Colombianismos - Let's test Cargill (II)

Categories: 

Tags: 

 

Interview with Cargill’s president

“The land was just one piece of the investment”

David MacLennan maintains that the food giant did not break Colombian laws. In Colombia, Cargill has been called to account for buying thousands of hectares that were once vacant lots.

David MacLennan, Cargill's president. / Photo: Elina Lappalainen 

 

 

For any American, it is almost impossible to go to bed without having been in contact with Cargill products. It might be an additive in their ketchup, the malt in their beer at lunch, what the pork they ate for dinner was fed. Little wonder, according to their 2013 Annual Report, the company made US$136.6 billion in sales and revenue on net earnings of US$2.31 billion. Sums that dwarf the $1 billion G20 budget in 2009 to reenergise the world’s economy and create 20 million jobs*.

And yet this American food giant has been called into question by Colombian congressmen Wilson Arias and Jorge Robledo over its acquisition of thousands of hectares in Vichada (southeast of Colombia), triggering a fundamental debate: could a single entity accumulate massive extensions of land, once allocated to landless peasants? What is the scope of the 160/1994 Act**? How could Colombia prevent itself being on the ‘black list' relating to concentration of land? Cargill sees the issue from another perspective: “This is not about acquiring the land, we think this is about helping Colombia to improve its agricultural infrastructure”, says David MacLennan, president since 2011.

Although Cargill’s spokespeople had previously declined to comment publicly on the Vichada affair***, complex as it is, MacLennan agreed to be interviewed by El Espectador at his office, outside of Minneapolis (U.S.A.), in the sumptuous town of Minnetonka wherein no home is worth less than $1 million. Cargill’s employees call it the “Lake office” because there is a pond once used as a pool by the daughter of the site's multimillionaire owner who wanted to qualify for the Olympics. Others simply call it “the Cargill mansion”.

MacLennan claims Black River Asset Management (Cargill’s subsidiary in Colombia) acted in accordance with Colombian law: “We see this as a good thing, we see this as an investment in the country, we see it as an investment in agriculture”. Black River, as well as Riopaila (a Colombian sugarcane company), established the same model: they both founded Limited Liability Companies (LLCs) to purchase land in Vichada. To date, 43 LLCs founded by Black River have been identified. Senator Jorge Robledo claims the purpose of creating these myriad LLCs was to hide the fact one entity (i.e. Cargill) had overstepped legal limits for purchasing land.

 

Colombian congressman Jorge Robledo. 

 

Cargill maintains there is another side to the story. MacLennan did not answer all questions asked, claiming he did not know in detail about the land transactions in Colombia. When asked about the controversy over Black River, MacLennan stressed its agroindustrial project would provide Colombia with a multitude of benefits. He stressed Black River’s representatives would answer the pending questions via email.

Those representatives did not oblige in toto, although they explained that creating several LLCs to purchase land was a business model “standard in the real estate industry around the wold. The primary reason for using this kind of model is the flexibility it provides to be able to sell smaller parcels at a later date”. A similar argument was put forward by the law firm Brigard & Urrutia when their delegates attempted to publicly explain why the companies they provided legal advice to, be it Cargill or Riopaila, managed to become owners of thousands of hectares in Vichada through the creation of small LLCs. Those lands used to be vacant lots, meaning they were allocated to peasants by the State, with a limit on how much a private entity could possess.

Cargill has traditionally focussed on agroindustrial projects, making it hard to understand why it bought thousands of hectares in Vichada. MacLennan concedes the multinational rarely buys land overseas: “It’s not usual and it’s not something that will be a huge part of Cargill's portfolio. It happened to be that two subsidiaries, Black River and this fund, [regarded] the purchase of this land in order to develop it for sustainable successful farming and to add infrastructure, so the land was just one piece of the investment”. Nonetheless, “successful farming” is flagged as part of Cargill’s corporate vision, so why add land-acquisition to the formula? According to public records, Cargill has acquired some 60,000 hectares in Vichada, yet maintains they have “not purchased land in any other Colombian region”.

MacLennan argues the asset business is not core for Cargill, yet the 2013 Annual Report flags US$15 billion (nearly seven times their 2013 net earnings) in acquisitions and assets in the last five years***. According to information uncovered in Colombia, Cargill bought land in some cases ten times higher than the market value just months earlier. In one case it paid US$1.6 million for “El Boralito”, where a few months earlier the original owner (a peasant family) sold it to a third party for less than US$5,500. Some 13 similar cases involving Cargill are on the public record.

Was Black River trying to speculate on land prices in Colombia? Why were the Limited Liability Companies founded by Black River just months before acquiring the lots? MacLennan maintains he did not know details of the transactions. Black River representatives, on the other hand, point out all the purchases were public and no intermediary had participated. They both assert the purchases followed a two-year study, during which time they were advised by Brigard & Urrutia, another firm and even academic experts. Which law firm? Which experts? They would not say. MacLennan: “As far as the process of acquiring the land and the prices paid, it is one of our guiding principles: we obey the law, and we think we have”.

 

Cargill's subsidiary, Black River, has set soy-bean and corn crops in Colombia. According to Cargill, it is all been consumed domestically. 

 

Cargill’s position is that it is willing to invest in regions that the Colombian State has largely ignored. MacLennan: “In Colombia there are 22 million hectares of arable land and only five million are developed for agriculture today. A little bit more than 20% of the land is developed, meaning there is an opportunity to build agricultural infrastructure and an industry”. According to Black River, ColombiaAgro (a Black River company) “is among the biggest employers in Vichada, with the farming operation alone employing nearly 200 people. In addition, many indirect jobs also have been created, (e.g. in transportation and logistics) in an area that has historically lacked employment and opportunities to gain marketable skills”. Nonetheless, Congressmen Arias and Robledo claim no agroindustrial project can bypass Colombia's legal framework, designed from the outset to avoid more concentration of the land by just a handful of people or entities.

Black River argues the business opportunity derives from the fact “Colombia imports roughly 80% of the corn and soybeans it consumes”. They also assert the “acquisition of land is only a fraction of the overall investment in bringing land in Vichada into sustainable production. For a 1,500-hectare farm, the investment to correct soils, prepare land and build necessary infrastructure is more than US$2 million. Without this level of investment, the land cannot sustain crop production, and no farmer of any size can be successful”. Moreover, “Colombia is a country with great agricultural potential but with historic underinvestment in this sector”. Black River maintains neither Colombian nor American authorities have notified them of any legal prosecutions and they would willingly cooperate if proceedings were mounted.

President Santos’ government is preparing to submit a bill to Congress clarifying the scope of the 160/1994 Act, whereby an entity can or cannot acquire vacant lots previously allocated to peasants. It is not difficult to foresee the storm that ship will have to pass through. The government insists on the need to find a solution, while Congressmen Wilson Arias and Jorge Robledo stick to their claim: “the Congress cannot approve a bill that rewards the irregularities through which peasants are being removed from their lands”.

 

The following footnotes were not in the original article. They are meant to clarify some queries I received from Lori Johnson (Cargill's director of global communications), who obtained a translated version of my piece. I considered it was convenient to bring them up in this post for you all as well :

Footnotes: 

*Here’s a lost-in-translation episode: Spanish-speaking economic media refer to the G20 budget in 2009 as “$1 billion”, whereas some English-speaking media refer to it as “$1 trillion”.

**Lori Johnson highlighted that Cargill has commented on to the Vichada issue previously and reminded me that Cargill spokespeople were part of the Time's story I mentioned in my first blog post. Therefore, I'm copy-pastying here what was published in the Time's article that was published a few months ago: 

"In a statement e-mailed to TIME, Cargill said that the company and its Colombian subsidiaries “conduct our business under a set of ethical principles that include obeying the law in every country in which we operate.” Cargill’s statement neither confirmed nor denied the company’s ownership of the land in question."

***Johnson also clarified that for Cargill acquisitons and assets "mean food processing plants, ports and other operations. Acquisitions of farmland for both Black River Asset Management and Cargill remain a small part of both companies’ portfolios".