Logistics not GMOs the Future of Agriculture

Nick is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.


“Whether it’s the restaurant or the supermarket or the kitchen supply shop, it’s hard to think of sector that is more commercialized and more replete with entrepreneurship and innovation.  It is all monetized. … Quality customers are often more important to a restaurant than a quality chef.”

Professor Tyler Cowen’s recent book, An Economist Gets Lunch, is his latest success at illustrating “markets in everything” – and like his wildly popular blog, Marginal Revolution, the engaging read’s ideas and insights are also directly applicable to making discerning choices in stocks, partnerships, and other investments.

[continued from "Redboxes to Rib'boxes? Stick with the Food Trucks"]

Slepko:  You take locavores and anti-GMOs to task in your book, noting things like transportation costs are only 11% of the cost of food, and in fact, the cost (and “carbon”) is mostly in the production.  So scale, type of transportation, and other less obvious factors are the inputs investors and activists should focus on if this is of interest to them.  Do you see these local/organic trends ending?  What does the future of the anti-GMO movement mean for America and Europe?

Cowen: The anti-GMO forces lost badly on the recent California referendum – so badly, they will go a way for a long time and they may never come back.  It’s not really a winning issue.  People don’t understand the problem or what it’s even about.  What’s the felt need?  What problem in your life do you solve by voting against GMOs?  If you told people they’d lose weight or whatever, maybe.

I think American agriculture is a huge growth sector, especially with a lot of population growth in Africa, Latin America, and Asia – and them largely being bad at agriculture and having terrible infrastructure.

Slepko:  It sounds like you agree to some extent with commodities legend Jim Rogers, who has been most bullish on his RICI-Agriculture (NYSEMKT: RJA) index, that agriculture investors have a boom on the horizon.

Cowen:  Food is an area where you clearly have a rising demand for both quantity and quality, and you have a lot of parts of the world that don’t do it that well.  There’s a lot of evidence that it’s hard to play catch up in food growth.  So, we make great cars and Japan learns from that and then catches up, then Korea, then Mexico.  But if you look at food growth, there’s very little catch up.  The US position in food, in my view, is very strong and there’s growing demand and I think it’s a great sector.

Also, we shouldn’t just focus on GMOs, but it’s a broader application of science to food that will create major progress.  The problem with GMOs is that you have to outdo nature, Darwin, and evolution, and that’s hard.  But using science to make agriculture better will be a big story over the next decade – and America will lead that and sell a lot more food to a lot more places.

Slepko:  You point out that African farmers produced more per capita in 1970 than they did in 2005. Is something like Syngenta’s (NYSE: SYT) developing of crops that limit the negative impact of nitrogen fertilization going to be the big turn around?

Cowen:  I think the pro-GMO people, whom I mostly agree with, focus too much on GMOs, and while we aren’t quite at a dead end, I think we may have grabbed all the low hanging fruit from GMOs and there may not be many big GMO advances yet to come, at least not for some number of years.

Slepko:  What about Europe?  It seems like they’ve bought into the anti-GMO movement (if only to create regulatory barriers to competition).

Cowen:  But they are moving away from that somewhat.  They may end up with status quo lock-in, but I think GMOs will cease to be an issue.  There will be plenty of other things technology will do with food for people to get upset about – like artificially grown meats.  I think people will find other issues, pro and con.

Slepko:  So, do you think Monsanto (NYSE: MON) is going to be the one leading the charge then in advances in food economies?  Or is the main push likely to come from some other sector?

Cowen:  I think the real low hanging fruit in food is in infrastructure and transportation.  The US now is going to return to a world of cheap energy where we’re the world’s leading producer – which is a shock.  Transporting food – and I mean in the final stages to other countries where their institutions and infrastructure are often all screwed up – will create big advances.  However, these won’t be highly visible scientific breakthroughs, but rather a lot of little improvements along the lines of what Amazon (NASDAQ: AMZN) has been doing to get one-day delivery (and now even same day delivery).

Slepko:  What about a company like Chiquita (NYSE: CQB)?  What role do you see them playing in the next ten years.  Are they going to fade away, or are they going to increase their dominance because applying scientific advances will require precision and high capital expenditures?

Cowen: As you know, there’s a banana plague, and what will survive is an open question.  Bananas probably need to be reinvented, and I don’t know who will do that…There’s a risk of monoculture, and bananas in the US as we know them are being wiped out by disease.  There are a lot of other kinds of bananas not being wiped out (like Brazilian bananas), but they aren’t as popular, they don’t ship as well, and they have a lot of other disadvantages.  They are local things.  So the question is who can turn these little local things into big global things that have the advantages of Chiquita bananas, but don’t get wiped out by plague is the big question in the banana market.

Slepko:  Until I lived in the tropics and had a banana right off the tree, I had no idea how amazing they could be.  Pineapple too can be mind-blowing.

Cowen: Totally different, yes.  To scale the “real banana” it will have a lot to do with infrastructure, transport, and not freezing the heck out of it.  It’s not possible now, but it also isn’t impossible either.

Slepko:  You have a great discussion in your book about boycotts and have some surprising conclusions about how they might be effective (though they usually aren’t).  What about ethical eating and ethical investing (however one defines it)?  Do either have any impact other than the feel good factor?

Cowen:  Often they don’t.  It is very hard to know what your company is up to.  Also, when we judge companies we very often use the wrong theories.  So often they are wrong.  I would encourage people to be more humble about their own theories when deciding who are the good guys and who are the bad guys.  It doesn’t mean it shouldn’t count – in my own theories, I think we’re undervaluing the welfare of animals – but when they slip too quickly into the feel good and that they know who the good and bad guys are, I start getting a little nervous.

Slepko:  Speaking of theories, I have recently learned there are three Thai restaurants in Greenland, and one of them is attached to a hotel – a good indicator according to your book that when there is competition the cuisine is likely to be good, and as you have pointed out, Thai restaurants attached to a hotel are counter-intuitively the best bet.

Cowen:  Well, there are now direct flights from Baltimore to Nuuk so maybe I can finally satisfy my craving for Thai food.


Nick Slepko (hukgon) has no position in any company mentioned here at the time of publication. The Motley Fool owns shares of Amazon.com. Motley Fool newsletter services recommend Amazon.com and Monsanto Company. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.

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