PACIFIC BASIN ECONOMIC COUNCIL
MAIN PAGE | SPEECHES & EDITORIALS | 1999 | AN OPEN FOOD SYSTEM
Preserving the Environment and Raising Living Standards Through an Open Food SystemErnest S. MicekChairman and Chief Executive Officer Cargill Incorporated Tuesday, May 18, 1999 The Challenges of the Next Century for the Pacific Basin
It's a pleasure to be here this morning. And I'm delighted to have such a great topic ... because I'm not sure if there's any greater challenge for the Pacific Basin in the next century than how to preserve the environment while raising the living standards of the region's growing population. PBEC has done a lot of work in recent years helping to develop what we call the Open Food System. In a sentence, that describes a world where the best areas for growing food are linked through trade with the areas where food is needed most. We see the Open Food System as the foundation for the sustainable development of the Pacific Basin in the next century. In my mind, it's the perfect example of what some call "eco-efficiency": the creation of economic value while reducing environmental impact and resource use. Its advantages can be broken into three key points ... and that's what I want to talk about today. The Open Food System as the eco-efficient alternative. First, we believe that it is the only environmentally sound, sustainable way to feed Asia. Second, it also can serve as an engine for economic growth. And third, it provides greater food security to the people living in this region. I want to spend most of my time today talking about the first two points: the environment and economic growth. But before I do that, I'd like to give a quick overview of some of the underlying trends that underpin why we believe the Open Food System makes so much sense for the Pacific Basin as we enter the next century. [Population chart, 1998 - 2020] The first is pretty obvious. We expect there will be another 1.8 billion people to feed by the year 2020 — 7.6 billion total. That's an increase of 30 percent. [Population concentrations] The reddish areas on this map show where the worlds population is already concentrated mostly in Asia. [Population growth] This map shows where the populations will grow. More than half (58 percent) of the world's population growth in the next seven years will take place in Asia. [Ten largest metros chart] This chart compares the largest metropolitan areas today and in 2015. The arrows point to cities that are new to the list. Note that seven of the 10 will be in Asia and Africa. The world — and Asia in particular — is becoming much more urbanized. [Income driving growth] The second general trend is rising incomes. World GDP has grown 91 percent since 1975 and GDP per capita has increased by 32 percent. [Income growth chart] Here's where we expect to see income growth. Again, Asia tops die list. These forecasts were made before the Asian financial crisis. They may be a bit optimistic. But Asia will recover. It's just a matter of when. [Map of best resources for food production] This map shows where the most fertile food-producing resources are concentrated. (The Americas, Eastern Europe and the former Soviet Union.) [Food flows from surplus to deficit] This chart shows the regions with current food-producing surpluses and food deficits. North and South America are in blue on the left. The Far East and Middle East are in red on the far right. (North America, for example, has a 150 million metric ton surplus; the Far East has a 100 million metric ton deficit.) With time, these surpluses and deficits are going to become more pronounced. [Shanghai streets and Oregon farm photo] These photos help paint a clearer picture of this trend. One's in Oregon --the other in Shanghai. The ratio of people to arable land is six times higher in East and Southeast Asia than it is in the Western Hemisphere, on average. China alone has about 22 percent of the world's population, but just 7 to 9 percent of its arable land. So the real challenge becomes feeding all these people without harming the environment. It's not just that there will be more people. They will also have more money and will want to live better. The first thing people do with a little extra money is improve their diets by consuming more protein. Between the early 1960s and the early 1990s, for example, the average consumption of rice in Japan fell 40 percent per person ... while demand for meat went up 360 percent per person. Not too many years ago the question was often asked whether China could feed itself. That question isn't asked as much any more because many people have come to realize that the answer is "yes." [China photo] China's total grain output in 1995 was four times what it was in 1949, and grain yields increased at an average rate of 3.1 percent. And there's still room for improvement, as China's corn yields still average about 37 percent below those in the United States (4.86 MT/Ha vs. 7.67 MT/Ha between 1992-96). The more important question — both for China and the rest of Asia — is should such regions try to feed themselves? We believe it makes more sense to embrace the idea of global eco-efficiency — making the most of the resources available — by linking the most productive agricultural regions with the most populous regions. The globalization of the world's economy has helped to put this question front and center. Using modem technologies to raise yields on the most productive lands already being cropped is better than the alternative facing many populous developing countries — a slash and burn agriculture that destroys wildlife habitat and contributes to erosion and deteriorating water supplies. We've seen dramatic yield gains before. In 1960, farmers around the world cropped 3.44 billion acres of land, according to the Food and Agriculture Organization. By 1992, they cropped just a few more acres (3.56 billion), but produced twice the grain and oilseeds to feed 80 percent more people — and fed them better.(1) Forty years ago, the crisis the world faced was how to prevent a growing number of people from starving. In stepped the Green Revolution of the 1960s to improve the fives of millions. Today, the issue is how to provide a growing number of people with more and better food. We believe that advancement in modem agriculture — coupled with better trade links through the Open Food System — is the best answer. [Cargill vision standards photo] At Cargill, our vision is to improve living standards around the world by delivering increased value to producers and consumers. That's a lofty goal, but let me explain how eco-efficiency — in the form of high-yield agriculture — can work to achieve that goal while preserving the environment. [Precision agriculture photo] One method is through precision agriculture, which is gaining ground every year. That's fanning by the foot instead of by the field. Using satellite technology, farmers are able to pinpoint the nutrients that should be applied in different parts of a field. What's needed in one part of the field vs. another part varies quite a bit. We've found that in about 80 percent of the cases, it's worth the time and money for farmers to go this route because it's more efficient. And the environment benefits because fertilizers and other inputs are applied only where they're needed so there's less runoff. Another method is through the increasing use of genetically improved crops. Genetically enhanced soybeans, for example, can be grown with less herbicide than conventional varieties. Just as Norman Borlaug — the father of the Green Revolution — painstakingly bred wheat to thrive in different climates, so, too, will biotechnology allow us to grow more food more efficiently. I've spent a lot of time talking about the environmental benefits of the Open Food System. Now, I'd like to address its economic benefits. Both are important for a very simple reason: we cannot afford to make either the environment or people less well off. Just as an Open Food System concentrates food production with eco-efficiency in mind, it also fits a strategy in which the agricultural sector serves as an engine for economic growth. We've seen it work in virtually every region of the world where we operate. [Photo with text, $1 dollar increase = ...] But you don't have to take our word for it. A study by the International Food Policy Research Institute confirmed how agricultural growth fuels the whole economy. The study found that for every I dollar increase in agricultural output in developing countries, the overall economy grows by 2 dollars and 32 cents. That's the payoff of productivity. [Graph of personal food expenditures] There also is a growth dividend from holding down food costs for consumers. In the United States, for example, people spend only about 9 percent of their personal incomes on food that they eat at home. Japanese consumers spend about 21 percent. In Thailand, it's 26 percent ... and in South Korea and Mexico, it's 34 percent. When food is cheaper, people have more money to spend on other things. And that creates demand for more manufactured goods and consumer services — markets that stimulate economic growth. The flip side is that when governments support artificially high prices for crops, consumers — and the economy — pay the price. Take China, for example. The quota procurement price currently being paid to farmers for corn in Jilin Province, for instance, is 920RMB per metric ton ($111 per MT), which is roughly 50 percent higher than the market price being received by corn farmers in the United States or Argentina. Farmers in rural China are being paid more for corn than it would cost to deliver foreign corn there. This costs the Chinese government a lot of money. Losses to China's state-owned grain enterprises are reported to have exceeded 100 billion RMB ($12 billion) in the 1997-98 marketing year. So Chinese consumers are really being hit twice — once through higher prices and a second time through higher taxes to support state-owned grain enterprises. We think it would make more sense to make the best use of what the Pacific Basin has to offer: agriculture in the Americas and labor — applied to value-added agriculture — in Asia. [Slide: Photo of woman with lettuce] Again, let me offer a Chinese example. Fruit and vegetable production uses 4.5 times more labor per arable acre in China than does grain production. And it costs less capital per dollar of increased output value. So, with labor abundant and land and capital scarce, Chinese agriculture would serve eco-efficiency goals by shifting toward what the market signals — less bulk commodity production and more value-added output. We believe China would be better off if it imported grains and exported fruits vegetables and livestock products. The combined value of these exports of high-value agricultural products — fruits, vegetables, meats and canned goods — quadrupled since 1981, reaching $5.5 billion in 1995. That's far more than China has spent to import grains in recent years. [Slide: Globe with arrows and words, Globalization of the food system] We have seen this work. Let me give you an example from Cargill. Soybeans grown in Argentina and the United States are processed into meal and oil. The meal is then shipped to Thailand to feed chickens at lower cost than if fed only from feed grown domestically. [Sun Valley photo] The chickens are then processed, cooked and packaged at our Sun Valley poultry facility so they can be sent to supermarkets in Japan and Europe. That's pretty complicated, but it makes good use of available resources: the rich, abundant farmland in Argentina and the United States and the skilled labor force in Thailand. We employ nearly 2,000 people at our Sun Valley chicken-processing facility. So we believe there are very solid economic and environmental reasons to support such an Open Food System. But we know all too well that the geopolitics of food are among the most difficult and touchy there are. If there's one issue where political leaders really dig their heels in, it's food — because there's nothing more basic than having a safe and reliable food supply. Food security in many parts of the world is the number one issue. That's the final point I want to address. [Word slide: Local output swings can exceed 25%] In contrast to the belief that self-sufficiency is the best route to food security, we believe an Open Global Food System also provides greater food security. That's because local agricultural output swings often can exceed 25 percent from one year to the next. Worldwide, the swings are typically less than 3 percent. And there are any number of countries to choose from if you consider one government an unreliable supplier. Another problem with self-sufficiency is that it's inefficient The annual cost to store crops, including interest, is somewhere between 20 and 25 percent per year of the commodity's underlying value. it's even more when you factor in the deterioration of the crops — spoilage, pests — things like that. [Cascadia photo of two guys by a ship] By contrast, modem ocean shipping costs are about 10 percent of the commodity's underlying value. Clearly, the economics of trade-based food security are compelling. And the politics are improving. The United States has just confirmed that food will be exempted from sanctions. APEC member economies are discussing an APEC Food System that would guarantee access to food supplies on a non-discriminatory basis. And the WTO agricultural negotiations scheduled to resume this year have supply assurance high on the list of desired improvements in agricultural export policies. on this issue so fundamental to individual well-being and social cohesion. [Photo of Chinese guy with words, Environmental benefit, Economic benefit, Greater food security] So in conclusion, we believe the Open Global Food System is the eco-efficient alternative for the 21st century. It makes sense environmentally. It makes sense economically. And it provides for greater food security. Thank you very much. (1) Avery, Dennis. Environmentally Sustaining Agriculture. Choices, First Quarter, p. 10. |