Feeding the World Without Consuming the Planet

Transcription

1 Feeding the World Without Consuming the Planet MIT Food Symposium Boston, MA November 5, 2013 Dr. Michael R. Rahm Vice President Market and Strategic Analysis The Mosaic Company 1

2 Safe Harbor Statement This presentation contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of Such statements include, but are not limited to, statements about the proposed acquisition of the Florida phosphate assets of CF Industries, Inc. ( CF ) and the ammonia supply agreements with CF; the benefits of the transactions with CF; future strategic plans and other statements about future financial and operating results. Such statements are based upon the current beliefs and expectations of The Mosaic Company's management and are subject to significant risks and uncertainties. These risks and uncertainties include but are not limited to risks and uncertainties arising from the possibility that the closing of the proposed phosphate asset acquisition may be delayed or may not occur, including delays arising from any inability to obtain governmental approvals of the transaction on the proposed terms and schedule and the ability to satisfy other closing conditions; difficulties with realization of the benefits of the transactions with CF, including the risks that the acquired assets may not be integrated successfully or that the cost or capital savings from the transactions may not be fully realized or may take longer to realize than expected, regulatory agencies might not take, or might delay, actions with respect to permitting or regulatory enforcement matters that are necessary for us to fully realize the benefits of the transactions including replacement of CF s escrowed financial assurance funds, or the price of natural gas or ammonia changes to a level at which the natural gas based pricing under one of the long term ammonia supply agreements with CF becomes disadvantageous to us; customer defaults; the effects of our decisions to exit business operations or locations; the predictability and volatility of, and customer expectations about, agriculture, fertilizer, raw material, energy and transportation markets that are subject to competitive and other pressures and economic and credit market conditions; the level of inventories in the distribution channels for crop nutrients; changes in foreign currency and exchange rates; international trade risks; changes in government policy; changes in environmental and other governmental regulation, including greenhouse gas regulation, implementation of numeric water quality standards for the discharge of nutrients into Florida waterways or possible efforts to reduce the flow of excess nutrients into the Mississippi River basin or the Gulf of Mexico; further developments in judicial or administrative proceedings, or complaints that Mosaic's operations are adversely impacting nearby farms, business operations or properties; difficulties or delays in receiving, increased costs of or challenges to necessary governmental permits or approvals or increased financial assurance requirements; resolution of global tax audit activity; the effectiveness of the Company's processes for managing its strategic priorities; the ability of the Northern Promise joint venture among Mosaic, Ma'aden and SABIC to obtain project financing in acceptable amounts and upon acceptable terms, the future success of current plans for the joint venture and any future changes in those plans; adverse weather conditions affecting operations in Central Florida or the Mississippi River basin or the Gulf Coast of the United States, and including potential hurricanes, excess rainfall or drought; actual costs of various items differing from management's current estimates, including, among others, asset retirement, environmental remediation, reclamation or other environmental regulation, Canadian resources taxes and royalties, or the liabilities we are assuming in the proposed phosphate assets acquisition; brine inflows at Mosaic's Esterhazy, Saskatchewan, potash mine or other potash shaft mines; other accidents and disruptions involving Mosaic's operations, including potential mine fires, floods, explosions, seismic events or releases of hazardous or volatile chemicals, as well as other risks and uncertainties reported from time to time in The Mosaic Company's reports filed with the Securities and Exchange Commission. Actual results may differ from those set forth in the forward-looking statements. 2

3 The Mosaic Company 3

4 The Mosaic Company Mosaic Leading Miner of Agricultural Minerals Mosaic helps the world grow the food it needs by mining phosphorus (P) and potassium (K) minerals and refining these ores into plant nutrient products that are essential for global agriculture. Our North American operations typically dig, pump, cut, convey and hoist nearly 90 million tonnes of raw P&K ores from the earth each year. We remove the sand, clay, salt and other elements to produce approximately 23 million tonnes of refined ores. We then process these refined ores into about 17 million tonnes of finished products using an additional five million tonnes of purchased or manufactured raw materials such as sulphur and anhydrous ammonia. 4

5 The Mosaic Company Mosaic s U.S. Phosphate Operations 5

6 The Mosaic Company Mosaic s NA Potash Operations 6

7 The Challenge 7

8 Feeding the World: The Food Story by the Numbers The ABCs of the Food Story Based on long term population and GDP forecasts, global grain and oilseed demand is projected to increase from 2.67 billion tonnes in 2010 to 3.05 billion in 2020 and to 4.42 billion in The 380 million tonne increase required this decade slightly exceeds the combined harvests of Argentina, Brazil and Canada (ABCs) in 2012! Grain and oilseed demand is projected to increase another 420 million tonnes during the next decade so global output again will need to increase by the current output of the ABC countries, plus Australia! Global grain and oilseed demand is predictable. Our forecast of a 67% increase in grain and oilseed use between 2010 and 2050 is in line with forecasts from other organizations. Grain and oilseed use for biofuels production is considered exogenous in our analysis. 8

9 Demand Driver #1 Population Growth Million 10,000 9,000 Source: Global Insight and Mosaic World Population 8,000 7,000 6,000 5,000 4,000 3, Actual Forecast Source: IHS Global Insight Steady and predictable population growth World population is forecast to increase from 7.12 billion in 2013 to 9.43 billion by However, growth rates are expected to decelerate due to the normal demographic transitions that occur as countries develop and incomes increase over time. Africa and Asia account for ~80% of the increase! Africa is projected to account for 43% of the total and its population is forecast to increase 2.1% per year or 880 million from 1.02 billion in 2010 to 1.90 billion in India is expected to account for another 18% and its population is projected to increase 0.9% per year or 360 million from 1.21 billion today to 1.57 billion in India s population is projected to exceed China s by

10 Demand Driver #2 Income Growth : Developed Economies : Developing Economies Developed economies accounted for more than two-thirds of the growth in global GDP from 1980 to Developed economies are projected to account for a bit more than one-third of global GDP from 2010 to China alone is forecast to account for one-fourth of global GDP growth during this period. 10

11 Demand Driver #2 Income Growth Meat kg per Capita Meat Supply vs. GDP per Capita 2009 Source: IHS Global Insight and UN FAO y = ln(x) R² = GDP per Capita - $1000 (2005 US$) Larger, more affluent and urban middle classes Rising household incomes, especially among new urban wage earners, are creating larger and more affluent middle classes especially in Asia, Latin America and parts of Africa. Our analysis shows that a little more than one-half of the increase in grain and oilseed use each year is due to more mouths to feed while the remainder is a consequence of people upgrading diets to more grain intensive foods. More Income = More Meat Consumption Empirical analyses consistently show that as incomes increase households upgrade diets from carbohydrate intensive foods such as bread and rice to more protein rich foods such as meat, eggs and dairy products. Per capita meat consumption increases exponentially as per capita income increases from extremely low to moderate levels. 11

12 Demand Subliminal Message Africa: Many more mouths to feed China: A bigger appetite (for grain intensive foods) 12

13 The Production Challenge Continued Productivity Growth Required Yield increases have accounted for roughly 90% of the increase in global grain and oilseed production since Harvested grain and oilseed area responds to changes in crop prices. Harvested area has increased 77 million hectares since That is slightly greater than the current combined harvested area in Russia and Ukraine and slightly less than the current combined harvested area in Brazil and Argentina! Assuming harvested area trends upward at a slower pace to 950 million hectares by 2030, the average global yield will need to continue to increase at trend rates in order to meet projected grain and oilseed demand in Moral of the Food Story Farmers will need to harvest record area and reap record yields, year after year, in order to meet projected grain and oilseed demand. 13

14 Some Implications and Assessments (to stimulate discussion) A Need to Focus on Africa Opportunities to Reduce Resource Inefficiencies/Misallocations (three examples) Resource Limitations: Peak Phosphorus is Not One of Them Sustainable Intensification, Law of Comparative Advantage and Free Trade Food vs. Fuel: A False Dichotomy Some Countries Can Do Both Food Security vs. Food Ideology/Sovereignty 14

15 A Need to Focus on Africa A Need to Increase Yields Yields in Africa remain low and mostly stagnant. Closing the yield gap with current production technologies is step number one. Expanding the yield frontier via the adoption of modern and appropriate production technologies is needed in the long run. 15

16 A Need to Focus on Africa Arable Land Estimate and Potential Land in Use (million hectares) Region Sub-Saharan Africa Latin America World 1,602 1,648 1,673 Significant Land is Available, But... Political stability, Institutional reforms, and Infrastructure investment are required to bring into production Source: UN FOASTAT, The perception that there is no more, or very little, new land to bring under cultivation might be well grounded in the specific situations of land-scarce countries and regions such as South Asia and the Near East/North Africa but may not apply, or may apply with much less force, to other parts of the world. As discussed above, there are large tracts of land with varying degrees of agricultural potential in several countries, most of them in sub-saharan Africa and Latin America with some in East Asia. However, this land may lack infrastructure, be partly under forest cover or in wetlands which should be protected for environmental reasons, or the people who would exploit it for agriculture lack access to appropriate technological packages or the economic incentives to adopt them. FAO Expert Meeting on How to Feed the World in 2050 June 24-26,

17 lbs K 2 O per Bu lbs P 2 O 5 per Bu Resource Inefficiencies and Misallocations 4Rs Nutrient Stewardship Farmers seek to maintain soil fertility and safeguard the environment by ensuring that the soil solution is charged with nutrients from the right source, at the right rate, in the right place and at the right time. The International Plant Nutrition Institute (IPNI) has labeled these the 4Rs of nutrient stewardship. Execution of the 4Rs includes best practices such as regular soil testing, accurate estimates of nutrients removed by crops, a full accounting of nutrients added by crop rotations or manure applications, balanced nutrient use, variable rate application, split applications and the use of nitrogen inhibitors or slow-release products. The efficacy of plant nutrient use has increased significantly in the United States since the 1970s. For example, the U.S. Department of Agriculture (USDA) data show that the three year moving average U.S. corn yield nearly doubled from 79 bushels per acre in 1970 to 157 bushels per acre in Yet primary nutrient application rates remained flat at 230 pounds per acre during the same period. U.S. farmers today are harvesting twice as much corn per acre with approximately the same amount of commercial plant nutrients as used in 1970! U.S. Phosphate Use Efficiency on Corn Source: USDA U.S. Potash Use Efficiency on Corn Source: USDA

18 Resource Inefficiencies and Misallocations Bangladesh: Fertilizer Deep Placement with Urea Briquettes 18

19 Resource Inefficiencies and Misallocations Indian Fertilizer Subsidy Case Study Billion US$ 25.0 India Fertilizer Subsidy Cost Source: FAI Fertilizer Year Beginning April 1 19

20 Resource Limitations: Peak Phosphate is Not One of Them Reserve Estimates 300 to 350 years of production at current rates Resource Estimates More than 1,525 years of production at current rates Peak Phosphorus? Peak phosphorus is a hot research topic in academic circles today. Following the model of Hubbert s Peak Oil, a few recent studies have concluded that phosphate rock production will peak during the next 20 to 40 years and then decline sharply during the last half of this century. Proponents warn that depletion of phosphorus resources will imperil food supplies and concentrate economic and political power in countries such as Morocco that possess the largest reserves. Source: USGS and IFDC Are we running out of $30 tonne rock? Yes. Are we running out of $150 tonne rock? Not for a while. Are we running out of $300 tonne rock? Not for a long time. Critics of these studies acknowledge that phosphate rock is a finite and nonrenewable resource and support on-going efforts to further improve the efficacy of phosphorus production, use and recycling. However, they contend that most peak phosphorus studies utilize outdated estimates of rock reserves and fail to fully account for the impact of new technology and higher market prices on resource estimates. They conclude that global phosphate rock reserves exceed estimates used in these studies by a wide margin and, as a consequence, see no threat of peak phosphorus production later this century. 20

21 Yield, bu/ac Sustainable Intensification Comparative Advantage Conventional Twin Row 30 inches 20 inches 48-row planter capable of planting more than 1000 acres per day 1000 Per Acre 32.5 Source: USDA Corn Plant Population - Iowa " Rows 32,000 Traditional 30" Rows 45,000 High-tech Twin Rows 55,000 High-tech Source: 2009 University of Illinois field trials 21

22 Sustainable Intensification Global Trade Implications Mil Tonnes 75.0 Source: USDA China Soybean Imports Pct of Total Use 100% 90% 80% Mil Tonnes 60 Source: USDA 50 Brazil/Argentina Soybean Exports % 60% % % % % 10% 10 Brazil Argentina Imports Pct of Total Use 0% Mil Tonnes 8 Source: USDA China Corn Imports Pct of Use 8% 7% 6% 5% 4% 3% 2% 1% % Million Tonnes Percent of Use 22

23 Food vs. Fuel: A False Dichotomy - Some Countries Can Do Both Biofuels Some Facts We estimate that biofuels currently account for about 5% of global grain and oilseed use. We estimate that the exponential growth in biofuels production since 2005 has accounted for roughly one-fourth of the increase in global grain and oilseed use and all of the net increase in U.S. corn use during this period. Biofuels Some Assessments Passion and politics on both sides of the debate. The history of agricultural is one of productivity increases outstripping demand growth. Real crop prices have declined over time. Is the increase beginning in 2007 the start of a new ballgame? Biofuels enables some countries to operate their agricultural sector at or near capacity (the motherload of demand-boosting and rural-development policies). Long term economic viability depends on the relative energy and crop prices. Viable biofuels are a legitimate component of a comprehensive energy policy (e.g. U.S. ethanol production equivalent of mil bbl day oil imports). Energy balances do not matter. 23

24 Food Security vs. Food Ideology/Sovereignty Plant nutrients are responsible for 40% to 60% of crop yields Vital role in meeting the challenge of feeding more than nine billion people in 2050 No one understood this challenge better or communicated it more effectively than Dr. Norman Borlaug. Borlaug, widely acclaimed as the Father of the Green Revolution, developed disease resistant and high yielding wheat varieties that are credited with saving hundreds of millions of people from starvation in the 1960s and 1970s. India s wheat output doubled from 12 million tonnes in 1965 to 24 million tonnes in Veterans of the Green Revolution joyfully recount how the country frequently ran out of jute bags to store and transport the bountiful harvests. Dr. Norman Borlaug Borlaug, the strong farm boy (and accomplished wrestler) from Cresco, Iowa and a proud graduate of the University of Minnesota, won the Nobel Peace Prize in 1970 for the development of these new varieties as well as his tireless efforts to work with farmers to gain their acceptance. Borlaug was driven by his strong conviction that it is impossible to build a peaceful world on empty stomachs. Farmers can feed the world. Better seeds and fertilizer, not romantic myths, will let them do it. Dr. Norman Borlaug Wall Street Journal July 30, 2009 This is a basic problem to feed 6.6 billion people. Without chemical fertilizer, forget it. The game is over. Dr. Norman Borlaug New York Times April 30,

25 THANK YOU! Feeding the World Without Consuming the Planet MIT Food Symposium Boston, MA November 5, 2013 Dr. Michael R. Rahm Vice President Market and Strategic Analysis The Mosaic Company 25