Food Sustainability, Business and Earth Day

During Lent, my home parish, St. Ann & the Holy Trinity in Brooklyn, New York, studied food sustainability.  Guest preachers, a book group[1], a tour of a museum exhibit[2] and even a cooking class conducted by two vestrymembers taught us about honoring creation, urban farming and serving locally produced foods.  One lasting feature of these events is Sandwich Sundays, for which parishioners make and contribute bunches of simple sandwiches for the benefit of a homeless drop-in center elsewhere in Brooklyn.

This year, then, these notions make a quite suitable theme for Ways of the World for Earth Day.  It was all new territory for this retired Wall Street economist, but as we googled and browsed, we made a connection: investing in nature.  Growing vegetables on the roof of an apartment building and shopping for organically produced foods are important for individuals.  But to feed the world's 7 billion people, we still need the mass-production efforts of big business and industrial agriculture.  What's important, we learned in our recent studying, is adapting mass production methods in ways that support nature, not erode it.  Business can indeed "invest in nature" and even build "green infrastructure" in the place of "gray infrastructure".

There is a brand new book (publication date: April 9) about all this, Nature's Fortune: How Business and Society Thrive by Investing in Nature, by Mark Tercek and Jonathan Adams[3].  Tercek is president and CEO of The Nature Conservancy[4], a major nonprofit that works on land and water issues.  He went there from Goldman Sachs, where he had been an investment banker for some 24 years.  The promotional endorsements on the dust jacket thus come from such diverse personalities as Bill Clinton; Henry Paulson, former chair of Goldman and Treasury Secretary in the Bush Administration; and Andrew Liveris, Chair of Dow Chemical; as well as noted biographer Walter Isaacson, who is also CEO of the Aspen Institute; and sociobiologist E.O. Wilson.  Co-author Adams is a science writer and conservation biologist.  The book's proceeds all go to The Nature Conservancy.

Nature's Fortune covers issues of water, agriculture and climate change.  Here are two topics concerning sustainable food production and big business.

Coke and the Water Supply in India

First, Ways of the World hasn't talked to you about water, and we need to do that more thoroughly.  For the moment, just one example.  It takes a lot more than 1 liter of water to make 1 liter of Coke.  A lot more.  In addition to the beverage, 1 liter is used in producing the Coke, 10 liters in making the plastic bottle and 200 liters of water in growing the sugar.  In 1999, a Coke bottling plant opened in the State of Kerala, India.  In just five years, the water wells there dried up and farmers were unable to irrigate their crops.  While there turned out to be several reasons for the water shortage, outcry from the local community forced the company to close the plant.  It later reopened, but Coke and other beverage companies in India and basically everywhere else came to understand their relations with water supplies.  Coke began efforts to restore the water it uses there and elsewhere; Coke began to "invest in nature".

Chicken McNuggets and Amazon Deforestation

Second, we also learned in Nature's Fortune about the global importance of the Amazon rainforest.  We'd heard this concern but hadn't understood how great the stakes are:  those trees pull water up from deep in the ground and pump it into the sky.  The forest contributes 8 trillion tons of water to the atmosphere every year and much of that water vapor circulates around the world (page 90).  So as farming has expanded in Brazil and farmers have cut trees down, the consequences are vast.  One key incident of deforestation also involves the global reach of the food supply chains.

Among other crops, Brazilian farmers grow soybeans and demand for them has increased greatly in recent years.  Grain dealer Cargill (an American company) built a deep-water shipping terminal on the Amazon River in 1999.  There hadn't been much farming in that specific region, but the installation of the transportation center spurred big growth.  Consequently, rates of deforestation doubled in just four years.  Cargill buys soybeans from the farmers and sells them in particular to farmers in the UK who raise chickens; those chickens in turn are used to produce the Chicken McNuggets sold by McDonald's in the UK.  In 2006, Greenpeace issued a report about this, and their publicity included Ronald McDonald with a chain saw, cutting down trees in Brazil.

McDonald's could have barked back, issuing some tirade about Greenpeace, and then tried to go on about their business.  But they realized both that the bad publicity would only get worse and also that they really should do something about the problem itself, in order to preserve the food supply for their own product.  So they began to work with Greenpeace and with Cargill.  McDonald's and Cargill announced they would not buy soybeans grown on land cleared after 2006 and Cargill installed a satellite monitoring system to keep track of the origin of the soybean shipments.  Deforestation continues, but rates have dropped back dramatically since this policy change by the companies.

The Role of Business in Environmental Progress

Tercek points out that business is a key link in policy chains like these.  Individual farmers or individual consumers  may be hard for policymakers and advocates to reach in sufficient numbers.  But businesses are the implementing agents in producing and distributing goods and services.  Working with them is the most effective way of effecting the desired change.  Further, it doesn't help at all to work against businesses.  "…what if, instead of saying no, environmentalists ask 'How?'" Tercek suggests (page 166).  We'll continue with more on all this in other sectors.  We have to share some of the story, for instance, of Dow Chemical building a wetland in Texas.  Yes, you read that sentence correctly.  Today we talked about food and there's more to that story too.  Tercek talks favorably about GMOs – genetically modified organisms – which many commentators love to hate.  But GMOs increase production at a time when millions more people need to be able to get more food; GMOs represent a technical answer to that issue and we have to figure out the most equitable way to foster their use.  Altogether, there is progress to report on Earth Day and the ways forward are multiplying.  Now, go have a Coke and some Chicken McNuggets and know they are produced with more care for the Earth than ever!

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[1] Sara Miles.  Take This Bread.  New York: Random House Publishing Group. 2008.

[2]"Our Global Kitchen: Food, Nature, Culture." New York: American Museum of Natural History.  Through August 11, 2013.

[3]Mark R. Tercek and Jonathan S. Adams. Nature's Fortune: How Business and Society Thrive by Investing in Nature.  New York: Basic Books. 2013.  Available from The Nature Conservancy as well as book stores and online.

[4]The Nature Conservancy: www.nature.org

Margaret Thatcher, 1925-2013

Ways of the World must comment on the passing of Margaret Thatcher.  We could try to fashion our own statement here, and actually started to do that.  But perhaps some words from someone of the next generation of European leaders will do better.  Among Mrs. Thatcher's accomplishments, much of whatever Europe has today that is good and positive and secure is a result of work she did and inspiration she engendered before and during her years as British Prime Minister.  So here is the official statement issued by Angela Merkel, the first woman Prime Minister of Germany – a unified Germany that no one would have dreamed was possible in 1979, when Mrs. Thatcher's official tenure began.

"It is with great sorrow that I have learned of the death of Margaret Thatcher. As a long-serving Prime Minister she has left her mark on modern Britain as few have done before or since. She was one of the greatest leaders of her time in global politics.

One of her deeply cherished convictions was the liberty of the individual. Margaret Thatcher was quick to recognize the strength of the protest movements in Eastern Europe demanding more freedom, and she gave them her full support. I will never forget the part she played in reuniting Europe and ending the Cold War.

Margaret Thatcher was not a champion of women's rights - but as a woman who had made it to the highest office in a democracy at a time when this was far from usual, she was an example to many women who came after her. I would like to express my condolences and my every sympathy to her family."

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http://www.bundesregierung.de/Content/EN/Artikel/2013/04/2013-04-08-tod-magaret-thatcher.html First cited by the Wall Street Journal and accessed directly by us on April 9, 2013.

The Economy Springs Ahead -- But then Falls Back

We haven't talked to you for a long while about the state of the economy, and as spring arrives, we see some signs of life that finally might be suggesting a break out to more vigorous times.  But, similar to this spring's weather thus far in the New York region, the gains are hesitant and a bit erratic, but they still point to the development of more economic strength.

A Better Stock Market Helped by Low Interest Rates

First, while very erratic itself, the stock market is hovering around new highs.  The last couple of days, the Dow Jones and the S&P 500 have both been down, but just on Monday, they closed at new record levels.  The S&P finally beat its October 2007 peak on March 28 and advanced more on Monday, April 1; the Dow pierced its 2007 peak just on March 5.  This week's subsequent declines were fairly sharp, but even so, the Dow is up almost 9% over the last three months and the S&P more than 6%.

These moves in stocks seem to us mainly generated by low interest rates, rather than genuine optimism.  People with cash to invest in financial instruments can choose stocks or bonds.  If an investor is cautious, bonds might be the choice, but the Federal Reserve has conducted monetary policy with a goal of keeping long-term interest rates low, and they are.  A 10-year Treasury note pays a mere 1.7% in today's market and high quality corporate bonds with roughly that maturity pay just over 3%.  As we'll see, such low rates are helping spur growth in interest-sensitive parts of the economy, but they don't provide investors much return.  So by comparison, if there is much reason at all to believe the economy could grow, stocks, which should rise with it, may be the better choice.

Home Sales and Prices Helped by Low Interest Rates

Second, the low interest rates are helping the housing market.  Mortgage rates are at 50-year lows – really.  Home sales and house prices are rising.  These moves have not been strongly resurgent, but they mark upturns from the protracted declines during and after the financial crisis.  Sales of existing home were 7.1 million in 2005 and they dropped to a low of 3.5 million in the fall of 2010; last year, they averaged 4.66 million, and they advanced through this February to a 4.98 million annualized rate.  Home values dropped from April 2006 through February of last year by a total of 26% and they have since recovered by 10%.  While those values are still well below their 2006 highs, at least the decline in that wealth cushion for homeowners seems to be over.

These improvements, more home sales and firmer home values for homeowners are helping support consumer spending, giving further lift to the overall economy.  People are also borrowing somewhat more.  This is a relative shift as well; we paid off debt from 2008 through much of last year, and home mortgage obligations were actually still edging lower through the end of 2012.  But credit card and other consumer borrowing has picked up.

Aging Cars Lift Sales of New Cars

One area of greater demand is cars.  As with homes, vehicle buying dipped very low for a long time during and after the recession; the average age of vehicles on the road reached 11.2 years in 2012, up from 9.4 years in 2007.  Cars, SUVs and small trucks can go this long because they're made better now than, say 10 years ago, but clearly, car owners have also been getting their old rattle-traps repaired more before they decide to trade them in.  Improving economic conditions and greater credit availability are helping them make that trade-in decision, and since November, car and light truck sales have been noticeably stronger, above 15 million (annual rates).  For those concerned that this only benefits auto plants overseas, these recent gains have come almost entirely in domestically produced vehicles.

Purchases of home furnishings have also increased noticeably just the last few months, logically, with increased home sales and new home construction.  People are also eating out more and spending more on cell-phone, cable TV and internet service and air travel, just to name some scattered items where expenditures have risen over the last few months.

Business Finally Put Their Cash to Work

Business spending is also a source of growth at present.  Expenditures on structures, particularly power and communications installations and even manufacturing facilities, contributed marked growth in the fourth quarter of 2012.  Installations of information and communications equipment added as well.  During and after the recession, businesses pulled in their expenditures on such assets greatly.  This occurred in particular despite a substantial improvement in their internal cash flow and they finally began during 2012 to move their investment outlays closer in line with the profits and other funds generated by their operations.  Until early last year, the post-recession period had seen companies stash away their cash flows in financial assets – and quite properly – paying off or restraining their use of bank debt.  The move away from short-term debt was also accompanied by a shift to corporate bonds; this is a healthy development and also more sensible with the current 50-year-plus lows in those borrowing rates.

But Major Uncertainties Get Hinder Momentum

These consumer and business spending and borrowing patterns are constructive for growth, but several forces stop us from getting too excited about economic prospects.  You've probably seen the headlines today about March's jobs report, with businesses adding just 88,000 new jobs and still more people withdrawing from the job market altogether.  Prior months' new hiring was actually revised higher from previous reports, so the trend over the last six months is no weaker, but job growth is still unacceptably low and uninspiring.  Surveys of consumer confidence bear this out; those surveys and the job counts are both above recession lows, but well below levels 10-15 years ago.

We also continue to worry about gasoline prices.  At $3.50 to $4.00 a gallon for regular at the moment, these amounts mean consumers have to spend noticeable portions of their incomes just to fill up their cars.  This doesn't bode well for spending on other things, especially as the summer driving season gets going soon.  At the same time, these stubbornly high prices are evoking more structural responses – more hybrids, more Fiat 500's, other energy-saving efforts.  The recognition that cheap energy will not return can spark efforts at more innovation.

Finally, continuing heckling and haggling in Washington mean no one knows what to expect about taxes and government regulations.  Delays in formulating the structure of ObamaCare arrangements adds to these woes.  Recent surveys of small business owners by the National Federation of Independent Business highlight their concerns; the largest share of that group in 20 years reports that government requirements are their biggest business problem.  Their plans for expanding their businesses and for hiring are also restrained well below amounts that prevailed for decades before the recession.

So we see fundamentals reasserting themselves in ordinary demand for cars and houses.  Innovations in energy and business investment can also support further growth.  But uncertainty remains intense, holding back the outburst of self-reinforcing growth we're all looking for.  More, we didn't even mention continuing financial stress in Europe, and who knows what's going on with North Korea . . . .

Up next for Ways of the World:  Earth Day in just over two weeks brings attention to another force that interacts with all of this: sustainability and business efforts to practice it.  Those two words, "sustainability" and "business", can appear in the same sentence, as we'll see.

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Our comments about spending are based on Commerce Department data associated with the GDP accounts.  Housing data come from the National Association of Realtors, and home prices from First American Core Logic.  The Federal Reserve uses the latter source to value all homes for the balance sheets it compiles for the total economy.  Our comments about borrowing are based on accompanying tables from the Fed's Flow-of-Funds Accounts.