APPENDIX A

University of Wisconsin Law School

975 Bascom Mall

Madison, Wisconsin 53706

December 27, 2002

Roger W. Fones

Chief, Transportation, Energy & Agriculture Section Antitrust Division

United States Department of Justice

325 Seventh Street, NW, Suite 500

Washington, DC 20530

Re:	Proposed Settlement of United States v. Archer-Daniels-Midland Co and Minnesota Corn Processors, LLC

Dear Mr. Fones:

Enclosed is a Tunney Act comment on the proposed settlement of the suit challenging ADM's acquisition of Minnesota Corn Processors. The goals motivating this comment are to contribute to the improvement of antitrust analysis and enforcement. My work was entirely pro bono and uncompensated.

I am honored that seven distinguished scholars of antitrust and economics have agreed to support this statement. Their names are listed therein. In addition, two major organizations, the National Farmers Union and the Organization for Competitive Markets also support this statement.

If you or any of your staff have any questions about this comment, please feel free to contact me at the above address or by phone (608/263-7416). I can also be reached by email at pccarste@facstaff.wisc.edu.

Yours truly

/s/

Peter C. Carstensen

Young-Bascom Professor of Law

Tunney Act Comments on the proposed settlement of

United States v. Archer-Daniels-Midland Co and Minnesota Corn Processors, LLC

Federal District Court, District of Columbia

Civil Case No. 02-1768

Submitted by Professor Peter C. Carstensen

on behalf of himself and

The National Farmers Union

The Organization for Competitive Markets

Professor Paul Brietzke

Professor John Connor

Professor Thomas Greaney

Professor Neil E. Harl

Professor Delbert Robertson

Professor Stephen Ross

Professor Kyle Stiegert

At a time when the U. S. government and the American public are demanding that private enterprises provide full and complete disclosure of essential information to avoid repetition of the scandals that have destroyed Enron, Worldcom, and Arthur Anderson, it is incumbent on the Department of Justice to make the same kind of full and complete disclosure of information and analysis in connection with its obligations under the Tunney Act. Only then, can the court and the public in fact judge the appropriateness of the proposed settlement of this or any other major antitrust case. The court should not grant approval to this proposed consent decree until the requirements of the Tunney Act are fully satisfied.

I am joined in these comments by two important organizations, the National Farmers

Union and the Organization for Competitive Markets, concerned with competition policy and its

impact on the markets for agricultural products as well as a group of seven scholars in the fields

of economics and antitrust law. Appendix A provides additional background information about

both the organizations and individuals supporting these comments.

The government is proposing to settle its challenge to Archer-Daniels-Midland's (ADM)

acquisition of Minnesota Com Processors (MCP) by allowing the acquisition on condition that

MCP withdraw from a joint marketing arrangement with Corn Products International (Corn

Products) concerning high fructose corn syrup (HFCS). As demonstrated below, the disclosure

contained in the Competitive Impact Statement filed in connection with the proposed settlement

of the government's does not satisfy the basic requirements of the Tunney Act.

The Competitive Impact Statement fails to disclose essential facts about the impact of this

acquisition on the directly affected markets and ADM's status and role in those markets. Further

it does not explain how the proposed decree, in light of those facts and an apparent failure to

consider relevant relief options as well as the Antitrust Division's own Merger Guidelines, can

successfully protect the identified markets from increased risks of anticompetitive conduct.

Finally, the Competitive Impact Statement omits entirely any discussion of the impact of

allowing this combination in the related ethanol markets in which ADM is by many orders of

magnitude the largest firm and MCP is the second largest.

It is our position that the government must file a revised Competitive Impact Statement

that discloses all relevant information and analysis relating to the competitive implications of this

settlement. Without such disclosure, the record will not disclose "the competitive impact of such

judgment" nor its "impact . . . upon the public generally . . . ." Clayton Act, Section 5 (e)(1) and

(2);15 USC sec. 16(e)(l) and (2). As result, the District Court can not perform its obligation to

"determine that the entry of such judgment is in the public interest." Section 5 (e); 15 USC sec.

16(e).

SUMMARY

In order to determine whether the proposed settlement of this merger case will serve the

public interest in preserving competition in all the markets in which the combining enterprises

both compete, it is essential that all relevant facts be fully disclosed. This acquisition will cause

a substantial change in the market structure of the corn syrup, HFCS and ethanol markets. In all

of these markets the effect of this transaction will or may be to increase concentration.

The initial focus of concern should be the analysis of the com syrup and HFCS markets.

Yet, the Competitive Impact Statement fails to disclose certain essential facts about those

markets, ADM's position in them, and the government's basis for believing that the remedy

proposed would eliminate the anticompetitive risks posed by the disclosed as well as undisclosed

facts about those markets. First, there is no disclosure of MCP's separate market share in corn

syrup or either of the two HFCS markets that the complaint and Competitive Impact Statement

focus on. Hence, it is not possible to tell what impact this acquisition will have on concentration

in these already concentrated markets where entry of new competitors is unlikely. Second, the

Competitive Impact Statement does not disclose or discuss ADM's ownership directly and

indirectly of 25% of the stock of the corporate parent of one of its major, putative competitors in

these markets. Third, the Competitive Impact Statement does not report the decision of the 7th

Circuit that examined the risks of anticompetitive, interdependent conduct in the HFCS markets

and found them to be real and substantial. Fourth, the Competitive Impact Statement discussion

of alternative remedies implies that the government did not consider obvious additional relief

that would have both allowed this merger and reduced the ownership linkages among ostensible

competitors within both the HFCS and ethanol markets. Finally, and most seriously, the

Competitive Impact Statement does not explain why, in light of the foregoing facts, the proposed

remedy, separating MCP from Corn Products but allowing its combination with ADM, is likely

to achieve the goal of preserving and enhancing competition in these markets. Because of these

omissions of facts and explanations of essential analysis, it is not possible for a court, under

even the most lax version of the government's self-serving standard for review, to approve this

proposed decree.

In respect to the markets involving ethanol, the Competitive Impact Statement is totally

silent. The facts are that ADM is the largest producer of ethanol with a very large market share,

and MCP is the second largest producer. In addition, ADM is one of an apparently limited

number of firms that have the resources to market and distribute ethanol to end users. Thus, this

combination will substantially increase ADM's share of the ethanol production market and may

further entrench its position in the marketing of ethanol. It is possible that there are good reasons

why, despite these prima facie anticompetitive implications of this acquisition, it is unlikely to

have such effects. Given that the government has chosen to challenge the combination of these

two firms, and their respective position in the ethanol market is well known, it is incumbent on

the government to explain why this aspect of the combination does not raise any antitrust

concerns. The government, as is evident from its statement of its interpretation of the standard

for review, takes an unjustifiedly narrow view of its obligation to the court and the public in

explaining its enforcement decisions. It is notable that the Antitrust Division in other contexts

and the FTC in the context of announcing a decision not to challenge a merger have been able to

make informative statements about the merits of their decisions.

I. The Facts in the Case

ADM is a very large diversified company with extensive activities in a variety of markets.

Among its major activities are the production of corn syrup, HFCS and ethanol. In the corn syrup

and HFCS markets, ADM is a major producer. According to the government's complaint, it has

10% of the relevant production capacity for com syrup, 33% for HFCS 42 and 25% for HFCS 55,

the two distinct types of HFCS. The markets for all three of these products are, according to the

government, highly concentrated and not amenable to entry even if prices are increased

substantially above cost.

ADM is also the leading producer of ethanol.1 Various estimates of its productive

capacity and production exist. Its present share of production is unlikely to be less than 30% of

all domestic production and may exceed 50%. In addition it is one of a relatively few firms with

the specialized skills, equipment and volume to engage in the distribution and marketing of

ethanol. As will be discussed infra, this may involve substantially more economies of scale and

scope than actual production of ethanol. It also appears to be the case that ADM like the handful

of other major marketers acts as a marketing agent for a number of producers who lack the skill,

volume and specialized equipment to market their own production.

MCP was originally a cooperative that operated two plants engaged in the "wet" milling

of corn. From the wet milling process, it produced corn syrup, HFCS and ethanol. Its market

share in the com syrup and HFCS markets is not known. Prior to the conclusion of this merger,

MCP sold its corn syrup and HFCS production through a joint venture with Corn Products. In

combination, those two firms had productive capacity of 20% of corn syrup, 15% of HFCS 42

and 15% of HFCS 55. In production of ethanol, MCP was the second largest producer with 6%

of total production capacity and one of only four firms, including ADM, with productive capacity

exceeding 100 million gallons a year.

The Antitrust Division's challenge to this acquisition focused only on the corn syrup and

HFCS markets. The Division proposes to settle its suit against this merger by obtaining

termination of MCP's joint venture with Corn Products concerning the marketing of HFCS and

corn syrup. The settlement would then allow ADM to acquire MCP's two facilities.

Although for litigation purposes a focus primarily on the HFCS markets is sensible

because those are the best markets in which to challenge this merger, once the government has

decided to settle the HFCS element based on a partial divestiture of unrelated facilities, then it

becomes essential to examine the impact of the merger not only in the HFCS markets but also in

the other markets where MCP and ADM have substantial, competitive market positions.

II. The HFCS Market

The government's objection to this merger was based only on its impact on the HFCS

market and the more general corn syrup market. HFCS comes in two varieties-HFCS 42 and

HFCS 55 (signifying the percentage of fructose in each type). The government contends that

each type has unique uses and no good substitutes, given current prices for alternative

sweeteners. These markets are concentrated with a limited number of competitors. The

government also contends that there are substantial barriers to entry into the production of corn

syrup or either type of HFCS. Hence, normal market forces are unlikely to reverse any increase in

concentration. For these reasons, a substantial merger within these markets creates significant

risks of anticompetitive harms. Those risks are, first, the danger of tacit or explicit coordination

among competitors to impose higher prices on buyers and, second, that a sufficiently dominant

firm can engage in unilateral, anticompetitive acts that exclude new competition and/or exploit

existing buyers.

Prior to this merger, there were 5 producers of HFCS, treating the MCP-Com Products

combination as a single firm because of the joint marketing arrangement. It appears from the

Competitive Impact Statement and complaint that MCP has substantial corn syrup and HFCS

production capacity. Neither the complaint nor the Competitive Impact Statement provides the

breakdown in capacity between MCP and Corn Products. As a direct result of that omission,

neither the public nor the court can determine the impact of acquisition of MCP's facilities on

the concentration levels in any of these markets.

Tate & Lyle, based in the U.K., is a processor of com products operating on a global

basis. Its American subsidiary, A.E. Staley, is among the five leaders in the HFCS market. Staley

also has an ethanol plant in Tennessee with a capacity of 60 million gallons. ADM is the largest

single shareholder in Tate & Lyle with 15.8% of its voting stock.4 In addition, ADM owns 41%

of Compagnie Industrielle et Financiere des Produits Amylaces SA (CIP) and refers to it as an

"affiliate" in its most recent 10-K.5 CIP in turn holds 10% of Tate & Lyle's stock.6 Thus,

directly and indirectly ADM has a 25% stake in its ostensible competitor. While neither its direct

nor its total stake gives ADM an absolutely controlling position, a block this size confers

substantial leverage. It is obvious that Tate & Lyle's management would be foolish indeed to

initiate vigorous competition in the corn syrup, HFCS or ethanol markets with its largest

shareholder.

Given the dissolution of the MCP-Corn Products deal, there will remain five separate

producers in the com syrup and HFCS markets, but one, ADM, will be larger and another, Corn

Products, will be smaller. Unfortunately, the Competitive Impact Statement does not say how

much larger ADM will be. Although current theories of merger enforcement emphasize the

examination of the likely competitive effects of a merger, it is still the case that the initial, prima

facie, case rests on a change in the HHI statistic. Where there is a partial transfer of market share,

the resulting change in the HHI requires comparing the sum of the buyer's share and acquired

share to the share retained by the seller (or former joint venturer). If the sum from the merger is

greater than the retained share, the result will be an increase in the HHI; if the sum is less, then

the HHI will decline. Thus to determine the likely HHI effect of the combination of MCP's

position with ADM's given the reduction in Com Products's share it is essential to know the

relative shares of MCP and Corn Products.

Even without that information, some general conclusions exist. Concentration is well

above the 1800 level, pre-merger, in all three markets. It is highest in the "42" market where the

pre-merger HHI exceeds 3000; in corn syrup and HFCS 55, it is about 2600, pre-merger. In the

syrup market, unless the capacity transferred exceeds 10% (i.e., ADM's new position exceeds

20% in total) the HHI will remain the same or decline. In the case of the HFCS markets, the

HHI is certain to increase because market share is moving from a smaller factor to a larger one.

The only question in those markets is how much the HHI will increase. In the "42" market where concentration is higher and ADM's share is large, the transfer of 3% or more will result in a net increase of HHI by more than 100 points. In the "55" market, a transfer of more than

4% would also yield an increase of 100 or more points. As MCP's share increases in the two HFCS markets, there would be an even greater increase in the HHI. Without capacity

information on MCP, the net effect on the HHI in corn syrup or the extent of the increase in the

HFCS markets is unknown. But it appears substantially likely that there will be a more than 100

point increase in the HHI in one or both of the HFCS markets. Further, if ADM has influence

over A.E. Staley's competition in these markets because of ADM's stake in Tate & Lyle, the

implications of resulting change in the HHI would be even more pronounced because the

disparity between ADM/Staley/MCP and Com Products will be even greater.

This merger will thus increase the level of concentration in both HFCS markets. Section

1.51 (c) of the Merger Guidelines states that: "Where the post-merger HHI exceeds 1800, it will

be presumed that mergers producing an increase in the HHI of more than 100 points are

likely to create or enhance market power or facilitate its exercise. The presumption may be

overcome by a showing that factors set forth in sections 2-5 of the Guidelines make it unlikely

that the merger will create or enhance market power or facilitate its exercise. . . ." (Emphasis

added.) Moreover, the HFCS markets are ones that, on objective criteria of the sort set forth in

sections 2-5 of the Guidelines, are vulnerable to collective action by competitors. The products

are homogeneous, the entry barriers are high, and there is excess capacity that can be used to

discipline competitors who break ranks. While some buyers are very targe, e.g., Coke and Pepsi,

the vast majority of sales are to smaller businesses with little bargaining power. A further reason

for concern is that the key players, notably ADM, have a history of unlawful collusion in other

comparable product markets. See, e.g., U.S. v. Andreas, 216 F3d 645 (7th Cir. 2000)(affirming

conviction of ADM executives for pricing fixing of lysine). To allow ADM to increase its direct

ownership of HFCS capacity while retaining its substantial stake in Tate & Lyle would seem to

exacerbate the risks of tacit or express collusion.

Even more directly relevant, ADM and its "competitors" (A.E. Staley, Cargill, American

Maize-Products, and Corn Products) have been charged in a buyer class action with overt price

fixing in HFCS (Corn Products has actually settled with the plaintiffs already) from 1988 to

1995. Although the trial court dismissed the suit on summary judgment, the 7th Circuit in an

opinion written by Chief Judge Posner in June of this year reversed. In re High Fructose Corn

Syrup Antitrust Litigation, 295 F3d 651 (7th Cir. 2002). Judge Posner's analysis of industry

structure and context is that this is an industry with characteristics and incentives to engage in

collusive behavior. "[D]efendants pretty much conceded that the structure of the HFCS market,

far from being inimical to secret price fixing, is favorable to it." Id. at 656. The opinion pointed out

a number of factors that demonstrated the capacity and incentive to engage in collusive

conduct. However, the opinion focused on the claim that there was express agreement and not

merely tacit, interdependent price setting, On that issue, it found that the HFCS markets are ones

where "the overall evidence of conspiracy . . . was abundant although not conclusive." Id. at

655. Despite the manifest relevance of this detailed analysis of the nature of the HFCS markets,

pre-merger, to the likely effect of this acquisition on competition in those markets, the Competitive Impact Statement makes no reference whatsoever to it.

The anticompetitive conduct at issue in the 7th Circuit decision occurred in the context of

five firm competition in these markets with a lower HHI than will exist after ADM acquires

MCP. Thus, it would seem that allowing this acquisition without any other change in the

structure, e.g., terminating ADM's stake in Tate & Lyle, will continue and potentially make more

likely interdependent conduct among the producers of HFCS.

The Competitive Impact Statement fails to reference or discuss MCP's share of the corn

syrup, HFCS 42 or HFCS 55 markets; it makes no mention of ADM's continuing stake in Tate &

Lyle or the option of requiring divestiture of this stake as an added element of remedy; it does not

refer to the 7th Circuit decision; nor does it discuss the Guideline factors that make collective

anticompetitive conduct likely. It focuses on the dissolution of the MCP-Corn Products joint

venture and the obligation of ADM to compete independently of Corn Products. The essential

rational is that "the decree will ensure that there are at least five independent (sic) competitors in

the corn syrup and HFCS markets, and will preserve and encourage ongoing competition

between ADM and Corn Products." (Emphasis added.)

The government's implicit contention is that because the number of legally distinct firms

with separate marketing capacity will remain the same, competition will not be harmed. But it

was that number of competitors that created the conditions for collusion. No basis is given for

the optimistic assessment that ADM and Corn Products will now compete. Nor is there any basis

in this declaration to believe that ADM will not influence the competition of Tate & Lyle.

Indeed, the statement provides no clue as to incentives or economically rational motivations that

would bring about competition given the history of these specific markets and ADM. Hence,

some additional rational should exist to justify continuing the present number of competitors and

increasing the HHI. In fact, it would seem that under the Guidelines, this merger remains

presumptively illegal. See, Guidelines 1.5 l(c), supra. It is imaginable that the government's

lawyers have some logical and plausible explanation for allowing this acquisition despite all

these negative implications. But their duty under the Tunney Act is to make a public statement

of those reasons so that the public and the court can determine whether those claims are in fact

plausible.

On the other hand, given the 7th Circuit decision, it seems plausible to argue that the Corn

Products-MCP agreement together with ADM's stake in Tate & Lyle should have been the target

of antitrust enforcement together with barring the acquisition of MCP by ADM. Such a strategy

would have increased the number of separate firms from 5 to 6 and ensured that each was

economically independent of all the others.

The discussion of alternative remedies in the Competitive Impact Statement implies by its

silence that the government did not consider the foregoing alternative. This raises a separate but

very important issue in this case. It would seem to be a serious failure in basic enforcement if the

government elected to settle a case involving markets with high concentration, serious risks of

anticompetitive conduct, and cross ownership of stock among major competitors without

considering whether a more comprehensive review of the relationship among industry

participants was necessary and whether further separation of those ties would be appropriate.

In sum, the Competitive Impact Statement is so flawed that it does not provide the court

or the public with a basis to determine whether the increase in concentration resulting from this

merger is substantial (the MCP market shares must be given as must those of Corn Products to

allow any kind of evaluation of the structural claims of the government) or why the acquisition

will not increase the already significant risk of anticompetitive collaboration within the HFCS markets. Before the public can effectively comment on the proposed decree, it is essential for

the government to revise the Competitive Impact Statement to make full disclosure of necessary

factual information and its reasoning. Similarly, it is impossible for a court to determine, based

on this submission, whether or not the proposed judgment is in the public interest.

II. Ethanol

Neither the settlement nor the Competitive Impact Statement address the apparently high

and increased concentration in ethanol production resulting from this combination. Even more

troubling, there is no analysis of the impact of this acquisition on the marketing and distribution

of ethanol. It is true, as the government emphasizes in its filing, that the DC Court of Appeals in

U.S. v Microsoft, 56 F3d 1448 (D.C Cir. 1995), took the position that in reviewing a consent

decree under the Tunney Act, a district could not consider alleged anticompetitive conduct not

included in the complaint. In that case, the additional issues that the district court wanted

considered were not directly related to the specific competitive practices challenged in that

case. In the present case, in contrast, the ethanol production and distribution capacity of both

firms is inextricably linked with their HFCS production capacity. Therefore, approving this

decree allowing the acquisition of MCP necessarily affects directly this related market. Hence, in

order to perform its obligation to "determine that the entry of such judgment is in the public

interest[]", Section 5 (e); 15 USC sec. 16(e), the court must be informed about the other

competitive effects of the merger. This is necessary even if the court's ultimate standard may

only be whether the "settlement is within the reaches of the public interest." 56 F3d at 1460

(internal quotations omitted).

Prior to the acquisition, ADM was, by a very large margin, the leading producer of

ethanol. Its share ranged from something over 30% to more than 50% depending on whether the

base is capacity including that under construction or actual production. MCP had about 6% of

current capacity. Thus the pre-merger HHI was at least mildly concentrated around the 1600

level, and this merger will increase that level by 350 to 600 points resulting in a post-merger

concentration of 2000 to as much as 2300. This falls well into the highly concentrated level.

It appears that ethanol is a distinct product both because it has distinct production

technology and because it is an ingredient in gasoline intended to reduce its pollution effects.

There was another product, methyl tertiary butyl ether (MTBE), that has recently been banned in

California, one of the largest areas of consumption, because of its polluting effects on ground

water. Thus, a firm able to control the production or marketing of all ethanol would have

significant power over price. The geographic market seems to be national.

There are two methods of producing ethanol. The "dry" method involves grinding corn

into a mash and fermenting it to create ethanol which must then be separated from the water and

the residual solids. The ethanol is concentrated to achieve 100% purity and then "denatured" by

the addition of some gasoline making it unfit for human consumption. The remaining solids are

dried and sold as cattle feed (this is a high protein feed that appears to have significant

commercial value). All new ethanol plants under construction apparently use the dry process.

The "wet" process involves a similar production of mash which is then treated to convert

the carbohydrates to sugar from which various products are produced: com syrup, high fructose

syrup, and ethanol by subsequent fermentation of the sugar. Based on some comments on a

couple of web sites, it appears that there is flexibility in the wet process to choose among the

types of products that will be extracted. Most of ADM's facilities and MCP's two plants are wet.

In 2001, total American production of ethanol was about 1.77 billion gallons; it is

expected to rise to 2 billion in 2002 and may exceed 5 billion within a few years especially if the

Senate version of the energy bill is ultimately adopted because it strongly favors ethanol.

Although this section of the Senate bill was adopted in conference, no final legislation emerged

from Congress this session.

With respect to the production of ethanol, the barriers to new entry seem to be low. An

efficient, modem plant with a capacity of 40 million gallons costs about $55 million to build and

construction takes about a year and half after regulatory and zoning approval. It seems easy to

expand to 80 million gallons, but after that there can be serious input constraints caused by the

need to buy very large volumes of corn. Also, the market for the cattle feed solids may be

saturated in the immediate area. There are as many as ten or more plants under construction;

most of these have a capacity of 40 million gallons, and a significant additional number are in the

planning stage. This means that efficient entry can occur with a capacity that represents about

2% of present total production and less than 1% of expected production in the next few years.

This suggests that adding a new plant will not disrupt the market and so entry should not be

difficult. Hence, while ADM is and will remain for the foreseeable future, by a very substantial

margin, the largest ethanol producer in the market, it does not appear that its acquisition of MCP

will significantly alter its market power in the ethanol production market. Presumably this is the

view of the government as well.

However, this merger may create significant competitive issues in the distribution and

marketing of ethanol. Marketing involves both specialized equipment and skills that are subject

to economies of scale and scope. Ethanol is shipped in railroad tanker cars, barges and tanker

trucks from various places of production in the Midwest to California or the east coast, for

example. Ethanol is often added to gasoline at the point when a tanker truck is picking up a load

of gas for delivery to service stations. For this reason, access to terminal tank farms is very

important in the marketing process. If a firm can not get space in the farm, the marketing of

ethanol in this context is more costly (separate location means two stops and delay). A key issue

can be getting such access. While the costs of specialized equipment including a dedicated tank

may not be substantial, getting access in the first place may be difficult given limited space and

the potential that established ethanol suppliers may have or obtain exclusionary rights in their

contracts.

It appears, therefore, that there are significant economics of scale and scope in the

marketing process. The high volume marketer can get discounts and preferred service from

railroads. It can afford to operate or lease barges, develop terminal storage facilities to

concentrate the quantity of product for its delivery to refiners or gasoline terminal locations.

Finally a major trader can get access to terminal facilities when small dealers might be excluded

and/or get access on more favorable terms.

ADM is undoubtedly the largest marketer of ethanol. ADM has volume, special

equipment (barges and rail cars) as well as good access to terminals and pipelines. There are two

other major integrated marketers: Cargill (number 4 in ethanol production) and Williams

Companies (number 3 in production) a major pipeline operator and dealer in petroleum products.

Cargill and Williams have overall marketing resources comparable to ADM because of their

multiple lines of business and their substantial ethanol production capacity. All three of these

companies use marketing agreements to obtain additional supplies of ethanol. Although

presumably the government's lawyers have examined these marketing agreements, they are not

available to the public. The impression is that they usually entail exclusive dealing commitments

involving a 5 year or longer obligation (early termination terms unknown) which may provide

economically questionable compensation terms for the marketer in that the contracts do not

provide appropriate incentives for effective and efficient marketing. Thus, such contracts are

likely to confer substantial control over the marketing of ethanol on a limited group of firms.

There also appear to be a few unintegrated or less integrated firms offering distribution

services as well. One such firm is Murex NA. Another trader-Ethanol Products-is associated

with Broin Engineering, an ethanol plant builder, that represents 10 production facilities with 300

million gallons of capacity and claims another 115 million in development There may be one or

two additional marketers, but no other web sites provided very much information.

There is a plausible basis for concern that the impact of this merger in the marketing and

distribution of ethanol is likely to be anticompetitive: ADM has a record of conspiring to

cartelize various markets; Cargill the second or third largest marketer of ethanol is also in the

group of defendants in the HFCS litigation; and the Williams Companies, the other large

marketer of ethanol has recently settled claims that it overcharged California energy customers

with a payment of more than $400 million and a restructuring of its supply contracts that may

save customers another 1$1 billion. Thus, all three major marketers of ethanol have recent

histories of anticompetitive conduct and exploitation of consumers. The acquisition of MCP

will increase concentration of control over distribution which will make both tacit collusion

among these leading marketers more likely and increase the potential for unilateral

anticompetitive conduct by ADM which remains the overwhelming dominant marketer in this

business.

To determine the seriousness of these risks, it is important to have a good estimate of the

volume needed to achieve minimum efficient scale for marketing ethanol. Assuming Murex with

a 200 million gallon share is an efficient competitor, then additional entry into distribution may

occur as the volume expands. Other middle-sized petroleum marketing organizations might exist

that have substantial volumes of goods going to market through the same networks. Entry into

ethanol marketing may not be difficult for such firms if they exist and can easily add ethanol

sales to their existing marketing efforts. Key here is the minimum size needed to make effective

use of dedicated facilities such as terminal tanks, railcars, etc., that must be used in an ethanol

specific way. Thus, the question is what are the product specific economies of scale and scope.

Given the foregoing market information, it would be possible to determine whether

ADM's control over the marketing of ethanol, including its own production, that of MCP, and

that under contract to the resulting firm, together with the market shares of the other two major,

integrated marketers, would have an adverse effect on entry or expansion by independents in the

marketing arena. If it takes 200 million gallons of volume for product-specific economies, then

the current set of 5 or 6 marketers may be all that can be accommodated given ADM's

dominance. Even with substantial growth in the total volume, it may be difficult to make entry

into marketing because the increments of new plants-circa 40 to 80 million gallons-will be

insufficient to warrant entry into marketing unless the entrant can get additional clients. But

from the perspective of the owner of a new plant, the question will be whether to select an

established marketer or affiliate with a new entrant that needs additional volume to be efficient.

If economies of scale within ethanol marketing are significant, entry is difficult, and a few

firms control the majority of product being marketed, it becomes possible to withhold some

product as the new energy requirements kick in and drive up price (compare Enron or El Paso in

California electric markets). In addition, because both ADM and MCP use the wet process, it is

possible to manipulate ethanol supplies by shifting plant output to other products, e.g., HFCS.

This means that as the dominant firm, ADM may be able to have unilateral, anticompetitive

effect in the marketing of ethanol by manipulating supply. On the other hand, ethanol is a

uniform product with growing demand. Moreover, that demand is unlikely to be very price

elastic (10% of a gallon of gas is not going to effect the price at the pump very much). So,

assuming limits on effective entry in the marketing level, existing marketers may engage in

interdependent price setting to the detriment of the competitive market. The history of ADM's

conduct in comparable markets and the presence in ethanol of some of its co-conspirators from

other cartelistic efforts, strongly reinforces the proposition that there is a risk of such conduct if it

is economically feasible.

The Merger Guidelines speak to these risks. " Where products are relatively

undifferentiated and capacity primarily distinguishes firms. . . the merger firm may find it

profitable unilaterally to raise price and suppress output. . . . Where the merging firms have a

combined market share of at least thirty-five percent, the merged firms may find it profitable to

raise price and reduce joint output...." Guidelines 2.21. While this statement creates no

presumption, it identifies the unilateral effect that is a possible consequence of this acquisition in

addition to the potential for collusive reductions in output based on control of the marketing- distribution process. Recent news reports, after the filing of the Competitive Impact Statement,

indicate that traders believe that ADM has the capacity and incentive to withhold supplies and

drive up prices. This is exactly the anticompetitive risk that this market structure posses.

The Competitive Impact Statement filed by the government explaining its analysis of the

ADM-MCP merger does not even advert to the fact of ADM's leading position in ethanol

production and marketing or MCP's substantial market share. As a result, it is not possible to tell

whether the government has examined both the marketing and production aspects of ethanol.

While it is probable that the government lawyers have in fact investigated at least some of the

ethanol aspects of this merger, there is no public record of what aspects they examined or what

conclusions they reached. If the government had simply sued the merger, the ethanol issues

would have been subsumed under the corn syrup and HFCS issues because of the unitary nature

of the production process. Once the government has elected to settle the case by allowing the

acquisition, the impact of the acquisition in the related market where the parties have such large

market shares becomes a very important aspect of a public interest analysis: "the court may

consider... any other considerations bearing upon the adequacy of such judgment. . . Clayton Act, sec. 5(e); 15 USC sec. 16(e).

The government's failure to report the conclusions of its investigation of the ethanol

market is, therefore, another serious flaw in this case. Given ADM's market position and its

history, the government ought to have explained why it did not believe that there was any

serious anticompetitive risk in these markets given its willingness to allow ADM to acquire

the second largest producer of ethanol.

It can be argued that disclosure concerning the ethanol market is inconsistent with the

confidentiality requirements imposed on merger filings. As the DOJ's comments to the DOT in

the Hawaiian airlines case demonstrates, it is possible for the DOJ to report not only its

conclusions about competitive effects but also explain in some detail its reasoning on the public

record even when it has "confidential" information. See, PUBLIC COMMENTS OF THE

DEPARTMENT OF JUSTICE, Joint Application of ALOHA AIRLINES, INC. and HAWAIIAN

AIRLINES, INC., DOT Docket No. OST-2002-13002, filed Aug. 30, 2002. Indeed, the FTC has

recently demonstrated exactly such a responsible approach in connection with the cruise line

merger investigation. See, Statement of the Federal Trade Commission, Concerning Royal

Caribbean Cruises, Ltd/P&O Princess Cruises plc and Carnival Corporation/P&O Princess

Cruises plc, FTC File No. 021 0041, October 4, 2002; Dissenting Statement of Commissioners

Sheila F. Anthony and Mozelle W. Thompson, id.

The public information about the ethanol markets-both production and marketing-does

not demonstrate the kind of obvious anticompetitive risks that are manifest in the case of HFCS

and corn syrup. Nevertheless, this acquisition will work a very substantial change in those

markets that will increase concentration and so will necessarily tend to reinforce any

anticompetitive potentials that may exist. Thus, another serious deficiency in the present

Competitive Impact Statement is that it totally ignores the impact of this acquisition on ethanol.

If it were in fact that case the government had completely failed to consider the competitive

implications of that aspect of this merger, then it would also be clear that the government had

failed in the most basic obligations of its responsibility to analyze the competitive implications of

the transaction. It seems more likely that the government has examined at least some of the

ethanol related issues and satisfied itself that this acquisition will not result in a significant risk of

a "substantial[] lessen[ing] of competition" of the sort prohibited by Section 7 of the Clayton

Act. But if that is so, it owes it to the court and the public to explain what markets it considered

(did it review both the production and the marketing components of ethanol?) and what its

conclusions were on the questions of entry, economies of scale and scope in distribution, and the

potential for either unilateral or collusive conduct in this important, developing market.

This is not a situation where the government has conducted an investigation and

concluded that no action was required. Here it has elected to object to the acquisition and

highlighted, for purposes of that litigation, the most troublesome aspects of the merger. But its

settlement, by failing to block the acquisition, necessarily has an effect in other markets in which

these firms compete. A complete Competitive Impact Statement must advise the court and the

public of the implications of the settlement for competition in those other markets. Without such

disclosure, the record will not disclose "the competitive impact of such judgment" nor its

"impact. . . upon the public generally . . ." Clayton Act, Section 5 (e)(l) and (2);15 USC sec.

16(e)(l) and (2). As result, the District Court can not perform its obligation to "determine that the entry of such judgment is in the public interest." Section 5 (e); 15 USC sec. 16(e).

Conclusion

In Philadelphia Bank, the Court stated that"... if concentration is already great, the

importance of preventing even slight increases in concentration and so preserving the possibility

of eventual deconcentration is correspondingly great." U.S. v. Philadelphia National Bank, 374

US 321, 365, n. 42 (1963). The HFCS markets are such markets, characterized by substantial

risks of anticompetitive conduct. The ethanol market as it presently exists is also concentrated

and the forces of deconcentration might well be frustrated if the leading firm can retain a

dominant position in production and that reinforces and entrenches its dominance in marketing.

It would appear that blocking this merger and critically reviewing the MCP-Corn Products

marketing agreement in HFCS as well as ADM's links to Tate & Lyle would have been a much

more appropriate enforcement strategy based on the observable facts.

The Antitrust Division may have more information that might possibly negate the

apparent anticompetitive risks in both the HFCS and ethanol markets that this acquisition would

seem to create. It is the duty of the government to explain and justify its actions under the

Tunney Act. It has not done so. In the absence of such information, the District Court should not

approve this settlement because it lacks the basis on which to make the essential public interest

determination that Congress has required.

/s/

Peter C. Carstensen

Young-Bascom Professor of Law

University of Wisconsin Law School

975 Bascom Mall

Madison, WI 53706

Ph. (608)263-7416

December 27, 2002

15

Appendix A

Background information concerning the supporters of this information:

Organizations:

The National Farmers Union

The National Farmers Union is officially called the Farmers Educational and Cooperative

Union of America. It was founded in 1902 and is general farm organization with

membership of nearly 300,000 farm and ranch families throughout the United States.

The Organization for Competitive Markets

The Organization for Competitive Markets is a multidisciplinary nonprofit group made

up of farmers, ranchers, academics, attorneys, political leaders and business people.

OCM provides research, information and advocacy towards a goal of increasing competition in the agricultural marketplace and protecting those markets from abuses of

corporate power. OCM views the current consolidation of agriculture as market failure

resulting in misallocation of resources and the destruction of rural economies and culture.

Scholars (faculty positions given for informational purposes only)

Peter C. Carstensen, Young Bascom Professor of Law, University of Wisconsin Law

School

Paul Brietzke, Professor of Law, Valparaiso University School of Law

John Connor, Professor of Agricultural Economics, Purdue University

Thomas Greaney, Professor of Law, St. Louis University School of Law

Neil E. Harl, Charles E. Curtiss Distinguished Professor of Agriculture and Professor of

Economics, Iowa State University

Delbert Robertson, Associate Professor of Law, Suffolk University School of Law

Stephen Ross, Professor of Law, University of Illinois, College of Law

Kyle Stiegert, Associate Professor of Agricultural and Applied Economics and Director,

Food System Research Group, College of Agriculture, University of Wisconsin-Madison

aai

The American Antitrust Institute

December 27, 2002

Roger W. Fones, Chief

Transportation, Energy & Agriculture Section Antitrust Division

United States Department of Justice

325 Seventh Street, NW, Suite 500

Washington, DC 20530

Re: Tunney Act Comments re U.S. v. Archer-Daniels-Midland Co. and Minnesota Corn

Processors. LLC. Civil Case No. 02-1768

Dear Mr. Fones:

The American Antitrust Institute ("AAI") is an independent non-profit education,

research and advocacy organization, described in detail at www.antitrustinstitute.org. The

mission of the AAI is to support the laws and institutions of antitrust. We write to

endorse the thrust of the Tunney Act comments submitted by Professor Peter C.

Carstensen of the University of Wisconsin Law School. Professor Carstensen, a member

of the AAI Advisory Board, has shared with us his analysis of the Archer-Daniels-

Midland ("ADM") acquisition of Minnesota Corn Processors ("MCP") and his concern

that the Justice Department's Competitive Impact Statement ("CIS") does not provide an

adequate explanation of the consent decree.

A substantial purpose of the Antitrust Penalties and Procedures Act, 15 U.S.C.

section 16 (b)-(h), commonly referred to as the Tunney Act, is to facilitate public

comments and thereby to assist the Court in making its determination of whether a

proposed decree is in the public interest. The Tunney Act requires the Department to

make public a CIS, which, in this case is available at

http://www.usdoj.gov/atr/cascs/indx358.htm. Section (b)(3) of the Act requires that the

CIS recite:

(1) the nature and purpose of the proceeding;

(2) a description of the practices or events giving rise to the alleged violation of the

antitrust laws;

. . . (3) an explanation of the proposal for a consent judgment, including an explanation of

any unusual circumstances giving rise to such proposal or any provision contained

therein, relief to be obtained thereby, and the anticipated effects on competition of

such relief;[and]

2919 ELLICOTT ST, NW • WASHINGTON, DC 20008

PHONE: 202-244-9800 • FAX:

202-966-8711 • E-MAIL: BFOER@AOL.COM

www.antitrustinstitute.org

. . .(6) a description and evaluation of alternatives to such proposal actually considered

by the United States.

We recognize that it is difficult, if not impossible, for a member of the public to

have the same facts before it that influenced the Department's investigation and its

negotiated outcome. Professor Carstensen's efforts to learn about the ADM merger have

nonetheless succeeded in raising what appear to be important questions about the possible

competitive effects of the merger that are not considered in the CIS. He writes,

The Competitive Impact Statement fails to disclose essential facts about the

impact of this acquisition on the directly affected markets and ADM's status and

role in those markets. Further it does not explain how the proposed decree, in

light of those facts and an apparent failure to consider relevant relief options as

well as the Antitrust Division's own Merger Guidelines, can successfully protect

the identified markets from increased risks of anticompetitive conduct. Finally,

the Competitive Impact Statement omits entirely any discussion of the impact of

allowing this combination in the related ethanol markets in which ADM is by

many orders of magnitude the largest firm and MCP is the second largest.

Even when the Tunney Act is interpreted rather narrowly, it is recognized that

Congress intended to encourage public comment. As Judge Kollar-Kotelly noted in the

recent U.S. v. Microsoft Corp.. Civ. Act. No. 98-1232, Memorandum Opinion at 20 (July

1, 2002):

The legislative history explains that the purpose of requiting the United States to

provide this information is to "encourag[e], and in some cases, solicit, additional

information and public comment that will assist the court in deciding whether the

relief should be granted." 119 Cong. Rec. at 24,600. The reports from both houses

of Congress agree that the purpose of this portion of the Act, in conjunction with

sections (c) and (d), is to encourage comment and response by providing more

adequate notice to the public. S.Rep.93-278, H.R. Rep. 93- 298 at 5 (1973); H.R.

Rept 93-1463 at 7 (1974), reprinted in 1974 U.S.C.C.A.N. at 6538. According to

the Senate Report on the bill, "additional participation by interested parties in the

approval of consent decrees" serves as a public means to counterbalance the

"great influence and economic power" available to antitrust violators. Sen. Rept.

No. 93-298, at 5 (1973).

The House Report echoes this concern:

Given the high rate of settlement in public antitrust cases, it is imperative that the

integrity of and public confidence in procedures relating to settlements via

consent decree procedures be assured.... Your Committee agrees with S. Rept

No. 93-298, 'The bill seeks to encourage additional comment and response by

providing more adequate notice to the public,' (p. 5) but stresses that effective and

meaningful public comment is also a goal." H.R. Rept. No. 93-1463, at 6-7.

It is not possible for the public to play the role envisioned by the statute unless

adequate information is presented in the CIS, with the result that the Court cannot fulfill

its own role of determining whether the proposed decree will serve the public interest. 15

U.S.C. sec. 16(e). With respect to the corn syrup and HFCS markets, the CIS fails to

disclose essential facts necessary to an understanding of either the competitive problem

or the selected remedy. With respect to the ethanol market, the CIS is totally silent,

despite the apparent fact that ADM is the leading producer and MCP is the second

leading producer. We recognize that the Department may have been aware of all the

relevant facts and may have carried out a perfectly designed and perfectly executed

investigation, reaching a perfectly understandable compromise. Nevertheless, neither the

public nor the Court can evaluate whether the proposed decree is in the public interest

because there is too little disclosure for an evaluation to be made.

The Department has traditionally been reluctant to say a great deal in its CIS

disclosures, presumably because it risks disclosure of confidential information, adds to

the staff's workload, and opens up the door to additional inquiry. We urge the

Department to look to the example of the Federal Trade Commission in its handling of

the recent cruise case, in which it permitted two possible mergers to go forward, without

condition, but (without the requirements of a Tunney Act hanging over its head) provided

a detailed explanation of its reasoning, accompanied by a minority statement. 1 After the

Enron and related scandals, we operate in a new age where transparency of government

regulation is of even greater importance. ADM is a company that has had more than its

share of scandal and illegal activity.2 In order to sustain the public's confidence in the

antitrust settlement process, we urge the Department and the Court to give the Tunney

Act the benefit of any doubt by revising the CIS so as to meet Professor Carstensen's

objections.

Sincerely,

/s/

Albert A. Foer President

Page 1 of 5

10/31/02

433 Hager Drive

Gibson City, IL

60936

(217) 784-4425

Send by Express Mail

Mr. Roger W. Fones

Chief, Transportation, Energy & Agriculture

Division, Antitrust, Justice Department

Suite 500

Washington, D.C. 20530

Gentlemen (& women)

I am thankful for this opportunity to offer my brief comment to you on the proposed ADM-MCP purchase transaction.

I will try not to duplicate the obvious facts and data that you no doubt have indicating the anticompetitive effect this transaction could have on:

1) the market price the farmer recieves (and growth of same)

2) the ethanol and

3) sweetener industry market prices.

I will instead attempt to offer some of the not so obvious that you may not have but are never the less, just as important.

I am hopeful that you can provide evidence that this public comment opportunity does have meaning instead of [being 'cut & dried' or a 'done deal' that ADM has under control], the well grounded perception that most have expressed to me. This perception plus 1) the extended corn harvest in SW MN, 2) most stakeholders being unaware of this public comment forum and 3) many of us who are (aware of), being poor writers

Page 2 of 5

and cramped for time means relatively few comments from those who would otherwise do so, which is unfortunate. So I hope you can bear with us and receive what we (I) intended to convey on this very important issue. To provide all of the important details is beyond the scope of this comment writing, but please if u do want more detail, I'd be most honored to respond with the full impact & detail that you need (if I know it not redundant) to make your most important decisions and conveyance of same!

I have personal knowledge that many of the new coops that have formed & now producing ethanol did so with the knowledge that MCP was a positive role model. This transaction not only erases that positive role model but becomes a very negative factor. (MCP was the largest by a factor of 5X, the oldest & relied on by others in many respects) If you need I'd love to give details showing the 'chilling' net impact on new producer equity formation.

Page 3 of 5

The superior third party acquisition proposal (p.pg 48) that was in the MCP office on August 31, could have & indeed perhaps should have been handled differently ie. At least let the board or voting members know of its existence. (The vote would've been different)

The implementation of that proposal offers to

1) retain the more competitive environment for corn markets, ethanol, sweeteners, etc.

2) retain each members freedom to sell or not to sell.

3) " the new CP MCP development opportunity.

4) " the producer (corngrower) processor opportunity, that was conceived in the mid '70's.

5) be less likely to be challenged, changed, delayed or terminated on grounds posed by the Antitrust Division of the US Justice Department (p, pg 43)

I'd sure love to give details on this if u need some.

Page 4 of 5

Then I have many questions regarding how the information was A. Presented to the members at the 'information' meetings. In consideration our limited time at this point & hoping most of these questions have been submitted by others I'll bring up only one question I had as follows:

I asked specific questions about the probability of regulatory delays or indeed a Department of Justice complaint challenging the merger. The answer I receive was – No way. ADM has that under control. If the Department of Justice does anything it will be a mere formality of no consequence! Vote for this transaction & you'll have your money 'very soon' after the vote on Sept. 5. Clarification of 'very soon' was given as before the end of the month (September). Each of the questions (answers) were (superbly) handled in a similar tone.

And B. How the vote was handled.

i) Was it true that the company (MCP) wouldn't allow one of the board members who voted No to look at the ballot talley?

Ref. Dean Buesing

page 5 of 5

How the vote was handled (continued)

2) was it true that one of the no votes cast early at the Marshall office couldn't be found when the member asked for it back before the final tally was to be tabulated?

Same referense.

Thanks,

C. LeRoy Deichman, CPAg.

433 Hager Drive

Gibson City, IL 60936

(217) 784-4425

P.S.

If every component of this transaction was legal (I'm not saying it wasn't) – then I'd like to meet with the people who make the laws. — To see that this injustice never happens again!

I wish my appraisal of the growth that could've occurred would be asked for by the decision makers.

I repeat, since I don't know which of what else I had to say would be redundant & other reasons listed herin I defer for now pending your request for more. (Including any resume in this field)

I out of time!!

Thanking you again for this opportunity.