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Bunge seeks bigness
by Robert Schubert
(Tuesday, Sept. 3, 2002 -- CropChoice news) -- When Alberto Weisser, the head of Bunge Limited, addresses a Prudential Securities conference tomorrow, 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 percent or more of the U.S. processing capacity. Archer Daniels Midland and Cargill control 26.4 and 21 percent, respectively. Add up those numbers and it works out to three companies dominating nearly 75 percent 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 (http://www.ea1.com/CARP) 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 percent 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. To view a report on this, go to http://emmitsburg.net/jcfs/articles/heffernan_consolidation.htm
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-percent stake), and Cargill -- control 75 percent 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 percent in 1988 to 35 percent 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.
For information on accessing the webcast of the Prudential Securities conference mentioned at the beginning of the story, go to http://www.bunge.com/bunge/view_content.jhtml;jsessionid=KD51DWJ3OEHCSCQYBUFCFEQKDAGQYIV0?content_id=7600216&lang_id=1
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