Issue 193: Consolidation

From the amount of space and energy we have devoted to biotechnology and the attempts to reconstruct life one might almost think that corporate consolidaation in the food industry was an accomplished fact no longer worthy of report. Not so. The noose of corporate control continues to tighten, and we promise to continue to demystify that process, so as to counter the fatalism that economists, policy makers and government-corporate apologists seek to induce.

co-ops coopted
For example: Once upon a time there were farmer-owned cooperative grain companies in all over the Canadian west. Now the last vestige of this co-op movement is about to disappear.

The founding of Territorial Grain Growers Association 100 years ago in Indian Head, Saskatchewan, is regarded by many as the birth of the prairie co-operative movement. United Grain Growers Co-operative (UGG) was founded in 1906 and the Manitoba, Saskatchewan and Alberta Pools in 1923-24.

UGG lost its co-operative status when it restructured itself into a corporation with public shareholders in 1992. This allowed UGG to wipe out a $22 million debt by simply turning its undistributed patronage dividends into common shares. It was a fairly logical move, given the fact that UGG has long been a strident proponent of the ‘free-market’ and opponent of the Canadian Wheat Board. It was equally logical, then, for UGG to sell 45% of itself to Archer Daniels Midland (ADM) in 1997.

Saskatchewan Wheat Pool went capitalist when it restructured and began trading shares in 1996. That left Manitoba Pool Elevators and Alberta Wheat Pool as actual co-ops, and they merged in mid-1998 to form Agricore after failing in a hostile bid to take over UGG in 1997 before ADM moved in. Agricore remained a farmer-owned co-operative; Saskatchewan Wheat Pool, meanwhile, dug itself into a debt trap pursuing the corporate-fashon-of-the-day, expanding and diversifying into everything from donut shops (Robins Donuts) to a grain terminal in Poland (for which they had to write off $80 million).

Now Agricore is planning to merge with United Grain Growers to form Agricore United, which will require Agricore’s member equity to be converted to shares in the new company. If the present farmer-owners of Agricore keep the shares they receive, they will own about 55% of the new company, while UGG will own 45%. Agricore United directors are to consist of 6 from Agricore, 6 from UGG and two from Archer Daniels Midland. ADM will have only a 19% share in the new company, but there are provisions in the deal that will allow ADM to gradually increase its holding to 45% within twenty years. In other words, farewell to the farmer-owned co-op.

Brian Hayward, chief executive officer of UGG, is to become c.e.o. of the new company while Gordon Cummings, c.e.o. of Agricore, will retire and take a well-earned rest after a distinguished career of killing off some of the major farm co-ops in the country. Cummings worked with the consulting firm of Ernst & Young before becoming president of National Sea Products in 1984 to 1989. In 1992 he moved on to manage, as president and c.e.o., the break-up of United Cooperatives of Ontario and finally to Agricore in 1995.

Mayo Schmidt, c.e..o. of Sask Pool, made the interesting comment that "we’re in an industry that is challenged and we need to see consolidation so that the industry can get healthy again. . . Consolidation means [elevator and terminal] closures, closures mean opportunities for others." To which "others" might he be referring? Such a comment could well indicate that Schmidt’s game plan is to sell Sask Pool to Cargill, the only major grain company operating in Canada that has not participated in the fool’s rush to build excessively large and too many massive inland grain ‘terminals’. Instead, Cargill has followed a policy of managing, on contract, some of the new inland terminals built by farmers – a fee-for-service arrangement which gives Cargill the decision-making power while using other people’s capital.

As for the farmers who stand to lose in the face of corporate oligopoly, they were not consulted. Agricore farmer delegate Ken Sigurdson commented, "We as delegates have never promoted, asked for or even entertained any of these kind of suggestions to privatize the company. . . This is totally a board and management decision." A membership vote on the merger is to take place in Calgary on August 30th.

Peace River, Alberta, farmer Art Macklin pointed out that co-operatives were founded to provide service at cost so farmers could make a living on their farms. A publicly traded company, on the other hand, has to make a profit which goes to its shareholders in the form of dividends. Trading shares on the stock exchange is not the most obvious way to pass the dividends on to the farmers responsible for them.
— sources include WP, 2& 9/8/01, MC, 2/8/01

meat concentrate
Corporate consolidation has been particularly evident in the meat business. I follow it through Meat & Poultry, the primary trade journal of the North American meat trade. For 22 years M&P has been publishing an annual listing of the Top 100 meat companies. This year the Top 100 has become the Top 50. "The decision to consolidate the ranking to the Top 50 was made to better reflect the major changes that have taken place in the industry. . . The consolidation is not going to stop either. . . Cargill is rumored to be on the prowl, and how long will it be before the brass at Smithfield Foods [the dominant pork processor] make both cows and pigs fly?"asks editor Keith Nunes.

In fact, Cargill’s beef subsidiary, Excel Corp., has agreed to purchase Emmpack Foods Inc of Milwaukee. Emmpack, #29 in Meat & Poultry’s listing and a producer of ‘value-added meat products’, "will broaden the array of customer solutions we can provide," said Bill Brucker, president of Excel.

This does not mean that the other 50 companies are out of business (though some of them are); rather, that the smaller companies have been pushed to the margins.

The figures: sales ($billions, latest fiscal year)
1. ConAgra Foods 20
2. IBP Inc. 17 (includes Lakeside Packers, Brooks, Alberta)
3. Cargill Inc (Excel) 10 (includes Cargill Foods, High River, Alberta)
4. Tyson Foods 7.1
5. Smithfield Foods 5.1 (includes Schneider Corp. sales in Canada of $1.3 billion)
.....
12. Maple Leaf Meats 1.6
.....
16. Olymel 0.8
— M & P, 7/01

This consolidation has had a devastating effect on the labour force. At one time the local meatpacker was paying the top wage for unskilled labour. Workers’ purchasing power steadily increased until 1980. UFCW’s (United Food and Commercial Workers Union) base wage in the US was $10.69/hour in 1982, the year many unionized companies started pressing for reduction in base wages to $8.25, the rate offered in non-union plants. "The decline coincides with consolidation in the industry and the breakdown of unions," accordingly to Azzeddine Azzam, an ag economist at the University of Nebraska. In the early 1980s, half the workers in the meatpacking industry were union members, and most belonged to UFCW. By 1987, union membership fell to 21% of the workforce, where it remains. Packers today thrive on paying low wages, and the savings are showing up in record profits and huge salaries for executives.

IBP was established in 1961 as Iowa Beef Packers. It is now in the process of being taken over by Tyson Foods. Tyson broke the trail to lower employee wages with its development of the disassembly line concept while it simultaneously resisted all unionizing efforts. "In terms of real purchasing power, the hourly wage is really not any different than what people used to make 50 years ago," says Azzam. — from a story in M&P, 6/01

A Higher Profile – and more leverage
– for Parmalat
The world’s largest dairy company and the largest distributor of milk in Canada, based in Italy, is going to make sure that Canadians know who owns their food system – at least a big chunk of the dairy – by putting the Parmalat name on their Beatrice and Sealtest milk, Astro yoghurt, Lactantia butter and Balderson and Black Diamond cheese. "By building a national profile with the Parmalat brand, we can leverage our global strengths and provide increased marketing effectiveness," said Parmalat Canada president Mike Rosicki. (Ontario Farmer, 31/7/01) Translation from the Italian: We intend to use our global clout to play our suppliers off against each other for the benefit of our corporate profits. Canadian farmers take note.

At about the same time, The National Dairy Council, which has represented the dairy processing sector since 1917, announced that it was ceasing operations. "You can’t present yourself as a national organization, representing the sector, if you represent only half of the milk that’s processed and none of those [processors] are the foreign-based multinationals," commented Kempton Matte, who had been president of NDC since 1980. (OF, 14/7/01) In other words, Parmalat withdrew its membership and thereby destroyed the organization. The fact that the "foreign-based multinational" is not named would appear to be a reflection of the ability of TNCs to intimidate, particularly a newspaper which might be hoping to gain advertising revenue from the nameless corporation as it "builds national profile".

Canada’s largest dairy processor (as opposed to Parmalat, the largest milk distributor), Saputo Inc of Montreal, has formed a partnership between its Culinar subsidiary and Dare Foods. Dare is to get Culinar’s line of cookies, specialty bread and soups while Saputo gets a 21% interest in Dare, a private company and Canada’s second largest producer of crackers and cookies behind Nabisco.
—M&BNews, 24/7/01