Michael Burry, one of the stars of Michael Lewis’ The Big Short, labeled agriculture as one of his top trades. Burry is a noted value investor who earned strong returns as the Tech Bubble collapsed, and even more out-sized returns on his short bet against the housing market in the time preceding the subprime collapse. Burry provided this insight into his latest trade:
“I believe that agriculture land — productive agricultural land with water on site — will be very valuable in the future….I’ve put a good amount of money into that.”
This weekend on his personal blog, Jim Rogers wrote a quick little note about how “Asia will drive agriculture commodities higher“:
There`s 3 billion people in Asia and most of them have not had a very good standard of living in the past 200 years. That is changing and changing very rapidly. They are going to eat more, they are going to wear more clothes.
I visited Punjab and talked to some farmers there in Feb ’2010, and they told me within 10 years groundwater in most places will be below a 100 feet, and pumps will stop working. Within 20 years, they are looking at a desert like situation in India’s bread basket.
via Fortune
As the water table drops dangerously low, [Punjabi] farmers are investing heavily – and often going into debt – to bore deeper wells and install more powerful pumps. A prayer might just be the best chance for survival.
Punjab has only 1.5 percent of India’s land, but its output of rice and wheat accounts for 50 percent of the grain the government purchases to feed more than 400 million poor Indians. Experts say the 375-foot-deep tube well and 7.5-horsepower pump Kumar is installing for a farmer are at the eye of a storm that threatens India’s food security, environmental health, and economic progress. “We have depleted the ground water to such an extent that it is devastating the country,” says Gurdev Hira, an expert on soil and water at Punjab Agriculture University in Ludhiana. Hira estimates that the energy used to subsidize rice production in the region costs $381 million a year. He and other experts warn that, if left unchecked, future drilling will bleed state budgets, parch aquifers, and run farmers out of business.
The problem is not only that farmers are mining aquifers faster than they can be replenished. As water levels drop, pumps are also sapping an already fragile and overtaxed electricity grid. And because farmers in Punjab pay nothing for electricity, they run their pumps with abandon, which further depletes the water table.
India’s power sector loses as much as $9 billion a year subsidizing farmers’ use of electric pumps. That’s half of what the country spends on health and twice what it spends on education. Says Shreekant Gupta, a professor of economics at Delhi University: “It’s a classic example of bad economic policies having serious environmental consequences.”
Related articles
- Pumping Punjab Dry (spectrum.ieee.org)
- Water Wars – Winners and losers
- India and Latin America – Water scarcity vs. abundance
- World water maps
Note: an abbreviated version of this article titled “India’s Interest in Latin America must go beyond World Cup” was syndicated by Indo-Asian News Wire Service. A few portals that ran the article include: SIFY, TradeIndia, IndiaNewsPost, ThaIndian, SouthAsiaMail, ProKerala, Gulf Times, Qatar and the Ministry of Overseas Indian Affairs.
Over the next few weeks, millions of Indians, like their compatriots around the world, will be glued to the television, cheering for their favorite World Cup teams. Among the South American teams are traditional favorites, Brazil and Argentina. But other teams from the region include Uruguay, Paraguay and Chile. All these countries are football superpowers, with a long history of producing players who dazzle with their stylish play: eyes-in-the-back-of-the-head passing, bicycle kicks, dancing and dribbling past three or more defenders before scoring. The names of Messi, Kaká, Tévez and Forlán will echo off fans’ lips well after the finals.
In India, meanwhile, fever for those South American fútbol stars tends to fade once the games are over. Yet there is an important reason why enthusiasm for South America should persist beyond the World Cup: The Mercosur trade bloc of countries – Brazil, Argentina, Uruguay and Paraguay are the world’s emerging agriculture superpowers. They are already shipping their tremendous surpluses worldwide and, as agriculture outsourcing hubs, have the potential to meet India’s food needs in the coming decades.
South American surpluses, especially in oilseeds, pulses and sugar, will feed the growing food deficits in much of Asia, with shrinking arable land and expanding populations.
First some geographical context, since South America – unlike Canada and the United States – generally doesn’t appear on the Indian radar. Brazil is three times the size of India. It is even larger than the continental United States. Yet its population is about that of Uttar Pradesh and Uttarakhand. Argentina is nearly the size of India, with a population equivalent to New Delhi, Mumbai and Kolkata. Uruguay, sandwiched between Brazil and Argentina, is about the size of either Karnataka or Gujarat, three and a half times the size of Punjab, yet it holds less than half the population of Bangalore or Ahmedabad.
Flying from India to cities like Buenos Aires, Montevideo or Sao Paulo, located in the South Atlantic seaboard, is quicker than getting to California. All these Mercosur countries lie in the tropical and temperate latitudes where a wide range of crops can be grown, outside the zones of hurricanes, earthquakes or volcanoes.
What makes the agribusiness fundamentals so great in these countries?
- Farmland is abundant, and scale farming on parcel sizes of more than 1000 hectares the norm. Many farms are 4000 hectares and larger. The soil quality is extremely good. Soybean yields, for example, are 3 to 4 tons per hectare; corn yields range from 5 to 12 tons per hectare; and rice yields total more than 7 tons per hectare.
- While crop yields are at least two to three times greater than those in India, the cost of farmland is only a fraction of Indian prices. Most farmland comes with clean property titles.
- Agribusiness is well developed, analogous to the IT sector in India. A large pool of qualified agronomists – experts in soil science and management – conducts ongoing research in the most effective and efficient farm practices. Argentina introduced the technology of direct-seeding, which improves soil and moisture conservation, and which other nations now use. Harvard has selected leading South American agribusiness models as case studies in its own research.
- The Mercosur countries use the same or similar cutting-edge farm machinery and technology – the “no-till drill,” for example – found in the United States, Europe and Australia. A network of service providers assists with planting, harvesting and other aspects of the farming process. Logistics and supporting transport infrastructure are well developed.
- Agribusiness remains in private-sector hands; governments provide no farm subsidies. In some instances, the government taxes agriculture revenue; yet farming remains a profitable activity. So there is an ongoing imperative for innovation and efficiency to sustain the profitability.
- All the Mercosur countries have abundant fresh water, with networks of streams, lakes and perennial rivers. Rainfall occurs predictably throughout the year, which means there is little, if any, necessity for groundwater pumps.
- South America has 26 percent of the world’s freshwater and just 5 percent of the world’s population. Population growth rates are below replacement rates, so over the next 40 years, there will be little demographic pressure on water resources.
With these advantages, the Mercosur countries enjoy large agriculture export surpluses and ship 60 to 90 percent of their annual production to such countries as China, Vietnam, Korea and Japan. India imports their grains, edible oils and sugar.
On the socioeconomic front, Mercosur countries are democracies, with relatively little ethnic, religious or racial conflict. Cultural values, such as emphasis on family and relationships, resemble those in India. Indians will find a good business fit while operating in these countries. The Mercosur governments are dedicated to attracting responsible foreign investment and industry.
In South America, various combinations of buy/lease farming options are available, and annual financial returns can exceed 20 percent or more. In addition, farm portfolio managers in South America (akin to financial portfolio managers) can manage an agriculture operation for a fixed fee per hectare, plus a share of the profits. This would suit those Indian investors who know nothing about farming but do care about output and returns, and don’t want to deal with purchasing equipment or hiring personnel. Indian agrochemical companies like United Phosphorus and Excel Crop Care, and farm equipment players like Mahindra are reaping rewards from the South American agriculture market.
It is a fact that India’s domestic production cannot keep pace with the growing demands for more and better-quality food. It is time that Indian companies and investors look at South America for “backward integration” into farming operations. To use a World Cup analogy, it’s time to score goals for India’s food needs.
Related articles
- Agribusiness Opportunities in South America (induslatin.com)
- Hardeep Singh’s, ex-CEO Cargill India and South Asia, visit to farms in Uruguay
- Videos on South American farming
WaterFreshwater withdrawal today by steel, cement, aluminium, fertiliser, paper and power sectors is equivalent to the total domestic water demand (around 42 billion cubic metres per annum).
Freshwater consumption (water that is lost through evaporation, products and wastes in industries) equals the total drinking and cooking water needs of India (5.6 billion cubic metres per annum). The difference between freshwater withdrawal and consumption is the wastewater discharged by industries, which pollutes our rivers, lakes and groundwater.
By 2030, freshwater withdrawal by these six sectors will increase by 40 per cent and freshwater consumption by more than three-fold. A three-fold increase in consumption means less water will be available downstream for other users. There is already a growing conflict between industry and local communities on water scarcity and pollution. This will exacerbate in future.Land
Currently, around 0.7 million hectares (ha) of land are occupied by these six sectors – 0.4 million ha to mine coal, iron ore, limestone and bauxite, and 0.3 million ha for the plants. In an 8 per cent growth trajectory, another 1-1.3 million ha will be required by these six sectors – which means the amount of land needed in the next 20 years will be far higher than what they have acquired in last 60 years.
It is important to understand that India has an adverse land-population ratio (per capita land availability is a mere 0.25 ha)
