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Two of the nation's largest farmer-owned cooperatives, Minnesota-based Cenex
Harvest States and Missouri-based Farmland Industries, say they're considering
merging their grain businesses. They think consolidating could help them better
market their members' products.
The move is part of a broader trend of agribusiness consolidation that's
creating a handful of enormous conglomerates.
Cenex Harvest States and Farmland Industries are not strangers to each other's
operations. The two gigantic cooperatives have been pooling their purchasing
power to reduce the cost of fuel for their members. Now they want to expand the
relationship to include grain marketing. Noel Estenson is the CEO of Cenex
Harvest States, one of the nation's largest farmer co-ops based in St. Paul.
Estenson says, like many other areas of agriculture, companies that sell grain
are getting bigger and bigger. He says to compete in that market of ever-expanding heavyweights such as Cargill, co-ops like Cenex Harvest States and
Farmland need to grow as well.
Estenson: Both of us bring a grain-marketing operation to the table. Farmland is over $10 billion and we're getting close to that and yet we are only one-fifth the size of Cargill, you know. So we just don't have the size of the mass. So both of us come to the table with grain-marketing operations and putting them together , we think we will be better able to compete.And Estenson says it's important co-ops survive as an alternative to private companies, which return their profits to investors. Co-ops' profits are returned to their farmer owners.
Lotterman: Back 20, 30, 40 years ago, a lot of the grain trade was local and you could be a cooperative, serve your local members, and ship the occasional carload or truckload off to a terminal. Harvest States and Farmland both have been major players in terms of exports but, yet, to be a true global player you have to be a pretty big company.Big enough means being able to support sales offices all over the world, and to employ global commodity-trade forecasters - both functions now critical to operating in a world marketplace. Even with revenues in the neighborhood of $10 billion each, Cenex Harvest States and Farmland argue they're too small to go it alone.
Sorg: That's alfalfa hayledge, it's probably 45 to 50 percent moisture.In addition to the milking operation, Sorg and family have some cattle and they farm more than 2,000 acres of corn and soybeans. That his co-op - Cenex Harvest States - continues to get bigger, for Sorg, is a matter of necessity. If co-ops are to survive in a market dominated by giants like Cargill and Archer Daniels Midland, they too must be large.
Sorg: We need cooperatives and whatever we have to do to continue to exist is important, and if we can find benefits by combining forces rather than competing with each other, then I think that's what's necessary.But Bill Sorg is concerned that fewer companies are dominating bigger portions of agribusiness. He says big business is leaving farmers with fewer options of from whom to buy fuel, seeds, feed and fertilizer and who to sell crops, livestock and milk to.
Sorg: They're looking to control it and, as they get so big, why, they will. I don't know how you turn that back. I think a lot of these things are getting to the runaway stage and they don't see any restriction coming, so they will go for the whole thing.Take Minnetonka-based Cargill's proposed acquisition of New York's Continental Grain Company of New York. If approved, Cargill - already a company with more than $50 billion in annual revenue - will control ten percent of all of the grain produced in the United States. Cargill will export about one-third of all the grain that leaves the United States.
Wellstone: Just look at the consequences of all of this. This isn't efficiency, this is a stacked deck. And these big conglomerates have the political muscle, they have the economic muscle and they draw up the tax laws to benefit them. We're supposed to have an economy which is based on competition. We don't have that any longer. These conglomerates have taken over and we now need anti-trust action.The large companies claim their efficiencies benefit consumers. However, while the prices they pay farmers have plummeted, the cost to the consumer for a variety of groceries from milk to cereal, has not reflected plunging commodity prices.
Wellstone: It's kind of like the beginning of the 20th century and they were saying what do we do with this new economy emerging in order to protect the consumers and producers. Finally you had people like Teddy Roosevelt who talked about the need for anti-trust action. Well now this new global economy and the ways in which multinationals have dominated, we have to figure out how the next kind of edifice or structure that protects our consumers.But agricultural economist Edward Lotterman says even with the recent mergers, there remains significant competition allowing farmers and processors to choose who they want to do business with.
Lotterman: I'd be surprised if we saw this level of consolidation continue. I think we are sort of going through a wave of it now but that we will sort of have a break after this.And Lotterman says if the giant companies begin to operate as though they have a monopoly by becoming expensive, inefficient and non-innovative; smaller companies will find opportunities to strip business from the conglomerates.