Second Quarter 2009
Following a conversation with two of our analysts regarding the prospects for several fertilizer companies, I decided to learn more about the history and current state of agriculture. According to Marcel Mazoyer and Laurence Roudart’s, A History of WorldAgriculture,1 farming began about 10,000 years ago. One would think that mankind is far down the learning curve in agriculture, and that productivity gains are ending. Surprisingly, quite the opposite is true. Most of the improvements in agriculture have occurred in the last 80 years.
Mazoyer and Roudart’s history explains six dominant agricultural processes. The first two of these were employed during the first 8,000 years of agricultural history, obviously a time of very slow progress. Agriculture began with slash and burn techniques, whereby forest segments were successively burned and farmed for a few years until nutrients were depleted. Then, beginning in about 2500 B.C., farmers began using animal drawn scratch-plows and annually rotating land from planted to fallow in an attempt to maintain soil fertility. Other than in exceptionally fertile areas such as the lands replenished by the Nile River, these techniques barely enabled one farmer to feed one family.
Medieval farmers utilized better tools and techniques. They kept more animals and, with the help of wheeled carts and plows, used more animal-based fertilizers. Beginning in the sixteenth century, farmers began planting legumes to enhance nitrogen in the soil, further improving fertility by organic means and eliminating the need for fallowing. Productivity per farmer doubled with each of these developments, enabling the best farmers by the eighteenth century to feed an average of 20 people.
Farms became more mechanized after 1800, using metal plows, sowers, reapers and threshing machines. Transportation also improved allowing better fertilizers that contained minerals like phosphate and potassium to reach farmers. These minerals along with nitrogen helped to sustain crop yields. While mechanization doubled the acreage a farmer could cultivate, United States Department of Agriculture (USDA) data indicates that yields per acre of corn and wheat in the United States were flat from 1866, the date of data inception, well into the 1930s.
In the first half of the twentieth century, North American farmers started using motorized equipment, synthetic fertilizers and hybrid seeds. According to Giovanni Federico’s, Feeding the World,2 by 1950 farms in the United States and Canada had one tractor for every two farmers. Utilization of fertilizer grew six fold from 1900 to 1950. Hybrid wheat was grown on 87% of the planted acres in the United States in 1921, up from 14% in 1914. Hybrid corn crops jumped from 2% to 90% of acres planted from 1936 to 1945.3
After World War II these innovations spread. Worldwide chemical fertilizer usage grew nearly tenfold from 1950 to 2000. In most continents, over half of wheat, rice and corn acres were sown with high yield varieties by the year 2000. From 1950 to 2000, world agriculture production tripled, far outpacing population growth.4 USDA data indicates that from 1998 to 2008, wheat yields per acre averaged 41 bushels, triple the rate of 100 years ago, and corn yields quintupled to an average of 144 bushels. The best equipped farmers can now produce over four million pounds of grain and feed thousands!5
Launching a “Green Revolution” in Developing Countries
Rich countries had the means to adopt modern agricultural processes while poor regions struggled to advance. Leon Hesser’s book, The Man Who Fed the World,6 describes how Dr. Norman Borlaug helped create the Green Revolution7 in many developing countries by improving plant varieties and increasing crop yields. For his efforts, Borlaug won a Nobel Peace Prize, the only one awarded in the twentieth century for work in agriculture.
Mexico redistributed land to poor peasants after its political revolution ended in 1918. However, its peasants remained poor and hungry for decades. In 1940, U.S. vice president elect, Henry Wallace, who had founded Hi-Bred Corn Company (now Pioneer Hi-Bred, a DuPont subsidiary), toured Mexico and was appalled by conditions there. He convinced the Rockefeller Foundation to sponsor efforts to adapt hybrid wheat and corn for Mexico and in 1943, the Mexican Government—Rockefeller Foundation Cooperative Agricultural Program was established.
The program hired Borlaug as its plant pathologist. Borlaug learned that a plant disease called wheat stem rust had halved Mexico’s wheat production from 1939 to 1942. He set out to create high yielding hybrid wheat that was resistant to the disease. His program introduced three innovations. First, he planted successive hybrid crops in two locations each year, which both doubled the pace of progress and resulted in crops tolerant to varying conditions. Next, Borlaug crossed thousands of varieties of wheat, working to find the most resistant hybrids. He eventually developed 40 rust resistant varieties.
Third, Borlaug changed the architecture of wheat. He knew that many wheat varieties responded well to fertilizer but when yields exceeded roughly two tons per acre, plants became top-heavy and collapsed. Borlaug crossed over 20,000 varieties of wheat from around the world in his efforts to create high yielding wheat with shorter, stronger stems. He finally succeeded in 1953 by crossing rust-resistant Mexican seeds with Japanese dwarf wheat. Under ideal conditions, four tons of wheat per acre could be achieved. Mexico became self sufficient in wheat in 1956.
Having achieved success in Mexico, the Rockefeller Foundation pursued progress elsewhere, in partnership with the Ford Foundation, the United Nations and local governments. Pakistan and India were major beneficiaries. By 1970, 55% of Pakistan’s wheat acreage and 35% of India’s wheat acreage were sown with Mexican varieties. The Rockefeller and Ford Foundations also created the International Rice Research Institute, which began in 1960. By 1966 it developed a sturdy short-stemmed rice plant that, when fertilized sufficiently, yielded two- to three-times the rice it replaced. This rice was quickly adopted in India.
Borlaug was personally involved with the implementation of these programs. He understood that in addition to better seeds, farmers need fertilizer, credit and fair prices for their crops. Governments largely complied. As a result of the Green Revolution, many developing countries were substantial contributors to world agricultural growth.
Recent Conditions and Future Prospects
After reading so much about the amazing progress that has been made in agriculture, it was somewhat surprising to find an article in the June 2009 National Geographic titled, “The End of Plenty, The Global Food Crisis.” It noted that global grain consumption exceeded production for seven of the last nine years and grain stockpiles plunged to a 20-year low of 61-days supply in 2007 prior to recovering to a meager 70-days supply in 2008. The price of wheat and corn tripled from 2005 to 2008, and the price of rice quintupled.
Demand recently grew more quickly than supply for several reasons. First, people in developing countries are becoming more prosperous and are eating more meat, causing grain consumption by livestock to rise rapidly. Second, use of ethanol as a gasoline additive or substitute has jumped. Some 30% of the 2008 U.S. corn crop was converted to ethanol instead of being available as food. Third, while world grain production hit records in 2008, growth in grain production has slowed somewhat since the year 2000 compared to prior decades.
Still, agriculture continues to find ways to meet the rising demand. Advancements in hybrid crops continue, and biotechnology is now creating crops with whole new characteristics. While conventional plant breeding is limited to crossing closely related species, biotech methods utilize genes from distant species. To date, two types of biotech crops have been commercialized, those resistant to herbicides and those resistant to insects.
Biotech crops were first made available in 1996 and by 2008 were planted in over 300 million acres, some 8% of global cropland in 25 countries, including 15 developing countries. That year, 85% of the corn crop in the United States came from biotech seeds. Farmers seem satisfied with biotech crops; nearly 100% keep planting biotech once they begin.8 Use of biotech versions of soybean, cotton, corn, canola and other crops increased farm income an estimated $10 billion in 2007 and biotech corn and soybean yields appear to be roughly 10% higher than conventional crops.9 The National Geographic story quotes a scientist with agricultural company Monsanto who predicts that biotechnology will double corn, soybean and cotton yields by 2030.
National Geographic also pointed out the downside of the Green Revolution. Yields in India have flattened since the mid-90s, and hybrid plant needs for water, fertilizer and pesticides have resulted in aquifer depletion, salinized soils and contamination of drinking water. However, new versions of biotech plants are in development, including versions likely to provide still higher yields, drought tolerance and salinized soil tolerance.
Not everyone agrees with the use of biotech crops. Critics have expressed doubts about productivity gains and have concerns about the possibility of a “Frankenfood” becoming toxic or creating an ecological disaster should some new plant become invasive. But numerous safeguards are in place, including rigorous approval processes. Countries that had prohibited biotech crops are now slowly introducing them. Increased adoption of biotech plants has had positive ecological effects, as higher yields reduce needs for additional crop acres and related deforestation, insect resistance reduces needs for pesticides, and herbicide resistance reduces fuel consumption and soil erosion by requiring less tillage.
Mankind’s progress in agriculture has been truly amazing. We cannot revert back to previous agricultural processes, which are insufficient to feed a worldwide population of 6.7 billion. Instead, substantial investments in agriculture, and judicious use of new technologies, are needed to maintain impressive production gains in the future. .
Charles P. McQuaid
President and Chief Investment Officer
Columbia Wanger Asset Management, L.P.
The information and data provided in this analysis are derived from sources that we deem to be reliable and accurate. These views are not guarantees of future performance and involve certain risks, uncertainties and assumptions that are difficult to predict so actual outcomes and results may differ significantly from the views expressed. The views/opinions expressed in “Squirrel Chatter II” are those of the author and not of the Columbia Acorn Trust Board, are subject to change at any time based upon economic, market or other conditions, may differ from views expressed by other Columbia Management associates or other divisions of Bank of America and the respective parties disclaim any responsibility to update such views. These views may not be relied on as investment advice and, because investment decisions for a Columbia Acorn Fund are based on numerous factors, may not be relied on as an indication of trading intent on behalf of any particular Columbia Acorn Fund.
1 Mazoyer, Marcel and Roudart, Laurence, A History of World Agriculture, (New York, NY, Monthly Review Press, 2006).
2Federico, Giovanni, Feeding The World, (Princeton and Oxford, Princeton University Press, 2005).
3Ibid, pg. 97.
4 Ibid, pgs. 55, 19.
5 Mazoyer, Marcel and Roudart, Laurence, op. cit., pg 11.
6Hesser, Leon, The Man Who Fed The World, (Dallas, TX, Durban House, 2006).
7 The Green Revolution is defined by Mazoyer and Roudart as, “a variant of the contemporary agricultural revolution but without the large-scale motorization and mechanization, developed widely in the developing countries.”
8 ISAAA Brief 39-2008: Executive Summary, “Global Status of Commercialized Biotech/GM Crops: 2008, The First Thirteen Years, 1996 to 2008,” available at www.isaaa.org.
9 “GM crops: global, socio-economic and environmental impacts 1996-2007,” a research paper written by Graham Brookes and Peter Barfoot of PG Economics Ltd, Dorchester, U.K., May 2009.
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