Archer Daniels Midland Co.

founded: 1923 variant name: adm

Contact Information:

headquarters: 4666 faries pkwy.
decatur, il 62525 phone: (217)424-5200 fax: (217)424-6196 url: http://www.admworld.com

OVERVIEW

With more than $20 billion in sales and 300 facilities in operation across the globe, Archer Daniels Midland, or ADM, is one of the world's largest processors of agricultural commodities, such as soybeans, corn, and wheat. The firm, which refers to itself the "Supermarket to the World," sells its products to three main industries: food, beverage, and chemical. International sales account for 35 percent of total revenues.

COMPANY FINANCES

Sales at ADM jumped from $12.8 billion in 2000 to $20.1 billion in 2001. Profits rose from $300 million to $383 million after the same time period. This growth followed two years of declining sales, which were caused at least in part by a well-publicized price fixing scandal that resulted in a jail term for three ADM executives. However, while sales had reached a record high in 2001, profits were less than half of the $795.9 million earned by ADM in 1995. Stock prices in 2001 ranged from a low of $7.80 per share to a high of $15.22 per share. They had peaked in 1998 at a high of $20.22 and a low of $15.19.

ANALYSTS' OPINIONS

ADM struggled with a public relations disaster related to its price fixing conviction in the late 1990s. As a result, stock prices dropped, and many analysts were cautious about the firm's outlook. However, by 2001, despite posting profits that remained well below their mid-1990s level, some industry experts began to look favorably upon the firm. Profits improved in both 2000 and 2001 due to various cost-cutting measures launched in 1999 by new CEO Allen Andreas. As stated in a September 2001 issue of Forbes, "Prudential Securities analyst John McMillan thinks the best is yet to come for Archer Daniels. Signs that the strong dollar is weakening and China's admission into the World Trade Organization should catalyze the company's export sales. Also, high energy costs have enhanced growth prospects for. . .ethanol. Archer Daniels controls half the market." Increased demand of soybean meal appeared to bode well for ADM as well. In addition, many observers believed that the firm's healthy cash reserves would allow it to make acquisitions in emerging growth markets, where demand for agricultural commodities was strong. One area of concern expressed by some analysts was the firm's heavy reliance on the agricultural commodities market, which tended to fluctuate in terms of both demand and price.

HISTORY

When the Minneapolis, Minnesota-based Archer-Daniels Linseed Co., founded in 1902, merged with Midland Linseed in 1923, Archer Daniels Midland was born. The firm initially focused on processing flaxseed for the manufacture of linseed oil. Early growth came from acquisitions of oilseed processing companies throughout the Midwest. In 1930, the firm diversified into flour milling with the purchase of Commander-Larabee Co., a leading U.S. flour miller.

By the mid-1940s, ADM was able to process 36.6 million bushels of flaxseed per day, compared to a processing capacity of 20.0 million bushels per day in 1929. Grain storage capacity increased from 7.5 million to 50.4 million bushels per day during the same period. Additionally, wheat flour capacity had reached 30 million bushels per day. By supplying a growing number of basic ingredients to a broad spectrum of industries (such as food, beverages, paint, gasoline, paper, cosmetics, pharmaceuticals, rubber, and ceramics) the firm had grown into an agricultural commodities leader. Profits in 1949 reached $12 million on sales of $277 million. ADM was the largest processor of linseed and soybean oil in the United States, as well as the fourth-largest flour miller. To increase profit margins, the firm began processing its products more fully, rather than selling them in a raw or semi-finished state.

To move into international markets, ADM began seeking alliances with established oilseed processors in places like Peru, Mexico, the Netherlands, and Belgium in the 1950s. Instability in commodities prices in the 1960s undercut the firm's performance. Profits fell from $75 million in 1963 to $60 million in 1964 and to $50 million in 1965. Dwayne O. Andreas joined ADM's management team in 1966. He advocated a more narrow focus on soybean processing, a move that paid off when textured vegetable protein (TVP) became more widely accepted and when soybean oil became the most used cooking oil. In 1967, ADM bought Fleischmann Malting Co. Three years later, it purchased Corn Sweeteners, Inc., a producer of high fructose syrups, glutens, oil, and caramel color.

TVP plants were constructed in Europe and South America during the 1970s. Dwayne Andreas began to fill several management positions with other members of his family. In fact, three Andreas family members were placed in charge of specific divisions. Profits reached $117 million in 1973 as the firm increased its domestic soybean production to 1.3 billion bushels per day. Growth continued into the early 1980s when ADM bought grain merchandiser Growmark and oil and peanut producer Columbian Peanut Co. Acquisitions in the early 1990s included Canada's Ogilvie Mills.

FAST FACTS: About Archer Daniels Midland Co.

Ownership: Archer Daniels Midland Co. is a publicly owned company traded on the New York Stock Exchange. Roughly 8 percent of the firm's stock remains in the hands of the Andreas family, who has managed ADM since the late 1960s.

Ticker: ADM

Officers: Dwayne O. Andreas, Chmn. Emeritus, 83; G. Allen Andreas, Chmn. and CEO, 58, 2001 base salary $2.39 million; Paul B. Mulhollem, Pres., 52; Martin L. Andreas, SVP and Dir. of Mktg., 62

Employees: 32,000

Principal Subsidiary Companies: Archer Daniels Midland Co. has subsidiaries in North America, Europe, South America, and Asia.

Chief Competitors: Competitors to Archer Daniels Midland Co. include soybean processor and exporter Bunge Ltd., grain processor and exporter Cargill, and other firms involved in the corn, soybean, and wheat industries.

ADM diversified into consumer food products for the first time in the early 1990s by introducing the Harvest Burger, a soy-based, meatless "hamburger," with less fat and cholesterol and fewer calories than a traditional burger. (ADM sold the Harvest Burger brand to Worthington Foods in 1998.) Public scandal rocked the firm in 1995 when the U.S. Federal Bureau of Investigation (FBI) began investigating claims by ADM executive Mark Whitacre that ADM was guilty of lysine price fixing. ADM pled guilty the following year and was fined $100 million, setting a record for the highest fine ever paid in criminal antitrust litigation. Eventually, two ADM executives and Whitacre himself received prison sentences for their involvement. Coupled with declining prices for agricultural commodities, these problems contributed to a drop in profits from $403.6 million in 1998 to $266.0 million in 1999. The European Commission found ADM guilty of lysine price fixing in 2000, fining the firm another $45 million. In fact, price fixing litigation continued to plague ADM into the early 2000s.

Growth continued despite the scandal. Acquisitions in 1997 included the cocoa operations of W.R. Grace; Moorman Manufacturing, a soybean processor serving the animal feed industry; and a 43 percent stake in United Grain Growers of Canada. Allen Andreas took over as CEO in 1999. Farmland Industries agreed to allow a unit of ADM to handle its grain processing in 2001. That same year, Japan-based Kao Corp. and ADM began working together to produce diacylglycerol oil, known for its ability to help control body fat, for sale in the United States, Europe, and Oceania. The product had been selling as an alternative to traditional vegetable oil in the Japanese market since 1999.

STRATEGY

Since its inception, Archer Daniels Midland has focused on two complementary business strategies: intensive research and development efforts—designed to foster innovative methods of production and uses for agricultural products—and highly efficient production. ADM began to explore methods to modify the chemical structure of linseed oil in the mid-1920s; this effort marked the firm's first research and development program. Although research and development budgets were not a regular occurrence for companies in the 1930s, ADM earmarked 70 percent of its earnings for development efforts.

CHRONOLOGY: Key Dates for Archer Daniels Midland Co.

1923:

Archer Daniels Linseed Co. and Midland Linseed Products Co. merge to form Archer Daniels Midland Co.

1930:

ADM scientists are able to extract lecithin from soybean oil

1966:

Dwayne O. Andreas joins ADM's management team

1996:

ADM pleads guilty to price fixing charges; punitive fines of $100 million are the largest in corporate criminal antitrust history

1999:

Allen Andreas takes over as CEO

When Dwayne Andreas took over in the late 1960s, he modified the company's strategy to focus on innovation with a single product: soybeans. Maintaining ADM's tradition of devising low-cost means of production, Andreas promoted the development of a soy product that was roughly 50 percent protein, much less expensive to manufacture than a product that was 100 percent protein. Demand for ADM's products surged as textured vegetable protein (TVP) became commonplace in foodstuffs and soybean oil became the leading cooking oil in use. Because Andreas had focused on devising a low-cost method of production, ADM was able to maintain a healthy profit margin on soybeans.

Cost cutting and product innovation remained the firm's focus well into the late 1990s. To reduce ADM's reliance on the unstable agricultural commodities market, Allen Andreas, who took over in 1999, began to increase the firm's focus on nutritional products, which accounted for 10 percent of sales in 2001. These soy- and corn-based "nutraceutical" food ingredients offered certain health benefits, which ADM intended to market heavily. Andreas planned to increase these products to 25 percent of company sales by 2006.

INFLUENCES

Early successes with innovative developments prompted ADM to devote more of its resources to research and development than was commonplace at the time. For example, in the 1930s, ADM discovered how to extract lecithin, an emulsifier commonly used in the food and confectionery industries, from soybean oil. This knowledge lowered the price of lecithin tenfold. Other new processes devised by ADM included the use of flax straw fibers, considered a waste product at that time, in the manufacture of flax papers. Roughly 40 percent of sales growth during the 1940s was attributable to new products and processes, according to ADM. Successes like these fueled ADM's focus on research and development well into the early 2000s.

CURRENT TRENDS

Health products, such as meatless products using TVP, flaxseed oil, and vitamin E—all products manufactured by ADM—grew in popularity throughout the late 1990s and early 2000s. Environmental concerns prompted U.S. President George W. Bush and his administration to support the use of ethanol, another ADM product, in gasoline. ADM plans to take advantage of these trends by increasing its production of both ethanol and nutritional products.

PRODUCTS

Soy and other oilseed products, such as vegetable oil and TVP, account for roughly 75 percent of revenues. Corn-based products include ethanol and high fructose corn syrup, as well as a variety of other sugars. Wheat products include flour and bulgar. ADM also processes cocoa butter and powder. Early in the twenty-first century, ADM unveiled a new line of food ingredients, dubbed "nutraceuticals," which offered various health benefits. The firm, partnering with Japan's Kao Corp., also announced plans to make and sell diacylglycerol oil, which helps control body fat.

CORPORATE CITIZENSHIP

ADM's management described the development of soy protein as a humanitarian effort, as well as a business venture, because soy was less expensive than other forms of protein, and it lasted much longer than conventional proteins like meat or milk; these characteristics made it easier to use in third-world countries battling hunger and starvation problems. The firm also promoted various environmental causes, such as no-till farming, a process that lowers soil erosion, as well as the use of ethanol as an environmentally friendly fuel additive. (Ethanol was also a major source of company profits.)

In April 2001 the firm introduced a new leaf-shaped corporate logo with the caption, "The Nature of What's to Come." According to the firm's CEO, "Archer Daniels Midland is at the forefront of developing new products based on natural, renewable resources. 'The Nature of What's to Come' is more than just an advertising campaign—it's a promise to our customers, shareholders, and the world."

ADM SEES ETHANOL MARKET INCREASE

In 1994, the U.S. Environmental Protection Agency decreed that ethanol, one of ADM's key corn-based products, be combined with at least 10 percent of all gas purchased in the United States. To lobby for government support of ethanol, the Andreas family had made sizable donations to both Republican and Democratic parties in the 1992 election.

GLOBAL PRESENCE

International operations account for 35 percent of ADM's sales. Via a multitude of subsidiaries, the firm operates in Canada, Germany, Turkey, the Netherlands, the United Kingdom, Mexico, Bolivia, and Luxembourg. The firm's decision to open grain processing units in North America to handle increased demand from Asia proved premature in the late-1990s, particularly when the Asian economy fell into a recession. By 2001, however, the market had recovered and ADM began to see increased demand from Asia. In fact, overcapacity in many developed markets such as the United States and Western Europe prompted ADM to increase its focus on emerging markets like Asia, as well as Eastern Europe and South America, for future growth. In 2001, ADM held a 5 percent share of the Asian oilseed market.

SOURCES OF INFORMATION

Bibliography

"archer daniels midland co." international directory of company histories. detroit: gale research, 1994.

archer daniels midland homepage, 2002. available at http://www.admworld.com.

burke, monte. "streetwalker." forbes, 17 september 2001.

deguzman, doris. "adm eyes key markets for global expansion." chemical market reporter, 10 december 2001.

einhorn, cheryl. "a grain of hope: after 10 terrible years, adm poised for a comeback." barron's, 16 october 2000.

forster, julie. "a different kind of andreas at adm." businessweek online, 9 july 2001. available at http://www.businessweek.com.

For an annual report:

on the internet at: http://www.admworld.com/investor/pdf/adm_annual_report_2001.pdf

For additional industry research:

investigate companies by their standard industrial classification codes, also known as sics. archer daniels midland's primary sics are:

2041 flour and other grain mill products

2046 wet corn milling

2048 prepared feed and feed ingredients, not elsewhere classified

2066 chocolate and cocoa

2074 cottonseed oil mills

2076 vegetable oil mills

also investigate companies by their north american industry classification codes, also known as naics codes. archer daniels midland's primary naics codes are:

311119 other animal food manufacturing

311211 flour milling

311221 wet corn milling

311225 fats and oils refining and blending