In a relatively brief one month study, a team of economists from several universities¹ interviewed a number of knowledgeable members of the grain merchandising and exporting industry in the United States. Questions were posed regarding possible areas of concern, and opinions regarding potential effects on competition in the grain merchandising industry. Industry participants were asked for estimated storage and loading capacities for their firms and leading competitors, and their estimates of merchandising volume or market shares owned or controlled by leading competitors. Several strategic locations important in the grain merchandising business were selected for more in-depth analysis due to their influence in the export or river terminal marketing systems, and the futures markets which play a very important role in price discovery and risk management in the grain merchandising industry.

Thus, we emphasize interior barge loading locations on the Illinois (the delivery location for the Chicago Board of Trade (CBOT) corn and soybean futures markets beginning in 2000), Mississippi and Ohio rivers, futures market delivery locations currently at Chicago, Toledo, and Kansas City, and the high volume export locations on the East and West coasts. The information collected comes from a number of government, trade publication and industry sources. The data and analysis below has been reviewed by several economists and industry members. While we attempted to eliminate mistakes, there may be some remaining which were unable to be corrected in the short time frame available for the study.

Viewpoints regarding concerns and potential implications were solicited from Cargill, Continental Grain, and other industry and government sources. Sources of data are camouflaged where necessary to preserve confidentiality. Throughout, we offer the pros and cons to consider on the issues raised by farmers, industry members, and government policy makers and regulators, hopefully in a non-judgmental way, to stimulate an informed dialog.

Antitrust review procedures

U.S. antitrust law bars transactions that are likely to have substantial anticompetitive effects (Azcuenaga). The unifying theme of the Department of Justice (DOJ) and Federal Trade Commission (FTC) merger guidelines is that mergers should not be permitted to create or enhance market power or to facilitate its exercise. Market power to a seller is the ability to maintain prices above competitive levels for a significant period of time. The relevant agency (the food industry usually is the Department of Justice jurisdiction) assesses whether the merger would significantly increase concentration and result in a concentrated market, properly defined and measured. Second, the agency assesses whether the merger, in light of market concentration and other factors that characterize the market, raises concern about potential adverse competitive effects. Third, it analyzes whether entry by new competitors will be timely, likely, and sufficient either to deter or to counteract the likely short-term anti-competitive effects. Fourth, it assesses any efficiency gains that cannot reasonably be achieved by the parties through other means.

Typically, the focus of agency review in the U.S. will be determining: (1) the relevant market for analysis; (2) the share of the market controlled by the companies involved; (3) the measures of market concentration before and after the acquisition (small changes are usually considered more important in more highly concentrated markets; large changes are relatively less important in unconcentrated markets), and (4) the ease and speed of entry by potential competitors. In some cases, control of key technologies (e.g. Monsanto's genetic engineering patents in their recent DEKALB Genetics acquisition) or raw materials, or possible competitive bottlenecks or foreclosure of access to markets at important stages in a distribution chain may suggest potential market power. Such conditions may warrant further analysis.

At the same time, tradeoffs to possible reductions in market competition are also considered. The Agency considers whether efficiencies likely would be sufficient to reverse the merger's potential to harm consumers or suppliers in the relevant market, e.g., by preventing price increases to customers or price reductions to suppliers in that market. The Merger Guidelines indicate that merging firms must substantiate efficiency claims so that the Agency can verify by reasonable means: (1) the likelihood and magnitude of each asserted efficiency; (2) how and when each would be achieved (and any costs of doing so); (3) how each would enhance the merged firm's ability and incentive to compete; and (4) why each would be merger-specific. Efficiency claims will not be considered if they are vague or speculative or otherwise cannot be verified by reasonable means.

Two key points are raised in the Guidelines regarding efficiencies as an offset to concerns regarding loss of competition--(a) efficiencies are most likely to make a difference in merger analysis when the likely adverse competitive effects, absent the efficiencies, are not great; and (b) efficiencies almost never justify a merger to form a monopoly or near-monopoly.

The industry and market setting

The food and agricultural sector has been undergoing rapid consolidation in the last two decades, as this sector joined with many others in the U.S. economy in the merger and acquisition wave. The farm production transition toward fewer, larger, more sophisticated operations was joined by similar consolidation of volumes in the hands of fewer, larger firms in the farm input, food processing, food wholesaling, food service and food retailing industries. The international scope of the market for food and agricultural products expanded dramatically, and the demands of the domestic and international customers changed the nature of competition and the strategies necessary to succeed in these inter-related industries. Developments in information technology and, more recently, biotechnology have begun to play major roles in the organization of the food sector.

U.S. grain exports have been cyclical, and often volatile from year to year. In the late 1960s and 70s, the world grain market grew rapidly as incomes improved globally, and markets which previously had been closed (especially the former Soviet Union) became major customers for grain. This often involved single government buyers of basic commodities in very large bulk transactions. U.S. grain production and exports grew rapidly, as did the corresponding infrastructure to provide the necessary storage, rail, barge, and ocean freight distribution system. (See Figure 1). For example, U.S. feed grain exports peaked near 70 million metric tons 1979-80, and dropped to 36 million tons in the mid-1980s. In the early 1990s, exports rebounded to near 70 million tons per year, but dropped to 40 million metric tons in the mid-1990s, jumping up for one year in 1995-96 before decliming to the 45-48 million metric ton range in the last two years. In the 1980s and 1990s, the export market tumbled as the economies of, first, the former Soviet Union, and later the increasingly important Asian customers (Japan, Thailand, Korea, etc.) had significant problems which led to a sharp reduction in overall grain and oilseed exports. Argentina and Brazil became major competitors in corn and soybean export markets, and Western Europe became a net exporter in the late 1980s, reducing the U.S. share of world exports. At the same time, the growth of the U.S. poultry and livestock feeding sector and the domestic grain and oilseed processing industries (corn sweeteners, ethanol, soy crushing) led to greater domestic use of grain and soybeans, and a reduced role for exports in the U.S. marketing system. Expanded pork and beef exports displaced grain exports. Grain and oilseed export-related facilities for storage, handling, transporting, and ship-loading were built as a result of government program incentives or contemplation of continued export growth, resulting in substantial excess capacity (grain storage capacity peaked in the late 1980s). While excess capacity is difficult to measure with precision, comparing peak export volumes in recent years, months or quarters with recent export volumes (see Table 1) shows a few measures of surplus capacity in the U.S. grain export system, and why recent profitability suffered for the major grain merchandisers most dependent on exports³. With the extreme volatility of U.S. grain exports in relatively short periods of time, substantial excess capacity is needed to accommodate unanticipated surges in demand. In two out of the the last seven years, these export surges caused volume changes of 55% from the high to the low export volumes. Moreover, grain export demand is seasonal so that annual export volumes may understate peak capacity needs during the fall harvest season.

Trying to describe effectively the many stages of the grain and oilseed marketing system is very difficult. Grain sold by a farmer to a local elevator and ultimately destined for export may have several changes of ownership, with prices established several times at different locations, at rail terminals, river terminals, and export terminals (See Figure 2). Grain may be diverted from that distribution stream by competitive bidding from livestock producers, feed companies, corn or soybean processors along the way. A fairly large number of competing merchandisers may own relatively few facilities like country grain elevators, barge or ship loading facilities, but still be active competitors (paper traders) buying and selling grain at each stage of the merchandising system, and using facilities owned by others (acquired on a competitive bid basis) for storing, blending, loading and unloading. With excess capacity in the storage and distribution system in recent years, their operating costs are often quite low, and "paper traders" have been effective competitors. Their effectiveness, however, is heavily dependent on excess capacity in the marketing system; with concentrated ownership of facilities, they would be much less effective if exports were to increase sharply and strain the capacity of the system.

The players in the grain merchandising system have changed greatly over the last 20 years. Table 2 below summarizes estimated storage capacity by Milling and Baking News in 1981 and 1998. Milling and processing storage capacities are included, so these are not purely grain merchandising facilities. The Cargill figures do not include "The Andersons" storage capacity; they have recently begun a marketing venture with "The Andersons" at Toledo and Maumee, Ohio, but do not own the facilities⁴. Cargill reports that their grain merchandising storage capacity (excluding processing, The Andersons, etc.) is 345 million bushels, and their other processing, subsidiary and joint venture storage capacity (excluding The Andersons) brings their total storage capacity to 463 million bushels.

Table 2. Storage capacity of 10 Largest U.S. Grain Elevator, Milling and Processing Companies, 1981, 1999
Company	Total Capacity, 1981(mil. bu.)	Company	Total capacity, 1999 (mil. bu.)
Cargill	148	ADM	611
Far-Mar-Co	122	Cargill	4631
Continental Grain	110	ConAgra/Peavey	198
Union Equity Co-op	67	Farmland Grain Div.	178
Pillsbury	54	Bunge	170
Central Soya	51	Continental Grain	169
Bunge	47	Cenex Harvest States Coop.	146
The Andersons	43	Riceland Foods	102
Lincoln Grain	39	The Andersons	80
Indian Grain	39	General Mills	72
Sources: Structural Change and Performance of the U.S. Grain Marketing Industry; Milling and Baking News Grain and Milling Annual, 1999, pp. 21-22; 1Cargill (M&BN has 515).

Only three of the largest grain companies in 1981 show up on the 1998 list. Three farmer cooperatives are now part of the top 10, versus two in 1981. Some regional cooperatives have grain merchandising joint ventures with other corporations -- e.g. Cargill, ADM.

Price discovery takes place at each stage of the system where ownership changes hands, with the interaction of supply and demand forces in each local or regional area, in turn influenced by supply and demand conditions at locations closer to the ultimate customer for the basic commodities-- the domestic or export customer. Price reporting by government agencies plus the interactions of buyers and sellers provide a good deal of transparency in the price discovery process among the merchandisers, and -- through government price reporting and bids to local elevators -- ultimately to farmers.

The Chicago and Kansas City Boards of Trade and the Minneapolis Grain Exchange play a significant role in providing corn, wheat and soybean futures contracts which are used to manage price risks for farmers and grain merchandisers at all stages of the system. All three futures markets have delivery points for each contract which involve some Cargill and Continental elevators. The futures markets are a major source of market information, as well as global price-discovery mechanisms, and exert significant influence on the price and margin structure in the grain industry.

Cargill and Continental Grain

Table 3. Cargill and Continental Grain Statistics, 1998
	Cargill	Continental
Revenue (billion $)	51.4	15
Net profits (million $)	468	100 (est.)
Employees (thousands)	80.6	17.5
Source: Forbes magazine

These data are for the entire companies, which include very large livestock production, feed company and financial operations for Continental Grain, and extensive livestock production and meat processing, feed, poultry, steel, shipping and other business enterprises for Cargill. Cargill has grain merchandising offices and facilities in 43 countries. In the U.S., Cargill has 243 grain facilities; the industry leader ADM through ownership or joint ventures has 669 facilities, according to Milling and Baking News. Note that estimated average profit per dollar of sales was less than one percent overall for Cargill's combined businesses, and even less for Continental Grain, though these are only for one year, and may not be representative. For its 1995-96 and 1996-97 fiscal year, Cargill reported gross revenues of $56 million each year and profits of $804 and $902 million, respectively. Its profits in those two years were less than two percent of sales.

Only the Continental grain storage, transportation, export and trading operations, with offices and facilities in 30 countries (in North and South America, Europe, the Middle east, Africa and Asia) are involved in the acquisition, with customers in over 100 countries. If approved by the DOJ, the assets and selected employees will be transferred in first quarter, 1999. In the U.S., Cargill indicates that these assets include 83 grain handling facilities, which will add 73 new locations to their current 243, and 10 facilities where Continental and Cargill elevators currently coexist close to each other.

Cargill and Continental are important in other parts of the world grain economy as well. For example, a Cargill Argentina press release indicates the combined operations would account for about 25 percent of Argentine corn wheat and soybean exports. They are significant competitors in most areas of grain production, along with such trading companies and merchandisers such as Peavey, ADM, Bunge, Louis Dreyfus, Zen Noh, Cenex Harvest States, Tradigrain, Farmland, AGP, Nidera, Mitsui, Marubeni, Mitsui, Mitsubishi, Kanematsu, Glencore, Oriac, Itochu, CAM, A.C. Toepfer, and Seaboard.

Reasons for the acquisition

Industry speculation is that Continental excelled in very large volume bulk export trading, and had not diversified enough into the value added processing to compete effectively in a market environment where export volumes have been sharply reduced in recent years. To compete effectively by restructuring their operations at this late date would require too much capital and too much risk. Continental's storage capacity declined significantly over the last 10 years, while Cargill, ADM and Peavey expanded (Top Producer, Jan., 1999). Their capital could be more productively employed in their other agricultural and financial businesses.

Why did Cargill buy Continental?

Cargill expects this acquisition to contribute to its ability to compete effectively in a rapidly changing market environment. The acquisition will contribute to more effective knowledge acquisition and transfer from an expanded global presence and a broader base of grain origination facilities in the countries where grain is produced. The grain merchandising system is a high fixed cost system. Cargill hopes to compete more effectively and keep a large share of the Continental volume, capturing economies of scale by running more volume through without equivalent changes in the costs of managing their system. Further, Cargill expects that it will be more able to take costs out of the system, not just through fewer people, but by dedicating some facilities to specialized products and getting more efficiencies in operations (shorter barge turnaround times, longer runs in elevator handling, etc.). Their new joint venture with Monsanto to arrange production and to market value-added specialty grains and oilseeds for the feed and processing industries will require greater capacity to handle segregated grain flows throughout the domestic and export marketing system. Continental has had a significant presence in the identity preserved grain market, with half its international feed customers converted to high oil corn. Cargill expects to better serve the producer by enhancing productivity and passing some of those cost savings on in the form of better prices to their suppliers and customers. They also plan offer many more price risk management alternatives and advice, financing, etc., to farmers.

The efficiencies which Cargill plans to achieve from the acquisition will have to be estimated in tangible terms for consideration by the Department of Justice. In addition, some of the less tangible benefits identified by Cargill could influence the firm's effectiveness in competing in the domestic and world market arenas. A broader coverage of the major world suppliers and customers in the world grain and oilseed trade may offer improved market intelligence, a key to effective trading in a very risky environment, as well as more effective and timely sourcing to serve a broader array of discriminating customers.

Concerns regarding the acquisition

Other issues which might arise are similar to those being raised in the current Microsoft case, such as: Will the merger result other merchandisers and processors having to conform to Cargill standards in grain merchandising?; Will the merger result in exclusivity in marketing arrangements with Cargill such that firms that do business with Cargill are excluded from or penalized for doing business with other merchandisers? Will Cargill bundle products or terms into their merchandising arrangements, like requiring its buyers and suppliers to use Cargill transportation or Cargill risk management tools? Will Cargill control so much grain at various stages of the system that fewer negotiated prices and price reports are available to keep the price discovery system transparent?

This paper will deal with only a few of the most important issues, but hopefully will lay the groundwork for subsequent study of other issues.

Some relevant facts

Cargill indicates that the combined grain merchandising businesses accounted for 3 percent of the 10,500 U.S. commercial grain storage facilities (6-7 percent of commercial storage space), 20 percent of river terminal elevator capacity, 35 percent of U.S. grain and oilseed exports, and 10-13 percent of grain coming off farms (8-10 percent--Cargill, 1-2 percent--Continental Grain).

The relevant market

In an old (1979) study of the U.S. corn market, Thompson and Dahl found that the very high correlation of corn price changes in five locations around the country suggested that the pricing behavior was like that found in perfectly competitive markets. A more recent (1997) study by Good, et al., shows high soybean price correlations between the Gulf and most midwest locations (over .85 for daily price changes), and correlations for corn for similar locations between .5 and .85. This is one indication, though not conclusive, that various areas within the U.S. are all part of a national market.

The export locations

GIPSA-USDA provided data on the shares of export volume in fiscal 1998 by the leading firms, and the share accounted for by the leading four firms in each location (summarized in Table 4). This data treats Cargill and Continental Grain as separate firms, so their combination would increase these shares by the top four firms. There is a very large share of the volume accounted for by a few firms in a large number of locations. Nationally, 81 percent of corn exports were accounted for from the facilities of the top four firms, which include Cargill, Continental, ADM and Zen Noh. Note that this does not necessarily mean that the grain was owned by those firms; they may have just provided the ship loading facilities for a fee for another competitor in the market⁶. The same top four firms accounted for 65 percent of soybean exports, while a substantially different set of largest firms provided a much lower share (47 percent) of wheat exports.

The most concentrated export locations include the small volume Atlantic Coast port locations, the moderate volume Pacific Northwest port locations, and the very large volume Gulf port locations. Examining the firms involved at each location, and the changes in storage, loading capacity and market shares from the acquisition may provide some useful insights into possible competitive implications.

Tables 5-13 summarize the GIPSA-USDA ship loading facility data for fiscal 1998. Note that a firm's share of storage capacity or loading capacity is likely to be highly correlated with share of volume handled, but either clearly is not a perfect index of volume market shares. Further, both the ship loading storage shares in the ports (or the length of the rivers selected for study subsequently) will change (usually slightly) if the geographic definition employed differs from the ones we selected. We have identified all locations used in each area in the tables.

An examination of the USDA ship loading capacity and storage in the leading port areas discloses that the Cargill acquisition will have little or no impact in Duluth and Toledo on the Great Lakes, but will remove the only grain elevator competitor remaining in Chicago (which has been declining in importance in the grain industry for a long time; Cargill closed a facility there a few years ago). While Chicago might be viewed as a dying market, with Chicago and Toledo dominated by either Cargill facilities or facilities operated under a joint venture including Cargill, this still may raise questions regarding the CBOT futures contracts where these are the only effective delivery points for 1999 (St. Louis seldom offers warehouse receipts for CBOT deliveries).⁷

On the low-volume East Coast, Cargill is the primary exporter in the Virginia ports, unchanged due to the acquisition. In the Pacific Northwest, Cargill's share of capacity will be near 50 percent, up slightly with the addition of one Continental elevator, with several other competitors.

In the Louisiana and Texas Gulf, Continental only had a small share of capacity (9 and 11 percent, respectively) in each location. Combined with Cargill's 21 percent share in the Texas Gulf and 29 percent in the larger-volume Louisiana Gulf ports, this may not be viewed as a significant change from the acquisition, since there are several competitive private and public (e.g. Port of Houston, Port of Corpus Christi) ship loading terminals. In the combined Louisiana and Texas Gulf port area, Cargill accounts for 36 percent of ship loading storage capacity after the acquisition, versus 26 percent before. While the advantages of low cost barge transportation may make the Louisiana Gulf ports more attractive destinations than the Texas Gulf for export grain from many parts of the upper Midwest, the Gulf ports also are competitive with each other and probably with East Coast and Great Lakes ports for export business in many countries. The Gulf ports often will also be competing directly or indirectly for some parts of the west central U.S. grain with exporters using the PNW ports to serve Asian markets as well. Thus, the shares by leading firms in a local or regional area may not be a good indicator of their potential impact on competition and prices in those areas.

Since the export market concentration is substantially higher than at other stages in the grain marketing system, this is one of the relevant market issues which will have to be carefully examined by the antitrust authorities. Are any or all of these ports really separate and distinct markets? If so, is the change in export market concentration (shares of market volume, not capacity) attributable to the acquisition likely to significantly reduce competition?

River barge terminal locations

We note little change from the Cargill acquisition on the Missouri River, and the Ohio River. We also examined the Columbia River, Arkansas River and Tennessee River (no tables included), and found little or no change from the acquisition. Consequently, we will not consider them further.

On the Upper Mississippi, where there are a large number of competing firms, Cargill's addition of Continental modestly increases its share of storage capacity to near 30 percent, from 22 percent previously. The Agri Industries Grain Marketing joint venture with Cargill is included in the Cargill share.

On the Illinois River, the shares by company vary depending upon whether all the river (for the CBOT soybean contract) or the Northern part of the river (for the CBOT corn contract) are considered, and whether the very large Chicago Continental facility and the Cargill Burns Harbor facility are included as river barge loading locations. The Chicago facilities are higher cost operations; thus they rarely load barges.

We will discuss the shares of capacity excluding the Chicago area facilities, then footnote differences when they are included. ADM is clearly the largest firm, with approximately 36 percent of the storage space on the entire river, but ADM's share is 49 percent in the area above Pekin which will be the delivery area for the corn futures contract. Cargill's acquisition will bring its share of capacity from 20 percent to 27 percent for the entire river, and increase its share of the Northern Illinois storage from 21 percent to 31 percent.⁸ Consolidated Grain and Barge is a large competitor in the lower Illinois River (32 percent of entire river storage), and has three facilities above Pekin. Cargill's acquisition might not appear problematic in this area if ADM was not so large. However, the combination of these two large players and their share of volume traded, not just storage capacity, in the futures market delivery area may prompt closer examination by the DOJ.

Several issues might warrant examination. First, is it appropriate to simply focus on the barge loading firms as the competitors to examine, as they serve as the low cost conduit to the Gulf export market? Shouldn't other firms buying grain for feed and processing from the same origination areas also be considered? If so, how many and how important are each in the local or regional market? These questions are not answered in our brief study. If the concern is about (1) whether competitive margins at an important export market conduit are likely to be effectively increased, or (2) whether the firms in the Northern Illinois area approved for delivery by the CBOT may be able to artificially influence deliveries, handling costs, and therefore futures prices, price spreads and basis, then a narrower drawing of the relevant market may be warranted. Otherwise, the competition from non-river locations will be an important factor diluting the estimated degree of concentration, perhaps dramatically.

Potential competition in the form of (1) excess capacity of current barge loading facilities, or (2) the speed and cost of adding new barge loading and/or storage capacity would also warrant study, to determine whether any potential market power of a few large firms could be quickly and easily defused by entry into these local or regional markets.

Chicago, Toledo and the Illinois River

Excess capacity present in Chicago and Toledo may be forcing consolidation. Further, broader competition for corn, wheat and soybeans is present than is represented by the few ship or barge loading facilities in Chicago, Toledo and St. Louis which happen to be approved for CBOT deliveries. Perhaps this is no problem from a competition standpoint, but only a perceived problem because of the narrow definitions of delivery points by the CBOT (the expressed purpose for the narrower delivery area was to reduce basis variability). If so, that may be a problem to be solved by the CBOT, not the DOJ. The CBOT has made changes in contract delivery specifications effective beginning in the year 2000 replacing deliveries with warehouse receipts in Chicago, Toledo and St. Louis to barge shipping certificates at approved locations on the Northern Illinois River (corn) and Illinois River to St. Louis (soybeans), and proposals for changes in the CBOT wheat contract are pending. These changes are clear improvements to the contract, by increasing the size of the delivery area and the number of facilities approved for delivery. One industry source characterizes the new delivery locations and specifications using shipping certificates as a very liquid market with very few barriers to entry. However, the 80 percent share of storage capacity by two firms (and probably a higher share of volume) in the Northern Illinois River prompts a more thorough look at the situation there. Expanding the delivery areas to the entire Illinois River, adding the upper Mississippi as an option when it wasn't frozen, or similar changes to reduce concentration of ownership of barge loading facilities (or barges themselves, not considered here) may warrant consideration.

Potential competition

In the intermediate run, barge handling capacity could be added by adding truck-barge or rail-barge loading facilities at relatively low cost, or adding more expensive storage facilities with barge loading facilities at new locations. Industry sources suggest that a new truck-barge loader, with minimal storage capacity, could be up and running in about four months at an estimated cost of about $2-3 million. A larger, more sophisticated facility with more extensive storage, two truck dumps and a drying system could be built in about eight months at a cost of about $5 million. The time required for environmental assessments and permits might lengthen the time required. Thus, entry of new competitors does not appear difficult if an adequate location can be found. CBOT requirements of $5 million net worth also don't appear too restrictive for new entrants to qualify as delivery locations. With excess capacity now, and no clear signals that the export demand for grain will surge in the next year or two, there is no incentive for such expansion. If excess capacity remains, it would be difficult to exploit the high concentration on the Northern Illinois River, so new entrants may not be necessary to police the large companies for a long time.

Grain origination off-farms

Summary and Overview

• Concerns regarding loss of competition are prompted by the Cargill's acquisition of its largest competitor in the exporting of grain. Together, they account for roughly 35 percent of corn, soybean and wheat volume, with a higher corn export market share.
• The grain and oilseed markets are national in scope, for U.S. antitrust analysis, and international in scope as well.
• Most port locations are relatively concentrated with a relatively small number of owners, though the largest-volume locations like the Gulf have a large number of competitors. The "dying" Chicago grain elevator business declined from two competitors to one due to the acquisition. This could be a temporary problem due to its still being a CBOT delivery point in 1999, and another delivery point --Toledo -- is dominated by a Cargill/The Andersons joint venture. This still may be a problem for the CBOT wheat contract in 2000.
• Most river terminal locations were affected very little by the Cargill acquisition. The Northern Illinois River, the new CBOT delivery location for corn, now will have two firms accounting for over 80 percent of the barge loading elevator storage capacity after the acquisition. Excess capacity by smaller elevator competitors, other processor, feed company, etc., competitors in the market, and ease of entry might ease concerns about excess market power in this regional market. The CBOT may need to expand its corn and wheat delivery areas to avoid perception of risk of manipulation by largest companies there.
• There are numerous competitors buying grain from farmers in most areas; the acquisition probably will make little difference in local competition for farmers' grain.
• The better utilization of excess capacity and likely cost reductions in the grain merchandising system are the primary efficiency gains which will have to be documented by Cargill in the antitrust review as offsets to any concerns regarding potential loss of competition.

The dynamic changes in the world seed and grain production and marketing system which have been occurring and appear on the horizon (related to biotechnology) are likely to transform the system from the "commodity" orientation to a specialty (value-added trait) product system over the next decade or two. Is this acquisition likely to play a useful role in positioning this company and the U.S. industry as a more efficient and effective competitor for U.S. farmers' grain, and for customers in the U.S. and world markets? Or does it have some associated shortcomings for industry competitiveness in the short run which need to be remedied before the acquisition is approved by our Department of Justice? Hopefully the data and analysis provided here will contribute to an informed dialog and debate.

References

Kevin Kimle and Marvin Hayenga, "The Changing Structure of the Grain Industry", in Agricultural Input and Processing Industries, Iowa Sate University Agricultural Experiment Station and Cooperative Extension Service, RD-05, 1992.

1992 Horizontal Merger Guidelines [With April 8, 1997, Revisions To Section 4 On Efficiencies], U.S. Department of Justice and Federal Trade Commission, 1997.

Structural Change and Performance of the U.S. Grain Marketing Industry, D. W. Larson, P. W. Gallagher and R. P. Dahl, editors, The Ohio State University, Columbus, Ohio, 1998.

Grain & Milling Annual 1999, special publication of Milling and Baking News, Sosland Publishing Co., Kansas City, MO.

Sarahelen R. Thompson and Reynold P. Dahl, The Economic Performance of the Grain Export Industry, Technical Bulletin 325-1979, Minnesota Agricultural Experiment Station, University of Minnesota.

Darrel Good, Sarahelen Thompson, Robert Hauser and T. A. Hieronymus, Northern Illinois Waterway Delivery for Corn and Soybean Futures - A Perspective, June, 1997.

Nicholas Kalaitzandonakes, "Biotechnology and identity-preserved supply chains", Choices, Fourth Quarter, 1998, pp. 15-18.

FOOTNOTES

² Good background sources on the grain merchandising system include the following references: Structural Change and Performance of the U.S. Grain Marketing Industry ; Agricultural Input and Processing Industries. A recent article dealing with biotechnology in the grain industry by Kalaitzandonakes also may be useful.

³ Note that the export areas in Table 1 may not be defined the same as the tables which follow (e.g. Pacific includes California as well as Pacific Northwest ports; Interior includes Mexican and Canadian border terminals, primarily rail).

⁴ Cargill leases their Toledo-Maumee facilities to The Andersons and have a marketing agreement with them for grain originated in the Toledo-Maumee area only. The agreement does not cover grain originated or marketed by The Andersons outside of the four Toledo-Maumee facilities. Toledo-Maumee represents only a portion of The Andersons' grain origination and marketing business.

⁵ Other leading exporters of those grains included Zen Noh, Louis Dreyfus, Mitsui, Alfred Toepfer, ADM, Agrex, Garnac, Marubeni America, Tradigrain,, Farmland, Harvest States, Bunge, Columbia Grain, and Peavey, and Alliance, each with more than one percent of total exports. Over 100 additional companies were listed as exporters of smaller volumes in that 1997-98 period.

⁶ With significant excess industry capacity currently, even with concentrated ownership of facilities, such fees are likely less than full costs of providing the service. In times of a shortage of capacity, the fees would be expected to exceed full costs of providing the service.

⁷ Perhaps the CBOT may need to shift their contract to the new delivery points in 1999, or negotiate a contract with Cargill and the Andersons which provides adequate safeguards on space availability, etc., for anyone making or taking delivery under CBOT futures contracts in Chicago and Toledo during the next year.

⁸ If Continental Chicago and Cargill Burns Harbor facilities were included, the Cargill Upper Illinois share would be 65 percent, ADM would be 25 percent; for the entire Illinois River, the Cargill share would increase to 50 percent, ADM would be 25 percent, Consolidated Grain and Barge would be 22 percent.