| Samuel R. Allen || |
As the World Changes, So Must John Deere:
Feeding, Fueling and Housing a Growing World
Executives' Club of Chicago
Remarks by Samuel R. Allen
Chairman & Chief Executive Officer
Deere & Company
May 10, 2011
Good morning and thank you Rick (Waddell) for the opportunity to address this important business forum.
Let me add my congratulations on the centennial of the Executives' Club. All of us value sustainability in business these days. So I wish you continued success in your next 100 years.
As I understand it, the purpose of these quarterly breakfasts is to introduce the Chicago business community to CEOs who have recently taken the helm of multinational corporations based in the area.
While it may be a stretch to call Moline a Chicago-area company – and with gas at $4 a gallon, it's farther away than it used to be – I'm nonetheless honored to join you this morning.
Over the next few minutes, I'll be sharing my thoughts on powerful global trends that affect each and every one of us, wherever we may be.
These trends – based largely on a growing, more affluent population – are certain to have a major impact on the companies we lead as well. I'll also be discussing John Deere's own plans for growth and how we're preparing to address some of the more significant challenges that lie ahead.
You may have heard the Chinese curse, "May you live in interesting times." If you believe that's the case, then the agricultural industry is so cursed today.
We live in interesting times in no small part because our industry operates at the confluence of several powerful global trends.
First of all, a steadily growing population will result in at least 30 percent more people to feed, shelter and clothe in the next 40 years.
Just to complicate things, this must be done with basically the same amount of land, water and other inputs such as fertilizer. And speculation still abounds over the effects of climate change on food production.
Add to the list higher incomes, better diets, and increased urbanization and you can see why global agriculture has some big challenges before it.
In case you have doubts about the magnitude of the world's population growth, consider this: By the time we wrap up this morning's meeting and you're headed back to the office, nearly 9,000 people will join the ranks of the global population.
That's 9,000 new mouths to feed every hour – enough to fill the Chicago Theatre nearly three times!
World population is expected to climb from almost 7 billion today to more than 9 billion by 2050. In order to provide enough food, fiber and fuel for this growing number of people, agricultural output must double – and do so in a sustainable manner.
What's more, newly-released projections now point to possibly 10 billion people living on earth by the start of the next century.
Put another way, in the next few decades, agriculture will be called on to produce more food than in the previous 10,000 years, with little or no increase in resources.
Also driving consumption is an emerging affluence, particularly in developing countries. The U.S. economy may be stuck in a low gear. But, much of the rest of the world is racing ahead.
Consider that over half of the global population today lives in countries whose economies are growing at an annual rate of 6 percent or faster. Forty percent are in countries growing at an 8 percent rate or more.
As incomes rise in these places, more people vault into the middle class. In some cases, that might mean earning only a few dollars a day. But it's enough for people to upgrade their diets – and many of them do. This creates more demand for meat and animal protein in particular, triggering an even greater requirement for feed grains.
Other key global trends – those affecting production as opposed to consumption – must be factored into the equation. The first is the limited amount of farmable land and water available as we work to double the world's food supply.
Most of the productive agricultural land is already being farmed. Some incremental acreage can be brought into production, of course, but it tends to be less fertile, more costly to farm, and less suitable for sustainable agriculture.
Clean water is becoming increasingly scarce, too, not only for basic human needs, but also as a means to water crops and provide food for the fast-growing population. Today, roughly two-thirds of the world's fresh water is used by agriculture.
Water scarcity already affects one in three people on every continent of the globe. This situation is likely to worsen as industrialization spreads and needs for water expand.
Urbanization is another trend with far-reaching impact.
A more affluent population is fueling a migration from rural to urban areas. This gives rise, on a simultaneous basis, to a reduced supply of farm labor, a greater requirement for modern farm machinery, and a massive need for infrastructure development.
Perhaps we passed the tipping point in 2007 when, for the first time, more than half of the world's people lived in urban areas. That figure is expected to reach 70 percent by 2050, when nearly as many people could be residing in cities as live on the entire planet today.
I travel to China on a regular basis. It's mind-boggling to see the surge of roads, bridges, and buildings under construction. By some estimates, the equivalent of a brand-new city of one-million people is being built every single month!
To be truthful, these trends are positive news for global machinery companies like John Deere. They may well create a need for productive farm and construction machinery that will span the globe and stretch far into the future. But this also underscores the scale of the challenge.
Given these powerful environmental, social, and economic trends, how can we double food production by mid-century?
How can we close the productivity gap – defined by the U.S. Department of Agriculture as the difference between today's rate of farm-productivity growth and the rate required to meet future demands?
For one thing, how can we not? Failing to do so, or not acting quickly enough, means additional human suffering through hunger and malnutrition, perhaps on a wide scale.
Obviously, that is not acceptable. For a company like John Deere, which has a long history of improving the quality of life and promoting human flourishing, it is a cause of great concern.
Of course, the issue of increasing ag productivity is nothing new, and dramatic gains have made been over the years. Largely as a result of productivity advances, the typical U.S. farmer today feeds over 150 people, six times more than in 1960.
Such a statistic seems to shed hopeful light on the future – and it certainly illustrates what might be possible. But it's important to note that the rate of improvement has slowed in recent years.
Yields of staple crops are still climbing – but the pace has fallen from about 3 percent a year in the 1960s to around 1 percent currently.
Overall farm productivity is continuing to march ahead as well, but again the rate is slowing. By many accounts, the rate of annual productivity growth must increase by about 25 percent in order to grow enough food to meet society's future needs.
Further advances in farm machinery could play a big part in attaining this goal. And, indeed, equipment has been getting larger, smarter, and more powerful for some time.
Modern farm machinery is truly a sophisticated productivity tool.
Today's large John Deere tractors have more lines of software code than early space shuttles!
Our GPS technology can guide a tractor and implement in the field with near-perfect precision. This means less overlap in tillage and chemical application, saving on time, money and environmental impacts.
Or consider the dramatic gains we've seen in harvesting technology. John Deere's smallest combines today are more productive than the largest sold in 2000. Today's typical combine does three times more work than the harvesters of a generation ago in a similar amount of time.
So while the world may be challenged to boost ag productivity, the technologies exist, or are under development, to help do just that.
There are others areas that must contribute to meeting the world's food security challenge, as well.
One is a strong, rules-based global trading system. About one-quarter of all food and agricultural products today is traded. That figure will only grow, making trade — local, regional and international — even more integral to putting food on the tables of a growing population.