Monday, 29 December 2014

Not all dairy farmers

Some lines of work are inherently distasteful even while those doing them are generally respected. Slaughtering animals is an example. Many of us eat meat and prefer not to think about the killing part, but we would not naturally regard a slaughterman with suspicion or distrust.

In other cases, there is no real reason why a job should evoke negative feelings, but for one reason or another it has fallen into disrepute. It may be hard to believe now, but politics was once regarded as a virtuous pursuit.

Regardless of how or why a job falls from grace, there are usually still some well-motivated people involved. They don't quite fit in - insiders can tell they're being deviant, but everyone else naturally assumes they're as bad as the rest.

Alison Barrett has recently reminded us that not all obstetricians are hateful misogynists. Following that example I want to talk a bit about farming, from the perspective of a newbie (6 years in).

I think of farming as a virtue - there is a clear purpose but a plethora of choices, so learning is part of the game and you can always do better. I love that lack of endpoint.

We count ourselves really lucky to have the chance to look after this land, and we're old and stroppy enough to insist on doing it our own way. The bank insisted we have a farm advisor in our first season (09/10) so we started out doing things by the book. But we also joined the association of biological farmers and read lots of agronomy. The fertiliser company reps were sacked fairly quickly and started off by concocting our own mixes of ground-spread fertiliser based on the Kinsey-Albrect principles of mineral balancing.

Having charted a course for the physical and chemical balance of our soils, we're now tackling the biological activity. This is an under-researched topic in agronomy, because there's no money in it for anyone except farmers. Pretty much all agricultural research is directed by people who sell stuff to farmers. Even the government funding, which should really be directed at public good investments is usually required to have co-funding from industry. If there isn't a prospect of selling something to farmers, and you don't win the Marsden Fund lottery then it's probably not going to happen.

There is huge potential value to farmers, the environment and climate change from enhancing soil biology, but the dominant business model still involves selling poison and bagged nitrogen. These are very profitable industries, against whose lobbying and marketing power a broad public interest research agenda stands little chance. So we rely on our own investigations and information shared with like-minded farmers of whom there are quite a few.

We reckon there are two basic ways to deal with weeds, pests and disease: kill them directly, or change the environment so they don't thrive. The first approach is constantly being sold to farmers. It's easy because the killing just needs poison and it seems efficient because we can't easily see the longer-term collateral damage from the poison. Even glyphosate resistance just makes the industry double down with ever more toxic brews.

We prefer to feed and encourage natural environments that our enemies hate. We've had no need for weedkiller or pesticide for years, which may be unusual. But most farmers would readily see the potential benefits of swapping buttercup for clover by adding lime, mulching hillside gorse only when we're ready to manage the resulting N boost properly (i.e. make sure the grass beats the gorse regrowth), and even mob-stocking.

At the moment, our main focus is to wake up our soil fungi. Soil-food web tests suggest there is plenty of fungi down there, but the lazy buggers are mostly asleep. We're aiming our next foliar (liquid) fertilise brew at kicking them into life, and the natural nitrogen cycle along with it. The plan is that the fungi will eat the N-storing bacteria, making the N and other things more available to the plants. This hope is based on wide reading and discussion. It does rely on a fairly complicated analysis and theory though, involving soils, soil critters and plants. So lots could still go wrong, but we're up for a multi-year process.

Meantime, we're getting on with all the compliance upgrades. Our place is at the head of a valley and the farm is cut up by several decent streams/rivers. If our cows routinely shat in the river, we couldn't drink the water and wouldn't want to swim in the river. We'd also be compromising the superb Pelorus Bridge swimming holes. The same goes for nitrogen leaching and phosphorus contamination, which in our case would end up flowing into the Pelorus Sound at Havelock - yuk.

I'm sure we share with many other farmers a sense of public duty to minimise our environmental footprint while farming sustainably. That includes making a profit which is still on our "not achieved" list, along with making our soils hum with energy, growing huge volumes of high brix fodder without big fertiliser bills, and breeding a superbly healthy and productive herd of cows.

I'm pretty sure that many dairy farmers will be interested to see how this works out, even if they wouldn't do it themselves. We're an enterprising lot. And we're not all the same.

Friday, 12 December 2014

Drunk & lamp-post - education edition

Amid the flurry of interest in the OECD research on inequality & growth, this RNZH editorial is surely a beacon, picking out the sadly obscured deeper message that what we really need is more charter schools. Thank goodness they could see through all the fluff and waffle and distill for us the real lesson </sarc>.

Let us ignore the fact that Eric Crampton and Tim Hazledine (not natural pals I'd suggest) agree that the report is not a strong piece of research. RNZH doesn't care, it just wants to spin a story from it. The final passage is where their true agenda shows up, with my comments in [red]:
The lesson of the OECD report is that education has to do better for those from households where parental expectations are low. [OK] They are increasingly being left behind in low-decile schools deserted by "white flight". [If only the white kids stayed, those poor schools wouldn't do such a bad job! Who wrote this?] The Government's incentive for other schools to help them might not go far enough. Equality for pupils might require less equality for teachers and schools, higher rewards for performance and leadership, mergers and takeovers, so that the benefits of reputable "brands" may be available to more children.
Competition has a way of closing the gap.
My day job is working as an economist on competition and regulatory issues. From that viewpoint, here are a few initial gripes with this argument.

  1. Competition from charter schools can only exist if it is first engineered by bureaucrats, who allocate fat payments/student to charter schools, much larger than other schools receive to serve similar populations. The charter school policy is a very costly intervention. It'd be nice if there was a cost-benefit analysis of it.
  2. The proponents of competitive education use market analogies, especially the weeding out effect of capital markets. For example, this paper finds that the performance of charter schools improves over time as shitty ones fail and are supplanted by better ones (my critique is here). That's fine if all you care about are investors, but what about the kids who are the fodder for the experiments. How can you ethically set up such experiments, knowing and expecting and relying on the fact that shitty schools will pop up and then fail? And how does that human cost to those kids get factored into the cost-benefit analysis for the whole program?
  3. What alternatives were considered if any? Is it beyond our wit to work within the existing systems and try to improve them? 
On the last point, it appears likely that existence/power of teacher unions are a factor in the decision to build a parallel charter school system. A pointer to an alternative approach is a current project underway at AirNZ.

It's new CEO (Christopher Luxton) started by inquiring into "stakeholder" views of the company and found a huge disconnect between the public view (largely positive) and the employees' view (largely negative). The obvious response was to collaborate more closely with employees - right? To listen and hear their views and give them a stake in decision making. So that's what is happening, for competitive reasons.

I recently met with a union delegate co-opted into this project who told me that, while initially very sceptical he is now fully on-board and so are his (engineering) shop-floor mates.

Feel free to discuss the similarities and differences between AirNZ and education in the comments section below, or not.

Friday, 21 November 2014

NZ's Mickey Mouse Farming Establishment

The NZ Farmers Weekly reported this week that "the primary sector and chemical companies" are annoyed at NZ government policy over protectionism. This is an interesting coalition, which has only recently formed after Federated Farmers "altered its stance" where by "altered" they mean "reversed" - it was a 180 degree U turn flip flop.

The common concern of these newly aligned groups is that two official agencies don't grant enough monopoly power to the chemical companies. Specifically, the Environmental Protection Agency (EPA) and the Animal Compounds Veterinary Medicines Group (ACVMG) can and do
approve and register new uses for similar products from competing companies without those companies always having to submit testing data specific to their product.
This sounds a bit like the Pharmac model to me. If someone comes along with a generic product that uses a well understood active ingredient, they can get it approved and registered without always having to supply their own test data.

It seems that "the industry" is wanting 10 years of monopoly power to apply in each of three different scenarios

  • new formulations based on active ingredients new to NZ;
  • new uses - reformulations for already approved products; and
  • reassessment of use for established compounds. 

It sounds as though the second of these is the main gripe. Reading between the lines, my guess is that the chemical companies use this angle to periodically extend their monopoly power by the simple device of changing some of the non-essential ingredients to produce a "reformulation".

The article includes a large dose of self-serving rhetoric about how if we don't look after (foreign) shareholders in (multinational) chemical companies they might not invest in "further innovations". Brazenly, it seeks to use the small size of the NZ market as a weapon (hard to recover local costs without a longer monopoly), while ignoring the corollary that innovation depends on global profit in which calculus we are but a tiddler.

I expect such sophistry from "the industry" but am very disappointing to see the Feds supporting it, especially since it had earlier opposed time extensions. Is this an evidence-based flip-flop or is it just something that happens to suit their new President's private interests and/or his known fondness for GE technology?

This whole topic reminds me of the famous Mickey Mouse curve that shows how copyright duration in the USA kept getting extended as Disney's rights approached expiry. If monopoly rights can be provided through laws or regulations, there will always be pressure to create and extend them.

Tuesday, 4 November 2014

Charter schools - could do better

As NZ's charter partnership school experiment gets cracking, now under the guidance of David Seymour, a new study(pdf) has emerged looking at 10 years of data from the Texas experiment.

The big news is that it shows that Charter Schools Get Better Over Time, a line that has reverberated around social media today.

Well I should hope so. Isn't that what we expect of all schools? It seemed so odd to trumpet such a weak result that I had a wee peek at the paper itself and found that

  • the result is actually much stronger that just "get better"
  • but highlighting its strength would be embarrassing to charter school fans. 
What they study actually found is that charter schools were really terrible at the start, but are now nearly as good as normal schools. Texas started their experiment in 1995. The study period was 2001-2011, so there were 6 years excluded from the start. Even so, by 2001 student achievement results were still appalling. Here are the distributions of "value added" in reading and mathematics across the sample for charter and normal (TPS) schools.

What you want is a nice tight (peaked) distribution indicating that you're doing pretty well for almost all students. The reading distributions improved a bit faster than the maths ones but even at the end, of the sample they aren't quite as good are they?

I get the idea nicely described by Donal Curtin that kids are so heterogeneous that more variety in schools could be useful. However if that really was the objective, it's far from obvious that the charter school system is the best approach. They seem hella costly (though the Minister has no figures), and the Texas experiment suggests that many students got a bum deal for many years. That is a massive cost to future citizens. I'd love to see the analysis behind this policy.

Monday, 27 October 2014

How to knobble Pharmac

The fate of Pharmac under the TPPA is of enormous public concern. Pharmac gives kiwis a degree of market power over foreign drug companies. As the single public-sector buyer of drugs, it can make good use of legally produced generic drugs made from expired IP.

We know that big-pharma hates it, and one of the USA's goals for the TPPA is to gut it.

But how could our government get away with doing that? How would they try to sell it? I got a clue on twitter last night after I corrected Matthew Hooton's claim that "everyone" would benefit from the TPPA. Here is are the lines...

So, hell no, we love Pharmac. There is no suggestion of killing it. We just want to enhance it a bit so that "everyone" is better off.

Think for a tick about alternatives to Pharmac. One is that DHBs etc buy their own drugs, so there are multiple buyers. That could still work out OK because each of these buyers would still have a bit of market power, and it'd give NZ a solid response to any claim that Pharmac was unfair under world trade rules (if we felt the need to respond). But this would be perhaps even worse for big-Pharma - all those individual buyers to schmooze.

Far better, for big-Pharma, to have one "regulator" and make it utterly captured. So keep Pharmac but remove its ability to make it's own choices. Brilliant.

Saturday, 25 October 2014

On the hosting of worm orgies

Nicole Masters ran a biological farming workshop yesterday, hosted by agricultural innovator Doug Avery at Grassmere. There were about 40 people, mostly sheep & beef farmers from Marlborough and Canterbury, lapping up scientific findings about how all the soil critters (nematodes, cilia, worms, bacteria and fungi) interact with the soil, the plant and each other. We also swapped ideas, shared our experiences, dug holes, tested plant brix and did a slake test. 

The basic idea we are chasing is that, left to their own devices, plants and soil critters really work helluva well together. Plants create sugars through photosynthesis, and share it with the soil critters. In return, the soil critters supply nutrient harvesting and storage services to the plant. For example, they unlock bound up Phosphorus and store Nitrogen harvested from the atmosphere.

Farmers can foster this natural exchange of services or buy substitute services from the fertiliser companies such as bagged Nitrogen and soluble Phosphorus.  

It has long been known that the physical structure of the soil is crucially affected by a chemical balance between calcium and magnesium. Tightly bound soil with few air passages can be loosened up by adding calcium, helping them retain moisture and providing habitat for soil critters. There is a lot more to soil mineralisation than the Ca:Mg balance, but its an important starting point. 

There is an analog to this in soil biology: the balance between bacteria and fungi. When soil building is just starting (eg from rock) bacteria dominate and fungi are largely absent. Eons later, under mature forests the reverse is true. Every time we cultivate, we slice and dice the soil critters which sets back the fungal elements. The balance can be restored using fungal-promoting additives like fish oil and humates.

When a soil is well mineralised and in biological balance, there is an absolute hive of activity going on down there, all working symbiotically with the plants. The soil becomes more sponge-like, and drought-resistant. Carbon is being sequestered and humus being built. It is also warmer: farmers in snowy regions notice that the snow melts far quicker in places with good biology. That's partly because of heat generated by all the worm sex going on.

Several of the farmers we met had never been exposed to these ideas before and were pretty excited about the prospects. We all came away re-energised and keen to try out some new practices in an effort to get these worm orgies happening.

Saturday, 11 October 2014

Welfare reform margins: income or wealth?

As I understand it the main reason we need welfare reform is to 'encourage' people back to work.

We think that if these people just applied themselves a bit, they'd find work alright. But they don't so we need to encourage them.

Let's assume this is correct. It is basically an attitude problem - right? 

The economic logic of the target group goes like this: why bust my balls in a nasty jobs market if I can survive OK and keep the bureaucrats off my back with much less effort. This is just our old self-interested friend, homo-economicus. Which makes these people the smart ones, aware of and responsive to the incentive structure.

There is another group who are actually incapable and vulnerable, not ruthless calculators. We want them to have a reasonably OK life, so we set benefit levels that achieve that. 

But then the ruthless bastards pretend to be incapable/vulnerable. So we get angry at them and spend money hassling them, which also hurts some of the really vulnerable. Welfare reform basically involves more spending on hassling beneficiaries.

It's only 'needed' because of the incentive traps built by welfare targeting. As the 2001 tax review(pdf) put it:
More targeting means more people facing high effective marginal tax rates as they try to move out of benefit dependency.
The alternative is some kind of universal basic income (UBI) support. This was considered by the 2001 tax review and rejected on grounds of excessive cost. Gareth Morgan later argued otherwise. I'm not sure where this argument lies currently.

But I suspect we have not thought enough about the U in UBI. The motivation for universality would be to reduce the effective marginal tax rate (EMTR) faced by beneficiaries contemplating work options. These tax issues are entirely income-related: a UBI is a government guaranteed income level for all adults irrespective of their income.

Why couldn't we cut or abate the UBI according to wealth though? That would eliminate payments to a large number of well-established people who have no need of a state subsidy. It would allow people to collect the UBI until they had accumulated wealth of some agreed amount, such as $250,000. Maybe it'd abate after that point. Perhaps it'd become a point of pride to be having one's UBI abated away.

The economic rationale for this approach is that the elasticity of labour supply is likely to be much higher relative to income than wealth. If this is true, we should allow people to collect all their wages at the margin (keeping EMTRs low), but wind back that privilege as they become more wealthy. Then we have pretty much zero need to hassle people into the job market.

We would of course need to monitor asset levels more closely, as we currently do for old folks

Thursday, 9 October 2014

Child Poverty, Housing & the RMA

Eric Crampton's argument connecting child poverty with the RMA has given the government a terrific angle. Bill English miscued it though, claiming that
"our planning processes have probably done more to increase income inequality in New Zealand than most other policies" 
and was rightly skewered by Max Rashbrooke noting that inequality is an old problem in NZ, whereas rampant housing costs are relatively new. English would have been on safer ground if he'd either referred directly to child poverty directly or to increasing inequality of disposable income.

But enough with the backward-looking stuff: we should at least welcome the new focus of the government and the NZI on inequality and child poverty. Let us look forward then, to what can and should be done about inequality and child poverty in New Zealand.

We should start with the split in household budgets between the income and cost items. The income side of this split is left largely unexamined by the government or the NZI - the market rules here, and that seems fine by them.

But even if we want to ignore labour market contracting issues (don't mention the minimum wage!), we can't think about the impact of RMA/housing costs without considering at least the location of jobs. At which point it is much less obvious that the RMA is to blame. Instead, it seems to me that

  • manual jobs have largely migrated out of city centres as have manual workers, and
  • apparently more productive sectors such as FIRE have displaced them - jobs and workers both. 

These movements show that/how markets adapt to changing values. All workers want the best pay close to nice & affordable accommodation and all employers want happy workers. But why, even after following their jobs to the edges of cities, do manual workers still struggle to avoid poverty?

I'm also uneasy about assuming that removing environmental protections and consultation opportunities from the RMA will reduce housing costs. Even if it does lead to more housing being built, market forces are likely to allow them to be sold at current prices. Unless there is a very big surge in construction, we are not going to see significant house price reductions.

So the best we can hope for with housing policy is that it might stop making child poverty a lot worse. That's not nothing. Major changes to the RMA might, if we're lucky, help stop or reduce future growth in child poverty, but it will not address the problem we currently have.

Wednesday, 1 October 2014

A tale of two lemons

At first glance, you might think these were not both lemons: one definitely looks more like an orange. Having them both in the fruit bowl reminded me of a wee story about the importance of feeding plants.

A couple of years ago, we went to a biological farming course run by Arden Anderson. Among the many gems was the idea that all plants have the ability to produce oils/waxes, and that we can get them to do this by careful feeding.

It sounded slightly OTT to be honest. We tend to think of oil-producing plants as being special things, like avocados, sunflowers and jatropha. So the idea that you might get oils or waxes from just any old plant sounded a bit weird.

Then we remembered our back yard. We were living in Auckland at the time and had a big lemon tree which produced quite well but had recently started to really excel itself. Lynne had taken to dosing it with worm castings from the compost and the lemons had changed very noticeably. After slicing in half and squeezing your hand was covered in an oily wax.

If a lemon can be supercharged like this, perhaps Arden is right. Maybe we can also do it with other plants, including the pasture on which NZ's agriculture depends. I doubt that the industry standard fertiliser practices will get us there though.

Tuesday, 30 September 2014

Status update

Our own golden boy Graeme Hart has been in the news a bit lately. First his old super yacht (left) was put up for sale, then he launched the new one and then yesterday the Royal NZ Herald printed this lovely piece about how much better he is than other billionaries (younger, richer etc). I don't know much about the guy, but he seems like a real risk-taking entrepreneur to me. Most people who make $100m don't go straight out and borrow several times that much to sink into another company. 

Against that background, this paper(pdf) from the US Federal Reserve caught my eye. The authors studied the spending patterns of households and linked them with their neighbourhood income distribution. It turns out that people with incomes towards the top end of their local income distribution spend a lot more on high status cars, are more indebted and have riskier portfolios. 

So what? This is just how entrepreneurs behave, right? Well not really, because it turns out that this effect varies across neighbourhoods. The authors report 
a large positive association between income inequality inside a county and the fraction of high status cars sold. And consistent with the household level results, we also find higher levels of consumer leverage in more unequal counties.
So income inequality does seem to result in conspicuous consumption as Veblen argued in 1899 after observing the last gilded age.

Friday, 26 September 2014

Farm boundaries

Before we blundered into dairying 5 years ago, I had the idea it was basically about growing grass and selling milk, but right from the start we've been paying for grazing and extra feed.

Which is really a pain in the arse. Hay and baleage sellers don't want to contract ahead because they're always hoping the market will be tight. Graziers aim for high prices and modest feed regimes. Palm kernel (which we never use) looks like a horrible market for buyers. Large feed bills are bad enough but these extra hassle costs just suck all the fun out of it. 

We ended up taking on debt to buy our own support block in response. This pushes out the farm boundaries so we grow our own silage, hay and replacement grazing. On the Dairy NZ scale, we are transitioning from system 4 to system 1.

Now we're considering a similar move with replacement calves, using a modified version of the Madre method. The basic idea is to leave the selected calves with their mothers - they say for 10 months, but that seems a bit excessive to me. The Madre method avoids a lot of work and supplement costs (moozli etc), but more importantly it must give you better quality heifer calves. Over time, that improves the herd quality. 

These low-revenue seasons are a reminder that d-i-y has real value. At times like these, we all need to think carefully about the scope of operations. It might well be better to exit some markets entirely.

Thursday, 25 September 2014

Competitive exchange rates

This is a non-concept apparently, and I'd really like to know why.

Economics is my day job and I'll tackle just about anything but definitely not macroeconomic theory, because I know almost nothing about it for reasons we don't need to explore.

From this position of utter ignorance, I'd really love to know why we shouldn't care about the exchange rate. Because my very crude argument suggests there is at least an arguable case for the RBNZ to lean against the exchange rate. It goes like this.

  1. Suppressing the exchange rate is feasible. We would go bust very quickly if we tried to pump up the $NZ, but we could keep it low for an extended period if we wanted.
  2. It would expand the scope of the non-traded sector. At the margin, there would be more kiwis doing productive work here, because they'd be more competitive with foreign producers.
  3. The tradable sector would benefit, for obvious reasons. 

The price of imports would rise of course. That is a negative. But its not a-priori obvious why it exceeds the benefits.

Balls and Players

Dirty politics was the main reason I voted against the government at the election. I just didn't trust National to undo, dismantle or otherwise prevent the systematic corruption of our political processes. It seemed it'd be too hard to resist the temptation to keep using such a successful innovation. That view seems vindicated by Keith Ng's post, especially his links to the ratfuckers, and by Nicky Hager's commentary on the election.

This poses a problem for those of us opposed to dirty political methods. We might be assisted by various inquiries but that's a slim hope given the scope of executive power in New Zealand. So what can we do?

A recent post by Giovanni Tiso starts to explore some options for people who feel this way. My contribution here is about clearly defining what is and isn't a dirty ratfucking smear.

The easy answer is that personal attacks are bad, mkay? In sporting parlance, we should attack the ball (i.e. the issue), not the player. But applying this simple test is not so easy, because two types of error are quite easy to sell and the culpable are usually pretty good at selling misinformation.

  • False positives are when someone is wrongly accused of being a ratfucker. For example, it was common for National and its allies to describe Nicky Hager in these terms: he had orchestrated a smear campaign against the PM's integrity.
  • False negatives are when actual ratfuckers are wrongly defended. Thus, Mr Slater is just someone who runs his own ship, Jason Ede talks to lots of bloggers, and Paul Henry's casual racism is just "saying what everyone thinks".

The false negatives can be fought in a straightforward way - provided evidence is available - but the false positives raise an extra conceptual issue. Sometimes, personal integrity is actually the issue. This was obviously the case with Judith Collins, and many consider it also applies to the PM.

In these cases, how can we simultaneously argue that personal attacks are bad and that person X has no integrity and is unfit for office? I think there are two options.

  1. Avoid the point. Don't say: "person X lacks integrity and must be fired". Say: "these Y cases involve serious errors by person X which collectively show that X is ill-suited for their current role". 
  2. Refine the rules. When someone fails at their job, calling out that failure is a professional attack, not a personal one. For example, if the fullback is missing tackles we should say so, but her sexual preferences are irrelevant.  
The first of these involves a passive aggressive form of language that will be familiar to anyone who has made poor choices when employing others. It sounds slippery and disingenuous and gets close to Harry Frankfurt's definition of bullshit.

So I reckon we should continue to oppose personal attacks and be very clear about the distinction between personal and professional failures.

Tuesday, 9 September 2014

Insider Trading

As a self-confessed competition geek, I've been puzzling over the business of politics.

We like to think of politics as being highly competitive and in normal markets that would lead to innovation. Commercially driven innovation is usually aimed at developing market power of some form, such as a scientific or procedural discovery that takes rivals some time to mimic.

I think that's exactly the kind of innovation embodied in the business model exposed by Dirty Politics. National's aim was always to gain more control, more power in the (political) market. By succeeding, it has imposed three really big costs.

  • First is the opportunity cost. Political innovation should be aimed at developing a contest of ideas - an active and disciplined search for beneficial policies. But we never quite get around to this bit though, because the competing politicians are busy seeking power rather than progress. 
  • Add to that the direct costs of running the character assassination business itself, in the form of innocent people being trashed and good people being slowly corrupted. 
  • Then there is the incentive effect on other politicians. This is obviously a very successful innovation so (reverting to market analogies) you'd expect it to be copied. Then we're all at it, and its just the new way we do stuff, so rinse and repeat these costs ad infinitum.

If this makes sense as a problem definition, then we should respond by trying to kill the business model. Which means recognising the source of the market power that John Key's government has acquired: access to inside information. That is the scarce commodity being traded.

Insider trading is banned in financial markets because it corrupts the market and diverts activity/resources in the process. We should ban it in political markets too, though I'm not sure how we go about that in practice. My sense is that we need much better controls around the use of information by politicians and their staff.

Sunday, 31 August 2014

Ethical government

What is fair and reasonable for a government to do? That's one of the big questions underneath the Dirty Poltics scandal.

The group that Nicky Hager exposed unethically nobbling candidates for party selection is certainly not the only one to have done that kind of thing. There are serious ethical questions about this stuff across the political spectrum.

But as Judd Hall's whanua and Simon Pleasants and Tania Billingsley know, it's not just aspiring politicians that get knifed under the current system. It's anyone inconvenient.

So there is a much more general and important issue here, about how our politicians behave, to us mainly but also to each other. In previous waves of reform, "we" (our MPs) have tied the hands of government financially, through measures such as

  • the Fiscal Responsibility Act. which is like an information disclosure regime for the government; and
  • the Reserve Bank Act which delegates monetary policy to technocrats.

I like both of these laws for the transparency and discipline they provide. They seem like part of our constitution. The rules are clear and if someone tries to circumvent or fiddle with them we have a clear standard to which we can appeal.

Why don't we have something similar for political ethics? Some simple and clear principles that constrain the way governments conduct themselves and their interactions with the rest of us.

It could be like the codes of conduct we have in many other professional sectors like medicine and accountancy and law. Politics is at least as important to our overall wellbeing as these professions yet there is no agreed ethical code. Why not?

Monday, 18 August 2014

Milk and bullshit

In an early reaction to Nicky Hager's book Dirty Politics, Rocky picked up on the politics of breastfeeding. It alarmed me to see Fonterra linked to a campaign to denigrate breastfeeding, so I asked them about it on twitter.
After a couple of less than fulsome replies, Fonterra eventually came up with this.
which pleased and satisfied me until this happened
Which made me angry enough to go digging....

It turns out that the Philippines Department of Health issued a memorandum 
prohibiting multinational firms that manufacture infant milk and other nutrition products in the country from using registered trademarks that may erode the efforts of the government to promote breast-feeding
That could sound a bit rough - trampling on trademarked IP. But the court found it lawful and in line with Health Department's the duty to impose
reasonable regulation of an industry which affects pubic health and welfare
The background is interesting and relevant. It seems that the trademarks in question include dodgy material, so the Health Department sought a ban on
the use of trademarks that contain health and nutrition claims that may undermine breast-feeding and breastmilk on the labels of infant formula
This was particularly concerning given the results of a recent survey 
Based on the data, only 34 percent of Filipino infants less than six months of age exclusively breast-feed, thus, leading to under nutrition. It attributed the weak breast-feeding culture to the manufacturers and distributors of infant formula and other breastmilk substitutes that have taken undue advantage of the loopholes in existing laws relative to breast-feeding and infant and young-child feeding. 
.....milk companies are able to glamorize infant formula and breastmilk substitutes through false health claims and other attractive marketing strategies that are deemed to undermine breast-feeding.
There is a sizable market for infant formula that I'd be happy supplying. Sometimes it is needed and sometimes it is just convenient. But it seems wrong and nasty to be promoting infant formula to a mass market, particularly if you're smuggling your messages in through trademarked images.

The Philippines infant formula suppliers' club IPNAP (which includes Fonterra) opposed this memorandum, provoking the court case which it lost. This action alone seems in stark conflict with to the WHO-sponsored International Code of Conduct of Marketing of Breast-milk Substitutes, to which IPNAP pays lip service.

So what the hell is going on? Is Fonterra feeding us bullshit? Does it have systems in place that actively monitor its obligations under the International Code? Where does it report on that monitoring? We need some answers.

Friday, 15 August 2014

No sympathy for the devil

What do you think about this?

This was motivated by compassion for a clearly damaged person which is very sweet indeed. It got me thinking about unusually annoying kids - the ones who delight in getting they own way by manipulating and/or bullying others. Most of us have known kids like that and I assume we all have a bit of a crack at getting them straightened out.

They are often self-obsessed to the point of preferring to wreck stuff to get noticed, and creative/entrepreneurial over how they do the wrecking. I've been told that some of these kids have incurable mental illnesses and maybe they do but they seem like naughty brats to me.

I reckon they could be straightened out by forcing them to face appropriately serious consequences for anti-social conduct. Even if that doesn't cure them, it is fair.

Wednesday, 6 August 2014

Scientific competition

Most would probably agree that it was a good idea for New Zealand to appoint a Chief Science Advisor back in 2009, and that doing so has raised awareness of the way of science stimulates innovation, which in turn is the potential source of many benefits. But science policy in general is rather less loved, judging by a recent survey of scientists. Here, for example, is the summary of responses to question 3.

I guess the idea of "National Science Challenges" stemmed from the popularity of innovation competitions generally, which sometimes amount to outsourcing an R&D task (as Netflix did) and other times aim to promote entrepreneurship generally such as the Spark competition at the University of Auckland. Maybe if you surveyed everyone who entered those competitions you might also find lots of people were not terribly gruntled and a few (the winners) who loved it.

But the nature of science adds a couple of extra dimensions here.

First, as Stephan's essay on the economics of science notes(pdf), the normal practice of science is a highly competitive, winner takes all affair. The imperative of getting "there" first is strong enough to make scientists secretive, possessive, perhaps even jealous and devious in their dealings with "colleagues". Participating in another winner-takes-all competition might not be too thrilling against that backdrop.

Second, while these people are highly skilled professionals, their job security in New Zealand is not great. Unless the research funds continue to flow, the job might not last long. And they're vulnerable to idiosyncratic decisions like the closing of Invermay. In that context, the funds on offer in these science challenges might look more like desperately needed resources than some cool extra fun.

In normal markets, competition doesn't always stimulate innovation: if it is too intense, there is no money to pay for R&D; and if it's absent there is no need to bother. So innovation doesn't happen so much at those extremes. I suspect something similar might apply to science in NZ, with the best way to promote scientific innovation requiring more of a balance between job security and competition.

Tuesday, 5 August 2014

Planner induced madness?

Planners hold the main advisory role in local government zoning decisions. They're a well-meaning bunch but they can drive economists to distraction because they often don't analyse trade-offs in any detail. As a result, they can come across as being driven by the subjective preferences of themselves and their friends.

I'm wondering if perhaps this planner-induced effect is partly responsible for the local government finance views expressed by NZ Initiative director Oliver Hartwich in this excellent profile. Hartwich said he'd like to
abolish the rates system tomorrow. I would like to introduce a local income tax and give local governments more control
This is a very strange proposal for anyone familiar with taxation economics. Most taxes make us change the things we do. For example, you face an income tax of 60%, you might work a bit less than if the rate was 30%. That reduces the total value created by working, which is an efficiency cost. The more price sensitive something is, the greater the efficiency loss from taxing it.

This is why it is more efficient to tax real property than flows of income or spending: you get less behavioural change so smaller efficiency losses. There are other benefits too, for local authorities: it's easier to do and (compared with an income tax) your tax base can't get up and relocate to another jurisdiction.

What would we gain for all that inefficiency cost? Hartwich seems to think it'd give councils better incentives to promote house building. He got this idea from Europe where he reckons that
local councils who were funded by rates had perverse incentives to limit development, as new projects added to infrastructure costs without directly boosting council coffers.
I think perhaps he is unaware that in New Zealand councils routinely charge developers fees that are designed to recover the extra infrastructure costs, so there is no such perverse incentive here. It might also be worth noting that there are 67 councils in New Zealand who would have rates funding abolished, but more house building isn't a pressing issue anywhere except Auckland and Christchurch.

So I'm hoping this idea is examined more closely and unless there is a lot more benefit lurking somewhere, I'd expect it to die at that point.

Wednesday, 30 July 2014

Taxes or Haircuts?

There's an interesting dialogue here between economist Thomas Piketty and anthropologist David Graeber whose piece on bullshit jobs is good fun.* Graeber gets schooled a bit by Piketty.
Piketty: ...I loved your book, by the way. The only criticism I would have is that capital cannot be reduced to debt....
Piketty goes on to point out that capital has grown faster than debt, so collectively "we" are actually better off economically. But when growth stalls, as it has, wealth concentration increases (because r > g).
Piketty:  ...This is not a problem from a strictly economic point of view, but it certainly is in social terms, because it brings about great concentrations of wealth....
I think this is correct: wealth concentration is primarily a social issue rather than an economic one, though the desire to protect wealth might well induce policies that limit economic activity. Anyway, there are basically three options for mitigating concentrations of wealth:

The two gents disagreed over these options: Piketty favoured wealth taxes while Graeber kinda went along with haircuts. We take up the dialog just after Piketty points out how easy it is for the wealthy to offload liability onto some poor sap, thereby avoiding the consequences of any debt cancellation.
Graeber: No one is saying that debt abolition is the only solution. In my view, it is simply an essential component in a whole set of solutions. I do not believe that eliminating debt can solve all our problems. I am thinking rather in terms of a conceptual break. To be quite honest, I really think that massive debt abolition is going to occur no matter what. For me the main issue is just how this is going to happen: openly, by virtue of a top-down decision designed to protect the interests of existing institutions, or under pressure from social movements. Most of the political and economic leaders to whom I have spoken acknowledge that some sort of debt abolition is required. 
Piketty: That is precisely my problem: the bankers agree with you!
Piketty implies that neither the bankers nor their major clients (on average) will be seriously hurt. It'll be some other random that took a risk and therefore deserves to carry the can. That's basically a tax efficiency problem: you aim at the wealthy and hit someone just getting by who sank their life savings into a bond.

A wealth tax wouldn't have this collateral damage. It could also be quite an efficient tax compared with taxing income (less likely to undermine effort) though there would be evasion through tax havens. Still, I have to agree with these last comments from Piketty
Is it possible to fight tax evasion? Yes, if you want to, you can. When modern governments really want their decisions to be respected, they succeed in getting them respected.
When Western governments want to send a million soldiers to Kuwait to prevent Kuwaiti oil from being seized by Iraq, they do it. Let’s be serious: If they are not afraid of an Iraq, they have no reason to fear the Bahamas or New Jersey. Levying progressive taxes on wealth and capital poses no technical problems. It is a matter of political will.
So there you have it: back to politics.

* Ryan Avent has a good review of Bullshit Jobs here.

Tuesday, 15 July 2014

How you gonna come?

I've been hating on the SS Times since their editorial on Sunday which called Tania Billingsley a self-confessed 'activist' (h/t Russell Brown). What a repugnant and revealing expression.

Life serves up tricky questions all the time and we choose whether to ignore them or respond in a more active way. An old woman falls in the street - do you passively avoid her or actively help? What if she was being robbed - look away or do something? In both cases, most of us would be active and would not feel ashamed about helping out. No need for confession.

What then is the essential difference between this kind of activism and the stuff the SS Times considers shameful? Both seek to help victims, that's for sure. But they do so in quite different ways. Administering aid is universally admired activism but seeking to change the conditions that give rise to the need for aid, as Billingsley has done, is somehow dirty or sinful.

The reason for this distinction is perfectly obvious: political sensitivities. Billingsley raised the broader issue of rape culture, and criticized McCully's bungling and Key's boredom. That's three strikes, all at once. Not to mention the timing: just as we were all having such fun laughing at Cunliffe. This is why the SS Times went for her.*

They missed the irony of course, which is their own activism. Bravely stepping in to smack down Ms Billingsley who they consider a dangerous perpetrator, of something.

Speaking of such things, Bill English is reported today as saying the NZ is "not taking sides" in the latest genocide by Israeli. This takes the passive strategy to a whole new level. We can all see the old woman being kicked to death by a gang, but we look the other way and pretend that what's happening is a fair fight. Not even lip service to human rights or dignity. Despicable.

And now, in preparation for work, I shall rinse my brain out with the Clash.

*The patronising concern troll stuff does not deserve a response.

Saturday, 12 July 2014

Factory milk

If anything should shock my fellow dairy farmers into a rethink, it'd be the commercial threat of this non-cow milk.

What a great idea. Who needs all that outdoor drudgery? Lets just make milk in a factory - eliminate the costly middle-animals (cows, farmers). This plan is efficient, disruptive, and innovative. What's not to like here?

And it must be right, right? Because it's scientific, and we trust scientists for they are truth seekers. So this is must be a truth, which raises a few questions.

Most obviously, why doesn't this absolutely trump any potential dairy-related benefits from GMO grasses etc? The localGMdudes reckon we need to go this way, but if lots of people really don't give a shit about the quality of their milk, would lab-milk not be just as attractive as GM-fed-milk?

For the rest of us, this is all the more reason to work on our understanding of environmental and natural systems.

Wednesday, 9 July 2014

Campaign finance: open-source polling edition

I'm really enjoying the contest of ideas thrown up by this election but am utterly in despair at the way the political game is played. A recent pair of examples shows the benefit and curse of competitive politics. In both cases, ideal policy settings would reflect a trade-off between two desirable things, but that can't be admitted in competition because a differentiated stance will get more votes.

You've probably already guessed that my examples from the last week are education policy and the environment/economy issues. On education, it is obvious to all of us that we should aim for smaller classes and better teachers right? Yet we are being asked to pick one and vote for it which is way beyond annoying for many of us I'm sure.^

I don't find the environment/economy issues quite so tricky because National wants to gut the RMA which for all its faults does actually require trade-offs to be assessed. Fast tracking the economy over the environment is obvious madness, so the choice is easy. In this case, what really gets my goat is the utterly disingenuous propaganda pedaled by the Feds, who hate the Greens and their carbon tax so much that they'll make up any old rubbish to rally the troops.* So maybe, since there seems to be no rational argument, there really is a fundamental conflict about what we value.

Which would be a great thing to be discussing. But we don't discuss our own values, do we? In fact, at times like this only the political parties have insight into what we value through their polling. But they filter all the information and use it to design policies they think we'll like.

So here's the crazy idea. Give political parties a publicly funded polling budget, so they can find out what we think, on the condition that all polling data are provided on a free and open-sourced basis.

The pollies get to pose the questions, but everyone gets to see the questions and the answers because we paid for it. This would empower citizens to spot madness and offer new ideas, or at least get a better feel for how our fellow Kiwis feel about stuff.

^ If policy was rational, it'd surely consider advancements in quantity and quality.
* I will remember this when the Feds new President fires up his pro-GE campaign, as he surely will.

Friday, 4 July 2014

New or Improved?

There is an interesting tendency for politicians to prefer selling entirely new ideas over the alternative of improving what we already have. I'm not sure how general this is, and it is perhaps mainly an opposition trait, but two examples stand out.

Electricity is one. As I've been saying, the main thing needed in our electricity sector is for the existing regulator to use its existing powers in a more effective way. The regulator apparently disagrees, so we're all suffering from a dearth of independent retailer competition. Faced with this scenario, opposition parties advocate something entirely new in the form of NZPower.

Much the same phenomenon is happening in climate change policy. We already have a cap & trade scheme in place (the ETS), but it has been neutered by politicians. An obvious option would therefore be to un-neuter it. Instead, the proposal is for a carbon tax. I happen to think a tax is a better idea because of the price certainty it gives investors. But there would also be great benefits from a properly calibrated ETS.

Reform is clearly needed in both these cases, and politicians have to sell reform somehow (except when they give us those nasty post-election surprises). What surprises me a bit is that "new" is perceived as more attractive to voters than "improved" in these cases. It suggests that the existing systems have lost a lot of credibility.

Saturday, 28 June 2014

Taxing cows

The Feds seem quite chuffed with their argument against the Greens' carbon tax proposal. They need to revise that position I reckon.

Stripping away the smoky trimmings, the argument can be summed up in this set of quotes
"even the Greens' report acknowledges 10 per cent of our dairy farms would be vulnerable, making our dairy industry less competitive"
"we would need to slash production. With current technologies, that is achievable only by cutting livestock numbers" but "our lost production would be replaced by others"
"the United Nations Food and Agriculture Organisation (FAO) believes we have the most carbon-efficient dairy farmers on Earth"
so "Given our carbon efficiency in dairy is almost twice the world average, if we transferred our dairy production overseas, net global emissions would increase by a staggering 13 million tonnes per year."
If you hated the carbon tax already you might quite readily fall for this argument, so the Feds love for it is perhaps understandable.

But look: those dairy farmers (10% of 'em) are financially vulnerable, so a carbon tax is (from a vulnerability angle) no different to a hike in interest rates or fertiliser prices.

A big enough cost increase might cause some kind of financial restructure at some farms, but would dairy farming stop altogether at those locations? I reckon it'd be far more likely to continue under new ownership. And this is the central question: would this financial impost on dairy farmers actually lead to less dairy farming than we have now?

The Feds assume so - that's their mirror/twinkle/twist, the key to their killer argument. This is the assumption they need to believe in order to claim that a carbon tax will increase emissions.

So the Feds underlying claim is that the proposed carbon tax will cause a material change in land-use in New Zealand: a moderately large number of dairy farmers will look at the tax, look at their dairy operation, and say: "yeah, nah, lets do sheep and beef instead".

This is just not going to happen. The proposed tax is far too small to force many farmers to convert from dairying to sheep & beef.  A top performing sheep beef farm is said to have similar returns on capital to dairy, but there is a lot more capital in the dairy farm. Reverting to the lower value land use strands the capital you are abandoning such as the cowshed - it won't be earning anything at all.

I reckon the Feds should take themselves off somewhere quiet, have a good long think, and then dispose of this silly argument in a suitable receptacle.

Thursday, 26 June 2014

Just how badly are we being screwed?

Those of us who live outside the main cities get royally screwed by Air New Zealand. We all know this even though it's difficult to document properly - complex pricing doesn't only suit mobile phone companies.

Things are different on the main routes because they have enough travellers to support competition
from Jetstar. On those routes, the airports have stronger bargaining positions than airlines, to the point that three of them are regulated, albeit in a pretty light-handed way: they are required to publicly disclose detailed information about their costs and prices.

The boot is on the other foot for regional airports, who are keen to retain and increase airline capacity, but there are no corresponding disclosure obligations on the only nationwide carrier: Air NZ.

It is not unreasonable to suspect that AirNZ is using super-profits from regional travel to help it compete harder on competitive routes. That might be a good thing overall, but there is an obvious risk: that rivals get driven out of some routes which revert to monopolies.

The really interesting question though is what, if anything, could/should be done to promote competition on regional routes. I'm not sure of the answer, but I wonder if a carefully designed information disclosure regime might be helpful. Australians have way better public data on such things, including detailed airport-level data on plane movements and passenger counts. Copying this would be a good start, but there might also be a case for requiring the dominant carrier to disclose average fares. The benefits would be a better understanding of the scale of the problem and of where the dollars are for entrants. There would also be costs, but surely this is at least a question worth asking?

Saturday, 21 June 2014

Two monsters

The urban/rural fault line was exposed yesterday when farmers became protesters, parading through downtown Waipukurau under the slogan "Don't damn the dam", an upside-down remix of the classic 1973 slogan.

Who were they shouting at? Surely not the big dollar investors - those dudes pulled out ages ago for purely financial reasons. You might have thought that a crap business case would kill the whole idea stone dead, but you'd be wrong. Because this is a pet project of the Council, so the costs of pushing ahead are being socialised throughout Hawkes Bay, which has some pretty poor residents.

No, the more likely villains for the protesters were the members of the Board of Inquiry established by the EPA acting under modern legislation.

You'll never guess what these Board of Inquiry twits did. They didn't just listen to scientific evidence about the impact of nitrates on water quality, they took it seriously. Result: nitrogen leaching caps that will devastate farming, according to Irrigation NZ, a lobby group.

So the dam has been killed twice. Once because the numbers didn't stack up even before the environmental issues were determined, and then again a second time to preserve water quality.

Its pretty odd that a twice-killed dam is still not quite dead. Must be some kind of zombie.

Since this is Ruataniwha, maybe there are two monsters involved somewhere. If so, one of them is surely the urea business, which has gulled farmers into thinking that nitrogen can only arrive on the back of a truck. These farmers say "We can't farm under those leaching limits". And its true: they can't. But the real limit is in their minds - others can and do farm successfully and profitably with minimal nitrogen leaching.

I'm not sure what the other monster is. Maybe those laying the astroturf for this protest?

Friday, 20 June 2014

Milk price volatility

Commodity markets have volatile prices, and its natural to seek ways of hedging the resulting risks. But you can't hedge without a counter-party. This is why retail electricity competition is weak in NZ - none of the big guys want to hedge because they are already on both sides of the market (vertically integrated, with generation and retail divisions).

What about milk? These prices don't move so quickly, but they're still very volatile as the chart shows (using GDT data). These global prices feed into the wholesale prices paid to farmers in New Zealand, and of course into the prices paid by domestic dairy processors.

Fonterra's milk price manual is set up this way. The farmgate price is (very roughly) the global price minus the cost of processing in NZ, with the calculation being made after-the-fact.

All milk is paid the same price in a season, but expectations about that price change through the season.

The obvious hedging mechanism is one I was promoting a few years ago. It involves hedge contracts between farmers and domestic dairy processors. A simple market would discover the price that suited most people: lots of parties & counter-parties would basically help each other out - end of story. I'm not going to blame Fonterra for killing off this plan, but they certainly made it clear that they wouldn't help in any way.

Now Fonterra has its own scheme, called the Guaranteed Milk Price (GMP). I don't like it because Fonterra is the only counter-party. This has two big weaknesses.

  • One is that Fonterra's executives are basically gambling with shareholder funds. As a shareholder, I'd much prefer them to be busy finding new ways to add value to our product. If they want to gamble, they should do it in their own time with their own money.
  • But also, this approach shuts out lots of other innovative smaller scale domestic processors who might greatly benefit from a fixed price.

Now I can see why Fonterra might want to make life hard for smaller scale domestic processors, but its less obvious that this is consistent with other goals one might have. Small scale dairy processors could add a lot to New Zealand's culture and economy. We do have some, but it looks like a small and marginalised sector when compared with the dominance of dairy in our agricultural production.

So maybe this is an agenda item for the upcoming review of the legislation governing Fonterra?

Wednesday, 4 June 2014

Soil carbon links

A few links for anyone interested in how farmers can sequester carbon in their soil.

First, some recent NZ research that found that stocks of carbon and nitrogen in the soil vary with land use. In their paired samples, dairy farming was found to deplete these resources while other pastoral grazing had no significant effect over time. This is the kind of work that I reckon should be used to compare "normal" dairying with the biological farming that is being steadfastly ignored by DairyNZ and by those receiving large research grants from the public purse.

A well-documented investigation by the UK Soil Association in 2009 supports the view that farming practices can sequester large amounts of carbon dioxide. Their meta analysis of matched comparison studies across many countries suggests carbon stocks are around 20 - 25% higher in biologically farmed soils.

Finally, Soil Carbon Cowboys is a short (12min) video outlining the practices of three USA farmers. Kiwis might smirk at the radical concept of "paddocks" but these guys are building soil rapidly (h/t John King).

Monday, 2 June 2014

Carbon farming

There will surely be gasps as people read the Greens' carbon tax proposal, especially from those who emit lots of bad air.

The first-resort counter-argument is that NZ's emissions are a drop in the ocean so we don't matter, so we don't have to do anything. Or in plain English "this is a global problem - we don't give a shit".

Fair enough, but there are counter-arguments. Relative to a carbon tax, the benefit of doing nothing is that everyone gets a quiet life - business as usual if not more so. Costs include...
  • Less innovation in low-carbon technology. The proposed taxes certainly would stimulate innovation in New Zealand and that innovation might end up having value in some international market.
  • Demand-side risk, such as the possibility that some valued trading partners might one day stop buying from us because they don't like our production methods.
I look forward to hearing views on this trade-off/social-choice (evidence would be even better!). But my current view is that I'd prefer the proposed tax even though (as dairy farmers) we'd be paying it. Here's why. 

Firstly, the level seems about right. The proposed tax works out to a bit under 2% of revenue depending on how efficient (pdf) dairy farmers are. 

That's about $12,500 for a 100,000 kgms farm. Far from crippling, but certainly enough to notice and worth responding to, so a fairly sensible tax rate I reckon. Others will no doubt argue: "we can't do anything about it". But that's just a truism, isn't it? Anyone who says they're helpless is in fact helpless, by definition. 

Last week we put a mob of cattle onto a hill block containing literally tonnes of feed. We were back there yesterday, and 3/4 of the mob were away off over-the-back, stuffing themselves full. The rest were hanging around the gate mooing and making out they were starving. We tried to help them by coaxing/shooing them up towards the food. My point is that even if there is a lot of mooing at the gate, there will also be quite a few innovators looking for opportunities.
What would such dairy farmers do if faced with a carbon tax? That's easy: we'd ask DairyNZ* how to reduce emissions and whether we could get paid to sequester carbon in the soil. DairyNZ won't have a clue of course, but they'll be obliged to find out. So we'll start to get research funds directed that way, which will lead to innovation, etc.

Directing effort this way is broadly efficient unless you are a climate change denier. It seems a huge improvement on the current practice for allocating research funds at the agriculture/climate nexus, which looks more like corporate welfare to me.

Also, the mooing-at-the-gate-mob might eventually realise that there is actually food out there. Higher farming profits are available from a more nature-centric way of farming, and it will also help with that whole "townies-hate-us" issue. Here for example is what the Soil Science Society of America says about the wider benefits of sequestering soil organic carbon (SOC).
Soils gaining SOC are also generally gaining in other attributes that enhance plant productivity and environmental quality. Increases in SOC generally improve soil structure, increase soil porosity and water holding capacity, as well as improve biological health for a myriad of life forms in soil. In general there is a favorable interplay between carbon sequestration and various recommended land management practices related to soil fertility (e.g., adding mineral fertilizers, manures, sludges and biosolids), tillage, grazing, and forestry.
Recommended agronomic, grazing land and forestry practices also enhance land sustainability, wildlife habitat and water quality. In most locations, especially environmentally sensitive settings, these practices also result in decreased water and wind erosion that degrade soil carbon stocks. The same positive relationship that exists between carbon sequestration and recommended land management can, in some settings, improve water quality and aid wildlife habitat restoration.
In saying all of this, I am of course assuming goodwill on the part of the Greens and any government they are part of. They could just impose the tax and do nothing about the potential upside with sequestration. 

* I've been monitoring DairyNZ for the number of results for searches on "legume" and "urea" on their website. This is an indicator of whether DairyNZ cares much about alternative ways of delivering nitrogen. The search function has now been removed from the DairyNZ website (gee thanks) so I had to use google to search within the site this time. Results followed the time-honour pattern though: Legume = 73 hits, Urea = 1520 hits. This shows just how much DairyNZ's work is captured by or at least just strongly sympathetic to the fert industry. They seem to have zero interest in other farming systems.

Wednesday, 28 May 2014

Laila's no fool

If the rumour is true, and Laila Harre will indeed lead Mana/Internet into this election, then I reckon things are about to get interesting.

The Mana/Internet thing is clearly a marriage of convenience, right? But isn't that the essence
of politics? You can be pissed off when rivals do it, but that doesn't count for much if it is within the rules of the game. The enduring Epsom cuppatea thing has historically been a marriage of convenience by the National party & ACT. All that's happening here is that another bunch have cottoned on to a winning strategy. So there is zero scope for National/Act cohort to get all high & mighty about this particular marriage.

I can see why they might want to though, because selecting Laila would be a masterstroke IMHO. She is not just smart and articulate. She also has deep connections into Mana's territory and is coms-savvy.

I don't know Laila well at all, but I did work closely with her (and others, notably Paul Swain) on the design of the Telecommunications Act 2001, which was a watershed in terms of reining in the power that Telecom had been gifted when it was privatised without regulation. Based on that experience, I reckon she's got the goods.

There is also the fact that she is 1 female wedged between the well-developed egos of two men: Hone & KimDotCom. Steven Joyce reckons this will be their undoing. Maybe, but if it works the results could be pretty spectacular.

Saturday, 24 May 2014

What to do about electricity?

The Downstream conference is the biggest energy sector get together in NZ, and this year's event left me pessimistic about the outlook for NZ's electricity sector. As conference chair for the first day I was keen to understand the different perspectives, particularly on policy direction. Annoyingly, the options boil down to (a) more or the same or (b) NZ Power. I reckon we could do better than either of these.

There is one very good aspect of NZ Power: it stimulates competition in generation and in retail. That happens automatically because generators need to compete for contracts to supply the single buyer, which then has plenty of contracts to on-sell to independent retailers. Both of those would be major advances over what we have now.

As things stand now, if you want to build an electricity business you pretty much need to enter two industries at once: generation and retail. That is a barrier to competition, particularly on the retail side. NZ Power would cut the knot. Anyone with expertise in managing customers could get into electricity retailing - e.g. telcos, banks, merchandise retailers. Larger scale independent retailers would also subject the generation sector to well-informed, commercial-motivated scrutiny. I'd also expect to more progress on demand-side bidding into the wholesale market and a resulting expansion of "negawatt" firms which have no real traction in NZ.

There is a lot of obfuscation coming from those threatened by NZ Power and I don't buy most of the scare stories at all. But there are also some real concerns with the single buyer model. One is that it inserts a team of civil servants into the heart of an essential industry. That worries me because it ultimately makes a government minister look responsible for operational performance. I also doubt that Parliament will have the balls to write down generation asset values to the extent needed to deliver on the policy as announced, or even give clear guidance over which assets are of most concern.

But NZ Power definitely could work, and it could do so without compromising the really important things like efficient dispatch of power stations and setting marginal price in line with marginal costs. Insiders won't admit this, but the main reason gentailers are terrified of NZPower is that it could be very effective indeed.

For me though, the greatest pity is that those currently in charge of the electricity sector are so complacent and self-satisfied about it. If they were more ambitious, they could deliver the competitive benefits of NZ Power without taking operational control or mandating asset write-downs. This is the opportunity we are missing.

I am referring here to the Electricity Authority which is mounting something of a crusade(pdf) against NZ Power and claims to be quite happy with how the hedge market is working. The EA claims that power prices are actually too low, but they need to pull some pretty slippery moves to obtain that "result". This makes the EA look like an industry player rather than a dispassionate and independent agency. It's quite unfortunate, but let's just put it down to them being a tad defensive shall we?

Because the real issue is about the hedge market. Hedges are fixed price contracts for power. They give price certainty to retailers, so they can avoid being exposed to the volatile spot market. No-one wants to be exposed to the spot market. If this market is working well, then market forces have a decent chance of working towards the benefit of consumers.

At the Downstream conference I queried the EA about hedges for independent retailers. Their CEO was convinced that all the appropriate settings are in place. Apparently the plan is that an independent retailer will grow its customer base to the point where a gentailer has too much generation, at which point hedges will be willingly offered (rather than under threat of regulation as happens now). This is basically a chicken & egg strategy and its no surprise that potential independent retailers are generally too chicken to play along (hint: as a growing independent retail you will be winning customers off 5 different gentailers).

This looks to me like another triumph of economic theory over commercial common sense. Yes, you certainly could write down a model in which the EA's logic would lead inexorably towards a more liquid hedge market, but so what? If in the real world that process is highly uncertain and will in any case take decades, and you have alternative regulatory strategies available that could be much faster and more certain, then why are they not being actively assessed?

The only significant independent, Pulse, which is actually a tiny firm in the context of the industry, is agitating for change. Good luck to them. I hope they can change the EA's attitude. The longer the EA holds out, the more likely it is that something like NZPower will eventually be adopted.