ARCHER DANIELS MIDLAND &

THE FRIENDLY COMPETITORS

RISANG CAHYO. G UKY HAPSARI YAYAN FADLANZA

MAGISTER MANAJEMEN UNIVERSITAS GADJAH MADA

EKSEKUTIF-23

BACKGROUND COMPANY

Founded in 1902

Headquartered in Decatur, Illinois, USA

ADM is one of the Largest Agricultural Processors in the world

Worlds 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)

ARCHER DANIELS MIDLAND

PRODUCTS & SERVICES

FY 12 Net sales: $89 Billion

Employees: 30,000+

Facilities: 685+

Net Fixed Assets ~$10Bn

Market cap:(10/26/12)

~$18 Billion

PREMIER PLAYER IN GLOBAL AGRIBUSINESS

Key Facts

Serving Vital needs throughout the world

45%

21%

33%1%

Ag Services

Oilseeds Processing

Corn Processing

Other

FY12 Segment Operating Profit$2.9 Billion

CASE ANALYSIS

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

Mark Whitacre was hired by ADM as a PresidentOf the Lysine division

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

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

What is Lysine??

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

1970-1980

Ajinomoto and Kyowa Hakko dominate

1991-1992

ADM enters the market

Predatory pricing period

Collusion begins

1993

Price war

Oct 1993

Resolution

1995

FBI raid, collusion end

TIMELINE

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

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

Marks division starts making U$ 7 million/month

Mark is star informant- Is amazing manipulator, always gets the things on tape the FBI wants

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

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

LYSINS 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

Michael D. Andreas

executive vice president of ADM

Mark E. Whitacre

president of ADM's BioProducts Division.

Kazutoshi Yamadamanaging director

of Ajinomoto Co. Inc.

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

Month 1990 1991 1992 1993 1994

Januari 1.32$ 1.19$ 0.91$ 0.98$ 1.12$

February 1.19$ 1.17$ 0.84$ 0.94$ 1.11$

March 1.15$ 1.13$ 0.82$ 0.89$ 1.11$

April 1.08$ 1.09$ 0.80$ 0.78$ 1.11$

May 1.01$ 1.04$ 0.78$ 0.66$ 1.11$

June 0.99$ 1.03$ 0.69$ 0.62$ 1.11$

July 0.99$ 1.01$ 0.64$ 0.76$ 1.09$

August 1.00$ 1.08$ 0.70$ 0.88$ 1.11$

September 1.06$ 1.11$ 0.82$ 0.98$ 1.16$

October 1.15$ 1.12$ 0.92$ 1.08$ 1.20$

November 1.24$ 1.07$ 0.98$ 1.10$ 1.22$

December 1.23$ 0.97$ 0.98$ 1.13$ 1.22$

Simple Average 1.12$ 1.08$ 0.82$ 0.90$ 1.14$

Source :

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

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

ANTITRUST

Antirust adalah Hukum atau Undang-Undang persaingan, merupakanperaturan melawan kebiasaan dagang yang merendahkan persainganatau 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 $ 7juta dollar per bulan dari bisnis Lysine tersebut.

Kapasitas produksi ADM yaitu sebesar 250 juta ton Lysine per tahunatau hampir setengah dari seluruh permintaan didunia.

ADM memproduksi dalam jumlah yang sangat banyak di pasar, hal inimengakibatkan harga Lysine jatuh

2. Anti Competitive behaviour among Companies

Anti Competitive Behavior diantara produsen untuk mengurangipersaingan diantara produsen

ADM, Ajinomoto, Kyowa Hakko dan Sewon memiliki market shareyang sangat besar di pasar

Hal ini menyebabkan perusahaan-perusahaan tersebut menyetujuiuntuk menjual lysine dengan harga yang sama, yang tidak merugikansatu dengan yang lain

3. Opportunities

Mark Whitrace bersama Terry Wilson bersama sama mengatur meeting untukmemecahkan masalah price war.

Semua perusahaaan yang datang menyetujui untuk memformulasikan win winsolution.

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

THANK YOU