We now go from the sublime to the ridiculous. Places like
Milwaukee and Erie in Pennsylvania are offering water at cheap rates as they
have so much of it. Why is this (apart from they sit on the Great Lakes)? Well,
America’s water system is becoming unreliable - and not just in California. The
likes of Milwaukee reckon it would be an idea to entice a company to the city
before everything collapses completely.
One of the reasons for this is best described by Nick
DeBenedictis, CEO of Aqua America which is the second largest investor-owned
water utility in the USA. He states that the water utility business is “messy”
and, if we could have our time over again, “you would never design it this way”.
To begin with there are far too many systems even for a country the size of
America. There are over 55,000 water systems, most of which are far too small
serving a local population of less than 3,000. The whole thing is blatantly
inefficient. This is not helped by the fact that the US government operates
about 90% of the water made available to Americans.
Elsewhere in the world, things are different. In the UK, 100%
of the population receives their water from the private sector and there are
just ten water systems. Even in France, only ten percent of the water is
delivered by the government.
Returning to the USA, Summit Asset Management reckons that in
America “the network of drinking water pipes extends almost a million miles -
more than four times the length of the National Highway System. This aging
infrastructure, much of which is more than 100 years old, has long exceeded its
useful life and in many areas is in a state of utter disrepair.”
The most conservative estimate is that it will cost at least
USD500 billion to replace this lot over the next couple of decades. The
probability is it will cost more - and this is a nation which is technically
broke. What does this mean for the investor? Well, the municipalities will want
to get rid of the potential extra debt and/or cost. Basically, no mayor wants to
spend money that will put up rates. They always leave it for the next mayor and
the next election. Thus, it is easy to pick up an American water system for
almost nothing - providing you have the money to fix it in the first place.
Don Correll, CEO of American Water Works said, “We’re seeing
financial distress in municipalities today that we’ve never seen in our
lifetime… The more we keep printing money and running deficits, the more we’ll
turn toward private investment.” This means more opportunities for the investor
in privately owned water utilities. Water is very cheap in the US compared with
other countries. It can only get more expensive.
Last week we mentioned the need to eat for survival as well
as drinking and breathing. With an increasing population, the world will need to
ramp up food production.
Our world is a small planet with a land area of almost
150,000,000km2. This equates to 29% of the world’s surface on which there are
nearly seven billion people. This is a density ratio of 45 people per square
kilometer or 2.29 hectares per person. Obviously, with places like Antarctica,
deserts and certain mountain areas, land available for cultivation is a lot
less. This relatively small finite area has to provide all the resources for the
nutrition, housing and security of the world’s population and all that goes with
it, i.e. cattle, goats, sheep, poultry etc, year in and year out. The answer is
not just in mass production but a combination of many different types of farming
that will suit everybody’s needs.
We tend to think of subsistence farming as a system to be
found only in the very under-developed countries and primitive backwaters of the
world, but this is incorrect. Firstly, subsistence agriculture is not a
primitive farming system but one that has evolved over many centuries, requiring
considerable skill on part of the farmers who practice it on their holdings.
For example, Bangladesh farmers may have to follow several
different rotations, with a possibility of three crops per annum, on land that
may be covered in water during the rainy season and dry during the winter
period. Mastering the seasons, storing the seeds and integrating the crops with
each other in order to provide sustenance for the family and local villagers is
no easy task, requiring a knowledge of crop husbandry that would tax many
western farmers. Also, subsistence farming is not to be found in the back waters
but is the basis of life for nearly half the world’s population.
The United Nations reckons that the world will need to
increase its investment in agriculture by a minimum of USD83 billion per year
and probably a lot more. This is an increase of fifty percent on what is now
spent. With this money will come potential for the investor in things like the
Schroder Agricultural Fund which invests globally.
However, we need to be careful and people need to be
educated. For example, in some of the rural areas in India the local population
can only rely on an intermittent supply of electricity. To supplement this they
use dung cakes, firewood and crop residue to cook with and, in certain areas,
heat their houses. Their grandparents would do this all the time and quite
rightly so but that was when India had a population of less than 300 million. It
is now four times that amount and they need every square inch of topsoil they
can get. The problem lies in the lack of fertilizer it is now receiving thus
allowing deterioration of the soil which, eventually, turns to dust and will be
washed away by the monsoon season. With regards to the firewood, given how big
the Indian population is now, whole forests are disappearing.
This is not just happening in India. By a combination of
human carelessness and cyclic seasonal/climatic change, arable land is
disappearing at a very worrying rate. We know that this is not all the fault of
man. As Peter Matthiessen states, the Gobi Desert was once green and fertile but
when the time came “broad lakes vanished in dry pans and grasslands turned into
shifting sands.”
To be continued…
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The above data and research was compiled from sources
believed to be reliable. However, neither MBMG International Ltd nor its
officers can accept any liability for any errors or omissions in the above
article nor bear any responsibility for any losses achieved as a result of any
actions taken or not taken as a consequence of reading the above article. For
more information please contact Graham Macdonald on [email protected]
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