Good morning. It is indeed a pleasure to be with you today...a great honor to be invited to give the keynote presentation.
I first want to compliment the meeting organizers on choosing a very important topic, one very timely for our industry. As we look to the distant future, accelerating innovation and productivity across the food industry is perhaps the most enduring issue facing global society.
And, I appreciate the opportunity to reintroduce many of you to the new John Deere. All of you know John Deere...but many of you may not be aware of the great growth and strides the company has made in the past dozen years or so or be aware of our role in innovation and productivity. So, I am pleased to have an opportunity to update you this morning.
I would like first to update you on Deere, then review the long-range challenge facing global society and then spend some time discussing innovation and productivity at John Deere. After a couple of concluding remarks, I look forward to a general discussion of the topic.
Today, John Deere is a growing global brand, well into our 176th year.
We are well known as a leading global provider of advanced technology products for the ag, forestry and construction industries. But, few know we are the second-largest maker of off-highway diesel engines, behind only CAT, but ahead of Cummins and Volvo.
And, we have exciting new entities that are taking their place alongside the more established ones. JD Intelligent Solutions Group (ISG), Landscapes, and Water Technologies are at the forefront of these.
Our employment has reached 67,000 worldwide with about 33,000 of those in the U.S. We manufacture in 29 countries and have operations in 35, including parts depots, while our sales organizations now extend to over 130 countries.
Our product portfolio extends across the ag spectrum with all sizes and types, across the construction equipment industry, leads the forestry industry, and a joint venture with Hitachi takes us into very large construction and mining equipment.
The breadth of the portfolio for agriculture equipment includes tractors from small-horsepower, low-spec tractors for smallholder farmers, to the most advanced large ag tractors over 500 horsepower—and we have everything in between for farms of all sizes and types all over the world. It's amazing how technologically advanced agricultural machinery is today. For example, our 7R tractor contains five times the amount of software code in the space shuttle's flight-control software. And, many more exciting developments are in the pipeline.
We also are very pleased with the operating performance advances that were made over the past decade or so under former chairman and CEO Robert Lane, whom some of you know.
In 2010, Sam Allen succeeded Bob and we launched a revised strategy with a strong growth focus to take advantage of the expected industry tailwinds. While we aspire to double the size of the company, we want to retain and improve our operational performance and have specific goals for profitability and asset efficiency, as well.
But, while we are in pursuit of an ambitious goal, we never forget what we are really about—we are committed to those linked to the land. We focus on our customer base, here in North America and worldwide.
We have a portfolio designed to meet customer needs wherever they may be and for all farming conditions.
We offer a premium product with advanced technology available.
And, we hold dear to our traditional values—of how we do business—we respect our 176-year legacy. And, we strive everywhere to be great corporate citizens.
We also believe that providing a premium product that customers want to buy for 176 years, while amply rewarding and respecting our employees, providing a competitive return to our shareholders, and supporting our communities, is a significant contribution to society.
Now, with that brief reintroduction to John Deere, let me shift topics. We all are indeed fortunate to have our careers, our life's work, associated with a grand purpose, indeed a noble calling—helping to enable feeding the world in the next 40 years, perhaps the greatest challenge humanity has ever faced.
We are all now familiar with the essence of this challenge: feeding another two-plus billion people—well over nine billion people with increasing purchasing power and desire to eat more and better. But, this greater demand coincides with ever more binding resource constraints—on land, water and skilled labor—at the same time we are experiencing unprecedented urbanization and climate change with still unknown implications for agriculture. And, societies everywhere are requiring a decidedly smaller environmental footprint for agriculture. So, this becomes a tall order indeed and clearly accentuates the obvious necessity to accelerate agricultural productivity—we simply must produce more with less!
Productivity still is not a well-understood concept—it is not simply producing more but is the amount of output in relation to the amount of inputs used...and this is where creativity and innovation come into play. And, our topic here today is mechanization—how innovation plays a big role in increasing farmer productivity.
Now, let's look at the megatrends and big drivers affecting agricultural mechanization...we are all familiar with most of these...the last two shown here are perhaps newest. Despite the growing population worldwide, there is an increasing shortage of skilled labor for agriculture production—while obvious in North America, Russia and Japan, it also is true in populous areas like India and China. And, the convergence of several new technologies are making possible a new, major driver in the historical agricultural story—precision agriculture.
We appear to be experiencing another big boost in farm productivity, just as we did a few times before in the last century or so:
These milestone advances in technology have been highly complementary, each adding to the achievements of the previous ones. For example, corn yields and combine capacity have evolved in parallel, both adding significantly to farmers' productivity.
An interesting factoid about wheat harvesters is that one John Deere STS combine can harvest enough wheat in one day to make 1 million 1-pound loaves of bread — amazing productivity!
Today's technological advances hold enormous promise...to reduce farmers’ unit costs, enhance management ability, reduce the environmental footprint, and enable superior information management to benefit the entire value chain. We are only beginning to realize the potential of these advances and their full uses. But, it is clear that enormous changes are still in the offing.
Mechanization is an often-overlooked factor in analyzing the challenge of feeding the world. Improved crop genetics and fertilization receive the most focus, especially when discussing agriculture in the developing world. But, it is clear that the challenge can only be met with increased mechanization. And, it is about more than just labor replacement—it is about yields, timing, multiple crops and quality. Mechanization varies widely by farm size, type and location but requires solutions viable for the smallholder farmer and the largest most advanced farms—and everything in between. That is why we have been expanding and refining our product portfolio worldwide.
We have a very successful smallholder farmer project in Zambia that fully illustrates the benefits of mechanization. The productivity improvements are enormous—higher yields, two crops, and better quality—meaning higher farm incomes, ability to pay school fees for children, less arduous work, especially for the women, and more food available for the community—clearly a win-win situation.
This innovation across the machine platform requires a concerted plan supported by adequate funding. Deere is a leader in innovation and devotes a consistent revenue stream to R&D. We currently spend almost $1.5 billion annually for this purpose—to keep a robust pipeline of new advancements. During the economic downturn of 2009 when we curbed costs across the enterprise, the R&D spend was the one area spared cuts.
We have been a consistent leader in innovation in the mechanization space. We were early adopters of guidance systems and now are adding other, complementary technologies that characterize this new information era.
For example, our forage harvesters use a data stream from moisture sensors to determine how finely to chop the material to ensure the best nutritional content is achieved.
Today, guidance systems are augmented with telematics — machines talking to machines – and new machine and software designs that enable comprehensive precision farming and new information flows that benefit the entire farm business.
JDLink is Deere's cellular communication and web interface solution that allows customers and dealers to manage and monitor machines remotely.
And we believe the dramatic growth in its use is only going to grow – illustrating the importance of data and the rapid adoption of the technology.
Let me give you an example of how this machine data can help to improve our customers operations. Two identical 8R tractors, one operated by the father and the other by the son. The dealer notices that one—operated by the father—was using fuel more efficiently, several gallons less per hour, than the other operated by the son. It turns out the father simply put his on auto drive and sat back while the son insisted on manually operating his to get full speed and full power all the time.
That's just one example of how interconnected and comprehensive this data flow is today and how significant its effective management will be to the farming operation and management of the farm business.
We believe that providing effective solutions to this data management challenge will be a differentiator in the farm machinery business of the future.
We are focused on developing and providing these innovative solutions to our customer base. We continually strive to have a deep understanding of our customers' farming and business needs and then bring all elements of equipment, technology, software and dealer support to an effective solution.
All of this requires some vision of farming in the future. Our proprietary product is John Deere FarmSight, which seeks to combine the machinery, technology and dealer support elements to enable significant increases in the farm business productivity.
Now, let me conclude by offer a few concluding observations...
To summarize, the challenge of sustainably feeding the world is perhaps the greatest ever faced by humankind. We have proved Malthus wrong for over 200 years, mostly with technological advances. And, even though the constraints today are greater than ever before, I have no doubt that we will be successful.
But, accelerating productivity growth worldwide has many elements—mechanization is a critical one. And, continued innovation and productivity gains in mechanization are as critical as continued advances in crop and animal genetics and soil science. And, mechanization must be extended to all kinds of farmers in all geographies around the world.
Deere recognizes our special responsibility in meeting both the broad challenge and the challenge in the mechanization space. We truly are dedicated to those linked to the land.
We at Deere are confident that we can feed the world in 40 years' time, and better than we do today. The challenge will be met, and innovation and Deere will continue to play a key role.
Thank you for your attention.