Agriculture is not crop production as popular belief holds – it’s the production of food and fiber from the world’s land and waters. Without agriculture it is not possible to have a city, stock market, banks, university, church or army. Agriculture is the foundation of civilization and any stable economy.
~ Allan Savory
I. Food: On or Off the Radar Screen?
We all have a personal, intimate connection with food. We shop, we cook, some of us garden, and we all eat. We share this personal, intimate connection with every human being and all the animals on Planet Earth. We have access to food and water or we die. This creates what economists call an inelastic demand. In one sense, our demand for food and water is like our need for oxygen. Our living systems require food to survive and thrive.
The importance of food can been seen in many different ways. A great deal of valuable land is dedicated to providing us with crops. A population of over 26 billion animals is being tended to provide us with meat. The oceans are continually harvested to provide us with fish. In most areas of the world, grocery stores and restaurants abound. Our daily lives dedicate a significant amount of time to accessing, preparing, eating and digesting food.
But for many of us, food is not really on the radar screen. We have come to take the availability of food for granted.
Prior to the industrial revolution, the majority of people on earth worked in agriculture and farming. In today’s world, a much higher percentage of the population is urbanized and a smaller number of people are involved in growing or raising food. The percentage of the population in the G-7 nations working in agriculture ranges from 0.7% in the United States to 3.9% in Italy. In the emerging markets, this percentage is much higher:
- Mexico: 13.4%
- China: 33.6%
- India: 49%
If you live in the developed world, it is likely that you know more doctors, software developers, lawyers, electricians, plumbers or government officials than farmers.
Percentage of Gross Domestic Product (GDP)
As the workforce dedicated to agriculture and farming has decreased, the percentage of the economy dedicated to agriculture has also dropped significantly. A more industrialized agricultural sector has supported society in shifting resources to an expanding number of activities and investments. Agriculture as a percentage of GDP in the G-7 nations ranges from 1% in the United States to 3% in Australia.
Since the adoption of the Uruguay Round of GATT and the creation of the World Trade Organization in 1995, there has been an extraordinary push to globalize and industrialize food production in the emerging markets. As this happened, percentages of the workforce and GDP in the emerging markets have experienced a downward trend. However, they are still high relative to the G-7 nations, with agriculture representing 17% and 9% of GDP in India and China, respectively.
See: Food Production
In the G-7 nations, the industrialization of food that contributed to this decline in agriculture (as a % of GDP) has reduced the portion of a family’s budget spent on food. For example, disposable income currently spent on food in the United States has declined from approximately 17% in 1960 to approximately 12% in 2014.
Another reason food is taken for granted in the developed nations is because it is readily available and its price volatility is low – particularly when compared with other necessities such as energy. For example, in the United States since 1995, gas and home energy prices have experienced significant price fluctuations while food prices have seen an average annual increase of 2.6%. While there is reason to be skeptical of US government statistics, there is no doubt that food’s price volatility has been significantly below that of domestic energy and food in the developing world.
If food is plentiful and prices are relatively stable and if food is only a small part of peoples’ budgets, what else could keep food “under the radar?”
Another reason why food goes unnoticed is because agriculture and food are not an discernible focus for retail investors. Some of the biggest agriculture companies – both producers and distributors such as Cargill – are privately owned. And investment in farmland is often made through institutional investors such as insurance companies and pension funds.
In the publicly traded stock market, the Morningstar Global Equity Classification Structure includes sectors for Real Estate, Healthcare, Energy, Technology and Financial Services. There is no sector for “Agriculture” or “Food and Farming.” If you drill down into the sectors, you’ll find that food-related businesses are spread throughout several sector classifications. Take a look at our list of publicly traded US stocks related to the following segments: agribusiness, farmland REITs, equipment & supply, distribution & groceries, food & beverage, and restaurants. You can see how these equities are spread across various sector classifications.
As more retail investment has shifted into mutual funds and ETFs, sporadic attempts to create investment vehicles in food-related equities or agricultural commodities have not attracted significant investment. Interestingly, Motif Investing now offers several food-related ETFs that allow the retail investor to track various selections of food-related stock price performance.
Under no circumstances, however, should we ignore the serious problems in agriculture and food systems in both the developed and developing worlds. Indeed, some of these issues are addressed below. Hopefully, we will be inspired to think about the role and importance of food in our economy and to ask (with the many changes currently underway) whether or not our relationship with food is about to change.
II. The Importance of Models
We organize our society – and with it, our governance, culture, industries and enterprises – around “models.” These are the agreed upon rules, practices, and protocols of how we operate.
As a computer has an “operating system” which is compatible with individual functions and programs, a society has an operating system or “model” of how it will operate as well. The management of these functions and programs must be compatible. When a society changes its model, the components parts like computer programs, must either be compatible or make adjustments. Culture and economic organization are component parts of the model. If all the parts are not compatible, if there is incompatibility between a society’s culture, its behavior and economic needs, a society can literally tear itself apart or fail.
One of the reasons why successful models are important is that they contribute to economic productivity. Successful models inspire productive alignment between different people, functions and activities. As a result, the investment of our time and energy is optimal.
To use a metaphor, if we are waltzing on the ballroom floor, problems are created when a group breaks away and starts a square dance in the same room at the same time – the music and the movements are not compatible. We begin to bump into each other and to miss the beat — and tempers are likely to flare!
If you watch the Sir James Goldsmith video posted in our commentary introducing the 2016 Annual Wrap Up, you will hear Goldsmith’s description in 1994 of our then future plans to industrialize agriculture in the developing world as part of the globalization efforts begun with the creation of the WTO:
The idea is to create what is known today as efficient agriculture and to impose it worldwide. Let me just give you one [impact] of GATT on the third world. The idea of GATT is that the efficiency of agriculture throughout the world should …produce the most amount of food for the least cost. But what does that really mean? …What is cost?
When you produce the intensified agriculture and you reduce the number of people on the land, what happens to those people?…They are chased into the towns. They lose their jobs on the land. If they go into the towns, there are no jobs, there is no infrastructure. The social costs of those people, the financial costs of the infrastructure has to be added to the cost of producing food.
On top of that, you are breaking families, you are uprooting them, you are throwing them into the slums. Do you realize that in Brazil, the favelas (slums) did not exist before the Green Revolution of intensifying agriculture.
In the world today there are 3.1 billion people still living in rural communities. If GATT succeeds and we are able to impose modern methods of agriculture worldwide, so as to bring them to the level of Canada or Australia, what will happen? 2.1 billion people will be uprooted from the land and chased into the towns throughout the world. It is the single greatest disaster [in our history], greater than any war.
We have to change priorities. Let’s take agriculture. Instead of just trying to produce the maximum amount for the cheapest direct costs, let us try to take into account the other costs. Our purpose should not be just the one dimensional cost of food. We want the right amount of food, for the right quality for health and the right quality for the environment and employing enough people so as to maintain social stability in the rural areas.
If not, and we chase 2.1 billion people into the slums of the towns, we will create on a scale unheard of mass migration – what we saw in Rwanda with 2 million people will be nothing — so as to satisfy an economic doctrine. … We would be creating 2 billion refuges. We would be creating mass waves of migration which none of us could control. We would be destroying the towns which are already largely destroyed. Look at Mexico, Rio, look at our own towns.
And we are doing this for economic dogma?…What is this nonsense? Everything is based in our modern society on improving an economic index…The result is that we are destroying the stability of our societies, because we are worshiping the wrong god… Economic index.
The economy, like everything else, is a tool which should be submitted to, should be subject to, the true and fundamental requirements of society.
This is the establishment against the rest of society… I am for business, so long as it does not devour society…[But] we have a conflict of interest. Big business loves having access to an unlimited supply of give away labor…
You cannot enrich a country by destroying the health of its population. The health of a society cannot be measured by corporate profitability. We have allowed the instruments that are supposed to serve us to become our masters.
These were prophetic words. Indeed, the Doha Round of GATT (2001-8) broke down primarily as a result of controversies with India, Brazil, China, and South Africa over the economic and social costs of high-speed industrialization and the centralization of agriculture. This included controversies primarily between the United States and European and BRICS nations regarding the legality and regulation of GMOs, the patenting of life and related intellectual capital ownership and enforcement, and the resulting impact on ownership, control and pricing of the seed supply. All of these issues have profound implications for political freedom, the soil and environment, and the health and integrity of the global food system.
This leaves us with the developed nations in an industrial food model and the developing nations moving more slowly towards an industrialized model. The number of people defined as “undernourished” has been declining. However, the developing nations still face a major challenge with approximately three-quarters of a billion people who are defined as “undernourished.” Improving availability of food, therefore, continues to be an important issue.
Today, globalization has stalled, in part, over immigration fears. The UK has voted for Brexit. The future of the European Union awaits as France, Germany and the Netherlands head into major elections during 2017. President Trump is in a war of words with Mexico and is proceeding with plans to build a wall on the US southern border.
One of the reasons globalization has stalled is because it requires direct and indirect subsidization by government financing via sovereign debt at both the national and municipal levels. However, with the debt growth model coming to a close, this subsidy is shrinking. The pressure is on to focus on what is economically productive rather than to centralize for political objectives or the economic gain of private investors and corporations.
What does such a world look like? No one knows.
In our four Get Ready scenarios this year (See: Get Ready, Get Ready, Get Ready), we focus on a very wide range of future possibilities. The year 2017 is not simply going to “slow burn.” Elections mean new policies. Budgets are going to change – governments face increased re-engineering and privatization. Pension funds can no longer kick the can – some benefits will be cut. Liabilities that cannot be funded face financial “controlled demolitions.” Trade has slowed and trade wars are a possibility.
At the root of the economic possibilities is a more important question: will we choose to be a human society or an inhuman society? This raises questions as to why one-half the world is struggling with a hunger problem while the other half struggles with obesity and waste.
As I review the four Get Ready scenarios, I am inspired to think about the basics including food, energy and money. If our models are changing domestically and globally, what will this mean to our food supply and to the models we use to organize agriculture? And how will these changes relate to how we organize energy and money?
Now is a time when we need to think about food – how it affects our health, our finances and our risks. If we have previously taken food for granted, we may not be able to do so in the future.
III. Food Power
Who has food and who doesn’t? Is the country in which you live food self-sufficient? If trade wars break out, this will matter. US Agricultural Secretary Earl Butz, when arguing for US food aid to provide famine relief in 1974, warned that “food is a weapon.”
The Russians can retell a tragic history of the price of food insecurity. Millions of Russians died from hunger during WWII with almost a million dying in the Siege of Leningrad alone. Dimitry Orlov tells the story of life in Russia after the Soviet Union collapsed. The most sought after currency was not gold or silver, it was bottles of vodka. Ask the Russians what it was like to be dependent on European food imports when hit with sanctions over the annexation of Crimea in the Ukraine in 2014. For good reason, Russia is making every effort to improve agricultural self-sufficiency and to build a more diversified network of food sources.
To help you grow your understanding of national food security, we have created a chart showing food exports, imports and exports as a percentage of imports of fifteen countries.
See: The Power of Food
Some interesting observations emerge:
Four countries in the Anglo-American alliance – the United States, Canada, Australia, and New Zealand – have notable net food surpluses. Along with its dominance in policing the global sea lanes, this means that the US has significant “food power” both individually and as part of an important collective. The UK, however, has become steadily more food insecure since the creation of the European Union. It will be interesting to see if food is part of discussions between Prime Minister May and President Trump or if the UK’s food security improves as a result of Brexit.
Despite its tremendous growth and increased food production, China and East Asia continue to be relatively food insecure. This helps explain China’s commitment to build along the Silk Road and to develop land and agriculture in Africa. It also explains the competition for fishing stocks in the South China Sea and the extraordinary push for fish farming as oceans become over-fished.
The most food-dependent country on the list is Japan, which imports a significant amount of its food supply. Given Japan’s dependence on both foreign food and energy, its economic success is quite unique, particularly in light of the fact that its citizens have the highest life-expectancy of any of the major developed nations. Worldwide, only Monaco surpasses Japan in this respect.
Clearly, globalization has created greater inter-dependency among nations. However, food systems have become more centralized, reducing resiliency. For example, in the United States, most communities would do poorly if the existing food supply chain was compromised due to a natural disaster or political or economic crisis because there are few local sources of food, whether from gardening, orchards, hunting, fishing, or farming. Ironically, communities in the developing world often have greater food security since there is more local production, more people involved in agriculture, more diversity of crops and a tradition of hunting and gathering.
If reviewing the four Get Ready scenarios inspires you to think about the place in which you live, you will want to avoid places with underfunded liabilities, high overhead, and poor infrastructure. Instead, consider locations with a surplus of food and water and reliable infrastructure.
Taking action to reduce your dependency on centrally controlled food sources is a step in the right direction, such as supporting a local seed bank, eating at restaurants that buy local, joining a CSA (community supported agriculture), planting an edible landscape or working with others to develop local food systems. Historically, the Victory Gardens planted in World War I & II in the US, Canada and Australia provide an example of what is possible. In the US, approximately 16 million victory gardens in homes, parks and community plots produced an estimated 9 million tons of fruits and vegetables.
A more recent example is Pam Warhurst’s inspiring leadership in creating edible landscapes in her UK village.
If you are going to plant a tree or a bush in your yard, why not make it one that produces something edible?
IV. The Agricultural Industrial Complex
There are aspects to the centralization of global agriculture since 1995 worth reviewing. You will find an outstanding selection of documentaries to help you understand this subject in our list of recommended Food Documentaries.
Trade Agreements and Unions: With the future of the European Union in doubt and President Trump’s withdrawal of the US from the Trans-Pacific Partnership, the trade agreement juggernaut now seems to be faltering.
Disaster Capitalism: One way to build export markets is to destroy the food self-sufficiency of another country. Examples of the phenomenon of food warfare can be seen in the documentary Life and Debt in Jamaica. Or read Dr. Dady Chery’s book on the US invasion of Haiti or listen to her interview on the Solari Report.
GMOs: This is one of the most controversial areas of the corporate food model as the adoption of GMOs has been dependent on documented instances of junk science and dirty politics. Opinions on the efficiency and safety of GMO food are highly divergent. There are also serious questions regarding the destruction of the integrity of our non-GMO seed supply and resistance to labeling that would allow consumers to make informed choices for themselves. I have lost faith in existing companies and governments to act with integrity on this subject: I now assume that all GMOs are not safe. The pushback against GMOs is growing.
Intellectual Property: Giving corporations the right to patent life combined with other favorable laws and regulatory treatments is changing the fundamental economics and resilience of the food supply.
Laws & Regulations: Well-capitalized companies and investors can (and do) bring enormous political firepower to the legislative and regulatory process. The results have included:
- Food safety laws and regulations that too often destroy otherwise economic small farming income and employment;
- Efforts to outlaw seed banking by farmers and communities and to force adoption of more expensive terminator seeds;
- Covert operations against small farms and businesses;
- Tort reform that allows large corporations to shirk their responsibilities;
- Illegal surveillance and dirty tricks to grow market share.
Add to this list the laws, regulations, and additional targets and guidelines published by or through the United Nations and adopted by national governments (such as Agenda 21) which have been organized to shift populations from rural to urban areas.
Government Subsidies, Insurance & Inventories: Government financial support for the agriculture sector is a complex topic. However, the end of the debt growth model will apply pressure on governments to make agriculture as economic as possible, while bolstering national food security – two goals which may be contradictory for high cost producers.
Global Spraying: One of the challenges to producing fresh, nutritious food is that our atmosphere is polluted by a global spraying program which includes heavy metals such as aluminum. One question is whether the spread of GMO seeds is occurring through intentional spraying, as well. Global spraying also raises profound questions about climate change and weather control programs, including the use of weather control to force farmers off of their land to allow corporations and private investors to accumulate land at low cost. There is also the issue of financial institutions using inside information to trade the commodities and futures markets .
Health Expense: The politics of health care in the United States are finally forcing an integration of the economics of food with the economics of health. Cheaper food may not, in reality, be cheaper. Francois Vecchio pointed out in his interview on the Solari Food Series that Europeans pay twice as much for food as Americans but half as much for health care. Each of us needs should ask if we would rather pay for food with greater integrity or suffer the resulting health and financial consequences.
The aggressive tactics used to build the agricultural-industrial complex have been successful in terms of creating food power, large supply at low cost and other industrial efficiencies. They have also nurtured the seeds of their destruction and significantly reduced global resiliency when it may most be needed. The consumer backlash and loss of confidence in the current model is having a market impact and could grow stronger in coming years.
You need to consider the force and the lack of integrity reflected in these tactics as you contemplate strategies for navigating scenarios in the future.
V. The Big Risk Issues
When I look at the numerous risks affecting the global food supply over the next 10-20 years, several strike me as particularly important:
Geophysical Risks: I do not know the truth about climate change or the environmental risks we now face. But I do know that our leadership is nervous for a reason and it may include these risks. Recent elections in the UK and the US indicate that the leadership wants to “batten down the hatches.” Whether they are inspired by the end of the debt growth model and the risk of a financial crisis or geophysical risks (or both), this tells me to pay attention.
The Black Budget & Breakaway Civilization: Whatever the truth of who “the breakaways” are and what their power base consists of, the likelihood is that they can command first rights to food and water regardless of national or local laws. This is a sobering thought. It is one of the reasons why I try to steer clear of areas with large, reported underground bases.
Automation: For several years, we have received feedback from Davos and other groups working on strategic consensus that the elites are increasingly concerned about the impact of automation on employment, inequality, and poverty. A review of various studies indicates that automation will significantly increase unemployment. And the new employment created will require updated or different skills. This is one of the topics that seems to inspire fear in the leadership. They are not sure what to do.
This raises a critical question. Why are we attempting to industrialize agriculture if we have no jobs for the people who will lose their self-sufficient lifestyle on the land? Why? As Sir James Goldsmith said, “If…we chase 2.1 billion people into the slums of the towns, we will create on a scale unheard of mass migration… We would be creating 2 billion refuges. We would be creating mass waves of migration which none of us could control.
Migration: That quote from Sir James Goldsmith brings us to the topic of migration. One of the reasons why people migrate is for physical safety. They leave a war-torn area and head for a place that is at peace. Another reason is food: they leave a place of famine in favor of a location with a food surplus.
I want you to think about this.
Why does President Trump want to build a wall on the US southern border? He represents a portion of the “deep state” that seeks to preserve the United States and to sacrifice the empire. This group wants to gather resources and to rebuild within the borders.
The US’ northern border is shared with Canada, a friendly, wealthy country with a large food surplus which is more than capable of managing its own borders. The eastern and western borders are protected by very large oceans. Our Southern border, however, is exposed.
If we experience a global financial crisis, or a trade war, or severe climate change, what is the potential for migration of a vast number of people through an open Southern border from an area in which we have encouraged the growth of large, organized crime cartels? In some scenarios, this migration would be sufficient to destroy both Mexico and the United States.
Building a wall may sound “whacky” today. However, the people who want this wall may be looking down the road and worrying about a very different scenario than is now obvious.
Human vs. Inhuman: Our greatest risk as a society is not economic. It is that we allow our culture and society to become inhuman. Many forces are pushing us in this direction. At the heart of remaining human is the availability of fresh, nutritious food and clean water. This is why helping to build or support an excellent local food supply for you and yours is an important vote for a more human future.
VI. Insights for Investors
For many years, I have searched for a conservative approach to investment in liquid securities associated with agriculture and food. Such an investment approach is possible, but not particularly easy to do. Now that the long-term bull market in bonds is over and funds are shifting into real estate, commodities, and equities, I continue to watch for signs that the inelastic nature of the demand for food and rising food prices will attract more investor focus. Whether or not this happens, food should increase in importance on your investment radar screen.
Sovereign Credits: Food security has not been high on the risk lists for sovereign credits. Under a variety of future scenarios, this may change. When you buy a government bond, you want to understand the risks and liabilities related to keeping the population fed, particularly if and when price volatility is on the rise.
Solari Screen: As described in our 3rd Quarter Wrap Up on investment screening, I am launching the Solari Screen in 2017 in partnership with an asset manager. One of the things I intend to do is find and approve as many food stocks as possible. The challenge is that corporate involvement with GMOs, the refusal to label, and other systemic issues make it impossible to be a perfectionist. It is difficult to find good companies. And it is hard for good companies to avoid financially harmful economic warfare — just look at what happened to Chipolte. I anticipate that continued consolidation through mergers and acquisitions by large corporations with cash will limit the availability of publicly traded companies in the developed equity markets.
Priority of Inelastic Demand Sectors: Before Obamacare passed, I warned that health care premiums would command a larger portion of middle class budgets, wiping out a large percentage of middle class discretionary spending. The result would impact earnings of US retail businesses, which is exactly what happened. In scenarios in which food prices and volatility increase, look for discretionary spending and the related stocks to suffer. The question is: will food-related stocks benefit and, if so, which ones?
You can review our list of food-related stocks traded in the US stock markets here:
Place-Based Equity: The logical solution to integrating economics across various functions (for example, between health care and agriculture) is to encourage the emergence of place-based equity and real estate investment vehicles which by their charter and goals are focused on investments and activities within a specific geographic area. If the new US administration is committed to achieving a positive return on investment to taxpayers, the potential for place-based investment (and its related wealth creation) may emerge. Keep an eye out for these possibilities where you live and work.
Along with automation and new technology, place-based equity would support a revolution in more diversified agriculture and food production. A recent article on food claimed that Silicon Valley invested $1 billion in food related start-ups last year. This is all part of integration. Farmers are learning about GIS software and how to use drones while software developers are learning where their food comes from and thinking of ways to harvest organic farms with robots.
Your Health: Your health is more important than your brokerage account. So, in whatever way is energizing for you, make sure that you are investing your time and money in ensuring excellent fresh food and water for you and yours in all scenarios.
VII. The Solari Food Series
One of the best things that ever happened to me was meeting and working with Harry Blazer. Until I met Harry, food was simply something that I picked up at the deli or enjoyed at a restaurant. I thought that all lettuce was essentially the same and that the hoopla about buying organic was simply people complicating life unnecessarily. Harry revolutionized my understanding of food – most importantly my understanding of how important food was to my energy and to the energy and intelligence of my entire society. Harry got me to see the power of food.
In 2005, I spent a year in Montana with Harry working on local food systems. The process required that I teach Harry everything I knew about global and local political and economic control. The challenges of building anything local is that all the money on the planet is trying to vacuum every penny into central surveillance and ownership. It was quite a process to integrate our maps of the world. It revolutionized my understanding of living equity and the potential for alignment with financial equity. Indeed, food is at the very heart of rebuilding that friendship between the Popsicle Index and the Dow Jones Index which I am always discussing.
One of the most exciting accomplishments of the Solari Report in 2016 is that Harry Blazer agreed to do a Food Series for us. We published seven interviews in the Solari Food Series last year, starting with our Introduction.
The Solari Food Series:
We have much more coming on the Solari Food Series in 2017. Because I believe that your relationship with food and your support of healthy food systems is so important to our mutual futures, I hope you will put this 2016 Annual Wrap Up and the Solari Food Series to good use to help you enjoy your journey. This will include suggesting topics for Solari Reports which will add the most value to your efforts.
With that, let me close with the quote we used to open the Solari Food Series:
On 1/10th of an acre in Pasadena, the Dervaes family grows 6-7,000 lbs of vegetables, herbs, fruits and berries each year, providing 90% of their produce at an estimated annual savings of $75,000.
Think about it!