APEC PRIVATE SECTOR HOST COMMITTEE
BRIEFING ON FOOD SECURITY
MAY 20, 2011
BIG SKY, MONTANA
MODERATOR: So our second discussion this morning will focus on food security within APEC. Again, we have Scott Price, President and CEO of Wal-Mart Asia, and then our new guest is Emery Koenig, who is the Senior Vice President from Cargill, Incorporated. And same as the last availability, we'll start with a short statement, starting with Mr. Koenig and then Mr. Price, and then we'll open it up for questions. Thanks.
MR. KOENIG: And the short statement is relevant to what?
MODERATOR: Food security.
MR. KOENIG: Food security? No, food security is a very important issue these days. We obviously have a period of high prices. It's clear that we do have the capacity, as the world, to feed itself, and we just need to make sure we're aligned properly in terms of the policies and the partnership we put in place. And APEC is a very positive environment for us to do that in.
MR. PRICE: Just in my role in Asia, obviously we look forward in terms of the coming crisis that we see. So statistics that are – many are well-known, so 60 percent of the population is in Asia but only 34 percent of arable land. In terms of food production, by 2050 you have to have 70 percent more production of food than exists today. And there's just huge wastage. In terms of farm to fork, you have countries like India where 40 percent of agriculture is lost between the harvesting and the agricultural process before it finally gets to the end consumer. Even in mature markets, you'll still see 10 to 15 percent of wastage.
Refrigeration and the lack of refrigeration in supply chains is 360 million tons of food lost every single year. So we have a scarce resource on the planet in terms of incremental arable land. In order to provide that 70 percent, it needs to require a far more integrated global supply chain. It's going to require a lot of effort and energy to reduce wastage. And quite honestly, the regulatory environment has to be changed to be able to support that. And similar to the previous dialogue, we see the standards, the testing, the certification process, country by country, category by category, of agricultural products very inefficient, and it makes it therefore, I think, even more difficult to try and achieve the most efficient and sustainable approach to providing that incremental 70 percent over the next couple of decades. Thank you.
QUESTION: Hi. Mark Durgem. I'm not sure what's been happening more recently, but back in 2008 when forward prices spiked, right, all these countries put in place export controls so that they wanted to keep their rice or whatever at home. To what degree are you seeing that now, and to what degree are what you are after in APEC trying to fight that trend or prevent that from happening in the future?
MR. KOENIG: Well, it's a common occurrence when we do have prices spiking. We've gone through these cycles before. And I believe back in '07/'08, we had 33 countries that somehow directly influenced the free flow of good, either reducing the capacity to export or further subsidizing the price signals on the import side. And I think that's one of the issues relative to APEC and relative to having a free market enterprise and having the markets work as efficiently and as effectively as they need to, and say we've really got to mitigate and minimize the amount of surprise intervention. Because it ends up being more disruptive to the marketplace. That throws off more risk, more surprise, and actually accentuates higher prices.
QUESTION: Hi. Doug Palmer with Reuters. For the past 10 years, they've been discussing in the DOHA round reducing farm subsidies, export subsidies, and they haven't been successful. You're talking about harmonizing regulation, which can be just as politically sensitive, I imagine, as reducing tariffs. How would you gauge the chances for success in terms of what it is you guys would like to see in the region?
MR. KOENIG: Right. Well, I think the farm subsidy – and we've got a lot of policies that are still in place that were put in place back, in the case of the U.S., in the 1933 Agricultural Adjustment Act that was put in place to help subsidize the farmers to – that was back when the U.S. was basically the breadbasket for clearly the U.S. and for the world at the time. And there are still parts of those, that philosophy and those policies, that are still underpinning our current agricultural policies.
And I think to the degree, using the current environment, where I think the farmers are getting some very positive and encouraging price signals and continuing to produce, and produce profitably, now would be the time really to try to address some of those issues and get them better aligned with more of a free market, to let the market work the way it needs to work, to ensure that we're growing the right crops in the right part of the world on the right land, which really significantly increases the efficiency and effectiveness, and is also a significant part about how the world can feed itself going down the road.
So again, I just want to reiterate the message. I think the capacity is there to do that. I think the policies that we do put in place both on the farm subsidy side and on the subsidized for, let's say, the ethanol or the biofuels industry or other things like that, really need to be addressed to ensure that we do have the free flow of food.
MR. PRICE: And I think there are forums that are emerging that are beginning to address that. So I believe that the TPP is taking a far more holistic approach to understanding the impact of supply chains, as opposed to port to port. It's taking a view that includes trucking. It includes actually point to point. I think that the view and the approach of the TPP on the regulatory environment is also far more holistic.
So I think that there are, I think, pragmatic voices out there in terms of how we tackle this issue. So I'm optimistic that there are, I think, mechanisms, and through APEC and through some of the dialogues that will take place in Honolulu in 2011, the ability to make progress.
QUESTION: We're so polite back here. I wondered if either of your companies has a specific center or a function that helps entrepreneurs or some of your smaller suppliers to deal with all of this that instructs them. You've obviously got an absolute handle on this. It seems like there should be some formal way in which you can share your experience with these people.
MR. PRICE: Within Wal-Mart, we have our global sourcing group, and that's tied with relatively independent country sourcing. And we do look for opportunities to support. So if I were to use an example, in Japan we do quite a bit of direct import. We believe that there is an ability to bring down the ultimate cost of goods to the Japanese customer, who at this point are, I think, hurting and have been hurting for a number of years through the recession.
The direct import program that we do out of our Wal-Mart Japan organization looks for products around the world that are applicable to the Japanese customer that we can bring in direct through a very low cost. A lot of those products are SMEs. I think that through our daily business, we support SMEs. We don't necessarily have an SME forum. We certainly do have trade and supplier forums in each one of the countries. But it's an interesting idea in terms of trying to understand how to facilitate trade for SMEs, but no formal forum at this point.
MR. KOENIG: Yes. At Cargill, it's a significant part of our business, our core business, because whether it's in China or India or the U.S. or Brazil or Argentina or the Ukraine or Russia, we do spend a lot of time and energy trying to educate farmers, trying to help build better farming practices, better animal nutrition so their feeding rates can be more enhanced.
And I think it's a very important part that we also continue to educate them relative to how the markets work, forward contract selling, risk management practices, et cetera, that will really help them, again, increase the odds that we can feed the world very profitably and successfully. Everyone wins in that type of scenario, and I think it's something that we've taken on as an organization to really help provide that education for various farmers around the world.
MR. PRICE: And just building on that, Emery, the private sector has an important role to play in this process. A lot of the inefficiency and a lot of the wastage occurs in the supply chain process. The wholesaler, the reseller mechanism in a lot of developing markets is in fact where a lot of the wastage takes place. A lot of reasons: one, the lack of access to refrigeration; the second being the lack of a cohesive infrastructure, roads, rails, et cetera.
And in many instances, you see private enterprise partnerships. So, for example, in China, when we started our business 15 years ago, clearly we were a very small retailer, and our customers demand the highest quality, the lowest cost produce. And we started working directly with farmers.
So in 2007, we started a direct farm program, which is to go out and talk to farmers, talk to them about what we see as being the most productive quality in terms of how they're using the fields, basically. And in that two years, as we started a rather small program, by 2009 the Chinese government had recognized the progress that we were making, and we signed an MOU with the Ministry of Commerce and, as well, the Ministry of Agriculture identifying and formalizing this direct farm program.
Today we have 800,000 Chinese farmers, through a coop system, that are direct to our Wal-Mart stores. We do not use wholesalers or resellers in the middle. So in addition to being able to reduce the ultimate cost of that agricultural product in our stores, we've actually been able to increase by anywhere from 10 to 15 percent the earning of the farmers. That 800,000 we see growing to 2 million over the next several years as our expansion of stores takes place in India – sorry, in China.
We see the same mechanism available in India as well to try and reduce that wastage that takes place, working with other private enterprises who focus on assisting on agricultural efficiency on the actual farmland, which is not our area of expertise. But our area of expertise is then focusing on making sure the supply chain is the most efficient.
QUESTION: It's just interesting because there are such monoliths. So if you have a situation where you have one individual entrepreneur, it seems like it would make so much sense for them to have one individual, one number in each country to call to try and access a partnership with you.
MR. KOENIG: Right. I think it also depends on which type of farming we're talking about here, whether it's corn, beans, wheat, or we're getting to the vegetable farmers, et cetera. And I go back to the statement I made before in terms of making sure that we're growing the right crops on the right land.
And so, for example, we're working with a project, actually with one of the NGOs, in Egypt where the farmers had been planting rice. Rice is a significant taker of water, and when you're in Egypt and taking water off the Nile as far as irrigation is concerned, there may be better alternatives. And so some of those farmers, we're working with them to plant soybeans, which they can get two to three times the yield or income back from that acreage of farm, a lot less water disputes, and things like that. We can work with them, and some of those probably should be growing vegetables as opposed to necessarily trying to plant a crop that really is not conducive for that particular climate.
So I wouldn't want to paint with a broad brush up here because I think there's some things that Wal-Mart is working on relative to those supply chains. There's other parts that it's going to be very difficult for them to go to direct, and it's very important for the producer, the aggregator, the people who are consolidating those things, making sure the quality is appropriate, the size and scale of mass that you need in terms of shipping at the international markets.
Those are not necessarily conflictual. I think they can be very complimentary, depending again on the crops we're talking about and the supply chains we're talking about because it's very high-risk business. And when you're transforming grain, agriculture grain, considering the weather elements, the transportation getting into the Gulf of Mexico or to the Port of Santos in Brazil or to the ports in Odessa, and transforming that to make sure that we are delivering corn into Japan for the feed markets or soybeans into China for the soybean crush, which is fed into meal and oil, those are very important parts of the food chain.
And I would also build a case those are very efficient today. You look at the costs of taking from a farm in Iowa to China, those are very, very – I've got to give a lot of complimentary remarks to the whole food chain in general for the efficiencies that have been created over the years, and also through the tough times, because when you have a lack of margin, you create more efficiencies in order to continue to make that a profitable thing to do as opposed to just letting it go by the wayside.
MR. PRICE: Yes. And we have a very developed vendor forum in the United States. So I think I'd differentiate between developed and developing markets. You know, in India, 1-800-CallWalMart just isn't going to work. But I was in Chandigarh earlier in the hear for the opening of one of our wholesale Best Price stores, and it's in the state of Punjab. It's obviously very local. We have a trade area that's probably 50 square kilometers. And we had a vendor forum there that morning, and I went in and there were about 30. Half of them were farmers. Clearly, I had a translator because I don't speak Hindi. But it was an SME forum, and a lot of the dialoguing was around how we can help them grow their business because they see the ability to serve more than just that one particular store.
So within the various developing markets, there's a lot of mechanism where we work with the SMEs to help them understand how they could grow.
MODERATOR: We have time for one more question, I think.
QUESTION: Thanks a lot. Jim Berger, Washington Trade Daily again. I realize, Scott, you're talking about Wal-Mart Asia, or at least focusing on Wal-Mart Asia. But what domestically Wal-Mart, given the immigration that's happening in this country? There must be increased demand for local foods, more imports. I assume you're feeling the pressure for that. But my question is, does the Food and Drug Administration and the Agriculture Department have the requisite knowledge or the budget to go overseas and inspect some of these primarily, I guess, processing facilities?
MR. PRICE: Yes. It's a great question. I'm not an expert in the U.S. situation, and in fact, I've not lived in the United States for 22 years, so that's not my area of expertise by any stretch of the imagination. But you're right. The migration of populations is making supply chain even more complex than it's ever been.
And it's reversed as well. I would love to be able to share with you some of the letters that I get from Americans living in China. I had one recent letter we had to deal with. She was absolutely outraged she couldn't get Frosted Flakes in a Wal-Mart in China. Right? And she just didn't get why we weren't looking more like a Wal-Mart. We have customers in the United Kingdom who are Asian who shop at our Asda stores, and they're wanting more Asian foods. They're wanting more Asian fashion – and apparel is now, especially out of South Asia, becoming a real challenge.
So to me, in particular how the United States deals with it, I think I go back to the same point. It's just not a U.S. issue. It's a global issue. So whether it be American products going overseas or overseas products coming to America, the fact is that the standards, the certification, and the testing process, if it's not aligned, there's a huge waste, and in some instances it's an actual barrier to be able to bring products in and the ability to sell them to customers who want to buy them.
So I think that APEC has a role to play in that process, to create the forum, and then in partnership with private enterprise, the ability for us to be able to have real-life examples. I sit with senior government officials in many countries in the world, and we're a domestic company in their mind because we invest domestically. We serve domestic customers. And they're saying, what can we do to make your business easier for you to be able to serve our population? And so we have a role to play to be able to talk about the benefits of those platform alignments that today waste a lot of time and money.
MODERATOR: Thanks very much, everyone. Appreciate the participation of Mr. Koenig and Mr. Price. Thanks very much, and have a good day.
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