The Cargill Playbook: how corn subsidies created America’s largest private company

Austin Frerick describes how US farming policy created a grain monopoly, in an extract from his acclaimed 2024 book 'Barons: Money, Power, and the Corruption of America's Food Industry'.
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“Agriculture policy does not protect the person you or I think of as a farmer,” Tom Buis of the National Farmers Union told the New York Times in 1999. “It benefits the largest operations and the processors. And the processors want cheap grain.”

With the incentives under the Federal Agriculture Improvement and Reform Act of 1996 (or the Wall Street Farm Bill, as I like to call it) putting downward pressure on corn and soy prices, production of these commodities exploded in subsequent years. This boom meant that companies like Cargill saw record profits in the years following passage of the law.

The Wall Street Farm Bill’s massive government subsidies for corn and soy at the expense of almost everything else seemingly gave Cargill the rocket fuel it needed to consolidate its power over agricultural markets. More than half a century after John MacMillan Jr. outlined his dream of an endless belt, the company could finally make it a reality.

The company’s approach was similar to the one pursued by Standard Oil decades earlier. John D. Rockefeller’s Gilded Age behemoth controlled most of the oil supply chain, from the producers who extracted oil from the ground to the trains and pipelines that transported it across the country, to the refineries that turned it into a usable product, to the stores that sold it to consumers. This sort of vertically integrated business empire let Standard Oil use its control over one link of the supply chain to exert pressure on competitors in another.

Like Standard Oil, Cargill came to dominate by being a middleman. Its primary business is moving grain and transforming it into other products, just as Standard Oil did for oil. The last family member to run the company, Whitney MacMillan, even compared grain markets to petroleum markets. With the burst provided by the record profits it accumulated in the years after passage of the Wall Street Farm Bill, Cargill entrenched itself as the dominant middleman in the grain trade and then used this position to amass economic and political power through an aggressive acquisition strategy.

In 1998, Cargill announced its purchase of Continental Grain Company grain handling assets, one of its chief rivals in the grain elevator business, the same niche in which Cargill got its start. At the time, Cargill handled about 20% of America’s grain exports and Continental Grain moved about 15%. The Clinton administration waved the acquisition through when Cargill agreed to sell a few grain elevators to provide a pretence that competition was somehow being maintained. Yet for American farmers, this sort of consolidation has meant lower and lower prices for their crops as the number of potential buyers has collapsed. The share of each dollar spent on food that winds up in the hands of farmers has fallen from 53 cents in 1946 to 15 cents today, the lowest level ever recorded.

The company also expanded into new industries and regions. When it identifies an opportunity, Cargill typically buys a small company or a mere stake in a dominant company. This beachhead approach allows Cargill executives to get an inside view of the area or business and decide whether they want to double down. Once they commit, Cargill seeks full domination by aggressively buying up large firms.

One example of this strategy is the company’s expansion into beef slaughtering. Building on its animal feed business, Cargill bought a small beef feedlot in 1974. Once it seemingly understood the industry, Cargill acquired a massive slaughtering company called MBPXL and then made several more purchases in the beef business. The subsidiary company, now known as Cargill Protein, is the second-largest beef packer. These sorts of takeovers are why Cargill is now one of the four largest companies in beef slaughtering, beef feedlots, pork slaughtering, turkey slaughtering, animal feed, flour milling, corn milling, and soy- bean processing.

They are also why allegations of price-fixing and collusion have become a normal occurrence for the company. In 2004, Cargill settled a class action lawsuit for $24 million after being accused of colluding with two other companies to fix the price of a food sweetener. In 2022, the company, along with two others in the chicken business, agreed to pay $84.8 million to settle a lawsuit claiming that the companies violated antitrust law by sharing information about worker pay and benefits.

The lawsuits haven’t slowed Cargill down, but the company does seem to know when to fold its hand if a beachhead seems unviable. If it can’t become one of the top three or four players in a concentrated industry, it throws in the towel and sells off those assets. It seems to understand that operating in concentrated markets isn’t profitable if it isn’t one of the big boys. For example, Cargill sold its chicken hatcheries, feed mills, and slaughterhouses to Tyson Foods Inc., perhaps because it became clear that it could not compete with its rival’s dominance of the space. Although Cargill decided to concede the American chicken market, it didn’t give up on birds entirely. The company still maintains a massive American turkey operation as well as chicken operations abroad.

And when market conditions change, so does Cargill. In 2021, the company decided to return to the chicken market. In conjunction with one of its grain competitors, it spent $4.5 billion to create the third- largest chicken-slaughtering company in America. Although Joe Biden talked about the dangers of consolidation on the campaign trail, his administration signed off on the deal.

Cargill has also been forward-thinking about co-opting innovations in the food system, including ones that might be seen as threats. Many companies avoid investing in new products or industries that could cannibalize their business. But Cargill would rather be in the room in a nascent industry to see if it is economically viable.

Two of Cargill’s more recent investments have been in lab-grown meat and insect farming. If the cost of growing cells into muscle meat ever dips low enough, it could cut into or even eliminate Cargill’s slaughtering businesses. Similarly, insect farming could undermine its massive soybean-milling operation used to produce animal feed. Cargill is pursuing both ventures as a sort of hedging strategy. The company may be competing with itself, but at least it will never be left behind.

This article is an edited extract from Barons: Money, Power, and the Corruption of America’s Food Industry, published in March 2024 by Island Press. Buy a copy here.

Austin Frerick is an expert on agricultural and antitrust policy. He is a Fellow of the Thurman Arnold Project at Yale University, and serves on the Board of Directors for Common Good Iowa and the Socially Responsible Agriculture Project.

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