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Mater class

Taught at the Agro-commodities program held at IEB.

May 2024

Introduction.

In the rest of the classes they explain how the world of Agro Commodities works. 

Here we are going to talk about general trends. They are not specific to that world, but they affect it a lot (as they do to all worlds).

It is necessary to understand them in order to adapt to the changes they will entail. And it is even more necessary (and difficult) to monitor the speed of implementation of the changes that these trends require. Adapting too early or too late leads to major strategic errors.

The big change – the cause of it all.

Slide 1 of the presentation

We are not in a crisis, but in a major change of almost everything. 

Crises are overcome, and great changes are implemented. It is not about surviving by improving the old rules, but about understanding the new ones and being the first one to apply them successfully.

In view of this, it must be said that it is not advisable to say: “Why should I study what is already old?” It is not because, as Mark Twain said: “history does not repeat itself, but it rhymes“. And, knowing the history of the old rules allows us to improve the new ones.

The “industrial revolution” (the train, the car, …,) so much studied by us at school, referred to advances in the “world of the movement of things“. The Internet is progress in “the world of the transmission of ideas“. 

In all of history, there have only been three advances in the world of transmission of ideas before the internet, which are: 

1. Learning to speak (when we stop being monkeys and start being “sapiens”); 

2. Learning to write (the beginning of what we call civilization), which, by the way, started for agricultural reasons: the first known writings are accounting of crop stores to control what they had before the next harvest; and 

3. The printing press, which made knowledge accessible to those who were not monks, librarians, or nobles (Leonardo Da Vinci would not have been possible without the printing press, because he was not a monk, nor a nobleman, and would not have had access to books).

The three advances I just mentioned completely changed the world. And I think we are in the midst of another such change, which is because of the Internet.

The good thing is that change can be for the better. The bad thing is that it can be for the worse. It all depends on our response (that of humanity as a whole, and of each one of us).

Slide 2 of the presentation

That’s where we are, … and we will be there almost all of your lives. 

It is not a process of “teleportation” to a new world, but a process of evolution (rapid, but lasting decades, like the end of the Middle Ages in its transition to the Renaissance). 

Empires will fall and others will be created (the same with business, and with the ways of acting) as happened in the Renaissance.

For the same reason that Leonardo Da Vinci would not have been possible without the printing press, there are now potential geniuses in the former third world who would not have been able to develop their skills a short time ago.

It is not enough to compare it with a recent crisis, or with the year 1929. Among the many things that happened were the fall of Constantinople, the discovery of America, the creation of nation states, the revolution in the arts and culture, … Now we are in a change of that kind.

The Internet has accelerated the speed of communications, and has facilitated and democratized access to information. And it will get even better with AI (which was not feasible without the Internet).

Before, information was almost secret, and available to only a few. Now almost everything is available to anyone. 

The problem is that there is too much information to read it all. It’s a time management issue.

The competence in which the greatest effort must be made is that of choosing the sources of information, and constantly reviewing this selection. We must try to know what politicians, customers, suppliers and competitors read for their decision making. You also need to know what your bosses read, which will indicate how easy it is, or is not, to convince them of your proposals. And you need to know what researchers do.

Applied to trading, the objective is to have the right information very quickly; to have an internal mechanism to process that information and deduce the correct action; and … to implement the decision before the competitors. Since speed is important, and we have already said that information is readily available, it is clear that what needs to be optimized are the times dedicated to reading the information, and those dedicated to processing it.

Slide 3 of the presentation

That phrase was said by Michelangelo in the Renaissance. Besides having a lot of irony, it also has great depth. Now it is your turn to do the same, with more knowledge (through the Internet). You have to do it with everything. For example, someone will be able to say in the future, after a great discovery: “The energy was already there, I just took it out”.

Therefore, derived from this main cause (the Internet), there are major trends to be monitored, which we will now comment on. Although, for the sake of time, we will not be able to do much more than to mention the main ones. The aim is to make you think, and to encourage your future searches (on the Internet) to go deeper.

The energy model.

Slide 4 of the presentation

Both in the energy model that is ending, and in the one that is beginning, it is important to understand that everything must be done with “what there is”. That is to say, we have to do it with what we can get from the Sun and the Earth (with its minerals, vegetables and animals).

And we humans have to do it. With our brains (those who know how to use it for something more than Tik Tok), and with our hands.

That is, the goal is to use our brains to convert what the Earth has into our food (which is our energy) and our things, homes, and comfort. 

And that conversion needs energy, which we also have to take out of the Earth. 

Remember that the steel and concrete in every building come from mineral resources, after being processed in industry (which is also made from mineral resources). And after being extracted those resources in the mines with machinery (composed of steel and other materials), which also came from mineral resources. And consuming that machinery energy (today, gasoline) that also comes from mineral resources.

Energy is needed for everything. What will change is the type of energy. It is up to us to look for the most efficient and least exhaustible. As well as the one that spoils the least our Earth, in which we want to live.

Slide 5 of the presentation

We should imitate Michelangelo, and one day be able to say phrases like these. Or, more advanced, because we already know that with solar energy and electric batteries we will not be able to supply energy for everything for a long time.

Slide 6 of the presentation

Speaking about energy, there is a lot of misinformation. It is worth clarifying some concepts.

• The electric car is not very renewable if the energy with which the electricity was “manufactured” was a coal-fired power plant.

• If all cars go electric tomorrow, the existing electricity transmission network (the wires and transformer stations in the countryside and under the cities) does not have nearly enough capacity. Increasing that grid is neither very cheap nor very environmentally friendly. It will have to be done gradually. And it would be better if we could find better (perhaps wireless) electricity transport systems.

• If our electricity production system is not constant over time (neither solar, nor wind energy is), and neither is our consumption (the car is not charged continuously), it is necessary to produce more when we can and store it until the moment we want to consume it. That storage is batteries (and other techniques with equivalent results, such as reversible reservoirs). We need a lot of batteries for that, which are neither cheap nor very ecological. We should do a lot of research on better storage systems.

• Related to the above, hydrogen, which is so much talked about now, is not a source of energy. Pure hydrogen in large quantities is not in “what there is”. It has to be produced. It is made with water and energy. If the energy used to produce hydrogen is not renewable, we are in trouble. In reality, hydrogen is a good storage system, but it is not a primary source of energy.
  
  Of course, what is said above about hydrogen has the exception of the so-called geological or natural hydrogen. This is something that has been talked about recently. It seems that there are underground pockets of hydrogen (like oil) that could be extracted. In this case, hydrogen would be an “energy source”. Much study is lacking on the subject, but it seems that the amount of hydrogen in existence may be enough for us, although it also seems that the depths at which it is found do not make it very viable in large quantities for now. You can read about it here).
  
  

Slide 7 of the presentation

With more science, we will find more efficient ways to produce everything while consuming less energy. Also by changing our habits and tastes to adapt them to the use of “things” that consume less energy in their production. An example is how cars have consumed less and less liters of gasoline to make the same kms, and with more comfort. Another example of changing habits is the development of electric scooters in cities.

It is always the case that the most environmentally friendly energy is the one that does not need to be consumed.

The implementation of new energies is a matter of science, prices, availability of raw materials, and regulations. 

The main impediment is price competition with the old energies in locations subject to different regulations.

Also an impediment is the desire of their operators to achieve amortization of the old facilities. They will not want to forget about their existing facilities and invest in new ones as long as they can continue to operate them.

Slide 8 of the presentation

On these things it is worth reading some of the very much that has been written, because to understand the fundamentals of energy is to understand the fundamentals of everything. I have written something a little more detailed than here in my WEB (you can read here, here, here, here, and here. And also here, with other approaches).

Blockchain.

Slide 9 of the presentation

Blockchain can be explained, in a very basic way, as an excell in which many can write saying who is the new token holder. And, … no one can delete.

If we compare it to the old world, the Land Registry is a crystal clear blockchain. The registrar registers the new owner of each property, but does not delete the old ones. Notaries are like miners in blockchain, approving transactions.

That is why traceability is a fundamental feature of blockchain. You can know the owner of each commodity and its history of changing hands. Then, anonymity is not entirely true. Although you have to save the issue that people are identified in blockchain with something like “nicks”. But it is not so impossible for good “spies” to identify a Nick with a physical person. 

Slide 10 of the presentation

AI and singularity.

Slide 11 of the presentation

Slide 12 of the presentation

To try to understand AI, let’s imagine that we manage to program a computer (or rather a network of computers, which we will call AI) to have access to all the world’s knowledge, to all that is written, and that it is capable of searching in seconds for the knowledge relevant to what it has to analyze at any given moment. And to do so in any language. I clarify that this is almost achieved.

Let’s imagine that we give this AI some rules to understand this knowledge, and to apply it in the search for solutions to what is posed at any given moment. And we also give it rules to differentiate between fake publications, or simply basic ones, and professional and reliable ones. We even give it rules so that it can ask itself the right questions at any given moment, … and to do theoretical research on its own.

Let us also imagine that we give it a kind of “Constitution”, i.e., some general desired objectives to be prioritized in deciding any matter of detail. For example, the three rules of robotics proposed by Asimov a long time ago (basically: protect humans), although, unfortunately, they could be others.

If we achieve this (and we are very close), even the most intelligent person would not have as much information in his head as this AI, nor would he be able to quickly apply all these rules of action to the specific case. Much less could he make a very large tree of resulting alternatives to choose among the best for the final objective. Nor could such a person be an expert in all subjects at the same time, and consider all the implications. As an illustrative example, it should be remembered that, on a smaller scale, it has long been clear that the best chess player in the world cannot beat the computer.

In that case, the sensible thing to do would be to let that AI make all human decisions, because it would do it better than us. Of course, it would be sensible if it is in the AI’s constitution to protect us, because if it has other objectives, it may be the case that its decision is to annihilate humans.

If we give that AI the governance of robots, and the ability to design and manufacture them to do the mechanical jobs (from surgeries, to cultivating the land, to building houses, …), the result is that humans would not have to do the intellectual jobs, nor the manual ones. The AI would do everything, including deciding on the most efficient form of our government and our coexistence. 

The fact is that this, although it sounds crazy and scary, is about to happen. It will not happen this year, and it will be gradual (by branches of activity), but it will come. Maybe in a few decades.

When that time comes, the very concepts of the individual, of society, of politics, of private property, … will change completely. 

We will be simple living organisms forced to do what the AI has decided is best for us, and it will give us food, housing, … Of course, we will still have the ability to feel emotions, such as love, fun, …

In reality, it won’t be much different from the way things were in ancient times. When the role of AI was filled by kings and religious leaders. In those times, normal people were given everything decided, including what they had to believe in, and the right way to act. And, bridging the gap, it is true that in those times kings and religious leaders had access to all the knowledge of the time, and to hire the best “decision makers”.

From what was said in the previous paragraph, AI is nothing new. What is new is that it is done by a computer instead of a person. The name (AI) is also new. Perhaps we will understand it better if, instead of AI we call it Supreme Intelligence, or better: Supreme Power, the one who knows everything and decides correctly for us. That is, what religion has always been.

The previous paragraphs are the beginning of what I have written about this in my WEB. Whoever wants to read the rest can do it here. 

Also, I recommend reading this. They do a good description of how AI can “manipulate” us by way of forcing our reasoning in the direction someone chose. In short, it’s nothing different from what the press has always done (when people respected what was written there).

Demographics.

Slide 13 of the presentation

Slide 14 of the presentation

Slide 15 of the presentation

On the demographic issue, I have written something more detailed in my WEB (you can see it here).

Our food.

Slide 16 of the presentation

Slide 17 of the presentation

Geopolitics – the world of blocks.

Slide 18 of the presentation

• Geopolitics will be a thing of two blocs of countries with two leaders: USA and China.
  
  
  • One bloc will consist of countries with declining middle classes, very angry, and with many social tensions and a lot of populism (the US bloc). The other, the Chinese bloc, will have rising lower classes and some happiness (by comparison with their previous situation).
    
    
  • Countries that are not bloc leaders will have puppet states for the most part. Their function will be to control the masses locally and do what the bloc leader says.
    
    
  • The blocs will be quite autarchic among themselves, but not at the country level. Of course, there will necessarily be some coordination and trade between the blocs for global issues (food and environment, for example).
    
    
  • Once the blocs have been defined, the business and investment structures of companies from one bloc in countries of the other bloc will have to be dismantled. This will be done by hook or by crook, albeit gradually.

Economy.

Slide 19 of the presentation

The purchasing power of the dollar has declined dramatically during the 20th century. So has the purchasing power of all currencies.

The same has happened historically.  All currencies lose value, and eventually disappear.

We must avoid comparing one currency with another. Rather, we should think about the number of kilos of potatoes that can be bought with one currency in different years. That is purchasing power.

Related to this, we must remember that we are taught that one of the characteristics of money is to be a “store of value“. Given what has happened to the dollar, it cannot be said that it is a good store of value. Even if it is criticized, Bitcoin seems to be a much better store of value, besides gold, which of course has been so throughout history.

Slide 20 of the presentation

Not that I am proposing a return to the gold standard, but I wrote a note on gold inflation some time ago. I did so in January 2021. I reproduce it here, because it seems to me that it is relevant to the issue of currency stability. However, I warn that I have not altered the figures, that is, I use the figures of January 2021, which do not change the ideas so much.

It read as follows:

Gold has historically maintained its value. Of course, with some oscillations, but with a fairly stable average value. 

I do not say this with respect to coins (much less fiat). With respect to them, it oscillates a lot. Actually, that means the currency devalues, not that gold goes up (although there are brief exceptions over time).

I say this with respect to the exchange of goods and services. To the value of things in gold.

Let us look at the example in the time of Jesus Christ:

I extract the following paragraph from [PDF] Fig.1 Lidia – Estátero – Free Download PDF (silo.tips)

• “Of the four Roman coins, the one most often mentioned in the Gospels is the denarius. It appears in the parable of the workers in the vineyard, which tells how a man hired a group of laborers to work in his field, and agreed to pay each one a denarius (Matthew 20:1-16). But when the time came to collect the money, some demanded more pay, which the owner of the vineyard refused, showing us that for GOD all services done with love have the same value. Thanks to this parable, we know that the denarius was the wage of a day’s work for a laborer. It also appears in the first multiplication of the loaves, when JESUS asks his disciples to feed the people, and they answer that they need about 200 denarii to feed the 5,000 men with their wives and children (Mark 6:37; John 6:7)”.
  

From the first example in the previous paragraph we can draw the conclusion that 1 denarius was the wage of a day’s work for an unskilled worker.  That is, 25 denarii would be a month’s wage for the same worker (at that time more days a month were worked than today, but these are social conquests, not prices).

On the other hand, we know that one aureus was equivalent to 25 denarii. And that an aureus weighed 8 grams of gold, from the time of Julius Caesar to the time of Nero (which is the time of Jesus Christ). Information taken from (https://es.wikipedia.org/wiki/%C3%81ureo_(currency)

Therefore, one aureus (8 grams of gold) would be one month’s salary for an unskilled worker. 

Gold is trading today (January 13, 2021) at €1,524/troy ounce. A troy ounce is 31.1 grams. Therefore, a gram of gold is trading today at €49.

Therefore, 8 grams of gold (1 aureus) would be the equivalent in gold to 392 €.

Considering that Judah was by no means a rich province of the Roman Empire (rather a poor and remote one), the comparison should be made with something similar to Bulgaria for the European Union. And, those almost 400 € are not very far from the current salary of an unskilled worker in Bulgaria.

From the second example of the paragraph in quotation marks with biblical quotations that I put above, we obtain that 200 denarii are 8 aureas. And that 8 aureas are 64 grams of gold, that is, 3,136 euros today. Since he is talking about feeding 5,000 people with their wives and children, maybe it is 15,000 people. As they must not be talking about hiring a caterer, or buying in a supermarket, but rather buying at source from the producer, probably basic food, the conclusion is drawn that they propose to do something like a lentil stew. 3,136 divided by 15,000 comes out to €0.2 per person. It may be cheap, but not unreasonable, to make a basic meal at those prices (without profit) for many people.

My numbers, at today’s prices, for basic quality lentils, with products bought at producer prices (village prices), and for large quantities, and without setting tables or cutlery or waiters (only the queue to get the “rancho”) give me that the cost per person would be about 0.3 € per person, which is something that is not so far from the above.

From the above examples, gold has lost little purchasing power for goods and services over 2000 years, which is not the case for any other currency. In fact, the dollar has lost more purchasing power in the 20th century alone.

Climate change.

This is one of the few things that is not caused by the Internet. Or maybe a little, because it is the speed of scientific development (stimulated by the Internet) that has brought us to where we are.

Slide 21 of the presentation

Slide 22 of the presentation

Slide 23 of the presentation

Thinking about ecology, there is a lot of misinformation on the media about how it affects the Agro sector. Some people think that, because it is a plant (or animal) world, it is good for ecology. But this is a profound mistake. Since the Agro sector is intensive (a long time ago), its affection to the ecological balance is very big (bigger than cities´ one). 

There is a very big underlying conflict in all this. It is a fact that, if we think of humanity and its interests, its activity does a lot of damage to the ecological balance. And if we think about the balance, humanity is harmed in its capacity to act. It is a question of relevance for political and economic decisions. We can either limit our rights, so that the climate does not change, or assume that we change the climate and make the necessary investments to live in that changing climate (perhaps ending up in bubbles).

In any case, it is clear that the Agro sector is one of the relevant forces in climate change. Desertification, depletion of aquifers, … are the order of the day, but these are things of local scale. It is less known in the media (but quite well known in the scientific world) that there are also effects on climate on a global scale (the famous warming, and changes in ocean currents).

The change of climate implies that the Agro sector will not be able to work with the same crops on the same land. It depends a lot on the particular conditions in each place, but there is a general rule by which, in the northern hemisphere, the versatility of a land for each crop is shifting to the north more than 200 km (the same in the south, but with a shift to the south). These shifts mean change in land value, loss of value of infrastructure investments made there, and need for investment elsewhere.

To understand the basics, there is a good summary here.

On the great extinctions of history, there is a good summary here and here.

Country concept.

Slide 24 of the presentation

Disintermediation.

Slide 25 of the presentation

The post-internet technological revolution, in which we find ourselves, has only just begun. What has already happened since the beginning of the Internet so far is only a small part of what is yet to happen.

It is often said that the technological revolution has brought disintermediation. The word is not the right one, because intermediation has not totally disappeared, but it has been minimized and has changed a lot. A clear example is how Amazon is eliminating the intermediary work between the manufacturer and the consumer, taking power away from the high street retailer (who decided what to offer in each place), and from the manufacturer’s sales representatives. Amazon is the new middleman, but it is very different from the old one, cheaper for the consumer, and more efficient. The same is happening in all sectors.

This also affects the Agro sector. At all levels. Some things will happen sooner (or have already happened) and others later, but it is clear that technology will allow that someday:

• The consumer can know for sure where each product comes from, and decide whether to accept the price or change the place of production. They will also be able to know the exact date it was harvested.

• The producer can have much more direct access to the consumer. It will not be total access to direct sales through e-commerce. In some cases it is possible, but, in general, the consumer will not have thousands of web pages to register to buy each product. But there will be a new intermediary, which will be that WEB page where they will have access to almost all products.

• In the case of processed products, the processing company will also have different communication channels, both with its suppliers and with its customers. In this case, it may be convenient for them to avoid the WEBs grouping. Of course, intermediaries in the chain will be avoided. If it is a cookie factory, there may be a WEB that offers direct communication with farmers (or rather with storage silo managers) to make purchases, and another communication with Amazon for sales.

• The small producer will be able to have access to customer financing (eliminating financial intermediaries). This will happen when it builds customer loyalty through quality and asks them to invest their savings (with profitability) in the investments that the producer has to make. Here, cryptocurrencies, tokens, and blockchain have a lot to say. As an example, a friend of mine is doing this with coffee in Mexico (https://www.crowdlending.es/blog/que-es-ethic-hub), he does it on a small scale, but it is a very interesting trend.

• Full traceability is feasible.

When all this happens, the Agro sector will change a lot (it is changing). Before, the power was in whoever was able to gather the merchandise and finance the storage and transportation, as well as to get the political authorization. That is not going to be completely eliminated, but it will be done in other ways.

Control of the sector.

Based on the above, whoever controls the psychological manipulation of the individual will control the sector. Before, it was done by controlling factories or politicians, now it is the decisions of individuals, manipulated by the information that reaches them, and having the ability to group and manage the data of their foreseeable decisions and turn them into necessary merchandise (fertile ground for AI).

The current Agro sector is perfectly capable of managing the available production data, but it is not (today) capable of knowing and managing the psychology of people.

However, big tech´s knows us better than we know ourselves. They know all the websites we visit, and all the things we buy. They can profile us perfectly enough to know what kind of incentive to our decisions will work, at what percentage, and by doing what.

For the time being, it does not seem that big tech is interested in investing in crops or in large-tonnage logistics infrastructures. They are interested in “parcel” logistics, not in trains or 100,000-ton ships. But if they decide to do so, they have the capacity to sink the old sector, because, in addition to the money, the important thing is that they control the end consumer.

If the distance between the producer and the final consumer is shortening (a lot), all the companies in the Agro sector that are in these tasks must find a way to adapt.

Of course, controlling large-tonnage logistics will continue to be essential, and is something that existing companies in the sector can still offer today to new players in the pacts, whoever they may be. 

But, if they let a third party control the power of the end consumer, they will end up having to sell whatever that third party says, and at whatever price they say. They will be something akin to maquilas, mere service providers with no access to the customer and charging little more than costs.

The other alternative is an alliance with big tech´s (before they want to single-handedly control the sector). There is also the alternative of trying to do what big tech does in user data control, but it is illusory, because they will never have access to psychological behavioral data to the level that big tech has, even if they invest a lot and capture a lot of brains.

An opportunity.

Companies that today control crops, and the logistics to transport them, can make alliances with big tech´s to control the end consumer. 

If they succeed, the entire downstream sector will be controlled by them.

And, big tech´s, without being very interested in that kind of business, will have a fantastic tool in their main problem, which is negotiating with governments so that they don’t have problems to do their main business. To governments they can say something along the lines of: “I make sure that there are no riots due to hunger, lack of supplies, or anger because the supplies that arrive are not what they want, but you, the government, don’t make it difficult for me to do my business”. 

Changing policy.

Slide 26 of the presentation

UFC- an example.

Slide 27 of the presentation

There is a good article with a message of the social changes this entails here.

Your opportunities.

Slide 28 of the presentation

In one hour of class it is not possible to go in depth into everything that has been exposed. The idea was to state it and encourage your subsequent searches for more detail.

If you are interested, I usually write about these things and publish them on my WEBsite https://pablogonzalez.org/ which is free to read.

I also offer email notification every time I write a new post. If you would like to receive that notice, send me an email at pgonzalez@ie3.org simply saying that you would like to be included in my publication notice list.