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. 
 
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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