2011 Cargill Annual Report

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2011 Cargill Annual Report

About the cover: A partnership between Cargill and CARE is helping 100,000 people in seven countries lift themselves out of poverty, including these children in the Kutch district of Indias Gujarat state. The five-year initiative promotes economic opportunities for rural families, while enhancing educational and nutritional support for children.

This version is available in electronic format only.

In this years annual report, we discuss an issue of universal importance: food security. Today almost 1 billion people go without sufficient food. The calories required to meet their nutritional needs exist but too often the physical or economic access does not. Ahead we share how Cargill and leading institutions are working to feed the world.
Pictured: Greg Page, Chairman and CEO David MacLennan, President and COO

Cargill has a long history of performing at our best during times of enormous challenge. In fiscal 2011, significant events gave rise to renewed attention to food and agriculture. The dynamics included the uneven global economic recovery, Japans earthquake and tsunami, armed conflict in Cte dIvoire, the Arab Spring, the eurozones sovereign debt crisis, looming U.S. deficits, weather-related supply shocks in food commodities, grain export restrictions and dramatic price swings across a range of raw materials. With uncertainty and risk high, Cargills strengths came to the fore. Supported by a strong balance sheet, we drew on our abilities to source food and feedstuffs from multiple origins, handle the logistics, manage the risk and deliver reliably. In short, we sought to be a port in the storm for our customers, dealing with the years challenges and helping customers and communities do the same. REsulTs. Cargill earned a record $2.69 billion from continuing operations in fiscal 2011, up 35 percent from the

prior year. The breadth of performance was notable, with 38 business units posting stronger results than a year ago and 14 delivering record earnings. Four of Cargills five segmentsorigination and processing, agriculture services, food ingredients and applications, and industrialincreased earnings from last year. Results decreased in the risk management and financial segment. Cargill recorded an additional $1.55 billion from discontinued operations income attributable to Cargills former majority ownership position in The Mosaic Company. Cargill also recognized a one-time accounting gain of $11.49 billion on the divestiture of the Mosaic shares. The shares were exchanged for Cargill stock and Cargill debt. Sales and other revenues increased 18 percent to $119.5 billion. Cash flow from operations equaled $4.6 billion. GRowTh. Cargill invested more than $3 billion globally in fiscal 2011a record. About a fourth went to base-level expenditures that extend the lives of our

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2011 Cargill Annual Report

Percentage of sales and other Revenues by destination

1%
sub-sAhARAn AFRICA 3,000 employees

25%
AsIA PACIFIC 32,000 employees

12%
lATIn AMERICA 21,000 employees

37%
noRTh AMERICA 56,000 employees

6%
noRTh AFRICA/ MIddlE EAsT 1,000 employees

19%
EuRoPE 17,000 employees

Financial highlights
dollARs In bIllIons

plants and help keep them safe, energy efficient and environmentally sound. Of the nonbase allocation, about half was
$ 119.5

implementing new processes for identifying and mitigating precursor conditions. Relative to baseline, we realized significant improvements in energy and freshwater efficiency and in reduced greenhouse gas intensityreturns realized from the past five years of investments in capital and process improvements. EnAblInG FuTuRE GRowTh. Our plans for fiscal 2012 are ambitious because we aim to deploy a record level of capital. Guided by Strategic Intent 2015, these investments will reflect Cargills resolve to operate globally with a balanced, diverse and resilient portfolio. It means investing, for example, in both trading and processing, physical and intellectual property, domestic and export facilities, and mature and emerging markets. Importantly, it means pairing growth with frugality. As a private company, we depend on internally generated cash flow to Cargills high-quality credit rating, to finance growth. For every dollar saved, the company gains access to $3 in growth capital.

sales and other revenues Earnings from continuing operations Cash flow from operations

directed to acquisitions that will help us better support our customers. Examples include the AWB commodity management business in Australia, Unilevers shelf-stable condiments business in Brazil, Indonesian starch and sweetener maker PT Sorini, Royal Nedalcos potable alcohol operations in Europe, a Chinese port facility, a Canadian grain facility and a U.S. corn wet mill ethanol facility. The remainder was invested in new or expanded plants and innovation centers in about 40 countries. As the new fiscal year began, we completed the purchase of German cocoa and chocolate company KVB and Central American poultry and meat processor Corporacin Pipasa. As Cargill grows, we continue to improve the processes. We achieved the lowest rate of

2.69

4.6

companys environmental, health and safety and borrowing, at debt levels appropriate reportable injuries, with two-thirds of 1,100 facilities operating injury free. To reach our 2015 goal of zero fatalities, we are

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2011 Cargill Annual Report

Global Food Production and Price Volatility

small changes in food production today have large effects on price, much more so than in the past.
source: u.s. department of Agriculture (production) barchart.com Inc. (Chicago board of Trade prices)

80 70 60 50 40 30 20 10 0 - 10 - 20 - 30

Percentage change in production (grain, rice, oilseeds, palm oil and fish meal) Percentage change in price (corn, soy and wheat futures price index) Global food production (billions of metric tons) 1.37

2.77

1976

1981

1986

1991

1996

2001

2006

2011

One of Cargills long-term enablers of growth is Tartan. This multiyear investment in common processes and supporting technologies gives us access to better information for decision making and connections across business units and functions that open up new solutions for customers. In fiscal 2011, Tartan produced about $100 million in benefits from process improvements projects. We passed a milestone last August, when the first three business units went live. Four more are set for September. By December 2015, well over half the company will be using the Tartan solution. We salute the progress made in becoming a more connected company. When we reach across the full breadth of Cargill, we can bring solutions to customers that no other company can match. This years launch of TasteWise reduced calorie solutions is a good example. Cargill tapped scientific, ingredient, applications, intellectual property protection and communications

proprietary technology. It optimizes the balance of texture, sweetness and flavor, enabling beverage makers to more quickly develop and deliver better tasting lowcalorie products. Each day we draw on the engagement, talent, diversity and ethical conduct of Cargill employees. These qualities strengthen our company and the trust that customers and others place in all of us. We added more than 100 women to managerial levels in fiscal 2011, an important step toward meeting our goal of becoming a more diverse, inclusive company capable of achieving our longterm strategic objectives. ChAllEnGEs AhEAd. Price volatility, with all of its risks and opportunities, returned with extraordinary scale to agricultural markets in fiscal 2011. As shown above, small changes in food production today are triggering large movements in price, much more so than in the past. Last years drought in Russia, for example, reduced global grain production by 1 percent but sparked price increases of

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2011 Cargill Annual Report

resources across the company to develop and commercialize this patent-pending,

Cargill Contributions Fiscal 2007-2011

dollARs In MIllIons

60 to 80 percent. In 2009, the trend worked in reverse, with modestly higher production driving prices down.
61.1

and CEO, United Technologies Corporation; and, from Cargill, Sergio Rial, executive vice president and chief financial officer, and Emery Koenig, executive vice president and chief risk officer. Cargill aspires to be the global leader in nourishing people. We recognize our employees for the creativity and commitment they bring to this purpose. Together, we grow as a company and as a partner in helping solve the global food and agricultural challenges of our time.

$60 $50 $40 $30 $20 $10 0

37.2 44.0

58.2

57.5

The instability has brought global attention to agriculture and raised concerns about food security. Much of the discussion has focused narrowly on prices because, as they rise, they can lower peoples standards of living, especially in poorer countries where

2007 2008 2009 2010 2011

food accounts for larger shares of family budgets. Prices also can motivate producers around the world to grow more food, and they can attract much needed investment in agricultural productivity, infrastructure and innovation. The broader challenge of creating a more food secure world is fundamental to Cargills corporate purpose. In this report, we share our work and highlight that of leading organizations. We firmly believe the world has the capacity to feed its people and that all of us can accomplish more together. In ClosInG. Four new directors joined the Cargill board this past year: Bernard Poussot, former chairman, CEO and president, Wyeth; Louis Chnevert, chairman

In fiscal 2011, Cargill contributed $61.1 million in local communities in 51 countries. over the last five years, the company has invested more than $55 million in partnerships to support hunger alleviation and food security.

Gregory R. Page Chairman and Chief Executive Officer

David W. MacLennan President and Chief Operating Officer Aug. 9, 2011

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2011 Cargill Annual Report

NEAR EAST & NORTH AFRICA

The worlds undernourished:

LATIN AMERICA & CARIBBEAN

AsIA & ThE PACIFIC

578 M

sub-sAhARAn AFRICA

37 M

925 million

239 M

dEVEloPEd CounTRIEs

53 M

19 M

Source Food and Agriculture Organization of the United Nations (FAO) and World Food Programme (WFP)

About 925 million peoplejust over 15 percent of the worlds population are undernourished today. The majority live in developing countries.

Among countries, the largest numbers of undernourished people are in China and India, and the highest prevalence of undernourishment is in subSaharan Africa.

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2011 Cargill Annual Report
Source

FAO and WFP

Growing population and per capita incomes will add to the demand for food.

Hunger and malnutrition are due less to the unavailability of food and more to the inability of the poorest members of society to access food at an affordable price.
Source

Source

OECD-FAO Agricultural Outlook 2010-2019

Oxfam International

Most of the increase in food production will need to come from increased yields and productivity rather than from the use of additional land a challenge met in prior years.
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2011 Cargill Annual Report

Global Production
bIllIon METRIC Tons 2.8 2.6 2.4 2.2 2.0 1.8 1.6 1.4 1.2 76 81 86 91 96 01 06 11

Yield and harvested Area

IndICEs, 1975 = 100 186 174 162 150 138 126 114 102 90 76 81
Source

YIEld

AREA

86

91

96

01

06

11

U.S. Department of Agriculture

CoRn

soYbEAns

whEAT

CRudE oIl

$ PER BUSHEL

$ PER BARREL

17 15 13 11 9 7 5 3 1 2005 2006 2007 2008 2009 2010 2011

150 135 120 105 90 75 60 45 30

Source

Chicago Board of Trade Nearby Futures (average weekly)

Growth: population, economies, incomes Diets: diversifying, including protein Demand: for food, feed, biofuel Weather: unpredictability Energy: rising prices; links to agriculture Supply & demand: imbalances Trade: export and import restrictions
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2011 Cargill Annual Report

The use of agricultural output as feedstock for biofuels is projected to grow, largely driven by biofuel mandates and support policies.
Agricultural output used for biofuel production by 2020

of global coarse grain production

of vegetable oil production

of sugar cane production

Source

Estimates, OECD-FAO Agricultural Outlook 2011-2020

Trade plays a crucial role in ensuring food security by allowing agricultural commodities to move from places of surplus to places of deficit.

Source

Cargill

Exporters: North America South America Australia Eastern Europe

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2011 Cargill Annual Report

Importers:
only about 15% of the worlds calories cross international borders, but for countries dependent on imported supplies, this share can be a lifeline.

Central America Western Europe Asia Middle East Africa

Post-Soviet States

Across much of the developing world, the agricultural system is powered by smallholder farmers, more than three-quarters of whom are women Large-scale systems can play an important role in directly supporting small farmers through technical advice and support and access to markets.
Source

women

Kofi Annan, Keynote Address, The 2010 World Food Prize

Investments in agricultural R&D will be a pivotal determinant of long-term growth in the supply, availability and price of food over the coming decades. Global Conference on Agricultural
Source

Research for Development, 2010

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2011 Cargill Annual Report

Agricultural Productivity
Tens of thousands of smallholder farmers in Zambia depend on the income they receive growing cotton to feed their families. but the land has been worked a long time, and harvests can be poor. Through more than 1,600 field schools, Cargill teaches affordable and sustainable practices that improve soil quality, raise yields and lift incomes. we also encourage rotating cotton with food crops, which provides more nutrition at home.

farmers trained in past two years

open Markets Global Investment

In fiscal 2012, Cargill plans to invest more than $3 billion in assets and facilities that create new capabilities and more capacity to better feed the world. Egypt is the worlds top importer of wheat. when several countries barred grain exports last year, Cargill rerouted wheat from Europe to keep Egypt supplied. we then arranged to ship corn from brazil to Europe for use as animal feed. Cargill also was one of the first companies to resume operations after the Egyptian revolution, providing crucial commodities to food and feed customers.

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better nutrition
hundreds of thousands more people will consume vitamin-enriched vegetable oil with Cargills recent launch of a new brand of fortified palm olein oil in eastern India. we enrich all of our refined oils in India, reaching nearly 30 million people. Cooking oil is consumed in 99 percent of Indian households, making it an ideal vehicle to fight malnutrition. A Cargill-commissioned study will soon evaluate the programs impact on health.

Research and Innovation

average bushels of corn per acre on Cargill test plots

Improving diets
nearly 20 percent of nicaraguans do not eat enough daily to maintain good health.* Cargill is helping improve diets there by making chicken more accessible and affordable. our fleet of refrigerated trucks delivers poultry products to 12,000 small shopkeepers, many of whom are isolated by poor roads. not all of their customers can afford whole birds, so we offer lower-priced packages of chicken parts.
* source: FAo

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Cargill is conducting research on the variables that affect corn yields in order to help farmers harvest more corn from the same acreage. working on test plots across the u.s. Midwest, we developed a program to identify the best combination of crop inputs and agronomic practices. The result has been an average yield increase of 20 percent. now we are expanding to soybeans.

we spoke with thought leaders on food security, both within Cargill and involved organizations, to define the challenge and identify solutions.
Cargill
GREG PAGE Chairman and CEo EMIlIo CAsTIllo General Manager, Cargill Mexico sIRAj ChAudhRY business unit leader, Cargill India

PAul ConwAY Vice Chairman

EMMAnuEl MbEwE Project Manager, Cargill Cotton, Zambia

Food security thought leaders

RoZ nAYloR director, stanford universitys Program on Food security and the Environment dAVId MClAuGhlIn Vice President, Agriculture, world wildlife Fund RobERT b. ZoEllICK President, world bank josETTE shEERAn Executive director, world Food Programme

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2011 Cargill Annual Report

PRoFEssoR M s swAMInAThAn Chairman, M s swaminathan Research Foundation; Member of Parliament, India

Food security

RobERT b. ZoEllICK, woRld bAnK: There are two interrelated challenges as we work to ensure global food security in the face of rising prices. First, we need to increase food productivity and production in developing countries, especially in sub-Saharan Africa and with smallholder farmers. To do so, we need to fix problems all along the value chain, including property rights, research and development for seeds and inputs, irrigation, fertilizer, agricultural extension, credit, rural infrastructure, storage and connection to markets. The second problem is the volatility of food prices, often because of events outside poor countries control. An interconnected combination of steps could help ensure that the most vulnerable countries and people get the nutrition they need. For example, we can increase public information on the quality and quantity of grain stocks to reassure markets and calm panic-induced price spikes. We can improve long-range weather forecasting and monitoring,

pricing, so we need a code of conduct that at least exempts humanitarian purchases from bans. RoZ nAYloR, sTAnFoRd: Poverty is the main issue driving food insecurityits a question of access rather than food availability. The majority of poor people derive their incomes from agriculture either directly or indirectly, so low incomes in agricultural settings, particularly where there is low productivity and limited market access, are a big component of food insecurity. Price spikes are another significant contributor, especially in urban areas where high prices for staple foods essentially reduce disposable income for poor people. The third and much more difficult issue is the lack of political stability that would enable markets to work efficiently so food producers could sell their commodities and consumers could buy them at a reasonable price. GREG PAGE, CARGIll: Food is not a single issueit is an interdependent and interconnected set of issues surrounding our environment, energy,

Multiple, interrelated factors contribute to the complexity of food insecurity around the world today

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2011 Cargill Annual Report

especially in Africa, to better prepare for dangers. Export bans exacerbate panic

Food security (contd)

agriculture and food trade. These factors contribute not to a caloric famine (the inability to grow the food we need) but to an economic famine (the inability of millions of people to pay for an adequate diet). The calories exist to feed the worlds hungry people, but collectively we have not put the resources in place to do so. The United Nations estimates that 925 million people are undernourished. Given their average caloric deficit, it would take 30 million tons of whole grain equivalents to feed them. That is one-sixth of the grain we currently convert to biofuels. Feeding the hungry is first an issue of economic capacity to put enough price into the agricultural system to create sustainable agriculture. Water, seed, technology, agronomythey are all important. But the fundamental ingredient of sustainable agriculture is an adequate price to reward farmers for their efforts and provide enough money so they can do it again the following year. Then we must build supply chains that are efficient enough to

josETTE shEERAn, woRld Food PRoGRAMME: The challenge of ensuring access to nutritious food for the most vulnerable has been compounded by a converging set of global crises that have now, unfortunately, become the new normal. First, we are confronted by an increasing number of natural disasters across all continents. Recent floods and droughts around the world and the devastating earthquake and tsunami in Japan are just the latest examples of such destabilizing and catastrophic events. Last year, 263 million people were devastated by disasters110 million more than in 2004, the year of one of the most destructive tsunamis in history. Thus far, this year has the potential to surpass even those record numbers. Second, we are witnessing escalating insecurity associated with ongoing conflicts. Driven by political unrest, particularly in low-income food deficit countries, hundreds of thousands of people are fleeing conflict and in need of humanitarian assistance. The third

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help farmers sell their crops profitably and help consumers buy their food for less.

Food security (contd)

factor is volatile food prices. Food prices are expected to remain higher in the next decade than over the previous one, given the projected supply and demand of agricultural production. PRoFEssoR swAMInAThAn, M s swAMInAThAn REsEARCh FoundATIon: Generally the factors we now see driving food insecurity include international price volatility, which can come from higher prices for petroleum, fertilizers and other inputs, say their fate is linked to the monsoon and the marketrainfall patterns and what kind of prices they are likely to get in the market. This is true for farmers around the world as normal climatic variations and increasingly uncertain weather events, such as extreme droughts, floods, tsunamis and so on, affect harvests. At the same time, the price of agricultural inputs is rising. We have to be prepared to help farmers meet these challenges. Food security itself has three

to buy food. In India, for example, the availability of food is quite good, but nearly 14 percent of the people do not have the money to have access to balanced diets. Finally, the third aspect of food security is absorption of food in the body, which includes clean drinking water, primary health care and sanitation. All three factors must come together to ensure food security. dAVId MClAuGhlIn, woRld wIldlIFE Fund: There are a number of drivers of food population countries, such as China and India, has greatly increased demand for agricultural commodities, including more edible oils and proteins. This increased demand has dropped global stock positions in key commodities, so the traditional buffering systems in the food supply are not as robust as they have been in the past. Overlay these factors with variability in supply and productiondue to weather factors, poor harvests and biofuelsand its clear the global food system is being strained. We have seen this clearly reflected in prices and market volatility.

and climate aberrations. In India, the farmers insecurity. Increased prosperity in high

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aspects. First is the availability of food in the market, which is a function of production. The second is access to food and the ability

Production

PRoFEssoR swAMInAThAn: The term green revolution was coined in 1968 to designate higher productivity per unit of land. Today, we refer to the need for an evergreen revolution because we have no other option except to produce more from less land and water, but that has to be done without harm to the environment. People realize you cant go on extracting from the land and water indefinitely without giving something back to promote soil health and so on. So today the question is: How do you achieve an evergreen revolution, especially in developing countries where land is a shrinking resource for agriculture? One method is through organic farming using animal manure with integrated pest management and nutrient supply. This does not mean no chemical use at all, but using the minimum essential chemicals that are needed along with biological control, genetic control and so on to ensure environmentally sound agriculture. Whether it is in the

in an environmentally benign manner. That is the evergreen revolutionproductivity in perpetuity without ecological harm. dAVId MClAuGhlIn: We are using natural resources at a rate faster than they can be regenerated. Our current consumption of natural resources requires 1.5 planets to meet current demand. We only have one planet. Clearly the expansion of the agricultural frontier will have impacts on finite resources and conversion of critical habitats. We are running out of landand we are seeing a global land grab securing land and water resources in order to feed growing populations. Over half the countries in the world have declining water tables. Given this increased pressure, we need to look at how we get more production from existing land and use natural resources, such as water, more efficiently. We cant afford to take anything off the table; we need to do more with less. There are wide variations in crop yields. Access to seed, technology and inputs are all part of the equation, as are better management practices, use of degraded lands, preserving and conserving soils, reducing food waste, infrastructure,

Increasing productivity in a sustainable manner will be necessary to feed the worlds growing population

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2011 Cargill Annual Report

United States, India, China or elsewhere, we have to produce more from less per capita land and water availability and do so

Production (contd)

land use planning and protecting land tenure whether the expansion puts capital into the rights. Overlay all of these concerns with the uncertainties of climate change, and it is clear, we are facing significant challenges. We need multiple strategies, and we cant afford to bet on just one. RoZ nAYloR: The question is this: Will we get additional food from intensificationhigher yields on existing croplandor move new lands into production? It is estimated that about 6 million more hectares per year in developing countries will be needed, and much of that could happen in forested areas. Weakening of forest protections will have a lot of repercussions for the environment right hands or the right strategic processes to make an agricultural system really work. PAul ConwAY, CARGIll: It is clear the world needs to produce more food. In Asia, for example, China is becoming the motor of world economic growthand the world needs China to grow. While the country is a huge consumer of petroleum products, iron ore and all sorts of other products flowing in, in terms of food, the only product where China is a major factor on the world market today is soybeans. China has gone from essentially minimal imports of soybeans a decade ago to 60-70 percent of the worlds seaborne flow of soybeans today. In the future, Chinas population is expected to become increasingly more urban approximately 20 million people a year over the next decade supposedly will move from rural areas to Chinese cities. The change will have a major impact on the nature of the food they eat, including different sources of protein and more processed foods. China also faces desertification in some land areas. These factors point to Chinas increasing role in global trade flows in the years to come.

It is clear the world needs to produce more food.

PAul ConwAY

and biodiversity as well as for regional and global climate change. In addition to the threat to rainforest areas in Brazil and Indonesia, land purchases in Africa also have risen enormously in the past few years. How this land actually gets used will be interesting to watch. Most of the increases in new farmland, or the purchases of land,

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2011 Cargill Annual Report

are happening where land institutions are pretty weak. Is this expansion going to help food security or hurt it? That depends on

Price volatility

josETTE shEERAn: After a 25-year trend of stable and relatively low prices, the world has witnessed much volatility in the prices of agricultural commodities over the past five years. The vulnerability of the poor was made all too visible by the recent crises, often referred to as the three Fsfood, fuel and financial. For the worlds food insecure, it became the perfect storm that resulted in more than 100 million additional people becoming poor and hungry, a global total that is pushing 1 billion peopleor one of every seven on earth. Additional shocks to already volatile food prices would be devastating for those struggling to maintain their livelihoods. WFP and other international organizations have mapped out possible approaches to emergency humanitarian food reserves. The idea is to explore whether a costeffective system of targeted, prepositioned stocks can help ensure the poorest and most vulnerable people have rapid access

GREG PAGE: Governments must encourage open trade and a fair, transparent, rules-based and rigorously enforced system so food surpluses can reach areas of food deficit. In the 2008 food crisis, more than 30 countries imposed export restrictions, and that action merely pushed prices up further. Trading bans isolate local markets and give farmers little incentive to expand production for the next season, limiting the potential supply response to soaring prices. To ensure access to food in emergencies, governments would do better to supply temporary assistance to consumers who are otherwise unable to access food, ensuring the demand side of the market continues to operate. During the last three years, we have seen governments whose response to price volatility and supply interruptions has been to pursue selfsufficiency. If every country on earth tried to grow all the food necessary to adequately feed its own population, there would be much less food available. The world will always raise the most food economically

Driven by a multitude of factors, high volatility in commodity and food prices can threaten food security

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to sufficient supplies during shocks.

Price volatility (contd)

and in the most environmentally responsible way when farmers raise the right crop in the right soil using the right technology, then trade with others for the benefit of all. RobERT b. ZoEllICK: We have been in a period of extraordinary volatility in food prices, which poses a real danger of irreparable harm to the most vulnerable nations and people. Food accounts for a large and increasingly volatile share of family budgets for poor and urban families. When prices of staple foods soar, poor countries and poor people bear the brunt. High, uncertain and volatile food prices are the single gravest threat facing the most vulnerable in the developing world. Since June 2010, rising and volatile food prices have led to an estimated 44 million more people living in povertyunder $1.25 a day. People are hungry for food and for action on a global level. Greater transparency on food stocks around the globe sends a powerful signal

sIRAj ChAudhRY, CARGIll IndIA: Food inflation in India is largely related to perishables, primarily fruits and vegetables. The prices of basic food ingredients have been relatively stable. In the case of perishables, and to a certain extent in the case of the broadacre crops, we have not been able to predict the outlook for potential shortages stemming from inopportune timing or the severity of monsoons. To effectively manage price volatility in India, we must get a good grip on supply and demand, manage the information flow about crop outlooks and address situations as they arise. PRoFEssoR swAMInAThAn: At the global level, there is a need for more transparent information systems so we know how much food is available in terms of food reserves and food stocks and where this food is located. Today, with modern technology for sensing and satellite imaging, it is possible to have a much better monitoring and prediction system. We need a better early warning system so we can anticipate the shortages

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2011 Cargill Annual Report

and would help reduce food price volatility by reassuring markets.

Price volatility (contd)

that are to come and how best to prepare. We need a whole series of international and national actions, which is why the United Nations has now established a committee on food security. The committee is examining price volatility and land use patterns, including diversion of prime farmland from food to biofuels and alternate land uses that can reduce food production. Globally, there should be greater cooperation to help manage price volatility. Farmers, the agriculture industry and the public sector should combine together to help insulate the poor consumer from undue price fluctuation. EMIlIo CAsTIllo, CARGIll MExICo: Our food system doesnt always respond to changes in demand from one day to the nextsometimes it takes a few growing seasons. We all need a transparent pricing mechanism that allows the food system to reach the appropriate supply-demand equilibrium. Sometimes governments consider restricting price increases without having a clear understanding of how those

medium- and long-term. Because everything in the global food system is connected, what is done in Ukraine or Russia affects food prices and availability in Mexico, Africa, the United States and elsewhere. Often, market changes are due to weather uncertainties. For example, this January in Mexico we experienced a very significant frost that damaged a major portion of the white corn crop. Cargill and others on the ground visited farmers to determine estimates of the crop damage, then we looked for ways to supplement the local crop with corn from elsewhere, including South Africa and the United States. We were able to bring in yellow corn to be used for animal feed in Mexico and free up white corn that our customers could use to make tortillas, a staple of the Mexican diet. This type of open trade is critical to cover crop shortfalls in times and places of deficit.

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2011 Cargill Annual Report

decisions affect supply in the short-,

smallholders

GREG PAGE: Besides inputs and cash, four basic things are required for smallholders to help improve food security. First, smallholders need the opportunity to plant the crop that makes the most sense for their geography to capture their greatest comparative advantage. Second, smallholders need property rights. They have to be able to own their land and pledge it as collateral if they are expected to reinvest and raise their productivity over time. Third, smallholders need a reliable market into which to sell their crops. Smallholders in developing countries lack sufficient revenue certainty. With price volatility, capital investment in higher productivity is severely discouraged. Often, smallholder farmers are forced to sell at harvest when they are cash flow destitute and have limited access to real credit. Selling at depressed prices creates a cycle of discouraging further production in future years. And fourth, these farmers need

PRoFEssoR swAMInAThAn: A small farm is not a handicap for ecologically efficient agriculture. What we have to do is improve the productivity of small farms by increasing the capacity of smallholders through timely availability of services in rural areas. We need to strengthen marketing and transportation services in these rural areas and attract young people to agriculture by making it more intellectually stimulating using new technologies. Small-scale farmers also need capacity buildingthrough technology and trainingto help them grow more nutritious food. This can be done through farmer-to-farmer learning. We also need the technology infrastructure, such as storage structures and trade. We are trying to give the power and economy of scale to small producers by encouraging them to form groups and cooperatives. We need a small farm management revolution. EMMAnuEl MbEwE, CARGIll ZAMbIA: In Zambia, the main challenge facing farmers is low yields due to production techniques and poor soil conservation

Smallholder farmers need support to fulfill their expanding role in feeding the hungry and fighting malnutrition

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2011 Cargill Annual Report

physical connectivity to world markets where they can sell at a more reliable price.

smallholders (contd)

practices. To help increase their yields of cash crops (cotton and soybeans) and staple foods (corn), Cargill trains farmers in what we call the five-finger approach to yield enhancement: proper land preparation, timely planting, optimum plant population, effective weed control and integrated pest management. Farmers learn these simple practices in field schools, then witness their use in strategically located demonstration plots and finally use the techniques in their own fields. The result is increased production of higher quality crops, as well as better management of water and soils. We noticed that female farmers spend a

josETTE shEERAn: Women are the secret weapon against hunger. Closing the gender gap in agriculture by giving women farmers more resources could bring the number of hungry people in the world down by as many as 150 million. In many countries, women form the backbone of the agricultural sector and food systems, making up the bulk of agricultural laborers. This is why WFP is helping smallholder farmers, many of them women, through a program called Purchase for Progress. This program, which is now in 21 countries, helps connect farmers who are marginalized and disconnected from markets and gets them into WFPs supply chain and the broader marketplace. We are seeing this transform lives and empower rural communities by enabling small-scale farmers to invest and plan. Already more than 69,000 farmers, warehouse operators, and small and medium traders have been trained in agricultural production, post-harvest handling, quality, marketing and finance.

Poor farmers must be helped not to be recipients of food aid but producers of food to feed the world.
josETTE shEERAn

lot of time in the fields but most were not attending training, so this year we launched a new programwomens clubs. These clubs provide training to female farmers, who immediately think of food security challenges at home. We are also partnering with TechnoServe to teach the women about better nutrition and help them find

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markets for their crops.

smallholders (contd)

And WFP has contracted nearly 185,000 metric tons of food valued at more than $66 million. Poor farmers must be helped not to be recipients of food aid but producers of food to feed the world. EMIlIo CAsTIllo: The northern Mexican states of Sonora and Baja California have weather that is very well suited to growing high quality durum wheat. This wheat is used to make pasta and cous cous in other countries, but there is a limited market for it in Mexico, so farmers were only able to sell it locally as feed for hogs. Cargill is helping farmers sell their durum wheat into the food chain in other countries, such as Italy and Algeria, where it has a higher value. This trade helps raise the incomes of farmers in Mexico while providing desired durum wheat to other regions at times when local wheat is not being harvested, so it contributes to food security and is beneficial to all involved.

RoZ nAYloR: Small-scale irrigation is a promising technology niche for use in smallholder agriculture, particularly in sub-Saharan Africa and South Asia where population growth, diminishing land plot size, low yields for staple crops and low incomes all contribute to food insecurity. For these farmers, agriculture is highly seasonal work because their systems are rainfed. Farmers might only produce food four months a year. There is not much market connectivity, so after the harvest they all pour their crops into the market at the same time and prices slump. This sort of basic system where the poorest farmers rely on low-yield, staple crops that are not irrigated just does not produce enough income growth to achieve food security. With small-scale water distribution systems, these farmers can diversify into higher valued crops that are more nutritious and can be grown throughout the year.

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biofuels

RoZ nAYloR: Agricultural markets are highly affected by policies, both within and outside of the agricultural sector. Biofuel mandates are one example of policy that distorts food prices around the world. The development of the ethanol industry, and policy incentives that have promoted its growth, have made the agriculture and energy sectors more tightly connected. This connection is particularly clear with regard to the U.S. ethanol industry and global grain markets. Essentially, renewable fuels mandates in the United States, with a focus on maizebased ethanol, have created a new level of demand for grains that is inelastic or unresponsive to market prices. This new level of demand affects the prices of food and animal feeds throughout the world. It also creates a market that is highly variable, especially when supplies are disrupted by climate shocks. If global leaders are seeking a world in which food prices are lower and more stable for consumers, the answer is

GREG PAGE: The ethanol program in the United States and the biodiesel program in Europe stem from a period of agricultural surpluses, when most farmers were operating below their cost of production. There was little agricultural reinvestment then, and we had the distortion of direct subsidies in the Western world distorting prices globally. The upside of biofuel programs is they brought prices back to a sufficiency that reinvigorated investment in agriculture. The great risk we have nowwith mandates for biodiesel in Europe and ethanol in the United Statesis we have injected volatility into the food system. Taking a food system that has all the disruptions in supply that weather can bring and coupling it with mandates can produce outsized volatility. The challenge is to determine the right size and mix of biofuel programs and put in sufficient circuit breakers to help ensure that enough revenue is coming into global agriculture for reinvestment but, at the same time, prevent the outsized price volatility that disproportionately harms the worlds poor.

Use of food crops as fuel and policy mandates for biofuels have an impact on food security

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easy: back off the promotion of biofuels. The problem is that grain farmers would lose.

biofuels (contd)

dAVId MClAuGhlIn: When we see global food stocks at critically low levels, food prices skyrocketing, and more and more people becoming food insecure, its clear we need more food right now. Going forward, the problem is likely to become more severe as societys ask of agriculture grows to include energy, materials and products such as renewable packaging. Many agricultural commodities are closely linked to the price of crude oil. As demand for energy increases, we will continue to see impacts on food security.

RobERT b. ZoEllICK: We must look globally at easing subsidies, mandates and tariffs on biofuels from corn and oilseeds, especially as prices rise. Additionally, we need to move toward use of second-generation cellulosic biofuels. Opening markets to sugar-based fuels that do not compete directly with food, including those from Africa, also will be important.

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Climate

dAVId MClAuGhlIn: On a global basis, we are more exposed to food security issues when crop yields suffer, given that we dont have the surplus stocks and buffer systems in our global food system. The FAO Food Price Index clearly shows we have undergone a dramatic shift in the last five or six years. Just last year, we saw a collapse in Russias breadbasket due to drought. While further research is still needed on exactly what and where the changes may be, we do know we must prepare for increasing variability in rainfall, temperature and crop yields. Climate change will alter water availability, affect the spread of pests and diseases, and shift crop distribution. The agricultural industry needs to increase investment in research and extension resources to find solutions to address these impacts on traditional growing regions. As a result, a lot of plant research and breeding needs to be done to help prepare for these changes and uncertainties.

PRoFEssoR swAMInAThAn: There are several components to climate change, including higher temperature, drought and rising sea levels. There will be a common but differentiated impact of temperature change on food security some northern latitudes will benefit from higher temperatures because the duration of their growing time will increase, which will increase crop yields, but other areas will lose crop duration. In India, for example, the wheat crop will mature earlier and we could lose 6 million to 7 million tons of wheat. That is why we have to start preparing now, identifying crop varieties that are more tolerant to heat and a shorter duration by increasing per-day productivity. We must prepare by researching more salt-tolerant crop varieties. Ultimately, poor countries will suffer most because they have less coping capacity. Every country will have to have its own strategy for developing crop varieties that can cope with climatic changes.

Agricultural adaptations can help address changes in climate

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Climate (contd)

RoZ nAYloR: In addition to crops, we also need to focus on livestock because with the expected increased heat, animals will have a harder time surviving. We will need adaptations, such as solar-powered structures to keep animals cool in the hottest seasons. The worst scenario that needs to be considered in certain locations is a movement out of agriculture. There may be areas in sub-Saharan Africa and in the tropics more generally where it will be too hot to farm at all. What we saw last year with the extreme heat wave in Russia is an example of the kinds of events we can expect more of in the future. The political responses of banning exports or trade in response to these sorts of supply disruptions just makes world markets more volatile and reduces food security.

RobERT b. ZoEllICK: The stresses on the worlds agricultural system are compounded by growing demand for food. Annual growth in rice and wheat yields in developing countries home to four-fifths of the worlds population has dropped from 3 percent in the 1970s to just 1 percent today. Without strong adaptation measures, some estimate that climate change could reduce yields by 16 percent worldwide and 28 percent in Africa alone over the coming half century. We need to be creative and innovative about farming, so there are not only more crops but more resilient crops, if we are to respond to the challenges of feeding a growing population under more difficult and unpredictable conditions.

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Food aid

josETTE shEERAn: When people have no food because of natural disasters, like last years earthquake in Haiti or floods in Pakistan we bring in food, and that saves lives. But sometimes there is food available its just that the poorest cannot afford it. Thats when we can deploy tools to help the poorest while protecting or even stimulating markets. One of these tools is cash and vouchers. In Palestine for example, beneficiaries are able to use an electronic swipe card to purchase nutritious food at local markets. All the products in the program are produced locally milk, yogurt, cheese. Its a win-win-win. Local farmers have increased production. Local shops have more customers and profits. And families do not need to travel long distances in order to receive their

nutritional food. They have the freedom to use their electronic vouchers at any time, reducing cost of transportation and addressing storage problems. Because of this innovative approach to promote food security, WFP is increasing cost efficiency and allowing for a better analysis of food consumption patterns in real time. RoZ nAYloR: In relief situations when there are food emergencies and the need for food aid, there is a critical need to rethink the structure of food aid programs. The United States, for example, should contribute cash for regional purchases and not just crop surpluses transported on U.S. flagged vessels, which usually arrive much too late and are much too expensive.

Innovation can help ensure access to nutritious food in emergency situations

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R&d investment

PAul ConwAY: Investment in the agricultural sector is very important. For example, the cost for a farmer in the midwestern United States to get surplus crops to an export port is less than a quarter of the cost for a similar farmer in Brazil because of the differences in local infrastructure. Thats where government can have a big impact. While today the issue of food security is at or close to the top of government agendas worldwide, that has not been the case during the past two decades. Although companies in the private sector have continued to invest in assets to help serve farm communities, public sector investment in agriculture has declined year on year for 20 years because we had an era of surplus food. This longterm underinvestment in agricultural infrastructure globally includes both hard assets, such as transportation, rail and silos, as well as soft assets, like the ability to bring new young talent into the industry.

that will be required in the next 20 years, we need targeted public sector investment in a manner that helps balance the paradox of the need for intensification with the requirement to increase productivity in a sustainable way. RobERT b. ZoEllICK: Recognizing that the energy-food nexus means more prices will stay high, our task is twofold: to handle todays danger for the millions of people for whom securing food has become a daily struggle, and then to turn higher food prices into an opportunity for developing world agriculture and for farmers in developing countries. Increasing global food production will require boosting developing country agricultural products and productivity by investing all across the value chain, including land use, water and irrigation, ways to cut wastage, infrastructure and logistics, working capital and linking small-scale farmers in developing countries with retail outlets. We also need more agricultural research, such as new rice for Africa that could triple yields, drought-tolerant maize and flood-tolerant

Greater investment in agricultural infrastructure, research and development is necessary to increase global food production

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Now there is widespread understanding that in order to produce the additional food

R&d investment (contd)

rice. We need financial and other tools to help farmers and their governments manage risk, whether rainfall or prices of inputs such as energy. Collective action is necessary to counter global risks. PRoFEssoR swAMInAThAn: Investing in genetic diversity is very important because genetic homogeneity increases crop vulnerability to pests and diseases as well as vulnerability to climate changes. Conservation of genetic biodiversity is fundamental to food security. Whether it is in animals or plants, we must fight against genetic homogeneity. For instance, the Indian government has created a gene vault where several million seed samples can be preserved for posterity. At the community level, we are also establishing local seed banks to help us revive these dying crops and vanishing wisdom. We must support this type of onfarm conservation. EMMAnuEl MbEwE: The portions of the population who are most vulnerable to food insecurity are in the less developed rural areas where they

lack the basic infrastructure, networks and resources that would allow participation in better markets. These areas need investment in rural development policies that target resources to establish or improve essentials such as accessible roads, electricity and education. There needs to be a stronger commitment to invest in infrastructure to fight illiteracy and to provide credit facilities that would strengthen farmers capacity to produce quality crops. We also need extension services to communicate effective farming practices and new technologies, and to challenge farmers to take the initiative in working together to solve the problems they face. josETTE shEERAn: One of the key challenges to food security is access. If youre in a rural area and youre lucky enough to have surplus crops, it may be the roads are inadequate to get your crops to market, or there are insufficient roads to get foodstuffs to you. If youre a government trying to address food security, you may not have granaries,

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R&d investment (contd)

so if you have surplus youre not able to store it for lean times. This is why WFP has food-for-assets programs around the world. Providing food in exchange for work makes it possible for the poor and hungry to devote time and energy to taking the first steps out of the hunger trap. In countries where poverty often forces farmers to overuse soil and grazing land, WFP provides food rations to farmers who practice soil conservation by planting trees to help weather droughts and floods. sIRAj ChAudhRY: In India, investment is necessary to meet the challenge of getting nutritious food at an economic cost to the people who need it. In addition to fighting malnutrition by fortifying all of the edible oils Cargill

produces in India with micronutrients, we are working with the Indian government and NGOs to help establish and distribute food through the India Food Banking Network. We also are working with the World Food Programme in collaboration with the local government to increase access to nutritious food for peopleespecially women and childrenliving in Madhya Pradesh, a state in central India with very high levels of malnutrition. This program includes organizing kitchen gardens, fortifying wheat flour and providing education about nutrition, health and hygiene. All these efforts build trust between the government, private sector and NGOs in the battle against hunger, malnutrition and poverty.

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outlook

PAul ConwAY: We believe it is unmitigated good news that rising incomes around the world have led to improvement in the diets of tens of millions of people. As incomes rise above that basic subsistence level, so many people are being lifted out of poverty. This intensification of diets increases the requirement for food sharply. At Cargill, we are extremely optimistic that the world can meet this need. josETTE shEERAn: There are many reasons why Im hopeful that we can defeat hunger and malnutrition. Working together, public, nonprofit and private sector leaders can scale up innovative strategies to help countries on the front lines of hunger. dAVId MClAuGhlIn: Im an optimist by nature. I believe that innovation will play a huge role in our ability to meet the increasing demand for food. There will be impacts to the

planet and we need to plan better and work together across the public sector, private sector and NGOs. If we are to find solutions, collaboration will be critical. On a finite planet, sustainability must be precompetitive, and we all need to work together. RoZ nAYloR: I am optimistic about feeding the world, especially when I go out and talk to farmers. They are amazing and ingenious in how they respond to the enormously difficult task of working on the land. When I see them, I think there is hope. GREG PAGE: We can harness the power of agriculture to drive food security, environmental sustainability and economic opportunity. I believe fully and completely in the worlds capacity to harvest photosynthesis to feed every single person and to do it at a price that can be borne by all.

Despite significant challenges, there is optimism about the worlds ability to adequately feed its growing population

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Cargill is committed to promoting food security. Its what we work at every day around the world.

These organizations are leading regional and global efforts to create a more food secure world.*

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2011 Cargill Annual Report

Descriptions are taken from organizations websites; edited for length.

These organizations are leading regional and global efforts to create a more food secure world.

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2011 Cargill Annual Report

These organizations are leading regional and global efforts to create a more food secure world.

ouR PuRPosE is to be the global leader in nourishing people. ouR MIssIon is to create distinctive value.

ouR APPRoACh is to be trustworthy, creative and enterprising. ouR PERFoRMAnCE MEAsuREs are engaged employees, satisfied customers, enriched communities and profitable growth.

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2011 Cargill Annual Report

Cargill is an international producer and marketer of food, agricultural, financial and

P.O. Box 9300 Minneapolis, MN 55440 www.cargill.com

industrial products and services. Founded in 1865, the privately held company employs 130,000 people in 63 countries. Cargill helps customers succeed through collaboration and innovation, and is committed to applying its global knowledge and experience to help meet economic, environmental and social challenges wherever it does business.

2011 Cargill, Incorporated. All rights reserved.