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…
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]