Fuel or food, a debate set to rumble on

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When Cargill’s chief executive designate was asked last week at an agriculture conference what he tells customers when they complain about higher food and feed prices because of ethanol demand, Gregory Page replied: “I just blame Pat.”

The 1,800 people in the audience laughed, but there was a hint of truth in his remark. Mr Page, who takes over the Cargill helm in June, was referring to Patricia Woertz, president and chief executive officer at Archer Daniels Midland, Cargill’s main rival, and a key proponent of the boom in US ethanol output.

ADM recruited Ms Woertz from Chevron-Texaco where she headed the energy group’s downstream business. Ms Woertz has steered ADM’s efforts to expand the global footprint of an energy unit, which accounts for more than a third of earnings. ADM has spent $2.5bn on its biofuels business.

In contrast, Cargill, the world’s largest agribusinesses, has taken a more cautious approach to biofuels than ADM.

Mr Page insists Cargill’s preference remains for food over fuel. Last summer, when ethanol prices reached record highs of more than $5 a gallon, creating significant profits for producers, Cargill switched its production facilities – capable of producing both ethanol as well as food and drink products – to making high fructose corn syrup for soft drink producers.

Mr Page, who has been with Cargill for 33 years, said the decision was more about reputation and commitment to the food industry. “We had a hot summer, people were thirsty and soft drink sales were going through the roof. We wanted to help customers meet that demand. Can you imagine if we didn’t [make the syrup] and if some places were to run out of soft drinks because we were making ethanol? I don’t think it would have done us any favours,” says Mr Page.

The food versus fuel issue will be debated by Congress this week.

Cargill cautioned the agricultural sector from becoming too focused on biofuels – a phenomenon with big support from President George W. Bush as part of his strategy for energy independence – as it will have unintended consequences on food prices.

Moreover, Mr Page was sceptical about the president’s goal of producing 35bn gallons of ethanol and other alternative fuels by 2017, up from 7.5bn in 2012.

Mr Page, who started as a trainee with Cargill in 1974, said reaching the White House’s goal was dependent on cellulose ethanol technologies, which were far from becoming commercial.

“We have to be careful not to place too much weight on cellulosic technology,” Mr Page told the US Department of Agriculture annual outlook conference last week.

Despite Cargill’s scepticism about long-term prospects for biofuels, Cargill is a considerable player in the ethanol business. It has invested almost $1bn on ethanol plants in the US, Europe and Brazil.

“We make a lot of ethanol, but we are primarily focused on food,” says Mr Page, who has been Cargill’s chief operating officer since 2000 and a close associate of Warren Staley, the company’s outgoing chief executive, who reaches the mandatory retirement age this year.

Nevertheless, the emergence of biofuels and the impact of climate change have had a big impact on the way Cargill does business. Last October, the group updated its long-term strategic review; the current one, known as Strategic Intent, carries through until 2010.

Mr Page said Cargill’s five core business units, agricultural services, food ingredients, industrial, processing and risk management will no longer be run separately. Under Mr Staley, Cargill moved from being a trader and seller of commodities to a processor of products and services to the farming, food and industrial sectors.

“We are getting rid of the silos. We have to think across the business instead of each business focused on its own area,” said Mr Page.

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