Ellison Chair in International Floriculture
Ellison Chair in International FloricultureTeaching, Research, Extension and Service

Japan, the Persian Gulf and Energy

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Over the past week, everything seemed to converge on energy. The unrest in the Persian Gulf raised the specter of the disruption of oil supplies to the rest of the world, and an earthquake in Japan knocked out a string of nuclear reactors with potentially devastating effect. Japan depends on nuclear energy and it depends on the Persian Gulf, which is where it gets most of its oil. It was, therefore, a profoundly bad week for Japan, not only because of the extensive damage and human suffering but also because Japan was being shown that it can’t readily escape the realities of geography.

Japan is the world’s third-largest economy, a bit behind China now. It is also the third-largest industrial economy, behind only the United States and China. Japan’s problem is that its enormous industrial plant is built in a country almost totally devoid of mineral resources. It must import virtually all of the metals and energy that it uses to manufacture industrial products. It maintains stockpiles, but should those stockpiles be depleted and no new imports arrive, Japan stops being an industrial power.

The Geography of Oil
There are multiple sources for many of the metals Japan imports, so that if supplies stop flowing from one place it can get them from other places. The geography of oil is more limited. In order to access the amount of oil Japan needs, the only place to get it is the Persian Gulf. There are other places to get some of what Japan needs, but it cannot do without the Persian Gulf for its oil.

This past week, we saw that this was a potentially vulnerable source. The unrest that swept the western littoral of the Arabian Peninsula and the ongoing tension between the Saudis and Iranians, as well as the tension between Iran and the United States, raised the possibility of disruptions. The geography of the Persian Gulf is extraordinary. It is a narrow body of water opening into a narrow channel through the Strait of Hormuz. Any diminution of the flow from any source in the region, let alone the complete closure of the Strait of Hormuz, would have profound implications for the global economy.

For Japan it could mean more than higher prices. It could mean being unable to secure the amount of oil needed at any price. The movement of tankers, the limits on port facilities and long-term contracts that commit oil to other places could make it impossible for Japan to physically secure the oil it needs to run its industrial plant. On an extended basis, this would draw down reserves and constrain Japan’s economy dramatically. And, obviously, when the world’s third-largest industrial plant drastically slows, the impact on the global supply chain is both dramatic and complex.

In 1973, the Arab countries imposed an oil embargo on the world. Japan, entirely dependent on imported oil, was hit not only by high prices but also by the fact that it could not obtain enough fuel to keep going. While the embargo lasted only five months, the oil shock, as the Japanese called it, threatened Japan’s industrial capability and shocked it into remembering its vulnerability. Japan relied on the United States to guarantee its oil supplies. The realization that the United States couldn’t guarantee those supplies created a political crisis parallel to the economic one. It is one reason the Japanese are hypersensitive to events in the Persian Gulf and to the security of the supply lines running out of the region.

Regardless of other supplies, Japan will always import nearly 100 percent of its oil from other countries. If it cuts its consumption by 90 percent, it still imports nearly 100 percent of its oil. And to the extent that the Japanese economy requires oil – which it does – it is highly vulnerable to events in the Persian Gulf.

It is to mitigate the risk of oil dependency – which cannot be eliminated altogether by any means – that Japan employs two alternative fuels: It is the world’s largest importer of seaborne coal, and it has become the third-largest producer of electricity from nuclear reactors, ranking after the United States and France in total amount produced. One-third of its electricity production comes from nuclear power plants. Nuclear power was critical to both Japan’s industrial and national security strategy. It did not make Japan self-sufficient, since it needed to import coal and nuclear fuel, but access to these resources made it dependent on countries like Australia, which does not have choke points like Hormuz.

It is in this context that we need to understand the Japanese prime minister’s statement that Japan was facing its worst crisis since World War II. First, the earthquake and the resulting damage to several of Japan’s nuclear reactors created a long-term regional energy shortage in Japan that, along with the other damage caused by the earthquake, would certainly affect the economy. But the events in the Persian Gulf also raised the 1973 nightmare scenario for the Japanese. Depending how events evolved, the Japanese pipeline from the Persian Gulf could be threatened in a way that it had not been since 1973. Combined with the failure of several nuclear reactors, the Japanese economy is at risk.

The comparison with World War II was apt since it also began, in a way, with an energy crisis. The Japanese had invaded China, and after the fall of the Netherlands (which controlled today’s Indonesia) and France (which controlled Indochina), Japan was concerned about agreements with France and the Netherlands continuing to be honored. Indochina supplied Japan with tin and rubber, among other raw materials. The Netherlands East Indies supplied oil. When the Japanese invaded Indochina, the United States both cut off oil shipments from the United States and started buying up oil from the Netherlands East Indies to keep Japan from getting it. The Japanese were faced with the collapse of their economy or war with the United States. They chose Pearl Harbor.

Today’s situation is in no way comparable to what happened in 1941 except for the core geopolitical reality. Japan is dependent on imports of raw materials and particularly oil. Anything that interferes with the flow of oil creates a crisis in Japan. Anything that risks a cutoff makes Japan uneasy. Add an earthquake destroying part of its energy-producing plant and you force Japan into a profound internal crisis. However, it is essential to understand what energy has meant to Japan historically – miscalculation about it led to national disaster and access to it remains Japan’s psychological as well as physical pivot.

Japan’s Nuclear Safety Net
Japan is still struggling with the consequences of its economic meltdown in the early 1990s. Rapid growth with low rates of return on capital created a massive financial crisis. Rather than allow a recession to force a wave of bankruptcies and unemployment, the Japanese sought to maintain their tradition of lifetime employment. To do that Japan had to keep interest rates extremely low and accept little or no economic growth. It achieved its goal, relatively low unemployment, but at the cost of a large debt burden and a long-term sluggish economy.

The Japanese were beginning to struggle with the question of what would come after a generation of economic stagnation and full employment. They had clearly not yet defined a path, although there was some recognition that a generation’s economic reality could not sustain itself. The changes that Japan would face were going to be wrenching, and even under the best of circumstances, they would be politically difficult to manage. Suddenly, Japan is not facing the best of circumstances.

It is not yet clear how devastating the nuclear-reactor damage will prove to be, but the situation appears to be worsening. What is clear is that the potential crisis in the Persian Gulf, the loss of nuclear reactors and the rising radiation levels will undermine the confidence of the Japanese. Beyond the human toll, these reactors were Japan’s hedge against an unpredictable world. They gave it control of a substantial amount of its energy production. Even if the Japanese still had to import coal and oil, there at least a part of their energy structure was largely under their own control and secure. Japan’s nuclear power sector seemed invulnerable, which no other part of its energy infrastructure was. For Japan, a country that went to war with the United States over energy in 1941 and was devastated as a result, this was no small thing. Japan had a safety net.

The safety net was psychological as much as anything. The destruction of a series of nuclear reactors not only creates energy shortages and fear of radiation; it also drives home the profound and very real vulnerability underlying all of Japan’s success. Japan does not control the source of its oil, it does not control the sea lanes over which coal and other minerals travel, and it cannot be certain that its nuclear reactors will not suddenly be destroyed. To the extent that economics and politics are psychological, this is a huge blow. Japan lives in constant danger, both from nature and from geopolitics. What the earthquake drove home was just how profound and how dangerous Japan’s world is. It is difficult to imagine another industrial economy as inherently insecure as Japan’s. The earthquake will impose many economic constraints on Japan that will significantly complicate its emergence from its post-boom economy, but one important question is the impact on the political system. Since World War II, Japan has coped with its vulnerability by avoiding international entanglements and relying on its relationship with the United States. It sometimes wondered whether the United States, with its sometimes-unpredictable military operations, was more of a danger than a guarantor, but its policy remained intact.

It is not the loss of the reactors that will shake Japan the most but the loss of the certainty that the reactors were their path to some degree of safety, along with the added burden on the economy. The question is how the political system will respond. In dealing with the Persian Gulf, will Japan continue to follow the American lead or will it decide to take a greater degree of control and follow its own path? The likelihood is that a shaken self-confidence will make Japan more cautious and even more vulnerable. But it is interesting to look at Japanese history and realize that sometimes, and not always predictably, Japan takes insecurity as a goad to self-assertion.

This was no ordinary earthquake in magnitude or in the potential impact on Japan’s view of the world. The earthquake shook a lot of pieces loose, not the least of which were in the Japanese psyche. Japan has tried to convince itself that it had provided a measure of security with nuclear plants and an alliance with the United States. Given the earthquake and situation in the Persian Gulf, recalculation is in order. But Japan is a country that has avoided recalculation for a long time. The question now is whether the extraordinary vulnerability exposed by the quake will be powerful enough to shake Japan into recalculating its long-standing political system.

Japan, the Persian Gulf and Energy is republished with permission of STRATFOR.

Stratfor is a private intelligence company delivering in-depth analysis, assessments and forecasts on global geopolitical, economic, security and public policy issues. A variety of subscription-based access, free intelligence reports and confidential consulting are available for individuals and corporations.

Get ready for the future…

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Whether these changes are good or bad depends in part on how we adapt to them, but ready or not, here they come!

  1. The Post Office. Get ready to imagine a world without the Post Office. They are so deeply in financial trouble that there is probably no way to sustain it long term. Email, Fed Ex, and UPS have just about wiped out the minimum revenue needed to keep the post office alive. Most of your mail every day is junk mail and bills.
  2. The Check. Britain is already laying the groundwork to do away with cheques by 2018. It costs the financial system billions of dollars a year to process cheques. Plastic cards and online transactions will lead to the eventual demise of the cheque. This plays right into the death of the post office. If you never paid your bills by mail and never received them by mail, the post office would absolutely go out of business.
  3. The Newspaper. The younger generation simply doesn’t read the newspaper. They certainly don’t subscribe to a daily delivered printed edition. That may go the way of the milkman and the laundry man. As for reading the paper online, get ready to pay for it. The rise in mobile Internet devices and e-readers has caused all the newspaper and magazine publishers to form an alliance. They have met with Apple, Amazon, and the major cell phone companies to develop a model for paid subscription services.
  4. The Book. You say you will never give up the physical book that you hold in your hand and turn the literal pages. I said the same thing about downloading music from iTunes. I wanted my hard copy CD. But I quickly changed my mind when I discovered that I could get albums for half the price without ever leaving home to get the latest music. The same thing will happen with books. You can browse a bookstore online and even read a preview chapter before you buy. And the price is less than half that of a real book. And think of the convenience once you start flicking your fingers on the screen instead of the book, you find that you are lost in the story, can’t wait to see what happens next, and you forget that you’re holding a gadget instead of a book.
  5. The Land Line Telephone. Unless you have a large family and make a lot of local calls, you don’t need it anymore. Most people keep it simply because they’ve always had it. But you are paying double charges for that extra service. All the cell phone companies will let you call customers using the same cell provider for no charge against your minutes.
  6. Music. This is one of the saddest parts of the change story. The music industry is dying a slow death. Not just because of illegal downloading. It’s the lack of innovative new music being given a chance to get to the people who like to hear it. Greed and corruption is the problem. The record labels and the radio conglomerates simply self-destruct. Over 40% of the music purchased today are “catalog items,” meaning traditional music that the public is familiar with. Older established artists. This is also true on the live concert circuit. To explore this fascinating and disturbing topic further, check out the book, “Appetite for Self-Destruction” by Steve Knopper, and the video documentary, “Before the Music Dies.”
  7. Television. Revenues to the networks are down dramatically. Not just because of the economy. People are watching TV and movies streamed from their computers. And they’re playing games and doing lots of other things that take up the time that used to be spent watching TV. Prime time shows have degenerated down to lower than the lowest common denominator. Cable rates are skyrocketing and commercials run about every 4 minutes and 30 seconds.
  8. The “Things” That You Own. Many of the very possessions that we used to own are still in our lives, but we may not actually own them in the future. They may simply reside in “the cloud.” Today your computer has a hard drive and you store your pictures, music, movies, and documents. Your software is on a CD or DVD, and you can always re-install it if need be. But all of that is changing. Apple, Microsoft, and Google are all finishing up their latest “cloud services.” That means that when you turn on a computer, the Internet will be built into the operating system. So, Windows, Google, and the Mac OS will be tied straight into the Internet. If you click an icon, it will open something in the Internet cloud. If you save something, it will be saved to the cloud. And you may pay a monthly subscription fee to the cloud provider. In this virtual world, you can access your music or your books, or your whatever from any laptop or hand held device. That’s the good news. But, will you actually own any of this “stuff” or will it all be able to disappear at any moment in a big “Poof?” Will most of the things in our lives be disposable and whimsical? It makes you want to run to the closet and pull out that photo album, grab a book from the shelf, or open up a CD case and pull out the insert.
  9. Privacy. If there ever was a concept that we can look back on nostalgically, it would be privacy. That’s gone. It’s been gone for a long time anyway. There are cameras on the street, in most of the buildings, and even built into your computer and cell phone. But you can be sure that 24/7 “They” know who you are and where you are, right down to the GPS coordinates, and the Google Street View. If you buy something, your habit is put into a zillion profiles, and your ads will change to reflect those habits. And “They” will try to get you to buy something else. Again and again. All we will have that can’t be changed are Memories.

Something to think about in terms of how you are going to do business in the future. Most of these changes are already taking place. If you want to experience an amazing look back at the history of technology, then this 13 minute video about IBM will give you a glimpse of how far we have come.

Source: http://hosted.verticalresponse.com/170199/e3d1e3c75e/1624501208/3c0beed1a4/

2010 Business Year in Review

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Care to take a guess at the top events affecting businesses in 2010? The struggling economy was voted the top business story of the year by U.S. newspaper editors surveyed by The Associated Press. The rest, as they say, is history.

1. Economy struggles: Climbing out of the deepest recession since the 1930s, the economy grows at a healthy rate in the January-March quarter. Still, the gain comes mainly from companies refilling stockpiles they had let shrink during the recession. The economy can’t sustain the pace. The lingering effects of the recession slow growth. The benefits of an $814 billion government stimulus program fade. Consumers cut spending in favor of building savings and slashing debt. Businesses hesitate to hire. Cities and states lay off workers. Growth slows through spring and summer. Unemployment stays chronically high. In May, the number of people unemployed for at least six months hits 6.8 million — a record 46 percent of all the unemployed. Pointing to the deficits, Congress resists backing more spending to stimulate the economy. The Federal Reserve seeks to fill the void by announcing it will buy $600 billion in Treasury bonds to try to further lower interest rates, lift stocks and coax consumers to spend. As the year closes, the economy makes broad gains. Factories produce more. Consumers — the backbone of the economy — return to the malls. Congress passes $858 billion in tax cuts and aid to the long-term unemployed. Yet more than 15 million Americans are still unemployed. Economists say a full economic recovery remains years away.

2. Gulf oil spill: An explosion at a rig used by BP kills 11 workers and sends crude oil gushing into the Gulf of Mexico. The spill devastates the fishing and tourism industries along the Gulf Coast and causes environmental damage that may last for decades. BP sets up a $20 billion fund to compensate fishermen, restaurateurs and others whose livelihoods were damaged. The oil giant still faces civil charges and a criminal investigation by the Justice Department and lawsuits from hundreds of individuals and businesses. BP’s stock market value shrinks by more than $100 billion after the April 20 disaster before bouncing about halfway back.

3. China’s rise: China passes Japan as the world’s second-biggest economy. The World Bank says it could surpass the United States by 2020. China’s gross domestic product is spread out over 1.3 billion people — amounting to about $3,600 per person. That compares with GDP in the U.S. of about $42,000 per person. In Japan, it’s about $38,000 per person. China’s thirst for raw materials and other products helps the rest of the world recover from the recession. Still, the U.S. and Europe complain that China gives its exporters an unfair competitive edge by keeping its currency artificially low.

4. Real estate crisis: Housing remains depressed despite super-low mortgage rates. The average rate on a 30-year fixed mortgage dips to 4.17 percent in November, the lowest in decades. But home sales and prices sink further. Nearly one in four homeowners owe more on their mortgages than their homes are worth, making it all but impossible for them to sell their home and buy another. An estimated 1 million households lose their homes to foreclosure, even though the pace slows after evidence that lenders mishandled foreclosure documents. Some did so by hiring “robo-signers” to sign paperwork without checking their accuracy.

5. Toyota’s recall: Toyota’s reputation for making high-quality cars is tarnished after the Japanese automaker recalls 10 million vehicles for sudden acceleration and other problems. Toyota faces hundreds of lawsuits alleging that some models can speed up suddenly, causing crashes, injuries and deaths. Toyota blames driver error, faulty floor mats and sticky accelerator pedals for the unintended acceleration. The uproar damages its business. Toyota’s U.S. sales rise just 0.2 percent through November in a year when the industry’s overall sales climb more than 11 percent.

6. GM’s comeback: General Motors stock begins trading again. It signals the rebirth of a corporate icon that fell into bankruptcy and required a $50 billion bailout from taxpayers. GM uses some proceeds from its November initial public offering to repay a portion of its bailout. (Washington still holds about a third of GM’s stock.) GM’s recovery helps rejuvenate the industry. Sales of cars and light trucks rise 11 percent through November compared with the same period in 2009. Shoppers who had put off replacing their old cars return to showrooms.

7. Financial overhaul: Congress passes the biggest rewrite of financial rules since the 1930s. The law targets the risky banking practices and lax oversight that led to the 2008 financial crisis. The law creates an agency to protect consumers from predatory loans and other abuses, empowers regulators to shut down big firms that threaten the entire system and shines more light into markets that have eluded oversight. Republican critics say the law goes too far, imposing burdensome rules that will restrict lending to consumers and small businesses.

8. European bailouts: Greece and Ireland require emergency bailouts, raising fears that debt problems will spread and destabilize global markets. European governments and the International Monetary Fund agree to a $145 billion rescue of Greece in May and a $90 billion bailout of Ireland in November. The bailouts require both countries to slash spending, triggering protests by workers. Investors fear that debt troubles will spread to Spain, Portugal and other countries, weaken the European Union and threaten the future of the euro as its common currency.

9. Facebook growth: Facebook tops the 500 million user mark. It expands its dominance of social media and further transforms how the world communicates. If it were a country, Facebook would be the world’s third-largest. Facebook tightens its privacy settings after criticism that personal information is being disseminated without users’ knowledge or permission. Founder Mark Zuckerberg is named Time magazine’s “Person of the Year” and is the subject of a high-profile movie about Facebook’s creation.

10. iPad mania: Apple Inc. unveils the iPad, bringing “tablet” computing into the mainstream and eroding laptop sales. Apple is expected to sell more than 13 million iPads this year. The iPads sell about twice as fast as iPhones did after their 2007 introduction. The price of Apple stock rockets more than 50 percent in 2010. Competitors scramble to try to catch up. They include the Dell Streak, BlackBerry PlayBook, the Samsung Galaxy Tag and HP Slate.

Setting the stage for growth in 2011

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The latest from Robert Barr in this week’s SAF Trend Tracker:

The nature of this recession – caused by a financial panic – means that the recovery is not playing by the customary script this time.  Housing, for example, usually leads the economy out of a recession, as low interest rates spur new residential construction and home sales.  But the number of troubled properties on the market remains high, even though much of the excess supply is concentrated in just a few markets.  In terms of being a source of strong economic growth, housing will likely sit on the sidelines for a few more years.

The good news is that the economy is growing, albeit at a slower pace than we’d hope – and too slow a rate to bring down the unemployment rate, for now.  In fact, the unemployment rate climbed in November to 9.8%, up from 9.6% in each of the three previous months.  But the labor markets are always a lagging indicator of economic recovery.

Other important figures reflecting conditions more “upstream” in generating economic growth tell a different and much more positive story.  For instance, corporate profits are up 28% over year-ago levels (fueling the stock market improvement).  And business investment in software and equipment is booming, up 19% in the past year.  That’s the strongest four quarters of growth in that segment in 26 years – even surpassing the build-up to Y2K.  These developments do follow the usual story for economic recovery, as business owners, prodded by lower interest rates, add to business investment.  As entrepreneurial activity and investment grow, corporate America lays the groundwork for stronger economic growth in the coming quarters.

Mix the strong activity here with the relatively strong kick-off to the holiday shopping season, and you get a strong sense that the recovery is in fact taking root – and that fears of a “double-dip” recession are overblown.  And not only are the early reports from the nation’s large retailers positive, they also indicate that consumers are spending money on themselves, too – in contrast to the last few holiday seasons, when spending was more constrained.

Finally, the tax compromise that was coming together in early December could, if enacted according to the announced framework, provide some important fuel to stronger economic growth.  The extension for two years of the current set of income tax rates – rather than the increase currently slated to go into effect on New Year’s Day – not only helps the entrepreneurial segment, but it ends some uncertainty, at least for now, about tax rates.  The one-year cut in the Social Security payroll tax also generates a bit more cash for households, but, more importantly for economic growth, the investment expense provisions and the lower capital gains tax, currently at 15 percent, should prove to be an important business incentive.

Robert Barr is an economist based in Virginia.

Sources: Bureau of Labor Statistics (Dec 3, 2010); Bureau of Economic Analysis (Nov 23, 2010); Moody’s Analytics.

Guest Post: Viewpoint on availability and quality

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I received this from an industry contact who preferred to remain anonymous, but agreed to let me share this on Making Cents. They make some excellent points regarding the availability turnaround that has occurred in the industry (from oversupply to shortages) and regarding plant quality.

Over the last two plus years I have purchased from 65 nurseries and toured about 130 nurseries.  I talk with plant brokers, propagators, and other nurserymen about plant availability, quality, and pricing in the market.  I also attend several trade shows during the year.  Geographically I am in contact with California, Oregon, Florida, Georgia, Alabama, Mississippi, Louisiana, Texas, Oklahoma, Tennessee, South Carolina, North Carolina, Virginia, and Maryland.

In general, plant availability is greatly reduced going into 2011 from 2010 levels.  I have already seen this shortage on some items start this fall of 2010.  Locating material to book for 2011 is more challenging.  Plant quality may be in even greater decline.  With the decline in plant numbers and quality, pricing is starting to go up.  The rise in pricing will contribute to the shortage of plants available in the short term.

Plant availability across the industry has reduced for several reasons.  Nurseries, from large to small facilities, are going out of business altogether.  The ones that remain have planted smaller crops or no crop at all during 2010.  I have not toured a nursery that has a larger or equal quantity of inventory at this point compared to last year.  At best an individual nursery is down 30% in inventory numbers.  Some are down 80%.  This range holds true across those growers that are still operating.  Many plants have remained on the growing location too long and have passed salable quality.  Dumping significant numbers of old material has been common in 2010.  In some cases the nursery did not have the labor remaining to dump the plants and have simply turned off the water.  Those plants are dead in the growing space.  In several nurseries small areas of ground cloth have been removed and vegetable gardens now occupy that irrigated space.  Nurseries that specialize in propagating and selling liners are reporting lower than expected orders for material to be delivered in the 2011 planting season.  This will contribute to a possible continuation of the shortage well into 2012.

Plant quality is of a bigger concern.  Plants have been held too long in hopes of making a sale at some point in the future.  Those plants are no longer viable for the retail trade and in many cases simply need to be dumped.  Some growers have planted, yet not fertilized for various reasons ranging from lack of labor to put the fertilizer out to not having the money available to buy the fertilizer.  Those plants will not be ready for sale in spring of 2011.  Older and unfertilized plant material will result in fewer plants that can be purchased for 2011 retail sales.  In one case the plants have been fertilized with chicken manure.  This may result in additional weed pressure and an unpleasant odor.  Speaking of weeds, they are abundant in many nurseries.  Some plants cannot be purchased due to the overwhelming weed pressure at the grower.  Again, lack of labor and money to hand weed and or put out herbicide.

Some growers whom are sensing the shortage are already quoting higher pricing.  This phenomenon is beginning to spread.  In recent weeks I have visited several nurseries that now have no hired labor and only the principles remain.

“I am not going to plant anything until I see the market turn.”
“We are not going to spend the money to fertilize until someone orders the plants.”
“I need several days notice to load a truck so that I can find some help, we do not have any labor left.”
“I am sorry for the weeds, we just do not have the labor or money to take care of them”
“We are too late planting anything this year and as a result will be basically out of salable plants during 2011”
“I went out to tour some of my plant sources and the first three I tried to tour were all closed and out of business.”

These quotes and more are quite common this day and age.  I have no doubt that in 2011 there will be plant shortages.  Some plants may not be found at all and some we may have temporary outages.  Prices are going to go up.

"If you're not informed, it's your own fault."

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ANLA and SAF have done a yeoman’s job of keeping green industry firms informed of what is happening in Washington in terms of the effects of mid-term elections and the critical regulatory and legislative issues facing nursery/floral businesses today. Be sure to check out the Washington Impact section (click here) of the ANLA Knowledge Center and the latest SAF analysis of the effects of mid-term elections on your business (click here). As the saying goes, what you don’t know, can hurt you.

Are face-to-face meetings the new dinosaurs?

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With the recent announcement of the cancellation of the Southeast Color Connection (the meeting formerly known as the Southeast Greenhouse Conference), it begs the question of “What is the future of person-to-person meetings in our industry?” We have already seen much consolidation of effort in providing trade show opportunities and educational programs over the last decade. The SCC/SGC was a perfect example of such efforts that were made in order to achieve the economies of scale and scope that occur with synergistic collaboration. But now it seems that the attendance at all green industry meetings is either barely holding steady or declining.

Not that this is an entirely new thing, mind you. Attendance at Extension Service meetings have been declining for two-plus decades now (unless CEU’s were offered of course), particularly at meetings of livestock or traditional row-crop producers. The green industry meetings were typically well attended, but then again we were the only growth sector in agriculture for a long time. Not so any more. We too are a mature market and have suffered from the decline in grower numbers, consolidation at all levels of the supply chain, and various competitive conditions that have lead to tighter margins.

So why is this happening? Is it purely economics and the cost of attending such meetings is simply too high of a hurdle for some firms?  Have person-to-person meetings outlived their usefulness in terms of generating sales and/or qualified leads (at trade shows) or disseminating pertinent and useful information (at educational events)? Has information technology (e.g. Google and other search engines; real-time and archived webcasts and webinars; websites, blogs and electronic magazines/newspapers; social media like Facebook & Twitter; etc.) replaced the need to meet face-to-face?  Does the fact that firms in the industry now have direct access to university researchers and private consultants at times convenient to them negate their likelihood of sitting though educational sessions?

There are certainly other questions that need to be asked, but I think the answer is “all of the above” and more. The real question is what do we do about it?  Or maybe the better question is should we do anything about it?  I mean, after all, I myself am guilty. I now publish this blog instead of a newsletter that I used to mail out in order to save costs and, more importantly, provide real-time information that folks can use right now instead of waiting for it to show up in their mailboxes 2 months later. I also relish the fact that webinars have become so popular because they save time and money for all involved. I like doing them and so far evaluations indicate that people like attending. But even webinars are undergoing some structural changes. I have seen that attention spans drop off considerably after 37 minutes (yes the software measures that and isn’t it interesting that it is the same amount of time of a typical TV show). Now that YouTube, Vimeo, etc. are on the scene, we now devour information in 3-5 minute chunks (which is about the same amount of time we spend reading the e-news blasts from industry media moguls as well).  This all points to the trend of time becoming more scare and alternative ways of getting information and establishing/maintaining relationships are getting more plentiful.

Which reminds me, this blog post is getting too long and if you have to scroll down more than 2 times, you probably won’t finish reading this, so I’ll close for now…your thoughts on this?

Is the U.S. facing an inevitable tax crisis?

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Is shifting demography moving the United States closer and closer to a state, federal and municipal tax crisis? The Bureau of Labor Statistics makes it clear that the heavy lifting in both personal earnings and consumption in the United States peaks in a bell shaped curve right at about age fifty. That is when our consumer spending and earnings are at their height. It would follow then that the Internal Revenue Service would depend heavily on folks forty to sixty years old.  You might even narrow it down more to forty-five to fifty-five years old.  The same would follow for states that are dependent on sales and consumption taxes and local governments that get big revenue from big houses.  It is also interesting that the peak birth years for the huge Baby Boomer Generation were 1957 through1964 when United States live birth numbers exceeded four million per year. This super-imposes the very top of the Boomer birth bubble directly over the most productive tax paying years in the age continuum at this writing.  You could consider it serendipitous that the current financial crisis in the United States occurred at exactly the time when we had a huge block of high rolling Baby Boomer tax payers to pay into the system and bail us out. As the Baby Boomers age out of their premium tax paying years Generation X ages in. Generation X was born 1965 to 1984 and is currently aged 26 to 45 years old. Generation X is 11% smaller than the Baby Boomers with about nine million fewer people. It simply does not have the critical mass to produce or consume at the level of the Baby Boomers and will not be able to pay taxes at the level of the Baby Boomers. Can you see where this is going?

There are stages in our lives when different things are expected of us and understanding what is expected of us is very important. When we are born we are totally reliant on others. We eat a lot and produce nothing. If we were left alone we would die. We gradually become more and more self-reliant as we age. In theory at least when we are in our twenties we begin to make our own way. We can provide for ourselves. What we eat is on par with what we produce. As we age through our thirties we begin to produce more than we eat so we provide for others who are producing less than they eat. As we age through our forties the dependence of others, both young and old, on our ability to produce a lot more than we eat becomes very great and peaks at age fifty when we are at the height of our producing. Between fifty and sixty our production begins to diminish as does the reliance of others on our ability to provide. Between sixty and eighty we tend to be self reliant, meeting our own needs. After eighty the total dependence starts all over again. We can no longer effectively produce but we still eat and require care. This principal of reliance and provision can be found in families, cultures and countries throughout the world. It is a very old principal that dates back to early man. It is a natural balance. This principal is so powerful it drives economies and provides health to nations.

So what does Generation X have to do with this principal? Generation X is small owing in large part to the reduced fertility in the U.S. between 1965 and 1984. It has about nine million fewer people in its ranks than the Baby Boomer Generation it follows and about eleven million fewer people than Generation Y right behind it. Generation X, now twenty six to forty-five years old, is taking over the role of the Nation’s provider and it can’t possibly succeed because it doesn’t have the critical mass. As a nation we will begin to feel this phenomenon intensify over the next ten years as we try to tax this generation to meet our needs. Federal, state and local taxes will all suffer-big time. Democrats and Republicans will point fingers at each other for over spending but the real issue will be tax revenues will drop like a stone when Generation X is expected to do the heavy lifting.

So are we headed for a tax crisis here in the United States? It looks that way. But wait, before you fall on a sword there are a few bright demographic facts that could save the day. One is the fact that most of the millions of Latino immigrants that poured into our country to fill the entry level labor demand unmet by Generation X are about the same age as Generation X. If they advance socio-economically at an accelerated pace it could be problem solved. In addition, according to Pew Research in a October 2009 study, the African American culture in the United States is experiencing unprecedented economic growth in recent years. Latinos and African Americans make up close to thirty percent of the total United States population. Their collective contribution to state, federal and local taxes could be significant. Lastly, Generation Y born from 1985 to 2004 is beginning to flood the workforce and because they are facing fifty percent unemployment many are starting their own businesses out of necessity. Baby Boomers did the same thing in the seventies. Small businesses are the building blocks for a healthy economy.

Source: Demographic Journal

Hold the date: 2011 National Floriculture Forum

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The National Floriculture Forum (NFF) is an educational meeting of university professors, graduate students, government scientists, and industry leaders in floriculture that has been held annually for over a decade.  This meeting brings together the floricultural community to: (1) address issues of importance to the floriculture industry, (2) form collaborative relationships, and (3) learn more about the floriculture industry and from each other.  This meeting is the only one of its kind and continues to bring more members of the floriculture community together each year.  The importance of the NFF has increased recently as the number of horticulture departments and associated funding levels have decreased.

Texas A&M University is hosting the next NFF on March 10-11, 2011 in Dallas, Texas. This will provide exposure to a wide range of floriculture crops, production facilities, and climatic conditions in the Southwestern region of the U.S.  The impacts of the meeting are far-reaching:  influencing undergraduate and graduate programs at participating universities, strengthening relationships between industry and academia, and bolstering the identity of floriculture.