John Croft, Star Tribune

Francis Wingert, left, and Kent Ekstrom visited a Cargill research farm in Elk River in 1981, where scientists were testing hog feed.

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Our Hungry Planet: Cargill looms as a silent giant

Veiled in secrecy, the Minnetonka-based conglomerate -- with $120 billion in annual revenues -- holds much sway over world food costs.

Last update: December 4, 2008 - 3:55 PM

One day last April, in an impassioned call for action, the president of the World Bank declared that 100 million people worldwide would fall deeper into extreme hunger and poverty. The reason: Higher food prices.

The next morning, at the stately headquarters of Cargill Inc. near the wooded shores of Lake Minnetonka, executives celebrated their most profitable quarter in history. The reason: High food prices.

The giant food and agricultural company, along with others in the industry, became a corporate punching bag for human rights groups, academics and world leaders looking to assess blame for the worst food crisis since World War II.

The president of the United Nations General Assembly went so far as to accuse the industry of subordinating the "essential purpose of food, which is to nourish people."

In every crisis, there are winners, and if profiting from instability in the world food markets was a crime, the list of culprits would be long.

Commodities traders, speculative hedge funds and farmers from the Midwest were among the many reaping money from this year's dramatic run up in world food prices.

What sets Cargill apart is not its profits -- which as far as large corporations go, are relatively modest as a percentage of its sales -- but the company's enormous size and role in global food markets, say agricultural experts. With $120 billion in annual revenues, Cargill is bigger than the economies of more than two-thirds of the world's countries, including Kuwait, Peru and Vietnam. Its sales exceed those of Disney, Kraft Foods and PepsiCo -- combined -- and it is nearly twice as large as its next closest competitor, Archer Daniels Midland.

With a leading position in nearly every phase of the food distribution system, Cargill can influence agricultural markets around the world and affect prices consumers pay for everything from hamburgers to bread, according to some agricultural economists.

Cargill argues many factors affect the world's increasingly interconnected food markets. In an August speech, CEO Greg Page said much of this year's price increases were caused by dozens of countries enacting trade barriers for food. The result was panic, as countries like Egypt "went out and paid whatever price necessary to gain the food stocks they needed," he said.

"Did Cargill cause the price increases?" Page asked. "The answer is, 'No.' Cargill is not big enough to cause food price increases, even if we wanted to."

But Cargill's size and the fact that, as a private company, details about its finances, organization and operations remain largely hidden from the public, arouses concern among some farmers, agricultural economists, anti-trust experts and even consumers.

"The question is, do we really want this much of our global food system under the control of a single company about which so little is known," asked Mary Hendrickson, a professor of rural sociology at the University of Missouri. "This is what we eat, after all."

Founded in 1865 by brothers William Wallace and Samuel Cargill, Cargill started out as a lone grain-storage flat house in tiny Conover, Iowa. The Cargills expanded quickly by buying or building grain elevators along the westward-expanding railways. Over the decades, they added flour mills, salt mines, cattle slaughterhouses, ocean barges and a vast network of grain trading offices overseas.

Today the company has operations in 67 countries and employs 160,000 people.

Quietly rich

In the past five years, sales have doubled, and its profits tripled as the impact of rising commodity prices have rippled through its many businesses. The company earned $3.95 billion in its fiscal year ended May 31, up 69 percent from the year earlier. The company does not break down its profits at the operational level.

Some 100 descendents of the founding Cargill and MacMillan clans are among the beneficiaries of those profits. In the last fiscal year, shareholders were paid $407 million in dividends. Since 2002, dividend payments have totaled more than $1.6 billion, according to financial statements filed with the government.

But unlike previous generations that ran the company, today's family owners aren't actively involved. Six family members are on the company's board of directors, but Cargill declines to identify them, citing their privacy. None of the more than 30 family members contacted for this story agreed to be interviewed.

"Everyone knows they make a ton of money, but no one really knows how," said Michael Tian, an agricultural analyst at Morningstar.

By remaining private, Cargill has been able to pursue new businesses with a patience not shared by many public corporations beholden to Wall Street. For instance, when Cargill moved into the fertilizer business in the mid-1980s, fertilizer prices were near historic lows and Cargill initially lost tens of millions of dollars.

"Their whole approach is to buy when the chips are down and then build," said Brewster Kneen, author of a book on Cargill. "They exhibit extraordinary patience."

The company's reach extends well beyond its traditional grain business. Today, the company provides the eggs in McDonald's breakfast sandwiches, the corn syrup in Coca-Cola, the flour in supermarket bread, and the salt in fast-food French fries.

It is among the nation's top four largest producers of beef, pork, turkeys, animal feed, salt and flour. Critics argue that such a high degree of concentration among a handful of large producers distorts the behavior of the markets.

"The food system is so centralized that, when a food crisis hits like it did this year, we are less able to react," said Eric Holt Gimenez, executive director of Food First/Institute for Food and Development Policy. "We get these tremendous spikes in commodity prices. ... It also shows up at the cash register."

It's one reason why prices of many staple food items, including beef, rice and flour, have remained high even though the prices of the underlying commodities have plunged since the spring, said Timothy Wise, deputy director of the Global Development and Environment Institute at Tufts University. "Once prices go up, they tend not to fall back to their previous levels for quite some time," he said.

Cattle dominance

Nowhere is this price stickiness more evident than in the beef industry, which is among the most concentrated of all agricultural sectors. Today, just four companies -- Cargill, JBS S.A., National Beef Packing Co., and Tyson -- process more than 80 percent of the nation's grain-fattened cattle.

Cargill has five giant feedlots that fatten an estimated 700,000 cattle each year. Many are sent to Cargill's meatpacking plants, which slaughtered 6.33 million cattle last year.

The effect is that millions of Americans eat steaks from cows fattened on Cargill grain, raised in Cargill feedlots, and slaughtered in Cargill packing houses. "They have control over nearly every step of the cattle production process," said C. Robert Taylor, an agricultural economist at Auburn University.

The U.S. Department of Justice in October filed a civil lawsuit to block the proposed merger of JBS S.A. and National Beef. According to the lawsuit, the deal would have concentrated control of cattle slaughtering capacity in the hands of a "three-firm oligopoly," one of which is Cargill. If the deal were to go through, "grocers, food service companies and ultimately United States consumers likely will pay higher prices" for beef, the Justice Department warned.

Consumers are already paying the price for such concentration in the beef industry, said Peter Carstensen, a law professor at the University of Wisconsin and former anti-trust attorney in the U.S. Department of Justice. "If you drive down the amount of beef being produced, the price to the consumer is going to go up," he said.

The price of a pound of ground beef hit an all-time high of $2.42 a pound in September, up 8 percent since December. Beef prices are up 26 percent since 2000, after adjusting for inflation.

But Cargill officials argue consumers get more consistently tender meat by working closely with its own feedlots. Cargill and its animal nutrition experts can provide feedlots constant feedback on the quality of the beef coming through its slaughterhouses, said Mark Klein, a Cargill spokesman.

"It's a flow of information that didn't exist before," he said. "Alliances are good, and the best place to start an alliance is in your own back yard."

Cargill officials also note that the company owned only about 11 percent of the cattle slaughtered in its feedlots -- not enough to influence national prices for cattle. "We simply don't own enough of our own supply to do what our critics say we're doing," Klein said.

As popular as Big Oil

A consolidated fertilizer industry has also been a concern, particularly to farmers. The world's five largest fertilizer companies control more than 75 percent of the global production of potash and phosphate, two key fertilizer ingredients.

Cargill is among them. The company has a 65 percent stake in Plymouth-based Mosaic Co., which owns more than 300,000 acres of phosphate mines in central and western Florida. In September, Mosaic said it would cut production of phosphate, a move some farmers interpreted as a way to keep prices near their record level of $1,000 per metric ton, nearly triple from the previous year.

These higher prices helped Mosaic's profits jump to $2.08 billion from $420 million in its fiscal year ended May 31.

At least four lawsuits accuse Mosaic and other companies of conspiring to fix fertilizer prices. The North Dakota Farmers Union in May accused Mosaic and other fertilizer companies of "price gouging" and called for a federal investigation.

"Out here, the fertilizer companies are about as popular as Big Oil," said Jim Nichols, a former Minnesota state agriculture commissioner who farms corn in Lake Benton, Minn. "Fertilizer costs are killing us."

Mosaic officials deny accusations of wrongdoing, and some legal experts say price manipulation in this case would be difficult to prove.

Even so, unless prices fall soon, some farmers may curb planting of fertilizer-intense crops such as corn on substandard soil, leading to smaller crops, warned William Heffernan of the University of Missouri.

"With these high fertilizer prices, Cargill has laid the seeds for another year of high food prices," Heffernan said. "The impact on consumers' pocketbooks will be real."

Cargill officials and many economists argue that its critics are ignoring the root cause of this year's run-up in food prices -- supply and demand. The spectacular economic growth in Asia, for instance, meant more people devoting more income to food, causing demand and prices to rise.

Meanwhile, market concentration hasn't changed much in many industries, including beef, pork and flour milling, over the past several years. "It just doesn't hold water," Klein said. "Our critics take the most recent complaint and match it with a number in an apparent cause and effect."

The fact that prices of staple food commodities have plunged since the spring -- corn prices have fallen more than 50 percent since June -- is evidence that large agribusinesses such as Cargill actually have very little control over food prices, noted Dean Kleckner, former president of the American Farm Bureau.

"Prices went up, farmers saw that as a chance to make money, and they came down again," he said. "You can't blame Cargill for that."

Russian road trip

During the summer of 2007, Cargill CEO Greg Page drove 2,500 miles across Ukraine and Russia. Along the way, he saw truckloads of brand-new John Deere tractors and new grain storage equipment.

To Page, who recounted the trip in a recent interview, the machinery was evidence of what free markets and private property can accomplish. "It's just the recapitalization of agriculture," he said. "You can see it there and you can see it in other places."

Yet all the machinery also exemplifies how the world food markets benefit from the presence of large, commercial agribusinesses. Indeed, Cargill entered Russia at a time in the early 1990s, when the country's currency was under attack and much of its agricultural infrastructure was crumbling.

In 1995, Cargill bought a corn wet-milling plant in Efremov, about 240 miles south of Moscow, that suffered from decades of neglect. But Cargill thought the facility had potential and cleaned up 200 tons of rusting metal and waste that had accumulated on the plant's property. From that modest start, Cargill now boasts 1,500 employees at feed mills, vegetable oil refineries and other facilities across Russia.

It's a testament to what a company can achieve when it's not beholden to Wall Street's short-term results focus, said Ben Senauer, an economist at the University of Minnesota and co-director of the university's Food Industry Center.

"There are places that Cargill will go that others simply won't," he said. "They are large enough and diversified enough to take these risks. And the fact that they're privately owned means they're immune to all this pressure to make their results look good."

Chris Serres • 612-673-4308

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