ADM's chief fry guy talks trans fats
New York City's ban on trans fats in restaurants - set to take effect in July - has sent shock waves through the $537 billion dining industry. Some chains, like Wendy's (Charts), KFC, and Red Lobster, have already pledged to eliminate artery-clogging trans fats nationwide.
Others, like McDonald's (Charts), haven't found a solution yet. For restaurant suppliers there are big consequences too. Consider that last year agricultural giant Archer Daniels Midland, one of the nation's largest makers of frying oils, reported $598 million in operating profits from oil seed processing. Fortune's Matthew Boyle called ADM's chief oil minister, Tedd Kruse, to get his take on the trans fat crusade.
Packaged-food companies have been removing trans fats since 2003, when the FDA required that they be listed on nutrition labels starting this year. Did you think trans fats would be banned in restaurants?
The FDA gave packaged-food companies a reasonable period of time, and still companies were scrambling. An all-out ban in restaurants, I think, is on the extreme side.
Why is it extreme?
We anticipated a more phased-in approach, giving restaurants more time to get substitutions in place. It's not simply a matter of flipping a switch. Partially hydrogenated oils are an eight-billion-pound market that's $2.4 billion worth annually. There are not quantities of healthier oils available to satisfy that appetite. This year and next we could end up with 365 million pounds of [trans-fat-free] soybean oil suitable for fast-food fryers. Four or five billion pounds are necessary. I would say we are five to seven years away from being able to balance supply and demand.
Does the demand for ethanol reduce your ability to churn out healthier oils?
We're seeing fiercer competition for acres. Most farms have sizable increases in corn acres and decreases in acres for soybeans and other oil crops. Also, healthier oil seeds require us to pay a premium to the grower of about 40 cents per bushel. We process 3.3 million bushels of seeds a day globally. So to make a full switch to healthier oils we'd pay an extra $486 million a year in seed costs alone.
Will other cities follow New York's lead?
I wouldn't be surprised. We have heard a lot about it in Chicago and Louisville. The trouble is to what degree this snowballs. If this occurs again and again, you might have to take a step backward.
What do you mean?
If you simply ban trans fats, there is the potential to substitute oils that raise the saturated-fat content if the supply of healthier oils is not available.
What's your favorite food - with or without trans fats?