Download Document

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
1 of 42
21st Century Global Agricultural Challenges
21st Century Beef Club
2 of 42
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
3 of 42
Global population growth
10
9.2
9
8.0
8
Billions
7
6
5
4
3
2
1
21st Century Beef Club
4 of 42
Source: United Nations, 2006
FC
20
50
FC
20
25
19
50
19
55
19
60
19
65
19
70
19
75
19
80
19
85
19
90
19
95
20
00
20
05
0
Population growth by 2025
Distribution by region
-1%
4%
32%
8%
21st Century Beef Club
5 of 42
Source: UN, 2005
56%
Population growth by 2050
Distribution by region
-2%
4%
50%
40%
8%
21st Century Beef Club
6 of 42
Source: UN, 2005
Unprecedented global prosperity
World GDP growth
6
Annual % Change
5
4
3
2
1
0
1998
1999
2000
2001
2002
2003
2004
21st Century Beef Club
7 of 42
Source: International Monetary Fund (IMF), World Economic Report, Apr. 2008
2005
2006
2007
2008F 2009F
Growth most rapid in developing countries
World GDP growth
9
World
Developing
Developed
8
Annual % Change
7
6
5
4
3
2
1
0
1998
1999
2000
2001
2002
2003
2004
2005
21st Century Beef Club
8 of 42
Source: International Monetary Fund (IMF), World Economic Report, Apr. 2008
2006
2007
2008F 2009F
Africa finally emerges
7
Annual % Change
GDP growth
6
5
4
3
2
1
0
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008F 2009F
Greater political stability and commodities boom contributing
21st Century Beef Club
9 of 42
Source: International Monetary Fund (IMF), World Economic Report, Apr. 2008
Brazil finally emerges
7
Annual % Change
GDP growth
6
5
4
3
2
1
0
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008F 2009F
Performing well recently although still below expectations
21st Century Beef Club
10 of 42
Source: International Monetary Fund (IMF), World Economic Report, Apr. 2008
Russia now stable, growing steadily
12
10
Annual % Change
GDP growth
8
6
4
2
0
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008F 2009F
-2
-4
-6
-8
Strong sustained growth – boosted by commodities boom
21st Century Beef Club
11 of 42
Source: International Monetary Fund (IMF), World Economic Report, Apr. 2008
India’s growth continues
12
Annual % Change
GDP growth
10
8
6
4
2
0
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008F 2009F
Policy reforms of early 1990’s now yielding results
21st Century Beef Club
12 of 42
Source: International Monetary Fund (IMF), World Economic Report, Apr. 2008
Indonesia steady and stable
10
Annual % Change
GDP growth
5
0
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008F 2009F
-5
-10
-15
After tumultuous period, now growing steadily
21st Century Beef Club
13 of 42
Source: International Monetary Fund (IMF), World Economic Report, Apr. 2008
China’s economic miracle continues
12
Annual % Change
GDP growth
10
8
6
4
2
0
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
Concerted efforts to slow growth a bit
21st Century Beef Club
14 of 42
Source: International Monetary Fund (IMF), World Economic Report, Apr. 2008
2008F 2009F
EU mixed performance continues
4
Annual % Change
GDP growth
3
2
1
0
1998
1999
2000
2001
2002
2003
2004
2005
2006
Growth slowing after strong period
21st Century Beef Club
15 of 42
Source: International Monetary Fund (IMF), World Economic Report, Apr. 2008
2007
2008F 2009F
U.S. Economy
8
Quarterly % Change
GDP growth
6
4
2
0
99
9
1
00
0
2
01
0
2
02
0
2
03
0
2
04
0
2
05
0
2
-2
How low, for how long?
-4
21st Century Beef Club
16 of 42
Source: Global Insight, 31July2008
06
0
2
07
0
2
08
0
2
09
0
2
Additional GDP growth by 2025
Distribution by Region
17%
27%
4%
9%
21st Century Beef Club
17 of 42
Source: Global Insights (GDP forecast) and Internal Calculations, April 2008
44%
Dynamics of food demand
Services
>$10 per
day
Processed
Products
$2-10 per
day
Livestock
products
Commodities
27% of world’s population
(Most hunger problems
solved at $2 threshold)
20% of world’s population
(2/3rds experience hunger
& malnutrition)
21st Century Beef Club
18 of 42
$1-2 per
day
< $1 per
day
Diets change with rising incomes
160
Income and meat consumption
140
New Zealand
US
120
Spain
Canada
100
Argentina
80
60
Germany
UK
Brazil
China
Mexico
Russia
40
Switzerland
Japan
South Africa
Philippines
Thailand
20
India
0
-
5
10
15
20
25
Per Capita Income (000 US$)
21st Century Beef Club
19 of 42
Source: FAO
30
35
40
45
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
20 of 42
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
Other, 4.0%
competition for resources
China, 3.7%
European
Union , 4.4%
2007 Production =
10.4 Billion Gallons
USA, 49.6%
Brazil, 38.3%
21st Century Beef Club
21 of 42
Source: USDA, IFP (Innovation, Energy, Environment), RFA
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
36 BGY total ethanol
capacity by 2022
21 BGY
Advanced
Mandated by
2022
13.6 BGY
21st Century Beef Club
22 of 42
Source: RFA,
1.4 BGY more
capacity
required
15 BGY total
starch capacity
by 2015
U.S. Corn Used for Ethanol
15 Billion Gallons of Corn Ethanol will require 5.6 Bushels of Corn
Bil. Bu
6.0
5.6
31 %
Ethanol corn use
Percent
35
30
5.0
Ethanol share of corn use
4.1
25
4.0
3.1
20
3.0
15
2.0
10
1.0
5
0.0
0
1995/96
1999/00
2003/04
2007/08F
21st Century Beef Club
23 of 42
Source: USDA WASDE, Apr. 2008 *Estimates
2011/12*
2015/16*
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
24 of 42
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
25 of 42
Source: FAO
Growing resource constraints
Produce more with less…
Land0.9| Water | Labor
Most populous countries
have least room to expand
0.8
0.7
Arable Land (ha) per person
0.6
Hectare of Arable Land
0.5
0.4
0.3
0.2
0.1
Source: UN and FAO, 2005
bw
e
Zi
A
fr
th
m
ba
ic
a
co
M
ex
i
So
u
26 of 42
U
SA
do
n
es
ia
na
In
21st Century Beef Club
C
hi
di
a
In
si
a
R
us
B
ra
z
il
0.0
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
27 of 42
Source: UN-Water and FAO
Growing resource constraints
Produce more with less…
Land | Water | Labor
10X more water needed to raise 1 pound of beef than 1 pound
of wheat
Amount of water required for:
One pound of beef
1800 gallons
One pound of wheat
180 gallons
0.25 – 0.6 gallons
Daily drinking requirements
0
21st Century Beef Club
28 of 42
Source: UN-Water and FAO
500
1000
1500
2000
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
29 of 42
Source: UN-Water and FAO
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
30 of 42
Source: BCG Analysis, US Census Bureau
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
31 of 42
Source: Intergovernmental Panel on Climate Change (IPCC), World Bank
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
32 of 42
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
21st Century Beef Club
33 of 42
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
34 of 42
Source: FAO and USDA
The global agricultural plant - today
Consumption outpaced production in six of last eight years.
2,200
Production
Consumption
Million Metric Tons
Coarse Grains
2,100
2,000
1,900
1,800
1,700
98-99
99-00
00-01
01-02
02-03
21st Century Beef Club
35 of 42
Source: USDA, July 11 2008
03-04
04-05
05-06
06-07
07-08 08-09 F
Global agricultural plant – production strained
Physical stocks at “pipeline” level
600
59 days of supply in the pipeline
560
32%
30%
520
28%
480
26%
440
(%)
Coarse Grains
Million Metric Tons
34%
24%
400
22%
360
20%
320
18%
280
16%
240
14%
200
12%
98-99 99-00 00-01 01-02 02-03 03-04 04-05 05-06 06-07 07-08 08-09
Ending Stocks
Stocks/Use Ratio
21st Century Beef Club
36 of 42
Source: USDA, July 11, 2008
 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
37 of 42
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
38 of 42
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
39 of 42
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
40 of 42
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
41 of 42
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
42 of 42