Good morning. I want to begin by thanking Doug and his team for the invite, and I am also very conscious of the fact that I am in front of an audience, many of whom are my customers, so I was a little bit late arriving last night and I would be remiss if I did not start by thanking you for your business. I appreciate it. And for those of you are not my customers there are still opportunities.
I am really pleased to be here and I will be brief. I think the value in these meetings is in the conversation, so I will give you some top line thoughts, but following the Stanford economist and New York futurist I kind of know what I am in the pecking order here.
About future agriculture and all that good stuff, I thought the swing I would take at this is to talk a little bit about the changes that we are seeing in agriculture. I am not going to talk an awful lot about Monsanto, there is nothing more painful in these speeches when you get someone up who does company commercial pitch, so I will really try hard to keep from talking a lot about the Monsanto approach to this, but I will talk about the technology.
This last July, we celebrated the 10th commercial year of biotechnology. With the 10th year came the billionth cumulative acre planted. So in the last 10 years around the world there has been about a billion acres of biotech crops planted. I don't need to tell this group that there is a corn grower in Cedar Rapids, Iowa, who claimed that it was he who planted the billionth acre, and there is a soybean grower in Springfield, Illinois who is absolutely and passionately convinced it was him, but the billionth acre went in somewhere in the country, somewhere in the heartland this last year. So when we talk about it from a futurist point of view, when we talk about it as something really new, it is a billion acres down the track, it is 10 years on, and it is probably 25 to 30 years of research dollars into the process. So it is new, but it is not brand new. It has been controversial and there has been a lot of debate. But what I would like to talk about is what do the next 10 years look like.
Yesterday I was with a bunch of Wall Street analysts and we talked about what the next three years looked like. The fascinating thing about our business is, at least the way I look at our business, is kind of like farming. If you get the next two or three years right, the future tends to look after itself. So we spend a lot of time thinking about the next 24 months. I am going to talk about the next three, five or 10 years.
We had a party in St. Louis in July to celebrate these 10 years. We don't do a very good job in agriculture in celebrating anything. We pretty much get harvest done, we dust ourselves off, and then we get ready for the next one. So we took pause for an afternoon with a picnic and we invited Norman Borlaug to come and talk to us. Norman is 91 years young, he is a farmer, he is the winner of the Nobel Peace Prize, and in his earlier years led the Green Revolution. So Norman is the guy who brought fertilizer and clean wheat seed to India in the late 1960s. He is a really good guy, and a pathological optimist. I thought I was an optimist until I met Norman, and what I learned is that I am not yet old enough to be an optimist. I do not say this lightly, Norman would be one of a handful of heroes that I would have; he is truly an inspirational guy.
Norman talked to us that day about a whole bunch of things, but one of the things he talked about was what is the future of agriculture. What is important in agriculture, and one of the things that Norman talked about was that, what was important was not in the fields - the importance is what is in our minds.
For American agriculture in particular, the innovation curve that we have seen since the late 1940s has never really been limited by what's in the fields. The "can do" mentality in this country is, let's just get it done - we can figure this out. So Borlaug talked about that, and another thing he talked about was the danger of new strains of wheat rust, and rust that we have not seen in the U.S. yet. Rusts are moving across a lot of Asia. Norman said, "You know, rice is resistant to these rusts, and if you could the genes out of rice and get them in wheat, then you could make wheat much more wheat much more tolerant to some of these rust strains." We said, you know, Norman, that's going to take 10 years...there are no shortcuts to what is definitely doable, but that's a 10-year project. He kind of smiled and said, "Well, I'm 91, so I'm not going to be around, but I will leave you two e-mail addresses. I'll leave you one for upstairs and one for downstairs, because I'm not too sure where I'm going to be."
A simple story, but it illustrates the point, and I think a lot of the future of our industry is really dependent on what's in our mind. As we compete as a North American industry, and compete we will, I think one of the big challenges is how do we think about this stuff smarter, and how do we use the capabilities that we have in our mind.
The U.S. field, the farmer's field in the U.S., has changed a lot in the last 10 years. Biotechnology has had a part to play in that, but there has been a lot of other changes in this industry. From the outside looking in, it looks like a pretty boring industry. I think it's the best kept secret in the world. There has been an enormous amount of transformational change in the last 10 years and Doug talked about Monsanto. In the early 1990s we were still drilling holes in the ground and digging oil out. We were thinking, in the mid-1980s, we were digging oil, we were spinning nylon, we were making plastics, and we pretty much stopped all that. We never saw ourselves solely as an agriculture company, and as that transformation happened in the agriculture industry, we have been living through our own change during that same time.
So today we are a seed business, with a good bit more than half of our business today being seed. We don't make plastics, we don't spin nylon, we stand or fall based on the success of agriculture. That is a pretty good thing. So there's no rich uncle, no pharmaceutical business or other businesses to cushion us. If we make mistakes, they're our mistakes, and that has brought focus to our organization, and there is a clarity on who our customers are. We still are not there, but we're in better shape from a focus point of view than we have been in a long time. Because agriculture is our business.
The last 10 years for us have been about weeds and bugs. It is not very glamorous, but that is who we've been. We control weeds and we control bugs, and we have done pretty well in that. Ten years and a billion acres later, we have really been focused on doing more with less. That means increasing yields with less inputs, and while the jargon around that is called sustainability, I kind of prefer "doing more with less."
The next 10 years are going to take us to a whole different place. When you follow a futurist on the program, it is always dangerous to talk about vision, so I kind of prefer to talk about a keyhole - you get a change to peek through it but you don't actually walk through the door yet. If you look at the next 10 years for us, there are some real opportunities here. They still tie around lower costs, but it goes beyond the insect and weed control. I don't want to minimize insect and weed control - I find that it's pretty cool stuff. The numbers were published three weeks ago that there's something like 200 million pounds of pesticides that have disappeared in that time frame. It's changed an industry. There are companies that have disappeared because a lot of chemicals aren't sold any more. So the cotton crop in many parts of the world has gone from being sprayed 10 times to being sprayed two times, so eight sprays have gone away. This is really bad if you make sprays.
Ten years have past, you look to the future, what's it look like? There are two or three areas where we are, if we're not betting the farm, we're at least placing big bets. Two or three areas that I think will yield opportunity. One is in the area of animal nutrition.
In the future, we will be growing corn and soybeans that produce higher levels of amino acids, lysine, and tryptophan. So amino acids at the moment are added as the last step in feed compounding. We will use some sunlight and water to produce those amino acids in the crop. The farmer will be paid a bit more because the crops will be worth more, and those crops will go specifically towards animal feed. I think we are not too far away from producing crops where all the lysine that is needed is grown in that corn kernel.
It's great to have well-fed animals but human nutrition is the other area we are looking at. We've been focusing on healthy oils. The cycle time on all of these technologies is really slow, so you can't chase fact. You know, the Atkins Diet, by the time that it peaked and disappeared, you could not get it to the market fast enough. So there need to be macro trends and heart health, coronary care. If you're a male, Western, and over 40, this is still the biggest killer out there now. So heart health is an important one.
We are working in two areas related to improving nutrition. One is not biotech, and it is producing oils and canola that eliminate the need for hydrogenation. When you crush oil you hydrogenate it, and the reason you do this is so it can last on the supermarket shelf for a year without going rancid. But you can produce these oils now through breeding and canola, as well as soybeans. Eliminate the hydrogenation step so they are cheaper, and they produce virtually no trans fats. So you will see these on the supermarket shelf this fall, because in January they are labeled in the U.S., so trans fat will be labeled underneath cholesterol and calories on the back of food products.
The second area is Omega 3. The more steak we eat and less fish we eat the less Omega 3s we have. How many people in here take those little fish capsules every night? (Hands raise.) Two people...I'm sure there are 20 of you but there are two honest people. Two portions of fish per week make a fundamental difference in your intake of Omega 3s. And for western males over 40, that's a good thing. After an 80 mg aspirin, two portions of fish are for the two people who take the capsule. The problem is that they taste like fish, and are not very pleasant. We are now at the stage where we're learning that the fish don't make Omega 3s, they don't make these oils. The fish don't make the oils; the oils are made in the algae, the sea plants the fish eat. So we took the gene from the algae and put it in the soybeans, and we're in the stage now of 30% of crush - 30% of the oil and soybeans will get Omega 3s produced with sunlight, and you can't taste the fish, which is good news. It's good news for the fish as well.
Now we are looking at these in yogurt and breakfast cereals and a range of other things where you can get levels of Omega 3s, but this is some time away, probably 2010.
Aside from improved nutrition, we're working on drought-tolerance, and while it's probably 2011 or 2012 before commercialization, we are now in large-scale testing, so this is not blue sky stuff. We have done two years of testing and big-scale trials across the Midwest. It looks good. There are significant yield improvements. When you think about our industry, and I consider myself part of this industry, agriculture is consuming, on a year-to-year basis, about 70% of the fresh water on the planet. So the remaining 30% is drinking water, or industrial water, and water that we swim in and everything else. We take about 70% off the top before anyone else gets a share. My futurist view is the politics of food will move ultimately to the politics of water. You can see it right here in California, with the competition between suburban California and the cotton crop.
As I said, it' still early days, but the research on drought tolerance is very, very encouraging.
So that's a quick snapshot of three or four things -- things like healthy hearts and thirsty crops - and I think we are going to see a lot more happening in the next 10 years. I believe very passionately that it's going to happen faster, because the scientists are smarter, the technologies are quicker, and we will see these crops come in faster than we have in the last 20 years. Here's a small example.
Breeders are rewarded in what we throw away. It's kind of like betting on race horses - breeders are paid to choose winners. Through mechanization you now see little robot hands, tiny little robot hands, picking up a soybean seed, scanning that seed into an infrared light. The light that bounces back from the seed tells the computer something about what kind of oil is in the seed. The winning seeds are picked up by another little hand and placed in a plexiglass matrix. The matrix is slid into a 3-D body scanner, just the same kind you go through for your 100,000-mile checks. An MRI scanner says something else about the oil content in that little seed. The last piece of the process is that another finger comes in and scratches the seed, and that little cuddly piece of scratch is analyzed automatically for oil contact. That scratched seed is then re-planted so that not a single seed is destroyed. Every seed is touched. I call it "kissing frogs" - you have to kiss a lot of frogs to find a prince. By kissing a lot of frogs really fast, in three years you find the heart healthy oil. It's not biotech - it's just smart breeding. So my view of the future is that a lot more stuff will come faster and I hope it's going to come cheaper.
That's the end of the science pitch. It's pretty cool stuff - but what does all that mean? What does it mean to our business? I'm going to tell you something that you know and I was slow to learn.
The more complicated the technology, the more diversely complex it becomes, the more important people become. People explain it, and relationships become more important because you are no longer selling a gallon of Roundup to a farmer, you talk to the food industry, you talk to a chain, you talk to people who are frightened by this stuff. So the relationships that we form become more important. For the agricultural industry, the importance of relationships becomes more important as well. We're great at science, but relationships are a new trip for a lot of us. The science of working on our piece of this industry versus walking across the industry is a skill that I think will become a competitive differential. So great science alone isn't going to be enough.
The world is changing really fast. I was in Brazil last week. People asked me, "What's your China strategy?", and my answer is, "My China strategy is Brazil." Brazil is the backyard into China and American and Brazilian beans are feeding China today. China, I think, will make significant investments, infrastructural investments, in Brazil. So as we think about these technologies, and we think about the importance of relationships, we are trying to figure out what that means in a market like Brazil. What does that mean in the U.S. and how do we form better relationships and linkages than we have today?
The last piece is kind of the kid brother of relationships, and that is dialogue. After 10 years, a billion acres, and an education in the school of hard knocks, I think I have earned a PhD. We brought something to the market that we believed was fabulous, but we did a pretty average job outside the U.S. on dialogue. So once you have a relationship you are only halfway there, I think. Great science, good relationships, and a dialogue, and, if you believe my hypothesis, there is a whole bunch of new stuff coming and it's going to come faster and it will be more interesting than weeds and bugs, and you'd better be ready to talk about in a much smarter way. A piece of that, I think, is the responsibility of technology companies, but frankly, a piece of it is across the chain of the businesses that are touched by it. There are only two ways to talk about this. It is either, "Don't ask me, I've never asked for it, it isn't me, it's them", or, "I know what they are doing, there is some I don't agree with, but here's what it means." My ambition in this is that we get to somewhere closer to the second level of dialogue. And that is important when it isn't just weeds and bugs.
Our industry has had, I think, a checkered past. Recently there was a company that released some genes that should not have been where they were meant to be, and it wasn't a big deal, but it upset the Japanese, which isn't a good thing, and the whole industry ended up being responsible for explaining it.
It's not big, but the dialogue pieces are important. My responsibility is to make sure that as Monsanto is developing these products over the next 5 years, that we do a better job with relationships and a much better job of crossing industry and building dialogue. I suspect that for many of your businesses it is the same challenge. Agriculture is a secret that needs to be explained more.
I mentioned Norman Borlaug at the beginning, and I will finish with him. He talked about being a kid and living through the depression in the U.S. He talked about hunger and it's hard to envision the hunger within these shores. He talked about mass unemployment and soup kitchens, and people being hungry, and how as a young man he saw that and it changed his life. He saw hunger in the depression years here, he saw it in the post-war years in Europe, Russia and China, and then in the 1960s in India.
Today, his last years on this planet are being spent thinking about Africa. As we think about this, from a technology point of view, technologies traditionally develop here, and after they become commercial, they trickle down in places like Africa.
So one of the things we are working on now is when we launch drought tolerance in Cedar Rapids and in Springfield, and when we launch it cotton and soybeans, how do we make sure that in Africa it's launched a couple of years later rather than the traditional 12 years? We're working at the moment on parallel development. We won't make money in Africa, but it's the right thing to do in agriculture and I think for technology companies in the next 20 years, to have these technologies in the developed world and nothing in the developing world is going to become socially unacceptable. We are working on that parallel development and that's part of the conversation that Borlaug talks about. He talks about two things - how do you feed the disadvantaged, and how do you make better stuff? How do you add value for the farmer? I think we are playing a small part; certainly we are investing in how to make better stuff. And as an industry, we are woefully inadequate in working out what contribution do we make to feeding the disadvantaged. It is easy to say that in our business, but my guess is that in the next 20-30 years it's going to become our business whether we like it or not. We are looking at that with drought tolerance.
The answers to this are with capitalizing upon the ingenuity of the U.S. grower, and capitalizing on the ingenuity of the U.S. industry. Nobody can touch us not only in terms of what's in our fields, but also with what's in our minds. From a commercial point of view, embracing relationships means we are increasingly interconnected. Once we have those relationships, we'll need to build on a dialogue that in some areas has been absent.
Then, finally, comes the need for engagement in public discussion. We have a public that doesn't know where food comes from and doesn't care. And for us in this fascinating industry, it is insulting, frustrating, and a real pain in the neck. It's going to be our job to take that discussion to them rather than wait for them to figure it out. I think that's a long way away. So I am really pleased that we are involved in the America's Heartland project. It's a good thing to do.
I'm really pleased that I had a chance to visit with you for a short space of time. We are committed to agriculture. We bet the farm on our commitment in agriculture, and despite the toughness of the industry, we still think that there are real opportunities for technology in the next crank of the wheel here in the U.S. and globally in this business. I really appreciate the invitation and pleased to get the chance to meet with a few of you. I look forward to your questions. Thank you very much.