And when bad stuff happens, you’re better off being somewhere else.

Where?

Generally, bad stuff seems to happen most often in cities. Why is that? Cities are where most people live. It is where governments are. And it is where the labor force is most specialized.

There are no subsistence farmers living in cities. Nor do urban populations “live off the land.” Instead, they depend on complex networks of commerce. The typical city dweller produces neither food nor energy. He sits all day in an office — completely dependent on others to provide power and food. Then, he goes home — still completely dependent on the division of labor for his most important needs.

Progress can be described as the elaboration of the division of labor. In man’s most primitive state, specialization is extremely limited. From what we’ve been told, the early man was the hunter. Early woman gathered…that’s about the extent of it.

As the tribe grows larger, specialization increases. One person might tend the fire. Another might be in charge of making clothes or arrows.

The advent of sedentary agriculture and towns caused a big leap forward in human progress and, not coincidentally, the division of labor. Some townspeople went out to tend the fields. Others began to focus on woodworking…or iron mongering…or making weapons…or clothes. Some played cards and hung around at bars. There was soon a homebuilding industry…and, not long after, merchants, prostitutes and bankers…and even shyster lawyers and tax collectors.

As the division of labor expanded, the average person became richer…and more dependent on others. In order to eat, someone else had to plant…and till…and harvest…and hunt…and gather. And then, when agriculture became mechanized, he depended on faraway people who produced oil and gasoline…and people who built tractors and combines…and bankers who financed industries and factories. And, of course, he was more dependent on money too. In the days when he bartered, money was no threat. Then, when he traded only with gold and silver coins, there were no monetary breakdowns…no hyperinflations…and no financial crises.

As the 20th century progressed, more and more people gave up agriculture, moved to cities and took part in other industries. Today, cities may have millions of residents — like Bombay with 14 million…or Sao Paulo with 20 million…or Mexico City with even more. All of these people are dependent on vast, stretched lines of communication and commerce.

Even the farmers themselves are now dependent on these sophisticated networks of commerce. They depend on money…and what it will buy. Agriculture has become monocultural. That is, a farmer is likely to produce only wheat. Or only rapeseed. Or only barley. Or only cattle. Gone are the chickens around the farmhouse and the pig in the back pen. If the system of transport and trade breaks down — or the money itself goes bad — thousands of farmers could go hungry too.

There are black swans all over the place, waiting to be discovered. And when a black swan appears, people in the cities seem to suffer most.

In the hyperinflation in Germany in 1923, for example, farmers had so much food they ran out of storage space. But they wouldn’t sell it to city slickers. The mark was losing value so fast, farmers preferred to hold their crops off the market, knowing that the price was soaring…and that if they sold, the money they got would soon be worthless.

People in the cities, meanwhile, were starving. Soon, gangs roved the countryside, raiding rural barns and houses…and occasionally killing farmers who tried to resist.

Plagues hit city dwellers hard too. Proximity seems to be a curse when an infectious disease appears.

And, of course, in time of war and revolution, cities tend to be the battlegrounds.

Advancing armies are rarely polite. But even if they are advancing through the countryside, they are usually advancing towards cities, which they attack. In the old days, cities were besieged, starved out, and then, when they were taken, the attacking soldiers were given three days in which to sack the cities. In other words, they had three days to commit whatever mischief and mayhem their imaginations suggested.

When bad stuff happens, progress goes into reverse — so does the division of labor. When an economy goes backward, much of the specialization that developed during the boom years turns out to be uneconomic, or unaffordable, or unwanted. People may be willing to pay someone to park their car when they are flush. But when they are broke, they will park their own cars.

As the division of labor goes backward, people also find they need to tend to their own food and energy needs. Here is where it gets very tough for people who live in cities. They have no stores of mason jars with food from their own gardens that they have canned themselves. They have no hams hanging in the barn or stocked away in the larder. They have no animals on the hoof that they can slaughter. They get no eggs from the chickens they don’t have…and they can hardly go into the local park and shoot squirrels to make a pie.

Instead, they are out of luck.

Generally, when the black swans come out you are better off in the country — with country-boy skills and old-time farms supplies.

We once met a fellow who had a keen appreciation for apocalypse. He was sure it was coming. So, he moved to Arkansas where, he said, “I’m protected by 300 miles of armed hillbillies.”

That’s something else to think about. Not only do you have to worry about food and energy, you also have to worry about your neighbors. If you have a nice little vegetable garden next to a large apartment complex, for example, you might have a hard time protecting your crops. And don’t count on fattening a calf in Central Park during a famine.

You need to be somewhere else. Where?

Regards,
Bill Bonner
Whiskey & Gunpowder

February 18, 2011

Urban Magnets for Disaster was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.

But first, a brief trip down memory lane…

You may recall how the economy fell out of bed in 2008. This was not some disaster one read about only in the papers or watched from a safe distance on TV. It affected nearly everything.

I remember making a trip to an investment conference in Manhattan that I go to every year. The big difference this time was that I could stay at the swanky hotel that hosted it. Normally, a $450-a-night hotel — before taxes — one could, in 2008, book a room for half that price — off the rack. And then were plenty of rooms available. A more enterprising soul, with the help of Priceline.com, could stay at a 4-star hotel for $99 a night.

I’ll also never forget eating at an Italian restaurant in Manhattan where they were giving the wine away for free. I guess they wanted to bring warm bodies in there any way they could and hoped somebody would order a dessert so the kitchen could at least earn some kind of profit margin.

Such deals in hotels and restaurants, where such deals were once unthinkable, reflected the hurt of an imploding stock market, of layoffs and of a general popping of a bubble brought to an ugly close.

Farming also felt the effects of the bust. Crop prices still promised a good return for farmers, but financing was harder to come by. Farming is a capital-intensive business. You need to spend a lot of money before you see a dime. So farmers often put off expansion simply because money is so tight.

Say you were a farmer in Saskatchewan and you wanted to add acres to your farm to take advantage of market prices. You’d have to purchase or rent more land. You’d probably need new tractors and combines to handle the extra workload. You’d need more on-farm storage. You’d need fertilizer and seed and chemicals.

How much would all that cost? Recently, I spoke with Brad Farquhar, vice president of Assiniboia Capital Corp., which runs the largest farmland fund in Canada. He said it is normal for farming expansion to cost $150–300 per acre. That means a 2,000-acre expansion needs an investment of $300,000–600,000.

Some farmers have the financial capacity to do that on their own, but most typically turn to a local bank or credit union. In the meltdown days, it was tough for anybody to get a loan. Even now, credit is not as easy as it was in the palmy days of no-doc loans and no-money-down. Lenders are cautious.

So while a farmer could make an extra $100 an acre in revenues for every $30–50 an acre spent in fertilizer, he doesn’t necessarily do it. In fact, farmers cut back on fertilizer in the meltdown days, from which we are only now rebounding. Then, too, there are timing issues. Nitrogen fertilizer is often cheapest in July, right when farmers have maxed out on their borrowing capacity. That means that they can’t take advantage of the lower prices.

These funding gaps are where Brad’s Assiniboia steps in to fill the void. They provide the funding as an investor, with the profits shared between the farmer and Assiniboia. The firm has a simple truism as its mantra: “The returns are highest where capital is scarce.” Saskatchewan farming (and agriculture generally, at least at the farm level) is one such place.

You’d think something like this would’ve evolved sooner. But it was a new concept when the firm began approaching farmers in 2009. As Brad describes it, after a lot of time at farmers’ kitchen tables and hundreds of cups of coffee later, farmers began to sign up for Assiniboia’s program. In fact, Assiniboia now has 36,000 acres of farmland from this offer in 2009.

His firm is high on canola now. Why canola? Brad points to a list of reasons. One, canola is not controlled by the Canadian Wheat Board, which fixes prices for wheat and barley. Another is that there is a futures market in canola in Winnipeg, which gives them tradeable market prices. (Crop insurance is done through the provincial fund.)

Finally, the heart of canola country is right in Assiniboia’s backyard, in Saskatchewan. It’s like the Silicon Valley of canola. Brad also points out that “recent genetic developments are pushing yields to whole new levels.” These breakthroughs are happening in Saskatchewan and lead to better economics.

Besides, the profit hook is enticing. “Average crops should provide good returns, but any above-average production or commodity price makes the return numbers take off,” Brad says. “And the majority of the downside is covered by crop insurance. So it’s like having a perpetual call option on canola.”

Brad prepared the next chart, which shows a few scenarios of how a share in his limited partnership (LP) might fare depending on crop yield and price. You can see that a low yield and a low price make for a poor result. But the range of outcomes skews to the upside. A bumper crop and a strong price could hand you a 101% gain. (Note: In the table, “bu” stands for bushel.)

We also harp on ownership in these pages, and one other thing I like about this model is that farmers have skin in the game. About half or more of the profits will go to them, so they have every incentive to make it work.

Assiniboia is raising a new fund now with an expected closing date of July 30. This fund would invest in Saskatchewan during the 2011, 2012 and 2013 growing seasons. Overall, it’s a four-year commitment and the fund would wind up in 2014, when you would get your initial investment back.

If you are interested in learning more about the fund, contact Brad Farquhar at brad@assiniboiacapital.com. Note: The minimum investment is $25,000. I think it’s another fine way to participate in agriculture without actually having to do any farming by your own hand.

Thanks for reading.

Regards,
Chris Mayer
Whiskey & Gunpowder

July 19, 2010

Potential 101% Gains in Canola Farming was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.

Chris Mayer: Sure. As soon as we landed, we visited a giant Carrefour, which is a big French retailer in Beijing. There, we got a chance to see the Chinese middle class in action. There store was kind of like a Wal-Mart. It was packed with people. There were 50-something checkout lines, four or five deep with customers, and this was on a Sunday afternoon. People were wearing jeans and sneakers. There were all the brands from all over the world on the shelves. There were 20 different kinds of toothpaste and just about everything you can imagine.

That sort of set the tone for the trip because we saw that sort of bustling consumer business scene everywhere we went. For example, there’s lots of KFCs there and you see them everywhere. In fact, KFC is the largest and fastest growing food chain in China now. They have almost 3,000 of them there. You see Pizza Huts all over the place, McDonald’s, of course and Starbucks. It was very interesting. I was in Beijing last in 2005 and even in just that 5-year time span, it’s changed a lot. It’s grown up quite a bit. It’s a fascinating thing to see. I think most Americans would be very surprised to walk the streets of Beijing.

In fact, one of the people I was traveling with, who is a very well read and well traveled guy, thought that he would find a city he could compare to Managua or Mumbai. Instead, he said, “This is a city that compares to New York or Chicago.” So I think that sort of captures some of what we saw when we were there.

Gary: You describe something that doesn’t sound at all like a communist economy to me, what with all that consumer choice. I was going to ask you differences between 2005 and now, what you would have expected and what you actually found this time. So I guess the Chinese really are wealthier. This is not like it was in America where a lot of our wealth in the past I’d say 50 years has been because of expanding credit.

They save. They are industrious. Some of their industry may be based on Western credit, but I would like to ask you about the growing wealth; if it’s actual wealth, real savings, and how dependent it is on our economy, which is one of, right now, deflating credit being available?

Chris: Well, certainly, like you say, the Chinese save a lot of money. That’s one of the things that really stands out when you look at some of the numbers. I think that the story of China up until now has been that it’s mainly been an export driven economy where they basically exist to service the US consumer. I think we’re at a kind of inflection point where the story starts to change and more and more, the economy of China, and not only China, but of Asia generally, are gonna be more focused on servicing a growing Asian middle class.

CLSA, which is known as Asian investing specialists, put out a report called The Future of Asia is Domestic. They had the number of Asians with disposable income of $3,000.00 annually – $3,000.00 or more, and this excludes Japan – will rise from 570 million to 945 million people by 2015, and more than two thirds of that increase is from China alone. Just think about that number. You’re talking about almost 400 million middle class consumers coming online here in a not very long time. We’re just talking about the next five years or so.

So they’re all gonna wanna enjoy the things that we sort of take for granted, and they’re just getting into that. China’s already become the largest cell phone market, for example. Within the next five years, it’ll be the largest market for luxury goods. China is the world’s largest market for automobiles. So, we start to see how this is gonna evolve, and the opportunities, I think, will be along those lines – will be finding ways to service the basic consumer needs that the Chinese want. That was really the message we got when we met with a lot of people in China.

When we met with some investors in China, everybody was worried about the bubble question. But as one hedge fund manager put it to me, “China is many mini-economies.” He’s not interested in investing in the big heavy steel or aluminum industries. He’s not interested in the property market, but he is interested in selling soap, or he is interested in selling alcoholic beverages to the Chinese. There’s interesting markets in fruit and agriculture that should do well. There will be little pockets that exist, and I think that’s where the opportunity is, and that’s where the transition is starting to take place.

Gary: That’s very interesting that the opportunity is in the core middle class enjoying just the basics, again, that we take for granted, not in servicing the West. That seems to be the important message here because people do ask that question. How much of this is a bubble, and how much should we be looking to China? But there are other things than those reliant on the Western bubble.

Chris: Yeah, I think some of it is a bubble. When you look at the property markets, especially in the big cities, I think that if it’s not a bubble, it’s awful bubbly. When you see apartment prices increasing 95 percent in Beijing year over year, that’s not natural. It’s been aided by credit, but also because the Chinese have less avenues to put their savings to work than Americans do.

And they tend to view property differently. This is one of the interesting dynamics I understand better after having been there. While we were there, we heard a lot of stories about how people are just buying brand new apartments and just sitting on them. They didn’t want to rent them. It’s almost like buying a new car and just leaving it on the lot.

They look at it as a store of wealth. So there’s apartments and there’s gold as a store of wealth. Of course, China is now the largest purchaser of gold in the world. They’ve recently passed India, so that is another interesting dynamic. If the China bubble pops, then the Chinese buying of gold could well pick-up. This started to happen when we were there. There were reports on the China’s CCTV where they showed how the sale of gold bars is up 70 percent year over year. So as the Chinese get a little nervous about their own property market, the other alternative is they buy gold.

Like I said, parts of it are definitely bubbly, but I think that as an investor, I always take a more nuanced view of these things. I think the US economy’s in bad shape too, but it doesn’t prevent me from finding places in the US where I would invest, so I look at China in the same way.

Gary: Exactly. And you mentioned that annual income was going to be going up to about $3,000.00 or surpassing it for a growing percentage of Chinese. I guess that goes a lot further in China than it would here.

Chris: Yeah, that’s right. And it’s kind of one of those magic threshold numbers that once consumers have more than $3,000.00 in disposable income that you really start to see more consumer spending.

In China, we looked at a number of different shops just to get a sense for prices, and the prices of everyday things in China are very low. Things like food, you could live pretty well, eat good, fresh food pretty cheaply. There are lots of markets for knockoffs…and they are pretty open about it.

We visited one that was like four or five stories, and all they sold was knockoffs – I mean really good quality knockoffs. We stopped, and we looked at one stall where they were selling Apple iPhones. One of the people that we were with had one in his pocket, and he took it out. It was a real one, and we compared it to the knockoff, and it was a pretty damn good copy. You could buy anything from North Face jackets to Rolex watches. People were buying Rolex watches for $20.00 a pop. They looked really good. Apparently, they’re better at it than they used to be. I remember in 2005, I bought a knockoff Rolex watch, and it stopped working before I got home.

Some things are more expensive in China because they’re difficult to import, but a lot of the basic stuff, you can get pretty cheaply. Certainly, apartments in Beijing, for example, are not cheap. But in general, yeah, $3,000.00 goes a lot, lot further there.

Gary: Gotcha. Now, talking about things that they’re going to spend their money on, things that we take for granted: One of those things, from what I understand, is water – that as wealthy as China is getting, there are basic ecological issues to be tangled with. The Chinese think a lot more about having clean water than the typical person in the west does. Could you talk about that?

Chris: Yeah, that’s definitely true. Definitely true. China has an imbalance. They have a lot of people, and they just don’t have a lot of water, especially in the north where Beijing is. The North is mainly made up of fairly dry plains, and the water wells there, sometimes go half a mile deep. And I know just over the last 50 years, about half of the non-renewable water in northern China has gone. It’s a supply issue, No. 1, but No. 2, a lot of the water they have is not fit for human consumption. I think the number is something like 70 percent of China’s source water is unsafe.

That’s why China has the leading number of stomach and liver cancer deaths in the world, and most of that is attributable to polluted water. Polluted water also spreads infectious diseases. Hepatitis is a big problem. This is definitely an issue they think about and are much more aware of. There are a lot of different ways to play the water China story. We’ve owned one of them for a long time in our special situations portfolio. They build desalination plants turning seawater into freshwater.

Gary: I think that’s gonna be on a lot more people’s minds way down in the future, but definitely I could see China being pretty immediate right now. Speaking of basics, what about agriculture? They have some problems with water, obviously, with the growing population and a dwindling source, but what about what they can grow?

Chris: Yeah, , so the water problems extend to agriculture. Plus desertification and development impinge on their supply of arable land, which has been falling. The arable land per person has been falling. This is a good area to invest in because the Chinese government is really behind the agriculture industry. They want China to be able to produce more of its own food, so they’re doing things like subsidizing irrigation equipment and subsidizing fertilizer. They give these firms low interest rate loans to help them expand. And there’s a lot of ways to play agriculture.

Gary: So we’ve got basic needs like water, agriculture, and I have to ask about the currency because as soon as you got back from this trip, China unpegs their renminbi from the U.S. dollar. How will that affect everything?

Chris: It was interesting because right before I left, too, I wrote up in Capital & Crisis about how the currency was cheap and how they would eventually float it. Yeah, that was a question too that we put to everybody we met while we were there in China. We got all kinds of opinions, but I’d say most people feel like the currency is cheap, and there’s anecdotal evidence to support that. There’s the Big Mac index, which looks at what the price of a Big Mac is all around the world, and Chinese Big Macs are about 50 percent less than in the US. I don’t know if the renminbi is 50 percent undervalued, but it seems to be undervalued to some meaningful extent.

As investors though, it can be very important. I don’t think it’s one of those things that’s gonna have an immediate impact, but China saying that they’re gonna float their currency could mean that we’ll see some significant appreciation over time. The last time this happened, it did have a some strong effect on the commodity markets. From 2005 to 2008, the Chinese currency rose 21 percent against the dollar. It’s interesting to know as a side note to that, that China’s trade surplus actually tripled, so all these people that are hoping that a stronger renminbi will mean the US trade deficit with China goes away I think will be disappointed.

It did affect a lot of commodities though. For example, in ‘05, after they allowed the currency to appreciate, oil jumped 15 percent in the month after that news. That makes sense because when you think about China, they’re the largest incremental buyer of just about any commodity you’d care to name, so a stronger renminbi means that they have more purchasing power to buy iron ore and coal and oil and all the other things they need. That could be an extra little fire under commodity prices.

Gary: I see. So to pull it all together, what could a reader do right now to right now take advantage of any of this?

Chris: There’s a couple of different things. Before we talked about the renminbi, and EverBank actually is the only US bank that I know of that has a renminbi CD, so you can actually get some exposure to the Chinese currency if you’d like a pure play on that idea. I’d definitely look at EverBank’s product. Other than that, I would say that most people are probably already invested in China, whether they realize it or not. If you’re investing in commodities at all, you have some significant exposure to what happens in China. If you own oil or copper or even gold, what happens in China is gonna have some say on how those investments do.

I would say you that you have to stay aware of what’s going on in China because it could impact your portfolio. Specifically, for more speculative minded investments, there’s some interesting Chinese stocks. Most people think that Chinese stocks are very overvalued, but there’s actually two very different markets. There’s the China market for stocks, and then there’s the China stocks that are listed in the US. The US listed versions can be very cheap. A lot of them are trading at single digit multiples of earnings and have 20 percent growth rates. I think that’s a good place to go fishing too if you’re looking for some speculative plays directly on China.

Gary: And that’s what you are very good at: finding these speculative plays on stocks that are worth owning. I want to thank you for taking the time to answer my questions.

Chris: Great, thanks for having me Gary.

Whiskey & Gunpowder
June 30, 2010

How to Invest in China’s Future Today was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.

Though not original, I don’t think the market quite realizes the challenge involved in feeding all those mouths. Now, I’m not saying we face mass starvation. I’m not saying it can’t be done. I am only saying there are challenges and constraints more acute now than in the past. And these constraints make for an appealing investment idea.

First, let me sum up the size of the demand. There are a lot of ways to present the same data. The most arresting is perhaps from the USDA projections. These show that the incremental acreage required to feed this population by 2030 is about equal to the planted acreage in the U.S., Brazil and Argentina!

That’s a lot of acreage and a good reason to own farmland as an investment over the long haul. Arable land per person — which includes both land under cultivation and land that could be farmed — is a dwindling resource, as the nearby chart shows.

One other added wrinkle is that so many countries have biofuel mandates. That means the governments of the world are basically forcing industry to burn food to make energy. This is a major force in the markets. For example, just in the U.S., about one quarter of the corn harvested winds up in an ethanol plant.

All of this simply means we need to get more out of every acre. This gives a nice tail wind to the companies that work up and down the agricultural chain — from irrigation equipment to fertilizers.

One of the best and safest ways to participate in the broad global agri-boom is to own shares of an emerging grain powerhouse right here in the U.S. Remarkably, recent events have pushed the stock price all the way down. The market has handed us a gift, and let me tell you why.

The market is focusing on near-term earnings weakness as a number of investment banking firms have ratcheted down their earnings projects for this year. At the current quote, the stock trades for about 11–13 times this year’s earnings.

However, I look at this stock very differently. I’m not focused on the quarter-to-quarter earnings swings. I am interested in the larger story of how it’s building a global grain powerhouse. Today, it’s expanded its menu of offerings and its geography with significant operations in Australia. It’s invested a lot of capital in building one of the world’s most efficient grain-handling operations, with access to all the important markets, particularly those in Asia.

With its strong balance sheet, low valuation and diversified agri-platform, this company is my favorite low-risk way to play the agricultural markets. The market seems to trade it like a fertilizer stock, but a better comparable is probably Archer Daniels Midland or Bunge. It’s safer than, say, Archer Daniels Midland, a mainstream favorite. And is considerably less leveraged than, Bunge, a popular Brazilian soybean processor.

This company is an absolute buy. I’m expecting its share price to gain 60% by next year. Longer term, I believe the stock has greater potential as the slow, but sure agricultural story unfolds.

Regards, 
Chris Mayer
Whiskey & Gunpowder

June 14, 2010

The Agricultural Investment You Need to Make Right Now was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.

“The earth is not getting warmer. It’s getting colder. The climate Nazis at the UN admitted this week that their claim that the Himalayan glaciers are melting away was false. I may as well have said the Great Salt Lake is going to turn to sugar.”

Jim’s put together a “Little Ice Age Portfolio” as a response to the climate change hysteria. But the investment response is secondary to the seriousness of the issue, he says. “There’s very little evidence that rising carbon dioxide levels lead to rising temperatures. It’s more likely — as temperature records show — that changes in climate are correlated to solar activity and sun cycles. Imagine that.”

“If it were true that reducing carbon dioxide emissions into the earth’s atmosphere reduced the earth’s temperature, it would be a bad idea to do it. In the Dark Ages, another period of lower solar activity, the Nile River froze. On the other hand, Rome prospered because agriculture thrived and you could grow grain in Carthage.”

“In a colder world, Canada would be an iceberg and one of the great grain growing regions of the world would disappear. People believe that because farmers plant a crop, it will be harvested and the modern world can live on a diet of high-fructose corn syrup that malnourishes people and makes them fat. But in another Little Ice age, hundreds of thousands of people would die if the world’s grain growing regions marginally declined. Billions would die if the impact was more severe.”

“The Black Death hit Europe in the Little Ice Age, too. Lower crop yields reduced the quality and quantity of nutrition available. This weakened immune systems and made people more exposed to infectious diseases. Why, if you’re a humanitarian, would you pursue a public policy that pushes a billion people who are already on the edge of starvation into outright famine?”

“If winter comes early or stays late, whole crops will be wiped out. Reducing the output of food — something that would result from a colder Earth — is evil. It’s based on non-existent science in which people forecast things that may happen centuries from now based on their ideological resistance to prosperity. They are trying to force down living standards in the Western world based on their own guilt about prosperity and income inequality.”

“Global warming just another phrase for good weather. If it’s true carbon dioxide emissions warm the planet, we should burn more coal. You can tell the science is dubious because you now have a bizarre feedback loop in which warming makes the world cooler. It’s rubbish.”

“The big risk in the discrediting of the global warming crowd is that it could discredit other, more legitimate concerns about the climate, like the huge amount of harmful chemicals in our water supply. The persistence of dangerous chemicals in our recycled water is something to be really worried about. You don’t want the environment to turn into a sink for man-made chemicals.”

There was much more to report. But we’ll have to leave the rest for another day. Jim is hard at work on the January issue of Strategic. He’s analysing the possibility of a fiscal collapse in the United States, and where investors can seek refuge before it happens.

Until then…

Regards,
Dan Denning
The Daily Reckoning Australia

January 22, 2010

Contrarian Climate Change was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.

Right now, Detroit is as close as any city in America to becoming a food desert, not just another metropolis like Chicago, Philadelphia, or Cleveland with a bunch of small- and medium-sized food deserts scattered about, but nearly a full-scale, citywide food desert. (A food desert is defined by those who study them as a locality from which healthy food is more than twice as far away as unhealthy food, or where the distance to a bag of potato chips is half the distance to a head of lettuce.) About 80 percent of the residents of Detroit buy their food at the one thousand convenience stores, party stores, liquor stores, and gas stations in the city. There is such a dire shortage of protein in the city that Glemie Dean Beasley, a seventy-year-old retired truck driver, is able to augment his Social Security by selling raccoon carcasses (twelve dollars a piece, serves a family of four) from animals he has treed and shot at undisclosed hunting grounds around the city. Pelts are ten dollars each. Pheasants are also abundant in the city and are occasionally harvested for dinner.

Detroiters who live close enough to suburban borders to find nearby groceries carrying fresh fruit, meat, and vegetables are a small minority of the population. The health consequences of food deserts are obvious and dire. Diabetes, heart failure, hypertension, and obesity are chronic in Detroit, and life expectancy is measurably lower than in any American city.

Not so long ago, there were five produce-carrying grocery chains—Kroger, A&P, Farmer Jack, Wrigley, and Meijer—competing vigorously for the Detroit food market. Today there are none. Nor is there a single WalMart or Costco in the city. Specialty grocer Trader Joe’s just turned down an attractive offer to open an outlet in relatively safe and prosperous midtown Detroit; a rapidly declining population of chronically poor consumers is not what any retailer is after. High employee turnover, loss from theft, and cost of security are also cited by chains as reasons to leave or avoid Detroit. So it is unlikely grocers will ever return, despite the tireless flirtations of City Hall, the Chamber of Commerce, and the Michigan Food and Beverage Association. There is a fabulous once-a-week market, the largest of its kind in the country, on the east side that offers a wide array of fresh meat, eggs, fruit, and vegetables. But most people I saw there on an early April Saturday arrived in well polished SUVs from the suburbs. So despite the Eastern Market, in-city Detroiters are still left with the challenge of finding new ways to feed themselves a healthy meal.

One obvious solution is to grow their own, and the urban backyard garden boom that is sweeping the nation has caught hold in Detroit, particularly in neighborhoods recently settled by immigrants from agrarian cultures of Laos and Bangladesh, who are almost certain to become major players in an agrarian Detroit. Add to that the five hundred or so twenty-by-twenty-foot community plots and a handful of three- to ten-acre farms cultured by church and non-profit groups, and during its four-month growing season, Detroit is producing somewhere between 10 and 15 percent of its food supply inside city limits—more than most American cities, but nowhere near enough to allay the food desert problem. About 3 percent of the groceries sold at the Eastern Market are homegrown; the rest are brought into Detroit by a handful of peri-urban farmers and about one hundred and fifty freelance food dealers who buy their produce from Michigan farms between thirty and one hundred miles from the city and truck it into the market.

There are more visionaries in Detroit than in most Rust-Belt cities, and thus more visions of a community rising from the ashes of a moribund industry to become, if not an urban paradise, something close to it. The most intriguing visionaries in Detroit, at least the ones who drew me to the city, were those who imagine growing food among the ruins—chard and tomatoes on vacant lots (there are over 103,000 in the city, sixty thousand owned by the city), orchards on former school grounds, mushrooms in open basements, fish in abandoned factories, hydroponics in bankrupt department stores, livestock grazing on former golf courses, high-rise farms in old hotels, vermiculture, permaculture, hydroponics, aquaponics, waving wheat where cars were once test-driven, and winter greens sprouting inside the frames of single-story bungalows stripped of their skin and re-sided with Plexiglas—a homemade greenhouse. Those are just a few of the agricultural technologies envisioned for the urban prairie Detroit has become.

There are also proposals on the mayor’s desk to rezone vast sections A-something (“A” for agriculture), and a proposed master plan that would move the few people residing in lonely, besotted neighborhoods into Detroit’s nine loosely defined villages and turn the rest of the city into open farmland. An American Institute of Architects panel concludes that all Detroit’s residents could fit comfortably in fifty square miles of land. Much of the remaining ninety square miles could be farmed. Were that to happen, and a substantial investment was made in greenhouses, vertical farms, and aquaponic systems, Detroit could be producing protein and fibre 365 days a year and soon become the first and only city in the world to produce close to 100 percent of its food supply within its city limits. No semis hauling groceries, no out-of-town truck farmers, no food dealers. And no chain stores need move back. Everything eaten in the city could be grown in the city and distributed to locally owned and operated stores and co-ops. I met no one in Detroit who believed that was impossible, but only a few who believed it would happen. It could, but not without a lot of political and community will.

There are a few cities in the world that grow and provide about half their total food supply within their urban and peri-urban regions—Dar es Salaam, Tanzania; Havana, Cuba; Hanoi, Vietnam; Dakar, Senegal; Rosario, Argentina; Cagayan de Oro in the Philippines; and, my personal favorite, Cuenca, Equador—all of which have much longer growing seasons than Detroit. However, those cities evolved that way, almost unintentionally. They are, in fact, about where Detroit was agriculturally around one hundred and fifty years ago. Half of them will almost surely drop under 50 percent sufficiency within the next two decades as industry subsumes cultivated land to build factories (à la China). Because of its unique situation, Detroit could come close to being 100 percent self-sufficient.

First, the city lies on one hundred and forty square miles of former farmland. Manhattan, Boston, and San Francisco could be placed inside the borders of Detroit with room to spare, and the population is about the same as the smallest of those cities, San Francisco: eight hundred thousand. And that number is still declining from a high of two million in the mid-nineteen fifties. Demographers expect Detroit’s population to level off somewhere between five hundred thousand and six hundred thousand by 2025. Right now there is about forty square miles of unoccupied open land in the city, the area of San Francisco, and that landmass could be doubled by moving a few thousand people out of hazardous firetraps into affordable housing in the eight villages. As I drove around the city, I saw many full-sized blocks with one, two, or three houses on them, many already burned out and abandoned. The ones that weren’t would make splendid farmhouses.

As Detroit was built on rich agricultural land, the soil beneath the city is fertile and arable. Certainly some of it is contaminated with the wastes of heavy industry, but not so badly that it’s beyond remediation. In fact, phyto-remediation, using certain plants to remove toxic chemicals permanently from the soil, is already practiced in parts of the city. And some of the plants used for remediation can be readily converted to biofuels. Others can be safely fed to livestock.

Leading the way in Detroit’s soil remediation is Malik Yakini, owner of the Black Star Community Book Store and founder of the Detroit Black Community Food Security Network. Yakini and his colleagues begin the remediation process by removing abandoned house foundations and toxic debris from vacated industrial sites. Often that is all that need be done to begin farming. Throw a little compost on the ground, turn it in, sow some seeds, and water it. Water in Detroit is remarkably clean and plentiful.

Although Detroiters have been growing produce in the city since its days as an eighteenth-century French trading outpost, urban farming was given a major boost in the nineteen eighties by a network of African-American elders calling themselves the “Gardening Angels.” As migrants from the rural South, where many had worked as small farmers and field hands, they brought agrarian skills to vacant lots and abandoned industrial sites of the city, and set out to reconnect their descendants, children of asphalt, to the Earth, and teach them that useful work doesn’t necessarily mean getting a job in a factory.

Thirty years later, Detroit has an eclectic mix of agricultural systems, ranging from three-foot window boxes growing a few heads of lettuce to a large-scale farm run by The Catherine Ferguson Academy, a home and school for pregnant girls that not only produces a wide variety of fruits and vegetables, but also raises chickens, geese, ducks, bees, rabbits, and milk goats.

Across town, Capuchin Brother Rick Samyn manages a garden that not only provides fresh fruits and vegetables to city soup kitchens, but also education to neighborhood children. There are about eighty smaller community gardens scattered about the city, more and more of them raising farm animals alongside the veggies. At the moment, domestic livestock is forbidden in the city, as are beehives. But the ordinance against them is generally ignored and the mayor’s office assures me that repeal of the bans are imminent.

About five hundred small plots have been created by an international organization called Urban Farming, founded by acclaimed songwriter Taja Sevelle. Realizing that Detroit was the most agriculturally promising of the fourteen cities in five countries where Urban Farming now exists, Sevelle moved herself and her organization’s headquarters there last year. Her goal is to triple the amount of land under cultivation in Detroit every year. All food grown by Urban Farming is given free to the poor. According to Urban Farming’s Detroit manager, Michael Travis, that won’t change.

Larger scale, for-profit farming is also on the drawing board. Financial services entrepreneur John Hantz has asked the city to let him farm a seventy-acre parcel he owns close to the Eastern Market. If that is approved and succeeds in producing food for the market, and profit for Hantz Farms, Hantz hopes to create more large-scale commercial farms around the city. Not everyone in Detroit’s agricultural community is happy with the scale or intentions of Hantz’s vision, but it seems certain to become part of the mix. And unemployed people will be put to work.

Any agro-economist will tell you that urban farming creates jobs. Even without local production, the food industry creates three dollars of job growth for every dollar spent on food—a larger multiplier effect than almost any other product or industry. Farm a city, and that figure jumps over five dollars. To a community with persistent two-digit unemployment, that number is manna. But that’s only one economic advantage of farming a city.

The average food product purchased in a U.S. chain store has traveled thirteen hundred miles, and about half of it has spoiled en route, despite the fact that it was bioengineered to withstand transport. The total mileage in a three-course American meal approaches twenty-five thousand. The food seems fresh because it has been refrigerated in transit, adding great expense and a huge carbon footprint to each item, and subtracting most of the minerals and vitamins that would still be there were the food grown close by.

I drove around the city one day with Dwight Vaughter and Gary Wozniak. A soft-spoken African American, Vaughter is CEO of SHAR, a self-help drug rehab program with about two hundred residents recovering from various addictions in an abandoned hospital. Wozniak, a bright, gregarious Polish American, who, unlike most of his fellow Poles, has stayed in Detroit, is the program’s financial director. Vaughter and Wozniak are trying to create a labor-intensive economic base for their program, with the conviction that farming and gardening are therapeutic. They have their eyes on two thousand acres in one of the worst sections of the city, not far from the Eastern Market. They estimate that there are about four thousand people still living in the area, most of them in houses that should have been condemned and razed years ago. There are also six churches in the section, offering some of the best ecclesiastical architecture in the city.

I tried to imagine what this weedy, decrepit, trash-ridden urban dead zone would look like under cultivation. First, I removed the overhead utilities and opened the sky a little. Then I tore up the useless grid of potholed streets and sidewalks and replaced them with a long winding road that would take vegetables to market and bring parishioners to church. I wrecked and removed most of the houses I saw, leaving a few that somehow held some charm and utility. Of course, I left the churches standing, as I did a solid red brick school, boarded up a decade ago when the student body dropped to a dozen or so bored and unstimulated deadbeats. It could be reopened as an urban ag-school, or SHAR’s residents could live there. I plowed and planted rows of every imaginable vegetable, created orchards and raised beds, set up beehives and built chicken coops, rabbit warrens, barns, and corrals for sheep, goats, and horses. And of course, I built sturdy hoop houses, rows of them, heated by burning methane from composting manure and ag-waste to keep frost from winter crops. The harvest was tended by former drug addicts who like so many before them found salvation in growing things that keep their brethren alive.

That afternoon I visited Grace Lee Boggs, a ninety-three-year-old Chinese-American widow who has been envisioning farms in Detroit for decades. Widow of legendary civil rights activist Jimmy Boggs, Grace preserves his legacy with the energy of ten activists. The main question on my mind as I climbed the steps to her modest east side home, now a center for community organizers, was whether or not Detroit possesses the community and political will to scale its agriculture up to 100 percent food self-sufficiency. Yes, Grace said to the former, and no to the latter. But she really didn’t believe that political will was that essential.

“The food riots erupting around the world challenge us to rethink our whole approach to food,” she said, but as communities, not as bodies politic. “Today’s hunger crisis is rooted in the industrialized food system which destroys local food production and forces nations like Kenya, which only twenty-five years ago was food self-sufficient, to import 80 percent of its food because its productive land is being used by global corporations to grow flowers and luxury foods for export.” The same thing happened to Detroit, she says, which was once before a food self-sufficient community.

I asked her whether the city government would support large-scale urban agriculture. “City government is irrelevant,” she answered. “Positive change, leaps forward in the evolution of humankind do not start with governments. They start right here in our living rooms and kitchens. We are the leaders we are looking for.”

All the decaying Rust-Belt cities in the American heartland have at one time or another imagined themselves transformed into some sort of exciting new post-industrial urban model. And some have begun the process of transformation. Now it’s Detroit’s turn, Boggs believes. It could follow the examples of Pittsburgh, Cleveland, and Buffalo, and become a slightly recovered metropolis, another pathetic industrial has-been still addicted to federal stimulus, marginal jobs, and the corporate food system. Or it could make a complete break and become, if not a paradise, well, at least a pretty good place to live.

Not everyone in Detroit is enthusiastic about farming. Many urbanites believe that structures of some sort or another belong on urban land. And a lot of those people just elected David Bing mayor of the city. Bing’s opponent, acting mayor Ken Cockrel, was committed to expanding urban agriculture in Detroit. Bing has not said he’s opposed to it, but his background as a successful automotive parts manufacturer will likely have him favoring a future that maintains the city’s primary nickname: Motor City.

And there remains a lasting sense of urbanity in Detroit. “This is a city, not a farm,” remarked one skeptic of urban farming. She’s right, of course. A city is more than a farm. But that’s what makes Detroit’s rural future exciting. Where else in the world can one find a one-hundred-and-forty-square-mile agricultural community with four major league sports teams, two good universities, the fifth largest art museum in the country, a world-class hospital, and headquarters of a now-global industry, that while faltering, stands ready to green their products and keep three million people in the rest of the country employed?

Despite big auto’s crash, “Detroit” is still synonymous with the industry. When people ask, “What will become of Detroit?” most of them still mean, “What will become of GM, Ford, and Chrysler?” If Detroit the city is to survive in any form, it should probably get past that question and begin searching for ways to put its most promising assets, land and people, to productive use again by becoming America’s first modern agrarian metropolis.

Contemporary Detroit gave new meaning to the word “wasteland.” It still stands as a monument to a form of land abuse that became endemic to industrial America—once-productive farmland, teaming with wildlife, was paved and poisoned for corporate imperatives. Now the city offers itself as an opportunity to restore some of its agrarian tradition, not fifty miles from downtown in the countryside where most of us believe that tradition was originally established, but a short bicycle ride away. American cities once grew much of their food within walking distance of most of their residents. In fact, in the eighteenth and early nineteenth centuries, most early American cities, Detroit included, looked more like the English countryside, with a cluster of small villages interspersed with green open space. Eventually, farmers of the open space sold their land to developers and either retired or moved their farms out of cities, which were cut into grids and plastered with factories, shopping malls, and identical row houses.

Detroit now offers America a perfect place to redefine urban economics, moving away from the totally paved, heavy-industrial factory-town model to a resilient, holistic, economically diverse, self-sufficient, intensely green, rural/urban community—and in doing so become the first modern American city where agriculture, while perhaps not the largest, is the most vital industry.

Sincerely,
Mark Dowie

November 3, 2009

Editor’s Note: This article originally appeared in the August 2009 edition of Guernica. To view the original article, “Food Among the Ruins,” please click here.

Urban Farming in Detroit and Big Cities Back to Small Towns and Agriculture was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.