Soren SCHRÖDER

Director General, VP Bunge Europe Agribusiness

In the context of global poverty, food security and the environment, what are the key issues facing European Agriculture:

Why is this debate so important just now? The combination of extraordinary demand driven primarily from bio fuels, emerging markets , and consecutive poor crops has driven world stocks to historically very low levels. Prices have more than doubled and look to remain high. From early enthusiasm the pendulum is shifting to apprehension and sometimes fear.

The EU is a significant global participant in Agribusiness and highly dependant on world trade. We represent:

-40% of global soy protein trade imports

-Largest importer of oil next to China

-Largest producer and consumer of Bio diesel in the world

-Largest global producer of soft seeds (rape/ sun)

-World #2 in Maize imports in 2007 with 12mio t.

With the addition of the new member states, as well as the proximity to Ukraine and Russia, the EU is also well placed to help promote the agricultural expansion needed to balance world supply/demand.

A new farming reality is emerging: land prices and rural incomes are increasing, global commodity prices are very favorable and farming profitability is excellent. Large investment flows are finding their way into agriculture in both East Europe, CIS and South America. With higher commodity prices, less advanced farmers in the developing world will be able to compete and develop efficient agriculture without subsidies.

That’s all sounds good, but can we produce enough over time to satisfy demographic demand growth, energy requirements, as well as fill the poverty gap? There are close to 7bln people to feed, growing at a rate of 80mio per annum, and of those 850mio are living below the poverty level.

We believe its possible, with the majority of the growth in production coming from Brazil, Argentina, East Europe and the CIS.

Our projections show a need for annual growth in production of 42mio of all field crops, expressed in wheat equivalent. Based on trend line yields this mean adding 4-6 mio hectares per annum, or increasing global production from 2.5 to 3.0bln t by 2015/16. With improvements in technology and better farming technologies in emerging world, this is an achievable. A 5% improvement in global yields gives the same impact as 45mio extra wheat hectares. Clearly technology and farming practices play a key role.

There are 3 main commercial factors which will influence the pace of expansion:

Price. Farming has historically been a difficult business with uncertain returns and largely dependant on subsidies. Why should farming not be like any other business, rewarded by a risk adjusted return for the net assets employed? When applying a Rona of 10% to farming, and taking the average production cost in the lowest cost of production countries ( Argentina, Brazil) we arrive at the following prices: Corn $220/mt, Soft wheat $250/mt , Soybeans $400/mt f.o.b.

This is slightly below today’s price (especially for wheat), but 50% higher than the average prices 1995-2005.

To drive expansion, the general price table for Ag commodities has shifted higher, and is there to stay.

Policy and political risk. Farmers everywhere have to be directly connected to the world market. Export restrictions as we have seen them in the Ukraine, Russia and Argentina will restrict the production response.

Free flows of capital for investment into crop financing, and logistics infrastructure is required. Therefore “rule of law” and stable policies are needed to encourage investments.

Productivity improvements via GMO development is part of the future, and regulation must be diligent and science based. The testing and approval process must be efficient so as to allow for a free flow of safe goods and to promote investment in technology.

The environment will be stressed and regulatory enforcement is required. Whether the topic is deforestation in the Amazon, South East Asia, or sustainable production of soy in the Cerado, the trade and trade organizations are becoming a real conduit for legal enforcement. The partnerships between many ngo’s and global food/agribusiness makes responsible farming a reality. Companies in our business have a social responsibility and are taking it seriously.

Other aspects such as improved water, fertilizer and pesticide use, will ultimately be dictated by economics. Nothing should go to waste, and education and transfer of technology should be directed to emerging farming economies and for Europe this means a focus toward the East.

Infrastructure development . World trade will increase over time as more goods have to move between surplus and deficit regions of the world. We expect an increase in world trade of 70-90miot by 2015/16. Logistics will become a real constraint over time.

The logistics bottle necks lie primarily in Brazil and the Black Sea export countries where port export capacity and interior transportation is in short supply (rail in particular). As an example, of the $300/mt price of Brazil maize delivered to Spain, $150/mt goes to transportation and handling from farm to end consumer. Large amounts of capital, as well as operational improvements, have to flow into this sector in order to facilitate efficient global movement.

In summary we feel Global challenges can be met. Within this context Europe should address the following issues:

• Free trade is required for the EU feed/food industry to survive. Regions of Europe will be deficit and exposed to large (and maybe increasing) crop variability. Efficient access to world supplies in a years of shortage is a must.
• GMO approval process must be more effective so Europe is not isolated from word trade in critical goods (proteins and maize).
• Brazilian sugar based ethanol and soy methyl-esthers should be encouraged to form part of the medium and long term renewable fuel targets in Europe.
• Mandates in Bio fuels should be of concern. They isolate economics from the production of bio fuels and will force extreme and unhealthy price movements in years of short supply. Bio fuels should be produced from surpluses and not compete with intrinsic food demand.
• Economics of the margin must be better understood by policy makers. With low levels of global stocks, even small shifts in supply and demand make a big difference. This is clearly the case in Bio Fuels.
• The Ag commodity world has been “discovered” by the investment community. The natural volatility of our markets is dramatically amplified. This is another reason why policy must be carefully considered and why our industry must equip them selves with good risk management practices.

The world can meet global production and trade challenges if the correct mixture of technology, finance, and policy is applied, and if we allow the markets to work.

However, timing will always be an issue…you cannot say with certainly that we wont have crop failures when we can least afford them.

There is therefore a real danger of significant interference of governments when the issue becomes food security. At the end of the day, feeding a hungry population will quickly become the priority of any politician.