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U.S., EC investments in food processing flow both ways.

European Community-based companies invested billions of dollars in U.S. agribusiness during the 1980's, but they still own less than 1 percent of U.S. farmland and about 10 percent of the assets of food processing firms in the United States.

"EC corporations are the leading foreign owners of U.S. agribusinesses, particularly in the food processing sector," says economist Christine Bolling of USDA's Economic Research Service. "They have invested in leading U.S. name brand food products and beverages, fast-food chains, retail food stores, and grain storage facilities."

She notes that the value of these investments is nearly $30 billion, compared with $12 billion of U.S. investment in European agribusiness.

EC corporations' investments comprise about 10 percent of the total assets in the U.S. food processing industry. But Europeans own less than 1 percent of the total agricultural land base in the United States. European investment in the United States is balanced by U.S. investment in the EC.

While U.S. investment in the EC is considerable, sales from U.S. food processing companies in the EC are greater than EC sales in the United States.

Many of the 1980's investments were made by large EC conglomerates as they expanded their presence in the U.S. market. One of the biggest acquisitions of the decade, for example, was made by Grand Metropolitan of the United Kingdom, which purchased Pillsbury for $5.8 billion.

"With this investment, Grand Metropolitan acquired many brands, with products ranging from wine to pet foods," says Bolling.

And when Tate & Lyle, a British-based sugar refiner, paid $1.5 billion for corn sweetener producer Staley Continental, Inc., in 1988, Tate & Lyle gained a leading role in the world corn sweetener market. Also in 1988, Tate & Lyle bought Amstar Sugar Corporation, the largest cane sugar refiner in the United States.

"Another EC conglomerate, Unilever, has a long-standing presence in the U.S. food industry," says Bolling. "Unilever's holdings include Lever Brothers, a highly diversified company that sells many different items, from ice cream to soap."

Looking to the U.S.

EC companies had a number of reasons to look to the United States as a good place to invest.

"The 1980's saw corporate mergers and acquisitions in Europe as well as in the United States, as multinational companies extended their domestic and international interests," Bolling says. She adds that the U.S. food industry was as caught up in mergers in that decade as were many other industries.

"The U.S. economic climate of the 1980's encouraged foreign investment," says Bolling. "The U.S. Economic Recovery and Tax Act of 1981 legislated a phased liberalization of business taxes over several years."

Investment in the United States was unusually strong during the 1983-84 expansion of the U.S. economy. And passage of the Tax Reform Act of 1986 spurred investment in the late 1980's. This law tightened up some of the liberalized tax provisions of the 1981 tax law by lengthening the period for depreciation, but lowered general tax rates to offset this disadvantage.

Moreover, tax laws regarding multinational corporations were changed in several key States. The unitary corporate income tax method was repealed in a number of States (including California, Utah, Idaho, and New Hampshire) between 1984 and 1986, and replaced by the "water's edge" system.

Under the unitary tax method, taxes are determined by a percentage of a company's worldwide profits. The unitary tax method was originally designed to prevent multi-State and multinational corporations from shifting profits from a high-tax State or country to a low-tax one. Under the water's edge system, only the income earned in the particular State is taxed. The adopted water's edge method also opened up opportunities for expansion in the United States.

Conditions in Europe

"Economic conditions in Europe also favored investment in the United States," says Bolling. "The United Kingdom, the Netherlands, and Germany went through an affluent period during most of the 1980's. Foreign reserves for all three countries grew to unprecedented levels during the latter half of the decade."

Another factor pushing investment in the United States in the late 1980's was a cheaper dollar in relation to European currencies.

"After strengthening with respect to the British pound, the Dutch guilder, and the German mark from 1980 to 1985, the dollar weakened until 1988," says Boiling. "Since 1988, the dollar has fluctuated, but did not ever regain the strength it had in the mid 1980's."

In addition, the United States attracted investors during the decade because many other countries that had been hosts for European investments suffered from foreign debt and general economic crises.

"In contrast, the U.S. market was affluent and growing," says Bolling. "Relatively strong growth in the United States provided an incentive for European investors to shift funds from developing countries in Latin America, Asia, and Africa to the United States."

Assessing impact

"Affiliates of EC companies located in the United States have employed 120,000 persons in the U.S. food and beverage industry and another 204,000 persons in retail food stores and other retail trade," says Bolling. "Textile manufacturing, wholesale grocery business, farm products trade, and agriculture, forestry, and fisheries also provided job opportunities. Salaries and benefits from this employment amounted to $9 billion in 1990."

"Gains have been made in U.S. employment and in labor income," she continues. "But the addition of jobs is limited to EC investment in building new capacity, and new manufacturing plants represent only 5 to 10 percent of total EC investment."

"In these new plants," Boiling says, "European brand name breads, cookies, biscuits, yogurt, cheese, spaghetti sauces, candy bars, dried soups, soft drinks, and liquor are produced in the United States rather than imported. The development of these industries has added to employment -- as well as to the diversity of foods available to U.S. consumers."

Most of the agribusiness products made by EC affiliates are consumed in the United States. In fact, the exports of these affiliates declined from $11 billion in 1980 to $7 billion in 1990. "Of that $7 billion, $4 billion consisted of farm products, mainly lumber, exported by French companies," she says.

EC investment in the U.S. food processing industry grew from $1.7 billion in 1980 to nearly $18 billion by 1990.

"From 1987 to 1989, EC companies' stake in U.S. agribusiness grew from $15 billion to $25 billion," says Bolling, "accounting for 80 percent of the total foreign investment in U.S. agribusiness in each year." And EC investment in food processing nearly doubled between 1987 and 1989. In these same years, U.S. investment in the EC food processing industry increased from $6 billion to $7 billion, and U.S. investment in EC agribusiness grew from $8 billion to $12 billion.

"EC interests also own several well-known fast-food and retail grocery chains, such as Burger King, Hardee's, and Food Lion," she continues. "Investments in textiles started from a lower base but grew rapidly to reach $2 billion in 1990."

Change in the 1990's

Until 1990, Bolling adds, EC investors brought new capital into U.S. agribusiness.

At that time, however, the total EC investment in U.S. agribusiness stagnated, says Bolling. EC companies withdrew $1.3 billion from the U.S. food industry, trimming their investment in that industry by 9 percent. Germany and the United Kingdom were the main ones taking investment funds out of the U.S. food processing industry. The United Kingdom sold some holdings, but Germany did not.

She goes on to say that German investors' presence in U.S. agribusiness has declined since 1989.

"Initially, a German affiliate of another European company provided financing for an acquisition in the United States," says Bolling. "The decline in investment in the U.S. food processing sector in 1990 from $589 million to $91 million represents the payment of loans to the German affiliate, rather than a sale of a food manufacturing company in the United States. But German investments in wholesale groceries and retail food stores rose."

And while Dutch companies increased investments in the U.S. food industry from $6.7 billion in 1989 to $7.3 billion in 1990, their investments in retail food stores declined from a high of $639 million in 1987 to $537 million by 1989. However, Dutch-owned Ahold, the 13th largest food retailer in the United States, kept its standing. A large portion of Dutch investment in U.S. agribusiness is concentrated in the food processing sector. And Dutch companies have substantial holdings in U.S. food retailing ($4.4 billion in sales in 1990).

"Companies headquartered in the United Kingdom also invested very heavily in the U.S. food processing sector," says Boiling, "with their investments increasing from $4 billion in 1987 to $10 billion in 1989. Also in 1989, the United Kingdom surpassed the Netherlands as the leading single country source of foreign investment in U.S. agri-business."

But in 1990, United Kingdom companies' investments in the U.S. food processing sector declined to $9 billion. Grand Metropolitan's sale of some companies after its large purchases of 1989 is responsible for much of the decline.

Farmland Investments

EC investors have put a lot less money into buying U.S. agricultural land. The agricultural land owned by EC investors was valued at $4 billion in 1990.

The 1980's were a decade of re-alignment of EC companies' investments in U.S. agriculture. However, EC investors' ownership of U.S. agricultural land increased only slightly -- from 5.7 million acres in 1981 to 6.1 million in 1990 -- says analyst Peter DeBraal, also of ERS. And this represents less than 1 percent of total U.S. agricultural land in both years.

Canada owns more land in the United States than any other single foreign country does, but the holdings of the EC collectively exceed those of Canada.

The most notable change from 1981 to 1990 include a large increase in U.S.-UK and U.S.-Dutch holdings, and a sharp decline in U.S.-French agricultural properties, says DeBraal. Most of this land is held by U.S.-EC corporations, rather than by EC investors not associated with a U.S. corporation. In 1990, 1.5 million acres were held by sole EC interests, compared with 4 million in U.S.-EC corporations.

German investors were the largest EC sole proprietors, followed by UK investors. The United Kingdom and France led other EC countries in joint ownership with U.S. corporations. U.S.-UK holdings made up 43 percent of all the direct investment in agricultural land by EC interests.

Forest land is the principal type of land investment, says DeBraal. It comprises 53 percent of EC investment in U.S. agricultural land, followed by pastureland (25 percent) and cropland (15 percent).

U.S.-UK holdings of large lumber and paper companies constitute the largest share of forest land owned by EC investors, followed by U.S.-French holdings.

Some corporations may have bought forest land as an investment because of their import requirements for forest products and paper, says DeBraal. Other companies may have bought forest land to balance their holdings when they purchased already existing U.S. forest products companies.

U.S.-UK, U.S.-Dutch, and U.S.-German corporations are the largest EC owners of pastureland. German interests hold the bulk of the EC-owned cropland in the United States.

Companies headquartered in France, Germany, Greece, Ireland, the Netherlands, and the United Kingdom invested heavily during the early 1980's, while companies in Portugal and Denmark invested during the latter half of the decade. Companies headquartered in Belgium, Luxembourg, and Italy invested more heavily in U.S. agricultural land during the 1970's.

EC investors have purchased land in nearly every State. Most investments are scattered, amounting to fewer than 1,000 acres per county. Fifteen States have counties with over 10,000 acres owned by EC investors, and only five States have counties with over 100,000 acres. Most of the larger investments consist of forest land.

"Many States have investments from several countries," says Bolling. "California, Colorado, Nebraska, Pennsylvania, New Mexico, and Georgia all have land owned by the United Kingdom, Germany, and the Netherlands."
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Publication:Frozen Food Digest
Date:Apr 1, 1993
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