Archer Daniels Midland

ARCHER DANIELS MIDLAND & THE FRIENDLY COMPETITORS

MAGISTER MANAJEMEN UNIVERSITAS GADJAH MADA EKSEKUTIF-23

RISANG CAHYO. G

UKY HAPSARI

YAYAN FADLANZA

BACKGROUND COMPANY

ARCHER DANIELS MIDLAND ▪ Founded in 1902 ▪ Headquartered in Decatur, Illinois, USA

▪ ADM is one of the Largest Agricultural Processors in the world

▪ World’s Largest Corn Processor ▪ Each Day ADM Processes 66,000 MT of Corn

▪ Fortune 28 Company (US) ▪ Fortune 92 Company (Worldwide) ▪ Fortune “Most Admired Food Production Company” (2009,2010, 2011)

PRODUCTS & SERVICES

PREMIER PLAYER IN GLOBAL AGRIBUSINESS Serving Vital needs throughout the world

Key Facts FY 12 Net sales:

$89 Billion

Employees:

30,000+

Facilities:

685+

Net Fixed Assets

~$10Bn

Market cap:

~$18 Billion

(10/26/12)

FY’12 Segment Operating Profit $2.9 Billion Corn Processing Oilseeds Processing

21% 45%

1%

33%

Other

Ag Services

CASE ANALYSIS

IN EARLY 1989, Archer Daniels Midland decided to enter the Lysine Business

Cost on new plant $ 150 million (over 3 years to build)

Mark Whitacre was hired by ADM as a President Of the Lysine division

What is Lysine?? ONE OF THE ESSENTIAL AMINO ACID THEREFORE AN IMPORTANT ADICCTIVE TO ANIMAL FEED BECAUSE IT IS A LIMITING AMINO ACID WHEN OPTIMIZING THE GROWTH OF CERTAIN ANIMALS SUCH AS PIGS AND CHICKENS FOR THE PRODUCTION OF MEAT

LYSINE MARKET  Perfectly homogeneous Product

 Share of global production of 4 largest manufacturers of lysine in early 1990s - 97% in US - 95% world  Purchases of for largest buyer < 30%  Large infrequent purchases

▪ 5 Competitor Firms ▪ Ajinomoto, Kyowa Hakko, Archer-Daniels-Midland, Sewon,

▪ Governing Agencies ▪ FBI, U.S. Department of Justice (DOJ), ▪ European Commission and antitrust authorities of Canada, Mexico, Brazil

TIMELINE 1995 Oct 1993 1993

• Price war

1991-1992 • ADM enters the market 19701980 • Predatory pricing • Ajino period moto • Collusion and begins Kyowa Hakko domin ate

• FBI raid, collusion • Resolution end

THE MARK WHITACRE STORY  Hired to run high tech lysine division -

ADM enters in 1992 with plant equal to 50% world production Price war ensues, below costs of Asian Producers Price Fixing Discussion begin Division was losing $7 million/month Plant was not working properly Mark was embezzling

 Sabotage story - Mark claims that plant has been sabotage and he is being blackmailed for $10 million - FBI investigates

 The Plot Thickens - FBI finds no evidence of sabotage, but investigates - Whitacre’s wife threatens to expose price fixing to FBI - Whitacre tells FBI about price fixing

 Mark goes undercover for Almost 3 years with tapes and videos - Mark arranges meetings and video tapes everything

 Mark’s division starts making U$ 7 million/month  Mark is star informant - Is amazing manipulator, always gets the things on tape the FBI wants

 Marks starts “losing” it  -

Marks admits to Embezzling $500,000 Later revealed he took $9 million Violates his immunity deal Makes him liable for price-fixing

 Marks is prosecuted - His own tapes used to prosecute him - Fires his lawyer for trying to bargain 3 years prison

VIDEO EVIDANCE   

Video Cartel Meeting in Atlanta, Georgia --The Lysine Cartel Members show disdain for customer and antitrust enforcement Telephone call from ADM Headquarter --Foreign co-conspirator expresses reluctance to meet in the US Video Fixing Price in Hawaii -- Sitting in Hawaii decided that the truckload price US & Canada would be $ 1.16 --Later in the meeting, they did the same thong for other countries

 

Video Worldwide Volume Allocation Agreement --They determined how much each producer had sold in the prior year Video Compensation Scheme -- Any firm that sold that is allocated, they were under budget by purchasing that quantity of lysine

from any under budget firms

VIDEO

LYSIN’S CARTEL     

Fix Price Allocate market shares Fix volume quotas Compensation Scheme Engage in meetings and Conversations to monitor quotas  Results : Lysin price increase by 70% with 3 months of reaching agreement

TOKOH YANG TERLIBAT DALAM KASUS

Mark E. Whitacre president of ADM's BioProducts Division.

Kazutoshi Yamada managing director of Ajinomoto Co. Inc.

Michael D. Andreas executive vice president of ADM Terrance S. Wilson vice president and president of ADM's Corn Processing Division.

PRICE TREND LYSINE

PERGERAKAN HARGA LYSINE (1992-1995) ▪ Kenaikan harga lysine terjadi pada ▪ Tahun 1992 (September-Desember) ▪ Tahun 1993 (Juli-Desember) ▪ Sepanjang tahun 1994

▪ Empat bulan awal tahun 1995

LYSINE MARKET PRICE Table 1 : Average Selling Prices for Lysine (per Pound), 1990-1994 Month

1990

1991

Januari February March April May June July August September October November December

$ $ $ $ $ $ $ $ $ $ $ $

1.32 1.19 1.15 1.08 1.01 0.99 0.99 1.00 1.06 1.15 1.24 1.23

$ $ $ $ $ $ $ $ $ $ $ $

Simple Average

$

1.12 $

1.19 1.17 1.13 1.09 1.04 1.03 1.01 1.08 1.11 1.12 1.07 0.97

1992 $ $ $ $ $ $ $ $ $ $ $ $

1.08 $

0.91 0.84 0.82 0.80 0.78 0.69 0.64 0.70 0.82 0.92 0.98 0.98

1993 $ $ $ $ $ $ $ $ $ $ $ $

0.82 $

0.98 0.94 0.89 0.78 0.66 0.62 0.76 0.88 0.98 1.08 1.10 1.13

1994 $ $ $ $ $ $ $ $ $ $ $ $

1.12 1.11 1.11 1.11 1.11 1.11 1.09 1.11 1.16 1.20 1.22 1.22

0.90 $

1.14

Source : In re : Amino Acid Lysine Antitrust Litigation, Exhibit C to Plaintiff's Interim Report No. 1, April 29, 1996

ANTITRUST ▪ Antirust adalah Hukum atau Undang-Undang persaingan, merupakan peraturan melawan kebiasaan dagang yang merendahkan persaingan atau dianggap tidak adil

▪ Archer Daniels Midland Sherman Antitrust Act (15.U.S.C § 1)

ANTITRUST OUTCOMES 

Corporate Fines & Penalties

- Asian firms fines $ 21.25 million - ADM fined $70 million - Sued in other countries

 Individual fines & Penalties -

Andreas and Wilson get 2 years prisoned & 350 K fines

-

Whitacre gets 9 years for embezzlement and 30 months for fix pricing

-

Mimoto (Ajinomoto) , Yamamoto (Kyowa). and Kim (Sewon) plead guilty and heavy fines

-

Yamada indicted and remains international fujitive

OLIGOPOLY MARKET

JAWABAN PERTANYAAN

2. FAKTOR PENYEBAB TERJADINYA PRICE FIXING 1. Pressure  Mark Whitrace mendapat tekanan akibat dari ADM kehilangan $ 7 juta dollar per bulan dari bisnis Lysine tersebut.  Kapasitas produksi ADM yaitu sebesar 250 juta ton Lysine per tahun atau hampir setengah dari seluruh permintaan didunia.

 ADM memproduksi dalam jumlah yang sangat banyak di pasar, hal ini mengakibatkan harga Lysine jatuh

2. Anti Competitive behaviour among Companies  Anti Competitive Behavior diantara produsen untuk mengurangi persaingan diantara produsen

 ADM, Ajinomoto, Kyowa Hakko dan Sewon memiliki yang sangat besar di pasar

market share

 Hal ini menyebabkan perusahaan-perusahaan tersebut menyetujui untuk menjual lysine dengan harga yang sama, yang tidak merugikan satu dengan yang lain

3. Opportunities  Mark Whitrace bersama Terry Wilson bersama sama mengatur meeting untuk memecahkan masalah price war.  Semua perusahaaan yang datang menyetujui untuk memformulasikan win win solution.  Perusahaan kompetiror menyetujui untuk mengatur harga (Fixed Pricing)  Jumlah Produksi yang tidak terkendali akibatnya harga jatuh lagi  Pengaturan jumlah kapasitas produksi guna menstabilkan harga lysine di pasar

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