Cargill Inc: Disruption to Immigration and Trade Policy Changes

Categories: Case Study Organizational Structure

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Cargill is America’s largest private company and developing a reputation they have enhanced through 152 years of presence as a middleman to the world. It’s important to note that Cargill is a company usually associated with “big boots rather than waders,” as noted in The Economist. Attaining the title of America’s largest private company has provided a very strong competitive advantage in the Agriculture Industry. Their supply chain embraces a path directly from the farmers with procurement of human and animal food the world over.

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The agriculture industry is directly affected by immigration, with human resources equating somewhere between 1.5 – 2 million. In addition, Cargill Inc.’s, role on the international platform is a key factor to its growth and revenue. Their supply chain has been a key factor to its ability to control much of the agriculture market. Recent United States policy changes in both Immigration and Trade have created a disruption in the operations of Cargill Inc.

Middlemen like Cargill found themselves having to adapt to a disruptive change that threatened their opportunities.

Their competitive advantage was at risk, the changes compromised their existing Supply chain. More importantly, they found that they were no longer able to control prices with farmers, who suddenly found themselves in a unique situation where they could renegotiate new terms for sales. This transpired because the agricultural industry has found refuge from the immigration policy changes in consolidation. This led to the ability to achieve more favorable prices, even if it meant dealing directly with manufactures.

Cargill Inc: Disruption to Immigration and Trade Policy Changes

Company background and documentation of its operations:

Cargill the largest private company in the United States provides “food, agriculture, financial and industrial products and services to the world.” The organizational structure utilizes sub-division within its business divisions to develop a more robust supply chain strategy, with agricultural trading & processing, food ingredients & products, meat, poultry & eggs, farmer services, animal feed & nutrition, energy & industrial, and financial services. According to Cargills Financial Reporting Segments they consolidate earnings based specifically in four business segments: Animal Nutrition & Protein, Food Ingredients and Applications, Origination and Processing and Industrial & Financial Services.

Their international occurrence is reflected by its 155,000 collection of human resources with a presence in 70 countries. Much of the agriculture supply has come from domestic sources and it is this link of the supply chain where we find labor costs almost half of the variable production costs for fresh fruit and 38% of variable costs for vegetables. According to the US Department of Labor, agricultural workers in 2016 numbered 856,300. The potential of a disruption to such a valued aspect of Cargills production is realized when we see that 50-70% of the farm laborers in the United States work without authorization. Recent policy changes to the U.S. immigration and trade policies has compromised the agricultural industry in its ability to remain productive as well as profitable.

Cargills worldwide revenue distribution is diverse, unfortunately, recent trade policies have had a disruptive effect on Cargills production opportunities because of their diverse worldwide revenue distribution. Cargill Inc. currently has a portfolio that shows international revenue sources as follows: 36% share in North America, 27% in the Asia Pacific, 24% in Europe, Middle East and Africa and 13% in Latin America. Middlemen like Cargill Inc. have found themselves having to adapt to a disruptive change that has threatened their opportunities. Their competitive advantage was at risk and the changes have compromised their existing supply chain. More importantly, they have found that they were no longer able to control prices with farmers, who suddenly found themselves in a unique situation where they now capable of renegotiating terms for sales. This transpired because the agricultural industry has found refuge from the changes in consolidation. This has led to the ability to achieve more favorable prices, even if it meant dealing directly with manufacturers.

Illustrated by the Financial Data in Figure 1, it is easy to see how the initial change in policy in immigration and trade had a disruptive effect on Cargill Inc. and their operation.

Description and analysis of the disruption:

“Immigration and trade protectionism is an economic danger” explained David MacLennan CEO of Cargill Inc. “it risks creating food shortages and even sparking conflict.” He goes on to say, 'The current climate has many of our smartest people from outside the U.S. questioning whether they want to stay here.' In a statement to the Huffington Post, He cautions that we need to take care not to “drive away” essential and talented human resources, because it would limit not only our food system, with the labor shortage, but also domestic economy. It’s imperative to understand, that the primary disruption was in the form of lower commodity values and the decelerating of some growth economies.

Cargill Inc.’s quandary with Immigration policy changes come in a two-fold dilemma. The required human resource requirements from foreign entities is for two very valuable types of workers/positions which are extremely difficult to fill:
Skilled professionals such as “scientists and engineers,” and lesser-skilled opportunities for laborers in agriculture, manufacturing as well as service sector positions.
In addition to the worker disruption comes in and added format of not only a loss of human resource, but also as Cargill Inc. states, “it can cost as much as $10,000 to train an employee. We offer good wages, family health care, 401(k) retirement savings plan and language training to retain employees. But we – and the U.S. economy – lose that investment if workers are limited to temporary visas.”
More importantly to the domestic agriculture industry, changes in immigration policy have reduced access to skilled migrant workers who are essential to sustainability in the agriculture industry.
Though much of the focus recently has been on the migrant workforce it is important to understand that it has also developed a shortage of trained professions such as computer programmers and electrical engineers who are leaving or being deported from the U.S. when their temporary visas expire, compromising Cargill Inc.’s growth and prospective “job-creating innovations” with them.

Initial Analysis:

Cargill, a dominate player in the food industry is dependent on a wide array of resources to remain not only competitive, but also maintain its competitive advantage. This is done by insuring that the human resources required are not only available but at a financial cost that allows for a marketable product. Competition on the global market requires trade opportunities that can be easily influenced by a change in government policies as noted by David MacLennan CEO of Cargill Inc. Unfortunately, it has become a difficult, but necessary ideal to pursue, as a large vocal portion of the U.S. constituency view immigration as a control system to address employment opportunities based on the concept of lower wages. It’s paramount to understand that it also was also a venue for highly skilled human resources which are so important to Cargill Inc.’s sustainability. Unfortunately, with the potentially volatile nature of immigration perception it could have a long-lasting impact on the organizations image if not handled carefully.

Disruption Management

Actions that the company took during and after the disruption

Cargill prepared for the disruption by purchasing Archer-Daniels Midland CO chocolate business in a move to diversify its agricultural holdings specifically in the chocolate segment. More importantly, as illustrated by C.S. Tang, it helped to provide a more resilient supply chain by providing Strategic Stock, for the international market since ADM had an established, diverse chain in place. This resulted in an increase in earnings in their Food Ingredients & Applications, directly related to exceptional results in cocoa and chocolate, according to a report from Endeavor Business Media.

Cargill Inc. had a multifaceted approach to the changes in immigration and trade polices beginning with:

Enlisting its 155,000-human resource workforce, allowing employees, customers and communities to share stories of people affected and dependent on international trade as well as an immigrant workforce.
Cargill Inc. re-focused its trading network, which had a reach into 70 countries, reaching out to accommodate its network entities with information and finance to farmers allowing them to hold some sense of influence in what they produced, implementing a Flexible Supply Base/Dynamic Assortment (Tang) allowing them to enhance their existing supply chain and shifting production among suppliers.
On the domestic front, Cargill found themselves having to re-negotiate opportunities, providing the Economic Supply Incentive (Tang), by providing semi-trucks to haul grain at a discounted price allowing the farmers to increase profits, an essential element in sustainability with the higher variable costs associated with the compromise of labor.
Cargill CEO David MacLennan, in an unusual tactic stepped forward with direct comments to influence legislation directly with political factions to try to influence decision beyond the associated investment of lobbyist aligning with the cattlemen in an effort to advocate for consideration of foreign trade.

Actions the company could have taken:

How Cargill Co. Inc. could have Avoided Disruption

Cargill would have benefitted greatly from thorough Risk Management Evaluation Analysis as demonstrated by the simple process diagram, illustrating potential bottlenecks, from various scenarios that may have been created as shown below:

Note the bottlenecks which could have been accommodated by finding a more diverse group of farmers that utilized both documented and undocumented workers to fulfill the tasks of picking crops and processing for shipment. Additionally, like the acquisition of Archer-Daniels Midland CO chocolate business, Cargill could have had a more balanced portfolio of international local opportunities that would have allowed them to develop a Strategic Stock (Tang) to be implemented in case of not only the policy changes but also natural disasters that may have an impact on their sustainable flow of supply.

How Cargill Inc. could have Reduced the Impact of the Disruption.

Cargill Inc. should have reduced its dependence on trade and immigration to a level that accommodated potential changes to political development. The ideals of “relatively frictionless movement of goods and people” with the “changing sentiment of protectionism and nationalism” shows a short sightedness insofar as long-term sustainability. C.S. Tang points out how instead of relying on things remaining the same, many firms have developed various risk assessment programs that are intended to:

Identify different types of risks.
Estimate the likelihood of each type of major disruption occurring.
Assess potential loss due to a major disruption.
Identify strategies to reduce risk.
Improve its response to the disruption.

Summary

Though it may seem as if the Risk Assessment Strategy may seem redundant, it’s important to realize that one of the biggest factors in today’s business environment is Apprehension without Actions. The initial impact of the Immigration bottleneck should have been a precursor to anticipate potential changes to the trade policies and a strategy implemented to soften the inevitable change as much as possible. The reaction by Chief Executive David MacLennan in his speech in St. Paul would indicate that the trade policy changes had a greater effect than they should have had, especially, if Cargill Inc. had utilized a thorough Risk Assessment.