China tries to develop its 1.1bn people, people guess there are 600m-700m farmers with very small holdings. For China to become what it thinks it can be in 25 years, it can't just tell the farmers we are going to absolutely free trade . . . what are you going to do with 600m people? They are going to move to the big cities, and that's the last thing China needs - more people heading for the big cities . . . It's a social problem, not just an economic problem," says Mr Staley.

In addition, Cargill has built up political credibility by sending its own executives to speak in person. "Rather than sending a bunch of partial facts to lobbyists, we use line managers to go to Brussels, Washington or Brazil. It is part of our model. It enriches their jobs, makes them realise policy does matter and keeps the right tone - that we don't lobby; we go and share information; it's an educational thing," says Mr Page.

This ability to carve out a unique path is a reflection of its ability, as a privately held company, to be insulated from short-term, earnings-driven lobbying imperatives. "They are not the kind of company that comes to Washington and takes a high profile and tries to throw their weight around," says one former US trade official.

Another says: "It was very rare that Cargill would call, compared with Monsanto, which called every hour. The two were book-ends in how to approach government, I wish other agribusinesses operated with their standards."

Cargill takes a longer-term view of its political priorities, distinguishing between structural changes and noise. "I'll take August 1998 in Russia," says Mr Page. "At that moment it was the most important thing in my life but, [in] the context of the evolution of the world food economy, it was noise, and time has proved that."

While some companies were angered by the failed round of trade talks in Cancún, Mr Staley dismisses it as "noise". He takes a similarly Olympian view of attempts to manipulate currencies. "We don't think anyone in the short run can affect currency movements. This is the invisible hand of Adam Smith. I kind of get amused when people get all exercised [and] someone ought to do something about the currency.

"The IMF has not had a good track record of pushing people to do this in the last 10-20 years . . . [in China] I don't think it is going to happen at all."

Closer to home, Cargill critics, opposed to agricultural consolidation, typically argue that it has had a sinister hand in setting US agricultural policy. William Pearce, a former vice- president under Nixon, helped draft a report calling for the removal of trade barriers. Dan Amstutz, a Cargill assistant vice-president, was chief negotiator for agriculture in the 1987-89 General Agreement on Tariffs and Trade negotiations and in 2003 was appointed to lead agriculture reconstruction efforts in Iraq.

Kevin Watkins, Oxfam's policy director, attacked the move as being on a par with "putting Saddam Hussein in the chair of a human rights commission".

Close political ties remain. Ernest Micek, Mr Staley's predecessor, sat on Bill Clinton's presidential export council, while Mr Staley sits on George W. Bush's. Last year he became a "pioneer", having raised more than $100,000 for Bush's campaign. "I'm not actively involved in the Republican party. I've been a person who raised money for this particular campaign, as I did last time," he contends.

In spite of these personal links, Mr Staley remains critical of the direction of US agricultural policy, and says that although Cargill will go on investing in the US, it expects the country's overall share of investment spend will continue to shrink. "Over 20 years you have fewer farms and the government is clearly involved in agriculture, otherwise why did you have declining commodity prices until just recently, and ever-increasing land prices? We sit here as a company and say that's probably not the healthiest investment climate for us.

"At the same time Brazil has very free markets. They have internal infrastructure challenges that can only improve. So Cargill makes a choice. Are we going to put a whole lot more money and grain and agriculture processing in the US, or in Brazil, Argentina or Russia or China?

"We don't react and we don't get excited or jump off the bridge because something doesn't go our way, or there is a surprise like the Russian shock. We sit back and say: 'OK, what is the opportunity here?' "

For all its ability to meet heads of state, and Cargill's personal ties to some politicians, its growth for almost 140 years has depended on taking a longer view than the gyrations of political careers or economic cycles.

"There will always be protectionism, which will be stronger in one place than another, which will depend on economies, or some new president coming in, or on ideology. For four or eight years we may revert, but we can't think in even four years, of a term of president. We just can't invest that way."

From Eddyville to Uzbekistan

Off a desolate stretch of road in Eddyville, Iowa, built around a 1950s power plant, is a sprawling 1,500-acre industrial agricultural complex. Two giant grain silos loom over a remote- controlled railway network and a docking station for the 500 grain trucks that trundle past "Heartland Drive", feeding the facility with raw materials every day.

Each year the plant - Cargill's largest processing facility for maize (or "corn", as it is called in the US) in the world and also its largest capital investment, costing more than $1bn - processes 85m bushels of maize, all of it sourced within 100 miles. The plant uses as much energy each day as a town of 100,000 and discharges 8m gallons of treated water into the Des Moines river.

The global reach of the Eddyville plant is evident from the visitors' entrance, where flags from the 54 countries it services, from Uzbekistan to Mexico, flap in the breeze. It started in the mid-1980s around basic grain processing activities, such as making high-fructose corn syrup for Coca-Cola and Pepsi, and gluten animal feeds, which it funnels, still soggy, into rail cars to be sent to farms in Nebraska and Oklahoma.

Over the past decade, however, Cargill has sought to escape the meagre margins of basic processing. It ferments grain into fuel-grade ethanol and citric acid, used in products from Kool Aid to processed cheese. Two of the largest cheese processors are based within 150 miles, and account for 70 per cent of the market.

Cargill has also harnessed biotechnology, for example transforming what was once a waste by-product into natural vitamin E, dubbed "golden oil", produced in partnership with Hoffman- La Roche, the Swiss group. Overall, less than 0.5 per cent of raw materials used at the plant end up as waste.

More recently Cargill has begun making food supplements such as phytosterol esters, composed of vegetable oil, fatty acids and plant lipids. This shift into more complex processing has taken on a new importance following Cargill's strategic review in 1998. It now wants to apply its old skills in the trading, supply chain management and processing of commodities in "food systems design", which it hopes will become one of its biggest sources of growth.

The unit has been formed over the past three years from existing businesses and acquisitions, such as the Duckworth Group, a British flavour company, and Cerestar, a European maker of starches and sweeteners. Robert Parmalee, food systems design president, says Cargill "is looking at key acquisitions to fill gaps".

Rather than selling commodities, the aim of the food systems design unit is to create "new-to-the-world things, ingredients and finished foods", says Mr Parmalee. It wants to work with its customers, not just sell to them.

He cites a new orange juice developed with Minute Maid that contains Cargill's new phytosterol esters. "We have a unique proprietary ingredient and are working with customers to help them create differentiation."

Yet new blood has been required to manage the transition. Paul Hillen, a brand management executive, recruited from Procter & Gamble, says: "One of the first changes when I came to Cargill was that the word 'consumer' was not brought up that often."

Since then he has created Cargill's first consumer research unit and a sensory testing laboratory. "For years, Cargill had analytics around wheat and flour and where to source it. We are taking that appreciation of the raw materials and applying it inside the food system," he says.