J.B. Penn recently joined U.S. government officials and fellow ag-industry leaders to mark National Ag Day, an annual celebration of farmers and farming, in Washington, D.C. Penn, John Deere’s chief economist and senior fellow, explained how agricultural practices have developed and must continue to evolve to feed a growing world population in a sustainable manner in his remarks at the National Celebration of Agriculture Dinner. His remarks, in their entirety, are below.
We are here today to celebrate the role our industry plays in our national life — in our society and our economy. Agriculture is one of the great success stories in the development of our country. We have much to celebrate.
But, we also face new and different challenges to overcome if we are to continue making the same significant contributions as in the past. That will be the theme of my brief remarks tonight — noting past accomplishments along with mentioning of some challenges ahead.
Meeting the challenge
It is great to be able to have meaningful careers in an industry with such a higher calling—helping to feed the world’s growing and increasingly affluent population — the challenge of our time — and perhaps of all times. By now, we all know the situation: the population will grow from 7.2 billion today to 9.7 billion or more by 2050 at which time it stabilizes. Not only is that more people to feed, but rising incomes will enable improved diets for many, meaning greater diversity and more animal protein.
We also are aware of the rapid urbanization taking place — a vast migration from rural to urban areas. We passed the 50% mark in 2010 and are headed to 70% at mid-century, with many geographic areas even higher.
Just last week, the Chinese government reaffirmed a plan to move 100 million people into urban areas in the next five years — by 2020! So, population and income growth along with urbanization pose huge challenges in terms of providing the additional quantities of food needed and also in moving it from where it is produced to the large population concentrations in the world.
While that is the demand side of the challenge, there is more — the supply side. All of us here tonight are aware of the many considerations in expanding output. There are serious constraints on land and water availability and quality, concerns about labor availability despite population growth, the uncertain effects of climate change and an array of societal demands about production methods and processes.
So, putting the demand and supply parts together, the challenge becomes quite clear — producing much more with fewer resources. And, it is great to have an opportunity to be part of the industry taking up this challenge of sustainably feeding humanity through the future.
And, we have been making some considerable progress already. In 1990, the world undernourishment rate was nearly 20% of the population — today, it is down to almost 10% — significant progress. But, there still is much to do. Ten percent still means some 795 million people are undernourished.
I applaud all of you in the industry today and highly recommend careers in food and agriculture to all the young people contemplating their futures.
When reflecting on our industry’s contributions, a paramount one is the role played in the development of our country’s economy. We started as an agrarian society in which 95% of the citizens were on farms in rural areas engaged in food production. Today, only 15% are in rural areas and only 2% are engaged in farming in some way. Enormous technological advances have made possible the release of so many people to take up other pursuits that have enhanced our quality of life.
And, think about how well the farmers have done — the share of disposable income required for food has consistently decreased over time and is under 10% today. Rather than spending 50 to 60% or more of income for food as unfortunately is still true in too many countries today, Americans are able to use their income for other purposes to boost living standards. So, fewer people are required to feed the nation and they do so at an ever-decreasing cost — quite an accomplishment indeed!
Another significant contribution was agriculture’s organizational model — the farm as a functioning economic unit underpinning economic and social responsibility for a nation. U.S. farmers were never peasants or serfs but were, from the nation’s earliest days, land holders and entrepreneurs who contributed importantly to the development of the country’s economy.
A fundamental contributor to agriculture’s success has been the vast and sustained technological achievements over time. Just consider — in the last century — we experienced at least four major technological eras:
Mechanization. In the early 1900s, farm power was still animal power. Then, new machines began to displace draught animals and release vast land resources from feed production. In 1915, there were 25.5 million horses and mules on farms and some 39 million acres were devoted to oats for feed.
In contrast, the horse population today is mostly for recreation and oat plantings are barely two million acres. An entirely new farm machinery industry emerged and energy sources completely changed, as well. The increases in efficiency were enormous, greatly increasing the area and output that one farmer could manage. And, land use possibilities and patterns also were significantly changed.
Hybrids and new crop genetics. The next big advance with far-reaching consequences was the introduction of hybrid varieties for some crops, notably corn. This increased crop yields tremendously, boosting farmer profitability and furthering the incentive to innovate. From initial introduction in the 1920s, essentially the entire corn crop was planted to hybrids by 1960. Improved genetics for other crops soon followed, providing another big boost across the sector.
Chemical fertilizers and pesticides. After World War II, using technology developed in the war effort, new, cheaper chemical fertilizers and pesticides became available to counter a wide variety of disease and insect pests that long had plagued farmers. The combination of improved fertility and plant protection further boosted yields and improved farmer profitability.
More genetics — GMOs. Then, more recently, U.S. producers moved quickly to adopt genetically modified crops, beginning with Monsanto’s Roundup Ready soybeans in 1996. The huge benefits to farmers have pushed plantings to 169 million acres in the U.S., largely corn, soybeans and cotton. Global planting now exceeds 430 million acres. Benefits accrue to farmers, the environment and beyond. Many experts suggest the potential for GMOs (Genetically Modified Organisms) remain enormous when more traits are introduced with benefits accruing directly to consumers. The technological potential in plant and animal breeding is enormous and portends to be a critical development in feeding the more populous and affluent world in the decades ahead.
It is increasingly clear another technological epoch has begun, one still lacking a widely agreed name. However, it involves many complementary technologies in ways that can greatly improve productivity, product quality and controlled development, while offering a host of other advantages, as well. These involve computer technology, satellites, software, monitors, sensors, drones, probes, and other communication devices.
One result is high-precision farming which greatly improves resource use efficiency, boosts yields and lowers unit costs while also helping to reduce farming’s environmental footprint. At the same time, other new approaches feature better machine utilization, enhanced reporting and compliance functions, improved risk management individually and in the aggregate, and augmented asset (land) values, among others.
Today, we are at the laboratory stage for entirely autonomous machines, tractors and implements controlled by highly sensitive and sophisticated sensors and guidance systems, and implements directing the tractor. The many uses and benefits only now are beginning to be fully realized but promise huge potential for greatly enhanced managerial ability.
As with any major new technological advancement, this one also generates some concerns and issues including some in the public policy realm. Availability of adequate rural broadband, appropriate spectrum location and size to support the functions, data ownership, use, storage location, security, access and privacy protections are but a few recognized at this time. Almost certainly, more will emerge.
I cannot resist citing just a few factoids to illustrate the cumulative effect of all these technical advances:
- In 1850, 100 bushels of corn required 83 labor hours and 2.5 acres of land. Today, only 2 labor hours and 0.6 of an acre of land are needed.
- A modern combine can harvest 350 acres of corn per day — that is 4,500 bushels per hour—and it can unload 3.8 bushels per second.
- A John Deere STS combine can harvest enough wheat in an 8-hour day to make 1 million 1-pound loaves of bread.
Accomplishments extend beyond the farm
There are many more “on-the-farm” accomplishments we could note but industry achievements are not limited to the farm. They extend far beyond through society, as well.
Benefits to the environment — sustainability. The technical advances have produced enormous environmental and sustainability benefits — more efficient crop and livestock genetics enable using fewer inputs and much more precisely. Low-till, no-till, section control, precision applications (seeds, chemicals, fertilizers), reduced engine emissions, moisture sensors — all imply more efficient use of pesticides, fertilizers, reduced air pollution, more carbon sequestration, reduced post-harvest losses and so on.
Increased food security for global consumers. Farmers making the capital investment required to implement the steady stream of new technologies means more reliable annual market output, reduced volatility, and more reliable annual trade flows. More efficient food production means lower cost to consumers leaving more income available to enjoy for other goods and services.
And, the development of the modern agriculture sector has produced enormous benefits for consumers well beyond spending an ever-smaller share of income for food. It also means greater consumer choice, convenience, safer food, greater food security, year-around availability, etc.
And, the agriculture sector has importantly contributed to rural areas, providing jobs to related industries (storage, transport, etc.). And, then there are exports. Over 1 million jobs are associated with agriculture exports, one of only a few economic sectors to regularly post a trade surplus.
These are but a few of the many broad accomplishments of our industry. So, on this Agriculture Day it is obvious we have much to celebrate.
The future of agriculture
Then, when we look to the future for our industry, it also is clear we face some enormous challenges. I will highlight only a few, including: expanding global and U.S. food and agricultural trade; improving U.S. agriculture competitiveness; and maintaining productivity growth (ensuring science-based regulation, research and development).
Expanding global food and agriculture trade. One of the clear trends emerging from the global food security analyses of recent years is that the population is urbanizing — coalescing into a few huge centers.
We have all seen the number of cities with over 20 million people expected in Asia by 2030. Another conclusion from these discussions is that agriculture productivity and volume of output must increase everywhere farming can be practiced. But, that will be insufficient and the world still must look to a relatively few food surplus production areas to help balance the food requirements. National trade restrictions on food exports exacerbate this vulnerability. Expanded trade in agriculture and food products will be essential to attaining global food security goals.
Importance of trade
Yet, instead of more unfettered trade, the pendulum actually is swinging in the opposite direction. With the Doha multilateral negotiations largely unsuccessful, protectionism is on the rise worldwide. The G-20 group of nations (largest economies) in 2008, at the beginning of the Great Recession, pledged to keep their economies open, to refrain from protecting domestic sectors in a time of economic contraction. Yet, since then, over 1,500 protectionist measures have been enacted, including many directly affecting agriculture and agribusiness companies.
While the U.S. now has successfully negotiated one trade agreement — the TPP (Trans Pacific Partnership) — and has another — the TTIP (Transatlantic Trade and Investment Partnership) — well underway, trade is widely unpopular with much of the public, caught up in the politics of the day, jeopardizing any progress. Freer trade as an essential element of global food security — greater market access, reduced border impediments, etc. — is an issue of extreme importance to the food surplus/exporting countries such as this one.
It has become almost trite to note for U.S. agriculture that 96% of the world’s potential consumers are outside the country, but it is still true and increasingly important. And, while the sector already produces well beyond domestic food needs, productivity advances almost certainly will far exceed the consumption growth, so the excess capacity will only grow. This makes it hard to see why gaining access to foreign markets would not be an overriding consideration in development of any future-looking policy.
Improving U.S. agriculture competitiveness. While trade will be increasingly important in the future, the competition can also be expected to become more intense. A major challenge for U.S. agriculture will be to improve competitiveness in the global markets.
Subtly over time, the structure of global grain markets has changed, reflecting several key drivers, but especially changes in competitiveness among producing/exporting regions. These shifts come from two sources: unit costs of production on the farm; and costs of “marketing” between the farm gate to the consumer.
Rapid adoption of new technology
Relatively rapid adoption of new unit cost-reducing technologies long has characterized advanced economy farming, especially in North America. And, long ago infrastructure investment enabled efficient movement to foreign markets. This contrasted sharply with the situation in other countries with significant potential to be surplus producers and exporters.
But, farmers in Brazil and Argentina and the Black Sea region now are eagerly adopting advanced technologies. At the same time, investments in essential infrastructure — farm-to-market roads, railways, storage facilities, ports, etc., also are growing. Together, the result is increased competitiveness and ongoing shifts in sources of supplies for growing global markets.
The U.S. once dominated the global grain markets, supplying as much as 57% of the trade. Over time, the market share has steadily declined, to around 20% today in response to competing demands for food and industrial products. Another important factor behind this trend is the lack of investment to maintain and upgrade the domestic infrastructure base — inland waterways, railroads, and port facilities.
The recent extraordinary price period prompted several other grain producers to expand and quickly vie for the export growth markets. Despite much lower commodity prices today, we see little reduction in output largely because of shifts in currency values. So, the competition for the global markets continues to intensify.
Maintaining productivity growth
There is a curious strain of skepticism being exhibited across some large segments of society today. It manifests itself in several ways but denial of accepted scientific fact is a prominent one. Refusals to accept GMOs in Europe and acknowledge climate change in the U.S. are notable examples. The antagonism to modern production agriculture in the U.S. and Europe is another, as evidenced by the organic, local food, GMO labeling, and other anti-modern agriculture movements.
Such beliefs and political pressures have the potential to influence the policy and regulatory processes for farming, agriculture and food. Witness the GMO regulatory approval process in the European Union (EU). Major genetic and plant protection product companies tell us that the time and cost of bringing a new product to market have grown significantly. Today, that process in the U.S. and Europe requires 10 to 12 years and $150 million to $200 million. This becomes important when one realizes the agriculture productivity rate today is in large part a result of decisions and investment made some dozen or so years ago.
Further slowing the process — and politicizing it — affects the future rate of productivity growth and figure prominently in meeting the challenge of feeding the global population. There is a long lag time between investment and accelerated productivity growth under the best of circumstances, and that “drag” likely will continue to grow.
I could continue with other major challenges faced by our industry such as improving the public perception of modern agriculture, further reducing the environmental footprint, managing innovation, reducing dependency on government and adapting to climate change. But, the topics noted will suffice to illustrate that the business environment we face in the future indeed will be challenging.
But, on this special day for our industry, I close on a highly optimistic note. I am confident we can successfully overcome any challenge and that we will continue to make significant contributions just as we have in the past. And, remember, we are part of an industry with a higher calling — sustainably feeding a growing world!