TERRY MORAN: Well, good afternoon, everyone. I hope you're enjoying the meal. Welcome to the Council on Foreign Relations CEO Speaker Series, sponsored by the Corporate Program here.
Actually, the first thing we're going to do -- I'm going to do, and I hope you follow my example, is turn off these devices. I am over-gadgeted. I have two, but I've already turned off one. So we need you to turn them off, not just on silent, because the radio frequency makes the microphones buzz from time to time. And, just as a reminder, this meeting is on the record for all of us.
And before we begin today's discussion, the council is pleased to announce an upcoming lunch meeting on May 3rd: "U.S. Policy Options toward Myanmar" -- or Burma, featuring Joshua Kurlantzick and Lex Rieffel. For more information on upcoming events, please refer to the insert in the back of today's program. And what we're going to do is have a conversation and then open it up for questions.
And I'm very pleased, as you can see from the materials you've been given, to welcome Samuel Allen, who is the chief executive officer of the John Deere Company -- been with the company for 36 years, grew up in the United States, in Germany and England, and has done a little bit of everything for the company. And he's going to talk to us about the global economic situation from the standpoint of -- Sam, may I?
SAMUEL ALLEN: Please, yes.
MORAN: From the standpoint of being in charge of, really, one of the iconic American companies, John Deere, having a great -- this is your 175th year.
ALLEN: Hundred-and-seventy-fifth year this year. And there really was a Mr. John Deere. He started the company when he was 33 years old, so --
MORAN: And this is his legacy.
Now, if I could start there, an iconic American company. What does that mean today? In other words, what does it mean to be an American company in this global environment?
And I'll just preface it by saying Tim Cook, who has taken over for Steve Jobs at Apple, was at ABC News recently. And I asked him, do you consider Apple an American company? And he paused and he said, we're a California company. (Laughter.)
MORAN: I have not idea what that means, but I'm sure it was cool.
MORAN: But, an American company --
MORAN: -- what does that mean today?
ALLEN: Well, for us, certainly we identify ourselves as an American company because we have this rich 175-year history. And for a large portion of it, a majority of our business was in the United States, even though we have in our records, our archives, we sold our first plows in Russia a hundred years ago. We've been doing business in China for a long time. For example, we've had operations in Argentina for 60 years.
So, while we've had a significant international presence, we're, first and foremost, identified as the iconic U.S. company. A part of that is because, by far, the largest market for agriculture is the U.S. and Canada.
And, over time, what that has meant now as we're transitioning, is we're really taking the company in the next few years to where today 50 percent of our sales are in the U.S., 60 percent U.S. and Canada, and by 2018 we will have less than 50 percent of our sales in the U.S. and Canada. They will grow, but all these other places are growing.
So we're having to become much more of a global company. And so, I talk about us going from being a U.S. company to an international company to being a global company. And the difference between international and global is international you're really doing business with a lot of countries; when you're truly global, you're really doing business in the countries.
And so, we've now established a significant presence in a lot of the growth markets for us, and that's what it now means for us is we really have to focus on that challenge of being able to grow in these critical countries, many of them like the BRIC countries.
MORAN: And I want to get to the global economic scene, but one more question on the kind of metaphysics of being there: Does that change your values at all? Does that change your approach to business as you shift from being an American company to a global company?
ALLEN: Absolutely not. It does -- it changes the intensity of our focus on training and assuring people understand our core value of integrity. You know, one of the things that has made Deere iconic over the time is our commitment to integrity.
And always, we do business, whether it's with a customer or whether it's with our dealer, whether suppliers, the communities we're in, and as we have -- and this has been true when we went in these operations 60 years ago, you know, we had to really reinforce -- I try not to use the word "integrity" or "values," meaning U.S.-normed. I try to say "the John Deere way," because I'm not -- I don't want to offend anyone else. We just want to say that, OK, the John Deere way is you've got to do it this way.
We stay on top of the table, no smoke, no mirrors. And that has -- in some of these markets there's been a real challenge because, as you well know, a lot of places, kickbacks, things like that, are a common occurrence, and we have consistently said, you know, we're not going to do that. And we practice that really hard. If we have to turn away the business, we turn away the business.
And we focus very hard on when we bring in -- because we like to have local management teams, but we focus very hard on first bringing the local people over, if we can, if we have enough time, and have assignments with us in the U.S. where they understand the John Deere value system from a U.S. perspective, interacting with us before we then take them back to that country to operate in.
MORAN: And when you see other companies that have not been able to maintain their business -- U.S. business practices in different cultures, say -- the recent example in the news is Wal-Mart. Do you say, but for the grace of God go we, or do you learn from what happened there? How hard is it to maintain in those countries?
ALLEN: It's very hard. I think you should -- you've got to be maniacal on the focus, and you have to recognize that any day you could wake up and it could happen to you. And it doesn't have to be the foreign national. It could be one of our people that get something out of kilter. They're trying to get something done and, you know, they forget the "how" for a moment because of the pressure of trying to get the job done.
And one of the advantages I think we have over some of those companies is our rich history. You know, we talk about -- the John Deere name has been developed over 175 years and it would only take one foolish act to ruin that reputation. If you're a 20-year-old or a 30-year-old company, you don't have that long history that you can use to reinforce the importance of it. So I feel, from our standpoint, that becomes really an advantage, our long history, as opposed to a disadvantage.
MORAN: Let's talk economics. We're in this period right now where we thought we had the wind at our backs economically, not just in the United States but maybe around the world, and now things are not looking so great. How do you read the growth potential in the global economy right now, and doing business in the United States?
ALLEN: Yeah. For us it's -- I have to first mention, because we have different businesses that are subjected to many different microclimates relative to the economy, so by far our biggest business, the one we're known for, is the agricultural business, equipment business. And even in today's markets it's very, very robust.
You know, we've had -- the last couple of years have been a record-breaking year. Our forecast for this year is to have another all-time best year, really being pulled along by a large ag, which is corn and soybean related, and those are really, really strong markets all across the globe.
MORAN: It's a boom business, right?
ALLEN: It's a boom business. And whether you're in Brazil, when I meet with farmers down there, or you're here or -- I just came back last week from Europe -- those markets are still pretty strong. They obviously get influenced by demand, which comes from the local economy of people. If you had Europe as an example, with the large levels of unemployment, people don't eat as well. That has an impact. But, still, overall it's pretty doggone strong.
Then we have a construction and forestry business that's primarily the Americas, and that's coming -- it's come up -- double-digit increase the last couple of years from an all-time record low. And what will drive it a lot more will be housing starts in the U.S., and they're not doing very well, and so it's much more challenged, even though we've come back. This year we'll have another 25 (percent), 30 percent increase in business.
But, you know, you're much more cautious about what's going to happen in the U.S., or the Americas for that matter. Is Brazil going to see even more inflation, et cetera? So you're watching that much more closely as you think about that market.
And then we have a turf business, which is commercial mowing and golf course maintenance equipment and lawn care equipment. That's very much EU27 and U.S. and Canada related, which is very much economy driven, and that business is still challenged at this point in time.
And so, as I look at all those pieces, you know, we see still very, very strong markets for us in the U.S. and Canada as it relates to agriculture. And it's just all a phenomenal time for farmers around the world, but especially in the U.S. And the same is true for the Southern Cone, Argentina and Brazil, even though the Argentine government is making it worse for us.
But, coming back from the EU27, we actually have fairly robust markets for agriculture there. And the part of that that surprises people is a lot of the contagion in Europe is really the Mediterranean countries, the Portugals, Greece's, Italys. That's not where a lot of the large farm equipment is sold.
The three largest markets for us are Germany, France and Great Britain. And even though Great Britain has gone down into a recession again now, it's still overall -- relative to where it was in '09, let's say, it's better, and that's been OK for us.
And then we have phenomenal opportunities in both China and India, and a lot of that -- even though China has come down a little bit, India's come down a little bit, agriculture is still driven a lot by government policy and government subsidies to mechanize.
So, for us overall, the market is strong, which is why we're able to say that -- our fiscal year ends on 31 October, and what we have publicly said as a result of last quarter, that this would be the best year in history, both on top-line revenue and net income.
MORAN: And it's remarkable in the environment that so many companies are facing -- let me unpack that a little bit on the agriculture side first, which is a boom business, as you say. One of the things that you mention is there are long-term changes fueling growth -- dietary changes. How so?
ALLEN: You know, it's finally I think now starting to be recognized, but when we started working on this back in '09, I don't think it was quite as well understood at that time, and that is we talk about between now and 2050 that agricultural output will have to double, at a minimum, on basically the same amount of land. And that's driven -- the one that everybody understands is driven by the population growth -- 7 billion people today; 9.4 (billion), 9.5 billion people in 2050.
The one that a lot of people didn't understand that they're now really starting to see is the dietary change that you mentioned. You know, people -- as people move into above 3 (dollars), $4 a day, one of the first things everybody likes to do is eat better, and they go from eating just grains to eating protein. And if their religious beliefs allow it, the protein ends up being meat.
And it takes four to seven times the calorie input of grain to get one calorie output of chicken to beef. And so that's why this compounding -- it's not a 40 (percent), 50 percent growth in output as a result of population growth; we're thinking it's going to be at least a doubling. And that's the big macroeconomic trend that is supporting us from an agricultural standpoint.
It also -- that population growth, that 9.4 billion people, it really also will support our construction equipment business, because in '09, for the first time in the history of civilization, 50 percent of the population moved into an urban setting. That forecast will be 70 percent by 2050. Said another way, there's 7 billion people on the planet today. It could be as much as 7 billion people in urban settings at that point in time, which needs a lot of infrastructure and road development.
And that's why we're expanding our construction equipment businesses in India and China, because that very much is an Asia-centric model. In fact, you know, the times I've been over here lately in China, I mean, they're already planning for their first four cities of 30 million people. And so, that's tremendous, tremendous opportunities in those areas.
MORAN: And you're building factories in China -- three in China, two in India?
ALLEN: One in India, two in Brazil, and we've also got one in Russia -- another one in Russia. So, in all of the cases, those are additional factories. We already had factories over there.
MORAN: What's it like -- let's take China -- getting the permitting, the land, whatever environmental standards, all those things that you've got to do --
MORAN: How hard is it to jump through those hoops in China compared to here or Russia or --
ALLEN: Yeah. Well, I would say here it also -- I'm going to use here as an example. It depends where here. You know, if you're doing it in California, it is really, really hard. If you're doing it in South Carolina, it becomes pretty doggone easy. And some of that has to do with government officials and attitude toward whether they want the business or not.
Some of that is also true in some of those countries, as long as you can go at the local level. So, for example, in Russia we built a plant outside of Domodedovo, which is just outside of Moscow, and the local government there really wanted this to happen. And we actually -- the plant was under construction -- it was a lease facility -- but we, in the span of nine months, built the plant and got into production, which is unheard of.
Now, if you happen to be wanting to do something that the government doesn't really want to see go forward, then it becomes really, really difficult, if not impossible. China -- the good thing about China relative to that is that the policies are known.
And so if, you know, they -- I mean, people may not like to see this, but if China decides they want to make an industrial zone right here, they're going to pay people to move out, they're going to change the land over, they'll put in all the infrastructure, and you have an industrial zone, as opposed to what is the hardest market for us to build a plant in and takes the longest time to work on is India.
And it has taken us two years to get the piece of land because you want to get a reasonable-sized piece of land to protect yourself on your boundaries. So, if you're trying to get a hundred-acre plot of land, first of all, it's by far the most expensive place to get the land of all the places we deal with, and it would be -- and it's not because of government officials per se, but to get a hundred acres, literally you're going to be buying it probably from 50 different people, the piece of land, and to try to get 50 people to want to sell the land, it becomes very, very difficult to do it.
MORAN: So, as really one of the world's leading capitalists, it's better for you to do business in Communist China than in California. (Laughter.)
ALLEN: You said it; I didn't. (Laughter.)
MORAN: OK. But, actually, let me turn to policy in this country. It's an election year. I don't want to get into that, but when you look at --
ALLEN: Right. (Laughs.) Well, maybe I will.
MORAN: But when you look at the -- at barriers to growth or the opportunities for growth and how policy affects that, one of the things I noticed was, in some of the materials, the sense that you have that -- the uncertainty of the tax regime, the uncertainty of the regulatory regime.
And I looked at that and I thought -- I thought those were Republican talking points. But as a nonpartisan sort of business person --
MORAN: -- that's real.
ALLEN: Yeah. No, I have had a chance to meet with the current administration and I've talked about it there. I'm also chairman on the Council on Competitiveness so I've seen it from that standpoint here.
But what I've tried to tell people as I've met with them, when you don't know where things are going to go, whether it be Dodd-Frank and the legislation that was supposed to have been done all by last October and it's not done, whether it be tax policy that's not done -- we're paid to manage risk, and you're always thinking, what's the worst-case scenario? You're not thinking, what's the best-case scenario?
I remember the first time I had a chance to meet with the administration; this is before health care came through. And we were talking about it and, you know, I made the point -- because in early writing of the health care legislation, a company like John Deere that has now roughly 30,000 employees in the U.S. -- and we have very good health care for all our employees, but we have contract employees that we also bring in.
The way it was going to be written was if you have a contract employee and more than X percent of their income -- if they don't have health care and more than X percent of their income would have to go to health care, then because you haven't offered it to them they're going to fine you, and they'll fine you this amount on every employee that works in the U.S.
And I said, you know, what you have -- what you have done with that is you've made it -- if that goes forward, the first thing we ought to do -- I didn't say we'd do it, but the first thing we ought to do is turn all our employees over to your -- the pool concept that you're going to have and quit giving them the health care that we have, because you've made the risk of being penalized so high.
And, you know, you have people say, oh, no, no, no, that's not what we meant to happen, and don't worry; we'll never get that through. That's not going to happen. Well, we're paid to worry. And so you're always positioning yourself in a fashion that, OK, what happens if this goes through?
So, that's not a Republican talking point; that's a real-live business talking point. And, you know, it's not a question -- just like tax rate right now. Whether we move the corporate tax rate down 26 (percent), 22 (percent), 28 (percent), it -- you know, I'm not one that believes it ought to be the lowest number, but you've got to know what it's going to be, and you've got to know -- and people don't appreciate the uncertainty and what that causes.
The best example on one of our businesses is, you know, we've had, I think, nine extensions of the transportation bill in the last 1,000 days. Well, there is no way you fund anything with that, so even people like us -- OK, should we expand capacity based on what we think might be the construction equipment activity in the future? You're going to hold off until you understand what potentially is going to happen from the transportation bill standpoint because infrastructure development is a critical driver of construction equipment in the U.S.
MORAN: So you're just talking about -- the system, whether it's right, left, center, is broken. It's not working right.
ALLEN: It's broken, I think both in that sense and then in the sense of what is implemented. You know, to me it's not about -- it's not mine to talk as a CEO. I can talk about it as a private person, but as a CEO it's not mine to talk about this policy versus that policy in terms of my personal belief.
What I can do -- and I've said this on both sides when I've met -- I've never seen a time when whatever we're supposed to be implementing has been implemented so poorly. You know, and -- so if you want health care, great, but when literally, you know, "We've got to pass it to know what's in it," is not a slip; that is really a fact, and with all of us that have health care that -- significant health care bills and always trying to figure out what we need to do, and still to this day don't have a good answer on that, that's not a policy issue about providing health care; that's an implementation issue.
And, right now, what really is challenging is this implementation issue, whether it be that, whether it be -- you know, we were just here not long ago talking about the Ex-Im Bank and it's not getting its funding, which is ridiculous. It makes money, it helps all of us, yet we don't implement the legislation, whether we talk about Jackson-Vanik and permanent normal trade relations with Russia -- I mean, we're just shooting ourselves in the foot. And, unfortunately, the bullets are coming from both sides of the aisle.
MORAN: I want to pick up on that in terms of American competitiveness, but as far as health care is concerned, I'm sure the Supreme Court will clarify the whole thing. (Laughter.)
But let's talk about American competitiveness, first from policy and then from practice. And in terms of policy, what are we doing right in order to grown American businesses like yours? You guys are doing great. But what do you see in terms of the American policy approach to international business that's working? And what's not working, aside from the chaos that you just described, but substantive policies?
ALLEN: Well, what's still right, it's the greatest country in the world and, you know, it's still got the greatest -- well, there's -- I believe in tort reform -- it's still got, you know, the rule of law. You still -- quality of life is a real positive. It is a very inclusive country compared to almost any other country. So when you're trying to bring in a global workforce, it's much easier here from that standpoint.
And then there are a number of areas that they're OK. They were much better than before. So, you know, infrastructure is OK but deteriorating. It's still better than a lot of other places of the world, but if it continues to deteriorate it's going to go from being an asset to being a major liability. You know, education is clearly moving from being a strong, strong asset to -- if we're not careful it will be a liability in terms of growing our own.
And then in terms of what we're not doing as well, clearly, you know -- I shouldn't -- let me, just one more. We've made some progress on free trade, I think, so, again, that's one that's put kind of in the middle. The times when we passed the free trade agreements, that's a real positive.
Then we go talking again for a period of time about free trade is the worst thing in the world, when it's the best thing. And then that becomes a liability again, but creating an environment to support free trade but with appropriate measures to assure that it is really free and that the playing field is level. So I'm not suggesting that you shouldn't still enforce the rules.
The whole area of our -- I think that what's broken besides education that we've talked about, besides, you know, running huge, huge deficits that's going to cause major issues for the country going forward, we need to have, obviously, a competitive tax policy. It doesn't have to be the lowest; it just has to be a competitive tax policy.
And I think people need to clarify what is it they really want to incent in terms of growing our industrial policy. My argument -- because you can't do everything for everyone -- my argument would be if you could only do two things besides a competitive tax policy that also allowed you to repatriate earnings is I would incent just two areas.
I would incent R&D because all manufacturing, all development starts with -- all innovation starts with rich R&D, and so I would incent that so that you're doing that here because you more than likely bring manufacturing to R&D; you don't take R&D to manufacturing.
And then the second thing I would incent, I would make permanent 100 percent accelerated depreciation. And my logic on that is what you want is you want the good jobs. Good jobs normally involve capital-intensive equipment which requires higher skill levels, so they're good-paying jobs. And once you make that type of investment, even though you've depreciated it right away, you don't get rid of it. You don't move it.
You know, if you're in a room like this and you've got some tables in there and you're assembling something, it's pretty easy to take that somewhere else, but if you're a company that has put a $10 million machine in this room, you don't move that overnight.
And so, that's what I would suggest needs to be done, but whatever it is, at some point people need to clarify what is it we want to incent and how do we really want to grow the country? And so many other governments have a clear idea of what they're trying to incent.
You know, the Singapore government does an excellent job of that. China does an excellent job of that. They just came out with their 12th five-year plan. We know exactly what they're going to be incenting right now. And you may not like how they go about it, but they've got it clear, this is where we're going. And we don't have that clarity. I'd suggest we don't even have a consensus on some of the finer points.
MORAN: Yeah, because that's where I was going to go. So, when you look in these other countries, it's the clarity of the countries that work, the clarity of their incentivizations and all the rest, that that's what you think we need to do better. Is there anything else? Education?
ALLEN: Oh, certainly. Clearly, education is two-fold, and with education becomes the whole visa issue, you know. And I know they're finally starting to look at it a little bit, but it is just -- in my opinion, it's asinine that we have the best universities in the world here; we allow people to come in here and get educated and then they have to leave.
So, you know, an example for us is one of the primary things we need is embedded software engineers. We can't get them in the U.S., so we have a technical center in India and it has almost 3,000 people there now. We can get really good embedded software engineers in India. We would have loved to be able to -- and a lot of them were educated here in the U.S. We would have loved to be able to have kept them at one of our technical centers here, but we can't do that.
So, part of that is you've got to be able to keep the best and brightest here at the same time that you start working on -- which is a very long-term problem that -- obviously we've had all kinds of people try to work on it and it's not really improved -- how do you, especially in K-12, really turn up the dial and, you know, educate so that we're not losing this race and we're back in the top five instead of 17, 18, 19th in all these different areas, whether it's math or whatever?
And then I think also maintaining the focus on our university system. And I think the other part that I get concerned about with that is we have the best universities in the world right here, but just like 20 years ago, we had a lot of countries that were -- when we had the best manufacturing here 30 years ago, were saying, we want to be the best at that, and they've done it.
You know, you've got governments that are spending all kinds of money to make sure that the best university 10 years from now is in China or in the Middle East or in Singapore, whatever. And so, I don't think it's a foregone conclusion that the university system will continue to be the best around the world if we don't provide focus on it.
MORAN: That leads to the issue of workforce, the people who work for John Deere here and around the world. You've got a lot of experience now with the labor profile, if you will, of the American worker, Chinese worker. You've got factories and workers all over the world. What do you love about American workers, and what do they do better? What's the comparative advantage of the American worker? Does it still exist? Some people I think doubt that.
ALLEN: You know, I'm going to be a little -- I've not been asked that one that way. What the advantages are I think over time can be developed anywhere in the world with the right leadership, because I think one of the advantages is -- I mean, what you're trying to put together is a highly engaged, highly productive team.
Some cultures are not as team-based or as inclusive, and that makes it more difficult to put that together, where U.S., you can -- the American worker, you can say, we've got to take that hill, and it -- if you can get them to believe that's important, they believe in you, they'll do amazing things to take that hill.
But what we've found inside of our company -- it may not be inside of the whole country, but inside of our company, in some of these other locations, we can create that same environment and people can equally be as highly engaged and highly motivated and inclusive. But --
MORAN: I just want to touch that. And inclusive because, as you say, you go around the world, there's castes --
MORAN: -- there's religious divides --
MORAN: -- there's all kinds of things -- racial divides --
MORAN: -- and you can forge a similar kind of team that will take that hill?
ALLEN: Yes, I definitely can. And I think there's two things. One is I think the type -- that doesn't mean you can change the country. It just means you can select within that population a small subset of people that really want to identify with you as a global company and want to identify and be a part of that.
So, it may be a detriment for the country and for the entire workforce, but in terms of a company, we can do that. And we've seen that in China, we've seen that -- you know, and everybody -- every part of the world, the issue is different. You know, China -- one of the great things in China is there's not an issue between male and female. That's the one great thing Mao Zedong did. You know, everybody worked; everybody is equal.
So, more than half our management team in China is female. And it's not -- where Latin America, you know, you've got a real issue male-female. Latin America, in a number of our locations, you have -- Brazil, for example, you have much less of an issue between various different cultures. You can have a number of different -- whether there be Japanese culture, Germans that are there -- I mean, the country is rich with a number of those.
So, each one has different issues that you end up dealing with. I would say, broad-base, the U.S. is by far the best at that.
MORAN: And that's a comparative advantage of the American workers.
MORAN: Disadvantages? What would you like to see American workers do better?
ALLEN: There's the preparation to be a -- as you move into the industrial sector. You almost have to divide that. American workers -- from my viewpoint, you've got the professional group and then you've got those that are associated with a manufacturing shop for employees, all that.
Shop for employees -- we've lost a lot of the technical trade school training that we had, and that's partly our fault, meaning companies that we haven't invested as heavily in it, and we're trying to focus on that. But it's -- you know, I think part of it also is you compare and contrast the view of a, let's say, skilled electrician here versus Germany, for example, and it's viewed much more positively in Germany by even students.
We have technical trade schools that we support in our factory in Monheim, Germany, and you've got -- I've walked through there and you've got all kinds of young people that are in there, and they want to be metal benders, they want to be electricians. We've lost that desire here in the U.S. and that's something that we need to try and rekindle.
On the professional level side, I don't -- you know, I don't see it so much an issue of the, quote, unquote, "worker." Everybody goes after the education and it's more about assimilating them into our company and them making sure we provide them the experiences that let them develop.
MORAN: Well, this is fascinating, and I'm just kind of tossing out questions as they come. And now I'm going to let our audience do that. So what I'm going to ask you is -- invite you, if you'd like to ask some questions, to wait for the microphone. There are a couple of microphones around the world -- around the room, I should say. And just, if you could stand up, state your name and affiliation and fire away.
Right there. Let's go first right there.
QUESTIONER: Nina Gardner, Strategy International, a consultant on sustainability and corporate social responsibility.
So, over the years at the company, I was wondering whether you'd seen a change in terms of the commitment to sustainability. You're dealing on the front -- really a front-hand view of the climate change and adaptation issues. So, how has that changed?
Are you going to join Paul Polman, the CEO of Unilever, to make sustainability a key driver of sort of the business proposition for your company in the future, who has also said that he is ready to change his investor base and not -- they're not filing the quarterly earnings anymore because he wants longer-term investments, and people -- to let the company do, actually, more long-term investments in innovation and R&D, which is what you were talking about.
ALLEN: Well, let me try to answer the last part first, or make a comment, and then I'll get to it.
You can take our investor base. About 80 percent of our investor base is large portfolios, et cetera, and it's about a third/a third/a third. We've got a third that hold us nine months or less. We've got another third that hold us 18 months to 24 months. And then we've got a third that hold us for a real long time. If I could figure out how to change that and have more real long term, I'd love to be able to do that. But, you know, it's the market, it's whatever happens out there.
And so, I don't -- it may be something you would like to see, but I, for one at least, don't see how that -- how you make that happen as a publicly traded company. So I think you've still got to -- you've got to focus on the long term but you've also got to focus on the near term as well.
You know, you have to do a great job of communicating why we're investing for the long term, and you have to make sure that you're achieving the results you said you are going to in the short term. And if you are going to make that investment, making sure everyone understands it.
To more specifically answer your question relative to sustainability and good corporate governance -- and I'll take it in the two areas -- there is the whole sustainability that you were talking about, which we do end up doing some of that, and we have done things where in the past John Deere had a tendency to say, we're going to kind of stay in the background. We've taken more of a leadership role.
One of them deals -- we were on the Rain Forest Coalition, which we have a logging business. You know, we have forestry operations, but clearly we believe that you shouldn't be cutting down trees in the Amazon or tropical forests, and that it has an impact. We literally have a policy that if a dealer sells a piece of logging equipment into, like, the Amazon, they will be cancelled as a dealer. So we do put our money where our mouth is there.
There are some other areas I found, as we get into this. The coalition can be various groups, some that are much more aggressive in what they'd like to see happen, which doesn't become a good thing for our customer base or our investor base. And so, we have to be prudent about how we go about some of these things.
We are committed, for example, though, to cut our footprint. We have kept -- we have made a commitment from, I think -- don't quote me on here -- I think it's '05 -- it might be '07 -- but we're going to cut 25 percent of our greenhouse gas emissions. So we are doing that -- doing that by changing, you know, lighting in facilities. We've closed down -- we used to have a coal-fired electrical plant at one our facilities. We've closed it down, those type of things, in order to do things that reinforce sustainability.
The other part of what you've talked about -- you know, when I think of that good corporate citizenship, I do believe there is an element of this that is you've got to give back commensurate with the riches that you've been given. And Deere, for example, is very blessed.
So, we're very, very focused on volunteerism. That's something we've really -- company-sponsored volunteerism. We have a manager of volunteerism that's a company-paid position. There are a number of us, for example, that were, a year ago in India, actually doing manual work with small-plot family farmers. We tried to do it in our wheelhouse. So, agriculture is a good one.
We invested money through our foundation there to try and develop tools that will help them increase their output and productivity. We have a number of different initiatives in that fashion.
Clearly, one of the ones that we can help -- and it's also a business for us but, you know, agriculture uses 67 percent of the world's fresh water. You can't stop irrigating. Seventeen (percent), 18 percent of the land under cultivation is irrigated and it produces about 40 percent of the world's crops.
So the answer is not to quit irrigating, it's to irrigate more efficiently, which means precision irrigation. We've bought a business that's into that. We have factories in Israel where a lot of this technology is developed, as well as in California. So we have some feel for doing business in California.
But, you know, we try to bring light on that. And an example of how we bring light on that, we were one of the founding partners of what's called the Global Harvest Initiative. It's ourselves, Monsanto, DuPont and ADM.
And we are working with NGOs as well to really bring light on this issue of doubling food output, or doubling agricultural output between now and 2050, and that we need to increase -- pardon me -- the rate of growth in output. And the only way we're going to do that is through governments working with research institutions working with companies to really add more focus on this again.
So, those are examples of how we work on the sustainability piece, but we won't be the torch bearer in a number of these. They might not be to the benefit of the business.
MORAN: And just to button something down, you do accept the science on global climate change and are planning your business accordingly.
ALLEN: I do accept it myself. And we always think about, what does that mean? I don't -- you know, when you say planning the business, I don't know yet -- right now you've got to be nimble. But, you know, does that mean that certain areas of the Midwest may become less or more desirable for agricultural output?
I'm not sure about all that, but I -- my own personal philosophy, and this gets back -- this is not company philosophy -- personal philosophy is for my grandkids, you can't afford not to -- if there's a doubt, you better take the approach of believing in it until proven otherwise, as long as people are reasonable in some of the approaches that they want to address this with.
So, for example, there are people in this area that says we ought to go all back to small organic farming. Well, we're all going to die of malnutrition if we tried to do that.
MORAN: John Deere would be against that.
ALLEN: Yeah, John Deere would be against that. (Laughter.)
Let's go right here, sir.
QUESTIONER: Thank you. Allan Wendt.
You said that you cannot hire enough software engineers to meet the demand and that we should have a more permissive immigration policy with regard to foreign students. If you raise the salary level offered, would that make a difference in terms of recruiting American-trained software engineers, or is that not really a factor?
ALLEN: That's not a factor, not at all. I mean, if you go look at our salaries, we're extremely competitive. And, in fact, what is a misperception to a lot of people, when you start taking a senior-level software engineer, the cost of that engineer in India is no cheaper than it is here, and we're paying almost the same amount of money there as we are here. It's an issue -- there just aren't enough software engineers to go around.
And a lot of people don't appreciate this, but if you take one of our large row-crop tractors, it has more lines of software code in it than the first space shuttles had on it.
ALLEN: So that's the level of -- so we have a very high level of sophistication in some of our equipment. And, you know, we just can't get them, and we're fighting every other company, and other companies can't get them either.
And it's not a question of us not being able to attract and retain. You know, I'm pleased to mention that, you know, Fortune just had us ranked 9th in the U.S. and 14th globally for leadership development. There's a lot of things we can show people about how they can really build a career at John Deere. And we pay very, very top salaries.
But they're just not out there, or the ones that are out there -- and one of the challenges we have is you have one and they want to stay in California and a majority of our plants are in the Midwest, for example. So the ones that are out there, it's not a money issue; it's a location issue in terms of our ability to get them, unless they happened to grow up on a farm and became a software engineer. Then we're able to get them. (Laughter.)
MORAN: Back here in the middle here.
QUESTIONER: I'm Harry Broadman -- (clears throat) -- excuse me -- from PricewaterhouseCoopers. I lead the emerging markets practice. I want to thank you very much for addressing us today. I think it's extremely informative.
I was really struck by your statement that -- and I'm slightly paraphrasing you -- that you get paid to worry or, you know, you get paid to minimize risks. And I want to ask sort of the flip side, which is the opportunity side of the equation, and particularly in the emerging markets, which, as you know, you know, is where the growth is.
QUESTIONER: And I was struck by the fact that you hadn't mentioned the continent of Africa, which is one of the reasons I work, and I work at many of them.
QUESTIONER: But to me, this is an important opportunity. So I wondered what your company's approach is vis-a-vis Africa.
ALLEN: Sure. And I'll take the whole risk thing to maybe show the example. Where we have investments in right now that is very, very risky is Russia. I mean, we've got two plants and a parts center that we've put in there during my tenure.
Why? Well, Russia has 9 percent of the world's arable land, 8 percent of the world's fresh water. We're not going to feed the world's population during this time period with Russia becoming a bread basket. It also has hundred-thousand acre farms that use, therefore, large pieces of equipment, which is our sweet spot.
So the risk/reward says we've got to be there, because if we wait 15 years to see how Russia materializes, somebody will have already developed that market. And so we've taken on that risk.
Africa, we do business in about 10 countries in Africa right now today. The only one we've had operations in is South Africa. Somewhere, 10 years down the road, we'll say the risk/reward is such that now we need to really be going into Africa in a more substantive way.
But there are so many -- you know, first off, Russia is one country -- and whatever you say about the leadership, it's just one leadership to deal with. Africa is many countries and you've got to deal with every one of the countries.
We do sell into some of those markets. It eventually will be an agricultural powerhouse, but they don't have the infrastructure in place today, so even if they grow it, don't have any way to get it out. You've got so much corruption in that area. From a risk/reward standpoint, we've just said now is not the time to put hard assets in place, even though we do business in that country.
What I will tell you is in '09 when we said that, we probably said that with an eye on it won't be ready for 20 years. And as every year goes by we move up about two or three years of when we think it will be ready. So we do see it accelerating very rapidly right now, but still, at this point in time in terms of risk/reward, we would stick our toe in the water there but we wouldn't jump in head first like we've done in some other markets like Russia.
MORAN: OK. Who else? Ma'am?
QUESTIONER: Lilia Ramirez with Morpho Detection. I wanted to have you develop more of the thinking on how we can incentivize students to go into more of the technical -- the engineering, the software -- especially since college costs are so high.
ALLEN: That's a good one. You know, part of it I suspect would start -- if I were to -- I'm trying to think through it and think all the way through. You start out with the fact that you don't have enough technically oriented kids coming out of high school.
So we're a big supporter of STEM and trying to do more of that to grow kids' interests in the math and the science, because it's pretty hard to get a student that is not math oriented or science oriented to then say, no matter how much money we're going to pay you, we want you to become an embedded software engineer or Master's of Science in electrical engineering. So I think it starts, really, at the high school level and below, really growing at that level.
And I, for one -- somebody else could have a very different opinion on this -- I don't think it ends up being -- this gets back to the question you asked -- I don't think it ends up being a monetary issue, because the salaries are very, very high relative to a lot of other functions that we hire into. They would be 20 (percent), 30 percent higher than somebody that we would hire into as an industrial engineer for the company or, I don't know, a marketing rep for the company.
I think there's an element of this that is image certainly, but there's a bigger element of this, in my mind, that you've got to grow the base from which to pull them out of. And we, like a lot of other companies, are trying to invest in that through STEM, but, you know, it's going to take a concerted effort by the whole country in that respect.
That's the best I could come up with in this time.
MORAN: When you were a kid, were you math and science oriented? Did you know you wanted to go into this kind of thing?
ALLEN: I started out as -- I was math oriented. I started out as an engineer in college --
MORAN: At Purdue, yeah?
ALLEN: -- and aeronautical engineering, and then switched into mechanical, and ended up getting industrial management, industrial engineering -- industrial management as my major, industrial engineering as my minor. So I was oriented that way.
But I grew up on a golf course and was going to be a golf professional. I was never going to work -- (laughter) -- I was never going to work for a company. So, no, I --
MORAN: But what's -- for the young -- are there fewer young Sam Allens out there who are eager to get into industrial engineering or mechanical engineering, or is it that all of the pedagogical experiments that we've had over two generations with teaching math and science are just -- have failed miserably?
ALLEN: Yeah. I'm not sure -- I'd have to see all the statistics. I know there is less graduating engineers. I don't have -- I can't recall exactly the percent less. I think one of the things that has changed, clearly, that makes it different, the chances -- you know, I started with John Deere. I've spent 36 with John Deere. That's true for most people with John Deere, and it's still true, but most Fortune 500 companies anymore, people don't spend their career with.
And I think the advantage with a company like ours, when you spend a career you get a chance to experience and then start really developing. And today's environment, where people start out in Company A and immediately go to Company B and then Company C, you're focusing more on a function or an expertise as opposed to building up a skill set -- broad skill set that then later on let's you focus your thinking around, OK, what do I really want to do?
And so, I think -- my belief would be that that's a difference today versus 25 years ago where you had a lot more people -- you know, when I came out of school they said, you know, go to work for a big company because, you know, you can build a career, and today most people think, what, I'm going to go to work for seven, eight different companies.
And so, that to me is a difference in terms of people being able to really get the experiences that let them then say, OK, now I really know what I want to do.
MORAN: OK. Ma'am, right here?
QUESTIONER: Marsha Echols with the World Food Law Institute at Howard University School of Law.
I wondered if you would describe farms and farmers 20 years in the future. Now we have, in North America, very large farms. We have smaller farms, as you said, in the Mediterranean, large farms in Russia, smaller farms in Africa. What will farms be like, and in contrast to today when many women do the farming, who will the farmers be?
MORAN: OK, great question. Let me size it today.
First, to your point, in the U.S. what's interesting is the farm population -- the number of farmers that have small acreage is growing, and the number of farmers that have big acreage is shrinking but they're getting bigger and bigger and bigger.
So we have -- it's becoming much more bipolar. So we've got a lot of lifestyle farmer. They want to own 30, 40 acres, be close to the land, that type of thing, but they can't make enough money and they have another job. But, clearly, big, if you will, corporate farms are getting bigger and there's fewer of them, and that will continue.
In the largest farm that I'm aware of -- I've met with a farmer in Kazakhstan. He farms 3 million acres of land. So, the large ones he literally has the person get in the tractor in the morning with the seeder behind, and the person goes in a straight line to the horizon until noon, turns around and comes back, and that's his day's work. And I'm not exaggerating any of that. That's true.
At the opposite end, to your point, when we were doing our volunteer project in India, the average farm is less than two hectares -- there's two-and-a-half acres per hectare -- and it's actually gone from 1.7 hectares down to 1.3 hectares because this farmer had -- husband, wife and three kids, and eventually the kids, some of them stay on the farm because they're very poor, and they end up subdividing and subdividing again.
So, if you go out 20 years from now, I think the areas like India will still be that way. I think the chance for an India -- there's no way they're going to consolidate farms. There's just all kinds of reasons why that won't happen, including the land is way too expensive.
But what could happen is we have an experiment going in one area where we have 40,000 farmers with 40,000 hectares of land, and we've got 510 tractors going in there. And it's an NGO-government-ourselves sponsor deal. And we're training the tractor operators from the villagers and giving them better agronomic information. And we think that we can double or triple their output.
And what they do is they end up renting just the tractor for their couple acres because they couldn't afford a tractor. So you will see, in some of those areas I think, still small farms but tremendous increase in output.
On the big farms, what you will continue to see is less and less people associated with agriculture. I mean, that's clear. It's harder and harder to get people to be on a farm. That's not just a California problem. I was in a number of European countries last week -- same thing. Lithuania, in a country like that one of the number-one problem is, how do I get qualified farm help?
So you'll see our equipment continue to get more and more automated. You know, it's not too far down the road where tractors will be going down the field without operators in them, for example. So I think you'll see more and more of that level of automation coming out.
And you'll have bigger and bigger farms all around the world, and then you'll still have these very, very small farms, primarily in the Asian markets, primarily in places like India, also in parts of China. China actually has some big corporate farms but they have a lot of places where there are very, very small farms. But somehow, 20 years from now, even the small farms will have to bring a level of mechanization to it.
MORAN: OK. We have time for one more question. And I just want to, before we take it, remind everybody this has been on the record -- a fascinating on-the-record discussion.
So we have time for one more question here. This gentleman right here.
QUESTIONER: (Off mic.) I'm a somewhat of a sociologist. I want to go back to where you started about integrity. I have a very hard time; my imagination is not strong enough to see how you do business in integrity in India and in Russia. Does it mean you just have to find different ways of making things work? I mean, go to the law firm which represents the mayor, or whatever, or you can really go there and be, you know, like the undriven snow?
And my last part of the question is, would it be better off if the American law would say that we need to abide by the laws of the country rather than by our laws?
ALLEN: Well, I'll answer the last part first because I feel pretty strongly about this.
At a minimum you have to abide by the laws of the country, but -- and that assumes those laws are above your own set of code of ethics. But the day that you establish a code of conduct or a code of ethics by a county for a company, in my opinion you'll never have a code. And so, I think, you know, it's all about walking the talk, and you can't walk the talk by country.
But to your point -- and this is a true story. We were building -- we broke ground on a plant in Northern India, a second plant for tractors. And our group was telling us that we got known by the local government officials as the "thank you" company. And we said, well, what's that about?
He said, well, for nine months we would go to the office and we couldn't get our permit because they wanted a payment. And we said -- the person would come to the office, say thank you, smile and go back, because they would ask -- I mean, they literally stayed there for a couple hours a day. And so we got known throughout the government as the "thank you" company, but the company wouldn't give permits -- or, pardon me, wouldn't give payments.
Now what we're finding when we're doing it, once that got established -- they make it very hard initially -- once that got established, now the tone is, don't even try to get somebody from John Deere to do it. They won't do it. Just give them their permit. (Laughter.)
And I've seen that in my career. We were building an engine plant when I ran the engine side of the business in Mexico, and we had Mexican border patrol throw crates off the train. And they wanted a kickback and we wouldn't give it to them. And pretty quickly that got changed. The same thing happened when we bring our plane down into the airport down there. All of a sudden somebody wanted, you know, payment.
So, the moment you give one, you're ruined for life in that respect. So you have to understand that it will cost you in the short run but it's the only way, in our opinion, to stay viable in the long run.
MORAN: And on that inspiring note, Sam Allen, thanks very much for a really, really good -- (applause).
ALLEN: Thank you very much.
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