Introduction: Doug Bell grew up in Los Angeles and graduated from Wesleyan University. After nearly a decade as an industrial designer and project manager in a professional education company, Bell was recruited to the growing Supercuts haircutting franchise. He went to Houston to open his own stores and from '83 – '04, Bell grew his Supercuts business to $18,000,000 annual sales with 500 employees. He was the third largest franchisee in the system in 2000 with 52 shops in Houston, TX and SW Florida. After selling his business and leaving Supercuts, Bell began focusing on farming and eventually decided to offer farmland in Uruguay, resulting in the current Grasslands UY, LLC project. He has completed five marathons and was a nationally ranked Grand Prix endurance motorcycle racer.
Daily Bell: So give us an update. What's been going on with Grasslands?
Doug Bell: Since the last time we spoke, we announced a 15 percent appreciation of our farmland and raised the unit entry cost to $57,500 from $50,000. We purchased a third farm and have 750 acres on which we are growing soy, wheat, barley and corn.
Daily Bell: Remind us about Uruguay, which is not a well-known country to the West.
Doug Bell: It's a small country at the south end of South America, approximately the size of Missouri, often called "the Switzerland of South America." The population is predominantly made up of immigrants from Italy, Spain, Germany and Switzerland. They built a European-style industrial and agricultural nation-state with excellent water, fertile soil and a domestic banking culture that respects private property.
Uruguay is a good environment for those seeking risk-averse investments. From my perspective, the political climate is stable, distanced from economic and political risk. Along with Chile, it has the lowest crime and corruption rates of Latin America. There is transparency, an accepted rule of law (civil law) legal system and minimal social turmoil. The entire country is mapped for soil productivity, empirically classified and easily verifiable. Farmland is a good addition to your portfolio along with other hard assets.
Daily Bell: Let's also remind readers how you've differentiated yourself agriculturally. It's part of a larger trend called no-till …
Doug Bell: There are generally three basic farming methods: green, organic and no-till. The green farming revolution lasted from the 1940s until today, but gradually it has become less effective, producing diminishing returns as the various chemicals and pesticides have made the land less fertile and the required tilling damages soils and accelerates erosion.
Daily Bell: That's a discouraging but identifiable trend …
Doug Bell: There are some who are predicting outright disaster from green farming. There's no doubt it was very effective in its day and increased food production dramatically.
But technological advances sometimes have unintended detrimental effects. Roundup Ready seeds used in green revolution farming require the use of glyphosate which can kill soil bacteria and finds its way into the food chain, reportedly having a negative impact on human health over time. Some of the cumulative destructive effects of the green revolution are now being reported.
If I could quote a recent article in the UK Telegraph:
"Dust to Dust: a man-made Malthusian crisis"
American scientists have made an unsettling discovery. Crop farming across the Prairies since the late 19th Century has caused a collapse of the soil microbia that holds the ecosystem together.
They do not know exactly what role is played by the bacteria. It is a new research field. Nor do they know where the tipping point lies, or how easily this can be reversed. Nobody yet knows whether this is happening in other parts of the world.
A team at the University of Colorado under Noah Fierer used DNA gene technology to test the 'verrucomicrobia' in Prairie soil, contrasting tilled land with the rare pockets of ancient tallgrass found in cemeteries and reservations. The paper published in the US journal Science found that crop agriculture has "drastically altered" the biology of the land. "The soils currently found throughout the region bear little resemblance to their pre-agricultural state," it concluded.
Daily Bell: Good old Ambrose. That's certainly incendiary … You could say that the 20th century's green revolution is petering out amidst considerable controversy.
Doug Bell: The microbial collapse is a significant and worrisome event. It hasn't received a lot of coverage but that doesn't make it any less concerning. We'll see what they come up with in India, China and elsewhere. If indeed there's a real microbial collapse, it could have a devastating impact on developing countries to begin with but also on the First World food supply.
Daily Bell: Some of this may be what we characterize as an elite resource-scarcity meme. The mainstream media likes to frighten people about the basic building blocks of life, food, water, air, etc. This certainly could fall into the category of information that would panic people into believing that starvation was an increasing possibility – and thus open the door for even more globalist meddling. Not saying it's not true …
Doug Bell: Material appearing in the mainstream press can be alarmist. But sometimes there is some reality to it. I would tend to believe there's something to this given the widespread acceptance of green revolution farming and the accepted fact that glyphosate inhibits EPSPS, which is only found in plants and microorganisms. And if there is a microbial collapse, then there is legitimate cause for concern. But we think there are remedies.
Daily Bell: Well, yes. But one can't help observing the green revolution was an internationalist enterprise. It relies heavily on manmade chemicals, pesticides and herbicides. The idea that soil has been depleted around the world as a result is not exactly surprising. That's how these things tend to work. Elite solutions, often endorsed by the UN-oriented global infrastructure, end up causing more problems than they solve.
Doug Bell: Perhaps. In this case there are antidotes.
Daily Bell: Okay, continue with no-till, please.
Doug Bell: No-till techniques emphasize soil repair and enrichment. These techniques have actually been under development since the 1940s, though no-till has been overshadowed by the green revolution. Edward Faulkner is commonly held to be the father of no-till and these days it's getting quite a bit more attention as questions mount about "green-revolution" farming. Grants and awards are becoming more common to encourage no-till. Gabe Brown, a North Dakota farmer, gives us a hopeful blueprint of regenerating soils after a lifetime of damage by tilling and green revolution practices.
Daily Bell: There's something involving carbon, as well …
Doug Bell: No-till is being advertised as keeping carbon in the soil, which reduces carbon in the atmosphere – which is therefore said to have a beneficial effect in stopping global warming. According to the Agricultural Research Service of the United States Department of Agriculture, "carbon in the form of organic matter is a key factor in holding soil particles together."
Daily Bell: Well, we're not big fans of the global warming meme but it sounds like no-till has advantages, nonetheless.
Doug Bell: We currently use some soil fertilizers and supplements so our approach is not purely organic, but we use significantly less than the green program. Organic means you don't add anything to your process that is not within old traditions of farming and soil preparation. No-till also involves disciplined crop rotation, and here the Uruguayan government recently became more assertive, documenting all crop rotations.
No-till is popular throughout Latin America – including in Argentina, though right now Argentine farming is suffering from the larger economic crisis in that country. That's also affecting Uruguay.
Daily Bell: Let's discuss that. What are some of the additional economic impacts?
Doug Bell: Argentina is again having economic difficulties as a function of their economic and political policies. Obviously, the problems in Argentina have had a wide variety of impacts. Cash constraints have restricted transfer of capital out of the country and that's had an impact on the Uruguayan real estate market. Real estate values are down and farmland is not inflating so quickly, either. Uruguay farmland increased explosively from 2004 to 2009. It has recently been appreciating at around 10 percent per annum. We are seeing this continuing in the 8-10% range in the future.
Daily Bell: Any chance of the Argentine system being visited on Uruguay?
Doug Bell: I do not think the Argentine heavy-handed economic policies will be adopted here in Uruguay. Obviously, the current president, Mr. Mujica, is a populist. The previous several presidents in Uruguay were business friendly and the chances are the next elected president will be from that side of the constituency.
Daily Bell: What does the future hold for Grasslands and what about liquidity?
Doug Bell: We currently own 750 acres and we anticipate continued investment enabling us to buy 3 to 5 more farms over the next year. We'll continue the same approach, creating value by owning farms with superior soils in the southwestern region, focusing on growing grains in rotation, without buildings, cattle or forestry. We have a contract agriculture service eliminating the complexity of having employees and equipment. Farmland turns over regularly in Uruguay. We think this business model will make us among the most attractive opportunities if and when we want to liquidate.
Corn, soy and wheat have all increased between 12% and 15% each year for over ten years. Meat and poultry have increased in the 6-8% range. Following an explosive 2012, corn regressed to the mean, still trending up 15% per year. The trends are clear. The world has less farmland, of which usable farmland continues to erode, and the world has an upper limit on arable land available to farm. As the population continues to increase, the demands on this finite amount of farmland means that less farmland has to feed more people.
Daily Bell: This is obviously part of what convinces you and your investors that farmland is a good investment …
Doug Bell: Well run farms using non-invasive, beneficial techniques are a modern imperative. How else are we going to feed 9 billion people? The effective yields of green revolution are declining. No-till and organic farmers are at the front of the new wave. The soil degradation is being propped up by increasingly expensive fertilizer inputs. Farmland is a hard asset that provides income from crops and land appreciation opportunity.
Daily Bell: But you've indicated it may also be a kind of portfolio imperative.
Doug Bell: Bonds and equities sit on a foundation of fiat money, governed by the Federal Reserve. I think we all are gaining an appreciation of the Fed's limited effectiveness. Farmland is a hard asset that provides income from crops and land appreciation opportunity. Having hard assets as a segment of your portfolio is essential for wealth preservation.
Some economists have suggested that today the US government faces total obligations of US$200 trillion. The Daily Bell has written about that, in fact. That's trillion with a "T." As Baby Boomers move through their last demographic segment, tremendous pressures will be brought to bear on the US economy, perhaps impossible ones. These pressures are already evident. Let me list them:
Daily Bell: That's a lot to digest.
Doug Bell: There's more. In addition to legitimate pressures on food prices, we have a good deal of manipulation. No less of a publication than Foreign Policy chronicled manipulation of food prices in an article entitled "How Goldman Sachs Created the Food Crisis." Let me provide an excerpt:
There's another reason why food across the world has become so expensive: Wall Street greed. It took the brilliant minds of Goldman Sachs to realize the simple truth that nothing is more valuable than our daily bread. And where there's value, there's money to be made.
In 1991, Goldman bankers, led by their prescient president Gary Cohn, came up with a new kind of investment product, a derivative that tracked 24 raw materials, from precious metals and energy to coffee, cocoa, cattle, corn, hogs, soy, and wheat. They weighted the investment value of each element, blended and commingled the parts into sums, then reduced what had been a complicated collection of real things into a mathematical formula that could be expressed as a single manifestation, to be known henceforth as the Goldman Sachs Commodity Index (GSCI).
For just under a decade, the GSCI remained a relatively static investment vehicle, as bankers remained more interested in risk and collateralized debt than in anything that could be literally sowed or reaped. Then, in 1999, the Commodities Futures Trading Commission deregulated futures markets.
All of a sudden, bankers could take as large a position in grains as they liked, an opportunity that had, since the Great Depression, only been available to those who actually had something to do with the production of our food. Change was coming to the great grain exchanges of Chicago, Minneapolis, and Kansas City — which for 150 years had helped to moderate the peaks and valleys of global food prices.
Farming may seem bucolic, but it is an inherently volatile industry, subject to the vicissitudes of weather, disease, and disaster. … The structure of the GSCI paid no heed to the centuries-old buy-sell/sell-buy patterns. This newfangled derivative product was "long only," which meant the product was constructed to buy commodities, and only buy. … Bankers recognized a good system when they saw it, and dozens of speculative nonphysical hedgers followed Goldman's lead and joined the commodities index game, including Barclays, Deutsche Bank, Pimco, JP Morgan Chase, AIG, Bear Stearns, and Lehman Brothers, to name but a few purveyors of commodity index funds. …
The money tells the story. Since the bursting of the tech bubble in 2000, there has been a 50-fold increase in dollars invested in commodity index funds. To put the phenomenon in real terms: In 2003, the commodities futures market still totaled a sleepy $13 billion … But in the first 55 days of 2008, speculators poured $55 billion into commodity markets, and by July, $318 billion was roiling the markets. Food inflation has remained steady since.
The article goes on to explain that so much money roiling the securitized food market led to a food bubble.
From 2005 to 2008, the worldwide price of food rose 80 percent — and has kept rising." Today, along with the cumulative index, the Standard & Poors GSCI provides 219 distinct index "tickers," so investors can boot up their Bloomberg system and bet on everything from palladium to soybean oil, biofuels to feeder cattle.
But the boom in new speculative opportunities in global grain, edible oil, and livestock markets has created a vicious cycle. The more the price of food commodities increases, the more money pours into the sector, and the higher prices rise. The result of Wall Street's venture into grain and feed and livestock has been a shock to the global food production and delivery system.
Not only does the world's food supply have to contend with constricted supply and increased demand for real grain, but investment bankers have engineered an artificial upward pull on the price of grain futures. The result: Imaginary wheat dominates the price of real wheat, as speculators (traditionally one-fifth of the market) now outnumber bona-fide hedgers four-to-one.
The article concludes that such manipulation is not going to end any time soon. Food costs will continue to rise, farmland will become more expensive and commodities generally – especially edible ones – will continue to experience supply and demand volatility.
Daily Bell: So this constitutes three distinct pressures on food stuffs. First is what we would identify as a scarcity meme – the idea that top banking men want to give people the idea that food is scarce. Second, there is economic pressure from the current fiat money system supported by central banking monopoly. Third, there is outright manipulation, as you've described it.
Doug Bell: All these pressures are upwards, of course. But even without your three drivers, we are left with the dynamics of food production and costs.
I summarize these points regularly:
People need food. The trick is to identify regions around the world where crops can be grown efficiently and for a profit. Uruguay is a sensible, even ideal, solution from many important standpoints.
Daily Bell: Okay, points taken. Thanks for the update. Anything else you want to add?
Doug Bell: Thank you. People are welcome to visit our website at http://www.grasslandsuy.com.
We are happy to see the progress of Doug Bell's project, as he is offering an alternative to securities investing and one that is an unusual asset class. While his approach is not strictly speaking organic, he is expanding as he goes. Importantly, people like Doug are forging determinedly away from green revolution farming, which seems increasingly destructive and controlling.
Uruguay itself, meanwhile, continues to attract attention and was recently named the "country of the year" by the Economist magazine. Uruguay's Punte del Este destination attracts such individuals as Bill Gates and Mark Zuckerberg every summer. The country is an artificial one wedged between Brazil, Argentina and Chile and, as Doug said, is often called the Switzerland of South America.
It is being reported that there are forces at work trying to develop Uruguay into a kind of Latin American Silicon Valley that will draw clients from Europe. Whatever the globalists have in mind, however, they will have to contend with the population itself, which is mostly transplanted Southern Italian and wary of outside influences.
The Italian mafia took root in Southern Italy. Uruguay still has no Pizza Hut, Kentucky Fried Chicken, etc. It's mostly one flat farm but Monsanto has not made a whole lot of progress in reconfiguring the botanical landscape, which is surely a good thing.
The definitive change that is coming to Uruguay will happen because of the recent legalization of marijuana. In the meantime, Uruguay will continue to be known for its organic produce and meats. And, of course, shareholders will identify it with Grasslands.