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The new gentleman farmer

That's the the title of a story in the winter issue of WSJ.Money magazine.

The piece documents the rise of the gentlemen and gentlewomen farmers: folks who made millions elsewhere and who are now trying their hand at agriculture - primarily organic agriculture.  

Here are some of the folks jumping in:

It's late afternoon on a Friday, but Lerner, the 58-year-old tech pioneer who co-founded Cisco Systems, is still working, driving her Range Rover around the pastures and barns that make up her 800-acre Ayrshire Farm in Upperville, Va 

. . .

The nation is in the middle of an organic-food boom, and in case you haven't noticed, a surprising number of boldface names are becoming part of it. That includes Oprah Winfrey, who is growing kale, carrots and more than 60 other varieties of vegetables, fruits and herbs on her organic farm on the Hawaiian island of Maui, as well as comedian Roseanne Barr, who is growing macadamia nuts and produce on her organic farm on Hawaii's Big Island. Fashion-world honchos George Malkemus and Anthony Yurgaitis—president and vice president, respectively, of designer shoe brand Manolo Blahnik—have a dairy farm in Litchfield, Conn., where the 325 cows are pasture-fed (at least when the weather allows; otherwise, they are given a special diet of high-quality hay and a premium feed)

 

Are they making any money?  

It appears not.  Indeed much of their fortunes are being lost (or rather perhaps we should say they are spending their fortunes on a consumption good or experience).

But by Lerner's own admission, she has yet to turn a profit on her $7 million-a-year business, which includes two additional farms in the area, bringing her total acreage to 1,200. And at times, it seems she is consciously running it as a nonprofit entity, especially given the considerable time and energy she devotes to research on organic farming practices.

It seems she is having to make some big changes:

she has taken a series of steps to save money, including farming out some of her operations and making adjustments in her meat-packaging operations. Her biggest step of all, though, is deciding to sell a good chunk of the farm. Indeed, some 600 of Ayrshire's 800 acres are now on the market, replete with the mansion she's restored. The asking price: $30 million. To many, this might be seen as an acknowledgement that Lerner has ultimately failed in her mission. She prefers to view it as the next step in the evolution of her business. 

More generally:

But the good intentions of these type-A types notwithstanding, the economics of organic farming are a potential blow to their fairly large egos. These are individuals with scores of successes in life, but experts say that despite the price premiums that come with organic labeling or other likeminded practices, the math doesn't always work out. It is just too expensive to do. For that matter, almost all farming, organic or conventional, is a financial boondoggle when it's outside the realm of factory farming. The median projected income of the American farm in 2013? It's actually a loss of roughly $2,300, according to the U.S. Department of Agriculture. Is it any wonder that—the organic boom notwithstanding—the number of farms in the U.S. has been on a dramatic decline, from a high of nearly 7 million in the 1930s to 2.2 million today?

Although I have been critical of many of the claims of organic agriculture, one shouldn't be too quick to conclude that all organic farming is unprofitable.  Indeed, many conventional producers have switched some of their operation to organic because they expect higher profits (i.e., they expect the higher price premiums for organic to compensate for lower yields and higher input costs).  But, the ones making money at it typically aren't "gentlemen farmers" or mom-and-pop set-ups.  

In terms of profitability, it may matter less whether one is an organic or non-organic farmer as compared to whether the producer uses efficient practices and technologies.  For example, here is a study about dairies by some of my former colleagues at Purdue University published in the American Journal of Agricultural Economics.  They show that the technology used by organic farms is less efficient than that used by non-organic (organic is about 13% less productive).  However, there are differences in efficiency across farms, both organic and non-organic.  As they say:

To our knowledge, our research is the first to show that economies of scale also exist in organic dairy production.

In other words, size matters - even if you're organic. Larger dairy farms are going to have lower costs. That's true for non-organic and it is true for organic.  Also:

We find that compared to the Upper Midwest, the technology used by farms in the Southeast is more productive. Farms with cows of higher weight also produce more milk. . . .In terms of management practices we find that farms that tend to rent more of their land for either crop production or pasture are less productive. Intuitively, a renter does not have the same incentive as a land owner to invest in the productivity of the land. Farms that raise more of their own feed seem to be less productive. . . .

If gentlemen farmers want to make more money, they may have to stop being so gentlemanly and get down to business.

The journey of an Indian onion

That was the subtitle of a recent article in The Economist.  The article tracks the path of an Indian onion from farm to consumer, and in the process reveals a badly antiquated food system in that country.  It also shows how much we consumers in the developing world take for granted.  

There are huge opportunities for efficiency gains associated with storage, transportation, and economies of scale but, as the article reveals, various Indian policies have, to the detriment of Indian consumers, kept out firms like Walmart, Carrefour, and Tesco who have the capacity and know-how.  

According to the article:

wholesale onion prices soared by 278% in the year to October and the retail price of all vegetables shot up by 46%. The food supply chain is decades out of date and cannot keep up with booming demand. India’s rulers are watching the cost of food closely, too, ahead of an election due by May. Electoral folklore says that pricey onions are deadly for incumbent governments.

A year ago it seemed that India had bitten the bullet by permitting foreign firms to own majority stakes in domestic supermarkets. The decision came after a fierce political battle. Walmart, Carrefour and Tesco have been waiting for years to invest in India. 

but

On the ground little has happened. Foreign firms complain of hellish fine print, including a stipulation to buy from tiny suppliers. Individual Indian states can opt out of the policy—which is unhelpful if you want to build a national supermarket chain. In October Walmart terminated its joint venture with Bharti, an Indian group. India has reduced the beast of Bentonville to a state of bewilderment. Tesco has cut expatriate staff

People in the developed world like to complain about Walmart, but I think it says something that any of us would be stunned if we walked into one of their stores and were asked to pay more than a buck or so for an onion.  And, we'd be completely perturbed if there were no onions for sale.  Rarely do we stop and think about the process (and the companies) that have led to such "unnaturally" high expectations.

Top Posts of 2013

NYT on Academics and Commodity Speculation Research

The New York Times ran a piece a couple days ago entitled "Academics Who Defend Wall St. Reap Reward."  Two professors specifically mentioned are the economists Craig Pirrong and Scott Irwin.  The piece is long on innuendo and short on substance.  The writer, Kocieniewski, leaves the impression of wrongdoing by Pirrong or Irwin (and judging by the comments on the article, he got his intended effect) but the article never actually details what was so nefarious.

If their research on commodity speculation is flawed, then I would have expected some discussion of how it was flawed and some linkage of how a flow of money led to the flawed conclusion.  But there is no such argument in the piece.  I've read several of Irwin's papers on the issue. Most have been co-authored and they've been published in several diferent peer reviewed academic journals.  Thus, Kocieniewski's critique seems to be an indictment not only of Irwin but of his co-authors, the anonymous peer-reviewers, the journal editors, and any other economist out there who could (but has not) published results showing that Irwin et al.'s research on commodity speculation is wrong.   Or, could it be that Kocieniewski doesn't like the findings and resorts to ad hominem attacks?

I've known Irwin for several years.  He helps run farmdocdaily, one of the most timely, unbiased sources for information on the economics of production agriculture one can find.  He is a prolific researcher working on some of the most interesting (and sometimes controversial) issues in agricultural markets. He is a fellow of the Agricultural and Applied Economics Association (AAEA), and sat on that association's board just prior to my term on the board.  The AAEA board recently passed a disclosure policy for its journals, and if memory serves me correct, Irwin was fully in support. Indeed, I've personally seen an Irwin presentation where he fully disclosed real or perceived conflicts of interest even when it wasn't required or expected that he do so.  As with any scientific investigation, it is possible that Irwin's conclusions about the results of commodity speculation are wrong, but the New York Times article doesn't offer any substantive argument to that effect.  

Here are a few other reactions on the story.

Michael Roberts at Greed, Green, and Grains:

The story is most notable for what it lacks: how, exactly, are the various companies distorting markets in a way that hurts consumers and or producers?  Inside Job describes the shady business of securities backed by stated-income mortgages, how Goldman Sachs was shorting the products it was selling to clients, etc.  We can see that there were shady business dealings and how they probably helped to fuel the real estate bubble.  So, where's the real underlying story in commodity market trading?

I don't think this story measures up to the New York Times' standard.  It's sad, because there might actually be a story here, but it would require a lot more legwork by Kocieniewski   That story, however, is probably a bit less salacious than what Kocieniewski was shooting for.

Felix Salmon has a long post on the subject at Reuters.  Here is one snippet.

But here’s the thing: for this kind of article to carry any weight, it has to demonstrate the mendacity or venality of the academics in question — and, ideally, those academics should have a high-profile reputation which deserves to be tarnished.

Which is why David Kocieniewski’s article about Craig Pirrong and Scott Irwin this weekend is such a disappointment. It’s currently doing very well on the NYT’s most-emailed list, but it’s easy to guess who’s doing the emailing: people who love to hate Wall Street, and who will use just about any possible excuse for doing so. Because in this case Kocieniewski has missed the mark. Neither Pirrong or Irwin is mendacious or venal, and indeed it’s the NYT which seems to be stretching the facts well past their natural breaking point.

Peter Klein:

Basically, the reporter dislikes speculation (which he clearly doesn’t understand), so he assumes any expert with a different view must be a hired gun for various commodity-market firms and groups. The result is a preposterous article riddled with “jaw-on-the-floor” errors, mendaciously edited so the unfounded accusations come first, and the self-contradictions revealed only at the end of the piece. (E.g., the professors are paid consultants for these groups — oh, but they say the opposite of what these groups want, and are actually paid to work on entirely different things.)

On his blog, Pirrong responds to the NYT piece about him.  Among the many  details the NYT story failed to mention (such as the fact that Pirrong has testified against Wall Street on many occasions), I found this the most interesting:

First, there are no coincidences, comrades. The NY Times has been Tiger Beat effusive in its praise for Gary Gensler of the CFTC.  This piece attacking two of the most prominent academic critics of Gensler’s efforts to impose a speculative position limits rule comes out days after the Commission approved a new version of the rule, and is in the midst of the comment period leading up to the formulation of a final rule.  Gensler fought for this rule for 5 years, and he views it as an important part of his legacy.  That is, there is a clear political agenda at work here: to kneecap those who have the audacity to oppose the regulatory agenda of Gensler and his media acolytes.

Poor Reporting on GMOs

As if to prove that aversion to food technologies is bipartisan, a segment of the Carol Alt show on the Fox News Channel ran one of the most biased, one-sided stories on biotechnology that I've seen on a major media outlet in some time.  On the show, which aired yesterday (this was apparently re-aired from the initial showing a couple months ago), the host unquestioningly accepted every assertion thrown out from her guest Max Goldberg.  The host never reveals that Goldberg is a major organic food advocate, a major supporter of GMO labeling, and a vocal critic of GMOs (e.g., see here, here, or here).

I think one can reasonably disagree over the topic of mandatory labeling of GMOs, but to present such a one-sided view of the science surrounding the topic is irresponsible journalism and a disservice to the audience.  

 

A few points that should have been raised:

  • Most of the studies showing aversive effects of GMOs in animal studies have been roundly criticized by reputable scientists (here is one blogger's criticism of a previously Fox News story which also failed to mention this).  Here is my own critique of one such study.
  • Numerous high-quality studies based on animal feeding trials show NO effect of feeding GMOs. 
  • Mentioning that countries around the world have GMO labeling policies is a red herring unless one also discusses how those countries enforce those policies while also mentioning that most, including the EU, has actually approved many GMO varieties for cultivation.
  • Where are the mentions of all the major scientific organizations positions on safety of GMOs or their positions on GMO labeling?  Say, the National Academy of Science? Or the American Medical Association?  Or the World Health Organization?
  • It is totally irresponsible to say that 90% of people want GMO labeling when less than half the voters in California and now Washington failed to vote in favor of GMO labeling.
  • Biotechnology does NOT just mean pesticide resistance as Goldberg asserts.  How about golden rice?  Or high-oleic soybeans? Or bio-fortified cassava? Or non-browning apples? 

Clearly, this story was anything but "fair and balanced."  

John Stossel had a guest on his show on the Fox Business Network that aired some similar views as Goldgerg, but at least Stossel had me on to provide some perspective.