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Cablegate: Ambassador Tours Kraft Foods Argentina and Argentine Food

VZCZCXYZ0026
RR RUEHWEB

DE RUEHBU #1422/01 2041749
ZNR UUUUU ZZH
R 231749Z JUL 07
FM AMEMBASSY BUENOS AIRES
TO RUEHC/SECSTATE WASHDC 8722
RUEHRC/USDA FAS WASHDC

UNCLAS BUENOS AIRES 001422

SIPDIS

SIPDIS
SENSITIVE

STATE FOR ECON WHA/BSC
PASS TO DEPUTY UNDER SECRETARY FOR FNS - KATE HOUSTON
USDA FOR FAS/OA/OSTA/OCRA/ONA/OGA/OTP/OCBD/OAO/OFSO

E.O. 12958: N/A
TAGS: EAGR OCRA OFSO OCBD OSTA OAO ONA OTP ECON BEXP AR
SUBJECT: AMBASSADOR TOURS KRAFT FOODS ARGENTINA AND ARGENTINE FOOD
BANK

1. (SBU) Ambassador visited the Kraft Foods Argentina plant in
General Pacheco, Kraft's second largest cookie plant in the world.
Kraft highlighted their strong commitment to their Corporate Social
Responsibility Programs. They also discussed the direct role that
the union plays in their operations, which at times is difficult to
manage as it has increasingly become influenced by a "new" class.
Company officials also spoke at length on the current energy crisis,
price controls, labor costs and inflation, which combined make
future investments a difficult sell. Following the visit, the
Ambassador traveled to the Argentine Food Bank where he toured the
facility, met with US company volunteers packing boxes for delivery
and recognized the Bank's critical role in reducing hunger in
Argentina.

---------------------
KRAFT FOODS ARGENTINE
---------------------

2. (U) Ambassador visited Kraft Foods Argentina located in General
Pacheco, Kraft's second largest cookie plant in the world. He was
received by Kraft's General Director, Alberto Pizzi, who escorted
him on a tour of the plant. Kraft Foods currently has 3,500
employees and 3 processing plants located in General Pacheco and
Tres Arroyos (Province of Buenos Aires), and Villa Mercedes
(Province of San Luis). Specifically, at the General Pacheco plant
they produce cookies, crackers, dry pasta, and confectionary
products. Kraft's major competitor for cookies is Argentine company
Arcor, especially given their joint venture relationship with
Danone/Bagley. Kraft recently acquired Danone worldwide, but this
did not extend to situations in which Danone/Bagley was already
involved in a joint venture. Following the tour, Kraft executives
spoke at length with Ambassador.

-------------------------------------
Corporate Social Responsibility (CSR)
-------------------------------------

3. (SBU) Kraft spoke in detail on their CSR Programs in which their
main objective is to improve nutrition and food education in
Argentina. The company has implemented several impressive programs
that were recently highlighted in ACE Award Cable (Reftel 01184).
To name a few, Kraft's "Merendar" program, in partnership with the
Food Bank, distributes nutritional kits to undernourished children
from primary and kindergarten schools. Since October 2002, 300 tons
of food have been distributed to 2,500 children on a daily basis.
The company's "Eating for a Better Life" program, in partnership
with the Center of Studies of Infantile Nutrition, the Food Bank,
and the Uruguayan Association of Nutritionists, has helped improve
the nutritional knowledge of managers who direct community soup
kitchens and other organizations. To date, the program has directly
benefited 600 people and, indirectly, over 40,000 people. During
2006, Kraft made "in-kind donations" of over 300 tons of food
products to more than 300 organizations around the country through
the Food Bank distribution network. The company participates in
many other CSR programs.

-------------------------------------
FAT GUYS BEING REPLACED BY YOUNG GUYS
-------------------------------------

4. (SBU) Kraft directors explained that since the current
Administration belongs to the traditional Peronist party, the Labor
Ministry does not interfere with union actions until they become
egregious. Under this scenario, the oldest union leaders, or "Fat
Guys" (as a majority reportedly became rich due to lucrative
"transactions") have been losing prestige while the younger leaders
are becoming more powerful, and keep trying to demonstrate their
ability to deliver benefits by labor actions. Kraft commented that
the young turk's power is often marked by their ability to stop
business, rather than negotiate. The more aggressive they show
themselves, the more notorious they become. Company Representatives
also remarked that nepotism is prevalent in Argentine unions, with
union bosses often passing power to their kin without debate, which
fuels resentment among rank and file.

5. (SBU) Kraft clarified that their current relationship with the
union is relatively good as they have decent relationships with
union leaders. In fact, Kraft recently negotiated their annual
union agreement, which was not marked by the aforementioned
activity. This agreement is annual and is conducted with their
local union under the blessing of the National Union and Ministry of
Labor. Company Officials stated that without the current Minister
of Labor's willingness to intervene, these negotiations could easily
drag on and on.

-------------------------------------------
Energy Crisis: Squeeze Me But Don't Kill Me

-------------------------------------------

5. (SBU) Kraft explained that the current Energy crisis has indeed
impacted their ability to operate without disruption, especially
given the fact that the plant operates on natural gas. At the GOA's
request, Kraft receives last minute calls, never written
instructions, often times with only a day's notice, "asking" them to
reduce their consumption of natural gas by 40-50 percent. This is
particularly difficult as the Argentine food industry is booming and
demand is extremely high. In order to comply with these requests
and keep favor with the GOA, Kraft is forced to shut down two or
three lines of production, thereby decreasing output. Kraft stated
that they do not feel as though they are being singled out due to
their U.S. ownership.

6. (SBU) The company commented that in their opinion, the GOA's
explanation that the crisis was due to extremely cold weather and
booming industry production had little merit. Kraft also
highlighted the fact that the price for gas is much cheaper in the
city of Buenos Aires than in the provinces which are typically
poorer, thus affecting the poor more directly. They noted that the
price for bottled natural gas which the poor use to fuel their home
appliances has gone up from 25 to 40 pesos a week, while those who
have gas pipes supplying their homes get continued low prices.

----------------------------------
PRICE CONTROLS - - LOST TECHNOLOGY
----------------------------------

7. (SBU) The GOA has pressed Kraft on price controls, enacted in an
effort to reduce inflation, but the company stated they have a good
personal relationship with the officer in charge of implementing
this measure. Kraft explained that this can be a very difficult
process as they are encouraged to provide their costs to the GOA in
order to "justify" their pricing. However, as a public company,
they do not share their costs with GOA Officials due to the fear
that these will be released and used by competitors. Kraft
Directors did not express major concern over this issue but did
explain that if margins are kept low and the exchange rate vis-a-vis
the U.S. dollar remains high, attracting additional investment will
be difficult. This places Kraft in a very difficult position to
acquire corporate funding for new, in-country investments.

8. (SBU) To this end, Kraft further explained that decreased margins
have led to a decrease in the ability to secure additional
investments. In turn, this impedes Kraft's ability to purchase
necessary, modern equipment. With time, this is a major concern as
technology will be lost, oddly at a time when the economy is rapidly
growing. In their opinion, the current price controls are much
worse than the two that were enacted in the past as real inflation
is underreported.

------------------------------
Rising Labor & Insurance Costs
------------------------------

9. (SBU) Kraft Officials commented that increased labor costs,
coupled with price controls and a sharp rise in the price of raw
materials, are impacting the company's bottom line. The strength of
the unions has forced a majority of Argentine companies to adjust
salaries upward on a frequent basis. For example, Kraft's labor
costs used to account for 10 percent of their total cost, as
compared to now in which it accounts for 25 percent! This has made
it difficult for companies like Kraft to avoid lay-offs.

10. (SBU) All companies established in Argentina must offer an
insurance policy to protect their employees against any physical or
mental injury while at work, otherwise known as Work Risk Management
policy (ART). Currently, an employee who is injured at work
receives his/her ART insurance money. In addition, they are allowed
by law to sue their employer for additional money. Insurance rates
have risen sharply over the past few years, which have placed a much
heavy burden on companies, especially for middle-size companies.
Kraft stated that they are very concerned with rising salaries and
increased insurance costs, especially in light of the current
economic situation.

-------------------------------------
Reducing Argentine Hunger
-------------------------------------

11. (U) Following the visit with Kraft Foods, Ambassador proceeded
to the Argentine Food Bank Network, headquartered in San Martin,
Buenos Aires, for a tour of the facility and discussion with their
Executives. Kraft is its largest contributor of foodstuffs and has
been working with the Food Bank for almost 5 years. The Argentine
Food Bank Network is a non-profit organization composed of 14 Food

Banks throughout the country. The network has been in existence
since 2003. It was created to coordinate the work between the
individual Food Banks in order to strengthen their potential to
reduce hunger and improve the nutritional situation in Argentina in
the wake of the economic crisis of 2001/2002. The Food Bank in
Buenos Aires has 400 volunteers and 12 permanent staff members. It
is the largest bank in the network and distributes roughly half the
food contributed. In 2006, the network distributed 4.3 million kg
of food among 900 institutions that feed 130,000 people. In June
2007, the network had a record month for food distributions and is
continually outpacing its previous levels.

---------------------------------------
Ambassador Assists Accenture Volunteers
---------------------------------------

12. (U) The Ambassador was introduced to the Food Bank's permanent
staff and was then given a walking tour of the warehouse, followed
by a discussion with the Executive Staff in their office. The
Ambassador observed volunteers from Accenture, a global U.S.
management consulting company based in Chicago, packing several
boxes of foodstuffs. Accenture encourages its personnel to volunteer
once per month to help in the packing process for food shipments.

-----------------------------------
Embassy Donates Copier to Food bank
-----------------------------------

13. (U) During the discussion, the Ambassador recognized the
critical role of the Food Bank in reducing hunger in Argentina,
congratulated them on their efforts and encouraged them to continue
building public and private partnerships. In addition, Ambassador
announced the donation of an Embassy copier to the Food Bank as well
as offered Embassy support to the Food Bank's efforts whenever
possible. The Ambassador then engaged them on the organization's
priorities and challenges.

------------------
Political Support
------------------

14. (U) Food Bank Officials explained that one of the principal
challenges they encounter is to gain political support for the
enactment of a "Good Samaritan Law", similar to the U.S. (i.e., "The
Bill Emerson Good Samaritan Food Donation Act of 1996", which
provides liability protection to organizations that donate food to
non-profit organizations and protects them from civil and criminal
liability should the donated product later cause harm to the needy).
A new bill is being sponsored by Senator Maria Laura Leguizamon
(Buenos Aires) but this bill needs to receive the support of the
"Casa Rosada" before it can move forward. With such legislation in
place, the Food Bank would receive many more donations from
corporations, both national and multinational.

-------
Comment
-------

15. (SBU) Kraft explained that overall, the company is doing well
but highlighted their concerns for continued growth due to high
inflation, price controls, energy shortages and labor costs.
Embassy personnel have heard similar concerns from several other
U.S. companies in various industry sectors. Kraft continues to plan
more CSR initiatives like their major work with the Food Bank. The
Argentine Food Bank continues to seek assistance and new methods for
increasing donations in hopes of ending hunger in Argentina. The
Embassy, especially through the efforts of Foreign Agricultural
Service, will work with them on such initiatives.

Wayne

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