Cargill, Incorporated
Ernie Micek

submitted written
TESTIMONY BEFORE THE SENATE COMMITTEE ON AGRICULTURE
REGARDING the African GROWTH AND OPPORTUNITY act

JULY 31, 1997

Mister Chairman, Members of the Committee. Thank you very much for your invitation to discuss economic opportunities and development in Africa.

My name is Ernie Micek, Chairman, President and Chief Executive Officer of Cargill, Incorporated. Cargill is a privately-held agribusiness company founded over 130 years ago in Iowa. Today, Cargill is headquartered in Minneapolis, Minnesota, and is involved in marketing, processing and distributing commodities, with some 79,000 employees in 72 countries. Cargill is no stranger to the developing world, nor to Africa. We believe the legislative initiative you are considering today is needed to accelerate economic and political development in sub-Saharan Africa.

Cargill has been a trading partner with African countries for many years, and also has been part of African development through our subsidiary, Cargill Technical Services (CTS). We have been active "on the ground" within Africa since 1981. Our current businesses in Africa include processing and trading cotton, coffee, cocoa, oilseeds and rice; development and marketing of hybrid maize, sunflower, sorghum and soybeans; sugar and grain trading; and the rural development work of CTS. We now have offices and facilities in eight African sub-Saharan countries, with annual sales of $200 million from our asset-based businesses trading within Africa, and total trade (inside and through exports and imports) of $1.3 billion. In these eight countries, Cargill has a full-time workforce of about 1000, and we employ another 1300 seasonal workers.

Our experience in Africa convinces us that sustainable development must begin with agriculture. Agriculture is the foundation stone for every African economy. Unlocking Africa's latent agricultural productivity is the best way to begin self-sustaining, broad-based development. Let me illustrate how that happens by describing how we have invested in Africa.

Our first efforts often are at the most basic level: providing seed that makes local agriculture more productive. Through the use of expertise already existing within the company, as well as through seed testing and research conducted in Africa to meet local conditions, we help the farmer learn how to use these products to improve yields and to plant and harvest more efficiently. These are fundamental building blocks needed to begin the creation of an economy.

At the next level, we provide the farmer with a way to market those products. In some cases, such as coffee, cocoa or cotton, where Africa has a comparative advantage to other parts of the world, that market may be the export market. In others, we may be able to help create a local or regional market.

Let me give an example.

The Lalago area in Tanzania is a region where cotton is produced. When Cargill first arrived, the farmers were being paid for their cotton in promissory notes, pieces of paper that entitled them to payment sometime in the future. Often, that was three months or later; sometimes farmers were left holding empty promises. We set up cotton buying stations, established cotton ginneries that provided jobs off the farms, and we started paying cash. That infusion of capital into Lalago made a significant difference. A local economy was born. New brick homes were built, where once there were only mud huts. A school and clinic are operating. Electric power arrived five years sooner than expected. Small businesses have sprung up.

Last year, Cargill in Tanzania (at Lalago and a neighboring ginnery at Mesumbwe, built with re-invested profits) processed 30,000 tons of cotton. This produced more than 50,000 bales of lint with a value in excess of $17 million that went to the world market through the efforts of our international cotton trading subsidiary. The 18,000 metric tons of cotton seed separated from the cotton lint formed the basis for value-added products. The seed was sold to a locally owned oilseed crushing business right in Tanzania. The crushing business sells the oil locally, and the by-product, cotton seed cake, is exported to South Africa.

We believe that Lalago is a good example of our company living its vision statement: "to raise standards of living around the world by delivering increased value to producers and consumers." We increased output of a crop already established there; added value to that production through our ginning, trading and processing businesses, creating jobs and income; and we transferred knowledge local farmers could use for more sound husbandry of the local natural resource base.

In other parts of Africa, Cargill has been exporting cocoa beans from Nigeria, the Cameroon, Ghana and the Ivory Coast for several years. We are working towards establishing a cocoa processing operation in the Ivory Coast to add value to the beans within the country before they are exported.

As successful as these modest efforts in Lalago and elsewhere may be, the development needs in Africa cannot be met by the private sector alone.

Nor can they be met by the aid community alone. PVO's can help to initiate development efforts and spread their benefits, but sustainable growth requires well-functioning markets and entrepreneurial opportunities. Governments' role is to create an environment, infrastructure and socio-political stability that promote development, reform and growth in their countries. They do need help and support. The challenges of sub-Saharan Africa, particularly debt burdens, population growth, under employment, poverty and disease, would confound any government operating in the best of circumstances.

What Africa needs, and what your proposed legislation begins to offer, is a partnership. Each participant in the effort -- working with its unique skills, resources and abilities -- can contribute to the solution.

Let me briefly describe how the members of that partnership, working together through various stages of development, can raise standards of living in Africa.

People living in poverty have little margin for error in feeding themselves. Crop fluctuations or other natural disasters create risks of severe hunger. Those risks usually can be overcome through trade or relief efforts. What can compound shortages and imperil relief from imports is civil strife. When civil order fails, risks of famine increase and assistance efforts are imperiled. Consequently, maintaining civil order and building political legitimacy are critical responsibilities of governments and the institutions that seek to help them. Indeed, order and legitimacy are necessary preconditions for effective assistance.

Beyond the point of crisis, NGO's, working with the World Bank and through development banks, can help. Cargill Technical Services, which often partners with aid institutions, has provided technical assistance in helping farmers to improve. This has ranged from help and advice on research into better seed varieties to development of better storage facilities (African farmers may lose up to 40% of their harvested crop to insects, rodents and weather damage) to the development of village-sized hand-operated oilseed presses to allow farmers to produce edible oil for their own needs.

U.S. and international research institutions provide help over longer time lines by adapting technologies to local needs, supporting indigenous research and extension services and building up local agricultural support institutions.

While the improvements realized through these efforts are necessary, they are not sufficient to start self-sustaining growth. They are not enough to break out of a subsistence economy to a dynamic growing economy.

To make this next step requires real collaboration among local governments, multilateral development banks and agribusiness. In some respects, the answer for the next level of development lies in a phrase made famous in the movies: "If you build it, they will come."

Investors choose countries with at least the basic infrastructure, as well as stable political and economic environments, needed to earn decent returns.

For a country to be attractive to agribusiness does not require huge asset investment, but it does require some investment. In countries like Tanzania, to use my earlier example, investors in agribusiness development do need one specific infrastructure: transportation. If the farmer can get the cotton to the buying station, and the buyer can get the cotton to the gin, and the ginnery can get the cotton to the port, the cotton can become a world-priced product, generating cash for more internal investment and foreign exchange earnings for the national account. This moves the cycle of improvement upward.

To achieve the second requirement of stable political and economic environments, the role of the local governments becomes critical. Their efforts can be well supported through the World Bank and the MDBs, and the provisions in the legislation for continual consultation on policies is a critical part of that support. But no one outside of the country can make this next step happen. The governments locally must establish:

responsible, fair and transparent trade, fiscal and monetary policies;

properly valued exchanges rates;

a legal system based on the rule of law, not the rule of individuals;

laws that are enforced against bribery and corruption;

secure rights of property ownership;

a reliable and enforceable law of contracts and a fair, transparent dispute resolution system;

credit policies focused on the farm sector; and,

a movement toward democracy, civil development and greater individual freedoms.

Where these conditions (or, at least most of them) exist, private enterprise, and especially agribusiness, can help take the development process to the next level. We become the pathway through which needs can be met -- both within Africa and in the parts of the world that are markets for African products. Agribusiness uses the global market to match the needs of the rest of the world with the capabilities of Africa. When the countries of Africa are meeting needs beyond their borders and are meeting the needs of their people beyond mere survival or subsistence, indigenous wealth is generated.

As economies are strengthened and local and regional prosperity grows, the Africans themselves have increased capacity to purchase. They seek improvements in their diets and in the way they live, creating a market for imported food, clothing and consumer goods. They also become a market for capital goods, technology, and further investment. The African countries can and, if we all contribute to the effort, will become a larger market for those goods reflecting the United States' comparative advantages.

Eventually, these countries will join, in real economic, social and political terms, the international marketplace, realizing food and economic security. Once that position is achieved, internal threats to peace subside and openness to international intercourse increases.

This upward spiral requires each partner in the development process to play its role well. The African governments, the foreign governments (like the United States), the aid community, the multilateral development banks, universities and research organizations and private enterprise -- each must contribute what we are most capable of doing, for the benefit of the people of Africa and the people of the United States.

Again, thank you for the opportunity to speak with you this morning, and I would be pleased to answer any questions.