CALAMITY HOWLER/A.V. Krebs
Where Goes the American Food Dollar? Guess
As the nation's 1,925,000 farmers seek to survive punishingly low commodity
prices, more drastic and widespread than it was in the 1980s with the price
of corn, the nation's biggest crop, down 60% from two years ago, and the
price of soybeans, the No. 2 crop, down one-third, major food retailers
like Kroger, Safeway and Albertson's, according to industry analysts, are
likely to maintain double-digit earning increases that they've posted so
far in recent months.
Kroger, which will report fourth-quarter results at the end of January,
according to a consensus of analysts surveyed by First Call Corp., should
earn 66 cents a share, compared with 56 cents a year ago. The same analysts
look for Safeway's earnings to be 48 cents a share, compared with last year's
43 cents and Albertson's, with a January year-end, according to First Call,
should expect to earn 77 cents per share, compared with 71 cents in the
fourth quarter of fiscal 1998.
According to Forbes Magazine the five-year average annual return
on capital for both Safeway and Albertson's was 19.5%.
Analysts also expect American Stores, with its year-end in January, to show
a strong quarter, with earnings per share at 44 cents a share, compared
with 35 cents the previous year. The $11 billion merger with American Stores
Co. already approved by shareholders, is expected to be completed soon,
once the Federal Trade Commission gives its approval on the deal.
Major changes in the current earnings picture for supermarkets will most
likely come from the many mergers affecting the industry, according to analyst
Meredith Adler at Lehman Brothers, who describes the future of the industry
as an "oligopoly," a marketplace driven by a few dominant companies.
"Kroger and Safeway will continue to be very strong," she said.
"If Albertson's handles its acquisition of American stores well, it
can do extremely well. ... Food Lion and the smaller regional stores just
don't get any respect from investors."
The supermarkets, however are not the only benefactors when it comes to
profitability. Forbes reports spectacular five-year annual average
returns on capital for such food, drink and tobacco giants as UST Inc. (92.1%),
Coca-Cola (49.9%), William Wrigley Jr. (31.1%), Campbell Soup (28.3%), Philip
Morris, the nation's largest food manufacturer (23.3%), Pioneer Hi-Bred
(22.3%), and General Mills (20.9%).
Meanwhile, farmers find themselves earning less and less each year. Since
the institution of the so-called "Freedom to Farm" legislation
in 1996 per bushel prices on soybeans have dropped 39%; corn, 69%; wheat,
57%, and milo, 67%.
Thanks to the figures compiled by Brownsville, Nebraska, farmer Corky Jones,
we also learn that in September, 1998 in a loaf of whole wheat bread that
sold for $1.79 there was three cents worth of the farm commodity. In a 12-oz.
box of Kellogg's Corn Flakes that sold for $2.15 there was two cents of
the commodity and in a 12-oz. box of General Mills Wheaties, selling for
$2.77, there was 2.75 cents of the commodity. Kellogg Co., incidentally,
in an attempt to boost earnings and finance what it terms costly "restructuring
initiatives," has announced recently that it is raising prices an average
of 2.7% on about two-thirds of its cereal brands.
If farmers were to have received a price based strictly on the selling price,
according to Jones, they would have received $125.30 per bushel for wheat
on the loaf of bread, $161.00 per bushel for corn on the box of Corn Flakes,
and $221.00 per bushel for the box of Wheaties. In September, 1998 wheat
was selling at $3.20 per bushel and corn was selling at $1.60.
"The degree to which the conspirators concealed their scheme with sham
meetings propped up with phony agendas while secretly haggling over price
dispels any plausible claim that [Michael] Andreas was unaware that he was
breaking the law."
No New Trial
With those words U.S. District Judge Blanche Manning, who presided over
the price-fixing trial of three former executives of Archer Daniels Midland
Co. declared in a 41-page opinion that she was refusing to reverse their
convictions or grant them a new trial.
In seeking to have the court reverse the jury's verdict, Andreas claimed
that allocating sales volume isn't a crime under federal law. Judge Manning,
however, rejected that argument, pointing out that sales volume allocation
was merely one method of illegally fixing prices. She also rejected Andreas'
argument that he hadn't been informed that sales volume allocation is against
"There is an abundance of evidence to support conviction," she
Michael Andreas, 49, currently on leave as executive vice president of ADM;
Terrance Wilson, 60, retired head of ADM's corn-processing unit; and former
ADM biochemist Mark Whitacre, 41 were convicted last year by a Chicago federal
jury of conspiring with competitors to fix the price of the feed additive
They face a maximum three-year prison sentence and at least a $350,000 fine.
Sentencing is expected in late February.
"This was a crime of greed--a crime by an extremely large corporation
that wanted to make even more money at the expense of their customers,"
U.S. Attorney Scott Lassar told the Associated Press at the conclusion of
After hearing six weeks of testimony, the U.S. District Court jury deliberated
four days before returning the guilty verdicts. Andreas is the son of Dwayne
O. Andreas, the long-time "friend" of the politically powerful
and chairman and founder of ADM, "Supermarkup to the World," headquartered
in Decatur, Illinois. In 1995, the company itself pleaded guilty to price-fixing
involving lysine and another substance, citric acid. It paid a $100 million
fine, the largest in U.S. history.
Arguing that they did not receive a fair trial Andreas and Wilson contended
that the evidence was insufficient and selective, particularly that evidence
supplied by FBI mole Whitacre, who had secretly videotaped incriminating
conversations concerning price fixing. Claiming that Whitacre was just trying
to save his own skin on embezzlement charges, the two former ADM executives
argued, his price-fixing tapes were suspect.
Judge Manning rejected the argument noting that both defendants had been
given ample opportunity to challenge the reliability of the tapes during
In denying a new trial, Judge Manning wrote, "A picture is worth a
thousand words, but is nothing when compared to a videotape, and the government
has Andreas on the video haggling with Kazutoshi Yamada (former managing
director of Ajinomoto, a Tokyo competitor of ADM) over how much market share
the individual competitors deserved within their price-fixing scheme, based
on their respective market dominance."
Arriving at Agribusiness-Friendly Language
Thanks to a conspiracy between the chemical poison industry and its government
regulators--the Environmental Protection Agency--a new pamphlet about to
be issued soon will be titled "Pesticides and Food" as opposed
to its original title "Pesticides on Food."
But that is only one change in a brochure that is to be distributed in grocery
stores by the EPA under a food safety law that Congress passed unanimously
in 1996. In addition the pamphlet has been modified putting less emphasis
on the health risks posed by chemical poisons used on food and barely mentioning
organic foods as an alternative to foods grown using chemical poisons.
Although the final version of the pamphlet does not completely ignore organic
foods, advising that "your grocer may be able to provide you with information
about the availability of food grown using fewer or no pesticides,"
John H. Cushman Jr. in the New York Times reports that last August
seven food, farm and chemical poison industry groups called on the Clinton
Administration to eliminate any references to organic foods and to make
A final draft of the pamphlet was provided to the Times by Consumers
Union, an advocacy group that publishes the magazine Consumer Reports.
The consumer group has long been critical of the EPA for not writing a tougher
pamphlet to begin with.
"Fundamentally, EPA took what could have been a really good brochure
and turned it into a propaganda piece for the food industry, which has always
denied that there is a problem with pesticides on food," said Jeannine
Kenney, a policy analyst in the group's Washington office who said she had
obtained the pamphlet from a government official.
"We had very exhaustive consultations," said Loretta Ucelli, a
spokeswoman for the agency, told the Times, "and I think there
are and have been concerns about giving consumers the information they need
but not causing alarm or indicating that food that is not organic is not
safe. We believe that we have arrived at aggressive but consumer-friendly
language that will give people the information that they need to make their
Despite the changes, Gene Grabowski, a spokesman for the Grocery Manufacturers
of America, said his group continues to oppose the reworded pamphlet. "Even
with the change in the language, it still promotes organic foods in a brochure
that was to be about pesticides," Grabowski said.
Examples of how the final draft differs from an early draft illustrate how
the pamphlet not only seems to make less of the health risks of pesticide
residues on food, but as environmental and consumer advocacy groups contend
does not even refer to pesticides as poisons.
While the new version says that "while pesticides have important uses,
studies show that some pesticides cause health problems at certain levels
of exposure," it omits the details listed in the earlier version, which
said, "Some pesticides have been shown to cause health problems such
as birth defects, nerve damage, cancer and other toxic effects in laboratory
Likewise, in a section about washing, peeling and cooking food, which used
to be called "Tips to Reduce Pesticides on Foods," is now entitled
"Healthy, Sensible Food Practices." It emphasizes in bold type
the importance of eating at least five servings of fruits and vegetables
The controversy is only the latest in the government and corporate agribusiness's
efforts to sabotage the organic food industry. In July 1998 Secretary of
Agriculture Dan Glickman announced that the USDA would accept the National
Organic Advisory Board's (NOSB) recommendation that only substances currently
approved for organic use will be used on organically grown plants. Now the
USDA has added three new issues to the proposed national organic standard
and is requesting comments on them.
The three new proposals would a) permit indoor animal confinement, b) permit
use of animal medications including antibiotics, and c) eliminate the ability
of organic certifiers to prevent the sale of mishandled or fraudulent organic
These proposals would give the USDA a "legal monopoly" over the
term organic as only one organic label, "USDA Organic," would
be allowed. In addition USDA would have complete control over appointments
to the NOSB; suggesting if history is any teacher that once the board was
appointed USDA could and more than likely would weaken the NOSB by appointing
people sympathetic to corporate agribusiness, food irradiation and genetic
While the new proposal would also make it illegal for private, nongovernmental
organic certifiers to uphold higher standards than the standards set by
the USDA it would also ban "Eco-Labels," making it illegal to
even imply through labeling or advertising that a product exceeds USDA standards.
By prohibiting stricter standards, this provision would strip organic consumers
of freedom of choice, and would in all likelihood stop so-called "sustainable
agriculture" dead in its tracks. Farmers likewise would have no incentive
to grow food in ways that are more sustainable or safer than the USDA permits.
Finally, the new proposals, unless changed, could allow intensive confinement,
non-organic feed, antibiotics, additional synthetic chemicals, etc.
To vent your spleen on pesticide matters, contact Robert J. Knox, Acting
Director, EPA Office of Environmental Justice, Mail Stop 2201-A, 401 M Street,
SW, Washington, DC 20460; phone 1-800-962-6215; fax 202-501-0740. And/or
Carol M Browner Administrator, Environmental Protection Agency, 1101 USEPA
Headquarters, 401 M Street, S.W., Washington, DC 20460; (http://www.epa.gov).
On organic food, contact Eileen Stommes, Deputy Administrator, USDA-AMS-TM-NOP,
Room 4007-S, AG Stop 0275, P.O. Box 96456, Washington, D.C. 20090-6456;
fax 202/690-4632; e-mail: NOPIssue_Papers@usda.gov. And/or contact The Honorable
Dan Glickman, Secretary of Agriculture, USDA, 200-A Whitten Bldg., 1400
Independence Ave., SW, Washington DC 20250; e-mail firstname.lastname@example.org; tel:
202 720-3631; fax: 202 720-2166
A.V. Krebs is director of the Corporate Agribusiness Research Project,
P.O. Box 2201, Everett, Washington 98203-0201 e-mail: email@example.com
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