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Date Published: 22/02/2001
Author: Greg Muttitt You probably haven’t heard of Cargill. But the world’s biggest grain trader – and grower of GM crops – increasingly controls much of what you eat, says Greg Muttitt. |
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Which companies are responsible for introducing genetically-modified (GM) foods and crops onto our dinner tables? Perhaps you have heard of Monsanto, Aventis, Syngenta – even DuPont. But there are two other companies, virtually unknown, which have been instrumental in the introduction of the technology – Cargill and Archer Daniels Midland (ADM), the two corporate giants which dominate crop distribution. Between them, these two companies – and Cargill in particular – control virtually the entire global grain market.
No sector of the food supply chain is more concentrated than this ‘middle link’ between farmer and food manufacturer. For example, in the USA, the world’s largest grower of GM crops, Cargill, ADM and competitor Zen Noh between them control 81 per cent of all maize exports and 65 per cent of all soyabean exports.
And with such a large share of world supply of these commodities passing through their hands, these two companies have considerable control over whether that supply is genetically modified or not.
Who wants GM?
In Britain, as in much of the world, public rejection of GM foods has been overwhelming. Supermarkets, food manufacturers and fast food outlets have almost all switched to using non-GM ingredients. However, food itself is just the tip of the GM iceberg. Over three-quarters of the world’s GM crops go into animal feed. This too is controversial – NOP opinion polls in summer of 2000 found two-thirds of the British public opposed the use of GM crops to feed animals.
In response, British supermarkets have been attempting to stop the use of GM feed in the production of their meat and dairy products since autumn 1999. Yet they have made very little progress: one year on, some of the supermarkets now stock one or two non-GM-fed lines; but most claim to be still in discussion with their suppliers. Meat producers, too, have had difficulty. At the end of 1999, one of the UK’s largest poultry producers complained that ‘we were strongly considering a total switch a few weeks ago but we were unable to secure non-GM supply for forward cover already on the buying book. The intermediaries who market the soya are unwilling to make the change to wholly non-GM in their crushing plant’.
Patience, power and profits
In other words, many retailers who want to switch to total non-GM supply have so far been unable to. And why? According to some food companies, Cargill and ADM have been the major obstacle. Initially, both companies actually refused to supply non-GM crops at all. Under pressure from their food company customers, both companies later began supplying non-GM, but only through expensive specialist channels, where the economies of scale of commodity buying and bulk transport and storage are lost.
For Cargill, this move was reluctant. But it is playing a long game. The company knows that many consumers in Europe are unwilling to pay extra for their food to be non-GM. Cargill also believes that public concern over GMOs will calm down within a few years. Thus the company believes it can weather the storm of the GMO controversy without giving ground on non-GM availability – all it needs to do is be patient. According to Dan Dye, vice president of Cargill’s North American Grain Group, ‘The biotech debate has made the job… more challenging and more complex in the short term. But I believe the market ultimately will sort out the signals. We just need to keep our heads.’
Cargill exemplifies, more than any other company, the culture of the American grain traders: closed, secretive, powerful and arrogant. Its activities may yield relatively small rates of return, but its profits come from large sales volumes. Its size gives it an advantage over its competitors through four mechanisms:
• economies of scale reduce costs of storage, transport and distribution;
• by far outweighing its suppliers (farmers and small elevators) in economic power, Cargill is able to push down its purchase prices and dictate terms and conditions which suit it (this is known as monopsony);
• by outweighing its customers (food processors, feed manufacturers, farmers etc) in economic power, Cargill is able to push up its selling price and dictate terms and conditions (this is a basic monopoly);
• by controlling a significant proportion of countries’ food supplies (and, indeed, economies), Cargill is able to influence regulation and government programmes to its advantage.
Thus, through its sheer size, Cargill aims to accumulate economic and political power. By setting its profit-making in the long-term context, Cargill in effect becomes a political actor more than an economic one, in that its immediate, short-term behaviour is not governed by the laws of supply and demand. Thus it is able to resist current market pressures for non-GM supply, in an effort to achieve the long-term political aim of ensuring the success of the GMO project.
Archer Daniels Midland too has its roots in this American grain trader culture, but over the last few years the corporation has ‘modernised’. Although it had already started, further pressure for this move came in 1996, when ADM was caught out abusing its economic power and found guilty in the world’s biggest ever price-fixing case. It had been conspiring with Asian companies to fix the prices of lysine (an amino acid) and citric acid, and two of its senior executives are still in jail. The ‘new’ ADM is much more of an economic player, and pursues a strategy of maximising its margins, through processing and through handling specialist products. It has treated non-GM grains and beans as one such specialist product. Thus, like Cargill, it supplies non-GM expensively – unlike Cargill it made the move willingly.
The second GM generation
So far, almost all of the GM foods that have hit the supermarket shelves involve genetic modifications creating ‘input traits’, which give advantages to the growers – such as herbicide tolerance or insect resistance. Over the next few years we will see a ‘second generation’ of GM crops, designed to have ‘output traits’ – advantages to the consumer or food processor.
This ‘second generation’ fits very well into ADM’s strategy of handling and processing high-margin speciality products, and the company sees great opportunities for mark-ups (what they call ‘adding value’). In particular, ADM is interested in so-called ‘nutraceuticals’ (food modified to contain medicines and nutritional supplements), animal feeds and industrial uses of crops (such as lubricants, plastics and fuel). ADM is already involved in these markets, so far mainly using more established processing methods. However, it sees the future in genetic modification, and is developing GM techniques for these markets.
Cargill too has its eyes on the second generation. Its most direct involvement in GM crops is with Renessen, a seed joint venture with Monsanto, developing GM crops designed to be used in animal feed, the first of which will appear in 2003.
Cargill is vertically integrated, operating at every stage of the food supply chain, from seed to packaged end product. It operates something like this:
• a grain farmer buys all their inputs as a ‘package’: Renessen seeds, Monsanto herbicide and Cargill fertiliser. The farmer signs a contract, which determines the growing and handling conditions, to deliver the produce to Cargill at a specified price and quality;
• the farmer sells the harvest to a Cargill elevator (storage facility);
• Cargill processes the harvest into animal feed;
• Cargill ships the animal feed to Thailand;
• there it is fed to poultry, by a farmer under contract to Cargill (as with the grain farmer);
• Cargill buys the poultry and processes, cooks and packages it;
• Cargill ships the packaged product to Europe, and sells it to McDonald’s or a supermarket.
The above model, as is fairly obvious, reduces the farmer to a simple contract worker, while Cargill has all the control over everything that matters. Genetically modified seeds will fit into this model well: a seed genetically modified firstly so that it works with (and only with) Monsanto pesticide and Cargill fertiliser, and modified secondly so that it contains all the vitamins, proteins, nutrients and antibiotics necessary for poultry feed, to Cargill’s precise specifications. On top of this, GM grain behaves more predictably (at least in theory), so is easier to grow, easier to handle and easier to store. GMOs are lower in production costs, have improved product functionality, and hand over more control to Cargill.
This vision, in other words, is agribusiness paradise.
What does the future hold?
Cargill clearly has no intention of making non-GM crops easily and cheaply available. It will continue its arrogant refusal to co-operate with the wishes of consumers and retailers – it controls the market, so why should it change?
ADM is a more interesting case. Many campaigners have lauded ADM for requiring farmers to separate GM and non-GM crops, a landmark announcement it made at the start of the 1999 harvest. Yet ADM’s interest is in supplying non-GM as a specialist product, at a high premium price (in line with its general strategy). It does not want the bulk market to be non-GM (as that would undermine the long-term future of GM crops), nor does it want the price differential between GM and non-GM to be reduced. For this reason, it has, in 2000, made announcements designed to reassure the market that GM is a sound technology, and hence tried to contain the size of the non-GM market.
But there is hope. The real break in the grain traders’ collective refusal to supply non-GM affordably could come from Cargill and ADM’s smaller rivals, in particular Zen Noh, Bunge and ConAgra. The grain distribution system currently has massive over-capacity, meaning any company can handle extra volume if it can sell it. The smaller grain handlers might see an opportunity to steal market share from Cargill and ADM. If these three companies were to see a niche in supplying cheaper non-GM crops, the big two would have no alternative but to follow. And in that scenario, we could see non-GM crops becoming cheaper than the GM varieties. In other words, the smaller grain traders could sound the death knell for (first generation) GM crops.
Greg Muttitt is a researcher at Corporate Watch. Read his full report ‘Control freaks – the GMO exporters’, on www.gm-info.org.uk or telephone 01865 791 391 for a copy.
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