Chapter 7: Trade and the Competitive Environment

Chapter 7: Trade and the competitive environment

Cargill, featured in this case study, is a global commodities trading company. The case study appeared in the chapter on ethics and CSR in the 3rd edition (on p. 393). Here is the case study as it appeared:

Cargill, the ‘farm to fork’ giant

Although Cargill’s name might be unfamiliar, an ordinary person tucking into breakfast just about anywhere in the world is likely to be consuming a product that has been grown, processed or traded by this giant company. It produces pork which goes into sausages, grows the soya which feeds livestock, processes the grain for bread products, grows and processes the oil which goes into spreads, and produces salt and seasonings for all types of processed foods. Our consumer’s cocoa drink is likely to be made from cocoa and sugar traded by Cargill, as it is the world’s largest trader of both these commodities. Even our breakfaster’s cotton shirt is likely to be made from African cotton processed and traded by the company, although the name never appears on any labels.

Cargill is a private company founded in the US Midwest in 1865, a year more often remembered for the end of the American Civil War. The Cargill family still own the company, which has grown into the world’s largest trader of agricultural commodities. At the basic level, an agricultural trader typically buys produce from farmers, stores it, processes it and sells it to customers, who are likely to be food processors themselves. But they can also be governments and international agencies. When these activities become globalized, purchases and sales span the globe.

Cargill has invested heavily in vertical integration, controlling the supply chain in commodities. From its palm oil plantations, Cargill is both the largest exporter of palm oil to the US and the largest importer of palm oil into the US, where it is used in the production of processed food and cosmetics. For soya, another important commodity crop, especially for use in animal feeds, it supplies seeds and chemicals to farmers in Brazil. Crops are handled in its processing plants, and shipped from its own purpose-built port terminals. Cargill’s size gives it considerable economic power over suppliers and customers. It has faced criticism for its potentially anti-competitive power over markets, as well as lack of transparency. As a result, it now keeps customers more informed about markets, including trends, such as growing imports of US corn by China and other emerging markets. The growing consumption of meat in emerging markets, where people’s eating preferences are becoming more westernized, is one of the trends which boost Cargill’s business.

Cargill enjoyed nearly $117 billion in revenues in 2008, and employs 138,000 people in 67 countries. However, it has run into controversy in countries such as Indonesia and Brazil, where rain forests and sensitive ecological environments have been destroyed to make way for industrialized farming. Both palm oil and soya production typically involve destroying lowland rainforests. Cargill has been accused of clearing forests in Borneo for its plantations without the environmental impact assessment required by Indonesian law, even though it has subscribed to the Roundtable for Sustainable Palm Oil Principles (Rainforest Action Network, 3 May 2010). Its three plantations in Papua New Guinea also evoked criticism. Here, the company’s labour scheme involved converting people who had been independent farmers into sharecroppers with fixed contracts with the company for their crops. The company was also alleged by NGOs to have been complicit in child labour practices. Promises of new roads and schools which it made to local communities failed to materialize (Gilbert, 2010). Cargill has sold the plantations in Papua New Guinea, stating that it is shifting its focus to Indonesia, which represents ‘more value for our shareholders and customers’ (Cargill, 2010).

In Brazil, a surge in deforestation in the Amazon has been attributed to Cargill’s building soya refineries as well as port facilities deep into the Amazon rainforests (Vidal, 2006). The Brazilian government closed down Cargill’s new port facility at Santarém on the Amazon River, for failure to report adequately on environmental impacts. However, the company has continued expanding its port facilities, enabling it to process growing quantities of soya and sugar. It now has six grain and sugar terminals in Brazil, and aims to quadruple the handling capacity of the Santarém port (Kassai, 2010). Most of the soya produced globally goes into feed for the livestock industry. Half the soya exported from the Amazon goes to Europe, where, among other uses, it goes to feed chickens reared by Sun Valley, a Cargill wholly-owned subsidiary in Britain, whose chickens are used in McDonald’s Chicken McNuggets.

Cargill has a ‘corporate responsibility’ policy, notably without the inclusion of ‘social’ between the two words. It asserts that it is a good corporate citizen wherever it operates, and that it complies with national laws and principles of sustainability. Inhabitants of Indonesia, Papua New Guinea and Brazil might suggest otherwise.

Sources: Vidal, J. (2006) ‘The 7,000 km journey that links Amazon destruction to fast food’, The Guardian, 6 April; Rainforest Action Network, Report on Cargill’s problems with palm oil, 3 May 2010, at Gilbert, D. (2010) ‘Cargill leaves a palm oil mess in Papua New Guinea’, Rainforest Action Network, 24 February 2010, at Cargill (2010) ‘Cargill sells interest in Papua New Guinea palm oil plantations’ Cargill news releases, 24 February, at Kassai, L. (2010) ‘Cargill sees record soybean crop in Brazil, Argentina’, Businessweek, 19 February, at Blas, J., and Meyer, G. (2010) ‘Emerging markets retain appetite for western food’, Financial Times, 19 May; Blas, J., and Meyer, G. (2010) ‘All you can eat’, Financial Times, 19 May.

Questions for discussion

What issues of corporate social responsibility are featured in this case study?
Assess Cargill’s CSR profile on each of the issues listed in the first question.

2016 update:

Cargill invested heavily in expanded production capabilities, but increased production has exceeded demand in many markets, resulting in lower commodity prices globally. Remaining competitive in all the diverse sectors in which it operates has proved challenging for Cargill’s strategists. Cargill has also experienced continuing problems with compliance in food safety, environmental regulation, sustainability in supply chains and human rights.

The company has invested in many emerging markets, but slowing economic growth in these markets has impacted on Cargill’s prospects. Cargill has looked to its home market of the US for improved performance, and for export potential, although the strong US dollar has had a detrimental impact. In pork production the company was not competing on price with large competitors, and has reduced its activities in this business in the US. Cargill has maintained its commitment to beef production, but has come under competitive pressures, as many consumers in the US have shifted to cheaper products like pork and poultry. Cargill has made a number of acquisitions to add to its portfolio businesses that generate higher added value. It purchased Five Star Custom Foods, a Texan company, in 2016. Five Star Custom Foods specializes in processed cooked protein products and processed soups for the food services sector.

Cargill’s businesses have continued to encounter difficulties in areas of CSR. It has dealings with palm oil production companies in Indonesia that are associated with deforestation and unsustainable supplies. Child labour accusations have long been levelled at Cargill. A lawsuit alleging forced child labour on cocoa plantations in the Côte d’Ivoire was relaunched in the US in 2016, some 11 years after first being filed. The lawsuit is against Cargill, Archer Daniels Midland and Nestlé. Cargill has a record of food safety problems and recalls. It has had to recall large amounts of processed meats affected by salmonella. In 2011, it recalled 36 million pounds of minced turkey, and in 2012, it recalled 29,000 pounds of beef associated with an outbreak of salmonella. In 2015, it recalled another large quantity of beef burgers, due to possible contamination by stray blue string in the packets of burgers. With food safety a growing concern globally, Cargill and other agribusinesses could struggle to maintain public confidence.