Global challenges for agriculture… GLOBAL CHALLENGES FOR AG-MECHANIZATION

STEFANO BALDI Project Manager Agri-food industry unit - NOMISMA spa

Bologna, November 9, 2016

OUTLINE

Agricultural productivity growth and the role of mechanization in developed and developing countries

The global challenges for agriculture: opportunities and threats

Growing food demand

Climate change

Resource shortage

2

The effects of market uncertainty on farmers’ income

THE GROWING FOOD CONSUPTION

0

200

400

600

800

1.000

1.200

1.400

1.600

1.800

EU-5 USA+Canada

N-11 Japan China India Russia Italy Brazil

2014 2024

+17% +19% +43%

+8% +68%

+89%

+11% +9% +19%

UE-5= Germany, France, UK, Italy, Spain

N-11= «Next eleven»: Mexico, Indonesia, Nigeria, Turkey, Bangladesh, Philippines, Pakistan, South Korea, Vietnam, Egypt, Iran

Source: Nomisma on IHS

Every country will experience a growth of food consumption. However, the most significant growth will occur in transition economies and developing countries

Food consumption value ($ billion – 2005 constant prices)

3

4

GROWING WEALTH AND SPENDING POWER

3,4%

3,4%

12,0%

40,9%

127,7%

350,6%

Italy

Russia

Brazil

N-11

China

India

2024/14 % var. number of household with an average income between 30-60 K$ PPP

Over the next 10 year, in the emerging economies, the number of households with an average income similar to that of developed countries will increase sharply

-4

-2

0

2

4

6

8

Developing countries Developed countries

Annual average GDP growth rate (2000-2024)

Developing countries will grow twice as fast as developed

Source: Nomisma on USDA and IHS

Source: Nomisma on USDA and UN Department of Economic and Social Affairs

40%

42%

44%

46%

48%

50%

52%

54%

56%

58%

60%

2000 2005 2010 2015 2020 2025

Urban

Rural

The population growth (2025: 8 billion people) combined with the fast urbanization occurring in developing economies will enhance the demand for energy, water, healthcare, housing, transportation, etc. and will tranform lifestyles and food consumption habits

THE CHALLENGE OF THE NEW URBANIZATION

Population trend – change in million Urban VS Rural population (% share in total population)

20 5

-3

161

27

116

11

-2 USA+Can

EU Japan N-11 China India Brazil Russia

2000-20082008-20162016-2024

5

WHAT DRIVES FOOD CONSUMPTION?

Per capita consumption

(kg)

Population growth + urbanization + increasing wealth = «Westernalization» of diets

Source: Nomisma on OECD-FAO Agricultural Outlook

21

28 60

68

0

20

40

60

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17

20

18

20

19

20

20

20

21

20

22

20

23

20

24

DEVELOPED DEVELOPING

49 80

118 121

20

40

60

80

100

120

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17

20

18

20

19

20

20

20

21

20

22

20

23

20

24

VS

MEAT

MILK

6

80

100

120

140

160

180

200

220

240Cereals

Dairy

Meat

Oilseeds

7

FARM INCOME IS INCREASINGLY UNCERTAIN AND EXPOSED

Source: Nomisma on FAO

Price index (2000=100)

The weak supply-demand balance can be altered by any shock in any of the following fields: individual countries’ policies (farm support, protectionism), energy prices (oil), weather conditions (climate change impact on yields), political instability, etc.

INCREASING COMMODITY PRICE VOLATILITY = UNCERTAIN FARM-GATE PRICES AND FARMERS’ INCOME

RISING WEATHER RISK FOR CROP PRODUCTION

Source: Munich Re, NatCatSERVICE, 2016 8

Weather-related loss events worldwide – Number of relevant events by peril

THE RESOURCE SHORTAGE: WORLD ARABLE LAND IS LIMITED AND DECLINING

Source: Nomisma on World Bank and FAO 9

0,37

0,27

0,23

0,20

19

61

19

63

19

65

19

67

19

69

19

71

19

73

19

75

19

77

19

79

19

81

19

83

19

85

19

87

19

89

19

91

19

93

19

95

19

97

19

99

20

01

20

03

20

05

20

07

20

09

20

11

20

13

Arable land (hectares per person) FORECAST

2030 0,197

2050 0,181

THE PRODUCTIVITY GROWTH

Source: Nomisma on USDA 10

1,70%

0,58%

2,62%

1,51%

1,80%

0,00%

0,50%

1,00%

1,50%

2,00%

2,50%

3,00%

1961-70 1991-00 2001-13 TARGET 2050

World Africa Asia Europe North America

Average annual Total Factor Productivity (TFP) Growth

1,75%

TO MEET FOOD DEMAND

HOW DO WE ENHANCE THE AGRICULTURAL PRODUCTIVITY?

11

Technical progress

Management skills

MECHANIZATION

Area allocation

Economies of scale

OUTPUT

---------- INPUT

DOMESTIC DEMAND OF AG MACHINERIES OVER THE NEXT 10 YEARS

Source: Nomisma on Bottinger 12

GER FRA USA CHINA INDIA MOROCCO BOTSWANA

GLOBAL IMPORTS OF AG-MACHINERIES ON THE RISE

Source: Nomisma on UNComtrade 13

231%

214%

192%

169%

166%

135%

110%

95%

95%

92%

92%

91%

83%

72%

Myanmar

Cambodia

Philippines

Cuba

Algeria

Ethiopia

Kenya

Azerbaijan

Hungary

Bulgaria

Peru

Serbia

Zambia

Zimbabwe

New Zealand

183

139

315

155

623

229

196

127

698

673

288

149

117

78

685

IMPORTS OF TRACTORS AND AGRICULTURAL MACHINERIES

MIL $ and VAR.

2015/2010

TOP15 PERFORMERS

$4,7 BILLION

+640%

14

FINAL REMARKS/1

Need for further mechanization to improve productivity in agriculture and to feed the world in particular in the light of

expected economic and demographic developments.

OPPORTUNITIES

TO KEEP PACE WITH THE GLOBAL FOOD DEMAND GROWTH

15

FINAL REMARKS/2

Higher Productivity: Higher yield potential, Less crop damage and crop loss Greater Sustainability: Less quantity of inputs (fuel, water, fertilizer, agrochemicals, etc.), higher use efficiency, more environmental protection Economic benefits for the farmer: greater application speed, reduced working hours, lower production costs

BUT NEED TO COPE

WITH

INCOME INSTABILITY CLIMATE CHANGE EFFECTS

INCREASING PRESSURE ON LIMITED NATURAL RESOURCES

STEFANO BALDI Project Manager Agriculture and Food Industry Unit Nomisma spa stefano.baldi@nomisma.it 051 6483197 www.nomisma.it www.agrifoodmonitor.com

THANKS FOR YOUR ATTENTION!!