Continental Grain Company

views updated Jun 08 2018

Continental Grain Company

277 Park Avenue
New York, New York 10172
U.S.A.
(212) 207-5100
Fax: (212) 207-5043

Private Company
Incorporated: 1813
Employees: 15,000
Sales: $15 billion
SICs: 5153 Grain & Field Beans; 2048 Prepared Feeds, Not Elsewhere Classified

Continental Grain Company is one of the world’s largest privately held companies and a primary player in the agricultural commodities business. The company has been owned and operated by one family throughout its history. The main component of Continental Grain’s business consists of storing, selling, and shipping grains and oilseeds, but the company also runs a vast empire of holdings in more than 100 nations around the world, which produce and distribute meat, animal feeds, flour, petroleum, and financial services. Begun in Europe during the Napoleonic era, Continental shifted its operations to the United States in the wake of World War II and grew rapidly in the postwar years.

Continental Grain was founded by Simon Fribourg in 1813 in Arlon, Belgium. Legend has it that the business first took off during a Belgian drought in 1848 when Simon’s son, Michel Fribourg, made the dangerous journey to Bessarabia in the Ukraine carrying several trunks of gold to trade for wheat. Upon his return to Belgium, Fribourg was easily able to resell the grain at a high return to his starving Belgian countrymen. From the beginning, the commodities trader thrived on the vicissitudes of nature and the ever-present need for food.

In addition to natural disaster, wars played a major role in the company’s history. During the Franco-Prussian war, Belgium remained neutral and the Fribourgs’ enterprise flourished. In the late 19th century, the company built flour mills in Luxembourg and Belgium. When World War I broke out in 1914, the Fribourgs moved their company to London in the wake of the German invasion of their country.

After the war was over, the Fribourgs returned to Antwerp, where they re-established their business under the name Cie Continental d’Importation. In 1921 the company opened a Paris office. At the same time the Fribourgs established an operation in Chicago, as the midwestern region of the United States emerged as a major source of the world’s grain. The Chicago branch of the company was founded on February 5, 1921, and was capitalized with $50,000. Its purpose was to procure grains for export. To aid in this endeavor, Continental also opened a New York office in 1922.

In the course of the 1920s and 1930s, Continental expanded its operations to cities such as Rotterdam, Zurich, Bucharest, Genoa, Naples, and Madrid. In the United States the company began to establish grain elevators and corporate offices throughout the Midwest in the 1930s; by 1936 the company had a head office of 25 people in New York as well as a West Coast outpost, and fledgling domestic merchandising efforts were in place.

When Nazi leader Adolf Hitler marched on Paris in June of 1940, the Fribourgs made what would be a decisive break with Europe and their company’s past. The family’s patriarch at that time, Jules, gathered 13 relatives and close associates together to begin the journey over the Pyrenees to Portugal. His son, Michel, working in the company’s London office, diverted one of Continental’s freighters to Lisbon, where the family made their escape. Eventually, the Fribourgs found their way to the United States, where Jules began to run the family business from New York.

Michel Fribourg spent the war as an American soldier, working in army intelligence in France. In 1944 his father died, and stewardship of the company passed to his uncle. Upon Michel’s return after the war, however, he took the reins; he was 31 years old. Faced with the fact that many of Continental’s European operations had been decimated by war, leaving its American unit by far the strongest branch of the company, Michel Fribourg decided to make the United States the headquarters and primary arena of Continental’s activities.

With European and Asian agricultural areas devastated by war, and the populations of these continents near starvation, American output of foodstuffs increased sharply in the late 1940s. To take advantage of this opportunity, Continental made substantial investments in a broad network of grain elevators and other aspects of commodity trading. The company’s operations grew dramatically in the postwar years. By 1954, Continental’s sales had reached $200 million. Despite this success, by the end of the 1950s, Fribourg came to recognize the limitations of a company focused on one field, and dominated by one family. To strengthen Continental, he inaugurated a number of changes in the company’s operations. First, Fribourg extended the company’s management pool beyond his own family, recruiting large numbers of young executives from top business schools and colleges.

In the mid-1960s Fribourg also began to widen Continental’s spheres of operation, diversifying into different but related agribusiness fields. In 1966 the company bought a 53 percent interest in Allied Mills, Inc., of Chicago, an animal feed producer. This company subsequently bought four food processors: Hilbun Poultry, Polo Food Corporation, Ful-O-Pep (an animal food company), and Central Nebraska Packing.

In 1970 Continental also entered the commodities brokerage field, establishing the ContiCommodity Services division. This branch of the company opened 14 domestic offices and one foreign location in an effort to become a worldwide commodity futures broker. In this way, Continental hoped to create a hedge against the risks it ran in the commodities market. The company also set up the Continental Milling Company on Long Island to export flour and animal feeds. In late 1971 Continental expanded its holdings further when it bought the Orowheat Baking Company, a specialty baker.

By the early 1970s more than 100 companies had been added to the Fribourg empire, including real estate concerns, ranches, and food processors and distributors. Continental had expanded its operations to nearly every corner of the world. The company’s sales had increased to $2 billion, with 90 percent of them coming from grain trading, and its net worth had reached $100 million.

Continental handled about a quarter of the world’s international grain shipments and about a fifth of the grain exports of the United States. The company boasted three million tons of domestic storage capacity and half a million tons abroad. To move the products it sold, Continental operated numerous country grain elevators, 13 river stations, 65 barges, and eight North American port elevators. In addition, the company leased hundreds of railroad cars and as many as 25 cargo ships.

In November 1971, in a deal personally arranged by Fribourg, Continental sold 900,000 tons of U.S. government surplus barley and 2 million tons of corn, worth $ 137 million, to the U.S.S.R. This sale followed the company’s earlier 1963 sale of grain to the Russians, the first such deal between a Western company and the Soviets. In early 1972, Continental scored another Russian coup when it sold nearly 6 million tons of American grain and soybeans to the Soviets, plus an undisclosed proportion of the foreign foodstuffs bought by the country after Soviet crops failed because of bad weather. The value of this agreement was rumored to reach $3 billion. After then President Richard Nixon visited China in the early 1970s, Continental also became the first American commodities dealer to sell grain to that superpower.

Despite Fribourg’s success in arranging these deals, by the early 1970s it had become clear that power in Continental needed to be decentralized. The company went through a series of reorganization plans and hired outside management consultants in an effort to restructure its lines of command, with limited success. These efforts were an attempt to respond to a changing climate in the commodities industry. Greater government control, in the form of subsidies to farmers, and investigations into trading practices were threatening to alter the age-old structure of the grain trading business. In 1973 the U.S. Congress launched an inquiry into Continental’s Soviet deal, and the government charged the company with filing false reports. Despite these investigations, in 1975 Continental made another large sale of commodities, worth $640 million, to the Soviet Union.

In the mid-1970s Continental also found itself the object of government scrutiny in connection with its New Orleans grain elevator operations. In April of 1976, the company paid a $500,000 fine for shortweighting ships. On December 22, 1977, however, Continental suffered a much larger difficulty with its New Orleans operations when a massive series of explosions shortly after 9:00 a.m. obliterated the company’s $80 million grain elevator in Westwego. Thirty-six workers were killed when static electricity set fire to grain dust, and 45 of the facility’s 72 silos were destroyed.

Fires burned in the silos for nearly nine months after the explosion, and the company proved unable to demolish the steel-rimmed concrete structures with dynamite. Finally, Continental managed to level its remaining silos and spread out the grain in order to smother the flames. Although temporary facilities allowed some grain to be shipped from the site within a month, Continental faced lawsuits claiming more than $200 million in damages from the blast and received citations and penalties for safety violations by the Occupational Safety and Health Administration. In December of 1978, Continental announced that it would invest $200 million to rebuild its New Orleans site, constructing a new $30 million, fire-safe elevator.

In the late 1970s and throughout the early 1980s, Continental encountered a general slump in the agricultural industry, which depressed the company’s revenues and earnings. The intervention of the federal government complicated the market domestically, and international trade also proved perilous. Continental had difficulty collecting large payments for grain shipments from both Turkey and Zaire in the late 1970s and went so far as to cut off the latter’s supply of grain at one point in an effort to gain payment. In addition, in August of 1979, the company was cited for illegally cooperating with an Arab boycott of companies that did business with Israel.

Continental’s decision to diversify into a broader range of financial functions came back to haunt the company early in 1980. Its commodities trading subsidiary, ContiCommodity Services, Inc., had moved into interest rate and currency futures in the mid-1970s, producing strong growth and profits. In the spring of 1980, however, the company found itself in an untenable position after the silver market collapsed, and Continental was forced to provide $81 million in additional funding for its subsidiary. By December 1980, ContiCommodity had also been forced to liquidate two of its mutual funds, McLean I and a successor fund, McLean II, after the spring silver debacle was followed by a two-week plunge in the markets.

Despite these difficulties, Continental promoted ContiCommodity’s head to the newly created position of chief executive in March of 1981. He was joined in this spot by another top executive, as Continental continued in its effort to redistribute corporate power. In the wake of its difficulties, ContiCommodity saw many of its top executives lured away to other firms in 1982, and the company sued a competitor over the raid. In 1983 Continental toyed with the idea of selling the division, but then finally withdrew.

In April 1984, Continental did sell its Orowheat subsidiary, splitting the company into two parts, which were dispersed to the company’s management and to General Foods. By the following year, Continental’s troubled financial subsidiary had spun off four subsidiary companies: Conticapital Management, Conticurrency, Contifinancial, and Contiadvisory. ContiCommodity itself had begun to specialize in trading financial paper. Despite these measures, however, branches of the company continued to suffer heavy losses.

In September 1984, Continental announced that it had sold ContiCommodity to Refco, Inc., after admitting that it had made additional infusions of cash into the company after failures in two arbitrage trading programs. The company’s high overhead, caused by its extensive network of offices, also contributed to its financial lack of health. With this move, Continental withdrew from the futures brokerage business entirely. The company did, however, remain liable for a fine of $1.5 million, assessed by the Commodity Futures Trading Commission in 1986 in connection with its late-1970s silver dealings. In addition, Continental paid an out-of-court settlement to the Peruvian government in connection with this matter.

In 1985 Continental continued the evolution of its corporate structure. The company divided its operations into five units and assigned each a head. The divisions were comprised of financial services, world meat, world milling, transportation and natural resources, and world grain and oilseeds processing. This last unit, which was headed by Michel Fribourg’s son, Paul, accounted for 75 percent of the company’s revenues, estimated to total $15 billion. Three years later, the company moved even further towards decentralized control when a non-Fribourg was named to succeed Michel Fribourg as chief executive.

In the late 1980s the agricultural industry began a slow revival from its slump, and this process began to enhance Continental’s sales. In March 1990, the company announced that it would expand its infrastructure by purchasing 12 grain elevators, located throughout the Midwest. Also in the spring of 1990, Continental named Paul Fribourg, the sixth generation commodities trader, to additional duties, as he made his way toward the pinnacle of the family company. On April 1, 1990, he took command of a consolidated World Grain, Oilseeds and Merchandising, and General Commodities group, which was called Bulk Commodities. The younger Fribourg was also elected a director of the corporation.

The process of transferring power from father to son was completed in July of 1994, when Michel Fribourg retired to become chairman emeritus, and his son Paul was named president and chief operating officer. Under his father’s guidance for over 50 years, Continental Grain had grown to encompass a wide variety of businesses, including meat, milling, grain, oilseeds, rice, cotton, oil, gas, and financial services. The company operated in 100 different nations on six continents, and ships carrying its goods plied the world’s seas. It remained to be seen how the sixth-generation Fribourg would guide the company.

Continental Grain Company

views updated May 23 2018

Continental Grain Company

277 Park Avenue
New York, New York 10172
U.S.A.
(212) 207-5100
Fax: (212) 207-5043

Private Company
Incorporated: 1921
Employees: 14,500
Sales: $15 billion
SICs: 5153 Grain & Field Beans; 2048 Prepared Feeds Not Elsewhere Classified

The second largest grain and related commodities company in the world, Continental Grain Company also represented one of the largest private companies in the world and one of the most secretive. Starting as a commodity trading business in Belgium in 1813, Continental Grain developed simultaneously with the modern industrial and agricultural age. Indeed, the company evolved from a humble European trading house to become a diversified commodity trading company with operations in livestock, shipping, food processing, oil, and financial services.

In 1994, Paul J. Fribourg was named president and chief operating officer of Continental Grain, representing the sixth generation of the Fribourg family to enter the company’s highest echelon of management. Concurrent with Paul Fribourg’s promotion, his father, Michel Fribourg, made room for his second-born son in Continental’s executive management hierarchy by moving aside to become the company’s chairman emeritus. This event marked the gradual transfer of power from one Fribourg to another in a chain of command that stretched back nearly two centuries. It was Michel Fribourg’s great-greatgrandfather, Simon Fribourg, who founded the commodity trading business in his native Belgium in 1813. Fribourg’s business was nearly two decades old when the industrial revolution commenced, forever changing the face of Europe and creating fertile ground for Simon Fribourg’s commodity business.

That Simon Fribourg founded his business before this monumental shift from an agrarian Europe to an industrial one was propitious. In the coming half century, Europe would experience unprecedented scientific progress and social change, engendering significant and wide-ranging developments in industry, commerce, and trade that brought vast new wealth to western European countries. Before the century was through, an extensive system of railways, under construction in Belgium by the 1850s, would not only significantly increase the speed of shipping goods, but it would also cut the cost of transportation in half. The methods by which these goods were produced changed as well, as small-scale craft industries and guilds gave way to the age of mechanization and full-fledged manufacturing plants. With the proliferation of these modern, heavy industries came large towns and cities and the emergence of a new class of citizens able to survive and prosper through the manipulation of capital rather than by owning land or tending to it.

As the effects of this industrial revolution spread, a society and marketplace for Fribourg and his business were made immeasurably stronger, buttressed by the advent of a middle class, the development of railroads, and the emergence of large urban and industrial centers. The effects of the forces that created this new Europe would enable Fribourg and his descendants to flourish in a world of commerce that, as the industrial revolution took firm root in Europe then spread elsewhere, witnessed the rise of merchants, manufacturers, bankers, and commodity traders like Fribourg.

Before Europe was transformed by the industrial revolution, Fribourg operated exclusively in Belgium, maintaining his company as a domestic commodity trading business. Simon then gave control of the company to his son, Michel Fribourg. Under Michel Fribourg’s watch, the family business would make a significant move beyond Belgium’s borders, as the currents of the industrial revolution reverberated from their origin in Britain to reshape three continental countries in particular: Germany, France, and Belgium.

Although many of the changes taking place during the century pointed toward industrial progress, rapid advances in agricultural methods occurred as well, leading to more abundant crops and occasional surpluses of food. Steam-plows and steam-threshers were becoming more and more common by the 1840s, replacing the tedious and millennia-old method of tilling and harvesting by hand. By the time these new agricultural implements were emerging in substantial numbers, investments by the Belgian aristocracy stimulated the growth of heavy industries in the valleys of the Meuse and Sambre.

Despite these early technological gains, the Irish potato disease of 1845 and 1846 had repercussive effects on the European mainland, leading to a grave shortage of wheat that doubled prices in western Europe in the late 1840s. Food riots erupted in Italy, France, Germany, and Belgium, and a financial crisis erupted after banks exhausted stocks of gold to pay for wheat. To exacerbate the situation, a severe drought crippled Belgian agriculture in 1848. In the midst of this tumult, Michel Fribourg made a fateful decision that forever changed the future course of his family’s business. In 1848, Fribourg traded several trunks of gold for the as yet untapped market of Ukrainian wheat, which he in turn sold to his hungry fellow Belgians. This event signalled the beginning of the rise of the Fribourg family fortune.

In the coming years, the tides of change moved in a favorable direction for the Fribourg family, particularly as it began to operate as an import and export commodity trading business. Although industrial output had doubled in Europe in the 35 years spanning Simon Fribourg’s founding of the business and the decision by his son to purchase Ukrainian wheat, free trade in the region continued to be stymied by a complicated web of tariffs and import restrictions. However, this web began to unravel slowly, just prior to Michel Fribourg’s foray into Ukrainian wheat, making the second half of the 19th century a much more hospitable environment for the family business. As with the industrial revolution itself, Britain led the way toward the easing of tariffs and import restrictions, repealing the Corn Laws in 1846 and removing regulations which hampered wheat imports. Other European countries followed suit, enabling the Fribourg enterprise to expand and prosper; by the end of the century it had become a grain trading empire.

Nearly all of the changes that made the 19th century a signal era in modern history also made countries highly dependent on traded grain. As the 20th century approached, the company’s position as a premier commodity trader put the Fribourg empire at the crest of the remarkable period of commercial growth that would affect the entire world. The same industrial, social, and scientific advances which had swept through Europe were, by the turn of the century, raging in the United States, a country with tremendously vast agricultural potential. Accompanying this shift from east to west, particularly in terms of agricultural production, Russia, which had become Europe’s primary grain supplier in the 19th century, ceased to serve as such after World War I, creating a new market for the Fribourg family to broker their commodity services.

To capitalize on this limitless new market, the Fribourg family business, at that time led by Jules and Rene Fribourg, established its first U.S. office in Chicago in 1921. That same year, the company was reorganized as Continental Grain Company. Continental Grain strengthened its U.S. presence in 1930, when it leased a Galveston terminal from Southern Pacific Railroad. Interestingly, the Great Depression served Continental Grain well, for it enabled the company to purchase existing U.S. grain facilities at bargain prices. During the decade-long financial slide, Continental Grain purchased U.S. grain elevators across the country, obtaining facilities in such key locations as Kansas City, Nashville, and Toledo, Ohio. By the end of the decade and after less than twenty years in the United States, the company had established both a sophisticated grain network and a stable and growing business in North America.

The outbreak of World War II in 1939 not only signalled the coming of hostilities that would stretch across the globe, but it also portended flight from Belgium for the Fribourg family. When the Germans captured Belgium in 1940, the Fribourgs were forced to flee their homeland and emigrate to the United States, where they continued to run their successful agricultural commodities business. Among the family members in this abrupt emigration was Michel Fribourg, named after his greatgrandfather who had established the firm foundation for Continental Grain’s subsequent success.

After his father’s death in 1944, Michel Fribourg, then 31 years old, assumed control of what had become a $300-million family enterprise. Ultimately, Michel would prove to be one of the company’s most capable leaders, preparing Continental Grain for a modern global economy most notably through the diversification of the company’s business network into the production of beef, pork, and poultry products and the broadening of their business scope to include feed and flour milling and financial services. Michel Fribourg also achieved considerable success in geographically increasing the scope of Continental Grain’s operations by expanding them into more than 50 countries, which served customers in more than 100 countries.

The strides achieved by Michel Fribourg during the postwar period were momentous, particularly through two of his most noteworthy achievements, one of which bore a striking resemblance to the greatest achievement recorded by his greatgrandfather and namesake. Through the negotiating efforts of Michel Fribourg in the 1960s, Continental Grain hammered out a historic grain trade agreement with the Soviet Union, becoming the first company to export American grain to the United States’ cold war adversary. This lucrative trade agreement was followed a decade later by a similar deal with China, and Continental Grain became the first company to export American grain to that country.

Against the backdrop of these two significant trade agreements, Continental Grain embarked on an aggressive acquisition program during the 1960s and 1970s, purchasing Allied Mills, Inc., a feed mill concern, in 1965, and absorbing numerous agricultural and transport businesses. These acquisitions, part of Michel Fribourg’s diversification drive, brought together several notable properties under Continental Grain’s corporate umbrella, including feedlots in Texas, an English soybean producer, a bakery, and Quaker Oats’s agricultural products unit.

Entering the 1980s, Continental Grain narrowed the scope of its operations, divesting itself of its banking units and its commodities brokerage house. By the middle of the decade, the company was generating an estimated $14 billion in annual sales, up from roughly $5 billion a decade earlier, a prodigious sales volume recorded as the company underwent managerial changes of an unprecedented nature. One of the architects of the company’s success during this period was Donald Staheli, who had joined the Allied Mills unit in 1969 and who eventually became president of Continental Grain in 1984. Four years later, when Michel Fribourg relinquished his chief executive post, Staheli became Continental Grain’s chief executive, the first non-Fribourg to hold such a position in the company’s 175-year history.

However, this historic shift in power only lasted a few years before a new Fribourg embraced the family legacy. Paul Fribourg, son of Michel, had spent his entire career at Continental Grain after his graduation from Amherst College in 1976. He joined the company’s Chicago office in the mid-1970s, beginning as a grain merchandiser and then climbing up the corporate ladder as so many Fribourg’s had done before him. By the late 1980s, Paul Fribourg was exercising his own influence on the company, realigning its international grain and oilseeds operations to create Continental Grain’s World Grain and Oilseeds Processing Group, a division which he headed. Paul assumed his place in the Fribourg family legacy in 1994 when he was named chief executive of Continental Grain.

As it had for decades, Continental Grain operated during the 1990s as the second largest grain and related commodities company in the world, trailing only Minneapolis-based Cargill Inc.

Although sales were essentially flat during the first half of the decade, remaining static at an estimated $15 billion, the company maintained its firm economic foundation. Indeed, given the company’s pervasive presence in the worldwide grain trading market and its nearly two centuries of success, Continental Grain enjoyed an enviable position as a steadfast leader in the international grain commodities market. As the company planned for the future with Paul Fribourg at the helm and the Fribourg family controlling 100 percent of Continental Grain’s stock, the company was poised to thrive in the coming decades just as it had for nearly two centuries.

Principal Subsidiaries

Continental Grain Company Dutch Quality House; Continental Grain Company Fall River Feed-lots Division; Continental Grain Company Grant County Feeders.