BusinessReport.com

Is Cargill costing Louisiana farmers money? Many who rely on the Cargill-run grain elevator at the Port of Greater Baton Rouge in Port Allen think so, even if they’re reluctant to criticize the agribusiness giant too harshly.

Pointe Coupee farmer George Lacour, while stressing he doesn’t want to “attack” Cargill, thinks a different operator could be worth tens of millions of dollars a year to Louisiana growers and the communities that depend on them.

“The Port Commission has not done its job to go out and get the facts,” Lacour says. “All we’ve ever asked for is they look around the globe, see if there’s another player who would locate in Baton Rouge and create a lot more commerce, a lot more jobs, and benefit Louisiana agriculture.”

The problem, some say, dates to 1998, when Cargill acquired Continental Grain. The deal between two of the nation’s largest grain traders drew the attention of the U.S. Department of Justice Antitrust Division, which ultimately approved the merger after forcing both parties to sell several grain facilities.

Cargill was allowed to keep two elevators on the Mississippi River, including one acquired from Continental. In the years since, the Port Allen facility has been underutilized, kept shorter hours and paid less-competitive prices to farmers, critics say.

“Those elevators don’t close at 5 o’clock,” Lacour says. “They run every day, all day long. They don’t have any more storage [than Port Allen], but they never fill up because they’ve always got a vessel to load.”

Cargill doesn’t want to compete with its own facilities, the theory goes, but bring in another operator that would compete with Cargill, and prices paid to farmers would improve.

An LSU AgCenter study commissioned by the Louisiana Farm Bureau looked at the basis levels [the difference between cash prices paid to farmers and futures prices set by the Chicago Board of Trade] in Port Allen from 1996-2008, using the average Louisiana Gulf export price as a comparison. From 1996-2001, the local basis was about 10 cents a bushel cheaper for corn and soybeans than the Gulf price; starting in 2002, that difference widened considerably, to about $1 a bushel. Something changed in that relationship that can’t be explained by transportation or transaction costs, the AgCenter’s Kurt Guidry says. That difference of nearly a dollar could be worth $70,000 a year to a farmer like Lacour.

Cargill spokesman Todd Thul, reached by e-mail, says the study is “interesting,” but it “does not take into account many variables that influence the basis.” He says Cargill facilities in Reserve and Westwego were designed to accept Mississippi River barges and rail for delivery, not truck-delivered grain as in Port Allen, and so it doesn’t affect Cargill’s business here.

“This is Cargill’s only facility in the state that purchases grain directly from farmers; as such we believe it enhances competition,” he says.

Guidry’s study also found a strong relationship between prices paid in Port Allen and in other parts of the state, although his study doesn’t prove lower prices here cause lower prices elsewhere. But farmers say they don’t need a study to tell them prices at an elevator that handles a quarter of the state’s grain have an impact throughout Louisiana.

“I’m 100 miles north [of Port Allen], and it affects me,” says Al Ater, a Concordia Parish farmer who served as Louisiana’s secretary of state from 2005-06. Operators in his area base their prices on prices in Port Allen, he says, paying just enough to get Ater to do business locally rather than trucking his product to the Port of Greater Baton Rouge. “If they pay 20 cents more here, I’m going to get 20 cents more, and that’s going to ripple throughout the state.”

Cargill has held the lease on the Port Allen elevator for more than 50 years. That lease expires next year. Ater argues there’s no harm in having an open process to find out if another company wants to come to Port Allen and compete with Cargill’s downriver facilities.

But if the port doesn’t get any other qualified bidders, its negotiating position with Cargill for the lease renewal weakens considerably. Some commissioners have suggested negotiating with Cargill first, to see if any of the farmers’ complaints can be addressed. A May 28 Port Commission meeting was attended by Burnie Juneau, Cargill’s manager at the port, and more than a dozen farmers. Juneau stressed the benefits of Cargill’s reach in the global market.

“You can’t move what comes through this facility on this side if you don’t have the resources and the footprint on the back side,” he said.

When a farmer asked Juneau if Cargill would put forth a proposal in an open process, Juneau indicated Cargill would play hardball.

“If it does go to public bid, we will withdraw and step back,” Juneau said.

Juneau’s statement might have been made in the heat of the moment, however. Thul says Cargill would participate in an open process.

The commission didn’t make any decisions about Cargill on May 28, but it did learn two of its members, who are farmers, would no longer have a say about Cargill or any other issue facing the port. An opinion from the Louisiana Board of Ethics states that Brady Hurdle, nominated by State Sen. Rob Marionneaux, and Farm Bureau appointee Don Schexnayder could not serve on the board while receiving direct or indirect payments for their crops from Cargill. Both men decided they needed to do business with Cargill and resigned. Schexnayder has been one of Cargill’s critics.

“It astonishes me that you want people to serve because of their expertise,” said Marionneaux, a Livonia Democrat. “The minute you get to experience the expertise of that person, the Board of Ethics comes down on them.”

As of July 14, two new commissioners had been added. Corey Sarullo, a Maringouin banker, has replaced Hurdle as a representative of Iberville Parish. John Tilton has replaced Schexnayder as a Farm Bureau representative. There are still two openings on the commission.

Port Executive Director Jay Hardman says the port can’t dictate how any port tenant does business. He says Cargill has spent its own money making facility improvements that could be worth as much as $10 million to $15 million. The port is in the process of doing a $3 million rehab on the dock at Cargill’s facility, and has made other improvements with its revenue in the past. The contract with Cargill is worth about $235,000 a year, plus $200,000 to $400,000 in dockage fees. Cargill probably buys at least $300,000 worth of grain a day during harvest season, he says.

“We have issues with all of our tenants in some form or fashion,” Hardman says. “We feel Cargill’s been a fairly good tenant.”