The Future in a Global Context

Founded in 1998 by Thomas “Mack” McLartyPresident Clinton’s Chief of Staff

An international strategic advisory firm.We counsel investors, corporations & non-profits on:

Strategic planningGovernment issues and advocacyMergers and acquisitionsPolitical and economic risk issues

Assist with high-level commercial and political negotiations, including market access requests

Major changes affecting world agriculture between now and 2030:

One: Shifting ProductionTwo: Rising Food Security ConcernsThree: Growing Global Middle ClassFour: Changing Rich Country ConsumptionFive: Environmental ConstraintsSix: Continuing Science AnxietySeven: Rising Non-Trade ConcernsEight: The Energy Issue Nine: Moving Beyond the WTO

Increasingly globalized supply chainChina will increase production but can’t keep upConcentration in Ukraine, Brazil, US, Europe & AfricaIncreasing trade flows & murkier national origins

New technology introductionMore use of IT in production & logisticsIntensification such as hydroponicsNano, biotech and in-vitro meat production

People move off the land, increasing farm sizeFuture 2030: New technology and more dependence on Ukraine, Brazil, US, Europe & RussiaAction Items:

Land ownership/tenure reformIncrease productivityFirmer embrace of technologyTrade liberalization & rebalancing trading system to new entrants

Links of food and national securityRising competition for resources such as land & waterIncreasing land & other input pricesCould affect political stability & military priorities

More defensive moves in export & importsReducing price & supply volatilityProtecting local production in many marketsMarket access a concern in export dependent countriesMore technical trade issues

Future 2030: More use of safeguards, SPS & anti-dumping Attempts to secure resources and local productionAction Items:

Support training & technologyReduce import/export trade barriersNeed to allow scale to develop in agricultureEmbrace new producers – we need them

00.10.20.30.40.50.60.70.80.9

Russ

ia

Uni

ted

Stat

es EU

Braz

il

Turk

ey

Iran

Nig

eria

Mex

ico

Ethi

opia

Indi

a

Paki

stan

Indo

nesia

Chin

a

Viet

nam

Phili

ppin

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Bang

ades

h

Japa

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Arable Land (ha/person)

Low Land Availability in Large Growth Markets

Source: FAO

Increasing demand in developing countriesMiddle class will increase by 104% by 2020 in poor & middle income countries versus 9% in rich countriesEating out & meat consumption to increase sharplyIn East Asia and Sub-Saharan Africa, per capita meat consumption by weight is projected to increase by 55% and 42% by 2030

Modernized distribution spreadingCold chain & logistics to cut waste, reduce consumer prices & increase farm pricesMore sales through modern retail formats

Future 2030: Continued strong increases in food demand could press resource limits & strain transportAction Items:

Adaption to huge consumption increasesImprove logistics to facilitate tradeReduce trade barriers to control prices

Source: Global InsightNote: Households with PPP incomes greater than $20,000

0 100 200 300 400 500 600

Egypt

Indonesia

Mexico

Brazil

Russia

India

China

20112021

Middle Class to Increase by 83% by 2021

0

10

20

30

40

50

60

70

80

South Asia SE Asia CIS S America China E Asia (exChina)

N America EU

Meat Consumption, 2002-2012

More stress on production systems

Source: FAO, USDA

Perc

ent I

ncre

ase

Demand for ag products has been flatMove away from red meatException: Increasing immigration

Consumption changingObesity affects 500 millionLocal, organic & health food in rich countriesNutrition, allergens and new concerns to arise

Future 2030: Exports will likely drive future growth & food characteristics will become more important Action Items:

Need export/trade growthSecure market access Change products to meet demandIncreasing information content & big ag dataHow to feed the world with more demands on ag sector?

Changing weather patternsErratic waterfall and limited availabilityIncreasing water stress conditionsEmerging diseases issue

More need for sustainabilitySoil erosion and biodiversity issuesReducing waste in production and inputs

Falling utilizable arable landUrbanization & need to supply in Asia/AfricaOffset by increases in Ukraine, Africa & elsewhere

Future 2030: Likely falling returns to scale because of environmental constraints. How to utilize waste?Action Items:

Focus on long-term water, land & other resource sustainabilityDefine property rights more clearly (land/water)

Loss of faith in regulatorsBSE, Dioxin-chicken in EuropeMay happen in America & elsewhere

Consumer questions about biotechResistance in EuropeNorth America, Latin American & ChinaAfrica caught in the middle

Could affect support for research & developmentUndermine emerging technologies?

Future 2030: Persistent science skepticism could drive need to improve system with traceability & improved regulationAction Items:

Rise of traceability & private standardsMore pro-science policy on biotech & other technologySupport agricultural extension, research & development

These NTC include:Environmental (agriculture contributes 12–14% of greenhouse gas)Human rights & child laborAnimal welfare, vegetarian & veganReligious issues – HalalAging & health issues

Rising activity of NGO & Social MediaFocused on means of productionMajor interest of younger generations

Future 2030: Trade increasingly affected by NTC but may split along class lines. Multifunctionality spreading Action Items:

Improve agriculture’s environmental footprintMore effective risk communicationMore technology to support consumer choiceValue -added for producers

Energy demand is rising Consumption projected to increase by 45% between 2006 and 2030Already diverts 30% of US corn, oils, sugarPut pressure on food and feed prices

Energy supplies are also risingNorth American & other energy production Return to early 20th century food/feed/fuel land use patternsNext generation biofuels on the horizon

Future 2030: Energy prices affected by demand & supply changes Action Items:

Reduce energy intensivity Need to balance resource (land/water) useAdapting to changes in energy and consumer prices Prepare for disruptive technologies

WTO has limited effectiveness.Doha has too many actors and demands unanimityGridlock defining “sound science” (Codex)Dispute Settlement often not effective (EU-US ag)

Countries moving to FTA and other agreementsMore than 600 bilateral or regional trade agreements in place by 2010Increasing FTAs could complicate sourcing rules of originMost agreements not likely WTO consistent

Future 2030: WTO pushed aside by FTAs & other agreementsAction Items:

Increase gains from tradeNegotiate FTAs aggressivelyStrong enforcement mechanisms neededBetter SPS/TBT disciplines

History of low growthTotal Middle Class: 10% of population

Many in KyivHighly industrialized Donetsk & Dnipropetrovsk regions

Now situation worseningLarge macroeconomic imbalances

Hryvnia down 55% in last 12 monthsDisruption: Steel, coal & powerEU agreement delayed to end of 2015Inflation expected to reach 26% in 2015

Source: World Bank, Ukraine Government, 2015 is Forecast

Falling GDP Growth…

-15.0

-10.0

-5.0

0.0

5.0

10.0

15.0

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

GDP Growth

Major ag producer w/ potential*1/3 of world’s black earth Increased past investmentSlowly improving ag policiesResult: Ag sector grew by 4.6% in 2014

Agriculture still needs: Farm machinery & fertilizerInfrastructure investment (railcars & storage)More quality farm laborLand reform

Source: CIA, USDA

Conflict with Russia affected sectorCut credit for planting seasonReduced investor interest in UkraineRail & road transport disruptions Loss of exports to RussiaRisk of further problems

However, sector is still resilientConflict areas have small effect so far

Luhansk & Donetsk: Only 7% of grain areaMariupol: Only 2% of grain exports

Source: CIA, USDA

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14000

Ukraine – Sunflowerseeds Prod (1000 MMT)

Source: USDA

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15

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25

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Ukraine – Wheat Production (MMT)

Source: USDA

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35

Ukraine – Corn Production (MMT)

Source: USDA

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Ukraine – Poultry Production (1000 MT)

Source: USDA

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Ukraine – Beef Production (1000 MT CWE)

Source: USDA

Source: Percent of World Production (MT), USDA

Ukraine27%

Russia24%EU

20%

Argentina6%

China6%

Turkey3%

ROW14%

Sunflowerseeds Production

Source: Percent of World Production (MT), USDA

EU21%

China17%

India13%

United States8%

Russia7%

Canada5%

Ukraine3%

ROW26%

Wheat Production

Source: Percent of World Production (MT), USDA

EU18%

Canada14%

Australia12%United States

29%

Russia12%

Ukraine6%

ROW20%

Wheat Exports

Source: Percent of World Production (MT), USDA

Argentina14%

Brazil17%

United States37%

Russia3%

Ukraine14%

ROW15%

Corn Exports

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6

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14

Brazil Canada United States Uruguay Argentina Russia Ukraine

Forecast Grain Export Increase to 2021 (MMT)

Source: Eurostat, FAO, Ukrstat

Ukraine has top potential for:Corn, barley, sunflowerseeds & many others

How to realize this?Lay the base for land privatizationCreate a welcoming environment for inbound foreign investment

Grain storage & handlingAnimal & horticultural production

Increase credit access for farm inputsSupport use of modern farm machinery

Cut duties and regulation – and increase credit accessSupport the adoption of biotech crops

Eric TrachtenbergDirector, Food & Agriculture Sector

McLarty Associates900 Seventeenth St, Suite 800

Washington, DC 200061-202-419-1420

Acknowledgements/Sources: USDA/Foreign Agricultural Service (FAS), USDA/Economic Research Service (ERS)

Congressional Research Service International Centre for Trade and Sustainable Development