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21 st Century Global Agricultural Challenges. 21 st Century Beef Club Moline, IL J.B. Penn Chief Economist Deere & Company August 13, 2008. 21 st Century Global Agricultural Challenges. The Global Food and Agriculture System. The 21 st Century Challenges :

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21 st century global agricultural challenges

21st Century Global Agricultural Challenges

21st Century Beef Club

Moline, IL

J.B. Penn

Chief Economist

Deere & Company

August 13, 2008

21st Century Beef Club


21 st century global agricultural challenges1

21st Century Global Agricultural Challenges

21st Century Beef Club


The global food and agriculture system

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!

21st Century Beef Club


Global population growth

Global population growth

9.2

8.0

Billions

21st Century Beef Club

Source: United Nations, 2006


21 st century global agricultural challenges

Population growth by 2025

Distribution by region

-1%

4%

56%

32%

8%

21st Century Beef Club

Source: UN, 2005


21 st century global agricultural challenges

Population growth by 2050

Distribution by region

-2%

4%

50%

40%

8%

21st Century Beef Club

Source: UN, 2005


21 st century global agricultural challenges

Unprecedented global prosperity

World GDP growth

Annual % Change

21st Century Beef Club

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


21 st century global agricultural challenges

Growth most rapid in developing countries

World GDP growth

Annual % Change

21st Century Beef Club

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


21 st century global agricultural challenges

Africa finally emerges

GDP growth

Annual % Change

Greater political stability and commodities boom contributing

21st Century Beef Club

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


21 st century global agricultural challenges

Brazil finally emerges

GDP growth

Annual % Change

Performing well recently although still below expectations

21st Century Beef Club

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


21 st century global agricultural challenges

Russia now stable, growing steadily

GDP growth

Annual % Change

Strong sustained growth – boosted by commodities boom

21st Century Beef Club

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


21 st century global agricultural challenges

India’s growth continues

GDP growth

Annual % Change

Policy reforms of early 1990’s now yielding results

21st Century Beef Club

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


21 st century global agricultural challenges

Indonesia steady and stable

GDP growth

Annual % Change

After tumultuous period, now growing steadily

21st Century Beef Club

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


21 st century global agricultural challenges

China’s economic miracle continues

GDP growth

Annual % Change

Concerted efforts to slow growth a bit

21st Century Beef Club

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


21 st century global agricultural challenges

EU mixed performance continues

GDP growth

Annual % Change

Growth slowing after strong period

21st Century Beef Club

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


U s economy

U.S. Economy

GDP growth

Quarterly % Change

How low, for how long?

21st Century Beef Club

Source: Global Insight, 31July2008


Additional gdp growth by 2025

Additional GDP growth by 2025

Distribution by Region

17%

27%

44%

4%

9%

21st Century Beef Club

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


Dynamics of food demand

Dynamics of food demand

>$10 per

day

Services

$2-10 per

day

Processed Products

$1-2 per

day

27% of world’s population

(Most hunger problems solved at $2 threshold)

Livestock products

20% of world’s population

(2/3rds experience hunger & malnutrition)

< $1 per

day

Commodities

21st Century Beef Club


Diets change with rising incomes

New Zealand

US

Spain

Canada

Argentina

Germany

Brazil

UK

Switzerland

China

Mexico

Russia

Japan

South Africa

Philippines

Thailand

India

Diets change with rising incomes

Income and meat consumption

Per Capita Income (000 US$)

21st Century Beef Club

Source: FAO


Renewable fuel

Renewable fuel

  • 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)

21st Century Beef Club


The global biofuels industry

The global biofuels industry

  • US, Brazil and EU account for 90% of production

    • Global production has tripled since 2000

    • Capacity & demand projected to double by 2015

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

2007 Production =

10.4 Billion Gallons

21st Century Beef Club

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


U s ethanol industry

U.S. Ethanol industry

Current capacity and future growth

  • By end of 2008, US capacity = 13.6 BGY

    • 147 plants in operation

    • 55 plants under construction

    • 6 plant expansions

  • New Congressional mandate provides stimulus for advanced ethanol

1.4 BGY more capacity required

36 BGY total ethanol capacity by 2022

21 BGY Advanced

Mandated by 2022

15 BGY total starch capacity by 2015

13.6 BGY

21st Century Beef Club

Source: RFA,


21 st century global agricultural challenges

U.S. Corn Used for Ethanol

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

21st Century Beef Club

Source: USDA WASDE, Apr. 2008 *Estimates


The environmental challenge

The environmental challenge

  • 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

21st Century Beef Club


Growing resource constraints

Growing resource constraints

Produce more with less…Land| Water | Labor

  • 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

21st Century Beef Club

Source: FAO


Growing resource constraints1

Growing resource constraints

Produce more with less…Land| Water | Labor

Most populous countries have least room to expand

Arable Land (ha) per person

Hectare of Arable Land

21st Century Beef Club

Source: UN and FAO, 2005


Growing resource constraints2

Growing resource constraints

Produce more with less…Land| Water | Labor

  • 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

21st Century Beef Club

Source: UN-Water and FAO


Growing resource constraints3

Growing resource constraints

Produce more with less…Land| Water | Labor

Amount of water required for:

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

One pound of beef

1800 gallons

One pound of wheat

180 gallons

0.25 – 0.6 gallons

Daily drinking requirements

21st Century Beef Club

Source: UN-Water and FAO


Growing resource constraints4

Growing resource constraints

Produce more with less…Land| Water | Labor

  • 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

21st Century Beef Club

Source: UN-Water and FAO


Growing resource constraints5

Growing resource constraints

Produce more with less…Land| Water | Labor

Labor shortage looms in most developed regions

Worldwide labor supply (millions), Forecast for 2020

21st Century Beef Club

Source: BCG Analysis, US Census Bureau


The backdrop of climate change

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…

21st Century Beef Club

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


The backdrop of climate change1

The backdrop of climate change

  • 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

21st Century Beef Club

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


The backdrop of climate change2

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

21st Century Beef Club


Increased importance of innovation productivity growth

Increased importance of innovation/productivity growth

  • 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

21st Century Beef Club

Source: FAO and USDA


The global agricultural plant today

The global agricultural plant - today

Consumption outpaced production in six of last eight years.

Coarse Grains

Million Metric Tons

21st Century Beef Club

Source: USDA, July 11 2008


Global agricultural plant production strained

Global agricultural plant – production strained

Physical stocks at “pipeline” level

59 days of supply in the pipeline

(%)

Million Metric Tons

Coarse Grains

21st Century Beef Club

Source: USDA, July 11, 2008


21 st century global agricultural challenges

  • 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

21st Century Beef Club


Policy drivers

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

21st Century Beef Club


Policy drivers1

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

21st Century Beef Club


Policy drivers2

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

21st Century Beef Club


Final comments

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 Club


21 st century global agricultural challenges2

21st Century Global Agricultural Challenges

21st Century Beef Club

Moline, IL

J.B. Penn

Chief Economist

Deere & Company

August 13, 2008

21st Century Beef Club


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