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I call your attention to Mr. Kotz report that the Farmers Home Administration turned down Cooperativa Campesina's request for a loan. When asked to comment on this loan and related problems, Deputy Administrator Homer Preston, of the USDA's Farmer Cooperative Service, is quoted by Mr. Kotz:
The low-income farmer problem is not personally my cup of tea. Our conventional co-ops are not exactly enthusiastic about them. They don't have much to offer except labor and it is less important today. These people are cotton choppers. They are tied in with idealism and civil rights, and a lot of romanticism. The purpose of cooperatives is not to keep mass numbers in farming but to help those who reinain.
In any event these expressions of interest are enlightening and you may wish to look into the attitudes expressed by a responsible leader in the Department of Agriculture. Certainly there is an indication of Mr. Kotz writings that the large staff and the power of the Department have been directed along lines quite different from the old Rochdale principle that supported the development of cooperatives and producer associations throughout the United States for many years. I assume that Mr. Kotz, a winner of two Pulitzer Prizes, has his facts right.
We have only one specific action to commend to you at this time. There was an earlier reference to proposed legislation that would require large business corporations to divest themselves of all interest in the ownership and operation of agricultural land and production facilities. It is my hope that this will be introduced before your deliberations are concluded. Even though a decision to support such legislation may not be appropriate in your committee, it may well have a significant bearing on any plans for legislation that you may develop in this committee. We will bring it to your attention informally as soon as possible.
We urge that every effort be made to learn more about the current position of the large corporations in farming and their plans for the future. If we may be of further service through consultation with members of the committee or with your staff, you are assured of our interest and cooperation.
Senator STEVENSON. Thank you, Mr. Frazier.
I will order printed in the record at this point the very fine series of articles by Mr. Nick Kotz that appeared on October 3, 4, and 5, 1971 in the Washington Post.
CONGLOMERATES RESHAPE FOOD SUPPLY
(By Nick Kotz) The name “Tenneco" is not yet a household word to American consumers, but it weighs heavily on the minds of the nation's embattled farmers and of government officials who worry about the cost of food and the fate of rural America.
For Tenneco, Inc., the 34th largest U.S. corporation and fastest-growing conglomerate, has become a farmer.
Its new activities symbolize an agricultural revolution that may reshape beyond recognition the nation's food supply system. Dozens of the largest corporations, with such unfarm-like names as Standard Oil, Kaiser Aluminum and Southern Pacific have diversified into agriculture.
What concerns farmers, processors and wholesalers is that the new breed of conglomerate farmers does not just grow crops or raise cattle. The corporate executives think in terms of “food supply systems,” in which they own or control production, processing and marketing of food.
“Tenneco's goal in agriculture is integration from seedling to supermarket,” the conglomerate reported to its stockholders. Its resources to achieve that goal include 1970 sales of $2.5 billion, profits of $234 million and assets of $4.3 billion in such fields as oil production, shipbuilding and manufacturing.
The conglomerate invasion of agriculture comes at a time when millions of farmers and farm workers have already been displaced, contributing to the problems of rural wastelands and congested cities. More than 100,000 farmers a year are quitting the land, and more than 1.5 million of those who remain are earning less than poverty-level farm incomes. Their plight is severe.
Although the U.S. census still counts 2.9 million farmers, 50,000 grow one-third of the country's food supply and 200,000 produce more than one-half of all food. The concentration of production is especially pronounced in such crops as fruit, vegetables and cotton.
In 1965, 3,400 cotton growers accounted for 34 per cent of sales, 2,500 fruit growers had 46 per cent of sales and 1,600 vegetable growers had 61 per cent of the market.
The medium to large-size “family farms"-annual sales of $20,000 to $500,000 survived earlier industrial and scientific revolutions in agriculture. They now face a financial revolution in which traditional functions of the food supply system are being reshuffled, combined and coordinated by corporate giants.
"Farming is moving with full speed toward becoming part of an integrated market-production system,” says Eric Thor, an outspoken farm economist and director of the Agriculture Department's Farmer Cooperative Service. “This system, once it is developed, will be the same as industrialized systems in other U.S. industries."
Efforts to bar large corporations from farming have come too late, says Thor: “The battle for bigness in the food industry was fought and settled 35 years ago-chain stores versus 'Ma and Pa stores.'
Corporate takeover of the poultry industry did result in lower consumer prices. But for numerous food products, corporate farming has not lowered grocery costs, because the price of raw food materials is not a significant factor in determining final retail prices. For example, the cost of a food container is some times more than the farmer receives for the food packaged in it.
The new corporate farmers account for only per cent of total food production, but they have made significant inroads in certain areas. Twenty large corporations now control poultry production. A dozen oil companies have invested in cattle feeding, helping shift the balance of production from small Midwestern feed lots to 100,000-head lots in the High Plains of Texas. Just three corporations—United Brands, Purex and Bud Antle, a company partly owned by Dow Chemical-dominate California lettuce production. The family farmer still rules supreme only in growing corn, wheat and other grains, and even here constantly larger acreage, machinery, credit and higher prices are needed for the family farmer to stay profitably in business.
Tenneco hopes that its new brand name, "Sun Giant,” will one day become for fresh fruits and vegetables what “Del Monte” now means for cannd foods. It hopes housewives will pay premium prices to buy its nationally advertised specially packaged fresh produce.
Tenneco, which started out as Tennessee Gas Transmission Co., says it made "giant strides" in 1970 toward its agriculture goals.
Resources rapidly accumulated by the giant conglomerate include: Kern County Land Co., which controls 1.8 million acres of land in California and other states : J. I. Case Co., a manufacturer of farm machinery : Packaging Corp. of America, which makes food containers ; Tenneco Chemicals, a producer of pesticides, and Heggblade-Margoleas, the nation's largest processor-marketer of fresh fruits and vegetables.
Even the largest independent California farmers question how they can compete with a corporation which can,
at least in theory, own or control virtually every phase of a food supply system. Tenneco can plant its own vast acreage. It can plow those fields with its own tractors, which can be fueled with its own oil. It can spray its crops with its own pesticides and utilize its own food additives. It then can process its food products in its own plants. package them in its own containers and distribute them to grocery stores through its own marketing system.
Financing the entire operation are the resources of a conglomerate with billions in assets, hundreds of millions in tax-free oil income and interests in banking and insurance companies. Tenneco, according to reports filed with the Securities and Exchange Commission, had 1969 gross income of $464 million and taxable income of $88.7 million. Yet due to federal tax breaks, Tenneco not only paid no taxes on that income, but had a tax credit of $13.3 million.
Tenneco officials—who don't want to be named acknowledge they are building a vertically integrated food delivery system, but they deny any plans for coordinated use of the conglomerate's total resources. Each company must compete and earn a profit separately, they say. Nevertheless the Federal Trade Commission is actively scrutinizing the corporation's agricultural activities for possible antitrust violations.
Tenneco is reluctant to discuss details of its finances in agriculture, but available information indicates the scope of its present agricultural interests.
In 1970, Tenneco reported agricultural and land development sales of $107 mil. lion and profits of $22 million. It farmed 35,000 acres directly and 95,000 acres through 324 tenant farmers. It produced 2 million boxes of grapes, 1.5 million boxes of strawberries and large amounts of other fruits and vegetables. But that is only the beginning.
Heggblade-Margoleas, Tenneco's processing and marketing firm, sold its own products and those of about 2,000 other farmers. Heggblade-Margoleas is the nation's largest marketer of fresh fruits and vegetables and the world's largest marketer of table grapes. Its processing facilities include a new 8-acre plant and the world's largest date processing plant. Tenneco even has its own farm lobbyist in Washington.
Tenneco agricultural operations employ 1,100 full-time workers and 3,000 at the peak of harvest. Faced with a boycott of its other products, Tenneco last year signed a contract with Cesar Chavez's United Farm Workers Organizing Committee.
The 1970 contract signed with Tenneco and other grape growers raises basic wages to $1.75 to $1.80 an hour and provides a piecework bonus that can add another $1 an hour during harvest season. Before Chavez's union began its grape strike, wages averaged between $1 and $1.25 an hour. The contract also established a medical care fund, an economic development fund and safety precautions to protect workers from pesticide poisoning.
Tenneco's future plans include development of its Sun Giant brand produce and putting into production 30,000 newly irrigated acres.
The type of food system being put together by Tenneco and other conglomerates frustrates and frightens independent farmers. They see every element of the food business acquiring market power but themselves. On one side, they confront the buying power of giant food chains. Now they must compete with conglomerates that can take profits either from production, processing, or marketing. The individual farmer usually does not have such options. The giant competitors also benefit from a variety of government subsidies on water, crops and income taxes.
Contrary to popular notion and most galling to the efficient, large, independent farmer, the corporate giants generally do not grow food cheaper than they do. Numerous USDA and university studies show that enormous acreage is not needed to farm efficiently.
For example, maximum cost-saving production efficiency is generally reached at about 1,500 acres for cotton, less than 1,000 acres for corn and wheat, and 110 acres for peaches. Thousands of independent family farmers possess such needed acreage, and farm it with the same machinery and techniques used by their new rivals.
In fact, studies show that the largest growers incur higher farm production costs as they employ more workers and layers of administrators.
A fullscale eco mic battle between the conglomerates and independent farmers is now unfolding in the nation's single most important farm area, the rich central valleys of California, which far outdistances Iowa as the first-ranked state in farm sales. California farms grow 40 per cent of the nation's vegetables, fruits and nuts. The state produces at least 90 per cent of the country's supply of 15 crops and leads the nation in 25 others.
“If the Tenneco operation is allowed to go unchecked, it can change the whole complexion of farming in the valley,” says Fresno attorney Donald Thuesen. “They have the marketing power to make or break the market. They can sell below cost, as a loss leader, to get other business, and sustain losses that no farmer can afford.”
Thuesen represents a large grape grower who claims Tenneco forced him into bankruptcy by selling the grower's grapes below the market price. A former Tenneco tenant farmer makes similar claims involving the marketing of his potatoes. Tenneco denies these charges.
“Tenneco sells their produce first and you get what's left over," contends John Giacone, who grows cantaloupes in the San Joaquin Valley.
In an effort to market his own cantaloupes, Giacone built a plant to box and market his produce. But now he finds supermarket chains will not buy his cantaloupes unless he uses a different kind of container. The chains have changed their container specifications deciding that another kind of box is more convenient for their retail operations.
Remodeling his shed for the newly required packing process would cost $500,000, says Giacone, and that “will take the family jewels and then some.”
At a time when they are confronted with overproduction in numerous crops, California's independent farmers are disturbed to see the conglomerates, with taxpayer's help, each bringing into production 5,000 to 100,000 newly irrigated acres.
A California state water project will irrigate 450,000 new acres for crops. A Ralph Nader task force calls the water project an unwarranted, $1,000-an-acre "welfare scheme” for a few big landowners. Tenneco plans to grow fruits and vegetables on 30,000 of these acres. Other major beneficiaries include Southern Pacific, Standard Oil of California and Belridge Oil Co.
“Belridge Oil Co. is spending $185 million to develop 20,000 acres of fruit and vegetables," says Jack Bowen, a peach grower in Modesto. “They grew 640 acres of peaches last year just to see whether they wanted to grow them. If corporations like that get serious, we've had it. We can produce more efficiently than these corporations but we may not be around long enough to prove it."
Bowen is not a small peach grower. A sign outside his spacious 350-acre orchard proudly proclaims "A Family Business for Four Generations." His annual sales exceed $300,000. He replaced the jobs of several hundred non-union migrant workers with a giant machine, which clutches peach trees by their trunks, then shakes off the peaches into a conveyor and onto trucks.
As a practical matter, Bowen and other California peach growers have become too efficient for their own good. Faced with ruinous prices last year, they destroyed 40 per cent of their harvest.
"We only have 53,000 acres of peaches in production,” says Ugo Caviani, president of the California Peach Canning Association. “One big corporate grower like Tenneco could wipe us all out.”
Caviani says the number of California cling peach growers has declined from 2,200 to 1,700 in only three years, while the number of canners has dropped from 40 to 14.
The nation's fruit and vegetable growers are not strangers of the tough competition of agribusiness. For many years, they have wrestled with the market power of chain stores and major food processors. They sell to canners such as Del Monte, Libby-McNeil & Libby, Green Giant Co., H. J. Heinz Co., and Minute Maid Corp (a subsidiary of Coca Cola). Each of these canners also competes with the independent farmer by growing large amounts of its own food supply.
But the new conglomerate represents a different kind of competition. The older agribusiness corporations are primarily food companies and must make money somewhere in the food distribution system. Such is not necessarily the case with the new conglomerate farmers, for whom millions of dollars of agribusiness investment may represent only a fraction of their total holdings. Only 4 per cent of Tenneco's sales are from agriculture.
In fact, the conglomerates may find their food investments profitable even without earning anything from them. The profits may come from land speculation, federal crop subsidies, or generous federal tax laws. Tenneco received almost $1 million in 1970 cotton and sugar farm subsidies.
The new conglomerates utilize a variety of federal tax provisions that permit them to benefit from tax-loss farming and then profit again by taking capital gains from land sales Tenneco, for example is now developing six new California suburban communities on former farm land.
Tenneco officials insist they are farming to make money, to serve the consumer quality products and to help strengthen American agriculture.
LAND AS INVENTORY
However, Simon Askin, Tenneco's executive vice president for agriculture and land development, recently told the Los Angeles Times: “We consider land as an inventory, but we're all for growing things on it while we wait for price appreciation or development. Agriculture pays the taxes plus a little.”
The federal government has been hesitant to bring antitrust actions against conglomerates that move into farming. So farmers and corporations are watching closely a key test case that is developing in California's Salinas Valley, the lettuce and celery capital of the country.
The Federal Trade Commission has charged both United Brands, the 81st largest U.S. corporation, and Purex Corp., the 316th largest, with seeking to monopolize production and supply of fresh vegetables.
The FTC is negotiating a settlement with Purex but the United Brands case is in federal court. The government charges that United Brands is transforming the lettuce and celery business from a competitive one of small, profitable, independent growers into a non-competitive industry dominated by large conglomerates. The FTC will seek to prove that United Brands cannot grow lettuce more cheaply and that it provides no price benefits to consumers.
In its reply to the FTC complaint, United Brands contends that the country needs large corporations in the farming business. United Brands, represented by President Nixon's former law firm, states :
“Although there may be some nostalgic desire to see a market composed of many small growers, that structure cannot survive against a market buyer (chain stores) that is composed of fewer and fewer companies with larger and larger market shares."
United Brands contends there is no economic justification for "a lettuce market composed of many small farmers who all are at the mercy of the buyers."
The FTC case illustrates dramatically the vastly different concepts by which industry and farmers measure bigness in agriculture. Most of the "small farmers” referred to by United Brands are, by present farm standards, among the largest independent farmers in the country. Their annual sales range from more than $100,000 to several million dollars.
Although admitting the increasing concentration of corporate power in fruit and vegetable production and the corporate takeover of poultry farming, USDA officials generally contend that this phenomenon will not spread to other farm products.
Many Midwestern cattle, hog and grain farmers disagree.
The fear that the cattle and hog feeding businesses, their best source of income, may follow the pattern in which independent poultry growers were wiped out.
About 20 corporations including Allied Mills, Ralston Purina and Pillsbury Co., originally went into poultry production as a means of developing markets for their feed. Farmers were signed up to grow the corporations' poultry, using their feed.
According to USDA studies, the poor but once independent poultry farmers are still poor as contract workers, earning about 54 cents an hour. A Ralph Nader task force on agriculture called this corporate farm system “poultry peonage.”
The corporations, however, contend that they have benefited small farmers with a steady, if small, source of income. And, they say, they have given consumers lower priced chicken and turkey.
The farmer sees everyone he must deal with in the food production system acquiring more power except him. The supermarket chains, the grocery manufacturers and the new conglomerate clout in the marketplace and political influence in Washington. Even migrant farm workers, still the lowest paid laborers in the country, have made some progress, signing contracts with the new conglomerate farmers, who are vulnerable to boycott of their brand products.
Only the individual farmer, with the exception of powerful cooperatives in a few crops, remains unorganized in the marketplace.
A battle to achieve market power now pits rival farm producer groups against each other, farmers against processors and farmers against migrant farm workers.
The battle has produced some strange new alliances and has strained old ones. It is now being fought with strikes and boycotts and in the halls of Congress.