CARGILL: THE INVISIBLE GIANT

By Brian Ahlberg

WHILE MANY HAVE tried to get a fix on the company that ships about a quarter of all U.S. agricultural exports each year, Cargill, Inc. and the rest of the grain trade remain, as Dan Morgan, author of the classic Merchants of Grain wrote in 1979, largely "shadowy and unknown."

Whitney MacMillan, the 59-year old head of Cargill Inc., avoids revealing very much about the agribusiness giant he heads. But few doubt that Cargill, America's largest privately held corporation, exercises great influence over U.S. farm policy.

"There's no question that during the Reagan administration Cargill has been calling a lot of the shots, both on domestic and international agricultural policy," says Dave Ostendorf, director of Prairiefire Rural Action, a farm advocacy group in Des Moines, Iowa. Many U.S. Department of Agriculture (USDA) officials, and even members of Congress, are "in Cargill's pocket," according to Ostendorf. And yet, because the company is privately held, it is "removed from scrutiny and accountability," he says. Few farmers, Ostendorf notes, know all the company does.

Cargill's business dealings are far-flung. In addition to being the world's largest grain trader, the company has recently expanded into beef slaughter and beef packing in Canada, oilseed processing throughout Asia, poultry and pet-food processing in South America and seed research in South Africa.

Cargill is often its own best customer. Not only does the company mine phosphates and produce nitrogen for fertilizers sold to grain farmers, it also designs seeds for the grain it will later buy and sell. And after grain passes through the appropriate portions of Cargill's vast system of elevators, terminals, barges, trains and ocean vessels, it most often ends up being fed to animals--another specialty of Cargill, which is heavily involved in both feed grain processing and the slaughter, processing and packaging of beef, poultry and pork. Cargill has grown outside of agribusiness as well, acquiring salt-mining, steel-milling and even oil pipeline interests.

"There isn't a country over there we don't do business with," MacMillan told the Minneapolis Star Tribune recently, referring to Cargill's grain sales in the Soviet Union and Eastern Europe. "And there isn't a country over there we wouldn't like to do more business with." Obtaining, controlling and manipulating information have long been the keys to sustaining the Cargill empire. Secrecy and low- key political sophistication are important elements of the company's approach.

Cargill employs a large international network of intelligence- gathering operatives, all plugged in electronically to the company's French chateau-style headquarters in the Minneapolis suburb of Minnetonka. Weather, crop, price, currency, market and political data pour in daily from around the world for interpretation by Cargill traders and managers. Former U.S. Secretary of Agriculture Bob Bergland has said the company's capacity to get political and economic intelligence related to world food and agriculture exceeds that of the Central Intelligence Agency. Such information can translate into big profits at the Chicago Board of Trade or the Minneapolis Grain Exchange, where daily fluctuations in commodity futures prices are the subject of intense speculation.

In 1987 Forbes magazine ranked Cargill the country's largest private corporation for the third year in a row. (A company is considered private either because it has too few shareholders to file reports with the Securities and Exchange Commission, or simply because it does not offer public stock.) According to a 1986 company prospectus, Cargill's $2.6 billion in shareholder equity was divided among fewer than 50 descendants of the original company founders--many still living in Minnesota and named Cargill or MacMillan--and fewer than 450 current members of management. The company offers no public stock.

Cargill's annual sales in excess of $32 billion make it 50 percent bigger than the second largest private U.S. firm, Safeway, which enjoyed $20.3 billion in 1986 revenues. Cargill is more than twice as large as third place Continental Grain. All three are exceptional: only 106 of the country's approximately 7 million private companies had 1986 sales over $1 billion, according to Forbes. The country's 10,000 public companies, by comparison, are much larger. The combined 1986 sales of the top 400 publicly traded companies amounted to more than five times those of the top 400 privates. Cargill's sales, nonetheless, would have placed the company at number 8 among 1987's Fortune 500 largest industrial corporations--between AT&T and Texaco.

The world's grain trade has long been dominated by a handful of privately held corporations, historically referred to as the Big Five. The five have recently been joined by a large public corporation, Mitsui/Cook of Japan, to form the "big league" firms--or Big Six--that handle about 85 percent of the world's grain trade. Completing the original Big Five after Cargill and Continental (based in New York and run by the Fribourg family) are: Louis Dreyfus, controlled by the French family of that name; Andre/Garnac,likewise named after its Swiss family owners; and Brazil's Bunge and Born, which is controlled and operated by the Hirsch and Born families. Seven families and one Japanese conglomerate essentially run the international grain trade.

Cargill is the biggest of these grain merchants. Because the company is so closely held, it seldom discloses financial information. But twice in the last three years Cargill has chosen to file a prospectus for debt offering, thus affording glimpses of its earnings and reach. According to a February 1987 prospectus filed in London, for example, Cargill's pre-tax earnings for fiscal 1986 were $409.5 million. That figure represented a dramatic 66 percent increase in profits from a year earlier. The news surprised many observers because the jump took place despite static sales about $32 billion worldwide for both years--and because it occurred during the throes of a serious economic crisis for farmers. Cargill routinely claims in public that its fortunes are tied to those of U.S. farmers, a fact belied by Cargill's growth in the last three years even as 200,000 family farms were failing.

Anne Kanten, assistant secretary of agriculture for Minnesota, has accused Cargill of reaping windfall profits from provisions of the 1985 Federal Farm Bill. The law kept commodity prices paid to farmers low while the government subsidized high-volume exports. In an article she wrote for Statewatch, a Minnesota public interest newspaper, Kanten said the farm bill "was engineered by and for the grain trade, enabling traders to increase their profit margins by cutting the returns to producers." Current federal farm policy, Kanten argued, "takes money out of farmers' pockets, out of rural communities, and transfers it to corporate bank accounts."

Kanten's claim is echoed throughout progressive farm policy circles. Prices farmers receive for most commodities are set by the government through federal loan programs. These prices have been kept low--often well below farmers' costs of production-- guaranteeing cheap raw materials costs to agribusiness and allowing U.S. traders to undercut competitors in foreign markets. These low prices have helped drive 600,000 farm families out of business since 1981. Many who remain on the farm are sustained only by deficiency payments, which have risen to record levels.

Instead of managing the supply of farm products and setting fair prices to alleviate social costs, U.S. farm policy's "market oriented" approach stimulates overproduction to keep commodity prices low. The intentional over-production encourages environmentally disastrous farming practices, promoting soil erosion and reinforcing dependency on high energy use, fertilizers and pesticides. It also has led to the most expensive farm program in history. Farm programs which had never cost taxpayers more than $6 billion a year before passage of the 1985 farm bill soared to $30 billion in 1986.

But the cheap-commodity/high-production policy benefits input suppliers and agribusiness. They profit from high acreage planted, from the value-added steps in the food-product process and from high-volume exports. Since 1980, over half of U.S. cash-crop receipts have come from sales abroad. More than one- third of harvested acreage in the United States is devoted to producing for the export market. And since companies such as Cargill also control much of the country's storage capacity, they profit from government-managed surplus programs as well.

Cargill influences U.S. farm policy in a variety of ways. Through its PAC, the company contributes mainly to members of Congress from farm states and to those who serve on agriculture committees. The Cargill, Inc. Political Action Committee gave a total of $114,400 to 50 candidates in the 1986 election cycle, 42 of them Republicans. Former Sen. James Abdnor, a South Dakota Republican, was the largest beneficiary, receiving $10,000, while Rep. Thomas Foley, D-Wash., led Democratic recipients with $2,000. It belongs to more than 20 trade organizations with offices in Washington, D.C. And Cargill employees have rotated through positions at the USDA to the extent that one government investigator called the practice "structural corruption."

In addition, home-state politicians play a special role. Hubert Humphrey was long known as a friend to Cargill. In 1980, when President Jimmy Carter imposed a grain embargo against the Soviet Union, Vice-President Walter Mondale ensured that grain companies were compensated for lost sales. In any case, the Soviets had little trouble circumventing the embargo, and many industry analysts believe that grain traders made a killing on price fluctuations. Another Minnesotan, Bob Bergland, secretary of agriculture at the time, blocked any investigation into grain company contracts, insisting that the data was "market sensitive."

In 1987, Cargill was part of a consortium of agribusiness companies--fertilizer and pesticide manufacturers, food processors and grain traders-that worked to help defeat the Save the Family Farm Act, popularly known as the Harkin-Gephardt bill, which would have limited crop production and raised commodity prices to reflect the cost of production. The companies enlisted a consulting firm run by two former USDA officials to lobby against the measure, which would limit crop production and raise commodity prices. Cy Carpenter, president of the National Farmers Union, accused the companies of being "involved in a deliberate effort to force prices down. That is pure exploitation." The Minnesota Farmers Union also denounced the lobbying effort, claiming that "corporations profiting from the suffering of family farmers would like to rule as landlords over a permanent rural underclass."

In fact, Cargill would like to push farm policy even further in its present direction. Company president James Spicola has said that the United States should stop idling cropland so farmers won't miss the opportunity to cash in on the "export boom." Don Hilger, senior economist in Cargill's commodity marketing division, told the American Agricultural Editors Association that the United States should cut programs that pay farmers not to produce. And in a Cargill newsletter, Tom Palmby, president of domestic soybean processing for the company, advocated modifying farm programs "to enable farmers to receive deficiency payments while being free to plant what makes sense in terms of profitability in the marketplace."

Palmby's proposal finds a champion, not surprisingly, in Sen. Rudy Boschwitz, a Minnesota Republican who sits on the Senate Agriculture Committee. Boschwitz has twice introduced "decoupling" bills that would separate farmers' income- maintenance payments from production decisions. The income payments, which would be even more clearly seen as welfare than are current deficiency payments, would then be phased out after five years. "Decoupling," the code word also often used by Cargill officials, would end what remains of supply management. It would bring continued over-production, low commodity prices (with the consequent rural dislocations) and greater market fluctuations, as has been shown historically by past attempts at "free market" agriculture.

The deceptive concept of "market-based" agriculture in domestic policy has its counterpart in "free-trade" ideology internationally. The Reagan administration has embarked on a highly touted crusade to end farm subsidies in all countries by the year 2000 and to break down farm-product import barriers. At the moment, that call coincides with massive, subsidized dumping of U.S. surplus onto international markets at prices below the cost of production. The U.S. proposal, made to the General Agreement on Tariffs and Trade (GATT) in Geneva, would end those direct subsidies, which assist traders. But if chief U.S. agricultural negotiator--and former Cargill executive--Daniel Amstutz, gets his way, such international agreements would also block effective supply management in the United States. Over- production and low commodity prices would be virtually assured.

Whether or not Cargill and U.S. negotiators prevail at GATT, the current trade war between grain-exporting countries depresses commodity prices worldwide. To boost income, exporting countries must produce more and more grain, using the same environmentally damaging practices as are standard in the United States. In many Third World countries, farmers cannot compete with the artificially cheap imports flooding their markets. As they are forced from their farms, their land is integrated into the international agribusiness system--often to produce for the export market. The countries lose food self-reliance and divert foreign exchange from other pressing needs in order to buy food. Cargill publicists often praise this process as practical, and say it shows how U.S. agriculture can "feed a hungry world."

Cargill's international altruism has, however, been questioned from many quarters. The company is the target of "various antitrust, tax and other governmental investigations," according to its own prospectus. The company has pled guilty or settled out of court on a number of environmental and price-fixing matters. And its traders have been expelled from the Chicago Board of Trade three times. Cargill's labor practices have been subjects of dispute in several countries. At Cargill's profitable salt mines in Lansing, New York, the company successfully broke a year-long strike by 100 International Association of Machinists (IAM) workers, winning decertification of the union in April 1987. International Labour Reports documented that Cargill precipitated a strike at its soybean-crushing plant in Liverpool, England in late 1986 in an effort to bust the union there. In Holland, where Cargill's takeover of the General Cocoa/Gerkens Group has made the company one of the top four cocoa processors in the world, the company has adopted a "take it or quit" attitude toward Dutch FNV union federation workers, according to the International Labour Reports.

Cargill has been charged with tax avoidance in England, underweight deliveries in India and manipulating prices in Brazil. Grain purchasers in Europe complain that U.S. grain merchants blend grain of different qualities to the point of delivering inferior product and damaging U.S. farmers' reputations. The companies constantly search for ways to manipulate prices on futures, certificates, storage and transportation, customers complain. But Cargill, which has been buying and selling grain since 1865, does not worry about minor challenges and dissatisfactions. "Every day," company president Spicola told a reporter in 1986, "there are more and more people out there who need to be fed."

Brian Ahlberg is a freelance writer in Minneapolis, Minnesota.