230 (16 September 2015)

Welcome to week 230!  The articles below caught my attention this week.  Please note that what are intended to be relatively objective “briefs” are preceded by dashes (——–), whereas additional material or relatively subjective comments are preceded by asterisks (********).  The links to articles preceded by [SR] require a subscription to be read in their entirety, although complete articles may frequently be found by an Internet title search.

(9 September 2015): “Coal’s Decline Is Choking Appalachia Towns” (http://www.bloomberg.com/news/articles/2015-09-10/coal-s-decline-is-choking-appalachia-towns)

——–Letcher and Martin Counties in Kentucky have seen large declines in their budgets, and the services they provide, due to “a steep drop in coal production as tougher environmental regulations and low natural gas prices make coal less competitive.”  The budget in Martin County is $7 million, “down $1.5 million from three years ago.”  According to the Appalachian Regional Commission, an economic development organization encompassing state and federal governments, “93 of 420 counties are distressed.  Many of them are in central Appalachia, which straddles Kentucky, Tennessee, Virginia, and West Virginia.  The region has been mined for two centuries, and the cheapest and best coal has been dug up. . . . Many utilities have replaced Appalachian coal with cheaper fuel from Illinois and the Powder River basin in Wyoming and Montana, or switched to burning natural gas.”  The drop in county revenue has mostly been due to “a drop in payments known as severance taxes, which mining companies pay into state coffers based on the value of coal tonnage take from the earth.”

********The declining county budgets, then, has been due to a large decline in the demand for Appalachian coal, due not only to federal environmental policy but also to the relatively unfavorable price of Appalachian coal in the energy market.

********In a somewhat-related article “Exxon: The Road Not Taken,” reporters from InsideClimate News (ICN) cover the early work (1970s) of the company on greenhouse gases and their effect on average global temperatures, as well as alluding to Exxon’s subsequent efforts to “manufacture doubt about the reality of global warming its own scientists had once confirmed.”  You can read the article at: http://insideclimatenews.org/news/15092015/Exxons-own-research-confirmed-fossil-fuels-role-in-global-warming.  This is the first in a series of articles.  ICN won a Pulitzer Prize in 2013 for its reporting on the Dilbit oil spill, which occurred in 2010 and involved the Kalamazoo River in Michigan.  You can view the stories at: http://www.pulitzer.org/works/2013-National-Reporting.  Incidentally, the Pulitzer Prize site looks like one that is well worth exploring.

********Next, in another natural resources-related article, “Colorado Mine Spill Highlights Superfund Challenges,” the difficulties of cleaning contaminated sites, as well as their costs, are explored.  Here is the link: [SR](http://www.wsj.com/articles/colorado-mine-spill-highlights-superfund-challenges-1442005828).  The Superfund program, administered by the EPA, “was set up in the 1980s to remediate the nation’s most polluted places, from old factories to landfills.  But it has been strained by legacy mining sites, which are often impossible to permanently clean up and instead require water-treatment plants of other expensive measures to contain widespread pollution.”  Compounding matters, “The EPA often faces opposition from communities that distrust the agency and remain fearful of the economic stigma of being labeled a Superfund site.  The agency also frequently is confronted with deep-pocketed mining companies who try to fend off efforts to hold them at least partially responsible for cleanup costs.”  Then there is the question of the number of sites that pose a risk to human health.  According to a report of the U.S. Government Accountability Office, “federal agencies hadn’t fully assessed the pollution levels of thousands of abandoned sites they had already identified” (http://www.wsj.com/articles/inventory-of-abandoned-mines-is-incomplete-and-unreliable-gao-says-1441995891).  You can find the GAO’s report at: http://www.gao.gov/assets/680/672464.pdf.

********Finally, falling oil prices have led to large write downs for U.S. oil-and-gas producers, as reported in “Write-Downs Abound for Oil Producers” [SR](http://www.wsj.com/articles/write-downs-abound-for-oil-producers-1442184600).  “A group of 66 oil and gas producers have taken impairment charges totaling $59.8 billion through June, according to a tally by energy consultancy IHS Herold Inc.  That tops the previous full-year record of $48.5 billion set in in 2008. . . . Write-downs, or impairments, are taken by companies when the value of assets falls below the value on its books.  For energy fields, that can mean that the price of leasing land, drilling and installing pipelines exceeds the worth of whatever oil and gas is unearthed.”  So, what’s different about 2015 in comparison to 2008?  “In 2008, oil prices plummeted from above $140 a barrel at midyear to below $37 by year-end as the financial system’s near collapse sent the global economy into recession.  The drop was steep but relatively short-lived as growing demand from China and other emerging economies was expected to suck up global supplies.  Now, with China’s economy and sputtering and U.S. production at its highest level in decades, prices aren’t expected to return to the $100 level of recent years any time soon.”

(11 September 2015): “Look Out, U.S. Grocers, U.K.’s Free-for-All Heads Across the Pond” [SR](http://www.wsj.com/articles/look-out-u-s-grocers-u-k-s-free-for-all-heads-across-the-pond-1441935916)

——–German discount grocers Aldi and Lidl have “shaken the U.K.’s $274 billion grocery industry to its core . . . [and] have stolen away market share from the country’s traditional players” Tesco and Morrisons, among others.  As a result, the grocers “have seen their stock prices plummet, triggering executive ousters, layoffs and billion-dollar write downs.”  Aldi is looking to increase its stake in the U.S. market, planning to “operate 2,000 stores by the end of 2018, up from the 1,400 it runs now across 32 states.  Kroger, by comparison, operates about 2,600 stores in 34 states.”  Following an announcement of Aldi’s plans, Lidl indicated that it would likely enter the U.S. market by 2018.  “Analysts and others say the moves threaten to pressure discount chains like Wal-Mart and Supervalu Inc.’s Save-A-Lot, but could also further shake up the wider U.S. market.”  In “class-conscious Britain, no-frills Aldi and Lidl gained traction only after the recession . . . At the time, the country’s biggest grocers kept jacking up prices, even as unemployment jumped and customers tightened their purse strings.”  According to Andy Higginson, who is the chairman of Morrisons the No. 4 British chain, “At a time of slow to declining volumes, . . . [grocers] attempted to raise prices and widen margins . . . Customers recognized this and voted with their feet.”

********Customers voted with their feet.  The article relates the words of one customer, Janet Wadsworth, who abandoned Tesco for Aldi.  She observed, “It used to be that people might have been embarrassed to be seen at Aldi . . . But I think that’s gone.”  So, in response to the recession, in part due to reduced income and in part due to managerial decisions keeping prices high (or higher), customers got over their status discomfort and tried Aldi.  With familiarity and the reduction in discomfort, it will be a challenge for Tesco and others to regain the customers it lost.

(12 September 2015): “Schumpeter: Digital Taylorism” (http://www.economist.com/news/business/21664190-modern-version-scientific-management-threatens-dehumanise-workplace-digital)

——–“Frederick Taylor was the most influential management guru of the early 20th century.”  He argued that “the best way to boost productivity . . . was to embrace three rules: break complex jobs down into simple ones; measure everything that workers do; and link pay to performance.”  Digital Taylorism starts with the rules “but supercharges them with digital technology and applies them to a much wider range of employees—not just Taylor’s industrial workers but also service workers, knowledge workers and managers themselves.”  Scientific management has before and is now provoking a backlash.  In The New York Times a recent article about Amazon “suggests that Taylorism is thriving.  The article claimed that the internet retailer uses classic Taylorist technique to achieve efficiency: workers are constantly measured and those who fail to hit the numbers are ruthlessly eliminated.”  The article created a reaction, attracting “more than 5,800 online comments, a record for a Times article, and a remarkable number of commenters claimed that their employers had adopted similar policies.  Far from being an outlier, it would seem that Amazon is the embodiment of a new trend.”

********The article noted above is “Inside Amazon: Wrestling Big Ideas in a Bruising Workplace” (http://www.nytimes.com/2015/08/16/technology/inside-amazon-wrestling-big-ideas-in-a-bruising-workplace.html).  I suspect that a thorough examination of the article and the almost 6,000 comments it evoked would make a great term paper.

(12 September 2015): “Agricultural biodiversity: Banks for bean counters” (http://www.economist.com/news/international/21664194-wild-ancestors-worlds-most-important-crops-could-help-avert-devastating)

——–“Climate change is expected to cause higher temperatures and more frequent droughts, changing the distribution of pests and diseases.  Population growth will add to the pressure on productive land . . . This, together with a switch to more meat-eating, will mean a big increase in the demand for food.  The UN Food and Agriculture Organization . . . says humanity will need 70% more food by then.  Dependence on a few staples worsens the consequences of any crop failure.  Just 30 crops provide humans with 95% of the energy they get from food, and just five—rice, wheat, maize, millet and sorghum—provide 60%.”  All this points to the importance of preserving “the genetic diversity found in crop wild relates and traditional varieties as an insurance policy.  Alas, much of it has already disappeared.”

********The article concludes, “If a big crop were to fail, a single useful gene lurking in one wild relative could prevent calamity. . . . Preserving the genetic diversity that remains would be an excellent investment.”  Seed banks provide a way to preserve this diversity, but efforts to do so, for example those relating to the International Treaty on Plant Genetic Resources for Food and Agriculture, have not yielded the desired results.  You can learn more about the Treaty, and access its text, at: http://www.planttreaty.org/.

(15 September 2015): “Big Volumes Don’t Mean Big Profits in China’s Beer Market” [SR](http://www.wsj.com/articles/big-volumes-dont-mean-big-profits-in-chinas-beer-market-1442234380)

——–“China’s recent slowdown is worsening a stubborn problem for brewer SABMiller PLC: Despite the massive amount of beer consumed there, turning a decent profit isn’t easy.  China accounts for a quarter of the world’s beer volumes and a tenth of the revenue but makes up just 3% of the global profit pool, according to Deutsche Bank.”  SAB is a co-owner of the Chinese brand Snow, which is the world’s largest-selling beer.  “Uncommonly intense competition among large brewers in China keeps a tight lid on margins there.

********Concentration of large brewers in the U.S. seems to be significantly higher than in China.  In China, 70% of the market “is split among five robust competitors—SAB’s CR Snow joint venture, Tsingtao Brewery Co., AB InBev, Beijing Janjing Brewery Co. and Carlsberg A/S.”  In the U.S., “Anheuser-Busch InBev NV and SAB’s MillerCoors joint venture with Coors Brewing Co. hold more than 70% of the market by volume.”  So, one might conclude that the higher profitability of large brewers in the U.S. in comparison to China is due to the greater concentration of brewers.  Given the recent news about AB InBev’s desire to acquire SABMiller, it will be interesting to see how this plays out antitrust-wise.  You can read more on this at: http://www.wsj.com/articles/a-global-antitrust-grilling-is-expected-1442442266.  Any merger between AB InBev and SAB Miller would undoubtedly lead to increased “rationalization” of production facilities, such as what had led to the recent announcement of the closing of the MillerCoors plant in Eden, North Carolina in September 2016.  You can learn more about the closing, with its loss of more than 500 jobs, at: http://www.newsobserver.com/news/business/article35257221.html.  Some additional detail can be found at: http://www.jsonline.com/business/with-sales-declining-millercoors-closing-brewery-in-north-carolina-b99576326z1-327415711.html.

(16 September 2015): “Beef’s Meaty Profits Slow Effort to Boost Antibiotic-Free Production” (http://www.wsj.com/articles/beefs-meaty-profits-slow-effort-to-boost-antibiotic-free-production-1442309400)

——–Sky high “cattle and beef prices are hampering efforts to get the beef industry to follow the sharp curbs by major chicken processors on the use of antibiotics on farms. . . . [C]hanging antibiotics protocols is tougher in the beef business, livestock specialists say.  Beef cattle typically live one to two years before slaughter, providing more time for disease exposure than for chickens, which often live only six weeks.  Beef processors also generally have less control over how animals are raised.  They typically buy cattle from a wide range of producers and middlemen, while major chicken processors sign growers to contracts to supply them alone.”  Although some ranchers have expressed support for a move toward organic cattle and beef, financial incentives haven’t been sufficiently strong for them to change.

********I thought the roles of life span and contracts in relation to the move toward reduced or no antibiotics were interesting to note.  The article also drew attention to the increased monitoring and documenting costs of organic beef as a factor that diminishes financial incentives.

May you have a good week!

Bruce

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s