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21st Century Global Agricultural Challenges

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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 – PowerPoint PPT presentation

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Title: 21st Century Global Agricultural Challenges


1
21st Century Global Agricultural Challenges
  • 21st Century Beef Club
  • Moline, IL
  • J.B. Penn
  • Chief Economist
  • Deere Company
  • August 13, 2008

2
21st Century Global Agricultural Challenges
3
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!

4
Global population growth
9.2
8.0
Billions
Source United Nations, 2006
5
Population growth by 2025
Distribution by region
-1
4
56
32
8
Source UN, 2005
6
Population growth by 2050
Distribution by region
-2
4
50
40
8
Source UN, 2005
7
Unprecedented global prosperity
World GDP growth
Annual Change
Source International Monetary Fund (IMF), World
Economic Report, Apr. 2008
8
Growth most rapid in developing countries
World GDP growth
Annual Change
Source International Monetary Fund (IMF), World
Economic Report, Apr. 2008
9
Africa finally emerges
GDP growth Annual Change
Greater political stability and commodities boom
contributing
Source International Monetary Fund (IMF), World
Economic Report, Apr. 2008
10
Brazil finally emerges
GDP growth Annual Change
Performing well recently although still below
expectations
Source International Monetary Fund (IMF), World
Economic Report, Apr. 2008
11
Russia now stable, growing steadily
GDP growth Annual Change
Strong sustained growth boosted by commodities
boom
Source International Monetary Fund (IMF), World
Economic Report, Apr. 2008
12
Indias growth continues
GDP growth Annual Change
Policy reforms of early 1990s now yielding
results
Source International Monetary Fund (IMF), World
Economic Report, Apr. 2008
13
Indonesia steady and stable
GDP growth Annual Change
After tumultuous period, now growing steadily
Source International Monetary Fund (IMF), World
Economic Report, Apr. 2008
14
Chinas economic miracle continues
GDP growth Annual Change
Concerted efforts to slow growth a bit
Source International Monetary Fund (IMF), World
Economic Report, Apr. 2008
15
EU mixed performance continues
GDP growth Annual Change
Growth slowing after strong period
Source International Monetary Fund (IMF), World
Economic Report, Apr. 2008
16
U.S. Economy
GDP growth Quarterly Change
How low, for how long?
Source Global Insight, 31July2008
17
Additional GDP growth by 2025
Distribution by Region
17
27
44
4
9
Source Global Insights (GDP forecast) and
Internal Calculations, April 2008
18
Dynamics of food demand
gt10 per day
Services
2-10 per day
Processed Products
1-2 per day
27 of worlds population (Most hunger problems
solved at 2 threshold)
Livestock products
lt 1 per day
20 of worlds population (2/3rds experience
hunger malnutrition)
Commodities
19
Diets change with rising incomes
Income and meat consumption
Per Capita Income (000 US)
Source FAO
20
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,
    RD investment, tariffs)

21
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
Source USDA, IFP (Innovation, Energy,
Environment), RFA
22
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
15 BGY total starch capacity by 2015
Mandated by 2022
13.6 BGY
Source RFA,
23
U.S. Corn Used for Ethanol
15 Billion Gallons of Corn Ethanol will require
5.6 Bushels of Corn
Source USDA WASDE, Apr. 2008 Estimates
24
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

25
Growing resource constraints
Produce more with less Land Water Labor
  • Much of worlds 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
26
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
Source UN and FAO, 2005
27
Growing resource constraints
Produce more with less Land Water Labor
  • 70 of worlds 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 worlds
    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
28
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

1800 gallons
One pound of beef
One pound of wheat
180 gallons
0.25 0.6 gallons
Daily drinking requirements
Source UN-Water and FAO
29
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

Source UN-Water and FAO
30
Growing resource constraints
Produce more with less Land Water Labor
Labor shortage looms in most developed regions
Worldwide labor supply (millions), Forecast for
2020
Source BCG Analysis, US Census Bureau
31
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

Source Intergovernmental Panel on Climate Change
(IPCC), World Bank
32
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 worlds poor live

Source Intergovernmental Panel on Climate Change
(IPCC), World Bank
33
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

34
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

Source FAO and USDA
35
The global agricultural plant - today
Consumption outpaced production in six of last
eight years.
Million Metric Tons
Coarse Grains
Source USDA, July 11 2008
36
Global agricultural plant production strained
Physical stocks at pipeline level
59 days of supply in the pipeline
()
Million Metric Tons
Coarse Grains
Source USDA, July 11, 2008
37
  • 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 agricultures ability to
    fulfill the promise of improved diets and better
    fuels in the future

38
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

39
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

40
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

41
Final comments
  • Longer term business backdrop likely to be much
    different
  • Pace of global economic growth is key
  • Growing global emphasis on agriculture/infrastruct
    ure
  • 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)

42
21st Century Global Agricultural Challenges
  • 21st Century Beef Club
  • Moline, IL
  • J.B. Penn
  • Chief Economist
  • Deere Company
  • August 13, 2008
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