July 9, 1999

Cargill Inc. must divest grain and soybean facilities in various states if it wants to proceed with its acquisition of Continental Grain Company's Commodity Marketing Group. The Justice Department says to do otherwise would result in farmers getting less money for major crops.

The department's antitrust lawsuit and proposed consent decree were filed Thursday in U.S. District Court in Washington. The decree, if approved by the court, settles the lawsuit. The proposal by Cargill would have eliminated an important competitor for crop purchases from farmers and independent elevators, Justice says.

Competition for grain and soybean purchases would have been harmed by combining Cargill's and Continental's competing port elevators in the Pacific Northwest, Central California and the Texas Gulf, according to Justice. Competition would have been "substantially lessened" for grain and soybean purchases in the Midwest, mostly in Illinois, Iowa, Kansas, Missouri and Ohio where both companies operate competing river elevators and rail terminals.

Consolidation of river elevators along the Illinois River and the Continental port elevator in Chicago would have concentrated ownership of delivery points authorized by the Chicago board of Trade for settlement of corn and soybean futures contracts under the control of Cargill and one other firm. "This concentration would have increased the risk that prices for CBOT corn and soybean futures contracts could be manipulated," Justice says.

Under terms of the consent decree the parties must divest four port elevators in Seattle, WA, Beaumont, TX, Stockton, CA, and Chicago; four river elevators in East Dubuque, IL, Morris, IL, Lockport, IL, and Caruthersville, MO, and one rail terminal in Troy, OH. Cargill will be required to enter into a "throughput agreement" to make one-third of the loading capacity at its Havana, IL, river elevator available to an independent grain company. Throughput agreements provide for one grain trader to lease elevator capacity from another.

In addition, Cargill cannot acquire the river elevator in Birds Point, MO, in which Continental, until recently, held a minority interest; is prohibited from acquiring the rail terminal facility in Salinas, KS, that formerly was operated by Continental, and is subject to restrictions in the event it seeks to enter into a throughput agreement with the operator of the Seattle facility.

Cargill said it accepted the terms and would proceed with the modified acquisition. The deal has been reviewed and approved by regulatory agencies in Canada and the European Union. Continental's pork, poultry, cattle, aquaculture, animal nutrition, petroleum trading, financial services and investment businesses are not included.

"This has been a long, arduous process," said Frank Sims, president of Cargill's North American grain operations. "We look forward to getting down to the business of melding our operations to reduce costs and improve service to our farm, feed, food manufacturing and overseas customers."

Secretary of Agriculture Dan Glickman was pleased with the deal. "I look forward to reviewing further the details of this consent decree and working with the Department of Justice to ensure continued protection for America's farmers," he said.

Sen. Tom Harkin (D-IA), however, was not pleased. "Approving this merger is bad public policy," he said. It will "stifle competitiveness in agriculture and hurt farmers. The requirements to sell off some grain facilities placed on this merger...are helpful but not sufficient. It is obvious that the Department of Justice does not fully appreciate the enormous impact this merger will have on American agriculture."

He continued, "This move has to raise serious questions in the minds of farmers, especially at a time when commodity prices and farm incomes are at their lowest levels in a decade. It seems clear that we could use more, not less, competition in the agribusiness sector. The move also has got to raise concerns about the impact on consumers. When you reduce competition among the middlemen between the farmers and the grocery stores, consumers pay the price."

Sen. Charles Grassley (R-IA) did not oppose the settlement but did not laud it either. Justice's requirements "will satisfy the antitrust concerns," he said, but "I will continue to question whether or not bigger is better and scrutinize closely any future merger efforts in agribusiness...The goal is to keep marketplace conditions healthy and promote competition."