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Robert W. Lane |
Creating Prosperity Through Investment in Agriculture
2007 World Congress, World Agricultural Forum
St. Louis, Missouri
Remarks by Robert W. Lane
Chairman & Chief Executive Officer
Deere & Company
May 8, 2007
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Thank you, Mr. Chairman for that kind introduction. Distinguished guests, ladies and gentlemen, it is a great pleasure to be with you this morning in St. Louis, the gateway to the western United States and the heart of one of the great agricultural production regions of the world.
Congratulations to the World Agricultural Forum organizers for addressing a most timely and important topic. We are currently experiencing a truly unique period for global agriculture, one posing enormous challenges but one that offers significant opportunities, as well.
And, this is a most appropriate group to discuss the current challenges and opportunities. You are the very people who work on the issues intertwining agriculture, food, fuel, water and economic development. Bringing your collective expertise to the topics promised by the Forum's rich agenda gives me hope that we will make good progress here. We can expect that each of us will be able to take back to our respective organizations and parts of the world, new and practical ideas that can form the foundation of critical solutions.
The Growing Challenge
The overall theme of this Congress is creating prosperity through investment in agriculture–that is, achieving sustainable economic development through a basic sector of many economies to improve diets, incomes and living standards across the vast reaches of the world–a formidable challenge, indeed. And, a challenge all the more difficult because the prosperity must be sustainable.
Creating prosperity is always a challenge for many reasons. Creating prosperity from agriculture is an even greater challenge because it involves overcoming increasingly serious resource constraints without diminishing our capacity to produce nutritious food and fiber–our traditional market, and one that continues to grow as the global population grows.
The United Nations says the global population will increase from 6.5 billion to 8 billion by 2025, more than 20% –– and then to 9.1 billion by 2050, nearly 40%. Meeting these needs will require us to double food production over the next four decades. Just imagine – on top of our need now to improve diets for over two billion people, we will need to feed 2.5 billion new people–almost another India and China. Those tasks alone are quite a tall order indeed for global agriculture, one thought impossible not too long ago.
This new and growing demand–component reflects global economic growth and its capacity to change the economic profile of large developing countries–dramatically. Growth in these economies has been, and likely will continue to be more than twice as fast as in developed countries.
Such trends have extremely important implications for agriculture because they support the growth of emerging middle–class consumers on many continents of the world who not only can increase food consumption, but can improve diets as well–trends that are expected to continue for the foreseeable future. Meeting these demands implies the use of far more agricultural resources than if current economic levels continued.
But while the challenge of producing food for growing markets remains, the new news–tomorrow's additional challenge–reflects the fact that agriculture is also providing pathways to both cleaner air and energy diversification. These ideas have taken hold at an astonishing pace in response to terrorism and higher energy costs, and to growing evidence of climate change. Already, a new, strong and rapidly growing market has emerged in several parts of the world, with its effects now noted everywhere.
- Brazil. Today, Brazil utilizes just over one–half of the sugarcane output from 7.2 million hectares to produce some 20.5 billion liters of ethanol. And, it offers both the plans and capability for significant expansion.
- European Union. The EU already has some 120 biodiesel plants in production with an annual capacity of over 6 million tons. Still, this growth likely is just the beginning. It now has a biofuel target of 5.75% of fuel use–a level that will require output to quadruple and use more than 15% of the arable land base for fuel production.
- Asia. There are now biofuel programs in Japan, China, India, Indonesia and elsewhere throughout the region. Significant biodiesel production already exists in several locations, and some are now exporters. More capacity is being constructed, and still more planned as more and more government mandates are approved.
- USA. In this country, ethanol output continues to expand dramatically. Output already fast approaches the 7.5 billion gallon target set for 2012. We expect over three billion bushels of corn to be used for ethanol in 2007, likely approaching one–fourth of the entire output. Some experts suggest ethanol output could exceed 16 billion gallons by 2015 and utilize 40% of a greatly expanded annual corn output.
- Elsewhere. And, the story is similar all across the world – biofuel production is beginning, expansion is underway, and much research is being devoted to exploration of a wider array of potentially more efficient feedstock.
These visions of both greater energy diversity and cleaner fuel are increasingly confronting real, immediate constraints: Arable land is scarce; competition for water is growing; and capital has many competing uses. And, we must be ever–more concerned about agriculture's impact on the environment while simultaneously developing practices which foster sustainability.
As we ramp up the use of agricultural resources for both food and fuel, there is growing recognition of environmental degradation across much of the world. Agriculture has been an important player in efforts to reduce soil erosion, improve water and air quality, and enhance wildlife habitat. Ameliorating these problems while increasing cropping intensity will continue to require new technologies, added investment, and new farming practices. And, now the problem of climate change creates impetus for all industries, including agriculture, to reduce the size of their carbon footprint.
Clearly, the challenges that now confront our industry–and all of global society–are well reflected in the theme of this Congress. These challenges link agriculture, food abundance and prosperity and are underlain by the additional challenge of rapid change. How do we provide the additional products needed from the land – growing volumes over time with ever–increasing quality expectations – even though resource constraints become more pressing while issues of environmental quality and sustainability assume higher priorities?
Meeting the Challenge
We know that change–enormous, fundamental adjustments–increasingly will be required to meet the growing needs of the future. In fact, we probably cannot meet our goals with existing constraints. In the words of the Congress organizers, we may need to "revolutionize the global system" and in many respects we are already on our way.
This is not an unprecedented circumstance, in historical terms. It is instructive to remember that only a few decades ago the specter of famine often stalked India–and many other nations, as well. The Green Revolution was a technology–based answer to a series of challenges, a still–compelling demonstration of science and capital applied to human needs. And, not too long ago, the theme of "Who will feed China?" was a very real concern. By altering incentives for technological innovation and by accepting greater economic openness, Chinese policy changes have enabled significant progress. Agriculture has not lost its capacity to meet such challenges, and it can help meet future energy needs as it once mobilized to provide food.
We are, even now, moving forward, although the path is not yet fully clear. But, it is clear that achieving greater prosperity while addressing growing societal problems will require sustained and sustainable economic expansion. By now, the basic recipe for economic development is generally known. The necessary ingredients are familiar even though their assembly and actual application almost always proves difficult. The essential aspects will include:
- The "right" mix of economic policies and regulations to create an environment conducive to business meeting customers' needs, and to business investment for the good of society. That means open markets, transparent systems, free flow of capital and information, underlain always by real competition. History is replete with illustrations that affirm the close correspondence of these conditions with rapid and sustained economic growth.
- Technological innovation is the time–tested foundation for success in avoiding the "resource limits" Thomas Malthus first anticipated nearly 250 years ago when he compared growth trends for population and food supplies. Meeting the challenges before us will require technological breakthroughs, to be sure. And, while there are no guarantees, we know they are much more likely in open economies with attractive incentives than in closed ones.
Experience has shown that when these conditions occur, investors are attracted and the requisite capital for productive facilities and infrastructure materializes, accompanied by advanced technology and management practices.
In this vision, a proper business setting will provide sufficient incentives for rapid technological advancements (for renewable fuels, for example). It also will help us become more efficient and better utilize the resources we already have and to mobilize the capital needed for infrastructure development. Such a setting will provide the economic incentives the global agriculture system needs to be able to meet the 21st century needs for food, fiber, and fuel more fully and in a more sustainable way than it mobilized to meet 20th century needs for food and fiber.
A Private Sector Perspective
I am confident that the system can respond to meet the challenges because, as I have the privilege to travel throughout the world, I can see almost daily demonstrations of the power of the market–driven economy to mobilize private sector capital and technology. I would suggest that Deere's interests and activities are illustrative of how individual companies– of how the entire system–responds when the business conditions are right. When appropriate economic returns can be realized, opportunities are found in the challenges and workable solutions to the looming problems are devised. As the world's leading agricultural equipment manufacturer, we are doing business in more than 130 countries. Almost forty percent of our revenues from this part of our business come from outside the United States. And, about forty percent of our 46,500 employees work outside this country. Therefore, we are grappling with these very issues every day.
Given the environment of global agriculture today–perhaps the most dynamic it ever has been–what are Deere's key interests–where are we seeing opportunities today? Allow me to share a bit of our thinking with you.
Productivity Improvement |
| First is continued productivity improvement for our customer base. Growth in farmer productivity is essential to profitability and competitiveness–and agriculture becomes more competitive as it becomes more globally interdependent every year. So, we strive to continually improve our products and services to enhance farmers' productivity, profitability and sustainability. Technological innovations are central to our efforts, as reflected in new electronics, computer applications, engine efficiencies, GPS, etc. In fact, Deere invests nearly $2 million daily in research and development to improve our products–continuing investments in improved productivity. We aim for performance that endures. |
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Renewable Energy |
| We now are heavily focused on ascertaining what the emerging renewable fuels markets will require of us–including perhaps "new generation" crop production systems as better genetics greatly expand yields. And, we are looking ahead to the cellulosics–ethanol era, which may require new kinds of machines to cultivate, harvest, process and move high–volume cellulosic biomass. And perhaps not surprisingly, we are helping our customers reap the benefit of the wind, which blows over their lands in abundance. With an investment to date of over $1billion, we now offer what we call a "Community Wind Model" to engage all key stakeholders cooperatively in project development in rural areas. |
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Water |
| We agree with the Forum organizers that water availability is a growing challenge as the competition between urban/industrial and agricultural uses becomes increasingly intense. Many individuals and families around the world desperately need fresh water for their daily needs. Thus, economic pressure for the more efficient use, management and conservation of water will continue to grow. Deere sees opportunities there to apply the best technology, capital, and new processes for customers around the globe. Last June, we took our first step in this area by acquiring a leading irrigation management systems company with a growing global presence. We intend to magnify our efforts in this area worldwide. |
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Environment/Climate Change |
| Environmental degradation has been a special focus for some time. Climate change is a more recent threat. In fact, because today "Green" is a societal concern, it is also a global business issue. We are very involved both in minimizing any adverse environmental impact of our operations and helping our customers worldwide with effective solutions to environmental problems. We provide efficient engines to meet emissions standards while lowering fuel requirements; we offer appropriate tillage and efficient irrigation equipment; and we encourage low–impact farming practices. That, in part, is why we are a member of the U.S. Climate Action Partnership and an EPA Climate Leader. |
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| Mobilizing Developing Country Resources |
| The coming agricultural challenges are global in scope, and will demand mobilization of resources globally, not just those in a few developed countries. We are actively expanding into the emerging markets where we produce and offer products and services that fit there, and that contribute greatly to their improved agricultural productivity. |
We now are building "appropriately designed and sized" tractors and implements for a variety of farming conditions across the developing world. And, we manufacture such machines in Brazil, Mexico, India, and China, among other places and, from there, sell products into some 50 markets now. We are also constructing comprehensive supply systems, dealer networks, financing capabilities, and parts distribution depots across South America, the former Soviet Union, India, Africa, and throughout Asia. These investments will help increasingly mechanize commercial agriculture in these areas and greatly improve productivity, with corresponding benefits both for farmers and the much broader consuming public.
These are some of the priority activities and special interests of Deere today. Although we have been in business for 170 years, we think of ourselves as on the cusp of a new era of meeting the world's needs. The realities of globalization are creating new customers for us every day and are causing existing customers to value increased productivity and efficiency more than ever.
Let me share a brief example. I was recently in Africa, and visited a Moroccan farmer who uses Deere tractors made in Mexico and India to compete with grape growers and winemakers in Europe and Australia. This is not unusual. Deere today sells combines made in East Moline, Illinois to customers in Russia, Ukraine and Kazakhstan; Chinese–made Deere combines to customers in the Middle East; Brazilian–made combines to European customers; and German– and Indian–made tractors to U.S. farmers. Deere even produces a tractor in Augusta, Georgia that is assembled largely with components from 12 other countries.
Moreover, increased economic openness has been a key driver of the global growth of the past 15 years, and is highly beneficial to our customers. But, there are still many barriers that limit trade and increase costs.
Multilateral trade negotiations–the Doha Development Agenda–have been underway now for almost six years. A key part of the "right economic policy mix" I mentioned earlier is pulling down those barriers to trade–we hope, in the form of a rapid conclusion to the Round with a robust, ambitious agreement. Such an accord would be highly beneficial to the global manufacturing, services and agricultural sectors and would mean better protections for intellectual property and streamlining trading rules, among other things. I cannot emphasize enough: Such an agreement is not yet out of reach, although it is threatened. Its completion would be enormously helpful in meeting the challenges to global agriculture that we are discussing here today.
Raising the Bar and a Call to Action
As we review and analyze the dynamics of global agriculture, we can focus on the challenges and the resource limitations, or we can focus on the opportunities to overcome the constraints. I urge that we opt for the latter.
Because it is often the largest component of many economies and engages a high proportion of the population, agriculture occupies a central focus in economic development. If the system is inefficient, the purchase of food consumes a large share of consumers' disposable income. And, these conditions are notoriously hard to change by the simple application of one or a few of the commonly used development tools.
But, new, growing markets for food and fuel mean new opportunities for agricultural resources, including producers themselves. And, these new markets promise re–invigorated investment in production resources and eventually new productivity growth and better incomes for producers.
At the same time, the new investment implies increased efficiency throughout the value chain. It offers the real promise that, as the agricultural systems respond, they can become much more attractive development engines in the future–a truly promising concept and one not yet widely appreciated.
This then leads me to suggest that our aspirations should be even greater than they are. "Creating prosperity" means going beyond just minimally meeting food and fuel needs – "creating prosperity" is a big step up from just avoiding famine. The concept implies the potential for more people to actually "enjoy prosperity" than ever before. At John Deere, we call this concept "human flourishing," and we have dedicated ourselves to making this happen. We invite you to do the same.
The global agriculture industry–led by many of the very people who are attending this Congress–has a unique opportunity in the near future. Through our investments, we have the opportunity to significantly alleviate poverty and improve the lives of untold millions. By now, we are all familiar with the statistics but I believe they bear repeating. Of the 6.5 billion people in the world today, some 1.25 billion live on less than $1 per day and 850 million (67%) of those are malnourished and hungry. A total of 3 billion live on less than $2 per day. Embedding the "right" mix of policy and regulations will enable appropriate investment in agriculture to improve incomes for hundreds of millions in rural areas. And, a more efficient, fully functioning food system will benefit hundreds of millions more in the vast urban centers that will see higher quality, less expensive food.
My assertion then is this: Certainly, we have enormous needs that will strain the global agricultural system – and, yes, we do face serious resource limitations. But, we at Deere are ready to meet those challenges fully and so are the leadership and workers in most of the other agribusinesses I know.
Since we know what to do and how to do it, what more is required for progress that is both tangible and soon? One still missing element is the political resolve to create and embed the conditions necessary to enable the system to respond. There must be a strong exertion of "political will" to assemble the ingredients and apply the process–and, thereby create the political and economic conditions that can attract the capital investment, facilitate the unimpeded flow of technology and information, and empower local entrepreneurs.
This "political will" must be national in the many countries whose economies remain largely isolated with internal artificial incentives and disincentives that stymie modernization and progress. Sad to say, these often are the very countries most in need of progress but also the most difficult to reform.
But, "political will" must be exerted elsewhere as well, such as in the capitals of some developed countries where, for example, tough decisions are now required to bring the long–stalled multilateral trade negotiations to a successful conclusion. Global agriculture would benefit enormously from a new WTO agreement and the biggest beneficiaries would be developing countries. Not only would they gain from greater access to developed country markets, but highly beneficial south–south trade also would be facilitated.
Perhaps the best hope is that politicians and other leaders realize that the opportunity now exists to utilize agriculture as a powerful engine for faster and sustainable economic development–with the potential for achieving significant reductions in poverty, diversified energy sources, improvements in diets and rapid jumps in living standards for literally billions of people. Because products from the land are in great demand, many are willing to mobilize the capital and develop the technology to help meet that demand, and to do so in socially responsible ways. But, there must be an accommodating, transparent, stable business climate in which to operate.
Let me commend the Congress organizers again for reflecting the current situation – that food, fiber and fuel demands on the global agricultural system have begun to grow immensely–just as agricultural production constraints are becoming ever more binding. And, the organizers have correctly highlighted investment in agriculture as an essential element to greater prosperity and better lives for much of the world's people.
We can mobilize global agriculture to meet these needs, and do so on a sustainable basis. And, because of the world's interest in renewable fuels, we can achieve even more – we can improve global prosperity in the process. To do so, we must create the conditions that provide incentives sufficient to mobilize capital and advance the technology–all the while taking account of the environmental and other social concerns.
We at Deere are already engaged in these challenges and welcome opportunities to work cooperatively with all of you all around the world towards a sustained global agricultural prosperity, now and for future generations.
Thank you for your kind attention and please make this forum the great beginning it can be for all of us.
(In 1997, the World Agricultural Forum formed as a way to provide all countries and sectors an equal voice in the ongoing discussion and debate of crucial agricultural issues and policies. The WAF identified the lack of interaction and cooperation between the sectors, and created a globally neutral and inclusive environment to encourage dialogue within the agricultural community. Since its inception, the WAF continues to influence world agricultural trends through a strong unilateral voice. The WAF hosts a biennial World Congress where all disciplines of agriculture have the opportunity to address important issues, share ideas and work toward solutions that will meet the world's growing needs. The 5th World Congress celebrates 10 years of the World Agricultural Forum, creating wealth through investment and agriculture.) |
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