ADM's Dwayne Andreas: processor of agricultural products in global market

As one writer said, the past is like a foreign country; they do things differently there. Seven decades ago, 30 percent of Americans lived on farms, and everyone knew one end of a cow from the other. Today, the closest some people get to agriculture is the "Farm in the Park" at Lincoln Park on Chicago's lakefront, a walk through the livestock barns at the local county fair or a visit to a restored, but sanitized version of a 19th-century village. It is a time when more people know about frequent flyer coupons and time-share condos than can identify breeds of cattle.

It makes someone like Dwayne Andreas one of the most successful yet invisible business executives in America. As chairman of the board and chief executive of Archer Daniels Midland Co. (ADM), Andreas directs a huge conglomerate that helps supply America's food and some of its fuel in the form of ethanol, the home-grown alcohol used in gasohol. But he is more than a businessman with a knack for making money.

Andreas also has a decades-long role as an advocate of greater world trade, especially in this country's dealing with the Soviet Union. He is a long-time advocate of better nutrition and was a pioneer in the development of the soybean processing industry.

He has strong views on modernizing the rules at the Chicago Board of Trade (CBT). He played an undefined supportive role (one he refuses to discuss, other than to say he was not the instigator) in the undercover FBI investigation of the CBT that was revealed last winter.

One reason Andreas is not widely recognized is that ADM, based in downstate Decatur, is a processor of agricultural products rather than a merchandiser whose goods sit on grocery store shelves. ADM, as one executive told the New Yorker, is "a place where other big food people buy their groceries." In a September interview with Illinois Issues, Andreas noted that many Americans "have great faith in the corner grocery store, and that's the extent of their interest [in the food industry]." With the world population growing, he sees unending potential for ADM and other food processors.

An amiable, thoughtful speaker, Andreas appears to dislike drawing attention to himself; it is the sort of trait found among many hard-working Mid westerners who, like Andreas, have grown up on a farm. He prefers to work quietly, behind the scenes. The story is often repeated that as he prepared to speak at a prestigious University of Virginia dinner in 1985, Andreas remarked, "It occurred to me while I was sitting here that I'm about the only person in the room that I had never heard of before."

U.S. Agriculture Secretary Clayton Yeutter, another farm boy who prospered through hard work, describes Andreas as "exceptionally influential" in the agricultural world "because he is involved from so many vantage points." As an example, Yeutter recalls how, as trade ambassador, he agreed to speak to the New York Economic Club a couple of years ago. Its president turned out to be Andreas. "Dwayne's been in the forefront" of developing U.S.-Soviet trade relations, Yeutter said, "both from a private sector viewpoint and in terms of influencing governmental attitudes in both countries for a long time."

Whether recognized or not as a figure of influence, there is no doubt of Andreas's acumen as a successful businessman. ADM's income has gone up by $1 billion in each of the last two fiscal years, and Andreas's record of business success stretches back to his family's entrance into the grain elevator business in 1928 in Lisbon, Iowa. Andreas was born in 1911 to religiously devout parents who had grown up in northwestern Illinois. He attended Wheaton College for a year and a half but never graduated. The family's grain elevator did well, partly because of Andreas's follow-through on a suggestion to him

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by A.E. Staley while Andreas was in Decatur to buy soybean meal. Staley suggested that the family should build a soybean crushing plant, which they did in Cedar Rapids, Iowa. In 1945, anticipating being drafted, Andreas sold three Honeymead Products Co. plants to Cargill for $2.5 million. As it turned out, Andreas was not drafted. He joined Cargill and became vice president in charge of oilseeds.

By 1952, he was certifiably successful and working for Cargill, the world's largest grain company. He made his first trip that year to the Soviet Union, and the Soviet trade minister mentioned to him that his country needed cooking oil. That inspired a plan to sell a large amount of butter — there was a huge U.S.dairy surplus — and oil to the Soviets. It was nixed by Commerce Secretary Sinclair Weeks, who objected that the Soviets would be getting a better price for butter than Americans. Although that deal fell through, Andreas continued to pursue trade with the Soviet Union, making more than a dozen trips to that country and serving on groups such as the U.S.-U.S.S.R. Trade and Economic Council.

In December 1984 he had a long talk with Mikhal Gorbachev, then the Soviet agriculture minister. Shortly afterward, Gorbachev became party leader. People like Andreas and Iowa banker John Crystal, who also met Gorbachev when he was agriculture minister, were dubbed Gorbachev's "prairie pals" by Newsweek in 1987. In that Newsweek story Andreas said, "I'm a strong believer that trade is the strongest promoter of peace and goodwill on earth. I feel pretty patriotic doing what I'm doing."

Andres last saw Gorbachev when he was invited to attend the Kremlin dinner in honor of President Reagan during a super-power summit in 1988. Andreas expects to see him this month (October) at the opening of the American trade fair in Moscow. ADM will have several products on display, including a specialty cornstarch used in making biodegradable plastic. Andreas declines to say how much business ADM does with the Soviet Union. "Let's say we're one of five companies that does a fair amount of business with them in agricultural commodities, like soybean meal, soybean oil and wheat and corn and barley," he says.

Andreas feels very strongly about Gorbachev's attempt to invigorate Soviet agriculture and sees more not less opportunity for ADM sales if Soviet agriculture improves. He says that "the most important change" engendered by perestroika is the decision to allow farmers to lease and run their own farms; "I think it's well known in the West that private ownership of land has been one of the most successful institutions." ADM, however, is not likely to lose a customer soon. The Soviet Union is too far north to raise the amount of oilgoods needed for efficient livestock production. "I think," said Andreas, "we'll be doing more business even though they produce more." Domestically, Andreas would like to see more crop production, arguing that the United States could lose its share of the world market if it fails to take advantage of the ever-expanding world population. "Well, the food industry globally is the fastest growing industry, I believe, of any because every single human being needs bread, and that takes oil and sugar, and every single person doesn't need a computer," Andreas explained. By his calculations, a new flour mill is needed every week just to provide bread for the world's new residents, and three large-scale vegetable oil plants are needed each month. In all, that's three times the annual processing capacity now owned by ADM.

How does Andreas see ADM fitting into this expanding market? ". . .in ADM we have the opportunity to double our production every five years and that's about what we've been doing."

The grain trade can be a brutal business, one in which large amounts of money can be made through a tiny advantage on price, timing or knowledge. And Andreas' success suggests he can drive a bargain and keep an eye on costs. After seven years with Cargill, he quit to join his brother, Lowell, who had put Honeymead back into the soybean business in Minnesota. In 1960, they sold out to a farm cooperative whose members thought they could get a better deal if they had their own plant. Both brothers were hired by the new operation.

In 1965, the Andreases were invited to join ADM, which was in a slump, with the invitation coming from the Archer and Daniels families. They bought 100,000 shares for $3.3 million; their share of holdings has increased since then. Within two years Lowell was executive vice president and Dwayne was on the ADM board. (Lowell later became president and is now retired but still on the board.)

The Andreases sold ADM's chemical division and modernized ADM's equipment. Tight management has been a key. Earlier this decade, ADM outfitted barges for shipping corn fructose when railroads refused to lower their rates. The railroads soon changed their minds. ADM got into the U.S. canola processing business in a similar cost-conscious way — it bought a shutdown sunflower mill in Velva, N.D., and converted it. Canola is the lowest of any vegetable oil in saturated fats — the product that may be ready for popularity in cholesterol-worried America.

ADM now has 117 processing plants that produce a seemingly endless array of products, ranging from corn sweeteners, soybean oil, soybean meal, canola oil, corn starch and flour to ethanol, peanuts, pet foods and pasta. The firm has its own shipping company, subsidiaries in Europe and South America, and its own commodity brokerage firm. It also is adding to its plant in Decatur to expand its specialty biochemical business, which includes such products as amino acids for meat production and citric acids for food products.

"These new plant operations are part of an overall corporate strategy towards more value-added product lines that complement the company's basic processing divisions. ADM has the technology and manufacturing expertise to be extremely cost-effective in these vertically integrated operations and is studying additional possibilities," the firm says, perhaps ominously for its competitors, in its annual report. As of June 30, ADM had $1.4 billion in cash and marketable securities.

Despite the global range of Andreas's interests, he answers "None" to the question: What impact has he had on U.S. farm policy? "Usually we support the Farm Bureau position to the extent we can. We support the

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position of the farmers' cooperatives. We're not an advocate of anything. We do not discuss farm policy with any political people. It's a rule in our company we've had for 20 years."

ADM has benefitted from U.S. policies, however. The fact is that some of ADM's products, like ethanol and corn sweeteners, are popular with U.S. farmers and the farm lobbies. They sometimes are popular with presidents. ADM is the nation's leading ethanol distiller, and the Washington Post in 1987 identified ADM as the recipient of a $29 million subsidy from a temporary program to aid the ethanol industry. In its 1989 annual report, ADM devotes its first page to extolling ethanol and quotes President Bush's June 13 speech on his clean air program, in which the president touted ethanol as "a source of energy that is clean, abundant and made right here in the United States. . . three good reasons why ethanol and [other ethanol-based fuels are fuels] of the future."

America's corn fructose industry, of which ADM is a part, has blossomed indirectly due to the U.S. sugar policy. Traditionally that policy holds up the sugar price and creates a niche for lower-priced corn sweeteners, such as those produced by ADM. The future is not as clear for the U.S. sugar and sweetener industries since the world trade panel, General Agreements on Tariffs and Trade, ruled earlier this year that U.S. sugar import quotas are unfair by world trade rules. Unsure of what might happen, the U.S. sugar industry in August began to appeal more directly and bluntly to the corn sweetner industry and U.S. farmers to explain how they are linked with common interests to protect U.S. sugar prices.

Andreas' disclaimer of influence is hard to believe in a cynical town like Washington. After all, Andreas moves in powerful circles. In his earlier days, he was a golfing buddy of Thomas Dewey and a longtime associate of Hubert Humphrey. ADM's current board includes both Robert Strauss, the personification of a Washington insider, and Mrs. Nelson Rockefeller.

Then, too, there was the question of influence involving David Gartner, a former Humphrey aide and a Carter appointee on the Commodity Futures Trading Commission, which regulates grain exchanges where ADM buys some of its raw foodstuffs. Gartner was confirmed but he disclosed during confirmation hearings that Andreas had given $72,000 in ADM stock to his children. Pressure was brought for him to leave the post, but he stayed on, announcing he would sell the stock and avoid any appearance of conflict while on the commission.

Andreas also had the embarassment of a $25,000 cash contribution to the 1972 Nixon campaign ending up in the bank account of one of the Watergate burglars.

For the most recent two-year campaign period, 1987 and 1988, the Federal Election Commission donor records of individual campaign contributions (donations of less than $500 are excluded) indicate that Andreas gave at least $36,000 to candidates. His wife apparently gave at least $28,000. The list of donations by other easily identified members of the family covers seven more pages. The political recipients were from both parties and were almost all presidential candidates, big-name incumbents in Congress or members of committees that deal with agriculture. ADM has a political action committee (PAC) and it spent $160,550 on candidates during 1987 and 1988. Andreas says that ADM's PAC is fairly small potatoes in the PAC world. The top corporate PAC spender was AT&T at $2.8 million. All he gets from the contributions, Andreas says, is "lots and lots of headaches because you can't give to more than one out of 10 that ask."

Andreas made a splash in the financial press this summer when he complained about the Chicago Board of Trade's soybean trading rules, which he said were the reason the board was forced to order traders to liquidate their July soybean contracts. The board acted out of suspicion that one firm, Ferruzzi Finanziaria SPA, was trying to corner the market. Andreas says the problem could have been averted if the board allowed traders to fulfill their contracts at more points than just Chicago and Toledo, Ohio. When he renewed his complaint this summer about antiquated rules at the CBT, some brokers briefly tried to oust ADM's grain-gathering subsidiary as a member.

In fact, Andreas made the same argument about CBT rules in a 1973 Fortune magazine article that described the same predicament that soybean traders faced this July. "What it does is make Chicago less relevant to the world market than it ever was before and not big enough to handle institutions like Ferruzzi, Cargill, Continental or ADM, just not big enough," Andreas said. He contends the CBT could greatly expand its business if it allowed corn, wheat and soybean deliveries in 10 more cities.

The soybean rule has not been ADM's only clash with the CBT. In 1985, it was fined $25,000 for refusing to cooperate in a CBT investigation of alleged manipulations of soybean oil prices. That incident has been mentioned as a possible reason why ADM agreed to train two FBI agents who were part of the undercover probe of trading practices at the CBT and the Chicago Mercantile Exchange. There was other speculation ADM felt it was getting bad deals on its orders and went to the feds. When asked if he was the instigator, Andreas said, "No, I'm not, but I'm not going to discuss it."

Andreas is much more willing to discuss issues he has long supported — opening more markets, soil conservation or combating world hunger. He has a short answer for why he went into agricultural marketing: "We were farmers."

"If you're born and raised on a farm and you understand farming, it's always a challenge to anybody to wonder why you can make two blades of grass grow where one grew before, which our farmers have been able to do, and why you can't feed the hungry with it," he said. While some people are not interested in the food industry or do not regard it as a good investment, Andreas says the industry is "not so much an industry as a way of life," a description farmers often apply to their work. "Those of us who are born into it have a tendency to stay in it.... We think about our duties. It's more or less your duty to your fellow man to do a good job of producing and supplying food. That's what those of us in the Middle West are all about."□

Charles J. Abbott is farm editor for United Press International in Washington, D.C.

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