The Human Imprint

Primary producers - price makers or takers

There has been an ongoing discussion in the agricultural sector about whether primary producers (farmers) are price makers or price takers. Due to the dynamics of the food supply chain farmers are very often price takers i.e. they are given a price and they can take it or leave it. 

Many economists would suggest that farmers look at becoming price makers i.e. look to, or create, markets where they can demand a premium price or get a higher profit on what they sell. These so-called "niche" markets. The problem is that the premium price is only in place whilst there is a shortfall of supply against demand. The minute that demand equals or exceeds demand the suppliers become price takers again.  The brake factor with primary production is that there is often such a huge lag phase between when a farmer decides to change their production methods (e.g. move to organic practices); move to free range from intensive production or vice versa and when they are then physically able to supply the market. This lag phase can vary from months to several years and by this time the market dynamics may have changed completely. There is also the "lemming" phenomenon in a market in that potential suppliers may move to an area where there are deemed to be better financial returns only to see those returns demininished or negated because the market is then oversupplied.

The other brake factor with agriculture is that working capital i.e. the money to buy the inputs such as livestock, feed, seeds, fertilisers, is very often borrowed in the hope that when the final crop is harvested there will be sufficient difference (margin) between the growing costs and the final crop price to pay back the loan and the interest and provide a living for the farmer.

The problems in the UK and indeed Europe with low bulk milk prices (liquid milk direct from the farm) and the viability of farming businesses has been in the news for some time. The EU is actually building up a "butter mountain" by so called intervention. There is currently 83 million kilogrammes of butter that is in storage because it has literally been taken off the market in an effort to maintain current prices. Market intervention is a tool that governments or trading groups can use to influence food prices, but it goes against the principles of "free" global food markets.

There have been many other examples in recent weeks of the weakness at primary production level of the global food supply chain. The US hog (pig) industry has been hit as described by Sox First and the chocolate supply in Ghana. The US government has also being buying pork meat to limit the drop in price to the tune of $151 million and the UK pig industry faced similar problems about eighteen months ago but there was no intervention in the UK market.  I wrote quite recently about sugar shortages too. This is a difficult time where the market economics of the food supply chain are really under scruitiny.

Encephalitis kills 200 in India

BBC News reports that at least 200 children have died in an outbreak of Japanese encephalitis in northern India. 900 children have been admitted to hospitals in Uttar Pradesh state. Some patients have come from neighbouring Bihar state and Nepal. There is no specific cure for the mosquito-borne disease which has killed thousands in India since 1978.  Follow the link to read the full article.

The "M" of effective management

Key "m" words include:

• Motivating
• Mentoring
• Monitoring
• Mediating and
• Managing conflict

The "I"s of effective management

There are so many "I"s of effective management that I thought I would just list the words:

• Innovative
• Inspiring
• Instinctive
• Influencing
• Improving
• Involves others
• Interview skills

There weren't so many "J"s and "K"s - except being knowledgeable - "L"s tomorrow

The "H"s of effective management

The words beginning with "H" that characterise the traits of an effective manager include:

• Hopeful - always looks for the best in everyone and tries to bring out the best
• Honesty - builds on strong and soild foundations
• Humility - recognises their own good and weak points
• Hearty - leads from the front and by example

The "G"s of effective management

Here are some "g"s to describe what it means to be an effective manager:

• Generosity in time and spirit
• Giving constructive feedback
• Growing your business and your team
• Good practice - leading by example
• Guidance - giving support to those who need it so that they can reach their potential

Some more tomorrow

Perfect storm to hit by 2030

The Guardian reports that "A perfect storm could hit the planet by 2030." The article states that "Food, water and energy shortages will unleash public unrest and international conflict according to Professor John Beddington. Shortages could lead to cross-border conflicts and mass migration and this will potentially come to a head in 2030. Follow the link to find out more.

Further fatal case of H5N1 in China

 Just about a month ago I wrote about an H5N1 outbreak in poultry in Hong Kong. Further news in the last few days has sadly reported that a nineteen year old woman who contracted H5N1 probably from handling and preparing live/freshly slaughtered ducks has recently died in Beijing. Follow the link to read the full article.

Financial meltdown: the facts

Oxford Economics have produced a fascinating, and concerning, report on the estimated global gross domestic product (GDP) for 2009/2010.  It gives a timeline for the current credit crunch and the events to date.

The researchers estimate the final losses of the banking sector are around US$1.9 trillion, equivalent to about 6.5% of US and European GDP. The response over recent months has been to implement a series of bank rescue packages which total almost US$3 trillion. The report catalogues these:

"In the US the US$700bn Paulson Plan started with US$250 billion recapitalisation of the nine largest banks. In Europe over €1 trillion has been made available in the Eurozone to guarantee interbank lending with another €200bn for recapitalisation of banks. The UK bailout involves nationalising or part-nationalising leading banks at a cost of £50bn, with additional funding of as much as £325bn available in the form of loans and guarantees."

A further monetary measure has been to reduce interest rates which is good for borrowers but not for investors. In the US interest rates are 0 - 0.25%; Japan 0.1%, UK 2% and the ECB has cut rates to 2.5%. It is possible that if inflation increases rates will be further cut where possible. However this does not mean that businesses or individuals can obtain finance at those rates. The researchers conclude that lower interest rates usually take some 12-18 months to have an impact so other measures will also need to be taken.

World GDP is estimated to contract by 0.4% in 2009. Many countries have announced, or are considering, measures to increase their GDP - China by 14%; US by 7%; Japan 4.5% and Europe around 1.5%.

The report lists the following as key factors that will impact on monetary policy:

1. Weaker consumer spending - the report forecasts a reduction in personal spedning in 2009 of  1.2% in the Eurozone, 1.3% in the US and 2.3% in the UK.
2. Tougher economic environment for businesses - caused by reducing consumer demand and the impact of interest rates and borrowing costs.
3. Government finances - budget deficits and increased public debt will be a key issue as governments seek to spend their way out of recession and meet the financial needs of growing unemployment and the loss of tax income.
4. Lower inflation and interest rates - driven by a global slow down and lower commodity prices. Deflation is possible in some economies.
5. Exchange rates - will only help UK exporters when other economies seek to buy our products - if consumer spending is reduced in those countries our exports will also be reduced.
6. Weaker world trade - forecast to contract by around 1% in 2009 - reinforcing point 5 -
7. Emerging markets slowdown - many emerging economies have been hit by the issues already described and by external capital withdrawal. The IMF are seeking to fund some countries that have seen a severe impact from capital withdrawal including Hungary, Ukraine, Pakistan.

The report concludes that the economies of the US, the Eurozone, Japan and the UK are forecast to contract by around 2% in 2009. China is forecast to grow by about 7% in 2009, its lowest since 1990, India about 5% and Russia will slow dramatically from around 6% this year to little over 1%. Latin America is expected to grow by only about 1% in 2009 . The economies are forecast to improve in 2010 and move into positive growth for all regions.

Follow the link to read more.

Economic downturn

I haven't written too much about my thoughts on the economic downturn but there have been some alarming articles in the last week or so that have caught my eye that are worthy of note.

The Independent reported that the State of California may run out of money by February.  The article states that "John Chiang, the state controller, admitted ... that a spiralling budget crisis, which has left California spending billions of dollars more each month than it can raise in taxes, will see his coffers run dry some time in mid-February". The adminstration faces a stark choice either to cut spending or to raise taxes. If it can borrow money in the short term this choice still has to be made.

Woolworths stores are starting to close with 27,000 people losing their jobs .. not to mention Zavii, MFI and probably more to follow - a significant human imprint. the first of the stores opened on 5th November 1909 and the store has been part of my life. It will be sad to see Woolworths go. The Telegraph reports that at one point a Woolworths store was opening in the UK every SEVENTEEN DAYS!

My father worked for FW Woolworths as it was in the 1960s - starting at the bottom (in the storeroom in his late teens) and working his way up to store manager. He saw the writing on the wall though twenty-five years ago. In 1982 the UK retail operation came under British ownership for the first time and this provided the incentive for him to start his own business and leave the organisation.  It is sad to see the 807 stores closing and I feel will have more of an impact in rural areas where there is little alternative to the diverse Woolworths stores.

The Independent carried a worrying article that suggested that the UK economy in 2009 may "contract at its fastest pace since the 1940s."  The report states that "The Centre for Economics and Business Research (CEBR) expects the UK’s gross domestic product to decline by 2.9 per cent in real terms over the next year, the biggest annual fall since 1946, when the country faced mass de-mobilisation after the Second World War. Business investment – forecast to collapse by more than 15 per cent in 2009 – is pegged to pose the biggest risk to the economy while household expenditure is expected to fall by 1.8 per cent in the New Year.

The government’s statisticians publish a consistent series of gross domestic product estimates back only to 1948. The worst year on these records was 1980, where output was 2.1 per cent lower than the preceding year.”

The Independent also reports that after the £65 billion given to banks in the UK this year will need to be followed by a further £60 billion in 2009.

This all makes quite sobering reading, on topics that I will continue to follow in 2009.