Selling off New Zealand Farms

Recently I got a blast from the host of a New Zealand radio talk back program for suggesting that New Zealand farms should not be sold to overseas concerns.  We were cut off by the news and I tried to get back to him by e-mail.  Unfortunately, when you want to e-mail this radio station they provide you with one of those little boxes which is about three words wide and 4 lines deep.  I refuse to try to present a reasoned argument in such restricted space and I sent a short message asking for his e-mail address.  So far no reply.  The host is not widely known for listening to opinions that run counter to his own.  I am quite passionate on the subject but would very much like to hear counter arguments.  Put them in comments and I will publish them anonymously or under your name as you like.  I'll try to present fairly the argument of the host.

He said quite rightly that if sales to overseas concerns were stopped, the price of farms would drop.  No argument there.  Supply and demand is a harsh mistress and with reduced demand, farm prices would surly drop.  This would be added to the present drop in farm prices due to this little  economic glitch* that we are going through.

*if you think this one is bad, just wait for the next one.

I replied that it is a zero sum game.  What a buying Kiwi gains a selling Kiwi looses and vice versa, depending whether prices are going up or down.  Besides, the price of your farm is of no interest unless you want to sell it.  Of far more importance is the revenue you are earning from the farm.

He quite correctly pointed out that the loans you can get from the bank depend on the equity (perceived value) of the farm.  Banks for the past few decades have been loaning vast amounts of money to the farmers based on the valuation of their farms.  In other words, the next owner was expected to pay the running costs of the present owner.  Basing loans on equity rather than earnings is part of the reason that we are in our present pickle but that is another story.  From an item on National Radio, it would appear that the banks have recognized the folly of linking the amount of a loan to the valuation of a property* and are now lending on the far more fiscally responsible basis of the projected revenue from the farm.

* there is no choice when making a loan for a mortgage on the family dwelling.  It has to be based on the  value of the house.  A rental property is another matter.   A loan to buy a rental property, a business or a farm can and should be based on its expected revenue.


My main point though, which the host very much disagreed with, is that when you buy a farm, you generally have to borrow some portion of the buying price from the bank.  It is a rare individual who can simply reach into his pocket and find the full purchase price.  The higher the price, the more you have to borrow.  The more you borrow,  the greater your capital and interest repayments. These  repayments  come out of your revenue.  You end up  working for the bank. The money you earned is going into dividends for the shareholders of the bank and into the bonuses of the bank managers.   They, a service or enabling industry, end up taking a large portion of your earnings which should be going into your pocket.  You earned it.  This revenue would be much more usefully applied to reducing your loan, improving your financial security, improving your farm and simply having money for a vacation from time to time.  Instead you end up working to make profit for the banks (most of which are Australian, by the way).  


I live in the middle of a wine producing area.  Talking to some of the owners, they maintain that the only time they make a profit is when they sell the farm.  They depend on ever increasing farm prices to leave the industry when they retire with something in their pocket to show for their labor.  I very much sympathize with them in wanting to have farm prices continually increasing.  However, why do you think that they have not made a profit during the operation of the farm.  A good part of the explanation is the fact that much of their profit has had to go to pay off the loan they took out to start the farm.  I'd much rather see a system in which farms sold for  their original buying price plus, of course, inflation and improvements.  Much better that the farmers earn a profit during the operation of the farms.  Much better that they can pass on a debt free farm to their children.


Incidentally, one implication of the host's position that we must have overseas purchase of our farms to keep prices up is that the only way we can make New Zealand profitable is to continually sell off the means of production.  We will eventually end up being tenants in our own country.  This is no way to run a country.  The other implication is that all our farmers remain slaves to the banks.




Postscript 
As the rest of the world depletes her ground water, expands her cities over fertile farmland, exhausts the fertility of her soils and sends their soils down their rivers, and just generally trashes her food production capacity, it is the beginning of an agricultural boom for countries that can produce food.  This is New Zealand's main industry and we produce very high quality food.  What earthly sense does it make to sell off our means of production to countries who are going to be buying our food.    Why do we want to trade a small economic gain now for a sustained economic gain far into the future.  We are talking about farms here but the same applies to SOE's, Air Ports, Sea ports and so forth.  Is there some vested interest amongst the people making these decisions.  Is there some hidden Winebox underlying these decisions. Do they have shares in the banks. Perhaps if we could understand the motivation of the decision makers it would become clear why they are so hell bent to sell off our family jewels.

Emission Trading Scheme Scams

If you follow my blog, you know that I am very much in favor of Jim Hansen's climate change solution. Emission Trading Schemes appear far too open to abuse, scams and even with the best will in the world (where in the world do you find the 'best will'), are likely to be ineffective. In this blog, I want to try to collect together all the scams related to ETS's that I can find. I need your help. Please add any you come across. I will either leave them as comments under your name or incorporate them into the text, as you wish. They can be ones that already exist or ones you can foresee.

For Scams, I throw the net as wide as possible and include two types.

1. A pure scam in which the participants know full well that they are rorting the system and are pocketing money dishonestly with no effect on the emissions of greenhouse gases.

2. A system in which the participants are convinced that they are doing the 'right thing' but which for some reason what they are doing is having no effect on reducing global green house gases. Strictly speaking this is not a scam but is in effect a scam against humanity as it makes us all think we are sorting the problem out while we are rushing toward the cliff.

The Basic Scam
First lets look in general at Emission Trading Schemes variously called Cap and trade or Cap and Trade with Offsets or any other name you care to call them. They allow wall street to trade in carbon credits which are part of these schemes. In case you hadn't noticed, Wall Street doesn't trade in shares to help the development of the company in question. They don't trade in currencies to help out the country that owns the currency and they won't trade in carbon credits in order to reduce global warming. They participate in all these ""investments"" in order to siphon off money and to put it into their bank accounts. In the mean time, the power company, for instance, which is buying carbon credits from, say, someone who will plant a forest, have to raise their price for electricity and we all end up paying the increased tariff. In the mean time, these hair balls are pocketing the money. Where is the money coming from. It is coming from the increase in price we are all paying during the transition to renewable energy. What hair balls am I talking about. The same lovely people who brought us the present economic crisis and who are right back at it after we, the tax payers, bailed them out. All systems to reduce green house gases are going to raise the price of energy and with it, everything else. Emission Trading Schemes puts this money in the pocket of the hair balls. Hansen's system puts the money in our pockets to compensate us for price rises during the transition. So the first scam in the list is that we even contemplate Emission Trading Schemes rather than Hansen's Tax and Dividend.

'Shifting the Problem' Scam
In this system, the problem is merely shifted somewhere else and there is no net emission reduction. An example would be a coal fired power station in America which buys carbon credits in South America. It pays to ensure that a particular block of Amazon jungle will not be cut down. Lets assume for this example that everyone in the piece is honest and the money actually is used to keeping this block of forest pristine. Since lumber is not being produced from this forest, there is a demand for lumber from some other forest. All things being equal, the same amount of wood will be harvested but simply not from this piece of forest. No added removal of CO2 has been achieved.

'Selling Twice' Scam
How about if everyone is not completely honest. Since no goods are being transferred, it is quite possible to sell the same block of forest twice or three times or........... Lets look at the above piece of forest. Once it has been sold to a coal fired power station in North America, there is nothing to stop the owners of the forest (government of the country??) from selling it to an oil company in Europe. If at some time, inspectors from the various companies that ""own"" the forest come to look, they find that all is well. The forest is pristine and both think that they are getting their money's worth.

'False Biology' Scam
A case of false biology is the selling of a piece of forest that doesn't actually sequester carbon dioxide. A mature forest, by definition, is in equilibrium. The amount of growth is balanced by the amount of decay. Trees are falling and returning their carbon to the atmosphere at the same rate as carbon is being taken out of the atmosphere. Incidentally, in cooler climates, this can be quite different. When it is cool enough, forests can continually (but rather slowly) sequester carbon as humus in the soil. In the tropics, humus breaks down and so carbon is completely recycled. The best carbon capture is in a new forest which has been growing for, say a decade so that the trees are in the prime of life, growing at their maximum rate.  In fact, if you harvest a forest, build much of the lumber into long lasting constructions, carbonize the remainder and return to the soil and then plant a new forest, you are probably getting the very best, in terms of carbon capture, from the forest.

Simplicity
As has been found again and again, whenever a tax system is complicated, it is open to 'creative accounting' Jim Hansen's system can be expressed in less than a single side of an A4 piece of paper. Proposed legislation for cap and trade runs to hundreds of pages. Just on that basis, I am highly suspicious that the all tooo cleeever money men will find ways to scam the system. Following is a quote from the New York Times about an effort to bring in cap and trade to the USA. The system had lots of credit because a similar system had been successful at curbing the emissions of sulphur. From the quote you can see why the system became unworkable

"But in trying to assemble a majority to pass it, Mr. Waxman and Mr. Markey [American Senators] dished out a cornucopia of concessions and exemptions to coal companies, utilities, refiners, heavy industry and agribusinesses. The original simplicity was lost, replaced by a bazaar in which those with the most muscle got the best deals."

Quoting further from the same article.

Ms. Cantwell said that cap and trade had been discredited by the Wall Street crisis, the Enron scandal and the rocky start to a carbon credits trading system in Europe that has been subject to dizzying price fluctuations and widespread fraud.

And finally:

She [Ms Cantwell] said her bill would require every pollution permit to be auctioned rather than given away and was 39 pages long, compared with Waxman-Markey, which weighs in at some 1,400 pages.

We have only started. Please help me.

Drinking and Driving

Submitted to the Justice Select Committee, Alcohol Law Reform Bill, Nov. 17, 2010

Why would a sensible society allow anyone who is hurtling towards you on the highway at a closing speed of 200km/hr to be a little bit impaired. A fraction of a second inattention; a slight veer to the right* is the difference between life and death for some innocent driver coming toward this selfish idiot. I don't care if this twit is drunk, doped or even on an impairing medical drug. He shouldn't be driving. Alcohol is the most common impairing agent so let's tackle it first. The passengers can be off their faces for all I care. The driver should be stone cold sober.

*we drive on the left in New Zealand

Biochar for Carbon Sequestration

Over the last few weeks there has been talk in the media on the need to increase the carbon content in our soil. The motivation mentioned is to reduce our liability under Kyoto. The reason we are not doing so is said to be the difficulty in measuring increases in Carbon.

Kyoto is all about the extent of change from the present situation and not about the  amount of carbon a country is currently sequestering.

A carbon rich soil, all else being equal, is a soil with more humus and other organic content such as the microfauna and miafauna. In other words a healthier more productive soil. I think there is a way of solving both the problem of increasing carbon and of having a reliable measurement which could be used to calculate our level of carbon sequestration and hence calculating our reduced liability under Kyoto.

How about if we incorporate charcoal into the soil. At first glance you might think that this is a scam. What good would it do to put charcoal into the soil. It is hardly worth doing it just to be able to say that the carbon content has increased. Have a look at this site for an explanation of the technical side of charcoal in soil.  Apparently charcoal fills at least some of the functions of Humus and is refractory at temperatures at which humus breaks down.



If charcoal is as refractory to breaking down as I have been led to believe, the amount we apply is the amount we can claim credited for.

What is needed first is a small research project in which charcoal is incorporated into soil. A random bunch of questions to be answered include:

1. Does charcoal actually hold nutrients and release them to the plants. In other words does it perform the function of humus. Recent work on Terra Preta suggests that it does.

2. Does the charcoal persist in the soil (probably) and if so, for how long.

3. If it does persist, does it's nutrient holding ability remain.

4. What is the effect of charcoal on the water retaining properties of soil

5. What is the effect of charcoal on the structure of the soil.

6. What is the effect of charcoal on the flora and fauna of the soil.

7. What is the effect of charcoal on the growth of plants which are rooted in the soil with respect to the amount of fertilizer needed, the persistence of nutrients in the soil and the leaching of nutrients out of the soil.

8. What is the effect on all of the above with respect to the particle size of the charcoal used.

There are many more questions that any agricultural scientist will come up with.

I have been experimenting with the production of charcoal over the past year. It is technically simple to obtain the benefit from the heat from burning the volatiles which are driven off during charcoal production while at the same time ensuring that there is a large yield of charcoal. Some feed stocks which can be used include the branches from putting lifts on trees, all off cuts and sawdust from lumber mills, all offcuts and sawdust from house and furniture manufacture, and even waste paper and cardboard. One can even include bones from abattoirs, thus incorporating some calcium and phosphorus in the resulting product. Using the method in the above link, even paper and cardboard can be turned into biochar.

If biochar turns out to be a valuable soil conditioner, New Zealand could end up in credit with respect to our net production of Carbon dioxide while at the same time improving our soils.

Mining Royalties and Renewable Energy

Mining Royalties and Renewable Energy

Revenue from mining is a one off. Minerals are not renewable and once gone they can not be mined again. There is no justification whatsoever for mining our family jewels if we plan to waste this money on current consumption. All the revenue from mining must be used to set up infrastructure which will benefit future generations . These minerals belong to them just as much as they belong to us. One very good sector in which to invest this money is renewable energy. The benefits of having New Zealand totally independent of overseas energy are too obvious to warrant rehashing yet again and the benefit of energy independence extends far into the future to benefit our great great grandchildren.  Thankfully, our grandfathers built the hydro electric dams which provide us with half of our electricity today.

One thing must be guarded against. Mining revenue must not be used to displace money from other sources which otherwise would have been put into renewable energy. This is creative accounting at its worst. Mining revenue must be added to the other funds to add to our already high proportion of renewably generated energy. Such funds can be invested directly, in, for instance a State Owned Windfarm (SOE) or instead, can be leveraged by providing research funds or incentives which tip the viability of a renewable energy source towards economic feasibility.

Mining royalties have been reported as 1% of the sales value of the mineral sold. If this is the "whole story" then there is no justification for selling off our family jewels for a mess of pottage. I note the intention mentioned in the New Zealand Energy Strategy to review the royalty situation, presumably the way the Australian Rudd government recently attempted. This is good. Once sorted out, these increased royalties should be paid into the Mine Revenue Account for use in development which creates long term benefits. However, the bare royalty payment is not the whole story.

Does a mine pay income tax in addition to its royalty payment? If so, the tax must be credited to the Mine Revenue Account. Without the mine, this stream of revenue would not come to the government. Next, every employee of the mine pays income tax. This is a revenue stream  to the government which would not exist if the mine was not operating. Into the Mine Revenue Account also. Every purchase by the mine and its employees of everything from a new vehicle to a roll of toilet paper attracts GST at 12.5% (soon to rise). Into the Mine Revenue Account. And then there are the downstream effects. For instance, a mine employee buys his food at a local super market which pays taxes and whose employees pay taxes. Give this one to your resident math boffin. It is an infinite converging series with a finite sum. If you have a good mathematician on board, he will be able to work out how much more of the tax take should go into the Mine Revenue Account.

Looking at the above, it turns out that the revenue from a mine to the government goes far beyond the bare royalties and all this revenue should be used for development that benefits future generations. (in addition, remember, to funds that would have been spent on this if the mine didn't exist).

The next question is what we do with the minerals we have mined. Let's use iron sands as an example. Are we going to sell off the raw mineral with just the gangue (waste) removed the way Australia does. This is like selling off a Fabergé egg for the price of the gold it contains. At the very least we should be selling refined ingots of steel but let's get more ambitious. How about selling railway lines, machine tools and even car parts. How about selling our own electric car with a difference.

We are fixated on the idea that we could never compete with the big boys overseas. We could never, for instance compete with Hollywood, could we? Well we could and we did. Lets not sell New Zealand short. By adding value to our mineral resources, far more money will go into the Mine Revenue Account to be used for renewable energy infrastructure and other long term development. If, at present, we are not able to beneficiate our mineral resources and sell value-added-products, let's leave them in the ground until we have achieved the necessary level of sophistication. They are only going to increase in value as the years go by and other countries use up their non-renewable resources.

However we use our minerals, let us use this windfall, one-off source of revenue to benefit future generations. We couldn't do better than to use this revenue to ensure New Zealand's energy independence.