Archer Daniels Midland Company Business Information, Profile, and History

Company Perspectives:

Because everything ADM does begins with agriculture, our partnership with the farming community is vital. Farmers are essential to the ove rall economy, and that's why we work to be essential to them--creatin g thousands of products from their crops, hundreds of markets for the ir crops.

History of Archer Daniels Midland Company

Archer Daniels Midland Company (ADM) is one of the world's leading pr ocessors and distributors of agricultural products for food and anima l feed, with additional operations in transportation and storage of s uch products. Its principal operations process soybeans, corn, and wh eat, the three largest crops in the United States. ADM also processes cocoa beans, milo, oats, barley, and peanuts. The company's feed pro ducts are sold to farmers, feed dealers, and livestock producers, whi le its food products are sold to food and beverage manufacturers. Amo ng ADM's better-known products are NutriSoy, a soy protein; Novasoy I soflavones, an ingredient used in dietary supplements; xanthan gum, a thickening agent used in food products such as salad dressings; citr ic acid and lactic acid, both used as food additives in food and beve rage products to increase their acidity; natural vitamin E; and ethan ol, an additive made from corn that is added to gasoline to improve t he fuel efficiency of vehicles. AMD operates more than 250 processing plants throughout the world.

Early History

John W. Daniels began crushing flaxseed to make linseed oil in Ohio i n 1878, and in 1902 he moved to Minneapolis, Minnesota, to organize t he Daniels Linseed Company. The company consisted of a flax crushing plant that made three products: raw linseed oil, boiled linseed oil, and linseed cake or meal. In 1903 George A. Archer joined the firm, a nd in a few years it became the Archer-Daniels Linseed Company. Arche r also brought experience to the firm, as his family had been in the business of crushing flaxseed since the 1830s. Archer and Daniels the n hired a young bookkeeper by the name of Samuel Mairs, who eventuall y became the company's chairperson.

These three men had a common goal of "year-round production at low ma rgins," a goal that continued to direct the company into the 21st cen tury. Archer and Daniels used hydraulic presses to process flaxseed, and their linseed oil was essentially the same as that used by the an cient Egyptians. In the early years, profits were low, but Archer-Dan iels Linseed never finished a year in debt. They also grew slowly, bu ying the stock of the Toledo Seed & Oil Company as well as the De llwood Elevator Company, a grain elevator firm.

In 1923 the company purchased the Midland Linseed Products Company an d then incorporated as the Archer Daniels Midland Company. The 1920s also brought other significant changes. Archer, Daniels, and Mairs be gan the scientific exploration of methods to alter the chemical struc ture of linseed oil. This project initiated the company's successful research and development program. Research and development allocation s were not commonplace for companies at that time, and the market too k note of the company's slogan: "Creating New Values from America's H arvests."

Throughout the 1920s the company made steady purchases of oil process ing companies in the Midwest while engaging in other agricultural act ivities. It built elevators on Minneapolis loading docks to store gra in awaiting shipment down the Mississippi to other ports. Then, in 19 30, Archer Daniels Midland purchased the Commander-Larabee Company, a major flour miller with plants in Minnesota, Kansas, and Missouri. C ommander-Larabee was capable of producing 32,000 barrels per day. The purchase of Commander-Larabee had two additional advantages: it allo wed ADM to coordinate its oil byproduct business with Commander-Larab ee's feedstuff byproduct business, and the mutual sales effort lowere d overhead. During this time, the company also discovered how to extr act lecithin from soybean oil, reducing the price of lecithin from te n dollars to one dollar per pound. (Lecithin was widely used as an em ulsifier in the food and confectionery industries.) As a result of Ar cher Daniels Midland's growth strategies and research activities, the company had $22.5 million in assets by 1938.

As a linseed oil manufacturer, Archer Daniels Midland interacted with more than just the food market. The paint product industry used dryi ng oils, namely, linseed, tung, and perilla, in the manufacture of va rious products to add critical gloss and hardness properties to paint finishes. The demand for drying oil in the paint industry fluctuated widely because it depended heavily on construction, as well as on th e availability and price of imported oils, since most oils were impor ted from the Far East and South America. Sales and profits also fluct uated due to the quality and size of each year's harvest. Despite the se challenges and the onset of the Great Depression, the company cont inued to turn a profit, in part because Archer Daniels Midland had be en working to adapt oils to new markets, including soaps, drugs, brak e fluids, lubricants, petroleum, and chemicals.

Since Archer Daniels Midland knew the value of its research departmen t, it appropriated 70 percent of its earnings ($1million to $ 2 million annually) back into the business for development and expans ion. One result was a process whereby the usable fibers (the tow) of flax straw (a waste product up to then) could be used in the manufact ure of flax papers. World War II made it impossible for the company t o increase its facilities as much as it wished; nevertheless, ADM's c apacities grew significantly from 1930 to 1945. From a 1929 processin g capacity of 20 million bushels of flaxseed per day, the company cou ld process 36.6 million bushels per day by 1945. Wheat flour capacity went from zero to 30 million bushels per day. Grain storage capacity increased from 7.5 million to 50.4 million bushels per day.

Postwar Growth

The immediate postwar years from 1946 through 1949 showed dramatic gr owth: sales increased 287 percent, and net income increased 346 perce nt. In 1949 sales were $277 million, with a $12 million net p rofit. Archer Daniels Midland was well positioned in several market a reas because it supplied basic ingredients to a wide range of industr ies. The company was the leading U.S. processor of linseed oil, the f ourth largest flour miller, and the largest soybean processor. It als o served the paint, leather, printing, gasoline, paper, cosmetics, ph armaceuticals, rubber, ceramics, munitions, and insecticides industri es.

A conservative management style had consistently safeguarded the comp any's success. For instance, whenever possible, Archer Daniels Midlan d hedged its purchases of raw products by sales in the futures market s or by forward sales of the completed products. By the end of fiscal 1949, the company had no bank debt, and it had paid a dividend every year from 1927 onward. All plants were kept at a high state of opera ting efficiency, using modern, streamlined methods. There had also be en a change in the processing level. The company began to put its pro ducts through advanced physical processing instead of selling them in a raw or semi-finished state, thereby increasing profit margins. Ove rall, management estimated that 40 percent of its increase in sales f rom 1939 to 1949 was due to new products and methods.

Because the company supplied core oils used in foundry industries, th e outbreak of the Korean War increased demands on production through the early 1950s. The company was also increasing its outlay for whale oil procurement, which it had begun in the 1930s, and began increasi ng its production of protein concentrates, marketing them extensively for stock-feeding purposes.

When President Thomas L. Daniels (son of the founder) and Chairperson Samuel Mairs celebrated Archer Daniels Midland's 50th anniversary in 1952, the company was manufacturing over 700 standard products and h ad extended its operations overseas. More foreign expansion followed in Peru, Mexico, The Netherlands, and Belgium. In these ventures, the company specialized in partnerships with local interests. President Daniels expressed the company's attitude toward foreign involvement i n the late 1950s when he said: "ADM looks with particular favor on We stern Europe as an area of great chemical producers. ... All industry there is expanding rapidly, both for local consumption and for expor t to other parts of the world."

Archer Daniels Midland had weathered the Great Depression and World W ar II, but ran into trouble during the 1960s. Although it made severa l grain production and storage purchases in the early 1960s, unstable commodities prices and the company's chemicals operations were causi ng losses. Net earnings were $75 million in 1963 and then decline d to about $60 million in 1964, dropping even further to $50 million the following year. By 1965, the company could not cover its dividend. At this time, John Daniels, president and grandson of one o f the founders, and Shreve M. Archer, Jr., a company director, recrui ted Dwayne O. Andreas to the leadership team. Andreas gradually took control of the company, gaining seats on the board and the executive committee in 1966, rising to CEO in 1970, and becoming chairman in 19 72. Andreas revolutionized Archer Daniels Midland.

Mid-1960s Through 1980s: Andreas the "Soybean King"

Andreas's low profile appealed to the company management, as did his background in the production of farm products. One of the first thing s Andreas did was eliminate a 27-person public relations department. Eschewing the advice of analysts and often declining to talk to repor ters, Andreas was a unique executive. His political views were often in opposition to those of the larger business community; for example, he advocated increases in the corporate income tax rate.

Andreas believed that one specific product, soybeans, could do a grea t deal to turn the company around. Andreas recalled, "I knew that ADM was a dozen years ahead of everyone else in textured vegetable prote in research, and I believed that was where important action was going to be." Whereas scientists advocated an almost pure protein product derived from the soybean, Andreas encouraged the development of textu red vegetable protein, a 50 percent protein soy product that was far more economical to produce. His increasing power in the company (by 1 968 he was chair of the executive committee) made his plans a reality . Andreas described his actions thus: "One of the first things I did was to take the edible soy out of the lab and construct a plant in De catur (Illinois) to make all the grades of edible soy protein in 1969 ." He expected to exceed the plant's capacity by 1976. However, by 19 73, with doubled production, the plant was already short of demand. T extured vegetable protein was widely used in foodstuffs, and soybean oil later became the number one food and cooking oil in use.

The company also sold its troublesome chemical properties to Ashland Oil & Refining Company for $35 million in 1967. That year, it acquired the Fleischmann Malting Company, which would become a very profitable producer of malts for the food and beverage industry. Andr eas proved expert at maintaining a good profit margin on soybeans, to o. Two or three cents shaved off costs made large differences on this item, which carried slender profit margins. Andreas's management rul es of efficiency and profitability echoed the founders' practices.

With unprofitable operations sold, profitable ones newly acquired, an d the increasing success of the soybean, the company entered another major area of operations. In 1971 it purchased Corn Sweeteners, Inc., producer of high-fructose syrups, glutens, oil, and caramel color. C orn Sweeteners brought good returns for Archer Daniels Midland and in creased the company's finished-food capabilities.

Throughout the 1970s, the company built textured vegetable protein pl ants in Europe and South America. In addition, Dwayne Andreas brought several other members of his family into Archer Daniels Midland as t he company expanded. (In fact, a 1988 treatment in Financial World characterized ADM as the Andreas "family dynasty.") Three Andrea s family members became heads of various divisions, although the comp any continued to retain one Archer and one Daniels in high-ranking po sitions into the 1990s.

From the net low of $50 million in earnings in 1965, net earnings were near $117 million in 1973. This increase paralleled the upw ard swing in U.S. soybean production and exports from 700 million bus hels per day in 1965 to 1.3 billion in 1973.

That growth continued through the 1970s and into the 1980s. During th is time, Archer Daniels Midland had several major subdivisions, the l argest of which was the Oilseed Processing Division. In this division , soy products soon outstripped linseed and all others, earning Andre as the nickname "Soybean King." The next largest, the Corn Sweeteners Division, produced ethanol in addition to high-fructose products. In fact, the Decatur, Illinois, plant was the single largest source of ethanol in the United States. Archer Daniels Midland Milling Company processed the company's grains, and in 1986 the milling division beca me even larger when ADM entered into a grain marketing joint venture with Growmark Inc., a large Midwestern grain merchandising and river terminal cooperative. The venture was called ADM/Growmark.

Another division, the Columbian Peanut Company, acquired in 1981, pro duced oil and peanut products, and Archer Daniels Midland was the lea ding domestic peanut sheller. Gooch Foods, Inc., was the company's ma rket name for a line of pasta products, which increased in demand aft er the advent of microwave pasta dishes. Other divisions of Archer Da niels Midland included Southern Cotton Oil Company, Fleischmann Malti ng Company, Inc., American River Transportation Company, Supreme Suga r Company, and the British Arkady Co., Ltd., which was a supplier of specialty products to the bakery industry.

1990s and Beyond

ADM made its first ever foray into consumer food products with the ch aracteristically low-profile launch of its Harvest Burger brand soy-b ased meat substitute in the early 1990s. The product's reduced fat, c alories, and cholesterol attracted American consumers, many of whom s ought out the product even before it had advertising support. In 1993 the Pillsbury Company assumed responsibility for supermarket retaili ng of Harvest Burgers. For the hungry of the world, the soy product w as an inexpensive source of protein with a longer shelf life than tra ditional sources such as meat and milk. As CEO Andreas pointed out in a 1993 interview with Direct Marketing magazine, "You can fee d 20 times as many people off of an acre of land by raising soy alone , than growing soy and feeding it to an animal and then eating that a nimal." Andreas called the development of the meatlike soy product "t he most important food development of this century."

During the second half of the 1990s, ADM experienced significant grow th, with revenues increasing from $12.56 billion to $16.11 bi llion from 1995 to 1998 before falling to $14.28 billion in 1999. Net earnings declined throughout this period, however, falling from the record level of $795.9 million in 1995 to $266 million in 1999. ADM blamed the declining results of the late 1990s largely on two coinciding phenomena: the Asian economic crisis, which later spre ad to Russia and Latin America, and record crop harvests. The economi c downturn significantly dampened demand for protein and vegetable oi ls in the affected areas, while at the same time prices for farm comm odities fell to their lowest levels in more than a decade.

The squeeze on profit margins led to increasing competition and conso lidation in the food industry. Archer Daniels Midland was heavily inv olved in this consolidation and spent about $4.6 billion in the s econd half of the 1990s building new plants, expanding existing ones, and making numerous acquisitions. In mid-1997 ADM paid $470 mill ion for the cocoa business of W.R. Grace & Co., thereby entering the chocolate and cocoa industry. The company quickly added six addit ional cocoa-processing plants purchased from E D & F Main Group P LC for $223 million. ADM organized these operations as its ADM Co coa Division, which by the end of the 1990s was grinding 450,000 metr ic tons of cocoa beans per year, about 20 percent of the world crop. Also in 1997 the company acquired Quincy, Illinois-based soybean proc essor Moorman Manufacturing Co. for $296 million; purchased a 42 percent stake in United Grain Growers of Canada, a firm involved in g rain merchandising and other agricultural activities; acquired a 30 p ercent stake in Minnesota Corn Processors, operator of wet corn milli ng plants in Minnesota and Nebraska; and spent $258 million for a 22 percent interest in Mexico-based Gruma S.A. de C.V., the world's largest producer and marketer of corn flour and tortillas. During thi s period ADM also formed a number of joint ventures, including Intern ational Malting Company, 40 percent owned by ADM and 60 percent by th e LeSaffre Company, which operated barley malting plants in the Unite d States, Australia, Canada, and France; ADM-Riceland Partnership, a 50-50 venture with Riceland Foods Inc., which processed rice and rice products; and a joint venture with Gruma, 40 percent owned by ADM, t hat operated seven wheat flour mills in Mexico. The most significant divestments during the later 1990s were those of Supreme Sugar and Br itish Arkady.

Many of these deals occurred after G. Allen Andreas, nephew of Dwayne Andreas, was named CEO in April 1997. Allen Andreas's path to the to p was cleared following the downfall of Michael D. Andreas, Dwayne's son and heir-apparent, in a highly publicized price-fixing scheme. Th e scheme first came to light in 1995 when Mark E. Whitacre, a whistle blower for the FBI, was fired by ADM from his position as head of its BioProducts division for allegedly embezzling millions of dollars fr om the company. Whitacre had been secretly acting as an informant to the FBI, providing the bureau with documentation, including audio- an d videotapes, of alleged price-fixing schemes involving three product s derived from corn: lysine, high-fructose corn syrup, and citric aci d. At the center of the collusion were two top ADM executives: Vice-C hairman Michael Andreas and Terrance S. Wilson, head of the company's Corn Processing division. In late 1996, following guilty pleas by it s partners in price fixing (including Ajinomoto Co. and Kyowa Hakko K ogyo, both of Japan), Archer Daniels Midland pleaded guilty to two co unts of fixing prices for lysine, a hot-selling livestock feed additi ve, and for citric acid, and agreed to pay $100 million in fines, by far the largest criminal antitrust settlement in history. By late 1998 the company had paid nearly another $100 million to settle lawsuits brought by customers and investors. Whitacre in 1998 was sen tenced to nine years in prison for swindling $9.5 million from AD M; the following year he was sentenced to an additional 20 months for his role in price-fixing at ADM (he had originally been given immuni ty in the price-fixing case but it was stripped after prosecutors lea rned of the embezzlement). Wilson retired from ADM in 1996 and Michae l Andreas went on an indefinite leave of absence. They both were conv icted by a federal jury of price fixing in 1998, and began serving tw o-year sentences in October 1999. In addition, they were each fined & #36;350,000.

ADM's legal difficulties were far from over. The company faced a numb er of class-action civil antitrust lawsuits, the largest of which inv olved purchasers of high-fructose corn syrup--including beverage gian ts PepsiCo, Inc., and the Coca-Cola Company. The federal government h ad not pursued the corn-syrup case because, according to federal pros ecutor Scott Lassar, "Whitacre wasn't involved in corn syrup; there w asn't anything on tape regarding it," as quoted in the June 19, 2004 edition of the Chicago Tribune. PepsiCo, Coca-Cola, and other corn-syrup customers filed their own lawsuit against ADM, extending t he company's legal difficulties into the 21st century.

A New Image for the 21st Century

With another lawsuit looming, ADM executives decided it was time to i mprove the company's tarnished image. In 2001, the company began reca sting its image, abandoning its slogan, "Supermarket to the World," w hich was introduced during the 1970s, and replacing its logo, a symbo l of a chemical molecule, first used in 1962. The company adopted the new tagline, "The Nature of What's to Come," and a logo of a green l eaf inside a blue diamond, part of a new promotional campaign designe d to shift attention from the company's bulk commodity business to a range of nutritional products, such as vegetarian burgers and soy mil k, and alternative fuels, including ethanol and biodiesel. Toward thi s end, the company collaborated with Japan-based Kao Corp. in 2001 to produce a weight-control cooking oil. In early 2003, the oil, market ed as Enova, was introduced in Atlanta and Chicago, the first step of national rollout slated for early 2004. In another example of the "n ew" ADM and its emphasis on developing new products from natural, ren ewable resources, the company signed an agreement with Volkswagen AG in early 2004 to produce biodiesel, a combination of vegetable oil an d diesel fuel. The partnership represented the first agreement betwee n a major automaker and a major agricultural company in the renewable energy field. In 2005, ADM announced plans to build its first wholly owned biodiesel production facility, a plant expected to be construc ted in Velva, North Dakota. The company also strengthened its traditi onal, bulk commodity business during the first half of the decade, wh ich continued to serve as its mainstay business despite the efforts t o promote ADM as more than the "Supermarket to the World." In 2000, t he company began constructing five new crushing plants in China. In 2 001, a Turkish vegetable oil producer, Doysan Yag Sanayii, was acquir ed, giving ADM a crushing plant, refinery, and packaging operations, as well as Bolivian vegetable oil producer Sociedad Aceitera del Orie nte, S.A. In 2002, the company acquired Minnesota Corn Processors, LL C, a deal that gave the company corn wet-milling plants in Marshall, Minnesota, and Columbus, Nebraska.

ADM's legal difficulties reached what company executives hoped was a conclusion in mid-2004. The fructose lawsuit filed by the private sec tor was settled for $400 million, an amount the company chose to pay instead of a possible $4.8 billion it would be forced to pay if the plaintiffs prevailed in court. "This essentially settles all t he open cases with the potential to be material for us," an AMD spoke sperson said in a June 19, 2004 interview with the Chicago Tribune . "This was the big one." The settlement payment led to a $10 3 million loss for the fourth quarter of 2004, but once the one-time expense was incurred ADM demonstrated encouraging financial health. T he fourth quarter of 2005 produced $195 million in net earnings, helping the company to surpass $1 billion in net income for the y ear, a record high. Looking ahead, with its legal problems behind it, the company promised to figure as one of the world's largest agricul tural concerns for years to come, as it sought to develop and to deli ver "The Nature of What's to Come" to markets throughout the world.

Principal Subsidiaries: ADM Agri-Industries Company (Canada); ADM Europe BV (The Netherlands); ADM Canadian Holdings BV (The Nether lands); ADM Worldwide Holdings LP (Cayman Islands); ADM International Ltd. (U.K.); ADM Ireland Holdings Ltd.; ADM Ringsaskiddy Unlimited L iability Co. (Ireland); ADM German Holdings BV (The Netherlands); ADM European Management Holding GmbH & Co. (Germany); Hickory Point Bank & Trust; ADM Investor Services, Inc.; Archer Financial Servi ces; ADM Investor Services International Limited.

Principal Competitors: Ag Processing Inc; Agribrands Internati onal, Inc.; Ajinomoto Co., Inc.; The Andersons, Inc.; Bartlett and Co mpany; Bunge Limited; Cargill, Incorporated; Cenex Harvest States Coo peratives; ConAgra, Inc.; ContiGroup Companies, Inc.; Corn Products I nternational, Inc.; Eridania Beghin-Say; Farmland Industries, Inc.; G ROWMARK Inc.; Pioneer Hi-Bred International, Inc.; Riceland Foods, In c.; The Scoular Company; Southern States Cooperative, Incorporated; T ate & Lyle PLC; Universal Corporation.

Chronology

• Key Dates:
• 1878: John W. Daniels begins crushing flaxseed to make linseed oil in Ohio.
• 1902: Daniels moves to Minneapolis to organize the Daniels Lin seed Company.
• 1903: George A. Archer joins the firm, which is renamed the Ar cher-Daniels Linseed Company within a few years.
• 1923: Company purchases the Midland Linseed Products Company, then incorporates as the Archer Daniels Midland Company.
• 1930: Commander-Larabee Company, a major flour miller, is acqu ired.
• 1966: Dwayne O. Andreas purchases a block of stock, gaining se ats on the company board and the executive committee.
• 1970: Andreas is named CEO.
• 1971: Company purchases Corn Sweeteners, Inc., producer of hig h-fructose syrups, glutens, oil, and caramel color.
• 1972: Andreas is elected chairman.
• 1981: The Columbian Peanut Company is acquired.
• 1986: Company forms grain marketing joint venture with Growmar k.
• 1996: Company pleads guilty to two counts of fixing prices of lysine and citric acid and pays $100 million in criminal fines.
• 1997: Company acquires W.R. Grace's cocoa business, marking it s entry into that sector; G. Allen Andreas is named CEO.
• 1998: Three former company executives, including Michael D. An dreas, are convicted by a federal jury of price fixing.
• 1999: Dwayne Andreas retires as chairman; CEO Allen Andreas is named to the additional post of chairman; Michael Andreas begins ser ving two-year prison sentence.
• 2004: Company pays $400 million to resolve allegations it had colluded in fixing prices for high-fructose corn syrup.
• 2005: Net earnings eclipse $1 billion for the first time.