Observer, London, Sunday, October 25, 1998
Bayer, ADM, Roche: How a few little piggies tried to rig the market
Four men in a hotel room, Hawaii. Unaware of the camera hidden in the bedroom lamp, they begin to share their most intimate secrets, as they had so many nights before, about pig food.
All right, it's not as gripping as Bill Clinton's description of alternative uses of a cigar, but the FBI's videos of the chiefs of the world's pigfeed industry are weirdly fascinating.
Here is Terry Wilson, a vice-president of Archer Daniels Midland, the US agri-chem giant, in the 1994 Hawaii meeting explaining customer relations philosophy to Japanese and European competitors. 'We are gonna get manipulated by these goddamn buyers. They are not your friend. They are not my friend. All I wanna tell ya again is, let's put the prices on the board, let's all agree that's what we're gonna do and then walk out of here and do it.'
And they did. By carving the globe into four territories and parcelling out market shares, ADM and its competitors kicked up the price of the feed additive lysine from 36p a pound to 64p.
We have the tape of the Hawaii price-fixing confab (and a dozen others recorded in Paris, Tokyo and Mexico City) only because the FBI teamed up with a confessed swindler and self-described psychotic, Dr Mark Whitacre, head of ADM's BioProducts division. Whitacre recorded 237 meetings in which delegates bickered over the boring details of administrating a billion-dollar conspiracy. The lysine cartel was the brainchild of ADM vice-chairman Michael 'Mick' Andreas. He hoped to replicate a cartel for citric acid which he had three years earlier put together with Hoffmann-LaRoche and BayerAG. Their collusion had successfully jacked up the world price for citric acid by 41 per cent.
In 1992, ADM (turnover, $20 billion a year) neared completion of a lysine plant in Illinois with enough capacity to fatten every pig on the planet - and bankrupt every producer worldwide. Andreas made an offer his Japanese and Europeans competitors couldn't refuse: either agree to fix prices and market shares or ADM would drown the globe in swine food.
When executives of Tokyo's Ajinomoto challenged ADM's ability to do this, Andreas took them on a tour of the enormous US plant. The Japanese came away awed by ADM's technology. They also came away with proprietary microbes which they had stolen by wiping handkerchiefs on machine railings.
On June 27, 1995, a team of 70 G-men raided ADM's Chicago headquarters. The company, along with Ajinomoto, LaRoche and Bayer, was charged with conspiracy to fix prices, a felony. Several executives faced arrest, including Andreas, Wilson and Whitacre.
But ADM had prepared its defences. The company's chairman (and Mick's dad) Dwayne Andreas, a friend of President Clinton, was known as the single largest contributor to both the Democratic and Republican parties.
Andreas pere once left an envelope in the Oval Office for Richard Nixon containing $100,000 in cash - which ended up financing the Watergate burglars. By mid-1996, it looked as if Mick Andreas and the company would beat the rap - as it had on charges of fixing the fructose market.
Then, in August, three Asian executives unexpectedly showed up at the US Justice Department with incriminating meeting notes.
They signed confessions. In quick succession, LaRoche, Bayer, Ajinomoto and finally ADM pleaded guilty to fixing the citric acid and lysine markets. So far, the co-conspirators have paid out Dollars 195 million in criminal fines and Dollars 326m in restitution to bilked customers. Three weeks ago, a Chicago jury found Wilson, Whitacre and Mick Andreas guilty of felony pricefixing. On 7 January, the judge will impose prison terms of up to three years.
And so the story ends, with the bad guys off to jail. Truth, justice and the men with shiny badges win. But two nagging questions remain.
First, what about Europe? ADM didn't conspire with itself. LaRoche, Bayer and a subsidiary of France's Eridania Beghin-Say joined ADM in illicitly swiping an estimated pounds 200m from European customers over five years.
The schemes were nurtured not just in Hawaii but in in Paris and London, too, for the enrichment of Swiss, German and French operators, not just Americans. On 12 July last year, EC competition authorities raided ADM's offices in Kent to seize price-fixing evidence. But the bold raiders only acted several months after the conspirators had pleaded guilty in US courtrooms. While US authorities charged eight corporate executives with criminal price fixing, not one admitted monopolist was arrested in Europe. And for good reason: price fixing is not a crime in the UK, nor anywhere in the European community. UK and EC rules lack the teeth of US law, where fines equal twice the monopolists' ill-gotten gains; consumers can sue and collect three times the amount they were overcharged; and corporate officers face jail. Its criminal investigative powers permitted the US Justice Department to bust the ADM trusts. But the DOJ's self-congratulations in this single case cloud the most troubling question of all: How many fish get away? Are ADM, LaRoche and friends an exceptional pack of industrial rogues - or is price fixing business as usual?
The Wall Street Journal, running to ADM's defence, said the company's only crime was 'bad luck'. Every industry, they argue, 'rationalises' output. ADM was singled out for punishment only because one psycho manager couldn't keep his mouth shut. In fact, Justice Department officials estimate that there are roughly 750 illegal worldwide price-fixing accords in operation. It has the resources to investigate 30. And in one key industry, collusion may be simply too easy and too profitable to resist.
According to Professor John M Conner of Purdue University, who has spent his career tracking the Andreas family, the import of the ADM story lies in the dark side of the biotechnology revolution. Citric acid, notes Conner, was the first biotech product. Lysine production is another industry born in a test tube. Secret technologies, patented microbes and manufacture limited to a small club of enterprises with billions to invest, make biotech a monopolist's heaven.
Environmentalists have focused on the threat of biotechnology creating a King Kong turnip. The likelier danger is that a few corporate megaliths will hold the world's food supply hostage through a web of cartels. And after ADM's experience, few will be so incautious as to let the FBI film the pigs feeding at the high-tech trough.