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Ukraine: U.S. Anti-Trust Officials Study Grain Company Merger

  • Ron Synovitz

Prague, 18 November 1998 (RFE/RL) -- When U.S. Vice President Al Gore named the state-controlled grain monopoly "Bread of Ukraine" last year as a firm that must be broken up to revive Ukraine's ailing agriculture sector, the head of the company had a sharp response.

Bread of Ukraine chairman Grigoriy Omelyanenko told RFE/RL that the U.S.-based grain trading giant Cargill is the world's biggest agricultural monopoly. He said Washington should first break up monopolies in its own back yard before criticizing Ukraine.

A proposed merger of Cargill and another major international grain trader, the Chicago-based Continental Grain Co., is now testing the allegations raised by Omelyanenko. The deal, announced earlier this month, already is attracting the attention of U.S. anti-trust authorities whose authorization is needed for the merger.

Cargill's grain-export operation is the largest in the United States and Continental's is the second largest. Together, the two would control about 20 percent of all U.S. crop exports. Under the proposal, Cargill would acquire Continental's grain storage, transportation, export and trading operations in North America, Europe, Latin America and Asia.

But U.S. Senator Kent Conrad, a Democrat from North Dakota, sent a letter to Attorney General Janet Reno last week saying that the merger raises serious anti-trust concerns. And U.S. Senator Charles Grassley, a Republican from Iowa, has asked federal officials to keep him informed about their anti-trust analysis.

Grassley, who is chairman of the Senate Finance Committee's international trade subcommittee, says many American farmers fear that a further concentration of U.S. agribusiness will reduce competition between firms that buy, store and trade commodities. He says that could mean farmers will be offered less money for their harvests.

But Cargill spokeswoman Linda Thrane says the merger will help U.S. farmers. She says the acquisition will allow Cargill to provide better services to farmers at a lower cost.

On a global scale, five private companies now dominate international grain trading. Cargill is the largest. The others are Continental Grain, Illinois-based Archer Daniels Midland, Paris-headquartered Louis Dreyfus and South America's Bunge Corporation.

The Financial Times of London describes Cargill as a "shadowy, often secretive" grain trading firm. Based in the state of Minnesota, it has more than 80,000 employees worldwide. Sales last year totaled $51.4 billion.

But despite its size and international dominance, Cargill keeps a relatively low profile. It is still controlled by the Cargill and MacMillan families, who have been running the firm since the last century.

Cargill typically reports only sketchy financial data and it rarely provides details about its international activities. Even after widespread reports that Cargill lost $200 million in the Russian financial crisis earlier this year, the firm merely issued a statement saying that "as a global company, Cargill is not immune from the financial turmoil which has engulfed much of the world."

Cargill has issued only vague statements about its merger plans with Continental. Financial details have not been released, but analysts suggest the deal could be worth about $300 million. (Begin optional trim.)

The Financial Times says Cargill's low profile is the result of the way the grain trading industry was formed and still operates.

Cargill was founded in the late 1800s by the son of a Scottish immigrant to the United States who started out with a small town grain buying business. The company rapidly expanded by controlling grain elevators along America's railway system.

Data about farm conditions, supplies and market positions have been seen since Cargill's earliest days as the key to trading profits. That has led Cargill and other trade companies to closely guard information.

Anti-trust lawsuits are nothing new to Cargill. In 1937, the firm battled the Chicago Board of Trade after the commodities exchange alleged that Cargill was attempting to control the market for contracts on future corn harvests.

Continental is smaller than Cargill. Annual turnover is only about $16 billion a year. Continental also has been a family business for more than a century.

It is owned and run by the Fribourg family, who shifted their operations from Paris to New York about 50 years ago. The Fribourgs played a key role in opening up international grain trading with Moscow during the Soviet era. Since then, trade in former Soviet republics has become enormously important for all of the so-called "Big Five" grain traders.

Cargill officials say that business in the former Soviet Union has become more difficult and complex since the collapse of central planning. They say that instead of dealing with one central figure, they now are involved with a complex web of customers.

Washington continues to urge former Soviet republics like Ukraine to break up national grain monopolies that control the entire production chain -- from the farm fields, grain elevators and silos to the bakeries and bread distribution networks.

Ironically, Washington's argument that monopolies hamper eastern agriculture by depressing farm profits is the same complaint now being raised by U.S. Senators about the Cargill-Continental merger.

It's likely that state managers like Bread of Ukraine's Omelyanenko will be closely monitoring the findings of U.S. anti-trust authorities in the Cargill case. Approval of the merger is likely to raise a chorus of complaints about double standards in Washington.