Trusting Photosynthesis: Thoughts on the future of global food production,
August 12, 2008

Greg Page – Chairman and Chief Executive Officer, Cargill Incorporated

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When Greg Page was invited to talk on the future of food at the Chautuaqua Institute, he decided to organize the presentation by interviewing himself, promising to “show myself no quarter.” Read the entire speech below or click on a question to go directly to that section.

(Please note: Delivery may differ from the written text.)

Some of the most common questions that Greg Page, Cargill chairman and CEO, receives about food issues:

Good morning! This is our first visit to Chautauqua for my wife, Cindy, and me, and it is a pleasure to be here. However, this is not my family’s first exposure to Chautauqua. My grandmother was a schoolteacher in the little town of Rollette, North Dakota. In the early 20^th century, she would travel the 67 miles to Devils Lake, North Dakota, where the mainline of the Great Northern Railroad afforded an opportunity for the Chautauqua to come. That was where she could refresh herself with new information, hear the issues of the day being debated and prepare for a new school year. As a youngster, I can remember my grandmother telling us about those great trips and camping out. I can only imagine what camping in Devils Lake meant in 1912. My grandmother was a lifelong learner, as you can imagine.

To be here, at the home of Chautauqua, is a real pleasure. Knowing that I was coming to Chautauqua, a young woman in Cargill’s Corporate Affairs Department – a very young woman of probably 22 or 23 – saw fit to make a photocopy of the cover of Patricia Schultz’s book, 1,000 Places To See Before You Die. It has an entry on Chautauqua. I came in one morning and there on my desk was the cover of the book with the entry on Chautauqua. It disheartened me to realize that, to our young employees, I look like someone who has entered the “bucket list” stage of life. But I read the entry, and I certainly share Ms. Schultz’s view that this is a very special place with a very special purpose.

On to Cargill.

We also have a purpose. We call it Nourishing People. The company is still family-owned, with the exception that we formed an employee stock ownership plan in the early 1990s. Over 25,000 of our employees own about 7 percent of the company. It is a very diversified organization, primarily in agriculture. As the company has matured and grown in size, we have added a significant scientific component. There are over 1,100 scientists inside Cargill, working on things as diverse as high intensity, all-natural sweeteners – so you can have a zero-calorie drink that is produced with natural rather than artificial sweeteners. We have people working on uses of plant phytosterols for the treatment of cholesterol problems. We have people working on soluble fibers so that you can get your daily fiber in a beverage. All across the food chain, we have people working in research.

But clearly, Cargill is most involved in fundamental food products – the building blocks of our food system. Whether it’s malt for your beer, flour for your bread, sugar for your pastries or chocolate for your confections – those are the things that are at the core of Cargill. We also are engaged in globally trading a lot of commodities. Of particular importance in this era is energy. We trade petroleum and coal. We trade electricity, which is an adjunct to trading natural gas and trading coal. We trade ferrous metals. We also trade financial instruments and, increasingly, we have a large business in trading carbon dioxide credits in those nations that participate in the Kyoto Protocol. And that linkage to agriculture is one of the things I want to talk about today – the convergence of financial markets, agricultural markets, energy markets and the emerging environmental markets.

In the broadest sense, Cargill is engaged in the commercialization of photosynthesis. That is at the root of what we do. Very simply, photosynthesis is the conversion of sunlight and carbon dioxide into the products that we all use to support and sustain ourselves. Yet, some people refer to carbon dioxide as a pollutant. Well, when people talk about carbon dioxide pollution, I must remind them it is not “pollution” if you are a plant. So, that is our business – plants capturing carbon dioxide to make food. In that chain there are many links, and we certainly don't participate in all of them.

Last night at dinner I had the chance to talk with the conductor of the Chautauqua orchestra, Tim Muffitt, who has a farm near here. He is engaged in a segment of agriculture where Cargill doesn’t fully participate. We have a food system that goes all the way from Tim’s 1½ acres to the customers we deal with in Brazil who farm pieces of land the size of Chautauqua County. When people say they are going to give you one answer about agriculture, I think that is a bit foolhardy. We have to think about food and agriculture in its many, many pieces.

Author Michael Crichton gave a talk in 2003 at the Commonwealth Club, and there he made a comment that I think is germane to the conversation we have today. He said, and I quote:

“The greatest challenge facing mankind is the challenge of distinguishing reality from fantasy, truth from propaganda. Perceiving the truth has always been a challenge to mankind, but in the information age (or as I think of it the disinformation age), it takes on a special urgency and importance. We must daily decide whether the threats we face are real, whether the solutions that we are offered will do any good, and whether the problems that we are told exist are, in fact, real problems or non-problems.”

I think his admonishment is appropriate in something as complicated as the convergence and interdependence of food, agriculture and energy. Certainly, it is a debate that has many conflicting views.

One of our self-descriptions of the Cargill culture is the world’s largest debating society. Only a third of Cargill’s employees are in the United States. Within our ranks we have Europeans, who are opposed to genetically modified organisms. We have voices within our company expressing grave concerns about biofuels. I could go through the list of the issues that are probably on the minds of the people in this amphitheater, and those debates – even within the house of Cargill – go on and on. And we each arrive at those discussions with our own set of facts.

So, I am going to address food not as a single issue, but more broadly as an interdependent and interconnected set of issues surrounding our environment, energy, agriculture and, particularly, our food trade. These solutions are linked, and those who promote simple solutions imperil the world over the long-term. I think an important message all of us will take away, hopefully, is not to oversimplify this.

H.L. Mencken made a great statement in this regard. He said that there is always a well-known solution to every human problem – neat, plausible and wrong. That has never been more true than in the discussion of something as difficult as nourishing the 6 billion people who are so disparately situated across the world.

To engage you in thinking about this interconnected and interdependent set of issues, I thought one way to get everybody involved in mulling these topics is to have a little quiz game. How many of you listen to Public Radio’s Wait, Wait, Don't Tell Me? Me, too. And so, I presume you all enjoy a good quiz. I’m going to give you four questions that you can think about in the context of the points that I am going to make. Anybody who gets all four questions right, of course, gets Carl’s voice on your home answering machine.

So, the four questions:

We start out with the easy ones. How many of you have a diesel automobile? Have you noticed a change from when you last bought it? In many places the price of diesel fuel is now 80 cents a gallon over the price of gasoline. Some of that is involved in the answer to this question. As the Indian economy has grown and outstripped their electricity generating capacity, companies, to defend themselves, have put in big diesel generators. All of these big data base service centers are all run on diesel. The non-transportation use of diesel fuel in the world has spiked dramatically, much of it driven by India because they can't trust the electrical grid for power. The relative price of diesel fuel worldwide has shot up. Since biodiesel is made out of palm oil and soybean oil, the price of palm oil has gone up. If you track back through the steps, as the Indian electricity grid becomes more reliable, you will pay less for your diesel. So don't get rid of your diesel truck!

I’ve spotted you one. Here are three more to consider, and I’ll work the answers into the rest of my talk.

The point of these questions is to help you see the interconnected nature and interdependent nature of our food system. My comments today are intended to give you some fodder for thought, and my aim is to make three key points:

First, there is a convergence of agriculture, food, energy and the environment that can't be discussed within just one legislative committee. They are so intertwined that they must be discussed holistically.

Second, the world’s need to double food production between now and 2050 is something that we can do. And we can do it without drawing enormous amounts of additional land into production – provided we take the appropriate signals and make the appropriate investments.

Third, free trade is needed to manage both the cost of food and to limit the environmental impact of doubling its production. That means a food system based on trust, and certainly much of that trust has been damaged by the actions of the last year.

As a way to carry out this discussion, I have decided that I am going to interview myself. I know there are a lot of skeptics out there, but I promise I will show myself no quarter. I will address some of the frequently asked questions I get. Certainly, these aren’t all the questions and, at the end of the program, I look forward to hearing your questions. But these are questions that I get from a variety of audiences.

The first question is, “Is the world running out of food?” The answer to that, in my strong opinion, is “No.” I think humanity has never been further from famine than it is today. The reasons for that lie in the sheer amount of knowledge and capital that we deploy against hunger and in understanding how plants work. It is that base of knowledge and capital that allows us to grow, store, process and preserve the products of photosynthesis. We certainly have issues of cost, particularly for the world’s poor. And we have huge issues of uneven and inequitable distribution of food. But in terms of the total products of photosynthesis available to nourish humanity, we are as far from famine as we have been in human history.

Last week the USDA weighed in on world hunger, according to a report in the Wall Street Journal. The USDA determined that last year there were 989 million people who did not have access to 2,100 calories a day that is the World Health Organization requirement for adequate nutrition. The USDA went on to project that filling that gap in caloric shortfall would require 38 million tons of additional food.

To put that 38 million tons in context, the world produces – of the 16 major food crops – almost 3 billion tons. So the shortfall, if we had appropriate distribution, is about 1.3 percent of current production. To put that 38 million tons in another context, this year the United States will convert 100 million tons of grain into alcohol. And so, in the total scheme of things, how far are we from famine? A long way, if we elect to be. I think that is important to understand.

The second question I get is, “If we are to feed and to partially fuel ourselves, where will the added production come from?” In other words, how are we going to get increased production of photosynthesis to the people who need it?

Let’s start with an historical context for food production – those 16 big crops that are the building blocks of the global food system. In the 1950s, there were 2.5 billion people in the world and 20 percent more land under cultivation than there is today. So, we have taken the population of the world from 2.5 billion to over 6 billion, and we have improved the quality of diet in terms of its diversity and grams of protein available to people. We have done this with 20 percent less land. We have done this before, and now we have to set out collectively to do it again.

I would argue that one of the most important ways to do this is through the signal of price. One of the best things to come from ethanol has been restoring agriculture to profitability, which has encouraged more capital investment. Long-term, that capital investment will protect us all from famine as we grow the world’s population. The knowledge and the physical structure will be in place to capture more products of photosynthesis.

Price is always at the intersection of supply and demand. In the area of fuel and crude oil, we need to conserve, and when high prices reduce demand for oil we see that as a good thing. I think discretionary use of hydrocarbons – the ability of price to make us all be better conservationists – is a good message. That doesn’t work for food. How many people are in favor of destroying demand for food? Not a good thing when you think about the impact on individuals, particularly those 989 million hungry people in the world. So, we really do not have the choice of using demand destruction to lower food prices. Our only choice is to increase supplies as a way to moderate the rapid increases we have seen in the price of food.

Another question I get is, “How are developing countries going to cope with these challenges and feed themselves?”

There is not a simple answer, as you can imagine. But these countries tend to have one thing in common. When I go to countries that continuously suffer significant shortfalls, I find an absence of property rights. Sustainable, dependable agriculture depends on investment, and investment depends on property rights. At the level of individual farmers, uncertainty about the possession of their land limits their willingness to invest to improve their productivity. As a result, year-after-year they make shortsighted decisions, sentencing their countries to a doom loop of shortfalls. I believe that the No. 1 thing our multilateral institutions can do is to help create property rights in those countries. That is the way to create sustainable agriculture.

As you can imagine, I have a chance to visit a lot of places in my job. One year ago, I was in Zimbabwe. And – to answer one of the quiz questions – as we drove up to the first farm there, we found, covered in weeds, a sub-soiler machine. This is a device that is designed to go three feet below the ground and break up the hardpan that forms in certain kinds of soils. That is exactly what happens in California’s San Joaquin Valley – today one of the most productive farming areas in the world. But in Zimbabwe, a place where property rights have been destroyed, this sub-soiler obviously had sat for years, unused. The amount of soil that they were farming was getting thinner and thinner every year as the hardpan rose toward the surface. But who was going to make the investment in the equipment to restore that land to full productivity? To me, it was a vivid illustration that, when you destroy property rights, you slowly erode your ability to feed yourself.

In the former Soviet Union, agriculture was decimated after 1990. It was totally decapitalized. Now, as prices come back, Russia has clarified their property rights and people understand what they own. Last summer, I drove 2,000 kilometers across Russia. It was a revealing trip. One thing I saw everywhere were truckloads of brand new John Deere tractors, along with new grain storage and drying equipment. The recapitalization of Russian agriculture was taking place right before my eyes. To me, fundamentally, this was because they changed and clarified their property rights. If there is a role for multilateral organizations in something that we can all advocate, it is in helping to create property rights. Almost automatically, you will get capital and infrastructure development.

The next question I get is, “Why is the price of food going up?”

I think, No.1, agriculture was ignored in the mainstream media for many years, reflecting the public attitude that it was not an important issue. People took agriculture for granted.

In 1975, food as a percentage of GDP was 4 percent globally. This is for the basic foods – the 16 building block crops. Over the years, food expenses as a percentage of the world’s income continued to decline. It eventually fell to less than 8/10ths of 1 percent – an 80 percent reduction since 1975. We all felt wealthier. Agriculture was delivering, but at the expense of very low profitability and under-investment. As demand began to rise, we paid the price for that under-investment.

The second thing that happened is governments around the world, in an effort to support prices for farmers, took land out of production. The U.S. and the European Union both had fairly significant land set-aside programs. We reduced the supply of food in an effort to restore profitability for the farmers. As a result, we lowered stocks to the point that prices rose.

The third factor in rising food prices, I would argue, is a good one: rising incomes. The world’s poor and near poor have had the best 10 years in the history of mankind, and we at Cargill can see that in their diets. People in developing countries are consuming more meat, milk and eggs – transitioning from a pure carbohydrate diet to one that is much broader and more diverse. We see it in the statistics of country after country. That demand is putting pressure on our agricultural supplies, but people improving their diets is a good thing!

Additional factors in price increases include the rising price of energy, which increased the cost of producing and transporting food. Biofuels, of course, also contributed to the demand for crops. We also suffered bad luck in the form of some very severe weather.

But the final factor I want to mention is one that didn’t need to occur. Many governments reacted poorly as they saw prices rise. Last year, 29 countries enacted trade barriers for food. As a result, people panicked, and in panic they made irrational decisions. If you are Hosni Mubarak and you have 80 million people to feed, and you get a phone call announcing that your largest food-trading partner has decided to no longer ship you anything – zero – what is your reaction? To feed their people and avoid civil strife, countries like Egypt went out and paid whatever price necessary to gain the food stocks they needed. This wasn’t because the food wasn’t there. It was a reaction to governments halting trade to try to protect their own domestic food price inflation. As a result of government intervention in markets, you had a lot of emotional buying that drove food prices even higher.

While I was in China last week I had a chance to meet with the head of the Chinese food corporation, and we were talking about why things had gotten so out of hand last year. He said, “Greg, it is simple. I went home to visit my mother. I went into the kitchen and there were four bags of rice. I said, ‘Mom what are you doing?’ She said, ‘Well, I read that there was a food crisis.’” The decision of this 78-year-old Chinese lady to buy way more rice than she needed was replicated by millions of households, greatly exacerbating the food supply problem. Disrupted trade clearly had a big impact on the price spikes that we saw last year. Today, prices are falling dramatically – 30 percent in the last month. At this point, I am not aware of a single country where we do business that has impediments to food trade. I don't think it is a coincidence that the restoration of free trade has also contributed to a drop in food prices over the summer.

Another popular question: “What is Cargill’s role in food prices?”

Implicit in this is the question, ‘Did Cargill cause the price increases?’ Some people just ask it outright. The answer is, “No.” Cargill is not big enough to cause food price increases, even if we wanted to. In fact, we have many businesses that have been enormously harmed by these increases. All of our meat businesses have had to pay much, much higher prices for the grain they need to feed their livestock.

One of the things that happened in June was the Iowa flood. And out of that, again, came fear. Out of fear, price increases. As the flood subsided and people realized that it was a very small event; as the weather became perfect in the Midwest and it became apparent that the United States was going to harvest a wonderful crop, prices plummeted. And those are all forces bigger than Cargill. If there is one thing I could wish, it is that I could predict the weather. This would be a valuable skill to my employer. But I don't have that, and so we react and respond as those events occur.

A few last questions. “Is more land available that can be farmed responsibly?”

Yes, clearly there are parts of the Soviet Union that were farmed in the past and that will be brought back into production. In Brazil, there are 500 million acres of pastureland. To put that in context, in the United States we grow all of our main crops on 270 million acres of land. If the Brazilians take portions of their pasture for grain production, damage to the environment will be modest – if any. I don't think that we need to bring a lot of additional land into production to feed the world.

Another question: “What is Cargill’s position on food versus fuel?”

Cargill is against mandates and against subsidies. We believe that there can be an appropriately sized biofuels industry, if done in moderation, sensitive to the needs of people with lower incomes. Biofuels is another way to harvest photosynthesis. However, carried out on the scale that it is being talked about today, spurred on by government mandates and subsidies, we think biofuels can be troublesome for the world’s food system and for land use.

Now, here is a question I get from customers as well as the public because Cargill reports its profits even though we are a private company. And clearly, in this environment we have made profits. The question: “So, isn't Cargill exploiting the food situation to make money?”

I would give you four pieces of information about why our earnings have gone up dramatically.

And the final question: “Isn't the globalization of the food system the culprit?”

There is a lot of talk about globalization in agriculture. Here are a couple of facts that I’d like you to think about:

First, Cargill arguably is the largest trader of grain in the world. Yet, last year we traded less than 1 percent of the global supply of the 16 major crops. In fact, way less than 1 percent. So, yes, we are an important player, but at a very small level.

Second, depending on the year, only 14 or 15 percent of the calories in the global diet trade across borders. So, 85 percent of the caloric intake of the world is produced where it is consumed – crops grown in the same political entity where they are consumed. Clearly, for agriculture-deficient countries like Egypt, global trade in food is critical to their survival. But, overall, the global food system already is a highly localized business. We have shortages caused by weather that need to be accommodated by global free trade, and we need to exploit comparative advantage in producing different crops.

That brings us to the next question in Wait, Wait Don’t Tell Me. Brazilians are enormous consumers of beer. They could grow their own barley and make their own malt, but they don't. Their climate and soil is better suited to growing soybeans. The Argentines have the other situation. They have a wonderful climate and great soil in the southern Pampas to grow barley. So, in a world of free trade and free trust, the Argentines grow barley, make malt and send it to the Brazilians. The Brazilians use their land to grow soybeans, the very best crop for their soil and their weather pattern. As a result, Brazil is far more competitive. The Chinese, who need to import 35 million tons a year of soybeans, benefit because the Argentines and the Brazilian allow each other to exploit their own comparative advantages. Grow the right crop on the right soil with the right climate; then trade with each other to the betterment of all parties. And I think this is a message that is getting lost in the debate. Everyone can win when we grow the right crops in the right places, but it does require an enormous amount of trust.

There is some recent news about political bravery. Many people may have missed it, but Saudi Arabia announced that it will discontinue the production of grain over the next nine or 10 years. They looked at the drawdown in their aquifers that has been required to sustain their grain industry and decided it was irresponsible to continue to use a precious, nonrenewable resource like water to grow crops they could buy far more cheaply from the Canadians. That is an act of faith in the global food system. The Saudis, for the long-term security of their country, have taken the step of not growing their own food. I think we will see more of that, despite the cost of transporting products.

Let me make one quick comment on transportation costs. The single largest use of hydrocarbons in transporting food is bringing your food home from the grocery store. It takes only a single gallon of fuel for Cargill, or any other grain company, to transport a ton of food 2,500 miles in an ocean-going vessel. If you brought home 100 pounds of food on every trip to a grocery store four miles from your house, you would burn 10 gallons of gasoline per ton of food. With that amount of fuel, we could send a ton of grain all the way around the world. My point is that focusing solely on food miles can lead us to the wrong decisions. And further, by not planting the right crops in the right soil with the right climate, we end up using more land – therefore, less land for wildlife, less land for recreation. The environmental impact of failing to trade can be dramatic.

So, to conclude, I will simply read a quote from Libanius, a 4th century philosopher:

“God did not bestow all products upon all parts of the earth, but distributed gifts over different regions to the end that we might cultivate a social relationship, because one would need the help of another. And so God called commerce into being, that all might have common enjoyment of the fruits of the earth, no matter where produced.”

Thank you.