Cargill takes early lead in food game

Source: Detroit Free Press
If dinner plans call for beef, poultry or a tofu product, fresh produce sauteed in vegetable oils and a taste of gourmet chocolate afterward, chances are the food came from Cargill the $48-billion agribusiness company based in Minnetonka, Minn.

Even most branded food products from well-known manufacturers have been partly brought to market by Cargill’s 85,000 employees working in 60 countries.

The far-flung operation is the bricks-and-mortar for Cargill, the world’s largest, privately owned trading, processing and distribution company. But it’s also the base from which Cargill is emerging as the biggest user of electronic commerce in the world of food.

In a little more than a year, Cargill has invested in eight independent and agribusiness Internet marketplaces and half a dozen other e-commerce firms involved in shipping, steel and technology.

Through these companies and Cargill’s own Web sites, food makers may now buy and ship the cacao they need from Ghana, vegetable oils from Brazil and Indonesia, cornstarch from Nebraska and Indiana, sugar from Louisiana and North Dakota, and high-fructose corn sweetener from Iowa and Argentina.

The effort is clearly a work-in-progress for Cargill, yet it represents an essential growth strategy.

Food is a slow-growth to no-growth industry, with operating profit margins between less than 1 percent and 3 percent along most links in the food chain. That’s why Cargill and other major players in the food industry are looking to use e-commerce to integrate their operations with customers and drive down marketing costs.

“But that’s only one reason you see Cargill covering the food chain electronically,” said George Dahlman, a food industry analyst with U.S. Bancorp Piper Jaffray. “There are no geographic boundaries to the Internet. And the companies with the bricks-and-mortar have the knowledge of their industry to make sure the clicks-and mortar work right.”

Although Cargill does have that industry knowledge, turning the behemoth into a global e-commerce player isn’t easy, conceded Alayne Gretvai chief technology officer at Cargill. “It’s always a concern to make sure the left hand knows what the right hand is doing.”

But word has gone down through the ranks that all 90-plus business units are to develop e-commerce to expand business and reduce costs. The message, from Cargill vice chairman Robert Lumpkins and repeated by managers during the past 2 years, is: “If you don’t have an e-commerce strategy, you don’t have a business plan.”

Cargill’s overall strategy is to acquire and develop technology through investments in outside e-commerce marketplaces. News announcements from other companies suggest Cargill has invested anywhere from $500,000 to $5 million to get each company up and running.

Today, Cargill can conduct business with almost any wired customer or client around the world, said Mark Middendorf, e-commerce infrastructure manager. How fast its e-commerce business develops will be determined in part by how quickly Cargill’s customers, trading partners, adopt and use new technology, he said.

It’s still too early to quantify how much new revenue or profits e-commerce may generate in the next year, said Lumpkins, noting that some of the operations launched in the second half of last year.

Indeed, 2000 was dedicated to simply create e-commerce marketplaces. This year company executives intend to get the markets working and generate business. Already, e-commerce orders and trades are beginning to register within Cargill units, generating savings on business transaction costs.

For example, farmers and food makers are starting to use Cargill services to buy and sell futures contracts for food commodities. And Cargill’s meat unit recently began supplying meat products to a restaurant chain electronically. The company won’t disclose the financial effect of those ventures.

Outside the company, Novopoint an Internet exchange that Cargill launched with other food processors, has generated $12 million in transactions since it’s start late last year.

Looking at the food chain from the ground level, Cargill connects with farmers through Rooster.com, which it started with CHS Cooperatives and DuPont and which has since been joined by Archer Daniel Midland. It does business with grain and oilseed merchants through Pradium, which it started with some of the same firms, plus grain trading rival Louis Dreyfus. (Earlier this month Cargill said it was combining Pradium operations with Rooster.)
Source: Detroit Free Press