21 st Century Global Agricultural Challenges

1 of 4221st Century Beef Club

21st Century Global Agricultural Challenges

21st Century Beef ClubMoline, IL

J.B. PennChief EconomistDeere & Company

August 13, 2008


The Global Food and Agriculture System

The 21st Century Challenges: Feed a growing, more prosperous world – and hopefully

better than we have in the past Increase food output 50% by 2025 More than double by 2050

Contribute to national energy security in many countries Preserve/enhance the environment

Maintain the rural cultural heritage

With these constraints: While using the same or fewer resources And, do this against t he backdrop of global climate change!


Global population growth

0

1

2

3

4

5

6

7

8

9

10

1950

1955

1960

1965

1970

1975

1980

1985

1990

1995

2000

2005

2025

FC

2050

FC

Source: United Nations, 2006

Bill

ions

8.0

9.2


Source: UN, 2005

4%

56%

8%

32%

-1%

Distribution by region

Population growth by 2025


Source: UN, 2005

50%40%

4%

8%

-2%

Distribution by region

Population growth by 2050


World GDP growthWorld GDP growth

Source: International Monetary Fund (IMF), World Economic Report, Apr. 2008

Ann

ual %

Cha

nge

0

1

2

3

4

5

6

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008F 2009F

Unprecedented global prosperity


World GDP growthWorld GDP growth

Ann

ual %

Cha

nge


Growth most rapid in developing countries


GD

P g

row

th

Ann

ual %

Cha

nge


Greater political stability and commodities boom contributingGreater political stability and commodities boom contributing

0

1

2

3

4

5

6

7

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008F 2009F

Africa finally emerges



Performing well recently although still below expectations Performing well recently although still below expectations

0

1

2

3

4

5

6

7

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008F 2009F

GD

P g

row

th

Ann

ual %

Cha

nge

Brazil finally emerges


-8

-6

-4

-2

0

2

4

6

8

10

12

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008F 2009F


Strong sustained growth – boosted by commodities boom Strong sustained growth – boosted by commodities boom

GD

P g

row

th

Ann

ual %

Cha

nge

Russia now stable, growing steadily


0

2

4

6

8

10

12

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008F 2009F


Policy reforms of early 1990’s now yielding results Policy reforms of early 1990’s now yielding results

GD

P g

row

th

Ann

ual %

Cha

nge

India’s growth continues


-15

-10

-5

0

5

10

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008F 2009F


After tumultuous period, now growing steadily After tumultuous period, now growing steadily

GD

P g

row

th

Ann

ual %

Cha

nge

Indonesia steady and stable


0

2

4

6

8

10

12

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008F 2009F


Concerted efforts to slow growth a bitConcerted efforts to slow growth a bit

GD

P g

row

th

Ann

ual %

Cha

nge

China’s economic miracle continues



Growth slowing after strong periodGrowth slowing after strong period

0

1

2

3

4

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008F 2009F

EU mixed performance continuesG

DP

gro

wth

Ann

ual %

Cha

nge


-4

-2

0

2

4

6

8

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

Source: Global Insight, 31July2008

How low, for how long?How low, for how long?

GD

P g

row

th

Qua

rter

ly %

Cha

nge

U.S. Economy


Source: Global Insights (GDP forecast) and Internal Calculations, April 2008

44%4%

17%

27%

9%

Distribution by Region

Additional GDP growth by 2025


< $1 per day

$1-2 per day

$2-10 per day

>$10 per day

20% of world’s population

(2/3rds experience hunger & malnutrition)

27% of world’s population

(Most hunger problems solved at $2 threshold)

Services

Processed Products

Livestock products

Commodities

Dynamics of food demand


0

20

40

60

80

100

120

140

160

- 5 10 15 20 25 30 35 40 45

India

ThailandPhilippines

South Africa

Russia

China Mexico

Brazil

Argentina

New Zealand

SpainUS

Canada

GermanyUK

Japan

Switzerland

Per Capita Income (000 US$)

Source: FAO

Income and meat consumption

Diets change with rising incomes


Many national governments are adding a new task for the agriculture system: help increase energy security

Driven by varied objectives: Reduced foreign energy dependence Environmental enhancement Rural development – farm support

Directed by public policy (subsidies, mandates, R&D investment, tariffs)

Renewable fuel


Source: USDA, IFP (Innovation, Energy, Environment), RFA

US, Brazil and EU account for 90% of productionGlobal production has tripled since 2000Capacity & demand projected to double by 2015

Thirty (30) countries have programs – Intensifying competition for resources

Brazil, 38.3%

European Union , 4.4%

China, 3.7%

Other, 4.0%

USA, 49.6%

2007 Production =

10.4 Billion Gallons

The global biofuels industry


By end of 2008, US capacity = 13.6 BGY 147 plants in operation 55 plants under construction 6 plant expansions

13.6 BGY

21 BGY Advanced

36 BGY total ethanol capacity by 2022

1.4 BGY more capacity required

15 BGY total starch capacity by 2015

Mandated by 2022

New Congressional mandate provides stimulus for advanced ethanol

U.S. Ethanol industryCurrent capacity and future growth

Source: RFA,


4.1

3.1

5.631 %

0.0

1.0

2.0

3.0

4.0

5.0

6.0

1995/96 1999/00 2003/04 2007/08F 2011/12* 2015/16*

Bil. Bu

0

5

10

15

20

25

30

35Percent

Ethanol corn use

Ethanol share of corn use

U.S. Corn Used for Ethanol

Source: USDA WASDE, Apr. 2008 *Estimates

15 Billion Gallons of Corn Ethanol will require 5.6 Bushels of Corn


Protect the natural resource base Prevent degradation of the land Improve air quality Develop more efficient water use, improve quality

Improve wildlife habitat

Avoid biodiversity loss

Cultural protection aspect (viewscapes, farm structure, practices)

Post-Industrial Challenge: increase productivity - reduce intrusion

The environmental challenge


Much of world’s total arable area already in use – the most fertile requiring least investment

Most remaining land has serious soil and terrain constraints Some covered in forests, in protected areas Characteristics difficult for agriculture – low soil fertility, high toxicity,

hilly and other difficult terrain – human and animal disease, poor infrastructure

Most located in Africa and Latin America (70% suffers soil and terrain constraints)

Further expansion is controversial – could jeopardize fragile lands Will require considerable capital investment

Source: FAO

Produce more with less…Land | Water | Labor

Growing resource constraints


0.0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

Brazil

Russia

Indi

a

China

Indo

nesia

USA

Mex

ico

South A

frica

Zimbab

we

He

cta

re o

f A

rab

le L

an

d

Source: UN and FAO, 2005

Arable Land (ha) per person

Most populous countries have least room to expand




70% of world’s freshwater is used by agriculture 90% in India and China 30 developing countries already facing growing water shortages

Water and population unevenly distributed – by 2025: 1.8 bil. people will live in areas with absolute water scarcity 2/3rds of world population will live in ‘water-stressed’ areas

Rainfed agriculture practiced on 80% of cultivated land – accounts for 60% of world’s food

Irrigation can increase yields of most crops two-to-four fold New irrigation technologies can reduce water use 30% to 60%

over surface irrigation

Source: UN-Water and FAO




Amount of water required for:



10X more water needed to raise 1 pound of beef than 1 pound of wheat

0 500 1000 1500 2000

1800 gallons

180 gallons

0.25 – 0.6 gallons

One pound of beef

Daily drinking requirements

One pound of wheat



Farm demographics (aging) and migration to cities importantly influence agricultural labor availability

High-tech machines, complex production processes and strict production regulations require skilled labor

Tighter restraint on immigration encourages mechanization, innovation – affects capital requirements





Source: BCG Analysis, US Census Bureau

Worldwide labor supply (millions), Forecast for 2020

Labor shortage looms in most developed regions




Source: Intergovernmental Panel on Climate Change (IPCC), World Bank

The backdrop of climate change Expected effects of climate change amplify the agricultural

challenges – and create some opportunities Agriculture accounts for 20-30% of GHG emissions – will be

affected by mitigation and adaptation strategies Emission reductions, energy use efficiency, land inundation,

changed practices, carbon sequestration…


Effects on the food supply Drier parts of the world get drier, wetter parts

get wetter

Sea level rises (0.3 to 2.8 feet) by 2100, more cyclones, more frequent hot days

Tropical food crop yields decline – temperate crop yields rise at first, then decline

Pests increase, reducing output, raising costs

Equity Issues Disproportionate effect on agricultural

productivity in lower latitudes – where most of the world’s poor live

Source: Intergovernmental Panel on Climate Change (IPCC), World Bank

The backdrop of climate change


Wide variety of policies and instruments available to governments to create incentives for mitigation action

Current stage: determining how best to deal with this pervasive market failure – the appropriate role of government (multilateral and national)

Agriculture progress possible through technologies now available or expected in coming years Afforestation of pastureland, cropland and forest management Conservation tillage (no-till), winter cover crops New crops – heat, salt resistant, survive droughts and floods Improved fertilizer management (manure management)

Possible opportunities for Ag in carbon markets – create offsets

The backdrop of climate change


Proved Malthus wrong for over 200 years – with new technological advancements – can we continue to do it?

Long-term productivity growth trend is 2.7% (US) - will need much faster rate in future

Developing country growth trend has been far slower – must accelerate worldwide to double output on same land base

Source: FAO and USDA

Increased importance of innovation/productivity growth


1,700

1,800

1,900

2,000

2,100

2,200

98-99 99-00 00-01 01-02 02-03 03-04 04-05 05-06 06-07 07-08 08-09 F

Production Consumption

Consumption outpaced production in six of last eight years.Consumption outpaced production in six of last eight years.

Source: USDA, July 11 2008

Mill

ion

Met

ric

To

ns

Co

arse

Gra

ins

The global agricultural plant - today


Physical stocks at “pipeline” levelPhysical stocks at “pipeline” level

Mill

ion

Met

ric

To

ns

(%)

59 days of supply in the pipeline

Source: USDA, July 11, 2008

Co

arse

Gra

ins

Global agricultural plant – production strained


Brings together visionary companies and organizations committed to sustainably and responsibly improving diets and reducing dependence on fossil fuels through agricultural productivity advances worldwide

Can meet growing demand for food, fuel and fiber. Reject falsity of “either/or” choices

Confidence in ability to increase productivity in farming and across the value chain to meet future needs in a sustainable manner

Inform the discussion through credible fact- and science-based education, information and advocacy

Improve understanding of agriculture’s ability to fulfill the promise of improved diets and better fuels in the future


Policy drivers Global Trade increasingly important – disparity between food

production and consumption Multilateral – regional - bilateral

Doha – What follows? New issues

Export controls Non-economic barriers

Farm Policies (US / EU / elsewhere) Evolution – subsidies not sustainable Shifting focus (revenue insurance, etc.)

Immigration Response to demographic shifts Affects competitiveness balance/capital requirements


Policy drivers

Climate Policy National/Multinational action coming – approach? Impact on customer base/competitiveness Carbon markets – Ag & Forestry?

Energy Policy Renewables – sustainable? Advanced renewables Petroleum prices


Policy drivers

Financial Services industry Interest Rate environment Credit crunch Regulation

National Politics U.S. Politics

Elections – Congress, White House Economic Policy directions

Indian/Brazilian Elections Chinese Transition Other


Final comments Longer term business backdrop likely to be much different

Pace of global economic growth is key Growing global emphasis on agriculture/infrastructure

System struggling for awhile – market volatility Productivity growth (technology) critical Presents opportunities

Growing globalization (despite current sentiments) Production facilities location Customer base expanding Product trade (food, fuel, forestry) expanding Technology dissemination emphasis

Growing importance of policy drivers Premium on greater agility/flexibility Plus hangover effect of past bad policies (energy, food)



21st Century Beef ClubMoline, IL

J.B. PennChief EconomistDeere & Company

August 13, 2008

21 st Century Global Agricultural Challenges

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