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Global Trends Impacting the Farmer’s Future

Illinois Farm Bureau Commodity ConferenceJuly 29, 2015

Today

Harvard Agribusiness Major Trends Global outlook What’s going on with consumers The Agribusiness response

How does this affect you? Q&A

Agribusiness at Harvard Business School• A Concept of Agribusiness, Davis and Goldberg (1957)

• MBA elective

• “Agribusiness Seminar” (Executive Education) since 1960

• Hundreds of cases, thousands of program alumni

Harvard Agribusiness CasesAGRA (Kenya)Alltech (USA)Arcadia Biosciences (USA)Asian Agri (Indonesia)Associated British Foods (UK) Barilla (Italy)Brasil Foods (Brazil)Bunge (USA)CHS (USA)CME Group (USA)Codevasf (Brazil)COFCO (China)Cosan (Brazil)Cresud (Argentina)DaChan (China)Diageo (Africa)Diamond Foods (USA)Disney (USA)Domino’s (USA)Ebro Puleva (Spain)Exima (Russia)

Fonterra (New Zealand)FreshTec (USA)Friona (USA)GlobalGAP (Germany) Greencore (UK)Heineken (Netherlands)HN Naturals (India)Hungerit (Hungary)Identigen (Ireland)Jain Irrigation (India) JBS (Brazil)Kepak (Ireland)K&N’s Poultry (Pakistan) Los Grobo (Argentina)Louis Dreyfus (Switzerland) Lufa Farms (Canada)Marine Harvest (Norway)Marks & Spencer (UK)Mission Produce (USA)Monsanto (USA)Munoz Group (Spain)Mutti (Italy)

Nestlé (Switzerland)Ocean Mist (USA)Olam (Singapore)OSI (China)PureCircle (Malaysia)Queensland Sugar (Australia)Rabobank (Netherlands)Red Lobster (USA)Red Tomato (USA)Ripe N Ready (USA)Simplot (USA)Syngenta (Switzerland) Taylor Farms (USA)Tesco (UK)Tissue Culture Beef (NL)Unilever Tea (UK)Vegpro (Africa)ViniBrasil (Brazil)Woolf Farming (USA)Xinjiang Tunhe (China)Yum! ChinaZespri (New Zealand)

Harvard Agribusiness Cases

Major Trends

• Globalization• Consolidation• Volatility• Food security• Scarcity of land, water and talent• Consumer engagement/activism• Food and health• Traceability and transparency• Technology• Sustainability

2007+: A New Era for Agriculture & Food?

Source: FAO, June 4, 2015 Long-term fundamentals remain strong

DEMAND• Population, Income Increasing• China and others eating more

meat, dairy• Biofuel use continuesDemand +70% by 2050

SUPPLY• Land and Water constraints• Uneven productivity growth• Large yield gaps• Government policies

• Prices, quotas, stocks• Environment• Trade

• Weather events

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Fundamental shift in Supply-Demand balance

COMMODITY PRICE SWINGS MAGNIFIED BY HFT

Harvard Agribusiness Seminar Cases

Strongest growth in emerging markets

People (and appetites) moving to MEGACITIES

Supply history: Producing more with less

Area needed in 2050 at current yields

Where’s the land?

Where’s the water?

China’s IMPACT

China’s Challenge: Feeding 1.3 billion

• Improving diets• Pork consumption doubled since 1990+ Chicken, beef, dairy, fresh produce ….

• Relentless urbanization• 160 cities > 1m (35 in Europe)

• Largest grocery market in the world+ Rapid growth online shopping

• More discerning consumers- Digitally connected (1.2B mobile phones, 618M internet users)- Global outlook (200m Chinese tourists a year by 2020)

Yum China: 6,800 restaurants in 1,000 cities

Challenges: Quantity AND Quality

Fragmentation Environment Food Safety Cold Chain Labor

Securing China’s future

• Food policy - Critical!• Produce? Import?

• 60% of global soybean exports go to China

• Investing globally to stimulate production, improve logistics• FDI $12B in Brazil in 2011

• Also Australia, New Zealand, Argentina, Africa….

• Buying commodities, land & companies• Smithfield, Nidera, Noble ….

Africa on the rise

• 7 of top 10 fastest growing economies• 60% of world’s uncultivated arable land• World’s youngest population• $1 Trillion food market by 2030 if

- Capital- Electricity- Technology

Challenges: Stability, Standards and Enforcement, Smallholder farmers…

Outlook

• Growing mismatch production and consumption locations• Food security concerns will drive re-examination of free

trade• Global axis is shifting

• China• Brazil

• Top companies of tomorrow will not be the same as today

Consumers: Engaged and Empowered

•Food is Trending•Internet = (Im)Perfect Information

•Trust friends more than ads

•Product AND Purpose•Rejection of BIG ag/food companies

BIFURCATION

VALUE PREMIUM

Local Markets

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Traceability - There’s an App for That!

From Sustainable Agricultureto Sustainable Diet

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Source: Barilla Center for Food and Nutrition

Integrating to• Manage volatility• Capture margins• Secure current and future supply• Ensure food safety• Protect brand reputation• Deliver differentiated products

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Supply Chains: From Farm to Fork

Domino’s buying chicken feed

HARD RED SPRING WHEAT

CORN

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TRUJILLO, PERU – AUGUST 2011

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TRUJILLO, PERU – DECEMBER 2013

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Our goal: by 2016

all food & drink exports

from farms and food businesses

certified as on the road

to sustainability

http://www.bordbia.ie/origingreen/whyorigingreen/pages/default.aspx Saoirse Ronan for Origin Green

Farm Quality & Sustainability Audits

45,000 Beef Farms

90% of Beef Exports, Audited & Carbon Footprinted

18,000 Dairy Farms100% Milk production, participants entering audit cycle

Pigmeat, Poultry, Eggs, Grain, Horticulture

Sustainability measures being implemented

Where’s the beef?

Soaring Global InvestmentFarmland and forestsAgTech ($2.36B in 2014)

Agri-food as a strategic industry• Brazil

• New Zealand

• Ireland

• Illinois?

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What’s this mean?• Volatility – the new normal

• Local, national, AND global supply chains

• More specialties, fewer commodities

• Substantial change in investment flows

• Opportunities for smaller, more innovative, more flexible producers

• Talent the biggest constraint

mshelman@hbs.edu

From automation and big data to purchasing portals and differentiated products

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Transformational Technologies