ForDairyCastSeries

News comes this week that the Belgium beer brewer, InBev is considering making a move to acquire St. Louis beer maker, Anheuser-Busch. Rapid consolidation in the beer business has been going on world-wide for a long time with many of the local brews with hundreds of years of history in central and western Europe being rolled up into giants like InBev and SABMiller of London. The same has been taking place in Mexico and South America where local beers with brand value are giving way to acquisition as either next generation family members don't want to or can't manage the businesses or the economics of scale make consolidation compelling.

The USDA has just raised its expected food inflation numbers to 6% for 2008 on the heels of a 4.2% increase for 2007.

http://www.usda.gov/wps/portal/!ut/p/_s.7_0_A/7_0_1OB?contentidonly=true&contentid=2008/05/0130.xml

My best guess is that they will be back to the well to up that again by the end of the summer. The projections show the greatest increase in food prepared at home with eggs, dairy and fats and oils categories leading the charge. Pork is estimated to increase only 1-2 percent this year.

     One of the more effective tactics of those who oppose modern animal production has been to threaten the global brand of final processors and retailers in order to gain negotiating power in attempts to change production methods.  By raising an ethical argument to modern production they have buttressed their assertions against the counter argument from science. 

     This is a very efficient approach since once their notions are accepted by major retailers like Wal-Mart, forcing change down the chain is greatly facilitated.

     Yesterday the Wall Street Journal published the results of an experiment conducted by a doctoral student from the University of Western Ontario. (http://online.wsj.com/article/SB121018735490274425.html)

Late last week China revealed that it was about to approve a plan to buy large tracts of land in South America and Africa. The purpose of the purchases is to assure that China is not left to the risks of the market place in the future when its own agricultural production is not able to keep up with its growing demand.

China is essentially self-sufficient in food at the present (something that it cherishes) but rising incomes are changing the mix of demand from lower quality vegetarian diets to meat and more refined and processed foods. China has about nine percent of the arable land and the current global food crisis is helping to fuel the long-held desire by China not to be at the mercy of foreigners. China is currently self-sufficient in corn but imports lots of soybeans. As its livestock production ramps up for future demand, it will need to produce substantially more feed stuffs than its own resources currently can support.

Its time to revisit the notion of opportunity costs. Opportunity costs are measured by the value of the next best alternative that you rejected when you make a decision. Opportunity costs and in fact all costs predate the invention of money. Even in our religious and wisdom writings, opportunity costs abound. For instance, what was the cost to humanity of Eve eating the apple? No money exchanged hands but the cost was the loss of paradise in exchange for knowledge. What is the current (and on-going costs) of choosing your current spouse, if you have one? That usually gets the point across.

Costs arise out of scarcity. Since you cannot be married to two people at the same time unless you move to the panhandle of Texas and join a certain religion, you are a scarce resource. When you commit to one, the cost is all you left behind.

Assume you interview two managers for a key position and both have decent resumes but one is clearly more creative, careful and likely to perform above expectations.  You know that you will have to pay her 20% more than the other one or she will be bid away to another farm in a year or two.  You decide to hire the cheaper one at "industry average cost" for managers.  How long will it take for the "average performer" to kill the advantage in salary reduction you received.  On most farms of any size it can be a matter of days.  The opportunity cost of hiring the "cheaper" one is the classic mistake that "cost only" producers constantly make.  Granted it is difficult to know the outcomes in advance on hiring decisions.