Shared Interests and Separate Concerns, December 15, 2005

Gregory Page - President and Chief Operating Officer, Cargill, Inc.

I understand that this is the first time that the major producer and industry trade associations representing Nebraska agriculture have had a shared meeting. I’m honored to be asked to kick it off and congratulate you for bringing these views and voices together. The coming months are important ones for American agriculture as we move through the WTO negotiations and into the upcoming U.S. Farm Bill.

An industry-wide gathering like this is a great opportunity to talk about both shared interests and separate concerns. Cargill works consistently with many other companies in the food chain who are concerned about where the food they sell and serve comes from and how it was produced. They are concerned about air quality, soil conservation, biodiversity, animal welfare, waste management and the impact of food production on rural communities. All of these issues are complex and we work hard together to deal with them. In one recent meeting on these issues, our customer ended the meeting with the following slide: “For every complex problem there is a simple solution – and it is usually wrong!”

In that spirit, we all need to recognize that those are not simple conversations. We have a lot to think about and some of those things may worry us.

Here are three things I worry about:

First — sometimes I think we lose sight of the greatness of American agriculture. I joined Cargill in the early 1970s. Grain and oilseed exports boomed from 1.7 billion bushels to 5 billion bushels between 1971 and 1974. As America faced into the first OPEC cartel, continued its Cold War with the Soviet Union and made its first openings to China, our capacity to produce food was understood as a strategic strength. Trade negotiations were valued as opportunities to pry open markets for our exports.

That’s not what I hear in the coffee shops these days. What happened?

Well, some in American agriculture may have lost confidence in the overseas demand for our exports. And, American farmers, maybe some of you, worry about our ability to compete in the face of real or perceived competition from overseas, the apparent inability of trade negotiators to make progress, and the apparently growing affinity for subsidies and protection. Though this loss of confidence may seem understandable, it’s simply not justifiable. In spite of all that has happened in the marketplace, certain things are still true about American agriculture:

First – and most importantly -- the U.S. grains-oilseeds-livestock sector still has the best combination of soil, water, climate, handling infrastructure and management skills in the world. We can still put an additional bushel or pound of production into export position as cheaply as anyone, and we can do it in volumes no one else can match.

Food demand is growing rapidly. Current demand has fully replaced the 80 million tons of trade lost over the last 30 years with the former Soviet Union and the European Community. We have new markets and new customers.

And, inside that increasing demand for food is the developing world’s demand for imported food. Over the next 30 years, this 3 billion person market should grow 50 percent to 4.5 billion. Their per capita incomes should double, while their land and water resources are constrained by the most rapid urbanization in human history.

I think we should look to the future with confidence, not doubts. That doesn’t mean overconfidence. We have very worthy competitors in the world. We have work to do. With the right decisions – and these market opportunities – the future of American agriculture can look very bright, indeed.

Looking toward the future brings my second worry to the forefront: Are we doing enough to help the next generation farm?

Agronomically, stewardship of the soil is about both the quantity of land available for farming as well as the quality of that land. The main focus of this concern is around the sheer cost of land to farm. Growing economies of scale have pushed up the size of economic farms. Farm program benefits have been capitalized into land values. Urban development in some parts of the country and tourism development in others have driven up prices. All of these factors may be pushing land ownership out of reach for many good young farmers. Land that costs more than its farm-income potential becomes land unavailable to young farmers just starting out. Also, when land cannot effectively be transferred from one generation to the next, young people cannot enter farming because they cannot inherit the land – they must buy it.

Two other areas have generational impact: education and transportation. Agriculture requires capable managers who can understand economics, technology and science. And, it requires a research system to support them. Tom Friedman, in his recent book The Earth is Flat, is not focusing on agriculture when he worries about our ability to train and prepare our next generation for global competition --- but he could have been. We need vibrant and challenging educational institutions to prepare the next generation of farmers, just like we need them to prepare future scientists, computer wizards and doctors. The high level of U.S. productivity has allowed us, over the past generations, to feed, clothe – and even partially fuel – the world.

On the transportation front, we need to focus on our inland waterway system. Built in the 1930s, it has outlived its 50-year design life. Hurricane Katrina underlined for us all the importance of the Gulf to our sector. There are bottlenecks, and environmental concerns have complicated planning and construction. It’s not right to turn over a system that has been such a source of strength for our generation to the next in its current state of disrepair.

And we are now at the last area of concern – at least for today. I call it the hierarchy of value. Over time, the hierarchy shifts, but we must be thoughtful to allow market forces to continue to work. At any moment, the market will signal if it needs more of a product for any given use. And producers must be able to decide freely if, and how, they will respond to that signal.

Over the last thirty years, this hierarchy of value has been stretched by technology and distorted by public policy. To explain where we have come to, I need you to imagine a picture. Let’s just take corn. The hierarchy in today’s market looks like this for uses of corn:

I’ve listed these from their highest to their lowest claim on grain supplies at any given moment. But, that is not always how they are priced. We face artificially high barriers to these uses through excessive regulation or misguided and ill-informed consumer resistance; or the system provides artificial incentives or import barriers. The point of this is: PRICE MATTERS.

The United States has more oil shale that Saudi Arabia has oil. We have a 500 years’ supply of coal, and in North America huge tar sand deposits. There is a technological fascination with hydrogen, and the unlimited possibilities of nuclear power. If we, in America, ever get serious about replacing foreign oil, there will be many substitutes that are economically attractive. Today’s support for ethanol could evaporate if people see use of agricultural products for fuel threatening our access to meat and other food – undercutting what might be well-entrenched farmer production.

In a world awash in record crops, this worry may seem idle, but how might it look if we encounter back-to-back short crops? Will we be able to make the right choices around production?

Perhaps one-sixth of the world has any interest in corn – or soybeans -- for fuel. A good one-third favors their use as feed. And fully half the world still looks at these crops as primary food sources. Is it smart to overlook the needs, interests and wants of five-sixths of the world, especially when other demand depends on artificial and easily changeable government policy?

Conclusion

I have thought and worried aloud with you about three things that could be clouds on U.S. agriculture’s future:

There certainly are other worries we could talk about.

We also could discuss lots of other reasons to be proud and optimistic about the future of agriculture in America. There are opportunities for building our supplies to meet global demand, for innovation and unique applications of technology and good old-fashioned know-how, for positioning agriculture in the U.S., and American agriculture in the world, to maintain our leadership into the future. We have before us the chance to feed and clothe a more populous and wealthier world – at the same time that we fuel the work of that world. Collectively, we have the opportunity to harness photosynthesis in ways that would have been unimaginable just twenty years ago.

I look forward to our conversation. Thank you.