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Issue 32 |
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Prairie Grains is the official publication of the Minnesota Association of Wheat Growers, North Dakota Grain Growers Association, South Dakota Wheat, Inc. and the Minnesota Barley Growers Assocation. |
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Copyright Prairie |
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Quiet Anniversary For Cargill Since Acquiring Continental Grain Except now, it has a greater capacity to handle grain with special attributes—including non-transgenic grain, though the company remains committed to gene technology. By Tracy Sayler It's been over a year now since Cargill's controversial acquisition of Continental's grain business was conditionally approved by the government. Since then, Cargill—with more than 85,000 employees in more than 1,000 locations in 60 countries—has quietly gone about its business of processing, marketing, and shipping grain to just about every latitude of the globe. Except now, company officials say they have a greater ability to give customers what they want—including non genetically-enhanced grain, if customers so choose. Under stipulations required by the U.S. Justice Department, Cargill's acquisition formally approved in July, 1999, did not include seven Continental facilities across the U.S., and Cargill divested itself of two grain-handling facilities in Illinois and another in Seattle. Cargill also agreed to make a third of its daily loading capacity at Havana, Ill., available to third parties to be used for delivery under Chicago Board of Trade contracts. Continental's pork, poultry, cattle, aquaculture, animal nutrition, petroleum trading, financial services and investment businesses were not included in the purchase—Cargill only assumed Contin-ental's grain business. Based on past history, the grain business of the two companies combined were expected to handle about 35% of U.S. grain exports, although Cargill officials say the actual amount is significantly less than that.
"The integration has gone incredibly smoothly from an internal perspective," she says, adding that customer feedback has been positive as well. "We worked hard to incorporate the best practices of both companies into a streamlined, efficient organization." Cargill's strengths include its international presence in the marketplace, as well as the diversity of its resources and operations, says Kimmelshue, while Continental brought to the table a loyal customer base and a "commitment to the concept of creating mutual value," which aligns the needs of the end user with the ability of the producer to supply those needs. Better capacity for IP grain He points out another example of advantages enabled by the Continental acquisition in Hutchinson, Kan.: One country elevator inherited through the acquisition is used as a delivery point for all qualities of wheat, while the other elevator owned by Cargill across town is used as a delivery point for specialty wheats produced under contract. Indeed, Kimmelshue says that Cargill's acquisition of Continental has given Cargill more options for handling and processing grain with specialized or "identity preserved" (IP) traits. "(Continental) brought additional storage capacity to Cargill, which certainly helps in the IP process," she says. "We have a greater capacity to supply a wider variety of products that are IP, or specific-attribute grain." Cargill has an active IP program for different types and varieties of grain, including food-grade soybeans and corn, organic corn, waxy corn, high-protein hard wheat, and white wheat. Another IP trait available through Cargill is grain that is not genetically-enhanced, even though the company is supportive of gene technology. "For those customers who request it, we separate genetically-enhanced grain from non genetically-enhanced grain. That's a consumer preference and we are happy to do that. We see it as just another part of the market basket of goods and services we can provide to customers," says Kimmelshue. "Genetically-enhanced" is the terminology Cargill prefers to use in referring to biotechnology, not "genetically-modified organisms," says John Pocock, a public affairs specialist with the company. "That's because the tools of modern biotechnology are used to give seeds improved, or enhanced, characteristics such as resistance to pests or diseases. Coming next will be seeds that have improved qualities for processing, animal feeding, and consumers," says Pocock. Cargill has been voicing its market acceptance of genetically-enhanced crops since transgenic soybeans and corn were first commercialized in 1996. Amidst growing unrest about biotechnology in the United States last year, Cargill issued a statement last December to the grain industry and producers planning their 2000 seed purchases that reaffirmed the company's commitment to finding markets for whatever producers choose to grow, whether it be bio-engineered, conventional, or specialized grain. "Cargill's overall business goal is to raise living standards by creating distinctive value for the people we serve – and agricultural biotechnology is a powerful tool in achieving that vision," the company said in its position on biotechnology. "The genetically-enhanced crops grown commercially throughout the world today have been thoroughly researched and reviewed in the United States and other countries and found safe for people, animals and the environment. As important, they offer many benefits to farmers, the environment and consumers — and we have just begun to scratch the surface of this promising new technology. We plan to work with farmers and our food and feed customers to bring more of those benefits to market." All Cargill grain elevators accept genetically-enhanced corn and soybean varieties approved for use in the United States and Europe. Most Cargill grain elevators also accept genetically-enhanced varieties approved in the United States, but not yet approved in Europe. "The only criteria we have in that case is that producers inform us if they will be delivering genetically-enhanced grain not approved for use in Europe, so we can channel them into other appropriate markets," says Kimmelshue. Cargill hasn't wavered on its biotechnology position, which Kimmelshue says has not affected the company's business. "I don't see anything in the marketplace that leads me to believe we would need to take a different stance," she says. Non-GM grain a niche market In the instances that Cargill does sell grain specified as non-GMO, it is grown by producers under contract, just like grain with other IP traits. "They haul it in, just as they would for food grade yellow corn, for example. We may have a certain day we ask them to bring it in, and to maintain purity of the product, we generally won't store it. For example, we try to have the barge in front of the elevator and load the barge when the train comes in. We try to keep it identity-preserved to make sure customers get what they're asking for," says Kimmelshue.
A greater interest in quality is another result of privatization. While government buyers were generally not as interested in quality, private buyers are becoming increasingly interested in quality, along with other factors. Bill Wilson, a professor in the agricultural economics department at North Dakota State University, says that privatization has resulted in private buyers evolving to become "more specific in respect to their purchases," including quality. Cargill's Garvert believes gene technology will help enable IP systems, and vice versa. For example, he points out that glyphosate-resistant wheat—still several years away from commercialization—will result in cleaner wheat fields with less dockage. An IP market for this wheat might be created, channeled to Pacific Rim countries that specify low dockage levels. "I think the same skills that we're going to use in trying to keep a white wheat from a red wheat or handling specialty wheats are going to be very similar to the skills that we're going to need to handle a genetically-enhanced grain in the future," says Garvert.
Cargill, others offering IP premiums in High Plains To participate in the hard white wheat program, a grower must purchase certified white wheat seed from any certified seed grower, or through Goertzen Seed, Cargill's wholly owned subsidiary. Goertzen Seed is a seed research and breeding company that specializes in developing wheat varieties and other food grains with special attributes. To participate in the hard red contract, producers must purchase varieties in the program exclusively through Goertzen. Producers must then contract with Cargill for sale of the grain. At harvest, the grower may store the wheat on farm for future delivery or deliver immediately to an authorized collection point. Cargill isn't the only company in the High Plains offering premiums for particular types of wheat. Farmland, General Mills, and a handful of others including some country elevators have various programs too. Most of the programs are targeted at hard white wheat. Brett Myers, executive vice president of the Kansas Association of Wheat Growers, says it's difficult to evaluate grower acceptance of the various programs yet, since most at best are only a year or two old. However, programs that offer certified seed at a more competitive price than others seem to be doing better, he points out. Myers says last year, only about 15,000 acres in Kansas were under contract. But producers and elevators are becoming more comfortable with the programs, which attracted as much as 500,000 acres under contract this year. It could be up to a million acres or more for winter wheat harvested next year. The premiums are modest, but every little bit helps when prices are down, Myers notes.
IP Grain Not The Same As Segregation We believe very strongly that farmers should have the choice and the option of planting and marketing genetically enhanced crops, conventional crops and a wide range of specialty grains and oilseeds. Cargill is participating in all of these markets, including the market for conventional grain. We are working with customers who are requesting conventional grain on a case by case basis. We won't guarantee that any shipment is 100-% gmo-free. We will, however, work to meet reasonable tolerances, and we will establish an identity-preserved, traceable system that guarantees the source and the handling and shipping methods used. Identity preservation is a traceable "chain of custody" that begins with the grower's purchase of seed and continues through the shipping and handling system. It is not the same as segregation, which suggests completely separate marketing systems for genetically enhanced and non-genetically enhanced grain. Such a system, in our view, is neither practical nor economically viable. On the other hand, the logistics of an IP system, while complicated and more costly, are doable. Companies, like Cargill, have been involved in specialty grains markets for years, and we have experience in using identity-preservation systems to capture increased value for the producer, the handler and the final customer. The genius of the U.S. agricultural system is that we are very, very good at moving huge volumes of undifferentiated commodities from producers to consumers at an extremely low cost. We understand commodity markets. We are fast, efficient and have well-established methods of setting values and evaluating risks. There are a number of customers who seem to believe that we can operate a niche market with the same level of efficiency and low costs. We can't. And today, the market for non-genetically enhanced grain is essentially a niche market. Conventional grains cost more to produce and, if they are to be identity preserved, require a lot of special handling at the farm. To prevent inadvertent commingling with enhanced grains that are now so pervasive throughout U.S. agricultural areas, planters have to be thoroughly cleaned between fields. Farmers need to pay attention to field location and wind conditions to prevent cross-pollination. Harvesting equipment and storage bins need to be thoroughly cleaned, and farmers may need additional storage to identity preserve non-genetically enhanced crops. Farmers need to be compensated for those additional costs. Similar steps need to be taken at the country elevator or terminal. Separate bins have to be prepared and cleaned. Trucks need to be dumped in the right pit. Pits, conveyers and loading equipment need to be cleaned as do trucks, railcars or barges at every stage in the supply chain. These extra steps reduce efficiency and raise handling costs. Finally, transportation costs are volume driven and rise quickly for small, irregular shipments that cannot be commingled with other grain. Some customers are prepared to pay the additional costs for identity-preserved conventional grains and oilseeds, but many are not. The biotech debate has made the job of connecting producers and the best markets at home and abroad 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 and remember what it is that we are here to do – to provide abundant supplies of safe, nutritious food to a growing world population. Cargill pursuing biotech R&D through Renessen, joint venture with Monsanto According to Renessen's web site, www.renessen.com, the venture intends to "be the breakthrough leader in quality traits, connecting biotechnology innovations with processing know-how in the first global alliance that spans the agricultural value chain." Besides the nearly 50 employees at Renessen, there are some 130 scientists, most of them at Monsanto, who are working with Renessen to add desired traits to crops, according to an article on Renessen in the June, 2000 issue of Cargill News International, which may be found online at www.cargill.com/news/00_06_ renessen.htm. So far the board of Renessen has approved about 10 projects, according to the CNI article. Not all of those projects will be winners. In fact, Renessen expects only about a 30% success rate. But even at that, the impact could be huge. "If all the projects we're currently working on prove to be successful, they'd represent a market worth of around $5 billion," says Norman Hay, co-CEO of Renessen and former head of Cargill's grain business, in CNI. "This is a business of big risks and big rewards." As teams form, ideas are generated, according to the CNI article. It could be a Monsanto scientist proposing a certain trait in corn. Then a Cargill person might take the lead in determining whether such a trait would actually have market value for animal nutrition or grain processing. Meanwhile, Renessen people are coordinating the teams or assigning research to Monsanto scientists or to independent genetic laboratories or universities. The mix of the team shifts, depending on the stage of the project. In its first year, Renessen has concentrated on enhanced corn, canola and soybeans for the swine and poultry industries, according to CNI. Besides improved feed products, Renessen's charter includes crops with benefits for the processing industry, such as oilseeds enhanced with tocopherols (natural source vitamin E). Eventually, Renessen will move into quality traits for crops that will help the dairy and beef industries. Renessen leaders say that just as important as the product will be the process. Thus, it is researching and developing processes and relationships that will apply to genetically-enhanced crops coming down the road. "We're laying out the business systems so we can jump-start future projects," says Axel Hinsch, a Cargill employee who is supervising one Renessen program. |
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Ruth Kimmelshue came over to Cargill through the
acquisition. A regional manager with Continental Grain for 14 years, Kimmelshue is now Cargill's river origination manager, working with "old" and "new" Cargill grain
elevators on the Mississippi, Ohio, and Illinois River systems.
Greater interest in IP grain has been spurred in part by many more private
grain buyers in the world today. Paul Dickerson is vice president of overseas operations for U.S. Wheat Associates, the American wheat export development organization based in Washington, D.C.
He says that 10 to 15 years ago, about 80% of wheat purchases were government-controlled and 20% were private. "Today that figure is reversed," Dickerson says. "And even where the
public sector still functions, the private sector is often allowed to participate."