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News Release
TEN INTEGRATED STEPS TO SUCCESS
11/17/1998 Iowa State University
Integrated Crop Management Conference
November 17, 1998
"Ten Integrated Steps To Success"
Michael J. Muston
President
Mycogen Seeds
Good morning. Or at least it looks to be a good morning. I checked the headlines in the paper before I left home and listened to the news on the radio as I drove I-35 south from Minneapolis. But the way things are going in Agriculture, especially in this country - even paying daily, close, attention to the news may not be enough to keep up with the business - let alone get ahead of the pack.
You need your computer and cell phone with you at all times just to keep track of who's bought; who's sold; who's merged, who's broke and who's suing who. At the rate things are going in our industry, I'm not ruling anything out.
This business - this very complicated industry we call "agriculture" that we're all trying to make sense out of - has come so far and so fast and companies like mine are bringing, so much to the market, with full expectation the pace will pick up from here. There are times I think we�ve come too far and the market simply can�t keep up. In fact, if you look up the "official version" of my remarks on the Mycogen Seeds home page - www.mycogen.com - you'll see I have exercised my speaker's prerogative. And renamed what it is that I'm here to talk about. Just for the record, this presentation is now called: "Ten Integrated Steps To Success"
Advancing agriculture - as in any high tech industry - requires us to do a good job of matching our products and services with the market's needs. But I think maybe agribusiness has come too far. Too Fast. With too much...A bit too soon.
Those of you who know corn breeding, know about "hitting the nick." Iowa being the number one seed producing state, many of you understand this term, "to hit the nick" simply means timing your planting dates so that when the male plant's pollen is ready to fly, the female's silks are ready to receive it. Simple. But it points out that in plant breeding, like everything else timing is everything! If the pollen flies before there are silks to catch it - bad seed crop. If the silks are ready but the pollen is late - same result: bad seed crop.
And the parallel - in terms of advancing agriculture - is this: If the ability to do something doesn't mesh... exactly with the needs of our customers and their markets - then we haven't contributed to the advancement of agriculture. Our timing must be right.
So, as you leave this inspiring meeting today, keep in mind the plant breeding principle of "hitting the nick." Because, I�m here to tell you that maybe - the leaders of the Agribusiness industry - haven't yet "hit the nick" because perhaps we've gone too far, too fast, with too much, too soon. And if we have failed to hit the nick - if the timing is off - we're not doing anything to advance agriculture. Not here in Iowa. Not in the Midwest. Not in the United States or the world.
I've been spending a lot of time - a lot of time - thinking about the state of Agriculture today - and what it might be like tomorrow - because...
- I'm paid to do that, and
- I won't be paid much longer if I can't figure out - before the competition does - how to achieve balance between technical capability and market needs, and
- It's a mentally challenging exercise and I like the challenge.
I also know that you - and our colleagues in agriculture - are thinking about the same things. Because if there's one question I get asked more than almost anything else when I meet with farmers and participants in sessions like this, its: "Where is agriculture going?" Indeed, that's the very question you are seeking to answer, in part by your attendance here at this conference.
Last week I participated in the FFA convention in Kansas City. What an impressive group of young people. They have tremendous enthusiasm for the future but share the same question as you "Where is agriculture going?"
Where is ag going? Well, there is a simple answer, the same as when I was born in this state in 1955, or in 1978 when my first job out of college was as a Treflan salesman in Marshalltown, Iowa... Agriculture is moving ahead - feeding the world just like it always has - and just like it always will. Now there's no doubt that this forward motion will be hard on some and easy for others. Some will profit; some will lose. There will be some who will try to stop the progression and some who can't wait for more. But nothing - absolutely nothing - we can do will stop agriculture's advance any more than we can stop a bean pod from shattering when it's harvested beyond its time.
So, that's the "Cliff Notes" answer to where ag is going. But what I can't answer so simply is how profound that advancement will be and what effect it will have on the face of American - and global - agriculture. In other words, I can�t tell you with certainty what things will look like ten years from now in 2008. But as a person who has invested hours of thought, my views are offered for your critique.
Before I speak to the future and the question, Where is agriculture going? Let's first address the question: "Where has ag been?" And what's got us into the situation we find ourselves in today. I believe the more we look to the future, the greater the chance we will create our future.
One of the things I hear expressed most when I'm in the field - is fear. Fear on the part of American farmers. And fear on the part of those whose livelihoods depend on farmers - implement dealers, seedsmen, chemical peddlers. I dare say, all but a few of us in the room today. The fear I'm observing is based on the same as has troubled mankind forever: the fear of the unknown.
So, let me begin by giving you a perspective about what got Agriculture to where it is today. I won't talk about farm policy and global economics - although they've certainly played a role. Let's look past the weather and corporate mergers - although both of those phenomenons - one natural and one very much contrived by man - have played a significant role in the state of Agriculture as we bring closure to the 20th Century.
What I'd like to talk about is what went on in the laboratories of companies like Mycogen over the past couple of decades. Home grown - American - biotechnologic superiority - has been both a blessing and a curse - but it has been very much a force in getting us to where we stand today. Back in 1971 when scientists first genetically transferred a gene from one species to another, there was a lot of excitement, a little bit of press and mostly a bold silence. The possibility that you could insert genes into a corn plant that would control insects rapidly became very real. And so was the possibility of making plants resistant to otherwise non-selective herbicides. Disease resistance, drought tolerance - concepts with clear makings of reality. And it quickly became obvious that what was possible with corn, was an overnight possibility with soybeans. And sunflowers, and wheat, and vegetables and flowers. The feeling held by those who participate was one where nothing was out of the realm of possibility. Everything was possible if only one could illustrate the target.
The year was 1996, Mycogen brought Bt corn out of the laboratory and into the corn fields and literally agriculture was never the same. That single piece of genetic engineering has, literally, transformed the corn seed industry. And right behind it came chemical resistance in soybeans. Many have literally watched that bit of biotechnology spread across the countryside - from field to field - as farmers have adopted Roundup Ready soybeans at an unprecedented rate. We�re talking a difference you could see on a drive-by.
Now I consider Bt and glyphosate resistant beans to be very useful - and very practical - applications of biotechnology. These first two pioneering traits do exemplify a noteworthy point however, that is we tend to first use new technology in very conventional ways. In so doing, it is difficult to stray far from the obvious and, thus the first agriculture uses of biotechnology were not necessarily the most creative. Times are changing, we are starting to hear a lot about the use of plants to produce "nutriceuticals," for instance. Sure, some point to the zany side of such science - the likes of pizza flavored broccoli which has been genetically modified to contain brain-enhancing nutrients.
A recent article makes reference to a couple of guys who are attempting to put the luminescence genes from algae and other forms of ocean plant life into some foods so they'll glow in the dark. That'll be good news for the pumpkin growers - especially at Halloween - but it's even better news for cancer specialists who hope that such bioluminescent proteins will be able to help them find tumors sooner than ever. These are just a few fun examples of what is very serious science.
Have we - in less than 30 years - managed to do what Mother Nature hadn't done in all of history: alter the natural order. And I know what's been done, has been done responsibly. But I'm not so sure that maybe we haven't done it a bit faster than the market can comprehend. We've spent billions and billions of dollars developing transgenic products - from long shelf-life tomatoes to Bt Corn to herbicide resistant soybeans. And once we got done making one-gene-at-a-time transformations, we moved - some might say, too quickly - to stacking genes.
And the same folks would say we did it mostly because we could do it. And let there be no doubt - we're going to get much, much more sophisticated about gene stacking than just insect/herbicide/disease resistance in plants. Indeed very shortly, we'll be producing plants very precisely - designing them with the exact specifications farm operators want and need. Nutrition - waste minimization - antioxidants - specific color - flavor traits. All of this technology - so much, so fast, so soon - has left a lot of folks out there on the land shaking their heads. And most in the cities, too.
Life on the farm is about change. Real change, serious change. We all know that farm sizes have been increasing almost since the land was first settled. Since the depression, the actual number of farms has been on a steady decline. The number of people involved in tilling the land and growing crops has dwindled. A staggering predictions of our current time is - half of the farms we have today are expected to be gone in seven years.
And the rural America of your and my youth has all but vanished - right along with country schools, fences, homesteads every half mile and windmills.
Sometimes, technology can sneak up on you before you know it. Global Positioning Satellites and computerized dairy management systems have come into common use - evidence of an attitude of being out front and leading the pack. But, for many, the speed with which the "mom and pop" 200 acre farm has become nothing more than a great and wonderful memory is scary. Those I am now describing, are watching their value system disappear right before their eyes.
Now, I don't like the idea of that big red barn being replaced by a steel frame building any more than the next guy. I don't like the idea of the kids moving off the land and having absolutely no interest in returning any more than their parents like such reality. I don't like $200 an acre land in Brazil competing with $3,000 an acre land in Iowa. I don't like the thought of $100,000 combines sharing the same point in history with $1.50 corn or $5.50 beans any more than you do.
I can see why folks don't like the idea of being forced to give up their independence - one of the appealing things about agriculture - because they have to economize by sharing equipment and labor with my neighbors. And I especially don't like guys like me who have stopped talking about farming as a way of life and now define a farm as nothing more than "access to land which has a soil structure and the ability to tap sunlight from which to support plant life."
But what I like - and what I recognize as reality - are often two different things. Farming as a "lifestyle" has - like it or not - given way to farming as a tough business. A very tough business. And it's going to get even tougher. Seven years out, again there�ll be half the number of farms there are today.
What impact will that have on companies like mine or on a farmer owned cooperative that you may belong to? As I look to the future a "full service" customer likely will make up 40-45% of total farms operators yet represent only 15-20% of the acres in production. Our definition of large operations will change, the importance of farm managers will continue to grow. These are tough issues companies who support agriculture must get lined up with or they will perish.
And farmers are having to wrestle with lots of powerfully emotional issues. Like quality of life versus standard of living. The facts are clear: For some time now farming - and ag life in general - has not been something young people have aspired to do.
Exemplifying change, think about how we assign status and prestige in America today. It used to be that a man's worth was judged first, by the amount of land he owned and, second, by the way that land was farmed. Jane Smiley's Pulitzer Prize winning book, A Thousand Acres - dark subplots not withstanding - makes that perfectly clear.
Everywhere in the world, since the beginning of time, land has been the yardstick by which success, prominence and power were measured for centuries. But today's yardstick is innovation and information. Bill Gates of Microsoft and Steve Jobs at Apple are just two top of mind examples. Gates' multi-million dollar home in Redmond, Washington notwithstanding - land has nothing to do with their success - nor their expression of self-worth.
The only property that makes up true differences these days is intellectual property. As I travel about - on this continent or others - it seems clear the most substantial value derived directly from farm land ownership is when it is developed into houses, schools or commercial real estate. In California, where I lived a short period prior to my move back to the Midwest, I can point to several examples where the first generation established the farm. The second generation built it up and now the third generation is in the real estate development business.
Here, in the waning days of the 20th Century, you can't become attached to the land. Not as a farmer. What counts is right here. Intellectual property. Understanding how to employ assets to be successful. No need to raise your hands, but how many of you can point to where hard capital has made the difference in agribusiness? I can't think of any from past generations, and it'll be even less likely in the next. The key to thriving in the future will be our ability to stay with the curve - technology, products, relationships or science.
Let's go back to California one more time. Think of the surfers. The good ones can read the waves like a book. They know the best ride is just inside the curl. If they catch the wave too soon, they're swamped. And if they catch it too late, it's one dull boring ride.
We've seen a couple of examples of that in the seed industry in past years. Both Ciba-Geigy and ICI moved their seed business over to their ag-chem distribution channels. But history clearly showed the move was too much, too soon and they lost a very large portion of their sales. Today - on the other hand - the same distribution strategy is a claimed strength by some seed companies. Another example of missing the wave is Monsanto. Their assault on the seed industry was astonishing. Holdens. DeKalb. Asgrow. Delta and Pine Land. Cargill. They were a rocket powered by solid fuel boosters. But again, it was too much, too quick. They came down - thinking that American Home looked like the right match at the right time. But, as you know, that too has fallen apart. And most recent news reveals thousands of layoffs and the need to start selling off the pieces
Mr. Farmer how do you define yourself? Are you a grower or a producer? Are you a farm or a business? Are you a customer or a supplier? Your ability to build and capture additional value tomorrow will require you to focus beyond your internal farming operation. You must focus externally and develop a supplier attitude. The best of suppliers can and will negotiate added value.
The problem with the future of Agriculture - whether you're on the land, or selling seed or chemicals or tractors...The problem with advancing Agriculture - whether you�re in corn or cotton or hogs or poultry...The problem with the future of agriculture is that it's simultaneously right on us and - simultaneously - always just over the horizon. I'm not the first guy standing before audiences like this saying the same things over and over:
- Farming is not just about lifestyle, it's a business.
- The days of just planting No. 2 yellow corn, harvesting it and letting the elevator sell it are vanishing.
- Make no mistake: Farming is not a local business anymore - it's global.
- The future of farming is producing to specification and lining up with the needs of a processor.
- Farming's future is in the hands of the life sciences companies, but for small roles which will go to unique technology providers.
- The future is gonna be great - just you wait. The opportunity for value creation and value capture will be enormous.
- The future is gonna be terrific - you'll make more money.
- The largest force the world�s economy has ever seen - larger than the industrial revolution or the information age is upon us.
- The future is just around the corner. The future is just around the corner. The future is just around the corner.
Ladies and Gentlemen: I believe everything I've just said - except the last part. At the Farm Gate....the future is NOT just around the corner. And it's not next year, either. The future is, in fact, a little bit behind. A little bit with us and a lot of it awaits us out beyond the horizon. By that I mean, the future has moved out of the laboratories where it was real for the scientists five years ago. And today, the future has definitely moved out of the discovery stage and into plant tissue. But the future for growers is still five years away. The pre-game warm-up has started, but the "ref" has yet to blow the whistle.
When the game starts - change will occur at breakneck speed - 100 years of change in 15!
No matter your age, think and reflect back to your earliest memories and how ag has changed from then to now. Think of such changes in terms of 15 years or less. Get ready to watch the marketing of grain become seamless with the processor. Be they dairies, hog confinements or fossil fuel replacements.
The future is coming - the best years of Ag await us - but it's still five years off at the farm gate. And that's frustrating. The question I hear from farmers is: "What am I supposed to do now?" The question most important? Most serious, and most difficult to answer is - "What should I be doing now? Don�t tell me how great things will be or what you think the price of corn will be? Exactly what should I, as a farmer be doing today?
In September I had the opportunity to speak as a part of the annual Iowa State University CARD Conference entitled "Agriculture Contracts: Restrain or Reward." At that time, interacting with perhaps some of you, the challenge was to provide solid recommendations. During the conference I shared the opportunities to raise valued added crops like seed, high oil corn and specific use soybean products all of which today can increase your return per acre. But since my last visit to Ames I have thought more about my answers.
Here is my response "Ten Integrated Steps For Success," aimed at those who farm. For those of you who depend on the farmer you might find this a helpful list. They apply - in principle - whether you're on the land or supporting those who are.
- Vision - Five years from now what will the operation look like? Where will it be located? Which primary processors will you link up with? Who will be buying/converting your product in five years? Set your vision.
- Exit Strategy - If you do not plan to be farming in five years how will you exit the business? With both corn and soybean prices projected to be lower on average over the next five years than in the past five. Lower by 50 cents and a dollar per bushel respectively. In farming what you do when, and even when you get out, is real money.
- Processor Focus - Do you know your processor or customer, be it a dairy, animal confinement operation or the likes of a turkey feeder? Learn as much about their needs and challenges as possible and approach them as a supplier. New processors such as energy, pharma, nutriceuticals will come on the scene, as they do get to know them. And for those operations, that are the primary processor, get to know the secondary processor who will process the milk or meat.
Here is a key term disintermediation, going directly from A to D by skipping B and C, this word depicts what will happen more and more as real value is understood by people who get processor focused - and close the loop.
- Land Base - Establish your land base which will in turn support your operational vision. Buying may not be your best choice. Long term leases are an option. Establishing an option now for use in three to five years for example. In conjunction with your city cousin provide for your land needs. Let him put cash into ownership of the land, while you invest in technology optimization tools.
- Long Term Financing - The winter of 1999 looks like the best time in decades to lock in long term financing. And this window of opportunity looks to be with us over the next couple of years.
- Become a CEO - Think like a Chief Executive Officer, farm operations five years from now will not just be larger, but far more sophisticated. Your focus will be on producing as a team with employees, consultants, advisors, mentors, and specialists of all kinds. Farming is entering a second wave that will require a new mind set, one represented by a collective effort.
My last four recommendations all underscore the importance of information management.
- Technology Providers - Do you know your future partners? One of the best way is to purchase a few shares of their stock - online. Their annual reports will provide you with an understanding of where they are and the speed in which they are advancing new science.
- Rapid Electronic Communications - Speed is an advantage, and usage of communications tools like e-mail are essential. Use them with your suppliers and processors to share data, pictures and current conditions in as close to real time as possible. In the "new day" you will wired to both your seed/technology provider and your processor.
- E-Commerce - Buy/sell options, futures, trade grain and do your banking online. Get used to and utilize the wealth of charts, graphs and information available.
- Process Control - Establish process controls on your operation. Precision farming is only the beginning phase of information that will lead to knowledge and in turn, a competitive advantage. Establish process controls with monitoring and data collection systems. Document your procedures, remember you will soon be producing to specification. Your operation must be in control.
Well, that's your homework "Mr. Producer / Mr. Supplier" for the next five years or at least a few ideas from which to answer the �question of the day�.
Somebody told me the other day that when you work in the seed business, you age in "dog years." I'm not sure that's the best analogy, but I'm convinced that in the next 15 years, we're going to see more change in agribusiness than has occurred in the past 100 years. Made possible in part by the fact that knowledge is doubling every seven years.
And you - and I - will become more of a specialist no matter the role we perform. More tomorrow than today, one will need to understand ration balancing, nutriceuticals, human and animal nutrition, and in ways far beyond the levels of past ag industry players. You need to understand who you�ll be doing business with in five years - with few exceptions, it's not who you�re doing business with today.
The future is very bright for agriculture - like nothing we've seen before. Yes, we are on the verge of a revolution surpassing anything the world has yet seen. It's going to be exciting. It's going to be challenging. It�s going to be rewarding in ways far, far beyond money.
But in the meantime, the next five years will be ones of incremental gains - on the input side - in the seeds business, for instance, moving from Bt to other insect resistance to disease resistance to herbicide resistance and combinations of all of the above. But after five years - when technology kicks open the farm gate...that's when we'll start making quantum leaps - this time, on the output side. And that's when we'll start to see real value at the processor stage of the agribusiness equation.
For me, well...I'm in the game. It won't be like it was. It won't be like it is. But it will be agriculture - this wonderful business that's as exciting as anything I can think of. More exciting than mergers and acquisitions. More exciting than banking and finance.
And a whole lot more exciting than sending bits and bytes of data through wires and over the airwaves. It's as exciting and rewarding as anything can be - and it's going to be even more exciting because agriculture is expanding way beyond food and fiber to energy and broad based health attainment. And - in the Golden Age that is just ahead we will be able to do for others more than they will ever be able to pay us for.
Thank you.
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