Cargill’s New Place in the Food Chain
CEO David MacLennan discusses reshaping the 151-year-old food giant after two years of declining profits
Family-owned and in its 151st year, Cargill now confronts consumers in Western markets who are shying from the mainstream food brands that rely on ingredients that have been the specialty of companies like Cargill. PHOTO: LARRY MACDOUGAL/ASSOCIATED PRESS
WAYZATA, Minn.—The rambling French-style mansion in this wooded Minneapolis suburb is losing its most famous occupants, with Cargill Inc. executives leaving its spiral stairs and crackling fireplaces for more humdrum offices nearby.
Chief Executive David MacLennan and his team will become the first in seven decades to run a company that has long been a dominant global force in processing crops, meat and other commodities from beyond the 85-year-old lakeside office.
The move also reflects broader shifts inside the biggest private company in the U.S. by sales.
Mr. MacLennan, who is 56 years old, is reshaping Cargill following two years of declining profits.
On Thursday the company reported higher quarterly earnings, but he warned that the lean times in agriculture aren’t likely to abate soon as the world remains awash in grain and crop prices stay low.
Still jointly owned by the Cargill and MacMillan families, the 151-year-old company has weathered grain-market booms and busts before. But Mr. MacLennan now has to satisfy consumers in Western markets who are shying from the mainstream food brands that rely on low-cost, commoditized ingredients that have been the specialty of companies like Cargill.
President and CEO of Cargill David MacLennan at a news conference last year. PHOTO: OSWALDO RIVAS/REUTERS
“They want to know what’s in their food, who made it, what kind of company is it, are they ethical, how do they treat animals?” said Mr. MacLennan in his first extensive interview on the changes.
“That’s what North America and Europe and then, I think, increasingly other economies are going to want,” he added.
Founded as an Iowa grain storehouse, Cargill now employs 149,000 people across 70 countries, with operations in nearly every aspect of food production.
Cargill runs barges that haul fertilizer to farmers, buys their crops and processes them into oil for deep fryers, malt for brewers and sweeteners for sodas. It mills feed for animals that it raises and slaughters to supply ground beef and chicken nuggets to customers including Wal-Mart Stores Inc. and McDonald’s Corp.
A global rout in energy, metal and crop prices has deepened challenges in the already volatile business of commodity trading.
In the last fiscal year Cargill generated $120 billion in revenue, down 11% from the previous year as the U.S. dollar’s rise and commodity-market turbulence weighed on sales.
Cargill’s 2015 earnings of $1.58 billion, 41% below their 2011 peak, “did not meet expectations,” executives told shareholders in Cargill’s annual report.
Mr. MacLennan, who cut his teeth running orders among Chicago’s grain futures pits before joining the company’s financial division in 1991, is changing Cargill’s place on the food chain.
Fiscal 2016 will be its biggest year for divestitures in the last decade and at least the second biggest for acquisitions.
After selling its pork plants last year, Cargill placed a long-term bet on farm-raised fish as an alternative protein source that can require fewer resources than hogs and cattle, purchasing Norwegian fish-feed producer EWOS for $1.2 billion.
In the U.S., Cargill has started producing non-GMO corn and soybean products. It is expanding a decade-old business in organic chicken feed, where sales have jumped 50% so far in fiscal 2016.
“They’re looking to fix things that can be fixed and then make a decision about whether or not they still fit within the portfolio,” saidJohn Rogers, an analyst with Moody’s Investors Service Inc. “That’s a business shift as well as a cultural shift, to get people in this mind-set of having to improve year after year.”
To speed decision making, Mr. MacLennan during the last eight months halved Cargill’s senior management team, reorganized business lines and eliminated about half of the company’s corporate committees, cutting red tape that some executives said contributed to declining profits.
For Mr. MacLennan, one part of the revamp means trading private dining rooms for lunchroom lines, as executives move during the coming years to an adjacent office center. He said he gets “a pulse for what’s going on” day-to-day by rubbing elbows with about 2,000 staff there.
Mr. MacLennan, who became CEO in December 2013 and was named chairman in September, also is shepherding change in the boardroom.
As older directors retire, a new generation of the Cargill and MacMillan families is taking seats on Cargill’s board.
The two most recent family additions to the board, Andrew Cargill Liebmann and Richard Cargill, both are in their mid-30s and haven’t worked for the company, Mr. MacLennan said.
Part of the challenge for Cargill is its commitment to remaining family controlled, which requires funding growth through bond sales and its own profits.
The Cargill and MacMillan families own about 90% of Cargill’s shares, and about 80% of profits are reinvested in the company. Family members, none of whom currently work at the company, collect dividends.
Lower profits mean less to reinvest in more lucrative businesses, and maintaining strong credit ratings is necessary to continue financing Cargill’s trading operations, analysts said.
To steep the new generation in their legacy, Mr. MacLennan takes them on trips, touring Cargill’s Midwestern processing plants and chicken farms in China. He answers questions weekly from a small group of relatives, and young family members have taken corporate-governance courses.
“Our role in this transition is preparing the next generation for governance and understanding of the company,” he said.
Though Cargill and MacMillan family members regularly rank on lists of U.S. billionaires, working at the company retains some allure.
This summer one young family member plans to begin working in Cargill’s U.S. turkey operations. “He’s going to start literally at the ground level,” Mr. MacLennan said. “That’s the best way to learn a business.”
