All good companies adapt to changing business environments, but perhaps no corporation matches Archer Daniels Midland’s adeptness at using big government to generate profits, come rain or shine.
The agribusiness giant, which has spent decades shoring up its relations with top policymakers, posted a $441 million profit in the most recent quarter — ADM’s best-ever showing — thanks to official subsidies, protective tariffs and mandates for their ethanol, exports and corn syrup businesses.
ADM is America’s top producer of ethanol, a fuel made from agricultural products, mostly from corn in the United States. Federal and state governments heavily subsidize ethanol’s production, transit and sale, and Washington protects domestic ethanol with a tariff on ethanol imports.
These subsidies raise costs for consumers, many farmers and taxpayers — often padding ADM’s bottom line. The company’s $403 million profit in the July-September quarter last year (a record at the time) was primarily driven by a federal renewable-fuels mandate, which, in 2006, raised gasoline prices by forcing ethanol on drivers.
But this past quarter, ethanol profits took a dip thanks to booming corn prices (ADM doesn’t grow any crops, it only processes what is harvested) and increased supplyas competitors jumped on the ethanol bandwagon.
Sweeteners came to ADM’s rescue this quarter. ADM is the top producer of high fructose corn syrup, the stuff Americans find in their colas and many of their sweets. The rest of the world mostly uses sugar instead. Corn syrup receives no direct subsidy, but the business is nonetheless fully dependent on government protection against foreign competition.
The federal government keeps out most foreign sugar, setting low quotas for how much sugar each country can sell in the United States. By choking off supply, these quotas inflate the price U.S. consumers — including food makers — pay for their sugar.
Often, the U.S. price for raw sugar is two to three times higher than the world price. This year, global sugar prices fell, causing crises for sugar farmers in places like India, but U.S. sugar prices remained near record highs.
When sugar is so expensive, food makers opt instead for corn syrup, thus creating a market for ADM’s product that wouldn’t exist in a free market. Its sweeteners business accounted for $164 million of ADM’s profits in the last quarter.
This protection doesn’t just hurt foreign sugar growers, it hurts U.S. consumers who pay more for sweet foods — $1.8 billion per year, according to the GAO. Those added costs yield ADM’s profits.
Sugar and ethanol aren’t the only ways ADM benefits from big government. In February of this year, the credit committee of the Export-Import Bank of the United States — a federal agency that subsidizes U.S. exports — approved a taxpayer-funded guarantee worth up to $20 million for ADM’s sale of soybeans and corn to Costa Rica. (ADM owns a minority share in Gruma, a tortilla plant in Costa Rica, but Ex-Im records did not specify if Gruma was the buyer in ADM’s subsidized corn sale.)
How does ADM do so well in Washington? Interestingly, their direct lobbying presence on K Street is small. In the first half of 2007, they registered two in-house lobbyists and spent only about $80,000 on outside lobbyists.
ADM’s influence is mostly indirect. For example, the National Corn Growers Association, the Corn Refiners Association, the Renewable Fuels Association and the National Oilseed Processors Association all have political action committees and Capitol Hill lobbyists, and all of these groups have ADM as their most prominent member. ADM’s subsidiaries, including Gruma, also lobby the Hill.
In the past, ADM was more ostentatious in its influence-seeking, while still being off-the-books in its lobbying. Former ADM Chairman Dwayne Andreas once delivered $100,000 in cash to Richard Nixon’s Oval Office, although four years before he had given the same amount to Nixon’s opponent, Hubert Humphrey (who was the godfather of Andreas’ son).
Andreas always had friends on both sides of the aisle — Ronald Reagan and Jimmy Carter separately bailed his company out, and after funding Bob Dole his whole career, Andreas was at Bill Clinton’s inaugural ball.
This is why ADM is so versatile. Ethanol boom or bust, Democratic Congress or Republican White House, the company always has friends in Washington looking after its bottom line.
Examiner columnist Timothy P. Carney is senior reporter for the Evans-Novak Political Report. His column appears on Fridays.
