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2011 Speeches

Samuel R. Allen     Samuel R. Allen

As the World Changes, So Must John Deere:

Feeding, Fueling and Housing a Growing World

Executives' Club of Chicago

Chicago, Illinois

Remarks by Samuel R. Allen

Chairman & Chief Executive Officer

Deere & Company

May 10, 2011

Good morning and thank you Rick (Waddell) for the opportunity to address this important business forum.


Let me add my congratulations on the centennial of the Executives' Club.  All of us value sustainability in business these days. So I wish you continued success in your next 100 years.


As I understand it, the purpose of these quarterly breakfasts is to introduce the Chicago business community to CEOs who have recently taken the helm of multinational corporations based in the area.


While it may be a stretch to call Moline a Chicago-area company – and with gas at $4 a gallon, it's farther away than it used to be – I'm nonetheless honored to join you this morning.


Over the next few minutes, I'll be sharing my thoughts on powerful global trends that affect each and every one of us, wherever we may be.  


These trends – based largely on a growing, more affluent population – are certain to have a major impact on the companies we lead as well.  I'll also be discussing John Deere's own plans for growth and how we're preparing to address some of the more significant challenges that lie ahead.


You may have heard the Chinese curse, "May you live in interesting times."  If you believe that's the case, then the agricultural industry is so cursed today.


We live in interesting times in no small part because our industry operates at the confluence of several powerful global trends.


First of all, a steadily growing population will result in at least 30 percent more people to feed, shelter and clothe in the next 40 years.  


Just to complicate things, this must be done with basically the same amount of land, water and other inputs such as fertilizer.  And speculation still abounds over the effects of climate change on food production.


Add to the list higher incomes, better diets, and increased urbanization and you can see why global agriculture has some big challenges before it. 


In case you have doubts about the magnitude of the world's population  growth, consider this: By the time we wrap up this morning's meeting and you're headed back to the office, nearly 9,000 people will join the ranks of the global population.


That's 9,000 new mouths to feed every hour – enough to fill the Chicago Theatre nearly three times!


World population is expected to climb from almost 7 billion today to more than 9 billion by 2050. In order to provide enough food, fiber and fuel for this growing number of people, agricultural output must double – and do so in a sustainable manner.


What's more, newly-released projections now point to possibly 10 billion people living on earth by the start of the next century.


Put another way, in the next few decades, agriculture will be called on to produce more food than in the previous 10,000 years, with little or no increase in resources.


Also driving consumption is an emerging affluence, particularly in developing countries. The U.S. economy may be stuck in a low gear. But, much of the rest of the world is racing ahead.


Consider that over half of the global population today lives in countries whose economies are growing at an annual rate of 6 percent or faster.  Forty percent are in countries growing at an 8 percent rate or more.


As incomes rise in these places, more people vault into the middle class. In some cases, that might mean earning only a few dollars a day. But it's enough for people to upgrade their diets – and many of them do. This creates more demand for meat and animal protein in particular, triggering an even greater requirement for feed grains.


Other key global trends – those affecting production as opposed to consumption – must be factored into the equation. The first is the limited amount of farmable land and water available as we work to double the world's food supply.


Most of the productive agricultural land is already being farmed. Some incremental acreage can be brought into production, of course, but it tends to be less fertile, more costly to farm, and less suitable for sustainable agriculture.


Clean water is becoming increasingly scarce, too, not only for basic human needs, but also as a means to water crops and provide food for the fast-growing population. Today, roughly two-thirds of the world's fresh water is used by agriculture.


Water scarcity already affects one in three people on every continent of the globe. This situation is likely to worsen as industrialization spreads and needs for water expand.


Urbanization is another trend with far-reaching impact.


A more affluent population is fueling a migration from rural to urban areas. This gives rise, on a simultaneous basis, to a reduced supply of farm labor, a greater requirement for modern farm machinery, and a massive need for infrastructure development.


Perhaps we passed the tipping point in 2007 when, for the first time, more than half of the world's people lived in urban areas. That figure is expected to reach 70 percent by 2050, when nearly as many people could be residing in cities as live on the entire planet today.


I travel to China on a regular basis. It's mind-boggling to see the surge of roads, bridges, and buildings under construction. By some estimates, the equivalent of a brand-new city of one-million people is being built every single month!


To be truthful, these trends are positive news for global machinery companies like John Deere. They may well create a need for productive farm and construction machinery that will span the globe and stretch far into the future.  But this also underscores the scale of the challenge.


Given these powerful environmental, social, and economic trends, how can we double food production by mid-century?


How can we close the productivity gap – defined by the U.S. Department of Agriculture as the difference between today's rate of farm-productivity growth and the rate required to meet future demands?


For one thing, how can we not?  Failing to do so, or not acting quickly enough, means additional human suffering through hunger and malnutrition, perhaps on a wide scale.


Obviously, that is not acceptable. For a company like John Deere, which has a long history of improving the quality of life and promoting human flourishing, it is a cause of great concern.


Of course, the issue of increasing ag productivity is nothing new, and dramatic gains have made been over the years. Largely as a result of productivity advances, the typical U.S. farmer today feeds over 150 people, six times more than in 1960.


Such a statistic seems to shed hopeful light on the future – and it certainly illustrates what might be possible. But it's important to note that the rate of improvement has slowed in recent years.


Yields of staple crops are still climbing – but the pace has fallen from about 3 percent a year in the 1960s to around 1 percent currently.


Overall farm productivity is continuing to march ahead as well, but again the rate is slowing. By many accounts, the rate of annual productivity growth must increase by about 25 percent in order to grow enough food to meet society's future needs. 


Further advances in farm machinery could play a big part in attaining this goal. And, indeed, equipment has been getting larger, smarter, and more powerful for some time.


Modern farm machinery is truly a sophisticated productivity tool.


Today's large John Deere tractors have more lines of software code than early space shuttles!


Our GPS technology can guide a tractor and implement in the field with near-perfect precision. This means less overlap in tillage and chemical application, saving on time, money and environmental impacts.


Or consider the dramatic gains we've seen in harvesting technology. John Deere's smallest combines today are more productive than the largest sold in 2000. Today's typical combine does three times more work than the harvesters of a generation ago in a similar amount of time.


So while the world may be challenged to boost ag productivity, the technologies exist, or are under development, to help do just that.


There are others areas that must contribute to meeting the world's food security challenge, as well.


One is a strong, rules-based global trading system. About one-quarter of all food and agricultural products today is traded. That figure will only grow, making trade — local, regional and international — even more integral to putting food on the tables of a growing population.

More open trade, further, helps ensure that agriculture is practiced in the places where it makes the most sense and is the most economically efficient. Traditionally, major nations have regarded food security as a sacred rite and seen food self-sufficiency as a way to attain it.


As this latter priority becomes less and less viable, it magnifies the importance of having more-open trade policies and fewer barriers to moving agricultural goods from one nation to another.


Freer trade, fewer restrictions and stronger rules will go a long way toward facilitating worldwide commerce, stimulating economic growth, and ensuring that the world's population is properly fed, clothed and housed.


Let me touch on one more thing that could be key to driving higher levels of productivity.


It's the need for significant strategic investment in rural communities throughout the world. It's not enough to sustain rural economies – we must work to ensure their long-term prosperity.


In developing countries, where "rural" and "agriculture" are synonymous, a majority of the population tends to be engaged in some aspect of agriculture. Investing in hard and soft infrastructure for these rural areas would improve the lives and livelihoods of many people – and have a positive impact on agricultural output.


In many parts the world, the primary impediment to productive farming is not the fertility of the fields or the caliber of the equipment, but the condition, or even the existence, of adequate roadways, bridges, storage facilities and ports.


"Soft" infrastructure is important as well. It includes appropriate policies and the elimination of legal, financial and social barriers to land ownership and property rights.  This, too, could have a huge impact on farm productivity.


Farmers who have clear legal title to their property – which is a big issue in certain places – are simply in a much better position to take out loans, buy machinery, and increase their production and profit.


Even in more developed parts of the world, widespread rural access to broad-band Internet and other forms of information technology is critical to educating youth, developing a skilled workforce, and attracting jobs.


I've laid out in a short amount of time the tremendous challenges facing the world today, and in particular, those facing the agricultural sector.


John Deere feels that challenge brings opportunity – in this case, the opportunity to serve humanity while accelerating our company's own growth and financial performance.


We understand that in order to close the productivity gap, we must think differently and move aggressively.


That helps explain John Deere's efforts to expand our global footprint and enrich our product lines. Over the last year or so, we announced or launched several significant projects that will add to our manufacturing capacity on a global basis.


These include new operations in China, India, and Russia – some of the very places where the opportunity for improved productivity is greatest.


Global markets are making a big impact on John Deere's performance today, and will become even more important in the future.


At present, a little over one-third of our sales are made to customers outside of the U.S. and Canada. That proportion is expected to reach about half by 2018.


All told, Deere's recently revised strategic plan calls for total sales to double by 2018 from the base year of 2010 under normal market conditions.


That represents an average sales-growth rate of a little over 9 percent – compared with about 7 percent historically.  This is a further testament to the scale of both the opportunities and the challenges ahead. 


By expanding our presence throughout the world – by making our products more available to more customers in more places – John Deere is racing to help close the agricultural-productivity gap.


And, I might point out, we are not alone.  The same can be said for our competitors, as well as virtually every other company associated with agriculture.


Whatever the source, increased investment on the part of our industry is another key to feeding the world in the years to come.


Two other factors must be considered when developing ways to increase productivity. That is, such solutions must conform with society's expectations for sustainability and corporate social responsibility.


Our commitment to conservation is reflected in pretty much everything we do – which shouldn't come as a big surprise considering that farmers are often viewed as the original environmentalists.


One of the best examples is what has happened to John Deere engines over the years. Today's larger engines are fully 99 percent cleaner-burning than just 15 years ago – 99 percent! 


What's more, these gains have been accomplished with virtually no penalty in fuel economy. In the more recent generation of engines, in fact, fuel economy has actually improved in certain respects. This is a major achievement in light of the design changes required to reduce emissions to such a degree.


We believe, further, that the drive to improve productivity is fully consistent with the obligation John Deere feels to give back to society, in ways big and small.


Earlier this year, we announced an innovative public-private partnership in the state of Gujarat, India, to benefit small tribal farmers. It's hoped the program can help approximately 50,000 families mechanize their farms and increase crop yields as much as three-fold.


Deere will open small agricultural-implement resource centers across Gujarat, making more than 500 tractors available for use by local farmers. In addition, we'll train approximately 1,000 local citizens as tractor operators and another 500 as tractor mechanics.


In closing, I'm optimistic about agriculture's ability to improve productivity and meet the world's future nutritional requirements.  It won't be an easy task and success cannot be taken for granted. But it can be done.


I'm also confident that John Deere has the plans, the products, and the technological prowess to contribute to meeting the goal.


This is, after all, what we've been doing for nearly 175 years.


In the early days of our nation, John Deere's steel plow paved the way for the settlement and the eventual development of much of America.


Today, our equipment is arming another economic revolution – by helping feed, fuel and clothe a growing population…while creating the means for possibly billions of people in developing nations to move into the middle class.


In this way, we are supporting greater prosperity around the world. And we are furthering our corporate mission of serving those linked to the land.


Since its founding, John Deere has promoted a better way of life.


Now we have an opportunity and, I might add, an obligation, to help the world grow in sustainable ways and assist mankind in overcoming its most pressing challenges.


Thank you.