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There are two types of milling process depending on the product desired. Dry milling is the process used to produce what we commonly refer to as flour (with other byproducts such as wheat germ), whether it is wheat or oat or barley flour, corn flour (which has become very important for tortillas), or any other grains to be used for human consumption. The first stage in the deconstruction of corn by the wet milling process is steeping (soaking) the corn to soften the kernel so that its major component parts -- germ, starch, gluten and hull -- can be subsequently separated. The starch becomes a slurry that can then can then be converted by means of enzymes into conventional corn syrups, high fructose corn syrup (HFCS), glucose, dextrose, crystaline fructose, corn gluten feed and ethyl alcohol (ethanol).
Cargill’s own information about its corn wet milling division does not, typically, provide any figures, but the company does say that it started in the wet milling business in the U.S. by buying a plant in Cedar Rapids, Iowa in 1967. Cargill built a second corn wet milling plant in 1976 on President's Island in the Mississippi River at Memphis. Being on the river meant that Cargill could supply the plant with corn by barge from upstream elevators very cheaply.
Year later, in 1998, Cargill took greater advantage of river transport and its skills in specialized commodity movement and launched the first barge designed specifically to carry high fructose corn syrup and other liquid sweeteners from its Memphis plant. The barge, with its six stainless steel tanks, is one of a fleet of 14 that will allow the Memphis plant to ship sweeteners on the Mississippi River at freight rates considerably lower than those for rail shipment. In addition to the state_of_the_art barges, the $30_million_delivery system includes a new loadout facility at the Cargill plant as well as receiving terminals at Tampa, Fla., and Houston, Texas. The facility long has used traditional barges to carry corn from the Midwest for processing, and to transport co_product feed ingredients from the plant to Gulf Coast export facilities. The barge project is one of a number of initiatives at the plant that have benefited from Cargill's participation in the Payment in Lieu of Taxes (PILOT) program established by the Memphis/Shelby County Industrial Development Board to encourage business investment and job creation in the area. In exchange for real and personal property tax abatements of $8 million over a 13_year period, Cargill agreed to invest $80 million and create 28 new jobs at an average annual wage of $44,210 by December 1998.***************
Cargill chairman Ernest Micek elaborated in a speech to the Corn Refiners Association in 2000, saying the company developed a continuous milling process and a continuous corn syrup refining process before developing High Fructose Corn Syrups (HFCS) around 1980. Micek said Cargill went from a capacity of 8000 bushels of corn ground per day in 1967 to more than a million bushels per day in 2000. A January, 2000, news story indicated that Cargill’s corn wet milling division produces, in the U.S., about 600,000 tons of Sweet Bran (a corn-derived cattle feed), 100,000 tons of corn gluten meal, 50,000 tons of corn oil, 1.5 billion pounds of high fructose corn sweeteners (HFCS), and 70 million gallons of fuel grade ethanol. According to one analyst, Cargill controls 21% of U.S. corn_milling capacity.***************
As of January, 2002, the company operates corn wet milling plants in the US in Eddyville, Iowa, Blair, Nebraska, Dayton, Ohio, Memphis, Tennessee, and Wahpeton, North Dakota. It also has a plant in the Netherlands that can utilize both maize/corn and wheat as feed stocks, a maize-based plant in England, as well as plants in Russia, Turkey, Brazil and Poland, as we have just seen.
To gain an insight into how Cargill’s corn wet milling businesses have grown, one needs to look in more detail at the development of its mid-west USA operations.
In 1985 Cargill built a corn wet milling complex at Eddyville to produce HFCS. Five years later Cargill added a $45 million citric acid plant to transform corn-derived liquid dextrose into citric acid. By the end of 1992 the plant was producing 36,000 tonnes of citric acid per year and supplying 20 per cent of the US market. Another addition to the plant made it possible to also produce 15 million pounds annually of sodium citrate, the sodium salt of citric acid. Both citric acid and sodium citrate are used in carbonated beverages, and sodium citrate is used to suppress the bitter aftertaste of the saccharin used to sweeten many low calorie beverages. Both products are also used as biodegradable alternatives to phosphate in detergents. The next addition to the Eddyville complex was a $30 million ethanol refinery.
Cargill's interest in ethanol goes back to the 1970s, but the technology for ethanol was undeveloped then and it cost more to produce ethanol than it was worth as a fuel component. The industry was, and still is, dependent on government subsidies. Although the economics of production may not have changed significantly, the politics have; US legislation mandated the use, starting in 1995, of ethanol as a blend in gasoline in order to make it burn more cleanly. Tax incentives have been used to encourage the production of ethanol and Cargill's rival, Archer Daniels Midland, has been the noisiest lobbyist both for its use and for the tax incentives and/or subsidies required to make it attractive.
After Eddyville came Blair. In 1995, when Cargill opened its $200 million corn wet milling plant at Blair, it announced that it had already begun a $97 million expansion of the plant, which produces fuel-grade ethanol and cattle feed in addition to HFCS. Next they added a $36 million plant to process corn germ into corn oil. A Cargill handout suggested that when the Blair plant was fully operational Cargill would be buying and processing approximately one of every 30 bushels of corn grown by the American farmer.
In 1997 the plant was expanded for the production of erythritol, "a sugar alcohol derived from corn that has 70% of the sweetness of cane sugar and only 0.2 calories per gram.” Erythritol was developed in Japan through a fermentation process using dextrose made from corn. The new $50 million plant was a joint venture between Cargill and Mitsubishi Chemical, which had a patented process for producing erythritol. The new project brought total capital investment in the Blair complex to about $400 million. (Mitsubishi Chemical has since dissolved the joint venture but maintained Japanese erythritol marketing operations.)
A lactic acid plant was also added to the complex in 1997. Lactic acid is a natural organic acid used as a flavour agent, preservative and acidity adjuster in foods. This was a joint project of Cargill and CSM n.v. of Amsterdam. The new plant also supplied polylactic acid polymers to Cargill's EcoPLA plant near Minneapolis, which was really a pilot plant for Cargill Dow Polymers LLC, 50/50 limited liability company formed by Cargill and Dow Chemical to develop and market polylactic acid (PLA) polymers. PLA resins are composed of chains of lactic acid that can be produced by converting starch (from corn or sugar beets) into sugar and then fermenting it to yield lactic acid. Water is then removed to form lactide, which is converted into PLA resins using a solvent-free polymerization.
In the late 1980s a lot of excitement had been generated by the corn industry over the advent of a 'biodegradable' plastic that could be used for all kinds of purposes including garbage bags. The novelty was the addition of corn starch to the normal plastic. When exposed to the weather, the corn starch would dissolve and the plastic would crumble. But that was all it did. There was, in fact, just as much plastic left, but it was in little bits. Cargill-Dow’s new PLA product is based on a totally different process and is, they claim, completely biodegradable (and there is no reason it shouldn’t be, but whether producing plastic from corn is ecologically sound is another matter).
In January, 2000, Cargill Dow Polymers announced that it would build a $300 million "world-scale facility" at the site of Cargill's corn wet milling plant at Blair to manufacture PLA, utilizing natural plant sugars from corn to make proprietary polylactide (PLA) polymers, which the company has named NatureWorks PLA. According to Cargill, the polymers can be made into utensils, packaging or fibers for cloth and carpeting and is expected to provide competition to cellophane for packaging due to its complete biodegradability and low price. Corn costs less than wood pulp as a feedstock and the manufacturing process is less complex, with the result that the polymer is cheaper to produce. The company is working on extending the technology to be able to use other crops, such as wheat and sugar beets, and agricultural waste for feedstock. The plant was due to come on stream in late 2001.
Yet another addition to the Blair complex was Midwest Lysine, as $100_million production facility that opened in 2000. This is a joint venture of Cargill and Degussa_Huls Corp., a subsidiary of Degussa_Huls AG of Germany. Midwest Lysine manufactures a premium lysine amino acid which is used in livestock feeds. The dextrose that Midwest Lysine utilizes as its primary feedstock is a primary product of Cargill’s corn wet milling plant next door. This brought Cargill’s total investment in Blair to more than $400 million.
In his 2000 speech to the Corn Refiners, Ernest Micek explained that one of the reasons he was optimistic about the corn milling industry was that its products came from a renewable resource. He said we would be hearing a lot more about “eco-efficiency” in the future, which he defined as “the creation of economic value while reducing environmental impact and resource use.” What Micek did not mention was that industrial corn production is a very heavy user of non-renewable energy in the form of petroleum and natural gas products (diesel fuel and nitrogen fertilizer) and mined fertilizers (phosphate and potash). He did not mention that Cargill is a producer/supplier of fertilizer. Nor did he mention the mammoth public subsidies (providing about half of farm income) going to the big industrial farmers in the U.S. to keep them producing cheap feedstock for Cargill’s processing.
Cargill moved further yet downstream by forming a partnership with Hoffmann-La Roche Ltd of Switzerland to build a plant to manufacture natural-source vitamin E as part of Cargill’s Eddyville, Iowa, corn processing complex. Cargill operates the plant and Hoffman-La Roche is responsible for marketing. The plant utilizes technology developed by the two companies to extract vitamin E from a product of soybean oil refining.
Cargill has also built an itaconic acid facility at its Blair corn processing complex, having purchased the itaconic acid business of Cultor Food Science of Finland. Cargill is now the world's largest supplier of itaconic acid, which is used in everything from the latex backing on carpets to coatings on paper that make water bead up.
Micek was not simply using a simile when he said, in his speech to the Corn Refiners, that while corn milling itself had not changed much in thirty some years, the “back end” now “looks a lot more like a large-volume drug store.” He gave a simple explanation for the more complex product line: “Regular glucose is about 8 cents per pound. Fructose is 12 cents per pound. Citric acid is 70 cents per pound. And itaconic acid is $1.80 per pound.”***************
Cargill made a big leap in October, 2001, with the announcement that it intended to acquire 56 percent of Cerestar from Montedison Cerestar is one of four companies formed through the de_merger of Eridania Beghin_Say, the agri_food company of the Montedison group of Italy, earlier in 2001. Cereol, another of the four companies, is a global oilseed processing company that includes Central Soya as its North America division. French law requires Cargill to make a tender offer for the remaining 44% of Cerestar shares that are held by the public.
Cerestar, with 16 production facilities in 10 countries, has a global product line – glucose, high fructose syrups, and animal feed ingredients from both wheat and corn – identical to that of Cargill. It controls 30% of Europe's market and 5% of the North American market for these products. The addition of Cerestar's three HFCS plants in tahe US will effectively increase Cargill’s share of US total capacity to 30%, placing it on a par with ADM, and reinforce its position as the leading supplier of glucose and dextrose to the North American market. The deal will also give Cargill access to isoglucose (HFS) production quotas in the European Union.
At the end of October, 2001, Standard & Poor’s and Moody’s both reduced their credit ratings for Cargill, triggered by the announcement of the purchase which is figured to cost a total of $1.1 billion, including assumed debt of an estimated $364 million. The rating agencies figure the total debt of Cargill and Cargill’s Employee Stock Ownership Trust at about $4.5 billion. However, they also say that Cargill’s business profile will be enhanced by the acquisition of Cerestar’s starch business since it will strengthen Cargill’s position in the European market and add Cerestar’s higher margin, value-added product portfolio to its strong but commodity-oriented product portfolio. The S&P report also commented that “Cargill’s product and geographic diversity, as well as its vast communication and transportation network, helps optimize commodity movements and provides competitive advantages. There is also less exposure to any one segment of US agriculture or to any one international locale.”*************** In January, 2002, Moody’s rated Cargill A1 among the companies in the food world that have “effective business models that create shareholder wealth.”***************
Cargill has long been a major wheat flour miller in many countries, including the US. For awhile, it was even cited as the largest flour miller in the world. This was in 1982 after it bought Seaboard Allied Milling Corp, the seventh largest flour miller in the US, from Seaboard Corporation. Cargill is now the third largest flour miller in the US behind ConAgra and ADM with 18 flour mills in the US Its largest mill, in Albany, New York, has a capacity of 1000 tonnes per 24 hours. In 1993 the company closed the 96-year-old flour mill in Buffalo where it got its start in flour milling in 1981.
In what Milling & Baking News described as “the largest flour mill closing in decades,” Cargill announced the shut down of three of its U.S. flour mills in April, 2001. Two of the three are to be dismantled, the third ‘mothballed.’ The current round of mill closings was the largest since 1995 when General Mills announced the closing of nine of its 17 mills, including its very large, but venerable, Buffalo, New York, mill which had the same capacity as the three mills closed by Cargill. Archer Daniels Midland has also closed three smaller mills, and together, all the mills closed accounted for 5% of the total daily milling capacity in the US.
While the flour millers may open and close flour mills like playing an accordion, farmers do not have the same flexibility. A retired general manager for Cargill Flour Milling candidly said, "Growers . . . have no say over the prices they receive, nor do they have any way to negotiate the pass-through of their costs to consumers. They sell at prices set by others on the commodity market. Growers cannot smoothly adjust production in response to supply and demand like millers can. . . In addition, there are 300,000 wheat farmers in the US and there is no way for that number of individuals to make smooth adjustments in response to supply and demand. . . In contrast, look at the concentration in the milling industry which buys the wheat."***************
A sign of the increasing cooperation between erstwhile competitors is the 2001 agreement between Cargill and CHS Cooperatives, a producer-to-consumer cooperative system operating in the mid-west and west of the USA, to form a limited liability company, Horizon Milling, LLC, to operate the US flour milling businesses of both companies with Cargill as the managing partner. The partnership includes 16 Cargill flour mills and five Harvest States mills, with a flour milling capacity about equal to that of Archer Daniels Midland. CHS Cooperatives itself is the amalgamation of Cenex and Harvest States cooperatives; Harvest States is the name of its grains and foods division. The name of the new joint venture, Horizon Milling, was chosen to reflect “a commitment to expand the horizon of opportunities for flour customers with a national scope of quality, consistency and product innovation,”according to the press release. There was no mention of any benefits for farmers.
In announcing plans for the venture some months earlier, CHS said it was at a crossroads: “too big to be a niche player but not big enough to compete successfully in a consolidating industry.” While acknowledging that even some of its members questioned the partnership of a grower-owned cooperative and the world’s largest privately held company, senior CHS management said, “we have a lot in common even if we do come from a different ownership base.”***************
Earlier in 2001 Cargill had fired 80 workers and closed three of its 19 US flour mills after excess production by Cargill, ConAgra Foods and other grain processors depressed prices, and ADM Milling discontinued operations at its flour mill in Destrehan, Louisiana, “due to excess industry capacity and poor economic conditions.” ADM shut down its 85-year-old flour mill in Des Moines, Iowa, in January, 2002. (ADM has over 22,000 employees, 275 processing plants and net sales for the fiscal year ended June 30, 2001 of $20.1 billion.)***************
Cargill moved into rice milling in 1992 with the purchase of the assets of Comet Rice Mill in Greenville, Mississippi, from Prudential Insurance Co. The Comet mill is the biggest in Mississippi and is located on the river in the heart of the delta. Its barge-loading capacity gives it a distinct advantage in rice exports, since most of the 30 or so rice mills in the US are landlocked.
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