Book excerpt: ‘Barons: Money, Power, and the Corruption of America’s Food Industry’

Editor’s note: Frerick’s book is being published today by Island Press. Buy it here or at your favorite independent bookseller.

William Wallace Cargill’s first grain elevator was just 17 miles down the road from my ancestors’ farm in Bluffton, Iowa. My grandma’s family immigrated from Ireland around this time to escape the Irish Potato Famine. My ancestors likely farmed a typical mix of animals and grains, including corn and oats. It’s very possible that the grain they grew spent time at this Cargill facility before heading to market.

For decades, Cargill was just one among many successful grain-hauling companies. The family grew its business by building and buying grain elevators across the Midwest. It owned or controlled more than 100 elevators just 20 years after William Wallace Cargill made his first purchase. Although the company took some tentative steps outside this niche, including by purchasing a small seed company in 1907, it remained a regional grain hauler at its core.

Meanwhile, the U.S. Department of Agriculture’s role in its early years was mostly as a distributor of farming information. Its role expanded as a result of World War I. The fighting on French fields, coupled with interruptions in Russian trade routes, left Britain and France heavily dependent on American food imports. Adopting the slogan “Food Will Win the War,” President Woodrow Wilson’s USDA told farmers that increasing production was their patriotic duty. In just five years, farmers plowed eleven million acres for the first time, an area twice the size of New Jersey. Farmers’ incomes more than doubled over the course of the war.

But when the war ended and European farmers returned to their fields, prices plummeted. In the summer of 1920, the price of corn fell by 78%, while the price of cotton and wheat dropped by 57% and 64%, respectively. These low prices were the worst case scenario for many farmers who had borrowed heavily to expand production during the war, and so the entire decade featured a steady wave of bankruptcies and consolidations.

The bleakness for farmers only worsened with the Great Depression and collapsing financial markets. One in every four family farms were sold between 1920 and 1933. My grandma’s family was part of this statistic; they sold their farm and moved into town during this time. It wasn’t until the Dust Bowl crisis became known worldwide that pressure for intervention became impossible to ignore.

For Cargill, however, this period presented an opportunity. During the dozen years between the crash of the U.S. stock market in 1929 and the country’s entry into World War II in 1941, the company transformed “from a medium-sized regional grain company to a large national corporation with many links abroad,” according to the historian who the family hired.

The primary architect of this transformation was John MacMillan Jr., a grandson of William Wallace Cargill. Although John Jr. did not formally become president of the company until 1936, he assumed control long before then because of his father’s poor health. John Jr. espoused a vision of an “endless belt,” which Cargill’s official history described as “control of the movement of grain from the time it left the farmer until it reached the final buyer.” He pushed for the company to control not just the physical handling and storage of grain but also transportation, insurance, and a variety of other key cogs in the grain trade.

The crisis facing the industry gave John Jr. an opening to put this vision into action. With distress spreading throughout agricultural markets, he understood that assets could be purchased “on an astonishingly cheap basis.” Cargill seemingly took advantage of the situation to build, buy, and lease grain terminals in new regions. Because of these efforts, the company more than quadrupled its grain storage capacity in just a decade. Cargill also expanded in new directions. The company entered the shipping business by buying its first boat in 1935. Not long thereafter, Cargill started building its own boats. As the company brags on its website, “Not only had Cargill moved with the flow of grain down the Mississippi, the company had invested in all aspects of transporting grain along the river.” Eventually, the company expanded from rivers to oceans. It even built boats for the United States Navy during World War II.

Cargill’s rapid growth allowed it to consolidate power within the industry, and it began to display a certain ruthlessness in extracting profits. In 1938, the company and three of its officials, including John MacMillan Jr., were expelled from the Chicago Board of Trade after being found guilty of manipulating corn prices.

But the crisis that had fueled Cargill’s growth in the first place also led to new challenges. As part of President Franklin D. Roosevelt’s New Deal, the Agricultural Adjustment Act of 1933 — the first version of what is now known as the Farm Bill — paid farmers to reduce production of the most overproduced commodities. The law was intended to wean farmers off the high demand the war had artificially provided and create a balanced, stable farm economy.

The Roosevelt administration also understood that without government intervention, farmers had an incentive to overplant their land. To prevent further dust bowls, the administration successfully lobbied

Congress to pass the Soil Conservation and Domestic Allotment Act of 1936, which offered money to farmers to reduce acreage and to plant soil-friendly crops that replenished and preserved the soil instead of depleting it.

Cargill and other grain processors hated the Roosevelt administration. To finance the Agricultural Adjustment Act of 1933, the federal government levied a tax on corporations such as Cargill that processed agricultural commodities. The idea of paying taxes for a program that would limit their business was anathema. Cargill MacMillan Sr. — John MacMillan Jr.’s brother — proposed shifting 10% of Cargill’s assets out of the country. John Jr. went even further, arguing that the company would “be well advised to liquidate entirely our business in the United States.”

Luckily for Cargill, the predominantly Republican-appointed United States Supreme Court struck down the Agricultural Adjustment Act of 1933 in United States v. Butler (1936) on the basis that the tax on processors was unconstitutional. In response, Congress passed the Agricultural Adjustment Act of 1938. The law was almost identical to the Agricultural Adjustment Act of 1933, with one key change: The program was financed by the U.S.  Department of the Treasury rather than by a tax on processors. To this day, farm subsidies are paid by all taxpayers’ dollars, not specifically by companies like Cargill.

This cluster of laws shaped farm policy for decades. The programs stabilized prices, saving countless family farms, and became the bedrock of an era of strong government intervention in agriculture. While imperfect, they brought prosperity for many white farmers. But the New Deal Farm Bill had devastating flaws. Black farmers, especially those in the South, did not enjoy the same support. Sharecropping, adopted in the South after the Civil War, replaced slavery as an institution for perpetuating white control. Wealthy landowners who had virtually no connection to the land and rarely farmed relied on the labor of tenant sharecroppers for most of the planting and harvesting. These landowners accrued nearly all the profits while sharecroppers endured perpetual poverty.

Yet for all its flaws, the New Deal Farm Bill accomplished its goal of protecting white farmers, and for a while, it produced a relatively balanced farm economy. For Cargill, the New Deal Farm Bill did not threaten the company’s power or force it to pay a penny to limit overproduction.

But as soon as these policies were put in place, Cargill and its corporate brethren still worked to destroy them. Even without a tax on processors, the New Deal Farm Bill placed a ceiling on the growth of companies such as Cargill that benefited from processing commodities on a large scale. After all, the incentives in the New Deal Farm Bill that limited the production of commodities in turn limited the grain crops that companies like Cargill could store, process, and transport. For decades, their allies slowly took it apart, and 50 years on, they found a way to pass what I call the Wall Street Farm Bill.