ADM BREAKS RANKS, CUTS DEAL TO EXPORT COOKING OIL

Código Fecha Clasificación Origen
08LAPAZ1006 30 April 2008 Confidencial Embassy La Paz

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C O N F I D E N T I A L SECTION 01 OF 03 LA PAZ 001006

SIPDIS

SIPDIS

E.O. 12958: DECL: 04/29/2018
TAGS: ECON, PGOV, PREL, FAS, AGR, FAO, IFAD, BL
SUBJECT: ADM BREAKS RANKS, CUTS DEAL TO EXPORT COOKING OIL

REF: A. LA PAZ 638
B. LA PAZ 670

Classified By: EcoPol Chief Mike Hammer for reasons 1.4 (b) and (d).


Summary


1. (C) Archer Daniels Midland (ADM) struck a deal with the
government of Bolivia to restart exports of cooking oil. The
American company stands alone among the four principal
cooking oil exporters in its decision to negotiate with the
Morales Administration and accept conditions on exporting.
In line with two new decrees, ADM has agreed to supply the
domestic market with cooking oil within an defined price
margin and accept a government issued certificate allowing
exports for the next 30 days. In the highly charged
political environment of Santa Cruz, the unilateral move
taken by ADM puts the company at risk of retaliatory actions
by regional trade associations and/or the public at large.
ADM may face a hostile operating environment and negative
regional image going forward. While the press has identified
ADM as the only company agreeing to government terms, a
railroad executive reported that another major company has
also begun clandestine exports and all major producers are
readying to begin resumption of exports. (End Summary)


Government Actions and the New Decrees


2. (C) The ban on cooking oil exports took effect March 19
(Reftels) and is primarily political in nature. While the
Morales administration publicly argues that the ban is to
protect Bolivian consumers, Minister of the Presidency
Quintana admitted to British diplomats that the ban was a
political action. Moreover, as the President of the
Association of Seed Oil Producers (ANAPO) Reinaldo Diaz
points out, domestic consumption of cooking oils amounts to
less than one liter a month, hence a 50 cent drop in the
price would do little to reduce the Bolivian family’s grocery
bill (approximately 80 percent of cooking oil is for export).
That said, the ban has resulted in discord among Santa Cruz
productive sector leaders (one of the four main soy producers
is also the outspoken head of the Santa Cruz Civic Committee
Branko Marinkovic. Additionally, the government is using the
ban as a mechanism to introduce more government control and
regulation of the private sector.

3. (C) On April 16 the government issued a decree which
authorizes the Bolivian Institute of Measures and the
Superintendent of Business to regulate market competition and
defend the consumer against any speculation or collusion by
producers. An additional decree on April 18 then legalized
cooking oil exports conditional upon government verification
of adequate domestic price and supply. Taken together these
decrees aim to increase the role of government in market
decisions, hamper the ability of companies to sign long-term
contracts, and decrease market transparency. While ADM has
acquiesced to government requirements, the rest of the Santa
Cruz based cooking oil producers have not. Diaz argues that
the sector has worked hard to establish itself as an
internationally competitive producer that makes market-based
decisions and they will continue to fight against creeping
government control. As of now, ADM stands alone.


ADM Negotiations with the Government


4. (C) For the first three weeks of the export ban, ADM
stood with the regional associations in refusing to negotiate

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with the government. Val Shaffer, Director of ADM Bolivia,
commented that he had given his cell phone to his wife to
avoid the daily telephone calls from the Minister of the
Presidency Quintana. With the passage of time however,
pressure grew to make a deal. After three weeks, ADM storage
facilities were full and the crushing plant was operating on
a reduced schedule. Moreover, corporate ADM offices in Sao
Paulo and Decaetur encouraged ADM Bolivia to make a deal and
Shaffer felt that given the hard-line taken by other Santa
Cruz producers, he would have to make a business decision
alone. On April 18 Minister of Production Hurtado called for
a meeting of all affected producers in La Paz; Shaffer was
the only company executive to attend. At the meeting,
Shaffer sensed that the government was increasingly anxious
to make a deal and yet nothing was settled. Later that
evening though, Shaffer met secretly with Minister of
Agriculture Rivero and an informal agreement was reached. No
documents were signed, but ADM was told it could resume
exports as long as their domestic sale price remained within
a margin determined by the government. Shaffer says that at
this price ADM will break even on domestic sales and make its
profit through exports. The deal was announced the following
week and ADM began exporting on April 23. According to
Shaffer the agreement is for 60 days, but all public
announcements have been for 30 days and government policy is
that export permits will be issued for one month only.

5. (C) Shaffer said that Minister Rivero made two clear
threats during their meetings. First, she said that if
workers at the ADM plant were let go, the government would
nationalize the company. Secondly, and more seriously in
Shaffer’s opinion, Rivero said that the government may impose
export taxes similar to those being levied in Argentina.


Santa Cruz Reactions


6. (C) Following the resumption of ADM exports, Shaffer
reported that company employees were subject to verbal abuse
and threats. Fortunately for ADM, the following day the
government announced that it was freezing the Santa Cruz
budget; the announcement displaced local resident’s anger.
Additionally, on April 24 a national newspaper reported that
the ADM deal was completed in order to protect the status of
ATP-DEA trade preferences for Bolivia. This report resulted
in the Santa Cruz Trade Association (CADEX) taking a softer
line with the company. ANAPO President Diaz says that ADM is
still deeply resented among Santa Cruz producers and
political leaders, but concrete actions against the company
are unlikely in the lead up to the May 4 autonomy referendum.
However, he did not discount the possibility of future
actions against the company such as blocking their trucks
bound for export or protests at the plant. Shaffer currently
has contracted extra guards for ADM facilities and has hired
a personal body guard as well.


More Exports than Meet the Eye


5. (C) On April 28, the General Manager of the American
owned Oriental Railroad Company (EFO) Jaime Valencia told
EconOff that ADM was not the only company shipping cooking
oil to eastern ports on the Paraguay river for export.
Specifically, he said that Gravetal, a Bolivian firm which
operates with Colombian capital, was also exporting oil from
its own facilities. Moreover, Valencia says that all of the
companies are prepared to begin exporting again following the
May 4 referendum. While the companies deny such intentions,
the price of cooking oil internationally has declined close
to within the margins set by the government. While accepting
government certificates to export may be ideologically
objectionable (and harmful to the industry in the long-run),

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it is likely that financial logic will force Santa Cruz
producers to play ball with the national government.
Valencia says that the backlog of exports will take between
2-3 months to export due to a limited number of tanker rail
cars and river barges.


Comment


6. (C) The Morales administration’s actions against the
cooking oil industry reflect its march toward greater
centralized state control over an expanding portion of the
national economy. Bolivian private industry is worried that
despite the clear political motives for going after the Santa
Cruz-based cooking oil sector, the government is determined
to bring an end to a market-based economy.
GOLDBERG