Tuesday, 10 January 2017

Soil Carbon

One of the biggest arguments for excusing agriculture from New Zealand's emissions trading scheme (ETS) is that we farmers have no real prospect for mitigating these emissions. The EPA's chief scientist has recently argued that
"turning down agricultural emissions means altering biology - or getting rid of animals" 
Dr Rowarth indicates that both of these options are doomed by economic realities. I was puzzled because the biological farming methods we and others use are largely focused on fostering and cultivating (altering) soil biology, and here was the chief EPA scientist intimating we are mad.

Our working hypothesis goes like this:
  • we can use liquid foliar feeding (alongside dry ground-spread) to stimulate pasture growth
  • the diverse (salad bar) plants will share some of the nutrients with the soil through root exudates
  • the soil critters (worms, beneficial bateria & fungi) have symbiotic relationships with the plants, supplying them with macro and micro-nutrients.
There is a critical feedback loop here: we feed the soil biota & in return those beneficial critters scavenge around, scooping up nutrients and delivering them back to the plant in an available form.

Most farmers know that P gets locked-up in the soil. That's why the fert reps say we have to keep putting moron, even when the soil tests say we have plenty. We sacked these twits years ago. Since then we've been using small amounts of slow-release organic P and like to think that our soil biota are helping to unlock the abundant P reserves we see in our soil tests.

We reckon that farming can and should be regenerative: we are trying to build the soil rather than deplete it. Traditional agricultural systems have been terrible at conserving carbon but recent science suggests that alternative grassland management systems can indeed regenerate the soil and sequester atmospheric carbon.

If you thought these soil carbon prospects might be of interest to the chief scientist for NZ's EPA, you are sadly mistaken. When I asked Dr Rowarth recently why we don't care about monitoring soil carbon she had three reasons: NZ already has lots of soil carbon, it comes & goes with drought and its very hard to measure. I don't buy any of these reasons: they sound like excuses to me.
  • The current stock of soil carbon is irrelevant except as a baseline measure: farmers should be accountable for changes in soil carbon stocks. 
  • Droughts as a source of soil carbon volatility could be easily managed in a regulatory regime - for example with a rolling average over a few years.
  • And technology is rapidly cutting the cost of measurement.
To be clear, I am not suggesting that it is particularly easy to bring soil carbon into the ETS. Those opposing the idea have no shortage of roadblocks to promote. Instead, I am arguing that New Zealand should be working actively towards surmounting those roadblocks. Those controlling the relevant public funds are actively denying that this is warranted, but seem to have no science on their side - just blind faith in the status quo.

It is particularly distressing that our Environmental Protection Agency seems more interested in excuses than in pushing for (or even admitting there might be value in) scientific effort directed towards this particular form of "environmental protection" for which we pay our taxes.

Tuesday, 3 January 2017

Rowarth as Columnist

Here's the second paragraph of a column by the EPA's chief scientist, Jacqueline Rowarth, from the Rural News on 20/12/16.
Although farm animals aren't included in New Zealand's Emissions Trading Scheme (no country has put agriculture in to any sort of GHG scheme), many people still point fingers at 'polluters' and regard the animals and their owners as free-loaders.
The rest of Rowarth's article explains why this is "odd". Basically: farmers are the backbone of the economy, NZ's emissions are globally small, and there's really nothing farmers can do anyway.

Whatever our contribution to the nation's economic spine, we farmers are actually free-loaders in respect of emissions. We emit like mad and the taxpayer picks up the tab. This is the undeniable truth - regular payments are being made by the NZ government for our agricultural emissions.

Yet the chief EPA scientist supplied an opinion piece to the Rural News, on the topic of agricultural GHG emissions, that doesn't just avoid admitting the public subsidy of agricultural emissions, but is entirely framed as a counter-argument to the 'odd' people who are rude enough to mention it in public.

The EPA administers New Zealand's ETS. The EPA said they hired Rowarth to help "New Zealanders understand the science behind EPA decisions". That's a fine role, but it does not include spouting bollocks about ETS policy in the rural press.

Call me old-fashioned, but this seems like a no-no to me. Suppose for example that Electricity Authority hired Lew Evans or Geoff Bertram as its chief economist and let them keep spouting their views in the mainstream media. Or suppose that FSANZ hired Katherine Rich or Sue Kedgely on similar terms regarding food policy. Or suppose the police hired Garth McVicar or Dakta Green as a drugs policy advisor without constraints on how that role was parlayed in the news media.

I reckon that regulators should not be public advocates for or against the laws they enforce.

Update 5 Jan
Based on FB discussion I think the above post goes a bit too far, because it doesn't mention the fact that regulators should actually promote the things they're legally charged with promoting and we should applaud regulators when they do this.

I don't think this saves Dr Rowarth however. The objective of the EPA is "to undertake its functions in a way that contributes to the efficient, effective and transparent management of New Zealand's environment and natural and physical resources".

We might disagree about whether Dr Rowarth's column was contributing to the "efficient and effective" part of this objective, and I would argue it wasn't, but there was definitely no "transparent" contribution. On the contrary, the article opened with a deliberate attempt to obscure the fact that cleaners and truck drivers pay for farmers' emissions through their taxes.

Sunday, 11 December 2016

Funding Hard News

The previous post defined hard news (someone wants to kill it off) and argued that it is a public good so we should consider public funding to top-up what the providers might get from other sources.

Before we get into the details of how this might be achieved, let's start with a bit more background. Firstly, "we, the NZ public" do already provide public funds for some kinds of broadcast (not print) media, through NZOnAir which does a great job of promoting local content in that middle space between hard news and PR fluff. To get an idea of the numbers involved, the following chart shows public funding of NZOnAir over the last 15 years (in $NZm): steady on almost $130m since 2009.


This is not a solution to the problem of funding hard news: it helps to build local culture and support local artists, but there is nothing in NZOnAir's strategic framework that even hints at funding hard news. Moreover, international researchers looking at how to fund democracy-supporting journalism tend to cite New Zealand as a serious laggard. For example, this 2011 report from Free Press (pdf) opens it's NZ section with the following statement
New Zealand’s recent history in some ways offers a cautionary tale of how not to structure and fund public media. 
Media researchers NiemanLab also called out New Zealand in their reporting of the Free Press work, sounding a tad incredulous:
In New Zealand, in 1989, the public broadcaster TVNZ lost all its funding and was actually required to produce dividends to pay back to the national treasury.
So we're international laggards on hard news at a time when all journalism worldwide (but particularly hard journalism) is really struggling to be funded. That's the problem, and its a public policy problem.

There are all manner of ways that journalism can seek funding, but if we want to bake in a reliable counterweight to the PR spin of governments and firms, for example because we think it's essential for democracy to function properly, then this activity needs public funding.

How?

There are three parts to the how question: we need to consider the source and destination of the funds, and how much cash to allocate. My initial thoughts on these topics follow - feel free to add/criticise in the comments section!

Source
The default option for sourcing funds is general taxation, but that might not be the best option. We may be able to do better by raising new taxes on particular activities. For example, it is often argued that we should seek ways of un-doing the international tax manipulations of  Google & Facebook. This would help to restore credibility to our tax system, and is worth doing anyway, but then we'd be back to looking for some way of funding hard journalism from (a slightly larger pot of) general taxation revenue.

Given that we have come to this point by massive productivity gains in advertising, an obvious alternative is to raise a specific excise tax on the $2bn spent annually on advertising in Aoteoroa.
Advertisers would hate this of course, and standard economic analysis would predict that there would be less advertising as a result. However there are also sound economic reasons to believe that some industries have far too much advertising, and we could allow tax exemptions for adverts that were obviously in the public interest (e.g. promotion of voting in elections and public health messages).

There could also be a case for other ways to provide fiscal support. For example, in France, everyone with an official press card gets a discount off their tax bill.

I have no strong views on these options but others will have.

Destination
In allocating funds to hard news providers there are two objectives. One is to design a system that promotes good coverage across all of the fields in which hard news is valued. The other is to keep the hard news providers on their toes.

To support both of these objectives, I'd favour using competitive processes to allocate funding, monitoring of outputs, and some kind of feedback loop should be developed so that providers can build a reputation for being effective users of public funding.

Structurally, there would be a case for splitting the funds between the longer term (3 - 5yrs) support of one or two dedicated teams and specific grants for individuals. Ideally, this would allow the incumbent team(s) to build strength, cultivate a competitive fringe and provide performance benchmarking data to keep everyone on their toes.

Volume
How much should we spend on this? The NZOnAir funding is my only real benchmark here, so my starting point is that we should spend at least as much on supporting hard news as we do on the culture-building outputs funded by NZOnAir. That's about $130m/year. Oh, and both funds (NZOnAir and HardNews) should increase at the relevant rate of cost inflation instead of being fixed in nominal terms as has been the case for NZOnAir recently.

Why?

I think we need this for the same reason we need the Reserve Bank Act and the Ombudsmen Act and Public Finance Act. We should require that all governments submit to external scrutiny in ways that ordinary people can understand. Just having these laws helps "keep the bastards honest" but we also need an empowered fourth estate to support our democracy by publicly holding their feet to the fire.

And if that doesn't convince you, spare a couple of minutes for this. Scroll through to 1:35 and then listen to Guyon...






Saturday, 10 December 2016

Hard Journalism as a Public Good

Earlier this week the Commerce Commission held a conference on the proposed merger between Fairfax and NZME. Most of the discussion involved the applicants responding to questions from the Commission. The transcripts will be available here. This post is not about the proposed merger but was provoked by the discussion at the hearings.

There is no doubt that journalism as a profession is facing serious economic challenges. Advertising revenue is moving away from printed newspapers as readership declines, and the online versions of newspapers aren't gaining as much revenue as their hard copy versions are losing. Google & Facebook (G&F) are scooping up the rest of the cash because they have better ways of matching adverts to eyeballs.

But G&F are distributors of content, not creators, which is why they haven't really cared whether news is real or fake. And by scooping the advertising revenue, G&F are revealing the weakness that was always inside the traditional business model for news media: hard news has been cross-subsidised by soft news. The light, quirky stuff has sold papers day-to-day while journos dug into important but deeper stories that headline less frequently.

Think of the hard-soft distinction as a spectrum that runs from serious investigative journalism through to PR puff pieces. Any story that someone has a strong interest in killing off is likely to be hard journalism. Innocuous human interest stories are neutral - no-one is promoting them or trying to kill them off. And at the other end of the spectrum are PR stories deliberately planted by someone with a position or product to promote. In the traditional model, a bundle of stories is sold in a newspaper and readership of the latter two categories helped to pay for the more important stuff.

Cross-subsidies are not sustainable under competition though. In the modern online world G&F unpick the traditional bundles, allowing readers to focus on the cat-up-tree stories if they so desire. Worse, they also take advertising revenue from the harder investigative pieces.

So how do we ensure that enough hard news is reported?

The first step is to acknowledge that it meets both criteria of a public good. Once created, hard news can be consumed by an infinite number of people, so there is no rivalry for consumption as there is for a sandwich. It is also difficult and inefficient to exclude those who have not paid from the consumption of hard news. Under these conditions, commercial operators will under-provide hard news because it is difficult to monetise.

This under-provision is a serious problem because hard news is the feedback loop by which the general public are sufficiently informed to insist on changes in policy. It is crucial to the sustainable development of our society, environment and economy.

So the question is not whether we should support hard journalism, but how to do so in today's context. Apart from the rapidly evaporating cross-subsidies, there are three main options.

Crowd-funding can work but it has some obvious weaknesses. It is best suited to particular projects rather than the maintenance of an ongoing effort by a dedicated crew. It also risks tipping off the target(s) of the investigation.

Option two is for newspapers to take on G&F at their own game by using a combination of paywalls and permission-based marketing to reclaim advertising revenue. This strategy might possibly succeed, but it would still require internal cross-subsidies and it is not obvious that those seeking cat stories would subscribe in sufficient volumes to support hard news.

Public funding is the third option and more consistent with the way we ensure the provision of other public goods. The main difficulties with public funding are ensuring we get plenty of high quality outputs and finding the dosh to pay for it.

I'll have a crack at these difficulties in another post.

Friday, 9 December 2016

Radicalism is Winning

The brexit referendum and the USA presidency election have two things in common: both were unexpected (neither was predicted by the polls) and in both cases the establishment lost to radically new ideas.

The radicals won by tapping into deep seated resentment against the status quo, offering clear and simple alternatives, and refusing to get into the nitty gritty of exactly how these alternatives would be achieved. Credible subterfuge was also important: in both cases there were talented bullshitters leading the charge.

We might well weep for the quality of discourse on matters of great public interest, but that's the modern world and it has been for some time. Here in Aoteoroa we're very familiar with the set-up, having spent the last eight years with the PM (including his office) controlling the news agenda including through the use of very dirty tactics.

Many of our ministers are old established incrementalists though, so we are potentially vulnerable to the same kind of radical upheavals as have occurred in the UK and USA this year.

The situation is a bit like working in an industry that is vulnerable to disruption through digital technology. If you can see disruption coming, the best strategy is often to disrupt yourself rather than have it done to you.

All the more so on political matters where there are very different radical new directions available.

So in the spirit of the times, here are a few themes where radical initiatives are worth considering.
  1. Protect the Environment. Taken seriously, this would disrupt agriculture and transport at least. We'd be investing in electric & hydrogen vehicles and the associated infrastructure. Agricultural science funding would be re-directed towards much more benign methods and farmers would face direct taxes(pdf) & subsidies(pdf) designed to price the spillover effects of their activities.
  2. Promote the Young. Our tax & welfare system favours the old & the established over the young and precarious, partly because our political leaders tend to be old & established themselves. There are some positive signs here, notably the the tax policy just announced by TOP and the recruitment by the Greens of Chloe Swarbrick and Hayley Holt as candidates for next year's election.
  3. Provide Public Goods. I suspect there are more examples of un-recognised (and hence under-provided) public goods, but the one on my mind this week is the gathering and reporting of hard news. We have largely left this to the market, but hard news does not meet the economic standards for doing so. I will have more to say on this shortly.  

Thursday, 24 November 2016

C, E, F & P

Rachel Stewart is at it again, criticising the dairy industry. And here I am again, basically agreeing with her despite being a dairy farmer. Dairying is indeed a very powerful industry in NZ, to the point where the 'C' word (cow) just was never mentioned by officials commenting on the water contamination in Havelock North.

The power of the dairy industry & Fonterra in particular is sometimes useful. Fonterra is currently helping to repel the mad scientists who want NZ to embrace GMOs for example. It has also been strong on excluding stock from waterways (sheep & beef farmers are waay behind on this) and is ramping up efforts to limit the use of palm kernel as a feed. These are market-driven positions of course.

But you will never catch Fonterra advocating a massive reduction in dairying in NZ, which is Rachel's position.

My own view is that from long-run perspectives on the environment and the economy, the output of NZ's agriculture is less important than the inputs. As an agricultural exporter, NZ has comparative advantages in our climate, our land/population ratio and our isolation. As a country, we have never really thought strategically about how we should exploit these assets, because that way lies communism, we're told. The markets will guide efficient investments, right?

No. They won't. Markets are socially defined constructs. We make the rules that give the incentives that are acted on in the markets. John Key's first pile of do$h was made by the *government* changing the rules.

This is why, while I applaud Rachel's focus on the 'C' word, I think we also need to address the 'E' word, the 'F' word, and the 'P' word, where

E = externalities;
F = fertilisers; and
P = pesticides.

To understand the point, imagine a world in which NZ dairying was massively reduced as Rachel suggests. The replacement land-uses will still damage our environment unless we force farmers to internalise pollution and rewarded them sequestering carbon (E). Done properly, that can lead to highly efficient changes in the way we use fertilisers (F) and pesticides (P).

Tuesday, 1 November 2016

Minority Rule

Nassim Taleb has a great post on how quite small minorities can win over the majority in social matters:
It suffices for an intransigent minority –a certain type of intransigent minorities – to reach a minutely small level, say three or four percent of the total population, for the entire population to have to submit to their preferences. Further, an optical illusion comes with the dominance of the minority: a naive observer would be under the impression that the choices and preferences are those of the majority. 
Taleb's argument is not that minority rule is generally true (a plethora of oppressed minorities know differently), but rather that it can happen if the minority is intransigent, for example for religious reasons (kosher, halal), and the majority is flexible (i.e. we don't mind if its kosher and halal), and it's not much more costly. In that case, food suppliers might well find it most efficient to cater to the minority. Economic rationality, right there.

This could explain why huge food companies like Nestle and Danone are now very publicly moving away from GMOs. There is a significant minority of people who will go out of their way to avoid eating GMOs, whereas only extreme GMO fanatics could object to eating a non-GMO. So in an industrial food system, non-GMO might be the least cost means of meeting market demand.

These food examples arise in competitive markets: when competition is working well, capitalists often do the most efficient thing, even if it is a major change. These commercial outcomes seem basically efficient on the available evidence.

Taleb doesn't discuss policy issues though. It seems to me that inefficient minority rule often occurs in making social/public policy choices. It's almost inevitable really, despite the best efforts of the decision-makers. A tiny minority of officials (ministers and civil servants), are charged with acting as agents on our behalf. We put these few people up as our agents, and then they are pressured by large commercial stakeholders seeking outcomes favourable to them.

Efficient innovation works fairly well in competitive markets but is notably slower in areas where public policy needs to change, such as on climate change, agriculture and drugs. Minority rule has so-far prevailed in these areas, pushing back hard on changes that would hurt shareholders or reduce investor confidence. The lobbyists involved don't pay much attention to the huge economic and social benefits that reform could deliver.

On these policy issues, our well-meaning agents are facing the minority rule problem very directly. The majority interest is clearly in favour of major policy changes on climate change, drugs and agriculture. But Taleb's intransigence/flexibility framework is still in play, only this time intransigence shows up as the relentless pounding of really detailed/sophisticated arguments in submissions from those opposing change, against a large number of much less complete or sophisticated submissions from a diffuse group of well-intentioned, basically correct, but somewhat unprofessional individuals, each of whom has only a small stake in the outcome.

Not many of us can drop $50k on a major submission to an official inquiry about some important policy/legal/regulatory proposal. Ordinary citizens generally can't match that level of sophistication, but for a firm whose profits are threatened it is fully rational conduct. So our agents, the officials and ministers, need to supply the counterweight on our behalf. Most of our agents are smart and well-meaning and basically understand these points. But we still make no real headway on serious policy problems.*

So my conjectures are:

  1. minority rule is pretty common, and Taleb's intransigence/flexibility framework is a useful way of examining when & why it occurs;
  2. minority rule is generally efficient when it arises from competitive markets, because in those cases it reflects individual preferences; and
  3. minority rule is generally inefficient on matters of public policy (because it doesn't reflect individual preferences) and is indeed a major roadblock to beneficial policy reform.
* Economists will recognise these as "regulatory capture" ideas.