Friday, March 29, 2013

Sprawl returns ...  

And probably sooner than we think. The recession, especially in housing combined with gas prices, and gridlock to bring urban expansion into the country to pretty much a halt. In fact, it has been reversing.
Now, with crop prices soaring and housing in a deep slump, the economics of land investment have turned upside down. Farmers and investors are buying land that had been slated for development and using it for agriculture. And they are paying a small fraction of what housing developers paid for the same land before the recession.
The trend, if it continues, could represent a historic shift away from development in the far reaches of metropolitan areas. These properties had fueled much of the housing industry's bubble last decade.
In September, the Vanderweys, an Arizona dairy farming family, paid $8 million for a 760-acre alfalfa and cotton field that had fallen into foreclosure in Buckeye, Ariz., about 30 miles west of Phoenix. That same parcel, called Liberty Farm, had been sold to real-estate speculators in 2005 for $40.8 million. The Vanderweys want to plant hay.

California farmer Paul Singh bought this land from housing developers.
"These prices are becoming the new normal," said Nick Vanderwey, one of four brothers who purchased the farmland. "Everything in this area is coming back into farmers' hands."[More]
(Note: this article was from 2011)
 But wait!  This song isn't over, and Google may be writing the next verse with its autonomous car. There are others working on this, but Google provides a convenient benchmark. And it has a powerful argument about feasibility.

Watch and marvel.

The implications for such vehicles are simply staggering, and one may be a chance for those exurban farmer super-fortunates to sell their land again to developers as cities begin to expand.
Many anticipated consequences of driverless cars have already received attention on this blog and elsewhere, such as their impact on the mobility of the elderly, on taxis and car sharing services and on the future of the car industry. A crucial aspect which has escaped attention is the impact of driverless cars on urban form, which I anticipate will follow two broad predictions:
  • Cities will greatly expand, again: Faster and more efficient transportation will convert locations that are currently too remote for most users into feasible alternatives, abundant with space. Like suburban rail in the early twentieth century and the mass consumer automobile that followed, driverless cars will generate a gradual, but dramatic expansion of cities.
  • Buildings and parking will be uncoupled, freeing up valuable land: After dropping off passengers, driverless cars will independently seek parking (or their next car-share customers) and they will show up for the return ride at the tap of an app. As soon as driverless cars are common enough, the demand for adjacent parking will dwindle and parking lots in areas where land is sufficiently valuable will be ripe for conversion to other land use. As parking in high-value areas is thinned out or altogether purged, the micro-structure of cities will change – you guessed it – dramatically!

Why will cities expand?

Driverless cars will make it less “costly” for people to travel a given geographic distance, partly because they will be free to engage in other activities while travelling, but primarily because of reductions in travel time. Unlike human drivers, autonomous vehicles will follow optimal routes given real-time traffic conditions without fail. More crucially, as soon as suitable roads such as freeways (or lanes thereof) are declared off limits to manual driving, driverless cars will travel – safely – at much higher speeds than we do today. Gains in efficiency will follow from coordinated traffic management protocols, too. Once vehicles communicate with each other traffic through intersections and merges will flow much more smoothly than permitted by today’s traffic signals, stop signs and merging lanes, leading to substantial gains in travel time (a partial, human-mediated step in this direction is explored in this article).
If people currently forego affordable, spacious dream homes because the associated commute is too long, a technology that condenses the time needed for commuting along the same route – and allows doing so in the back seat – will make those homes more agreeable. Similarly, businesses whose location depends chiefly on access to appropriate labor or clientele will find that potential locations which are currently too remote will become feasible. It will still be crucial for them to sit “close” enough to their talent pools or their customer base, but because what matters for “closeness” is travel time rather than geographic distance, these firms will be able to reap the benefits of more remote locations without giving up “closeness.”

How far will cities expand?

The extent to which cities expand will be determined by the extent to which travel times are reduced. The more efficient traffic flow becomes the broader the geographic range in which living and working becomes feasible.
Will we ever hit a point at which people are no longer interested in the extra space offered by more distant locations? This is unlikely. Today swimming pools and three car garages are common in suburban homes, but who would have imagined that possible before the advent of the mass consumer automobile? Perhaps the current equivalent is the wish voiced by some home buyers – typically just beyond the urban fringe – that neighbors’ homes be out of sight. That seems like a lot to ask in today’s suburbs, but it could well become the norm looking forward.

When will this happen?

Most estimates suggest that the arrival of the fully self-driving car on the consumer market will occur within a decade. Provided that it will be possible to install these systems in existing manually driven cars – much as hands-free cellphone devices can be installed today – then there will be no need to wait for the entire stock of cars to gradually be replaced, and a much faster process of adoption will ensue. The speed of the process will be determined by people’s willingness to give up the driver’s seat, and by the adaption of the legal environment, first to permit driverless cars and then to secure them an exclusive right of way (a separate lane on the freeway). Google and the automakers will go to great lengths to ensure that legal barriers are removed and that the driverless car is adopted quickly. The devotion of a separate right of way may be a more challenging feat, but it will be difficult to reject in light of the gains it will offer.
Following these developments, the gradual process of city expansion will take place over many decades, much as the ramifications of the mass consumer automobile continue to play out almost a century after its arrival. [More worth reading despite my generous excerpting]
I fear the autonomous car will arrive about 20 minutes after I end my career at USFR and don't have to make my 3 hr. 7 min. commute to South Bend. That's OK. But I wonder what farmers could get up to in our ever-expanding off-season if distance were less of a hassle.

If any group in the US should grasp the possible impact the autonomous car could have, it is we farmers. Let's face it - I'll probably lose control of my grain cart before long.

Forget the Segway - I'm betting on this as the Next Big Thing.

Thursday, March 28, 2013

Not feeling well?...  

Move to Argentina. Seriously.

To show how astoundingly high our medical prices are compared to other first-world countries, WaPo put together a string of graphs. (Hint: The US average is the middle number)

[Many more here]

The US is shown as a range because unlike other countries, the prices paid here can vary wildly.

It's hard not to notice which two countries bookend the field. And to spot a singular problem with our system. While you can argue our health care is more advanced, why does that make the same prescription price so much higher here? The pills are identical.

There are two strategies emerging for dealing with this problem, and they don't overlap much. First, is the idea more free market action at the consumer level will empower them to bargain with medical providers. The second is using a matching large force - Medicare to face up to providers.
There is a sense in which the fundamental health-cost theories of Republicans and Democrats have become perfectly contradictory. Republicans believe Medicare is the singular problem contributing to the relentless growth in health-care costs, and the only way to truly fix our health-care system is to turn Medicare into a voucher system, breaking it up among private and public options and letting competition work its will.
Democrats look at the lower prices paid in single-payer countries as well as the lower prices paid by Medicare in this country and come away with a very different conclusion: We could be paying much less and getting much more, but the insurance industry, at the moment, doesn’t have enough power via-a-vis hospitals and other providers.
Medicare, as the nation’s largest payer, is thus the most promising solution to health-care costs, and Medicare should be using its bargaining power to lead the private market — in particular, by persuading hospitals and other providers to make overdue, but difficult, reforms to how they deliver care.
One ongoing example is electronic health records, which were long resisted by providers, but are coming into wide use now not just because the federal government helped providers pay for them, but because Medicare is going to start docking the pay of providers who don’t use them.
Therefore, for Democrats, breaking Medicare up into a mass of competing insurers removes one of the most powerful levers available for controlling health costs. “Medicare has enormous financial leverage to drive changes in medical practice,” Sebelius said. It’s not just that they think premium support won’t work. It’s that they think it would be actively harmful to the cause of cost control, and to do it right now, when medical costs are falling and the Affordable Care Act and all its Medicare-connected cost controls is just going into full effect, would be perverse. [More]
There is some evidence Medicare-like programs can reduce costs by lowering payments. One reason other countries have lower costs are the single payer power of their health systems.

Personally, I don't see much evidence individuals will bargain effectively with hospitals, etc. given the responsibility to do so. When I have done that and talked about it, people around me were horrified at my impudence. "How can you put a price on health?" they gasp. Well, we do it all the time, only we're not the ones with much say in the number.  Perhaps if it really comes out of our pockets we might shop around, but generally we're not in much condition, mentally or physically, to engage in commercial tactics.

Health care is not your usual consumer good, and I'm not sure applying the usual retail economics will take us to a place we want to be.


Wednesday, March 27, 2013

Hitting the Wal(Mart)...  

The news hasn't been especially good for Walmart recently. First there is that messy business of the bribe problems.
The world’s biggest retailer, Wal-Mart Stores Inc., says it is likely that it will incur a loss from bribery probes into its operations in Mexico and other countries.
The company has been dealing with allegations that surfaced last April that it failed to notify law enforcement that company officials authorized millions of dollars in payments in Mexico to speed up getting building permits and gain other favors. The Foreign Corrupt Practices Act forbids American companies from bribing foreign officials. [More]
But a larger issue (and Jan brought this up recently) is they seem to be doing a lousy job at, you know, selling stuff in stores.
During recent visits, the retired accountant from Newark, Delaware, says she failed to find more than a dozen basic items, including certain types of face cream, cold medicine, bandages, mouthwash, hangers, lamps and fabrics.
The cosmetics section “looked like someone raided it,” said Hancock, 63.
Wal-Mart’s loss was a gain for Kohl’s Corp. (KSS), Safeway Inc. (SWY), Target Corp. (TGT) and Walgreen Co. (WAG) -- the chains Hancock hit for the items she couldn’t find at Wal-Mart.
“If it’s not on the shelf, I can’t buy it,” she said. “You hate to see a company self-destruct, but there are other places to go.”
It’s not as though the merchandise isn’t there. It’s piling up in aisles and in the back of stores because Wal-Mart doesn’t have enough bodies to restock the shelves, according to interviews with store workers. In the past five years, the world’s largest retailer added 455 U.S. Wal-Mart stores, a 13 percent increase, according to filings and the company’s website. In the same period, its total U.S. workforce, which includes Sam’s Club employees, dropped by about 20,000, or 1.4 percent. Wal-Mart employs about 1.4 million U.S. workers. [More]
I think this could be a tiny first hint of wage inflation, which has been absent for a looong time. It will struggle against our seemingly intractable unemployment problem, for sure. And unemployment benefits are clearly ramping down, adding urgency to more job-seekers.


But it may be those forces will not be enough to attract workers to Walmart anymore. Maybe it will take better management and wages.Who'd have guessed?

Some of the stiffest competition, especially in rural areas, comes from "dollar-stores". While this may not pose a big volume challenge, it does dent the invincibility image of the behemoth retailer.

But there could also be a general weariness of "Walmartness" as well as a growing realization that the same prices with better service can be available elsewhere. I know Jan has shifted an amazing amount of "grocery" purchases on-line, and she's not alone. My son has diapers delivered cheaper than he can buy in stores.

The big shift in retailing may occur in this way - product by product. And nothing is harder to overcome than a customer sense of vague dissatisfaction borne from restless boredom.
It's like beauty, apparently...  

I have posted before about the lack of "safe" assets for very conservative investment purposes. It's not getting any better.
The global pool of government bonds with triple A status from the three main rating agencies, the bedrock of the financial ­system, has shrunk more than 60 per cent since the financial crisis triggered a wave of downgrades across the advanced economies. The expulsion of the US, the UK and France from the “nine-As” club has led to the contraction in the stock of ­government bonds deemed the safest by Fitch, Moody’s and Standard & Poor’s, from almost $11tn at the start of 2007 to just $4tn now, according to Financial Times analysis.
The shrinkage, largely a result of US’s downgrade by S&P in August 2011, is part of a dramatic redrawing of the world credit ratings map, which is encouraging investment flows into emerging markets and forcing investors and financial regulators to rethink definitions of “safe” assets. [More]
What I wonder is if the ratings agencies aren't playing with fire here by thinking they have the power to label and render judgment on assets. If US debt is downgraded and people still flock to buy US treasuries, don't ratings agencies risk being seen as irrelevant?

More worrisome (for them) is if another metric, by another self-proclaimed referee catches on instead. Safe could be in they eye of the beholder and we change our rules to fit.

Tuesday, March 26, 2013

Meat eating is just the tip...  

Of the iceberg. While I support moderation in meat consumption...I guess...I have always been slightly skeptical of the more hysterical warnings. It seems science has plodded along as usual to moderate our most alarming suspicions.
The government, public health advocates, and the American Heart Association have long warned Americans that overconsumption of red meat can lead to heart disease and other ailments. Yet the scientific evidence supporting this hypothesis has always been weak. And in fact, this month's study isn't the first to fly in the face of these assumptions. A large study in Japan also found no increase in heart disease deaths from moderate meat consumption as well.
And last year, Harvard researchers published another similar large study. The media reporting on the study declared that researchers had found that "adding an extra portion of unprocessed red meat to someone's daily diet would increase the risk of death by 13%. The figures for processed meat were higher, 20% for overall mortality." But the Harvard data also showed that meat consumption had a protective effect for a lot of people. Up to a certain point, people who ate more of it fared better than those who ate little or none. The source of some of this confusion is simple: People who eat junk food are unhealthy in myriad ways that make it nearly impossible to zero in on a single food item as the source of their health woes.
To see what I mean, let's take a closer look at the EU study. Known as the European Prospective Investigation in Cancer and Nutrition (EPIC), it included more than half a million people from 10 European countries who were queried on a host of different factors, from how much and what they ate to their levels of education, their age, their weight, and whether they'd ever smoked. The study indicated that people who eat a lot of processed meats are also more likely to smoke, eat few fruits and vegetables, and have lower levels of education. They're much fatter and exercise less than the rest of the sample. And men in this category are also serious boozers. Oh, and the heavy meat eaters were older, too—so many of them were well into their 70s by the time they suffered the consequences of too many sausage rolls.
And the people who ate the most processed meat—which the study qualifies as more than 160 grams per day (about six sausage links' worth)—didn't only die of cardiovascular diseases and cancer, the things we associate with a bad diet; they also died of lots of "other causes," a category that includes car crashes, accidental injuries, and other non-food-related causes. (The study's big chicken eaters, on the other hand, were the Girl Scouts of the data pool: They don't smoke much, they eat lots of vegetables, exercise, go to college, and no doubt brush their teeth, wear seatbelts, and get regular checkups.) [More]
For some reason, this discovery reassures me of the self-righting feature of good research. It also supports my view that people tend not have a few bad habits, but many. I have no real backup evidence, and maybe we just don't notice the behaviors of those we like. 

And yes - this is from what many farmers would consider a "liberal" media outlet. But that's the beauty of being liberal or moderate - you can change your mind if the facts warrant it.
More and more...  

Africa looks ready to take off to...somewhere. Obscure items that caught my eye.
IT HAS been an astonishing past year for gas discoveries in east Africa. Large finds off the coasts of Mozambique and Tanzania have turned those countries into major players in the world gas market. A more modest discovery off Kenya has led to optimism that richer finds are on the way. The flow of dollars into the region should help finance essential development and lead to a decline in expensive fuel imports. But with the benefits comes the threat of damaging side effects if the countries do not manage their buried treasure carefully.
One of the risks these countries now face is “Dutch disease”, a term coined by The Economist. If a large influx of foreign money pushes up the value of local currencies, traditional exporters might struggle to remain competitive, despite their access to cheap and reliable gas. Mozambique’s government plans to raise $6-8 billion a year in gas exports, which would treble the country’s export volume and could put pressure on its traditional exports.
According to Antonio Franco, a Maputo-based representative of USAID, agriculture is the most likely sector to lose out. “Niche markets, such as shrimps, will be less affected as they have high profit margins. But producers of basic commodities such as corn, cotton and cashew nuts could face big problems because they compete on price.” This is particularly problematic because three quarters of the population works in agriculture. [More]
I'm not sure this presents a huge problem for ag developers like Aslan (from my former posts) since they are looking at the domestic market (mostly feed supply). A strengthening currency would not pressure interior prices as it would those operations aiming at exports.

Meanwhile, the Chinese have found their lack-of-charm offensive isn't working all that well.
But in recent weeks, two prominent Africans have wondered aloud about their own expectations. “We have had some bad experiences with Chinese companies in this country,” Botswana’s president Ian Khama said in a recent interview with the Johannesburg-based Business Day newspaper.
In the future, “we are going to be looking very carefully at any company that originates from China in providing construction services of any nature,” he added, saying other African leaders shared his views. 
Mr. Khama blames the electricity cuts in his country on a Chinese firm’s slow work to build a power plant. The governor of Nigeria’s Central Bank, Lamido Sanusi, has a broader worry.
“China takes our primary goods,” such as oil and minerals, to fuel its economic boom “and sells us manufactured ones. This was also the essence of colonialism,” Mr. Sanusi wrote in a recent opinion article published in the Financial Times. “Africa is now willingly opening itself up to a new form of imperialism.” 
Even some Chinese scholars are nervous that the behavior of Chinese companies in Africa – often accused of poor environmental and labor relations standards – will sour China’s relationships.
“China’s main challenge is to demonstrate that it is not repeating the old practices of the European powers,” warns Pang Zhongying, an Africa specialist at Renmin University in Beijing. “China has to match its deeds to its words … or Sino-African relations may have no future.” 
Oil and coal accounted for 50 percent of Chinese imports from Africa last year. Minerals and other raw materials made up the bulk of the balance. In return, China exported mainly electronics, machinery, spare parts, and consumer goods. 
Though the pattern of China’s trade with Africa does indeed replicate colonial patterns, says Professor Brautigam, “China is just reacting like everyone else to what they find in Africa – raw material exporters,” because African countries themselves have failed to industrialize. [More]
When I was in SA, the stereotype of Chinese immigrants was the convenience store owner. The bigger problem is the addition of yet another hard-to-assimilate ethnic population into a roiling multicultural society.

All of these reports - good and bad, however suggest to me one optimistic development: money is being made in various ways and increasing amounts. When this happens, natives take notice and learn. It won't be pretty or particularly honest, but it is a step up from a conviction that subsistence living is all there is.

Monday, March 25, 2013

Chart of the Day...  

From the ERS, via Kevin Van Trump:

His thoughts are similar to mine.
  1. A delayed planting would move the blue line lower.
  2. Dry June
  3. Hot July
Then what?
Another clue...  

About the world we live in.
It is World Water Day, and time for the United Nations to remind us how many people in developing countries still lack basic sanitation.
Surprisingly, the UN reports there are now more people with mobile phones (six billion for world population of seven billion) on earth than there are with access to clean toilets (4.5 billion).
That phenomenon is easily visible in Indonesia, for example, where it is common to see people who live in metal roofed shacks without bathrooms surfing Facebook on their smartphones or feature phones. And it shows how, in the developing world, multinationals are often better at responding to peoples’ needs than governments are. [More]
It also explains why the health worker I interviewed in Mozambique in the isolated village of Ruasse listed his two greatest needs not as medicines or equipment, but clean water supply and sanitary toilets.

Iglesias add more:
In rich countries we tend to think about technologies in terms of their order of adoption and it seems obvious that plumbing is more basic. But from an infrastructure investment standpoint, it's easier to build a mobile phone network than a sewer system. For that same reason, even though there tends not to be all that much competition in wireless telephony it's a lot less monopolistic than electricity. In other words, part of what makes the mobile phone a great technology is that it's useful to people even in parts of the world where the basic institutions of governance are really bad. [More]
I think it is difficult to overestimate the ability of technology to circumvent bad governance and physical problems.
A time for every purpose...  

Except debt, apparently. Carl Zulauf, whose work on farm policy I admire, posted and interesting piece on farm prices and input costs and came to this conclusion:

Last, the lack of a trend in the ratio of crop prices to input prices adjusted for productivity suggests that a key risk management strategy is to pursue the highest level of input productivity while not incurring large debt. Thus, history suggests a good risk management strategy is to use the current period of farm prosperity to improve farm productivity without incurring debt. [Source]
This is a non-sequitor , IMHO. What has debt got to do with it?

If debt can generate returns above the cost of servicing it, why not use leverage to expand (land) or increase productivity (tile)?

The statement seems to say: since you never can tell what your profit level will be don't borrow money. But it falls apart when real history is applied. During the above chart were there ANY times when debt paid off big-time?

Answer: you betcha. Suppose you mortgaged everything down to your socks to buy land 5 years ago - before land and rents doubled, and at modest rates - say 6%. Not only would you be reaping whacking capital gains, your debt service would be even more manageable because returns to ownership (rents) have climbed as well. Not only that, but you could be refinancing it now for 3.5% or so and adding to your windfall.

What the chart shows me is it is impossible to know when and how much debt will payoff, but there are times it is not just appropriate but very lucrative. The fact you cannot predict when that occurs seems to freeze economists into inaction, but leaves farmers who follow their extremely conservative advice as roadkill for those buy/rent aggressively.

In fact, a good question to ask the economic community is "When do you use debt to expand/improve"? I suspect the answer will be when it is indisputably predictable that debt service will be done without any cash-flow problems. In fact, I'll bet some of these guys have never urged farmers to borrow and buy in their career. Oddly enough, that has been the best thing they could have possibly done when done at the right moments. I grant it requires luck, but it really, really works!

Ag economists as a rule are categorically terrified of debt. (I blame tenure) Those who follow their advice slavishly will have been rolled over by those who took a risk and were proven right. The reward flows to risk, not to prudence. And it seems to me that trend is accelerating and the same advice we've gotten my entire career is essentially unhelpful to those of competing in a zero-sum game.

What actually would be useful is a matrix of conditions that would indicate more favorable (but still non-zero) risk profiles that producers could use help identify those moments of opportunity. Something like:
  1. The debt service margin (net rent minus payment) can withstand ax XX% margin decrease.
  2. Does this debt require knock on capital expenses? (More machines for more land, etc.)
  3. Does the debt generate efficiencies that lower costs by XX% of the amount required to service it? (e.g., new combine lowers labor costs and boosts timeliness for fall work)
When you are surrounded with examples of people who did just the opposite of what Zulauf is advocating - and won big-time - it's hard to take his analysis as anything other than an academic exercise.

Sunday, March 24, 2013

Junkbox, Episode MMXIIIΩ...  

Seriously, 8" of snow on Palm Sunday???
Back to the woodshop.

Saturday, March 23, 2013

Africa: On the ground #5...  


This is the deal: Wallie' Hardie's investment group, Aslan Global Asia (AGA), stumbled into this property of 100,000 acres of largely untouched savannah west of Morogoro, TZ. I think they spent about $6M for 80% of the land, since the government requires a local owner of at least 20%.The farm will be split into both cattle and crop production.

It is located on the main road going west from Morogoro, next to a huge game preserve. I think this (below) is the location, judging from how long we traveled west from the city.

Wallie said Morogoro was about 1M population, but like some other numbers he rattled off, that doesn't match with facts I could find. The population of urban Morogoro is about 200K.

A good series of photos from the city here. Suffice it to say, like every Africa city we visited it was full of people and traffic.

The road to the property was surprisingly good,  especially in retrospect compared to waht we were to endure in MZ. This is a major plus for the farm future. The city lies in the Morogoro mountains, which are quite lovely.

The "farm" is little more than a camp with bulldozers equipment brought in from Dubai where they were on sale due to the recession. Good looking machines, but idle as they waited on final ownership paperwork. The "ownership" is good for 99 years, and Wallie didn't know what happened after that.  Given the country has mediocre corruption and governance scores from and the Economist Intelligence Unit, there are several government related risks.

  This is the son of the former owner, who will be involved in developing the farm.

 One charming aspect for farm boys like me from the Midwest was the presence of real African wildlife. We were told (and I found it credible) that elephants had passed through the day before (footprints at the river below), and lions were heard in the night. Since a huge national park/preserve is adjacent to the property, I could swallow this, but more reflection made me ask how such wildlife would be managed.

It seemed not to be problem they had worried much about, but here's my logic. If you have serious carnivores like lions on site, doesn't that imply a large population of grazing herbivores? Why wouldn't they be attracted to this green postage stamp of irrigated plants? Won't a herd of domestic cattle look a big-cat buffet table? I realize elephants don't eat soy or maize, but they could do some damage wandering through.

These concerns were met with vague assurances of fences which seems like a considerable expense and effort to maintain. Similarly Masai herdsmen have wandered though this 15 square miles for millenia. (The gentleman was passing through when we were there). Will "no trespassing" signs work for them?

 A small portion of the property had been cleared a few years before, so the fields could be huge and flat.

 Also the property would be studded with these (below) - baobab trees. These enormous specimens are symbolic of Africa, and as I wandered up to one to check it out closely, I was told casually to watch out for a black mamba. The subsequent photos/video were shot with zoom from much farther away.

One curious aspect of most of the subsistence farmers is the difficulty understanding the population density of the arable land. Along the road, there appeared to be a hut about every 500' of so with maize plots around it. The immediate and obvious conclusion was that once the road was built natives moved to homes along it for ease of transportation - there were people of all ages walking along virtually every mile all the time - day or night.

Only if you looked closely out past the roadside, you could pick out huts just as densely situated all over the rolling hills. In other words, I think you could have built the road anywhere and ended up with a hut every 500'.

The development of the TZ property is to occur concurrently with the MZ farm. Production will be hauled to Morogoro, where feed mills are anxious to buy the oilseeds and maize. Th first crop is planned to be sunflowers, since combining high is probably a good idea immediately after clearing the land.

Thursday, March 21, 2013

And the reviews are in...  

You can see my truly breathtaking performance (heh) on the Willis Report here. One friend told me it was one the few times Gerri didn't interrupt with expressions of frustration, outrage, etc.  The poor woman never had a chance...

Weird studio set up.  WFYI (where I shot the segment) is a PBS station that gets a lot of contract work for remote interviews because they don't have their people/cameras tied up with local news. Still, compared to WNDU in South Bend, they were a little outdated. There was no video feed from NY so I couldn't see Gerri, and my hearing is so poor these days the earpiece was worrisome. My tactic was to prevent interruptions.

They did have a professional makeup person to do triage on my visage. Jan caught that for posterity.

Any of you guys who want some blusher tips, I could hold a workshop at the Top Producer Seminar.

(There is talk of a cameo on The Simpsons.) Gotta call my agent. After I get one.

Wednesday, March 20, 2013

This may not end well...  

I will be appearing on Fox Business Network this evening (Wed, 3/20) on The Willis Report to talk about farmland prices. I have no idea how they got hold of me, but I'm off to try live TV.

There is no small irony it is on FBN, I know. Snicker at your own convenience.

Karma, I guess.

Monday, March 18, 2013

Junkbox: Episode MMXIII℞...  

Slowly recovering from Africa (more posts to come as I sort through notes and thoughts). Meanwhile, the world keeps doing interesting stuff.
Anyone seen the sun lately?  I assume it's still there...
The new transparency...  

In my Iowa visit this weekend, I listened to a speaker from US Farmers and Ranchers Alliance about ways to improve "messaging" and ag's public image. Curiously, she did not use the term "listen" once. In fairness, she talked about "conversations" and "acknowledging consumer concerns" but the bulk of here presentation was about what to say that will get the desired response.

The other strange thing was she stressed more transparency about our work, but never addressed this issue.
Now in a pushback led by the meat and poultry industries, state legislators across the country are introducing laws making it harder for animal welfare advocates to investigate cruelty and food safety cases.
Some bills make it illegal to take photographs at a farming operation. Others make it a crime for someone such as an animal welfare advocate to lie on an application to get a job at a plant.
Bills pending in California, Nebraska and Tennessee require that anyone collecting evidence of abuse turn it over to law enforcement within 24 to 48 hours — which advocates say does not allow enough time to document illegal activity under federal humane handling and food safety laws.
"We believe that folks in the agriculture community and folks from some of the humane organizations share the same concerns about animal cruelty," said Mike Zimmerman, chief of staff for Assembly Member Jim Patterson, R-Fresno, whose bill was unveiled this week. "If there's abuse taking place, there is no sense in letting it continue so you can make a video."
Patterson's bill, sponsored by the California Cattlemen's Association, would make failing to turn over video of abuse to law enforcement within 48 hours an infraction punishable by a fine.
Critics say the bills are an effort to deny consumers the ability to know how their food is produced.
"The meat industry's mantra is always that these are isolated cases, but the purpose of these bills is to prevent any pattern of abuse from being documented," said Paul Shapiro, vice president of farm animal protection for the Humane Society of the United States, which conducted the California and Vermont investigations.
In Indiana, Arkansas and Pennsylvania it would be a crime to make videos at agricultural operations.
How far from transparency can you get? There is no way to put a positive spin on what is essentially a gag effort. This is a major blunder, IMHO. It does two things we don't want to happen.
  1. It associates the meat industry with the ability to manipulate legislators. This is not good for either one.
  2. It raises the heroic image and market value of new videos. The industry is kidding themselves if they think they can stay ahead of video surveillance technology. Now committed activists will become even braver and more martyr-like in the eyes of their colleagues by capturing clandestine footage.
A maximum security meat industry encourages anti-meat mythology to breed in the popular mind simply by its existence. "Why is it needed unless there are things to hide?" is an easy inference to draw. Less proof of bad action will be needed now to convince the public the meat industry is doing bad things as a matter of course.

One final point. As individual rights (thanks to the courage of Rand Paul and other libertarians) gain traction as an issue on the right, this turns a normally friendly or indifferent section of the public into more skeptical observers. Some consumers will be reminded of such information control techniques when ordering dinner, I'll wager.

Sunday, March 17, 2013

Africa: On the ground #4...  

We stopped again in Johannesburg on our way home, and during a 26 hr. layover, took a 4 hr. tour of Joburg and Soweto. The guide, Johan van Biljon was fantastic and the information he shared useful and pretty fairly delivered, IMHO.

So further stuff about SA and the Johannesburg area (my usual random organization scheme):
  • Joburg/Pretoria suffer from a severe electricity shortage. As much as 34% is "stolen". There are PSA ads everywhere to report electricity theft. As you might guess electrocution deaths are common. The problem is exacerbated by the deep mines. (Stay with me)
The mine is one of the three Western Deep Levels mines of the West Wits gold field west of Johannesburg. The mine is near the town of Carletonville. TauTona neighbours the Mponeng and Savuka mines, and TauTona and Savuka share processing facilities. All three are owned by AngloGold Ashanti. The mine was originally built by the Anglo American Corporation with its 2 km (1.2 mi) deep main shaft being sunk in 1957. The name TauTona means "great lion" in the Setswana language. The mine began operation in 1962. It is one of the most efficient mines in South Africa and remains in continuous operation even during periods when the price of gold is low. Since its construction two secondary shafts have been added bringing the mine to its current depth. The mine today has some 800 km (500 mi) of tunnels and employs some 5,600 miners. The mine is a dangerous place to work and an average of five miners die in accidents each year. The mine is so deep that temperatures in the mine can rise to life threatening levels. Air conditioning equipment is used to cool the mine from 55 °C (131 °F) down to a more tolerable 28 °C (82 °F). The rock face temperature currently reaches 60 °C (140 °F). [More]

You can imagine the A/C units needed for that problem. Now add in the consequences of the "open borders"policy instituted by the ANC in the last few years has added to the demand for electricity as immigrants of all categories have flooded south for jobs.

SA was not ready to grow electricity production to meet these demand growth drivers. The result is chronic blackouts/brownouts/conservation measures.

New plants are coming on line in the next few years. They will be coal-fired by default as SA has lots of coal and little else for electricity. Unfortunately much of it is located in shallow veins under pretty good farmland. Hence you see scenes like this:

As with urban sprawl, "coal sprawl" distorts land prices, but offers a possible escape route for farmers looking for a new start. Law requires the mine to buy whole farms - not just areas with coal veins. And they bid it up. (See this week's show)

One interesting anecdote was how Joburg coped with the power problem during the 2010 World Cup - a really big deal on the par with getting the Olympics. To keep the stadium lights on (above), trains running and hotels lit, residents were exhorted to turn off all but one light and their TV (to watch the match, of course).

Suffice it to say, backup power systems are a big industry, similar to security.
  • I don't mean to harp on the security/crime issue but it was hard for me to get my head around it, considering I rarely lock my car. Still, I don't think I'm overreacting. I was there during one of the high (low?) points of the Oscar Pistorius drama, and it was all over the news.
But while Cape Town's center accounts for half its footprint, it is home to only a fraction of its population. About 2 million of Cape Town's 3.5 million people live to the east in tin and wood shacks and social housing built on the collection of estuary dunes and baking sand flats called the Cape Flats. Most of those Capetonians are black. Class in Cape Town is demarcated by altitude: the farther you are from the mountain, the lower, poorer and blacker you are. Cape Town's beautiful, affluent center is merely the salubrious end of the wide spectrum that describes South Africa's culture and its defining national trait: aside from the Seychelles, the Comoros Islands and Namibia, South Africa is the most inequitable country on earth.
This stark gradation helps explain South Africa's raging violent crime (and why, contrary to legend, Cape Town actually has a higher murder rate than Johannesburg). In 2011 the U.N. Office for Drugs and Crime found that South Africa had the 10th highest murder rate in the world. Rape is endemic. Two separate surveys of the rural Eastern Cape found that 27.6% of men admitted to being rapists and 46.3% of victims were under 16, 22.9% under 11 and 9.4% under 6--figures that accorded with the high proportion of attacks that occurred within families.
But what really distinguishes South Africa from its peers in this league of violence is not how the violence rises with inequality nor its sexual nature--both typical of places with high crime--but its pervasiveness and persistence. With the exception of Venezuela, all the other top 10 violent countries are small African, Central American or Caribbean states whose populations tend to be bound together in close physical proximity, creating tight knots of violence. South Africa, on the other hand, knows crime as a vast stretch of lawlessness covering an area twice the size of France or Texas. And it has been that way almost as long as anyone can remember. [More]
While I don't want to be overly negative, the residents have obviously become somewhat hardened to a situation that stuns outsiders. The most hopeful observation was if the black middle class could continue to grow, and the crime problem becomes more of an economic assault rather than racial, efforts to bring it more under control might bear fruit. Key to this will be the rise of a viable second party and decreasing corruption in government.
  • Johannesburg was bare ground before 1886. Due to its altitude (5751 ft.) there were no trees. Within ten years it was a functioning metropolis with streetcars and multistory buildings. So many trees were planted it is considered the world's largest man-made forest.
  • It is the largest city NOT located by a river, bay, or lake and water supply and distribution remains a huge Achilles heel for the area.
  • Currently the downtown is ~50% empty, as businesses and residents have fled to suburbs like Sandton.
  • The area taxi system defies comprehension by an outsider.

Minibus taxis

Like many African cities, Johannesburg has a chaotic informal public transport system in the form of minibus "taxis". These are not taxis in the typical Western sense of the term – they won't give you a lift to your doorstep. Rather, they are small-scale bus services, often unmarked, operating with neither timetables nor formal stops.
Taxis are the cheapest form of transport in Johannesburg, and are the daily transport lifeline of the bulk of the working population.
More adventurous travellers will find them an interesting African experience – the closest you may get to mixing with ordinary people. They are also the only form of public transport that penetrates every last sector of the city, including the poorest shack settlements.
But there are three reasons why a tourist should exercise caution. Firstly, use of the taxi system for anything other than a short drive requires an expert knowledge of the unwritten lore of hand signs indicating which taxi is travelling where, and an understanding of the various routes and how they intersect.
Second, despite frequent clampdowns by the traffic authorities, minibus taxis tend to be old and in poor condition. Third, minibus taxi drivers, rushing their fares to their destinations as quickly as possible in order to maximise returns, are the city's most notorious drivers, ducking wildly from lane to lane and stopping without warning whenever a passenger wishes to climb on or off.
However, during the Fifa Confederations Cup in 2009 and the 2010 Fifa World Cup, an approved fleet of minibus taxis has been put together to ferry football fans to venues free of charge.

Metered taxis

There are conventional metered taxis, but unlike in many other countries these do not cruise the streets in search of passengers, and must generally be summonsed by telephone. Major hotels do often reserve bays for taxi companies, however, and in those that don't, reception staff can quickly make arrangements for visitors. [More]
You have to see it in operation to appreciate the complexity.
  • Funerals are a huge industry, as black Africans desire to be buried in their birthplace, and with a big and expensive funeral - including what amounts to a banquet. This considerable expense is similar to Indian marriages, in that families often bankrupt themselves to do it up right. My friend Jim - who is in the business - was envious.
  • SA has the highest rates of HIV due to the migratory nature of mine work and rampant misinformation. The SA government is, however, accomplishing near-miracles in combating this epidemic.
  • Traffic signals appear to be merely advisory, which is surprising considering the relatively good road system around Joburg.
Visitors to the coasts (i.e. Capetown, Durbin, etc.) are treated to remarkable scenery and weather. In this aspect SA reminds me of California with a huge diversity in climate and topography.

It's hard not to like both the people and place, and fervently wish them well. They will be tested severely in the next few years. [Good summary here]

On to Tanzania.

Working old...  

I spoke to the Iowa Ag Leaders Conference yesterday.  It was a new presentation about what ag leaders will be facing and I enjoyed scraping together all the research for it. One of my points dealt with our enormous "succession" industry, and why the otherwise normal and certainly expected process of growing older and ending careers seems to be so hard to accomplish efficiently.

Today I ran across this graph, which adds some substance to this problem.

In 1990, 11.8 percent of those 65 and older worked. In 2010 the figure was 17.4 percent. By 2020, the Bureau of Labor Statistics expects it to be 22.6 percent. The numbers are even more surprising for Americans older than 75. Less than 5 percent of them worked in 1990. In 2010, it was 7.4 percent. By 2020, according to the BLS, 10 percent of them will still be toiling away.
Since 1990, the aging of the population would have increased the number of workers older than 55 by 9.6 million if their participation rate hadn't changed. The increase in the participation rate added another 8.7 million. The rise in participation is almost as powerful as the underlying demographic change.
This is a fundamental change in the way America works. Labor-force participation rates have been declining for Americans younger than 45 -- and especially for those younger than 25. The combined effect of these changes is to shift the average American worker's "economic lifecycle." Between 1990 and 2020, the average period spent in the workforce will have shifted roughly five years later. That's a change of historical magnitude, one to be compared to the end of child labor at the turn of the century or the expansion of public high schools after World War II.
The trend toward ever-later retirement looks likely to continue. The Gallup Organization, a polling firm, asks working Americans when they expect to retire. In 1996, the average answer was 60; in 2012, it was 67.
Why is it happening? For two reasons. First, some Americans work longer because they want to. This applies especially to those who've made higher-than-average earnings during their working lives or have white-collar jobs. Their health allows it -- their life expectancy has increased significantly.
But some are retiring later because they have no choice. The wage stagnation of the past decade and loss of savings (including housing equity) during the recession are forcing them to delay retirement. This group hasn't seen the same improvement in life expectancy: Workers with less-than-median earnings have missed out on that trend since the 1970s. They're working longer, though they aren't living much longer, because they have to.  [A little more from an egregiously complete excerpting - sorry]
Farmers are affected by both reasons, although one in reverse. They are living longer, but making more in the final years (as a rule). It's really hard to quit when you are peaking, I think.

Applied to our own situation, I can feel both influences. My health is relatively good, and both the farm and my writing/speaking career have never been as lucrative. But the real hurdle has been chewing my way through the postponed taxes from decades of cash accounting.

I look at my tax bill for 2012 - it's more than my total income from almost all my years previously. And my projections string out for a few more years as I sell out the rolling capital.  So I keep extending my off-farm career to pay that bill...which adds to the income to be taxed next year...and so on.

The goal has been to get the machinery in Aaron's hands without an enormous debt load. Who'd have thunk even very conservative used machinery values would have stayed so high for so long?  Plus the old immediate depreciation lure still works on me.

Whining about this is ludicrous self-absorption, I know. But sometimes we cannot keep ourselves from embracing contradictory and counterproductive tactics and demanding that they work.

Monday, March 11, 2013

Africa: On the ground #3...  

We began in SA talking with a large farmer (Shoeman Farms) and the head of a gigantic agribusiness, Afgri, as well as our hosts from Kongskilde (with whom I am affiliated).

Observations from my notes, in no particular order:
  • SA  is growing relatively well by SSA standards, but still slowing:
The GDP figure for the (4th quarter 2012  2,1% q/q )
The seasonally adjusted real GDP at market prices for the fourth quarter of 2012 increased at an annualised rate of 2,1 per cent compared with an increase of 1,2 per cent during the third quarter of 2012.
The main contributors to the increase in economic activity in the fourth quarter of 2012 were the manufacturing industry (0,8 of a percentage point), finance, real estate and business services (0,6 of a percentage point) and general government services (contributing 0,4 of a percentage point).  The mining and quarrying industry recorded a negative contribution of 0,5 of a percentage point, and the contributions by the electricity, gas and water industry and the construction industry  were insignificant.
The seasonally adjusted real annualised value added by the primary, secondary and tertiary sectors recorded a decrease of 3,7 per cent, an increase of 3,6 per cent and an increase of 2,4 per cent respectively during the fourth quarter of 2012.
The unadjusted real GDP at market prices for the fourth quarter of 2012 increased by 2,5 per cent compared with the fourth quarter of 2011.
Real annual GDP increased by 2,5 per cent in 2012
First preliminary annual estimates of gross domestic product (GDP) are derived as the sum of the GDP for the four quarters of the specific year. These estimates indicate that the real annual GDP at market prices for 2012 increased by 2,5 per cent compared with 2011, when the real annual economic growth rate was 3,5 per cent. [More, remember the commas are decimal points]
  • South Africans, not unlike Americans, seem to have a distorted picture of where national wealth is created. While they are convinced mining is their largest industry, it doesn't seem that way to me.

 [Click to enlarge]
We thought the result was pretty revealing. It shows how mining and manufacturing have declined in their contribution to the economy, as has agriculture. And while we like to think that government profligacy has increased, in fact over the past 20 years government spending has declined. The growth areas are also instructive: financial services, communication and trade, and personal services. We are morphing into a services economy. Unfortunately that means the demand for skilled labour has only increased. Those segments of the economy in decline are exactly the ones most able to absorb unskilled labour. It makes even more of a tragedy of our education malaise. [More]
  • Part of this skewed assumption may be perceptions of employment, especially of black Africans. The data too contradicts popular beliefs.

  • The government is the major part of the problem. Strategies to unwind apartheid worked very inefficiently if at all since 1994. For example, requirements labor force composition must match national the population mix, means in order to hire one white engineer, a company must hire 8 black engineers - and as one engineer told us, there probably aren't that many in the whole country. Those educated black professionals who do exist, called black diamonds, are understandably hard to motivate, and have enormous leverage in the workplace. Until more black Africans can be educated to fill professional slots, the economy will be crippled.
  • Land reform will continue to plague SA farmers. The fiasco of Zimbabwe looms in their thoughts, but there seem to be few work-arounds or fixes for the usually disastrous consequences of forcing white farmers out. Stories like the Zebediela Orange Farm are cautionary:
From 1918 to 1926, more than 565 000 citrus trees were planted on 2 260 ha of this estate’s land. For the twenty five years before the estate was sold to the South African government in 1974, it showed a profit of millions of rands every year. After the sale, Zebediela grew to become “the diamond of agricultural projects”. It was of such great national pride that the Reader’s Digest Illustrated Guide to Southern Africa wrote in 1978 that “nearly 400 million oranges are harvested each year from the groves of Zebediela, the world’s biggest citrus estate. The output is sufficient to provide one orange for every eight people on earth.
“At the height of the season, about 15 000 cases of oranges leave Zebediela every day. The fruit comes from more than 565 000 trees irrigated by enough water to supply a city. The whole estate is highly mechanized and many of the most advanced handling techniques in world citrus production have originated from Zebediela. “The first fruit was picked in 1926 after W.H. Gilfillan and Isidore Schlesinger divided the two original farms into 1 200 plots of 2 hectares. A handsome brochure was produced at the time offering the plots at 67 pounds each, to be farmed as a profit-sharing operation.
“The scheme proved particularly attractive to retired army officers and by 1921 most plots had been sold. In 1928, a branch railway to Naboomspruit was opened to carry the ever-growing harvest on the first stage of its journey to all parts of the world. In 1974, the South African government bought the Zebediela Estate.” After the ANC government came to power in 1994, the administration of Zebediela came under the control of the newly-formed Agricultural and Rural Development Corporation (ARDC), a government parastatal whose administration eventually ruined not only Zebediela but scores of other agricultural projects in the area. Before this takeover, Zebediela’s harvest was worth R30 million a year.
It didn’t take long for the corruption, theft and maladministration to set in. By 2001, the estate was in ruins. The original 2 260 hectares planted had been reduced to 800 hectares. Because no fertilizers and pesticides were used, more than half the trees died as a result of the Department of Agriculture’s failure to grant funds for the survival of the project. Only ten per cent of yields could be marketed.
A loss of R35 million in 2001 followed a loss of R30 million in 2000. According to press reports, the estate was “beyond recovery”.(1) Hundreds of thousands of cartons of oranges and lemons were not harvested, and workers were not paid. A lemon yield worth R8 million was left to rot because there was no money to pay staff. The fruit was in any event of inferior quality because it had not been properly looked after. Many of the fleet of 50 tractors collapsed into disrepair. Hundreds of employees were then retrenched.
Managers with in some cases forty years experience were replaced with people who had no experience of farming. One new “manager” was previously a sewing instructor while another was until the previous year a student. The press was informed that not one of the new directors appointed to the Zebediela and its sister Lisbon estate could read a financial statement.(2)
The death throes of the estate peaked at the end of March 2001 when ABSA bank stopped all credit and bounced a pension cheque of R56 million. Other estates in the area met with the same fate. [More from what strikes me as a very biased source, but the best summary I could find]
  • A standard story is told of an black African family being awarded a farm and given a tractor and 50 cows by the government. The first year many other family members move to the farm. No production is attempted, the cattle are sold off for cash. Sometimes the tractor is kept for transportation, sometimes sold or broken or abandoned. The family reapplies for more government aid. I have no idea how typical this story is, but I heard a version of it at least three times from reasonable people. I assume there are some success stories, but not many.
  • Government intervention has investors profoundly worried, especially about the mining sector.
What it’s about: Most obvious are new interventions in the mineral and exploration sectors (including new taxes, price setting, beneficiation requirements, export restrictions, uncertainty about licence conditions and significantly increased ministerial discretion via the Mineral and Petroleum Resources Amendment Bill), but there are comparable interventions across the economy, as indicated in the ANC’s Mangaung Resolution and in a range of proposed regulatory and legislative changes, including those relating to telecommunications, liquid fuels,  the labour market, employment equity and Black Economic Empowerment (to name just a few).
My view: Since 1994, it has generally been the case that markets consistently overestimate the risk that the ANC and its government will take significantly populist policy measures. The best example of this was in July 2002, when exaggerated targets for black equity participation in the mining sector where leaked and R52b left the JSE resources sector in 72 hours – a buying opportunity of note. However, the traction Julius Malema was able to achieve with disaffected youth post-2009 and the implicit defection from the ANC and its allies in the platinum strikes last year have catapulted the ANC into something of a policy scrabble. While nationalisation is off the agenda, it has been replaced by a policy push that hopes to deploy private companies, through regulation and other forms of pressure, to achieve government (and party) targets of employment, revenue generation, service delivery to local communities and infrastructure build. Increases in the tax take look likely – it’s purely a question of ‘how much the market can bear’.
Government intervention, per se, is less the issue here but rather the confused, generalised and uncertain nature and intent of the interventions. If the interventions do not have the desired results (growth, employment and equality), the risk is that government does not reassess the wisdom of the intervention, but instead uses a heavier hand.
Financial markets: Policy uncertainty puts downward pressure on investment, employment and output in all sectors. In South Africa, these negative impacts will be felt most keenly by companies most exposed to government licencing and regulatory power, or most exposed to government’s political prioritisation. Resources, telecommunications and agriculture all fall into one, or both, of these categories. [More]
  •  An official at Afgri, a very large ag coop now privately owned, pointed to other countries as their focus for growth: Zambia, Ghana, and surprisingly, Zimbabwe ("Mugabe can't live forever"). They were trying to support SA and other immigrants by developing a support chain of supply and machinery dealers in those countries.
  • I keep trying to make comparisons to how we could have evolved the plantation system of the South without the Civil War. While there are major differences, I know, the immensity of the problem of maintaining productivity while changing ownership seems nearly insurmountable. In short, while I do not like what is happening in SA to good farmers, I cannot escape the conclusion there may be no painless way to unwind what was an unsustainable apartheid system.
  • SA makes you more accepting of the "Resource Curse" theory. In this case, the labor demand for mines has drawn blacks from all over southern Africa for migratory, and very strenuous work. The "open borders" policy enacted soon after 1994 allowed a flood of illegal immigrants primarily drawn to work the mines, but adding immensely to the government welfare costs. South Africans have coped remarkably well, adding enormous amounts of housing and building as much infrastructure as possible as fast as possible. But mine employment is dropping and the influx shows not sign of ending. It is a testament to the ingenuity and industry of SA citizens that their economy has continued to grow nonetheless.
  • SA farm output is pretty variable depending on rains. Adding land redistribution to this challenge does not bode well, IMHO for future production stability.

  • According the the Afgri official, the life expectancy for a white SA farmer is worse than a soldier in Afghanistan. They have lost about 10% of their farmers to violence since 1994. Hence the electrified/razor wire around all farms. To their credit, SA farmers downplay the problem or at least treat it very matter-of-factly. "We're not all carrying guns, or anything like that", one told me. To be fair, my grandson is now locked in his classroom in our tiny country school.

Enough for now.