Food security and globalisation: what's in store

9 November 2012

With the food crisis of 2008 still resonating, Paul Conway, vice-chairman of agricultural multinational Cargill, speaks to CEO about the complexities of food security in an ever-changing world of demand, access and unpredictable weather.

Cargill is the largest privately held US corporation. If it were a public company, it would rank at about the AT&T mark on the Fortune 500 - and a 2011 revenue of $119.5bn affords the company a lot of opportunities. But, at the same time, the disadvantage of being private - apart from the perception that being big, private and American is bad - is that it can only reinvest what it makes or what it can borrow.

Therein lies the continuous challenge of making choices about cashflow, and what shareholders say in order to remain competitive and adhere to the company's four measures of success:

  • to keep employees engaged
  • to satisfy customers
  • to enrich communities
  • as a result of those three, to achieve sustainable profitable growth.

But being in a position where tough choices have to be made is the best place to be, according to vice-chairman Paul Conway.

"Being private helps because this is a long-term industry and you need to make long-term decisions," he says. "But it's also a volatile industry and sometimes volatility can restrict what you do."

What has been especially challenging is adjusting to the fallout from the dramatic spike in food prices in 2008 and the attention to food security that ensued. At the time, Cargill's perspective on the matter was in high demand and, breaking tradition, it chose to be very public about it due to potentially "unhelpful" reactions from various groups.

Security and self-sufficiency

Following the food crisis, there were over 20 governments that instituted some form of export ban and price control, which exacerbated the problem. So, with its full weight, Cargill evangelised that food security is not the same as food self-sufficiency.

"If we didn't talk about these things from the industry, who would?" Conway explains. "In order to get food security, you need to have a macro environment. The things we're doing on the ground haven't changed, but we're certainly being more vocal about it. There are a few people left here who believe our strategy should be 'no comment', but we're a big company and, particularly because of the food crisis, it's become intensely interesting to many players. People are going to write about us anyway so it's one of the things you have to manage."

"Food security can also be defined as having enough food available to people at a reasonable price."

In short, according to Conway, food security - food sufficiency - is "what we do". Experience and shareholders who allow the company to reinvest the majority of cashflow into the business have enabled it to consistently strengthen, from its origin in the Americas to places like Asia where there are long, complex supply chains. But food security can also be defined as having enough food available to people at a reasonable price, which begets the issue of what a reasonable price is.

"If your constituency is the urban poor, you could say you want ever-cheaper food, but does that give a fair return to the world's farmers?" says Conway. "Maize in the US Midwest in 2005-06 was $60 a ton, and that's not a return. So, what price is affordable for the end consumer and what is a decent return for the farmer? The market should be allowed to dictate that by and large, and if governments are worried about the urban poor being able to afford it, there are much more effective ways of subsidising that directly rather than not allowing the price of eggs to go up because then there's no incentive for farmers to grow more. We say that price is the best fertiliser there is."

Striking that affordability/return balance is always a challenge, especially because hundreds of millions of people have joined the middle classes, leading to an increase in not just food consumption, but also the nature of that food consumption, where more meat is consumed.

"That's why you see these estimates of a 25-30% world population rise, taking it up to nine billion people by 2050, with a 60-70% increase in demand for food," says Conway.

Into Africa

In light of emerging market populations, one of the things Cargill always says is never to bet the farm on one thing. Another problem is that where the people are is not where the land, the water and the sunshine are, so the company spends a lot of time looking at the entire supply chain and examining the places where there's an absence of investment, whether it's storage, port capacity, processing or destination.

Cargill is proportionately biggest in North America and Western Europe, and it will continue to invest in those places, but more needs to be done in Latin America as a consumer and a source; and in Asia, mostly as a consumer.

"Cargill is biggest in North America and Western Europe, and it will continue to invest in those places, but more needs to be done in Latin America."

"Another thing is we're scratching our heads about what we can do in Africa," Conway says. "We have a significant presence in North Africa, West Africa with cocoa, and South Africa, but it's patchy. So, is there a more comprehensive view we can take of Africa? We're wrestling with that at the moment. What's clear is that to feed nine billion people, we need Africa."

Latin America, Asia and Africa are substantial targets, and looking into each supply chain proposes its own challenges, but a lot of issues centre on port infrastructure.

"The ports are a pinch point," says Conway. "In emerging countries like Indonesia, for example, the physical infrastructure is a barrier, as it is in Brazil and Vietnam, too. If you look at how much they've grown and compare the efficiency of a farmer in the middle of the US shipping down the river system, with a farmer in the middle of Brazil doing the same, the US farmer gets a price much closer to the export price than the one in Brazil because of the efficiency of the infrastructure."

Food crossing borders

Furthermore, although there are positive grassroots efforts regarding farmers' markets and locally sourced food, studies indicate that, per unit, something shipped from Brazil to the UK uses less fuel than the same unit driven under 30 miles to the local supermarket. There's also the statistic that about 15% of food moves across borders at essentially sea-going distances.

"Public investment in agriculture, in both hard and soft infrastructure, has been declining for 25 years."

"As those additional two billion people arrive, the middle class grows and the demand for food increases, a greater proportion of food will have to move across borders because of that disconnect from where the people are and where the productive capacity is," says Conway.

An obvious knock-on effect is that demand puts increased pressure on land to produce more. And with droughts raging the US breadbasket and floods in South America causing dramatic price movements, the pressure has never been greater. But Conway doesn't flinch.

"Generally, the US is a very efficient system," he says. "The issue is that there are plenty of places in the world where if they just take yields up to the average, it would be an enormous increase in production."

Resilience in recession

Despite such an accelerating global population, public investment in agriculture, in both hard and soft infrastructure, has been declining for 25 years. But after the 2008 wake-up call, G20 governments committed to reverse that.

"About 15% of food moves across borders at essentially sea-going distances."

"The reason why it's been tough during the last few years is that after 2008 we've seen twice as many weather-related production problems," Conway explains. "When you have low stocks, a relatively small production problem causes a very large price spike."

In addition to that fragility, despite impressive 2011 revenues, in August 2012, Cargill announced an 82% fall in quarterly earnings, its worst quarter in more than 20 years. But with nearly 150 years in business, the company knows about resilience in tough times:

"After the year we've had, our family shareholders want to know if we're sticking to our guiding principles," Conway says. "We just have to make sure we're focusing on the right things."

Cargill and other cocoa and chocolate companies, in partnership with the Bill & Melinda Gates Foundation, have embarked on the five-year Cocoa Livelihoods Program to improve the livelihoods of 200,000 cocoa-farming smallholders in Ivory Coast, Cameroon, Ghana, Nigeria and Liberia.
In 2010, Cargill announced a three-year partnership with leading humanitarian organisation CARE. The project will expand a range of activities to provide farmer training, children’s education, healthcare and micro-financing for women.
Cargill’s extensive Farmer Field Schools programme, currently held in 300 locations, is constantly being expanded to train the small-scale farmers who grow the cocoa crop. Training increases the supply of certified sustainable cocoa and chocolate.
In conjunction with the European Institute for Cooperation & Development, Cargill has set up 100 Family Farm Schools offering training to young people of 14–25 years. The three-year training programme enables the students to become successful and independent rural entrepreneurs.
Four orphanages and one nursing home on the island of Sulawesi have been renovated. Cargill employees have provided support in maintaining the buildings, supplying food and undertaking other essential activities to ensure the facilities run smoothly.
A seedling house has been set up to promote cocoa growing in South Sulawesi. It has already distributed 500,000 seedlings to farmers in the region to help them renew tree stocks on their farms.
Paul Conway became vice-chairman of Cargill in June 2011 and has been a member of its leadership team since 2006. Among his roles with the company, he has been president and regional director in Asia and division head of UK corn processing. Conway was elected to Cargill’s board of directors in 2008.