Scythe & Spade Blog

Agricultural Revolution

by Danielle Stephens

We have done blogs in the past about sustainability, commodity prices, future food sources and shortages, and what it all means to farm owners and employees.

Doing more research on the subject has been most interesting, and one of the best sources of long-term outlooks has been McKinsey & Co., a recognized expert in future planning, and not just for the agriculture industry, but for all business.

McKinsey recently published two interesting articles, one entitled “A New Era for Commodities” and the second entitled “The Next Agro-Industrial Revolution.” Of paramount importance (facts we all know but bear repeating):

• Over 200 years ago, Thomas Malthus wrote that growing populations would eventually die out due to starvation, pestilence, or war. The Industrial Revolution disproved his theories---or as we increasingly hear, maybe just postponed them.
• In the past century, commodity prices continually declined on a constant dollar basis because of better efficiencies and discovery of new sources. In the last decade however, commodity prices have steadily increased, and show no signs of later decreases.
• In food commodities, increasing populations, growing middle classes, reduced land availability, reduced water, and slowing productivity increases will exacerbate shortages and keep prices high on a relative basis.

We encourage our readers to go to both McKinsey sites. They are quick reading.

While knowledge of the facts and theories is critical, of more importance is “What do we do with the information and how do we increase opportunity and decrease risk?”

At Scythe & Spade, one of our company goals is that all team members keep abreast of industry developments and know how to improve productivity while reducing costs. I am personally reminded of a book written by Andy Grove, former CEO of Intel Corporation, entitled “Only the Paranoid Survive.” Fear is a great motivator and forces continual improvement.

Anticipating Rather Than Reacting-- Tomorrow’s Farm Economy

By Scythe & Spade’s

CHAS BONNER, VP of Business Development & MONTE NEVITT, Program Developer

We’re consumed with a passion to thrive rather than survive. Often times, this has caused us to go against “the grain” and look beyond immediate circumstances. For example, in mid 2005, we realized it no longer made sense to continue to sink money into overpriced farmland in Pinal and Maricopa Counties of Arizona where everyone was rushing to participate in the now-famous land boom. Instead, we studied other stable markets west of the Mississippi to identify growth areas where farmland was still priced at ag values. This strategy caused us to point people’s attention to Boise and the Snake River basin. It helped us place clients into farms that have not depreciated in value (unlike Arizona), while at the same time, generate solid returns.

We’ve come across very similar, sound reasoning in Harry Dent’s recent book, “The Great Depression Ahead.” Dent began his career as a Harvard-trained economist and gravitated to demography after complaining that economists have a very short-term viewpoint. Rather than follow his peers who generally look no further than three to five years out, Dent typically projects ten, twenty, and fifty years out. He is known for quoting “The Kondratief Wave” (focusing on fifty eight to sixty year cycles). At times it even illustrates effects of 250- and 500-year cycles. He puts forward carefully-studied, documented, and well-laid-out material for consideration.

Granted, we here at Scythe and Spade well understand the concept that “…He who lives by the crystal ball must be prepared to eat glass.” We know thattechnological advances and other unseen factors can and will come into play that change life as we know it having the effect of embarrassing anyone who proposes to dares to comment on the future, but--Dent causes one to think deeply and long-range.

In reading Dent’s book, we agree that we are in the right industry. Dent, the author of several previous best-sellers, including “The Roaring 2000’s,” “The Great Boom Ahead,” and “The Next Great Bubble Boom,” predicts a depression during the next four years, although not as bad as that in the 30’s. He provides compelling evidence for his thesis, all of which points to harrowing times, but it becomes apparent that agriculture is one of the few bright spots.

Here are some of the key agricultural-related findings in his book, which are documented by many other works:

• Worldwide population is expected to grow 50% from today’s 6.3 million, and peak in about 2065. 
• Arable land in the world is decreasing by about 25 million acres per year.
• ChinaAs middle classes increase (China, India, SE Asia),caloric intake increases exponentially because of the addition of meat to diets.
  
• While agricultural productivity continues to increase, it does so at a decreasing rate.
• More and more food is becoming bio-fuel.
• Cap and trade proposals will continue to trim output.
• Commodity prices and food shortages are expected to soar.

Fortunately, the subtitle of this depressing-sounding book, “The Great Depression Ahead,” is “How to Survive and Prosper.”  It becomes obvious that agriculture will be a needed profession, that productivity must increase, that more output with less input will be critical, that sustainable agriculture will be a focus, that knowledgeable and professional management will not be optional, and that farms will be sought out by all kinds of investors and companies.

Like Harry Dent, Scythe & Spade hopes to always be looking 10-25 years out, anticipating trends before they become trends, and avoiding the invariable pitfalls.