Shane Commentary

 

Bill Lovette Addresses North Carolina Poultry Federation Annual Banquet

Aug 16, 2017

Bill Lovette

    

The keynote speech at the 2017 Banquet organized by the North Carolina Poultry Federation was an opportunity for Bill Lovette to review industry issues and trends emphasizing that the broiler industry is no longer recognizable by one’s grandfather!  

Lovette noted that annual retail sales of poultry worldwide now amounts to $400 billion.  It is projected that by 2020 poultry will surpass pork as the preferred meat globally.  Of the 45 percent expansion from 2010 to 2030, as forecast by Rabobank, three-quarters will come from emerging markets.

“Big Ag” including the intensive livestock industry is demonized by environmentalists.  Opponents of poultry, swine and beef production ignore the fact that since 1960 there has been a 37 percent reduction in pesticide use in the U.S. and that one farmer now feeds 155 people versus 26 sixty years ago.

  

Lovette attributes improvements to technology developed through basic and applied research and field evaluation.  With Federal and state cutbacks on support for research, 76 percent of funding is now obtained from private businesses, foundations and farm organizations.

Lovette emphasized that we are in an era of consumerism.  It is however difficult to know what consumers want and more importantly, what they are willing to pay. Current issues facing the industry include organic versus conventional, antibiotic-free production and in the case of broilers an emerging concern over growth rate which is an offshoot of welfare.

One out of five new food products introduced into the U.S. includes a specialty label claim with 44 percent for USDA organic, 28 percent for “no-antibiotics-ever”, 29 percent for “hormone free”, 15 and percent “natural”.  Despite the proliferation of label claims, only 33 percent of consumers are informed as to the significance and reliability of seals and text.

An example of the extent to which consumers are misinformed includes the fact that 70 percent believe that organic foods are “better” for the planet and 60 percent believe they are “safe”. About three quarters of consumers believe that antibiotic residues are present in chicken meat. In reality all U.S. meat products are free of residues and are regularly tested to ensure compliance.

 Due to the inherent non-sustainability of organic foods, if all U.S. crops in 2014 were raised according to organic guidelines, the U.S. food supply would require an additional 109 million acres, equivalent to the area of California. Conventional foods represent no advantage in food safety compared to products grown or processed in accordance with USDA Organic certification. In some cases due to deficiencies in hygiene or lack of Federal inspection associated with small operations, organic products may represent a higher risk to public health than conventional foods processed by large-scale producers who process and pack in plants incorporating HACCP. The current structure and regulation of organic production in the U.S. suggests that the system will not be able to satisfy the future demand for food.

 For the past 25 years, one trillion meals have been consumed without any documented case of a deleterious effect from consuming GMO products or livestock.  By 2050 the World will need 60 percent more protein derived from animals. This can only be attained through the application of technology including genetic engineering and now the emerging field of CRISPR gene deletion.

Sustainability is the key to all production systems with an even greater imperative to adjust to the challenges of climate change, the emergence of new diseases and the requirement for scale of operation to reduce cost and enhance productivity.  From a business perspective, Pilgrim’s Pride recognizes the consumer demand for organic product. The Company has initiated production under the USDA certified Organic program directly and also through their GNP acquisition. Going forward Pilgrim’s Pride considers that water, energy, flock welfare, employee health and safety and product integrity as priorities.

In providing guidance to the members of the NC Poultry Federation, Lovette suggested the following:-

  • Don’t just tell you story, tell it with transparency and heart
  • See it through their eyes
  • It’s not about being right it’s about respect of choice
  • Fearlessly take on the issue but let values lead the conversation
  • Respond with speed and balance
  • Empower people to advocate and innovate
   
 

DuPont Promoting CRISPR-Cas in Advance of New Cultivars

Aug 2, 2017

    

Aware of the public relations debacle associated with introduction of genetically engineered (GMO) corn by Monsanto and other biotech companies over 20 years ago, DuPont Pioneer is mounting a public relations campaign three years ahead of introduction of their waxy corn.

The new variety will be derived using CRISPR-Cas editing which does not involve insertion of genes from other species.

  

Dr. Neal Gutterson, Vice President of Research and Development at DuPont Pioneer stated “It’s more about social science than science” adding “ultimately it’s about getting social license for this technology.”

It is hoped that CRISPR-derived strains will not have the same negative image as GMO. The Pew Research Center has determined that 40 percent of U.S. consumers are of the opinion that GMO crops are “bad for their health” despite the widely publicized scientific findings that genetically modified crops are innocuous.

DuPont Pioneer has organized focus groups incorporating representatives of government, environmental organizations and consumer groups to establish attitudes towards CRISPR in order to frame appropriate messages to the public. It remains to be seen whether CRISPR will inherit the negative connotation assigned to GMO. Given the influence of the web which provides a megaphone to scientific Luddites many with concealed financial interests, DuPont had better employ more than “science” to promote the technology!

   
 

Chipotle Needs to Win Back Customer Sentiment

Aug 2, 2017

    

Credit Suisse is monitoring online sentiment regarding the Chipotle brand.  Analysts Jason West quoted by CNBC on July 24th commented on the sharp decline in sentiment determined on July 18th following negative publicity from a single norovirus outbreak in a Sterling, VA store subsequently amplified by the video of mice cavorting in a Dallas, TX. location. 

  

There was a modest improvement in the sentiment score through July 20th and a slow improvement is anticipated unless there is more bad news.  West notes the high correlation between sentiment data and same-store sales.

Credit Suisse forecasts that this important metric will fall two percent in the third quarter and three percent in the fourth quarter.  Prior to the most recent incidents, same store sales were expected to rise 7 percent, matching the 8 percent increase for the most recent quarter. West has reduced his price target on CMG to $325. The 52-week range is $336 to $499, with a 14H00 price of $346 on August 1st. This is a far cry from the $750 peak prior to the 2015 outbreaks.

CHICK-CITE previously opined that the recent norovirus case was associated with a worker introducing and shedding the virus.  This has since been confirmed by Chipotle. Their mea culpa noted that the operating procedures established by Dr. James Marsden not allowing workers to report for a shift if they were ill and been ignored.  The number of documented cases which exceed 100, suggests extensive contamination of work areas and possibly worker-to-worker infection prolonging exposure of customers.   

A number of commentators have suggested that the outbreaks and negative publicity facing Chipotle are attributable to sabotage.  This is arrant nonsense, since Chipotle is doing a marvelous job of creating its own problems.  The 2015 outbreaks involving four different pathogens in stores from coast-to-coast were due to a lack of quality control over the supply chain, vulnerability due to local purchasing, a concentration on uncooked foods including salads, poor training of non-motivated workers and a lack of supervision inherent in the corporate culture.  Prior to 2016 there was essentially no in-company knowledge relating to prevention of infection with an emphasis on natural and fresh-but potentially contaminated foods. 

A statement by the chain that norovirus does not come from the restaurant’s food supply is valid and accurate. Norovirus is introduced into kitchens and dining areas by infected workers.  A system which forces employees to report for duty irrespective of health status will inevitably result in outbreaks. It is significant that there have been no documented cases of norovirus associated with any of the major QSRs or casual dining restaurants for three years.

The Chipotle contention that norovirus can be transmitted by anyone who is sick is epidemiologically correct.  Implying that the infection may have been introduced by a customer, although possible is unlikely but is appallingly bad public relations. The assertion is especially questionable when workers are posting that they are coerced into reporting for duty while ill. Unless Chipotle puts its house in order and follows the recommendations of Dr. Marsden, additional outbreaks are inevitable

An investigation by the U.S. Attorney for the Central District of California relating to E. coli and norovirus outbreaks in 2015 is still in progress. On April 25th Federal prosecutors served a subpoena on Chipotle seeking information on the circumstances relating to the latest outbreak. In response to the July 19, 2017 subpoena. Naturally numerous investors’ class-action lawsuits have been filed.

In a prepared statement Chipotle noted that it was “retraining kitchen crews on food safety and enforcing a zero-tolerance policy for employees refusing to abide by the new rules.”  Given their history of food-borne infection, this action is at least five years too late and denotes a profound deficiency in the corporate culture extending from the Board through the CEO downwards.

   
 

Concern over Foreign Ownership of U. S. Farmland

Jul 26, 2017

    

The database prepared in accordance with the Agriculture Foreign Investment Disclosure Act shows that between 2004 and 2014 agricultural land held by foreign investors increased by 63 percent from 13.7 million acres to 22.3 million acres.  The value of farmland rose from $17.4 billion to $42.7 billion over the period.

Concern over foreign ownership has been expressed in Congress by Senator Debbie Stabenow (D-MI) and Senator Chuck Grassley (R-IA) who will jointly sponsor the National Security Act of 2017.

  

Grassley noted, “As we think about the future and the growing global population it is important to consider who will control the food supply.”  He added, “Today there might not be a food shortage in the world, only distribution problems that are more of the result of politics not logistics but in the decades to come it may be a different story.”

Concern over foreign investment surfaced in 2013 when Shuanghui purchased Smithfield Foods which included 146,000 acres of farmland worth $500 million.  Currently the WH Group, the successor to Shuanghui, is one of the largest foreign owners of U.S. farmland.

   
 

Pathogenesis of Pectoral Myodegeneration Investigated

Jul 26, 2017

    

Dr. H. John Barnes, Professor in the Department of Population Health and Pathobiology, North Carolina State University, College of Veterinary Medicine recently completed Project 691 funded by the USPOULTRY entitled Factors Contributing to Superficial Pectoral Myodegeneration and Sclerosis (Wooden Breast) in Broilers

  

The objectives of the study were to define and describe wooden breast and to investigate the pathogenesis of the condition with reference to age of onset lesion development and influence of breed.

Dr. Barnes proposes the term “Broiler Breast Myopathy” (BBM) for the condition which he recognizes as a polyphasic degenerative muscle disease affecting the pectoral (breast) muscles of broiler chicks.  Wooden breast is a severe form of the condition involving sclerosis.

According to the studies conducted by Dr. Barnes, the early stages of myopathy can be recognized at approximately two weeks of age with evident degeneration at three weeks.  By the fourth week birds with a predilection for the condition, primarily high yield broilers have evident myopathy.

In mild cases the space between lost muscle fibers is filled with fat resulting in the characteristic white striped appearance.  In advanced cases connective tissue replaces degenerated muscle resulting in the characteristic hardness associated with wooden breast.

Lymphocytic phlebitis recognized as an inflammation of small veins appears early in the development of the condition and is associated with decreased blood supply.

Both males and females of the Athens Canadian Random Breed broilers representative of broilers in the late 1950’s did show mild BBM at eight weeks of age. In contrast among the three rapid-growing high-yield broiler strains 55 of 120 broilers yielded scores of 4 indicating severe changes.  Approximately one-third to two-thirds of each of the three modern broiler strains were affected with scores ranging from 3.1 to 3.3.  There was no obvious difference in severity between males and females or between broilers that were incubated at an optimal, low or high temperature profile.

Birds demonstrating BBM may have low levels of arterial oxygen with smaller hearts in relation to body weight compared to the random-breed progenitors typical of 1950’s.

The propensity towards BBM, apparent even in the ACRB broilers has been intensified by selection for rapid weight gain and conformity. Current management and nutritional practices to produce heavy birds for further processing has resulted in an increasing prevalence which represents a loss to the broiler industries of the World.

The possible roll of viral infection inducing lymphocytic phlebitis has yet to be evaluated by the NCSU Team.

John Barnes

   
 

“Synthetic” Meats Considered at IFT-17

Jul 26, 2017

    

Media reports on the application of tissue culture technology to produce synthetic meats has received a disproportionate level of publicity relative to the stage of development of the technology.

A special session was held on June 26th at the 2017 Annual Meeting of the Institute of Food Technologists.

  

The first of many objections concerning the standard of reporting is characterization of tissue-culture derived protein as “clean” meat. This implies that conventional beef, pork and poultry is somehow “dirty.” Synthetic meat is enigmatically supported by crypto-vegans and those committed to a vegan lifestyle including the Good Food Institute which promotes plant-based foods. The name of this organization in itself implies bias since in their eyes if it is not of vegetable origin food must be “bad.”

Eric Schulze of Memphis Meats, the leader in the field, discussed cell-culture technology although it must be recognized that the company has produced only token quantities of a synthetic beef product at a cost exceeding $5,000 per pound. Advantages claimed for alternative proteins relate to sustainability and freedom from antibiotics and pathogens. These objectives can be satisfied with current livestock systems. What journalists are omitting is the fact that tissue culture makes extensive use of fetal bovine serum in the substrate effectively linking the “clean” synthetic product back to an animal progenitor.                    

As with a number of innovations and technical advances, extravagant claims are made by the lay-press and especially on internet postings, predicting replacement of conventional livestock-based agriculture but ignoring costs and practical considerations.

Venture capitalists are always ready to invest somebody else’s money in biotechnology startups promising to “disrupt” and revolutionize food production. Hampton Creek is an example of a money pit that has apparently received in excess of $100 million for “research” to replace chickens as a source of eggs. All the Company has to show investors is a mayonnaise of questionable commercial value based on a standard “off-the-shelf” formula. The principal outputs from Hampton Creek are hype and promises.

The founder, and now sole director, of the aging start-up, Josh Tetrick claims Hampton Creek is moving towards production of synthetic meat. There is no way that this Company with an ever-changing cast of employees can match the expertise and research capability of Memphis Meats.  Tissue culture requires advanced laboratory technology and cannot simply be “cooked up in a kitchen by chefs.”

Again as with previous claims Tetrick is once again challenged to request a panel of disinterested scientists to evaluate his laboratories and facilities and interact with his scientific personnel. After all Memphis Meats had the stature and credibility to present details of their development program at a prestigious national meeting.

   
 

Chipotle Battles to Regain Customer Loyalty

Jul 19, 2017

    

Same store sales data for 2016 indicate a progressively improving situation for Chipotle Mexican Grill after the disastrous losses experienced following the multiple foodborne infections which closed restaurants and repelled customers.

Net earnings in FY 2015 attained $475 million compared with $23 million for FY 2016. The four quarters of 2016 compared to the corresponding quarters in 2015 demonstrated percentage declines in same-store sales of -29.7; -23.6 and -21.9 respectively with a trend to a turnaround in the fourth quarter to -4.8 percent.

Chipotle stock (CMG) peaked at $749 on August 3rd 2015.

  

Steve Ells

The trailing 12-month (ttm) price of CMG has fluctuated in a range of $352 to $499. At noon on July 17th CMG traded at $392, last recorded on June 17th 2013. With a forward PE of 32.5, a ttm operating margin of 4.3 percent and a profit margin of 2.3 percent, the Company had better have a sure-fire recovery plan better than a new cheese burrito to restore investor confidence. 

The reversal in the downward trend in same-store sales was accomplished at high cost with promotions including free food and other inducements. Chipotle is currently advertising the quality of ingredients but appears to be sidestepping the issue of safety.  The company has also experienced other distractions including a data breach and negative publicity relating to payment of overtime.

Global Data has conducted research on Chipotle Mexican Grill and has determined that the decline in transaction frequency among loyal customers has not regained momentum.  Increases in price have not helped in this respect. Steve Ells considers his enterprise to be a casual dining chain in the mold of Panera Bread, Chilli’s or even The Cheesecake Factory! No way, just hype and chutzpa. A restaurant which operates a menu board and serves from a steam table is effectively a fast-food venue. Research has demonstrated that the majority of lunch-time customers do not dine-in.  Generally suburban storefront operations, some erected on outparcels or located in strip-shopping malls do not have a drive-thru which is an important contributor to sales volume and customer convenience for QSRs.

Some analyst have pointed to the recovery of Jack-in-the-Box following the cluster of E. coli outbreaks in 1993.  The recovery of that chain within a year was due in large measure to the fact that only a single pathogen was involved. The cause was rapidly identified, appropriate steps were taken to increase cooking temperature of patties and the problem was resolved within a week accompanied by appropriate crisis control.  Chipotle demonstrated the characteristics of a slow-motion train wreck with an exceedingly amateur response to outbreaks which stretched from coast to coast over five months and involved at least four pathogens, denoting profound deficiencies in their supply chain and quality control. 

The future recovery of Chipotle same-store sales has less to do with food safety than it does with image and perception.  If the chain is regarded as a high-priced fast-food enterprise it will not regain its former luster.  If it can successfully recast it image as a casual dining operation, it has a chance to regain customer loyalty.  Since the disasters of 2015, other chains have moved into the Chipotle space and have acquired the relatively narrow demographic representing their core customers.

   
 

New Enteric Viruses Isolated

Jul 12, 2017

    

With funding from U.S. Poultry and Egg Association (Project 684) Dr. Michael Day of the USDA-ARS Southeastern Poultry Research Laboratory and his team have isolated and investigated the pathogencity of a new group of enteric viruses affecting turkeys.

Advances in molecular biology including simultaneous characterization by metagenomic analysis permits identification of new disease agents.  The specific causation of runting and stunting syndrome in broilers and poult enteritis complex in turkeys are thought to be associated with enteric viruses interacting with other intestinal pathogens and environmental factors in a synergistic relationship. 

  

Application of deep sequencing of viral nucleic acid of viruses isolated from turkeys with enteritis yielded a novel picobirnavirus in addition to a picornavirus. Intestinal homogenates containing the picornavirus when inoculated into day-old commercial poults reduced weight gain.  The research team was able to propagate the picocornvirus in embryonated turkey eggs. This advances the ability to further characterize the agent and eventually prepare a vaccine.

   
 

Conflict Over Cuba Policy

Jul 12, 2017

    

Moving rapidly away from the policy of the previous Administration, President Donald J. Trump has argued that enhanced trade and travel with Cuba benefits the regime and not the citizens of the island nation. In 2015, exports of U.S. agricultural products to Cuba amounted to $180 million, down 40 percent from the previous year.

  

Diplomatic and policy decisions are linked to trade. Canada exported 8,000 metric tons of pork to Cuba, compared to 1.6 metric tons from the U.S. in 2016. For the first four months of 2017, Cuba received 63,000 tons of broiler parts valued at $42 million, a 67 percent increase in volume and a 97 percent increase in value compared to the corresponding four months in 2016.

Increased sales could be achieved if conventional facilities for credit were allowed since at present, Cuba is required to pay for all food and medical essentials from the U.S. in cash. Proposed regulations will prevent U.S. companies from doing business with quasi-government agencies. Given the centrally-planned economy in Cuba, there are virtually no independent commercial entities and the proposed regulation would appear to be unduly restrictive and unrealistic.

The present Administration has clearly received support from predominantly agricultural Midwest states on ideological grounds incorporating conservative social and economic principles. Unfortunately there are conflicts between policy and reality when it comes to trade. The Devil is in the details and some recent decisions formulated in Washington have the potential to impede exports.

The agricultural community and specifically the broiler industry look to the influence and practicality of Dr. Sonny Perdue as Secretary of Agriculture to advocate for farm exports in the Cabinet and to prevent an erosion of sales to our second largest importer of broiler products.

   
 

Deforestation Emerging as an Issue with QSRs Serving Burgers

Jul 5, 2017

    

Burger King has pledged to eliminate deforestation as a factor from their supply chain by 2030 in the face of criticism from environmental and vegan groups.

Restaurant Brands International, the owner of Burger King, Tim Horton’s and Popeye’s Louisiana Kitchen, has traditionally been active in issues relating to welfare, banning of antibiotics and sustainability. The issue of deforestation is perhaps the 600-pound gorilla in the room in relation to beef derived from Brazil and other nations in Latin America.

  

Organizations such as Mighty Earth and The Union of Concerned Scientists has characterized the company environmental stance as embarrassingly weak and as “slow action.”

Glenn Horowitz of Mighty Earth stated that over 30 years, 270 billion acres of rain forest have been destroyed to make room for cattle production mainly to produce beef and burger patties. The Union of Concerned Scientists claims that ten percent of global greenhouse gasses are derived from deforestation in Latin America and Indonesia.

Recently U.S. imports of beef from Brazil have been suspended based on concerns over the reliability of their inspection system and the high rejection rate as a result of imperfections detected by the FSIS.

It is noted that chicken, which is becoming more popular based on health considerations and price, is derived from existing corn and soybean crop land with a far lower potential to produce greenhouse gas emissions.

   
 

Evidence That LFTB Was Under Pressure Before ABC Program Aired

Jun 28, 2017

    

Evidence presented by Defendant, ABC Network, at the Elk Point, SD trial indicated that the image of Lean Finely Textured Beef (LFTB) produced by Beef Products, Inc. (BPI) the Plaintiff, was the subject of negative publicity and declining sales prior to airing of the allegedly defamatory ABC program.

 

During the period 2009 through 2012, BPI experienced a 60 percent decline in sales with major chains including McDonalds, Burger King and Yum Brands banning the product in 2011. Despite this reverse, representatives of BPI noted that sales projections for 2012 had been increased.

BPI was apparently impacted by negative postings on websites referring to LFTB as “pink slime” The situation was exacerbated by Rush Limbaugh who opined on March 6th that the Federal government was negligent in allowing “pink slime” to be incorporated into ground beef for the school lunch program.

It was the obvious intent of ABC to show that damages experienced by BPI preceded their broadcast on March 7th and that their program was not responsible for the resulting precipitous decline in sales. This led to closure of three of four BPI plants, laying off workers and experiencing a loss in sales approaching $2 billion.

An unsettling revelation was that the General Counsel for BPI, Rich Jochum admitted to posting items positive to BPI and its product in online forums using a false identity.

Evidence relating the two distorted web posts both for and against LFTB confirm the polarization and unreliability of website comments which relate to intensive livestock production, nutrition, public health and other issues relevant to the poultry industry.

   
 

Are We Being Misguided by Surveys of Questionable Value?

Jun 28, 2017

    

Supermarket News reported on the Food Marketing Institute 2017 U.S. Grocery-Shoppers Trends Report prepared by the Hartman Group.  This document confirmed that shoppers want transparency and assurances of food safety, contribution to wellness and a close connection to food.

  

The survey revealed that eight percent of consumers have no primary store.  Approximately 11 percent of the respondents used online shopping with the same proportion using ethnic and convenience stores respectively. Natural stores were favored by17 percent and Limited Assortment stores by 25 percent of respondents.  Consumers considered that discount stores, supercenters, Dollar clones, drugs stores and value-focused stores lacked transparency. 

A report is only as valuable as the design and implementation of the survey, the demographic and interpretation of results. In this case, the FMI-commissioned report by Hartman which focused on transparency appears to assign a low consumer confidence to value-focused stores, presumably deep discounters such as Aldi.  As a privately held company, Aldi does not release data but it is evident from industry information that the company has achieved increases in same-store sales and is undertaking a rapid expansion program. This surely implies that consumers are in fact motivated by price with commensurate quality. Wellness and safety are non-quantifiable assumed attributes and many of the claims made by Whole Foods and its clones are without substance. 

Whole Foods Market purports to offer healthfulness, transparency, and presumed contact with the farm of origin albeit at a higher price than competitors. This reality appears discordant with the conclusions of the survey. Whole Foods Market, recently acquired by Amazon, has posted successive declining quarterly same-store sales and net earnings.  The divergence between the deep discounter Aldi and high-price Whole Foods raises questions concerning the reliability of the survey data and its interpretation.

   
 

AI Strain H7N9 Has Pandemic Potential

Jun 21, 2017

    

A recent study has concluded that if three point mutations occurred simultaneously in the avian influenza strain H7N9 now circulating in China and responsible for morality among consumers, the strain could emerge as the next pandemic. Studies conducted at the Scripps Research Institute demonstrated that changes in the H7 hemagglutinin could create an affinity for human cells. Although individual point mutations can occur, the probability of three simultaneous changes in the genome are unlikely.

  

To date, the infection has resulted in 779 cases in China over two years with a fatality rate of approximately 40 percent. The H7N9 virus does not however spread from person to person. Infections are acquired by close contact with infected poultry, mainly through the wet market system.

Scientists involved in influenza epidemiology have recommended continued surveillance. A recent mutation resulted in the H7N9 virus demonstrating pathogenicity for chickens. Since the problem is essentially confined to China and their wet markets system, the Nation has an obligation to humanity to control and hopefully eradicate infection. There is an indication that an inactivated homologous vaccine will soon be deployed.

 In the first instance, authorities in China owe their own population a reasonable degree of protection which can only be obtained by displacing the wet market system of distribution which is an anachronism in the context of the 21st Century.

   
 

Concern Over Reliability of River Transport

Jun 14, 2017

    

The Waterways Council Inc., a trade group representing shippers using U.S. waterways, has estimated that maintenance and repairs to locks and other improvements may require an expenditure of almost $9 billion.

Exports of corn and soybeans are reliant in large measure on effective operation of waterways. Fifty year-old locks are deteriorating. The vulnerability of the waterways system was demonstrated during the 2012 drought when reduced water levels impeded traffic and required emergency action by the U.S. Army Corps of Engineers.

Even if money were allocated to repair  locks, inevitable delays estimated to be from 30 to 90 days may occur, reducing exports. Obviously some work could be scheduled to coincide with periods of lower traffic, but direct and consequential costs would be incurred. 

  

If exports are impeded, the price of commodities in the heartland would decline sharply with some estimates as high as 15 percent from current prices which are barely above the cost of production. If the cost of upgrading locks and waterways is added to the price of commodities, the U.S. would be less competitive on world markets. Delays or interruption in exports would reflect adversely on the “reliability” of the U.S. supply system, driving customers to alternative suppliers including the Ukraine, Brazil, Argentina and other nations which are contributing to the glut of commodities.

If disruption in exports occurs, prices would drop at the elevator level favoring egg and turkey producers in the Midwest. Broiler producers in the southeast, heavily dependent on barge transport, would incur additional cost for rail shipment of ingredients.

   
 

Depletion of Aquifers

Jun 7, 2017

    

In recent weeks, speakers at national and regional meetings have discussed the challenge of feeding a World population projected to grow to 9.7 billion by 2050. 

Advances in molecular genetics have improved yields of corn and soybeans but the rate of improvement may not attain the 1.5 percent compounded annual increase required across all food production.

A recent article in Nature sounded a warning on the rate of depletion of aquifers.

  

The study conducted by scientists at the UK Institute for Sustainable Resources in cooperation with the U.S. Goddard Institute for Space Studies – National Aeronautical and Space Administration, applied remote imaging to determine the rate of groundwater depletion in aquifers. The values derived represent the differences between pumping for irrigation and replenishment by rainfall.

Groundwater depletion has escalated 24 percent in ten years from 19.5 cubic kilometers to 25.1 cubic kilometers per year.  (Each cubic kilometer is equivalent to 26.4 billion gallons).  Most of the increase in groundwater depletion has occurred in India, Iran, Pakistan and China.  The crops most responsible for groundwater depletion are wheat (22%), rice (17%), sugar (7%), cotton (7%) and corn (5%).  Groundwater depletion is apparently concentrated in areas that rely on aquifers including the USA, Mexico, the Middle East, North Africa, India and China.

 It is noted that four decades ago Saudi Arabia adopted a policy of self-sufficiency with regard to wheat.  The resulting installation of thousands of center-pivot irrigation systems drained aquifers to a dangerously low level.  The dairy industry in the Central Valley of California is also impacted by periodic shortages of water requiring installation of progressively deeper wells.

It is axiomatic that most regional conflict has less to do with land than water.  It would appear that availability of groundwater will be the major restraint to feeding a burgeoning population.

The report recommended early intervention by improving irrigation, substitution of existing crops for drought-resistant cultivars and restricting abstraction from aquifers.  In many respects recognition of a problem and developing alternative solutions is common to both groundwater depletion and global warming.

   
 

Lisa Bodell Questions Complexity at Alltech ONE17 Conference

May 31, 2017

    

Lisa Bodell, founder and CEO of Futurethink and author of “Why Simple Wins: Escape the Complexity Trap and Get to the Work That Matters” presented a stirring and thought-provoking observation of how we run our businesses. Addressing a filled Rupp Auditorium in Lexington, KY. In the Plenary Session of the Alltech ONE17 Conference, Bodell posed the question “What do you spend your day doing?” She noted that the average manager spends only 14 percent in real creative work.

    

Remaining activities include 45 percent of time at meetings, 23 percent on E-mail and 18 percent on totally unproductive work. She considers that complexity and structure are destroying the creativity of organizations. It is evident that the fast-growing disruptors with strong entrepreneurial management offer high returns on capital and assets. These companies work more informally and reward creativity. In some cases they function without any formal organizational structure.

Bodell points to what she refers to as the “complexity trap” present in many highly-structured companies. Managers spend time on formal reporting and are engaged in doing rather than thinking. The antidote to managerial or creative sclerosis requires:

  • Killing “stupid” (non-constructive) rules
  • Streamlining decision making, avoiding the delays associated with consensus and restraints inherent to company culture
  • Each manager should become a Chief Simplification Officer for their function which involves reducing needless communication. This may be a simple insertion of “no need to respond” (NNTR) in the subject line of widely circulated E-mails. Creativity can be enhanced by delegating to decision makers and empowering them to act and reducing the length and frequency of meetings.

Bodell considers that “simple always wins.” Her concepts have been implemented at Fortune 500 companies including Google Cisco Systems, Fidelity, Accenture and the U.S. Navy.

She serves as a member of the Global Agenda Council for the World Economic Forum and participates on the Boards of the Association of Professional Futurists and the Novartis Diversity and Inclusion Board for the Swiss company.

   
 

JBS Executives Enter Plea Bargain

May 26, 2017

    

In the unfolding drama in Brazil which extends to the level of President Temer, the Chairman of JBS-SA., Joesley Batista and CEO Wesley Batista have entered plea bargains and provided testimony relating to bribery allegations.

According to the Saturday May 20th edition of the Wall Street Journal a political crisis has now reached an explosive level after simmering over a span of 15 years.  The Batistas admitted to bribing politicians with in excess of $400 million over a number of years to arrange sweetheart financing from the state development bank, BNDES. 

 

Joesley Batista admitted to depositing $30 million in an offshore bank account for Ms. Rousseff the impeached President and paying $2.5 million to Mr. Temer.  Approximately $50 million was paid into an offshore account held by Mr. Lulu DaSilva who preceded Ms. Rouseff as a socialist President. 

O Globo, an influential newspaper noted, “The President has lost the moral, ethical, political and administrative conditions to continue governing and called for his resignation.  Termer is on tape as having urged Batista to pay off a jailed Congressman, former Lower House leader Eduardo Cunha to obtain his silence.  It is noted that Michel Temer held a popularity rating of under 9 percent prior to the latest allegations.

JBS is the world largest protein producer with investments in Australia, Latin America, the E.U. In the U.S. it is the controlling shareholder of Pilgrim’s Pride the second largest broiler producer and also has acquired extensive pork production.

The current crisis has implications for the “financial flexibility and access to credit” for the company which may well be facing a breakup.

In an apology to the Nation of Brazil, Batista provided an unconvincing and self-exculpatory justification, “Up against a Brazilian system that often creates difficulties just to sell solutions, our entrepreneurial spirit and immense desire to get things done lead us to offer payments to public servants.”  He added, “In other countries outside of Brazil we were capable of expanding our business without breaking ethical values.”

The Brazilian financial scandal referred to in the popular press as the “Carwash Corruption” has now assumed massive if not operatic proportions.

   
 

Boston Market Promoting a Spurious “Quality Guarantee”

May 24, 2017

    

Boston Market has announced an extension of their “quality guarantee” which on close reading includes non-existent attributes. These comprise:-

  • The company claim that by 2024 all chicken served in its restaurants will be “U.S.-farm raised.” It is doubtful whether even now and certainly by 2024 Boston Market could purchase at a competitive price any chicken derived from any source other than a domestic supplier
  • Boston Market intends that chicken will be raised without added hormones or steroids. It is a matter of fact that neither steroids nor hormones have been used to produce any chicken in the U.S. since the late 1940’s
  • Boston Market claims that chickens are gluten-free. Since gluten is a protein associated with wheat, the only way in which gluten could be incorporated in a menu item would be from breading. This has nothing to do with the growing and raising of broilers which do not contain gluten.
  • Boston Market claims that their product will be MSG-free. This again is a question of preparation and has nothing to do with the raising or processing of chicken.
  • On the subject of sourcing chicken, the company claims “100 percent antibiotic-free.” Does this mean that all chicken will be raised according to a USDA certified “No Antibiotics Ever” program or simply statutory compliance with FDA Guidance Documents incorporating the VFD which is followed by the entire Industry. Does “antibiotic-free” refer to possible antibiotic residues, since these are in fact non-detectable in U.S. chicken.
 

Boston Market has committed to Global Animal Partnership standards which will raise their cost of raw material without offering any specific benefit other than “bragging rights.” It is noted that Ms. Hunt, the Engagement Specialist at the Humane Society of the United States, stated “we welcome Boston Market’s commitment.” Global Animal partnership is closely affiliated with the Humane Society of the United States through joint directorships and it is even possible that indirectly GAP certification adds to the coffers of the organization.

It is enigmatic that the HSUS which is committed to a vegan agenda would even indirectly endorse any company preparing and serving animal products. It would appear that HSUS through its affiliations is establishing certification programs which continually ratchet up standards and impose requirements which are ever more difficult to meet and most certainly disfavor intensive production. HSUS cannot have it both ways. Either they are opposed to consumption of meat on moral grounds or they are not. If the former why be associated with certifying agencies and endorse standards which are difficult and expensive to meet?

   
 

FDA Rule on Caloric Content

May 10, 2017

    

The FDA has issued proposed rules mandating display of calorie levels of menu items in an attempt to reverse the trend in the rate of obesity. Among the multitude of companies required to comply will be pizza stores offering a comprehensive range of toppings all of which alter caloric content. 

 

The irony of the regulation is that in the case of pizzas virtually all orders are either telephoned in or placed on-line so consumers never see a menu board.  Most companies have however indicated calorie content in on-line postings bur whether this influences ordering is speculative. The rule also extends to supermarkets that serve prepared sandwiches.

Bills are under review in the House and Senate ameliorating the impact of the FDA Rule.  It is also possible that the Administration may direct the FDA to delay implementation until legislation is enacted.  The Food Marketing Institute has calculated that compliance with the Calorie Disclosure Rule would cost in excess of $1 billion, ultimately borne by both consumers and restaurants.  The proposed Rule has been in the making for over five years and extends to over 100 pages including the requirement that caloric content for pizza must be declared by slice.

 There is little scientific evidence that posting calorie content influences food choice.  The Rule is yet another example of well-intentioned but onerous intrusion by the Government into business and lifestyle.  It is acknowledged that the U.S. has a problem of obesity in common with most industrialized countries.  Issuing 100 page rules on how caloric content should be displayed on menus and boards is not the solution. 

The time and effort devoted by the FDA to developing a inappropriate solution to a distinct problem stands in contrast to the fact that the Agency inspects less than two percent of imported foods and imposes only cursory control over Asian plants manufacturing pharmaceuticals. It is hoped that the nominee for Commissioner of the FDA when confirmed will introduce a level of rationality apparently lacking in the Agency.

   
 

Agricultural Community Concerned Over NAFTA

May 10, 2017

    

An article in the April 3rd edition of the New York Times by Kirk Semple highlighted the concern expressed by grain farmers over possible changes to NAFTA.

In 2016, the U.S. exported 13.8 million tons of corn to Mexico valued at $2.6 billion representing a unit price of $5.27 per bushel, far in excess of the CME domestic price.

  

Total agricultural exports to Mexico now exceed $18 billion annually including grains, dairy, poultry, beef and hogs. Tom Sleight, president and CEO of the U.S. Grains Consult noted “Soup to nuts:  corn, dairy, meat, specialty products, fruit – they are all pretty much gathered together.”  He added “the U.S. Grains Council and producers are seeking to remind the Administration of the importance of trade and specifically Mexico to Agriculture’s bottom line.” His concern was reinforced by the statement of Barbara Patterson, Government Relations Director for the National Farmers Union who opined “shutting off our borders or losing access to trading partners has farmers concerned.”

The NYT article quoted Todd Hultman a grains analyst at DTN as stating “It’s really hard to track with this President, the campaign rhetoric has really been over the top. But what actions are really going to come from the White House is still a mystery.”

The agricultural community still hopes that Businessman Trump rather than Idealist Trump will emerge as the predominant factor in renegotiating NAFTA. The farming community would endorse an approach to modify the Agreement, to produce a mutually acceptable update.

There is also concern in Mexico relating to sourcing grains. This has resulted in evaluation of alternative suppliers including Brazil and Argentina although this could prove even more expensive than sourcing form the U. S. An alternative approach would be to increase domestic production although this would require a profound change in land tenure an almost impossible objective. Domestic livestock production has been impacted by the cost of U.S. grain which is subject to an import duty benefitting the Government of Mexico to the detriment of consumers.

   























 
Copyright 2017 Simon M. Shane