Archer-Daniels-Midland Company

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Archer-Daniels-Midland Company

4666 E. Faries Parkway
P.O. Box 1470
Decatur, Illinois 62526-5666
U.S.A.
(217) 424-5200
Fax: (217) 424-5839

Public Company
Incorporated: 1923
Employees: 14,000
Sales: $11.37 billion
Stock Exchanges: New York Boston NASDAQ Philadelphia
Pacific
SICs: 2075 Soybean Oil Mills; 2076 Vegetable Oil Mills,
Not Elsewhere Classified; 2074 Cottonseed Oil Mills; 279
Edible Fats and Oils, Not Elsewhere Classified; 2046 Wet
Corn Milling; 2041 Flour and Other Grain Mill Products;
2062 Cane Sugar Refining; 2083 Malt; 5153 Grain and
Beans

The Archer-Daniels-Midland Company, a consistently successful firm with a quiet and conservative profile, ranks as America’s largest processor of agricultural commodities, with leading positions in oilseed processing, flour milling, corn refining, and corn wet milling. Other interests in the mid-1990s included granaries, peanut shelling, rice milling, and sugar refining. With 129 plants in the United States and 50 overseas, Archer-Daniels-Midland (ADM), calls itself the “Supermarket to the World.” The company’s attitude is direct and optimistic: “Food is a growth business. Globally there are 85 million more mouths to feed each year; the equivalent of the current population of Mexico, or more than one-third of the U.S. population. ADM plans to participate in this growth.”

Archer-Daniels-Midland has always been clearly focused and has expressed no intentions to diversify outside of food-related businesses. Since its early years, the company’s methods have been consistent—strong research and development which emphasizes new production methods and uses for agricultural products, coupled with a bottom-line mandate for high performance and cost efficiency.

John W. Daniels began crushing flaxseed in Ohio in 1878, and in 1902 he moved to Minneapolis, Minnesota, to organize the Daniels Linseed Company. The entire company consisted of one flax crushing plant which made three products, including raw linseed oil, boiled linseed oil, and linseed cake or meal. In 1903, George A. Archer joined the firm, and in a few years it became the Archer-Daniels Linseed Company. Archer also brought experience to the firm, as his family had been in the business of crushing flaxseed since the 1830s. Archer and Daniels then hired a young bookkeeper by the name of Samuel Mairs. Mairs would later become the company’s chairperson when the business was much larger and significantly more affluent.

These three men had a common goal of “year round production at low margins,” a goal which continued to direct the company in the 1990s. Archer and Daniels used hydraulic presses to process flaxseed, and their linseed oil was essentially the same as that used by the ancient Egyptians. In the early years, profits were low, but Archer-Daniels Linseed never finished a year in debt. They also grew slowly, buying the stock of the Toledo Seed & Oil Company as well as the Dellwood Elevator Company, a grain elevator firm.

In 1923, the company purchased the Midland Linseed Products Company and then incorporated as the Archer-Daniels-Midland Company. The 1920s also brought other significant changes. Archer, Daniels, and Mairs began the scientific exploration of ways to alter the chemical structure of linseed oil. This project initiated the company’s successful research and development program. Research and development allocations were not commonplace for companies at that time, and the market was startled by the company’s slogan: “Creating New Values From America’s Harvests.”

Throughout the 1920s the company made steady purchases of oil processing companies in the midwest. At the same time, it was also engaged in other agricultural activities. It built elevators on Minneapolis loading docks to store grain awaiting shipment down the Mississippi to other ports. Then, in 1930, Archer-Daniels-Midland purchased the Commander-Larabee Company, a major flour miller with plants in Minnesota, Kansas, and Missouri. Commander-Larabee was capable of producing 32,000 barrels per day. The purchase of Commander-Larabee had two additional advantages; it allowed ADM to coordinate its oil by-product business with Commander-Larabee’s feed-stuff by-product business, and the mutual sales effort lowered overhead. During this time, the company also discovered how to extract lecithin from soybean oil, reducing the price of lecithin from ten dollars to one dollar per pound. (Lecithin was widely used as an emulsifier in the food and confectionery industries.) As a result of Archer-Daniels-Midland’s growth maneuvers and research, 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 drying oils in the manufacture of various products, and the three major oils used were linseed, tung, and perilla. These oils added 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. Demand for domestic drying oil was also affected by the availability and price of foreign oils, since most oils were imported from the Far East and South America. Added to these two variables was the quality and size of each year’s harvest. Even during the Depression and coping with all these variations in a struggling economy, the company made a profit. This was because Archer-Daniels-Midland had been working on ways to adapt oils to sell to new markets, including soaps, drugs, brake fluids, lubricants, petroleum, and chemicals.

Since Archer-Daniels-Midland knew the value of its research department, it appropriated 70 percent of its earnings (one to two million dollars annually) back into the business for development and expansion. 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 manufacture of flax papers. World War II made it impossible to increase the company’s facilities as much as it wished; nevertheless, the company’s capacities grew significantly from 1930 to 1945. From a 1929 processing capacity of 20 million bushels of flaxseed per day, the company could 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.

The immediate postwar years from 1946 through 1949 showed dramatic growth; sales increased 287 percent, and net income increased 346 percent. In 1949, sales were $277 million, with a $12 million net profit. Archer-Daniels-Midland was well positioned in several market areas because it supplied basic ingredients to a wide range of industries. The company was the leading U.S. processor of linseed oil, the fourth largest flour miller, and it had become the largest soybean processor. It also served the paint, leather, printing, gasoline, paper, cosmetics, pharmaceuticals, rubber, ceramics, munitions, and insecticides industries.

The conservative management style had consistently safeguarded the company’s success. For instance, whenever possible, Archer-Daniels-Midland hedged its purchases of raw products by sales in the futures markets or by forward sales of the completed products. By the end of fiscal year 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 operating efficiency, using modern, streamlined methods. There had also been a change in the processing level. The company began to put its products through advanced physical processing instead of selling them in a raw or semi-finished state. This increased profit margins. Overall, management estimated that 40 percent of its increase in sales from 1939 to 1949 was due to new products and methods developed within the company.

Because the company supplied core oils used in foundry industries, the 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 increasing its production of protein concentrates, marketing them extensively for stock-feeding purposes.

When company president Thomas L. Daniels (son of the founder) and chairperson Samuel Mairs celebrated Archer-Daniels-Midland’s fiftieth anniversary in 1952, the company was manufacturing over 700 standard products and had 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 in the late 1950s when he said: “ADM looks with particular favor on Western Europe as an area of great chemical producers.... All industry there is expanding rapidly, both for local consumption and for export to other parts of the world.”

Archer-Daniels-Midland had weathered the Depression and World War II, but ran into trouble during the 1960s. Although it made several grain production and storage purchases in the early 1960s, unstable commodities prices and the company’s chemicals operations were causing losses. Net earnings were $75 million in 1963 and then declined 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 of the founders, and Shreve M. Archer, Jr., one of the directors, asked a new man to join their leadership team with the purchase of a block of the Archer family stock. His name was Dwayne O. Andreas, and he effectively took control and revolutionized Archer-Daniels-Midland.

Andreas’ low profile appealed to the company management and so did his background. He came from a long-term farm products background, first with his father, and then on his own. One of the first things Andreas did was eliminate a 27-person public relations department. Eschewing the advice of analysts and often declining to talk to reporters, Andreas was a unique executive. His political views often contradicted those of the business world in general; for example, he advocated increases in the corporate income tax rate.

Andreas believed that one specific product could do a great deal to turn the company around, namely soybeans. Andreas recalled, “I knew that ADM was a dozen years ahead of everyone else in textured vegetable protein 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 textured vegetable protein, a 50 percent protein soy product which was far more economical to produce. His increasing power in the company (by 1968 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 Decatur (Illinois) to make all the grades of edible soy protein in 1969.” He expected to exceed the plant’s capacity by 1976. However, by 1973, with doubled production, the plant was already short of demand. Textured vegetable protein (TVP) 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. Andreas proved expert at maintaining a good profit margin on soybeans too. Two or three cents shaved off costs made large differences in this slender profit margin item. In this area, Andreas’s management rules of efficiency and profitability echoed the founders’ practices.

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

Throughout the 1970s, the company built textured vegetable protein plants in Europe and South America. In addition, Dwayne Andreas brought several other members of his family into Archer-Daniels-Midland as the company expanded. (In fact, a 1988 treatment in Financial World characterized ADM as the Andreas “family dynasty.”) Three Andreas family members became heads of various divisions, although the company continued to retain one Archer and one Daniels in high-ranking positions 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 upward swing in U.S. soybean production and exports from 700 million bushels per day in 1965 to 1.3 billion in 1973.

That growth continued through the 1970s and into the 1980s. During this time, Archer-Daniels-Midland had several major subdivisions, the largest of which was the Oilseed Processing Division. In this division, soy products soon outstripped linseed and all others, earning Andreas the nickname “Soybean King.” The next largest, Corn Sweetners 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 became even larger when ADM absorbed Growmark, a large midwestern grain merchandising and river terminal cooperative. The new wholly-owned subsidiary was called ADM/Growmark.

Another division, the Columbian Peanut Company acquired in 1981, produced oil and peanut products, and Archer-Daniels-Midland was the leading domestic peanut sheller. Gooch Foods, Inc. was the company’s market name for a line of pasta products, which increased in demand since the advent of microwave pasta dishes. Other divisions of Archer-Daniels-Midland included Southern Cotton Oil Company, Fleischmann Malting Company, Inc., American River Transportation Company, Supreme Sugar Company, and the British Arkady Co., Ltd., which was a supplier of specialty products to the bakery industry.

ADM made its first-ever foray into consumer food products with the characteristically low-profile launch of its Harvest Burger brand soy-based meat substitute in the early 1990s. The product’s reduced fat, calories, and cholesterol attracted American consumers, many of whom sought out the product even before it had advertising support. In 1993, the Pillsbury Company assumed responsibility for supermarket retailing of Harvest Burgers. For the hungry of the world, the soy product was an inexpensive source of protein with a longer shelf life than traditional sources like meat and milk. And as CEO Andreas pointed out in a 1993 interview with Direct Marketing magazine, “You can feed 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 animal.” Andreas called the development of the meat-like soy product “the most important food development of this century.”

Feeding the hungry of the world was just one of Andreas’ business/humanitarian interests. The corporate leader also used his influence to promote no-till farming (a method that reduced soil erosion), environmentalism in general, and the use of ethanol as a fuel additive. Of course, ADM had a vital interest in ethanol, which was one of the company’s most important products in the era of the Clean Air Act.

As the twenty-first century approached, ADM faced a momentous change: although the company’s septuagenarian CEO did not appear ready to yield his leadership position, that eventuality loomed large. Upon his retirement, Dwayne Andreas would take with him three decades of personal and political relationships that ranged from presidents to popes. Direction of the company would likely fall to president and second-in-command James R. Randall, or to son and senior vice-president Michael Andreas.

In the early 1990s, ADM’s over $1 billion in capital spending focused on European operations and biochemicals. As trade barriers in Eastern Europe and the Americas fell, and ratification of the General Agreement on Tarriffs and Trade appeared certain, Andreas hoped bring further geographic diversification to ADM. The foray into biochemistry focused on advanced techniques for the creation of evermore efficient animal feeds. These investments echoed ADM’s heritage of endeavoring to be the low-cost, high-tech producer.

Principal Subsidiaries

ADM Milling Co.; ADM Arkady; ADM/Growmark; Tabor Grain Co.; Smoot Grain Co.; Collingwood Grain Co.; Fleischmann-Kurth Malting Co., Inc.; Gooch Foods, Inc.; Supreme Sugar Co., Inc.; Southern Cotton Oil Co.; ADM Investor Services, Inc.; American River Transportation Co.; Hickory Point Bank & Trust; Archer Daniels Midland Shipping Co.; Dominion Malting Ltd.; The British Arkady Co. Ltd.; Agrinational Insurance Co.; ADM FAR East Ltd.; ADM Mexico, Inc.; ADM International Ltd.; ADM Ingredients Ltd.; ADM Europort B.V. (Netherlands); ADM Agri Industries; ADM Australia (Pty) Ltd.