21 st century global agricultural challenges
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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 : - PowerPoint PPT PresentationTRANSCRIPT
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21st Century Global Agricultural Challenges
21st Century Beef ClubMoline, IL
J.B. PennChief EconomistDeere & Company
August 13, 2008
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21st Century Global Agricultural Challenges
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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!
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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
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Source: UN, 2005
4%
56%
8%
32%
-1%
Distribution by region
Population growth by 2025
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Source: UN, 2005
50%40%
4%
8%
-2%
Distribution by region
Population growth by 2050
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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
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World GDP growthWorld GDP growth
Ann
ual %
Cha
nge
Source: International Monetary Fund (IMF), World Economic Report, Apr. 2008
Growth most rapid in developing countries
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GD
P g
row
th
Ann
ual %
Cha
nge
Source: International Monetary Fund (IMF), World Economic Report, Apr. 2008
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
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Source: International Monetary Fund (IMF), World Economic Report, Apr. 2008
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
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-8
-6
-4
-2
0
2
4
6
8
10
12
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008F 2009F
Source: International Monetary Fund (IMF), World Economic Report, Apr. 2008
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
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0
2
4
6
8
10
12
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008F 2009F
Source: International Monetary Fund (IMF), World Economic Report, Apr. 2008
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
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-15
-10
-5
0
5
10
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008F 2009F
Source: International Monetary Fund (IMF), World Economic Report, Apr. 2008
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
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0
2
4
6
8
10
12
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008F 2009F
Source: International Monetary Fund (IMF), World Economic Report, Apr. 2008
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
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Source: International Monetary Fund (IMF), World Economic Report, Apr. 2008
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
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-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
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Source: Global Insights (GDP forecast) and Internal Calculations, April 2008
44%4%
17%
27%
9%
Distribution by Region
Additional GDP growth by 2025
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< $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 $2 threshold)
Services
Processed Products
Livestock products
Commodities
Dynamics of food demand
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0
20
40
60
80
100
120
140
160
- 5 10 15 20 25 30 35 40 45
India
ThailandPhilippines
South Africa
Russia
China Mexico
Brazil
Argentina
New Zealand
SpainUS
Canada
GermanyUK
Japan
Switzerland
Per Capita Income (000 US$)
Source: FAO
Income and meat consumption
Diets change with rising incomes
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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
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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
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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,
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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
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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
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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
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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
Produce more with less…Land | Water | Labor
Growing resource constraints
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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
Produce more with less…Land | Water | Labor
Growing resource constraints
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Amount of water required for:
Source: UN-Water and FAO
Produce more with less…Land | Water | Labor
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
Growing resource constraints
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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
Produce more with less…Land | Water | Labor
Growing resource constraints
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Source: BCG Analysis, US Census Bureau
Worldwide labor supply (millions), Forecast for 2020
Labor shortage looms in most developed regions
Produce more with less…Land | Water | Labor
Growing resource constraints
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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…
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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)
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21st Century Global Agricultural Challenges
21st Century Beef ClubMoline, IL
J.B. PennChief EconomistDeere & Company
August 13, 2008