SUMMER 2008 ISSUE


Global Changes



Food prices may be high and rising, but across the globe, farmers in developing countries — and subsequently these nations’ economies — will benefit like never before.




Everywhere you look these days, there’s a frantic story about the ever-escalating cost of food. The issue seems to be on every magazine cover and every Web site’s main page.


Food prices are indeed higher. Commodity prices have skyrocketed, with the costs for goods such as wheat, rice, corn and soybeans almost doubling since September 2006. Contributing to this perfect storm are an exploding world population, a growing middle class, skyrocketing energy prices, commodity speculation in the agricultural futures market, increasing interest in biofuels and, yes, even the weather.


Tempers are flaring over the higher costs at the checkout line. But a look at the bigger picture finds that rising prices have also led to an increase in global farming, as the cost of food exceeds the cost of production for the first time in decades. Now, across the world, farmers seeking to get in on the commodities boom have turned previously unused land into flourishing fields of corn and soybeans, to name just a few. As a result, for example, the U.N. expects the worldwide production of cereals to increase by 2.6 percent to a record 2.16 billion tons.


“High food prices are clearly helping the agricultural sector of developing countries,” says Dermot J. Hayes, the Pioneer Hi-Bred International Chair in Agribusiness at Iowa State University in Ames, Iowa. “As the agricultural sector expands in response to higher profits, a great deal of economic activity has been occurring. In developing economies with large agricultural sectors, this is really helping the community as a whole.”


American technology is helping, too, as modernized machinery, genetically modified organisms (GMOs) and other advances have given formerly troubled countries new advantages in their farming efforts.


“Today’s new technology is being adopted around the world more rapidly than in the past because of more open lines of communication and trade,” says Richard K. Perrin, the Roberts Professor of Agricultural Economics at the University of Nebraska in Lincoln. “This provides a basis for hope that world agriculture can respond quickly to this year’s food scarcities and future increases in demand for grain by the bioenergy industry and by a world population that is growing in number and wealth.”


THE FACTORS AT PLAY


While many point to American interest in biofuels as the culprit for higher food prices, that’s just one of a multitude of factors at work.


For starters, the world’s population—6.6 billion in 2007—has steadily increased over the last several decades. Also worth noting is the explosion of the middle class in countries such as China, with a population of more than 1.3 billion, a shift that brings with it a demand for more protein-based meals. The average person in China consumes 117 pounds of meat a year, a 112 percent increase since 1995. The demand for meat requires more animals, which requires more feed.


The increased interest in biofuels has played a role in higher food prices as well, but it’s hardly the chief reason. After all, the worldwide biofuel industry is still only a $40 billion a year business, which makes its revenue about the same as Exxon Mobil’s 2007 profits. Climbing fuel prices—on Jan. 1, 2007, a barrel of oil cost $55; that price has now exceeded $135—also increases the price of food and most everything else.


In 2007, Hayes and several colleagues at Iowa State’s Center for Agricultural and Rural Development published a study to determine the effects of corn on food prices. The study showed that for each $1.50-per-bushel increase in corn prices (and proportional increase in soybean meal prices), U.S. meat and dairy prices increased by just three percent at the retail level. “That’s really not a very big total, especially given the large retail mark-up in the U.S.,” Hayes says. Ed Lazear, Chairman of President Bush’s Council of Economic Advisors, has recently said ethanol accounts for only two to three percent of the global increase in food prices.


A larger factor, Hayes says, has been the extreme weather conditions in some countries, ranging from floods in Argentina to a massive drought in Australia, which, in some parched areas of the country, dates back to 2000. The effects have been obvious: Australia’s wheat production in 2007 was predicted to come in at 12.1 million tons, which is less than half its typical annual output of 25 million tons.


A PIECE OF THE ACTION


As a result of these combined factors, food prices are rising—and farmers in developing countries aren’t letting the world’s economic superpowers reap the benefits alone.


Brazil is one country that’s successfully pursued a strong agricultural program to become a major player in the world economy.


Not long ago, even the most advanced farmers in Brazil used ancient tractors just a few steps beyond yoke and oxen. Such basic equipment has been replaced by massive machines that boast global positioning system (GPS)-aided guidance and other modern advantages, says Fred Kirschenmann, a Distinguished Fellow at Iowa State University’s Leopold Center for Sustainable Agriculture.


“There’s been a huge infusion of modern farm equipment introduced into countries like Brazil,” he says. “Friends have come back with pictures of 25 combines in a v-shape going through a field, followed by 25 no-till planters planting the next crop.”


Brazil has also embraced biotechnology, with Monsanto’s Roundup-Ready soybeans making up 55 percent of soybean acres planted in the country this season. Roundup-Ready seeds are genetically engineered to be tolerant of the company’s Roundup herbicide, which eliminates the need for costly re-applications of the product. St. Louis, Mo.-based Monsanto and other American companies such as Pioneer Hi-Bred International, a plant-genetics company headquartered Johnston, Iowa, are also working on seeds that are increasingly drought-resistant, which is crucial given the increasingly erratic weather patterns.


Genetically modified crops have shown immense promise across the world, with some 10 million “small and resource-poor farmers benefiting from biotech crops in developing countries,” according to a 2007 report by the International Service for the Acquisition of Agri-Biotech Applications.


Monsanto predicts a 90-percent penetration of the country’s soybean seed market by the end of the decade. The Brazilian company Votorantim, which works with everything from cement to agribusiness, is also looking to use Roundup- Ready seeds to produce sugarcane, one of the primary components of Brazil’s massive ethanol market.


The country’s ethanol program provides a model for the world to follow. Brazil was 80 percent dependent on foreign oil in 1974, but now is not only wholly energy self-reliant, and also exports ethanol to Japan, notes Robert Zubrin, Denver-based author of Energy Victory: Winning the War on Terror by Breaking Free of Oil.


Brazil also is a primary exporter in the global marketplace, providing 70 percent of the world’s orange juice and 29 percent of its beef. All of this has led to a record trade surplus for the country, hitting a high of $3.9 billion in March and a 15.7 increase in vegetable exports.


With these biotechnology advances, developing countries can farm and produce commodities such as soybeans and corn while using less fuel and water, and spraying less herbicide. “The U.S. agricultural research community has truly had a great global impact over the years,” says Daniel Gustafson, Director of the Washington office of the U.N.’s Food and Agriculture Organization.


Adds Kirschenmann, “You’ve got a lot of genetically modified seeds … that simplify management systems and let farmers dramatically increase their production because the seeds simplify their weed management.” These types of products eliminate the need to apply multiple types of herbicides.


Colombia is also moving toward embracing biotechnology, which will lead to an even higher level of commodity production. A USDA report noted the country was set to plant more than 27,000 hectares of living modified organism (LMO) crops in 2007, up from 3,000 hectares in 2003. An LMO crop is one that’s designated as a living organism that’s been genetically modified through biotechnology—common LMOs are crops such as tomatoes, corn and soybeans that have been altered for increased resistance to pests or diseases.


In addition, Colombia is increasing its own ethanol production. The South American nation currently has five ethanol plants producing 1.2 million liters per day, according to a 2007 USDA Foreign Agricultural Service report. In an effort to meet new governmental guidelines, which mandates a 10-percent ethanol blend in gasoline and a five-percent blend of biodiesel in diesel by 2008, Colombia is building two more ethanol plants, and it hopes to complete three biodiesel plants this year. When these projects are completed, “Colombia could export its excess biodiesel to establish itself in the export market and take advantage of growing international demand and high prices,” the report states.


Paraguay, too, has taken advantage of biotechnology and positioned itself as a major player in the world of soybeans. Already the fourthlargest exporter of the commodity in the world, “the country increased its biotech soybean area another 10 percent in 2006, to account for 90 percent of the country’s total soybean crop,” notes a USDA Foreign Agriculture report.


Africa is reaping some benefits, as well. In addition to its work with drought-tolerant seeds, Pioneer is working in conjunction with the Bill & Melinda Gates Foundation on a biofortified sorghum that will grow in sub-Saharan Africa while also providing increased nutrition.


“Sorghum grows naturally in harsh climates, so we’re helping it grow and helping it become more nutritious and easily digestible,” says Jerry Harrington, Pioneer’s Sales and Marketing Public Relations Manager. Noting that a third of African children suffer from zinc deficiencies, and 90 percent receive inadequate amounts of vitamin A, Harrington says Pioneer’s sorghum “contains essential amino acids, especially Lysine, and increased vitamin A, E, and more available iron and zinc.”


It no doubt will take some time for the marketplace to adjust to the new players in the world’s economy. But the end result, Hayes says, will benefit the very people who need help the most. “We’re seeing commercial activities in developing countries that’s really helping their economies, and it’s helping fight hunger because of the increase in food,” he says.


Farming EquipmentAmerican machinery has had a sizeable impact on farmers across the globe. The latest tractors have been a godsend for farmers in Brazil because of the massive size of the farms there.


“In Brazil, they don’t have the legacy of 40 acres and a mule like we have here—there’s no artificial limit on farm size,” notes Peter Goldsmith, Executive Director of the National Soybean Research Laboratory and Associate Professor at the University of Illinois in Urbana-Champaign. “In Brazil’s Cerrado region, if you want to farm 50,000 acres, you can do it.


“It saves fuel, it saves labor, it saves machinery upgrades.”


The benefits are also being felt in the U.S. John Deere’s stock has gone from around $30 per share in 2003 to above $94 per share in April 2008.


Deere also sells no-till planters, which have been a boon to countries such as Argentina, where the production of biodiesel is predicted to more than double between 2007 and 2017.


“No-till is a fantastic technology that’s really revolutionized things,” Goldsmith says. “It limits erosion, because you’re leaving this cover on the soil.” The practice also saves time and labor costs, because less effort needs to be expended doing weeding and other cultivation.





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