One-on-one with Warren Staley

by Editorial Staff
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Editor’s Note: On Sept. 11, Warren Staley retired as chairman of Cargill, Minneapolis. His retirement marked the conclusion of a 38-year career with the second largest privately-owned company in the world.

Mr. Staley joined Cargill as a trainee in 1969 and held various merchandising and administrative positions in corn milling in the United States and Europe. Other positions he held during his career with the company include head of Cargill in Argentina, president of Worldwide Feed and president of the company’s North American and Latin American businesses.

In 1995, he was elected to Cargill’s board of directors, and between 1998 and 2007, he held the positions of president, chief operating officer and chief executive officer at various times. He was elected chairman of the board in 2000.

During his career with Cargill, Mr. Staley has witnessed the dramatic transformation the company has undergone. In 1969, Cargill’s sales were $2 billion, earnings were $10 million, and there were 9,000 employees in 32 countries. Today, sales are $88 billion, earnings are $2.3 billion, and there are 158,000 employees in 66 countries.

In the following interview, Mr. Staley addresses key issues facing the global food industry. He offers perspectives on globalization, the impact of biofuels on food production, and outlines why he thinks the issues to be addressed in the farm bill currently being negotiated in Congress are unlike anything that has been negotiated in the past.

 

FBN: Do you agree or disagree with Peter Brabeck-Letmathe’s (chairman of Nestle) assertion that the world is in for a "significant and long-lasting" rise in food prices?

Mr. Staley: This is a very important question. For most of the 20th century, commodity prices declined in real terms as agricultural productivity grew twice as fast as industrial productivity. This has been very important in raising living standards and reducing the proportion of the world’s population suffering from chronic hunger.

That success may have eroded incentives for additional productivity-enhancing research just as demand is shifting onto a higher growth path. We have largely exhausted the easy gains in output that come from shifting acres among crops and increasing purchased inputs, and it takes time for increased research expenditures to work through to pushing out the production frontier.

So, we think there is a good chance that food prices could increase steadily even with good weather and crops, and they could jump sharply with an adverse weather event. That is why we believe a pause in the policy push for more biofuels would be prudent.

 

FBN: How would you characterize the current ethanol boom? Is there any chance of this slowing down in light of the current political climate, which makes it almost impossible to imagine the American government imposing any sort of brakes? Or do you not agree?

Mr. Staley: You certainly are correct that we are in the midst of a real ethanol boom in the United States; it is possible that the industry will hit the 2012 mandate of 7.5 billion gallons by the end of this year. And at both the state and the federal levels, there are serious proposals for upping mandates and expanding subsidies to the industry.

Congress is debating additional energy legislation close on the heels of the 2005 energy act, with more incentives for biofuels. What I see as their political challenge is not so much "putting on the brakes" as easing up on the accelerator for supplies to catch up with the artificial demand policy has created.

This past year we have seen the rapid expansion in U.S. biofuels production capacity drive up food prices, with significant adverse consequences for poor people globally. Grain prices are up roughly 50% and a significant poor weather event anywhere in the world would force a rationing of supplies in which all three uses would be hurt.

All of this points toward a pause in this headlong rush to expand fuels production. If the world is to avoid making hard choices on how to allocate land and grains/oilseeds across food, feed and fuel uses, we need to let agricultural productivity catch up to this new demand pressure. The pace of expansion in biofuels needs to moderate in order for markets to find the appropriate balance among these uses. The alternative is a supply crisis that would be in no one’s best interests, including those political forces pushing so hard for ramping up mandates.

There also is a more fundamental question about energy security and the role of biofuels in America’s desire to lessen its dependence on troubled oil-producing nations. In this larger picture, biofuels is likely to come to play a minor role compared to more important steps, like increased conservation. As an example, raising the fuel efficiency of the U.S. vehicle fleet by 5 miles per gallon, which should be feasible with known technologies, would be the equivalent of 45 billion gallons of ethanol, while the distant goal of 35 billion gallons of ethanol from cellulosic sources faces major technological and economic hurdles. As energy policy develops, I expect that we will see more emphasis placed on conservation and on diversifying sources of supply for both fossil fuels and new technologies.

 

FBN: While you have voiced doubts about the role of corn as the major feedstock for alternative fuel production, Cargill has been investing heavily in other industrial uses for corn, such as in biodegradable packaging and the like. What advantages do such uses have over ethanol, and is there room for both?

Mr. Staley: The plastics industry is built on fossil-based feedstocks, but many applications of plastics have higher-valued uses than fossil fuels. Some of these applications can be served by corn-based plastics, especially if the economics of disposal reflect growing environmental concerns.

Corn-based plastics can compete on many functional characteristics and would have the environmental advantage of being biodegradable, allowing the product to decompose in a compost setting rather than having to be landfilled or recycled. So, while biodegradables are a slim market today, they could become an important environmentally sensitive answer in the future, especially with the rapid urbanization the world is experiencing. It is an interesting question whether this market will develop; at Cargill we hope so.

 

FBN: What are some of the most important points of the farm bill that could have the most impact on the food processing industry?

Mr. Staley: This farm bill debate is like none other that I remember. The major focus in the House, and likely in the Senate, has been on dividing up the budget pie among traditional and some new claimants. In the process, a lot more fundamental issues are getting ignored.

One is whether markets or government directives should guide resource allocation and production decisions; we see this both in biofuels and in the emerging nutrition policy debate about promoting a balanced diet versus individual food items based on their nutrition content.

A second involves the United States living up to its existing commitments under the W.T.O.; the Brazilian cotton case victory and filings by others against corn and rice show that the United States needs to rethink the structure of its farm programs or face serious global repercussions. A third involves the current Doha round of negotiations, which are languishing over contentious agricultural issues that require attention in the farm bill.

Finally, there is the need to consider how to ensure the continued competitiveness of U.S. agriculture and many of the processing industries that market its products; with roughly one-third of U.S. agricultural output having to find markets abroad, this question deserves more attention than it is getting.

I would hope that what eventually emerges from this debate will enlarge the role of markets, ensure compliance with our international obligations and strengthen U.S. agriculture’s global competitiveness. If this cannot be accomplished in the waning days of this Congress, it should be addressed more thoroughly in the next.

 

FBN: How do you see the potential spread of animal diseases like avian influenza and foot-and-mouth disease affecting the trend toward globalization?

Mr. Staley: Both food safety concerns and consumers’ perceptions about safety have had a heightened profile in recent years. These are not, however, just issues involving trade and globalization. Only about one-seventh of meat production crosses borders, so this is an issue both within and across national boundaries. Having said that, local and global markets are connected, which means we need to find uniform standards and more global cooperation in resolving these issues. We are beginning to see more of this move toward harmonization, and consumers are likely to press their governments and industry to move even further and faster toward universal kinds of answers.

 

FBN: How do you see the trend in industrialized nations toward health and wellness affecting your company?

Mr. Staley: We believe that the growing interest in health and wellness offers great opportunities for Cargill to help our customers and their consumers through new production processes and ingredient offerings that serve this demand. In recent years Cargill has added flavor and texturizing businesses that enhance our ability to formulate foods with attractive nutritional profiles that still taste good and have a pleasing feel on the palate. The consumers’ desire for foods that are good for them and taste good offers our whole industry important challenges and great opportunities.

 

FBN: How does Cargill see its responsibilities in reaction to rising global concerns over issues like global warming, inadequate nutrition and obesity, the growing wealth gap and even like America’s role in the world? As the leader of one of America’s largest privately-owned companies, did you believe Cargill should be proactive in addressing issues like these?

Mr. Staley: Your list of issues is on the minds of many Americans. We don’t think Cargill has any special role in the debate about them, except where we can act to improve the situation or have knowledge that we can uniquely bring to the debate.

So, for example, we continue to implement programs and investments that help conserve energy. This is the first and most important step in curbing our national dependence on petroleum. We also have expanded our capabilities to blend nutrition into foodstuffs that still taste good and are attractively priced, which can help in the battles against both under- and over-nutrition.

More generally, we believe that knowledge and technology have critical roles to play in addressing these global issues by enhancing or altering products, production processes and consumer behaviors. Where we think we have worthwhile insights, we will try to bring them to the table.

Two of the issues you mention — hunger and obesity — are particularly relevant to the food industry. We have long felt that more open agricultural trade would help increase food security for the world’s poor by giving them expanded export opportunities and more assured access to food imports in periods of localized scarcity. Trade reform through the W.T.O.’s Doha Development Round remains a priority in alleviating hunger and narrowing the wealth gap. It also is important to accompany trade reforms with greater investments in adjustment assistance and education to ease the burdens of adjustment that fall on affected workers, industries and communities.

The growing problem of obesity is more complex than many acknowledge. Over 1 billion people globally are obese, reflecting changes in diet and lifestyle. The "natural" balance between calories in and calories out has been upset by more reliable access to food on the one hand and more sedentary lifestyles as urbanization and mechanization replace hard physical labor on the other hand. To bring this problem under control will require better balance in diets, more choices in foods that provide better nutrition and not just calories and greater responsibility in managing portion size, activity levels and individual well-being. It is a partnership across the food industry from farmer to consumer in which we all must play our respective parts.

This article can also be found in the digital edition of Food Business News, October 2, 2007, starting on Page 44. Click here to search that archive.

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