WPI Spotlight

  • January 4, 2017
    Agribusiness can refer to virtually every commercial activity from crop and livestock production to... Trends and Agribusiness
  • November 3, 2016
    The All India Poultry Exporters Association wants the government to either ban the importation... India's Biotech Decision

Spotlight

Minority Groups Drive EU Sustainability Requirements for Feed Ingredient Imports

The Dutch are implementing a rigorous and not inexpensive system that requires only "sustainable" soymeal be used in animal feeds in the Netherlands. Environmental groups and other organizations have been pressuring the Dutch feed industry to stop using feed ingredients that are produced in countries where land is cleared to grow soybeans and other crops. They insist that being sustainable not only includes crops grown in an environmentally responsible manner, but also harvested from areas where labor and land tenure rights are protected, as well as a few other requirements.

It is interesting that that the Dutch are going to such lengths to satisfy a small, vocal sector of society that likely cannot agree on what "sustainable" actually means. The reality is that there is no truly sustainable soybeans grown anywhere in the world if one uses the classic definition of the word. All soybeans grown in the world need to be fertilized, most must be treated with pesticides and insecticides, and require the use of external energy to plant and harvest. Clearly some are grown in a more sustainable manner than others, but none are really sustainable.

The Roundtable on Responsible Soy (RTRS) is the system developed to meet pressure from outside groups, and it includes among its members: European importers, soybean processors, feed compounders, environmental groups, and associations from the Netherlands, South America and elsewhere. The main objective of these efforts is to ensure Dutch feed compounders continue to have access to South American soymeal, particularly that originating from Brazil. When fully implemented, only soybean producers determined to be in compliance with RTRS requirements will be able to classify their production as sustainable will be able to supply the Dutch market in the future. It is worth noting that there is no guarantee the actual soymeal consumed in the Netherlands in the future will be grown according to RTRS requirements -- the country imports and produces far more soymeal than it consumes, and exports the majority to other European countries. As long as the volume of sustainable soymeal imported or produced in the Netherlands is equal to the volume consumed in the Netherlands, the requirements will be met.

As it stands today, the U.S. soybean industry is not a part of the effort and U.S. soybeans and soymeal will not be considered sustainable. That is the case, even though it is likely that 99 percent of soybeans grown in the U.S. are grown in a more sustainable way than South American soybeans that will be RTRS-certified sustainable. U.S. farmers already must comply with U.S. conservation, labor, and other laws and regulations that are stricter than those established by RTRS. However, because the U.S. so industry has not participated in RTRS and does not have an in place a RTRS-approved compliance and inspection system, no U.S. soy will be classified as sustainable. U.S. farmers are far from ready to develop and implement a system designed to meet the RTRS requirements just to be able to supply the Dutch market, but that may be a mistake as the Dutch requirements are likely to spread to other countries.



(This article was originally published in the 15 September 2011 issue of Ag Perspectives as part of a WPI analysis by John Baize. Click here to find out more about subscribing to Ag Perspectives.)

How the EU's Debt Problems Affect the Bigger Picture

Yesterday we happened to catch a TV business channel on which commentators and financial market analysts were discussing Europe's sovereign debt problems. One pundit compared the euro zone's approach to the crisis with his efforts to kill noxious weeds in his yard: Applications of different herbicides seemed to knock the weeds out for a while, but they always come back.

This is not a bad analogy. For at least 18 months, the European Central Bank (ECB), governments of euro zone countries and the IMF have tried various approaches to help Ireland, Greece and Portugal deal with budget deficits and debt well in excess of their annual GDP, including ECB intervention and bailout packages. Such steps might alleviate market concerns for a while, but only for a while. So far, Europe's Band-Aid approach to sovereign debt issues has not resolved them. They always return to roil financial markets, as happened again this week.

The pundit went on in no uncertain terms to outline Europe's problems (in his opinion) and what must be done to deal with them. The problems are: Some countries spend more to support too generous social policies than they can possibly cover with revenues, so they simply borrow the difference. When the gap between spending and revenues widens, they borrow more. It can become a national Ponzi scheme. This can happen because the 17 countries that use the euro have a common monetary policy managed by the ECB, but they have 17 different fiscal policies managed -- if that is the right word -- by respective national governments. The euro zone's biggest economy is Germany, and it has managed its fiscal policy rather well. Some of the others, including the zone's third largest economy, Italy, have not.

Getting all 17 governments to agree on how to deal with the debt crisis in a timely fashion has proven to be very difficult. In particular, Germany has been reluctant to help bail out its less frugal partners. German courts have ruled that the government can put money into a bailout package for Greece, but that participation in any future bailout must be approved by a parliamentary panel. However, German public opinion strongly opposes bailout contributions, so it has become a tough political problem for the government.



(This article was originally published in the 8 September 2011 issue of Ag Perspectives as part of a WPI analysis by Bob Kohlmeyer. Click here to find out more about subscribing to Ag Perspectives.)

Indian Farmers Don't Want to Farm; Rural Youth Seek Education

Roughly half the farmers in India do not wish to continue farming and would quit if there were a better alternative, according to a survey by the National Sample Survey Organization (NSSO). Farmers believe that agriculture is a loss-making enterprise, and uncertain rainfall and drought in the last three years have made farming even riskier than before. In Jharkhand, farmers are only able to harvest one crop per year during the monsoon. Because there is no irrigation, they are unable to plant a second crop in the winter, unlike farmers in the irrigated regions of Punjab and U.P. who are able to do so. Farm losses become even higher if the single crop fails, creating a hunger crisis for farm families.

The coping mechanism for such a situation is to abandon farming and seek manual labor work under the National Rural Employment Scheme, which unlike farming, brings in an assured income. Per some farmers' calculations, agriculture is an expensive and risky industry, requiring backbreaking work that does not even yield enough to eat, let alone any surpluses. Thus, abandoning farming makes economic sense.

On top of this problem, there is debt as well as input costs for seeds, fertilizers, electricity and sometimes water. A below poverty line (BPL) card holder is entitled to receive 35 kg of rice at 1 rupee per kg and 3 liters of kerosene oil per month for cooking. This subsidized grain lasts 15 days in the month; for the other half, the farmer purchases food from the market with money the family has earned from manual labor – this is much easier than farming. With land rates soaring, it is more profitable to just sell land and look for greener pastures.

People in the age group of 15-24 seem to prefer pursuing studies rather than work on farms. In fact, the number of youth working on farms has declined by 14 million in the last decade (2001-11): There were 47 million youth engaged in farming according to the 2001 census, but this has dropped to 33 million, according to the 2011 census. Conversely, the total number of rural youth (in the age group 20-25) pursuing studies has doubled in the last 6 years. NSSO data from 2009-11 show there are 60 million in education, compared to 30 million during 2004-05.

With rural youth becoming educated, it is time for government to devise a strategy or plan as to how to create a system that not only uses the younger generation productively, but also utilizes their expertise, knowledge and education to strengthen the rural economic fabric. Dairy, poultry and other allied sectors offer opportunities, but these have problems of their own. For example, the dairy sector requires middlemen for milk procurement, which makes it difficult for farmers to make a decent profit unless they undertake their own marketing efforts.



(This article was originally published in the 30 August 2011 issue of Ag Perspectives as part of a WPI weekly feature called "Indian Subcontinent Regional Analysis." Click here to find out more  about subscribing to Ag Perspectives.)

GOP Candidate Rick Perry, the Modern Day William Jennings Bryan

As every schoolboy knows, one of the most famous political speeches in American history was given on 9 July 1896, in Chicago, at the Democratic National Convention, by 36-year-old, out-of-the-pack presidential candidate William Jennings Bryan. It was known as the "Cross of Gold Speech" -- and it was a fiery rhetorical slap aimed at the banking interests of the nation at the time.

Texas Governor and presidential candidate Rick Perry has also let fly with some incendiary rhetoric of his own, targeting U.S. Federal Reserve chairman Ben Bernanke:

If this guy prints more money between now and the election, I don't know what y'all would do to him in Iowa, but we -- we would treat him pretty ugly down in Texas. Printing more money to play politics at this particular time in American history is almost treacherous -- or treasonous -- in my opinion.

The similarities end there.

Bryan was arguing for inflation, Perry against it. Bryan's comments, as mentioned above, were considered oratory gold (excuse the pun!) and Perry's were considered ad hominem, over the top and poorly conceived -- at least by the chattering classes and professional punditry -- but he may be on to something with the electorate and the economics. The last time candidates tried to interject monetary policy into the Republican primary was when Steve Forbes in 2000 blasted the Greenspan Fed for being too tight and pushing down agriculture commodity prices.

Supporters credit Bernanke with trying to re-flate the economy. To this point, in the past 18 months he has spoken of an "acceptable rate of inflation." The policy question is whether we are in for an inflationary period or a re-flationary period, and what is the difference in the Fed's thinking?



(This article was originally published in the 22 August 2011 issue of Ag Perspectives as part of a WPI analysis by Dave Juday. Click here to find out more about subscribing to Ag Perspectives.)

An Analysis of Wheat's Role as a Feed Grain

Question: If more corn is used to feed livestock and poultry than any other grain, what is the second most commonly used grain for animal feeding?  The answer is wheat.

History records tell us that wheat has been used to feed animals ever since they were raised for meat and they were fed something more than just simple grazing. This probably means that wheat was used as animal feed long before corn.

Wheat is still regularly used as a feed grain around the world -- including here in the U.S. -- but that part of wheat's annual demand profile seldom receives much attention; this is because, in part, the volumes of wheat used as feed tend to be difficult to predict in advance and difficult to identify after the fact. However, feed use is always a factor in wheat's supply and demand outlook and indirectly, that of corn as well. However, it varies widely. According to USDA, in 1990/91 the U.S. fed nearly 500 million bu of wheat, which was 18 percent of total wheat production. That same year, the world fed an estimated 23 percent of its wheat production. Yet, in 2007/08, estimated wheat feeding was a mere 30 million bu -- less than 1.5 percent of production.

In our experience, there have been times when not as much wheat was fed as should have been based on its price relative to corn. On the other hand, we have seen wheat fed when, in theory, it was priced too high to economically justify its use as feed. It was fed just because it happened to be conveniently located near livestock or poultry operations. Our personal experience is that there is a tendency for less wheat to be fed than simple price comparisons suggest should happen.

The value of wheat as a feed grain relative to other feed grains somewhat depends on the judgment of those making the comparison. The old "rule of thumb" used to be that because a bushel of wheat was 60 lbs and a bushel of corn was 56 lbs, wheat was worth about 10 percent more than corn when used for animal feed. But when feed formulas are involved, it becomes much more complex. Corn provides more energy, but wheat provides more protein and fiber. How that might affect other components in the feed formula becomes part of the economic comparison. Another factor is that animal nutritionists are usually reluctant to change their feed formulations to include wheat unless they can feel assured that wheat will be economically viable and available for at least several months.

It is already clear that 2011/12 will be a year of heavy wheat feeding. U.S. and world corn supplies are expected to be very tight relative to potential demand, thanks to less-than-stellar corn production.



(This article was originally published in the 23 August 2011 issue of Ag Perspectives as part of a WPI analysis by Bob Kohlmeyer. Click here to find out more about subscribing to Ag Perspectives.)

obstacles to U.S. Businesses in china

Managing Government Relations

Despite a robust market economy, government intervention, like that above, is common. Some analysts and industry pundits occasionally criticize Chinese government market interventions. Price controls, they grouse, are an anathema to market economics. Grousing aside, business success requires understanding China's markedly contrasting view.

Laissez Faire Economics in America

The U.S. business view is that market economics prevails and determines business success -- except in select areas where safety (animal, plant and human) and security (both national and food) inevitably lead to government interventions. In short, government relations are an ancillary need to address those select areas of government involvement. While this is an oversimplification, a close look at U.S. companies' spending on government relations suggests it is not a core concern of business development efforts. Adam's Smith's invisible hand is not government involvement, but the rule of law and a common business culture, which insure the business norms of capitalism.

Capitalism with Chinese Characteristics

In contrast, China's freewheeling capitalism assumes government involvement in business development. Explanations range from a not-yet-developed rule of law, to traditional Confucianism underlying China's Communist doctrine, to the lack of a common monotheistic morality underpinning business practices. Practically, this turns the relationship between government relations and business development on its head.

U.S. practices are for government relations to be an ancillary effort engaged at a nexus between business development and safety or security needs requiring government involvement; conversely, Chinese practices are for government relations to be a key component of business development efforts. In other words, successful Chinese executives are constantly engaging relevant government authorities. Weekly, if not daily, lunch or dinner meetings provide the venue for identifying business opportunities, prophylactically mitigating business risk and addressing regulatory obstacles when they arise.

Government Relations in China

It is no wonder U.S. diplomats reflect their industries' view that business opportunities in China are stacked against them. This is not the U.S. business model: The differences are both cultural and regulated. But the complaint fails to consider that asking the Chinese to change the game is a bit like sitting down to a game of Texas hold'em and demanding to play baseball.

In fact, successful U.S., European and other foreign companies have demonstrated that while the table may be tilted, business opportunities abound. All of these companies, however, have understood the importance, and taken advantage of, the close relationship between government and business.

American businessmen often subscribe to the "take me to your leader" approach to government relations -- a top-down approach that does not fit the market. There is no fixed menu for government engagement, but usually takes place at multiple levels: national, provincial and sub-provincial.



(This article was originally published in the 22 August 2011 issue of Ag Perspectives as part of a WPI weekly feature called "China In-Country Analysis." Click here to find out more  about subscribing to Ag Perspectives.)

WPI Spotlight

  • January 4, 2017
    Agribusiness can refer to virtually every commercial activity from crop and livestock production to... Trends and Agribusiness
  • November 3, 2016
    The All India Poultry Exporters Association wants the government to either ban the importation... India's Biotech Decision