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Gottfried Haberler’s contribution to trade theory

17 Feb

Gottfried Haberler was a member of what is loosely termed the ‘Austrian’ school of economics, to denote the group of theorists who opposed centralised – government – intervention in money creation, which they argued artificially distorted capital flows and created structural inefficiencies.

He was more closely tied to the Austrian school at the beginning of his career, when while in that country he was a regular contributor to the seminars organised by Austrian economist Ludwig von Mises; as part of the Mises-Kreis, the celebrated group of economic, sociological and philosophical thinkers.

In what was, for the time, a departure from the orthodox theory of value, quantified it in terms of labour and output, the Austrian theory of value focused on the process of production itself. And how in electing to lend part of the finite amount of money to certain industries over others, there was a danger of creating structural inefficiencies which would self-correct over the course of the business cycle.

A Pioneer in Trade Theory

In the 1930s Haberler was instrumental in creating an alternative framework for analysing cost and value, moving away from the theory of comparative costs (advantage) on the single-product model which had underpinned trade theory since Ricardo. Haberler’s framework mapped out the relationship between the opportunity cost of producing two competing goods, under a given supply of productive factors. This he performed both for constant and fluctuating opportunity costs.

Previously orthodox theory had been based on the ‘real-cost’ theory of value, which saw prices as quantified largely in units of labor. The new approach enabled the determination of relative prices to be analysed under more realistic production circumstances as variable factor productions, in a much simpler and more direct manner than under a real-cost approach.

This paradigm shift triggered a wave of writings by other academics, which incorporated and expanded Haberler’s theory, like Lerner (1932, 1933, and 1934), Leontief (1933)  and Viner (1937), who introduced ‘social’ or ‘community indifference’ curves. When these two curves – those of opportunity cost and social indifference – are plotted together – Marshall’s reciprocal demand curves can be derived; and most general equilibrium effects of trade on relative commodity prices, production, and consumption then shown.

What Haberler’s analysis did not include was an attempt to model consumer preferences for the commodities being produced. Nor an explanation of how productive factors evolve as an economy moves along its production-possibilities curve. This would have to wait until Stolper and Samuelson (disciples of Haberler) published their ground-breaking article in 1941, which elucidated more fully the way the production-possibilities curve is determined, and how factor proportions fluctuate along the curve.

 Where Trade Theory Fails

Haberler’s 1950 work, ‘Some Problems in the Pure Theory of International Trade’, examined the less-than-ideal situation of real wage rigidity, which can be caused by insufficient mobility of labour between a developed and less developed sector; one of the scenarios examined by economists who later expanded his model. This article formed the precursor for an extensive body of literature on ‘domestic distortions’ in which orthodox theories of trade relations might be non-applicable.

The consensus that in the majority of situations free, unimpeded trade has a net benefit did not change dramatically. The theory so-called Hicksian optimism rehabilitated the argument for free trade largely on the basis that wider availability of goods and increased competition leading to cheaper prices would yield a welfare gain; the need for protection arises only when there is a market failure in the domestic economy. Where there is a domestic divergence between prices and marginal costs, foreign competition can hurt some domestic industries.

In the event of real wage rigidity, the opening-up of trade – whether in a full customs union or a free trade area – could cause loss of output. Industries which for whatever reason are unable to pay a competitive rate which attracts new workers would be threatened by removing tariff barriers, which would allow unimpeded entry of competing products.

As the marginal return on these products became unviable, but wages were not flexible enough to change accordingly, labour would move out of these struggling industries and into more competitive ones. Often the industries that suffer are those at the breaking edge of new technology and development, which lacks a mature labour pool with the necessary skill set.

Let’s Get Technical

In his econometric model Haberler demonstrated that increased availability of products and a wider market to stimulate output had a net benefit, provided this increase was to the right of the domestic indifference curve.

In trade theory the state of ‘autarky’ is where the factors of production are deployed to their maximum potential, accounting for the limiting factors of the opportunity cost of manufacturing that product over another, which are assumed to increase; and a community indifference curve which has an inverse relationship to the opportunity cost curve, (increasing where there is scarcity of a particular good’.

The material gains from trade are represented in graphical form by the international trade ratio. In a model comprising two exchangeable commodities, this describes the amount of commodity A that can be exchanged for commodity B. If commodity A buys two of commodity B abroad, but at home you need two of commodity A to get one of B, then domestically A is more valuable. Therefore B should be exported.

However, Haberler has a caveat. If T, the international trade ratio representing the increased availability of goods from trade, is such that there is a net outflow of goods, that “these imperfections are persistent, … and that they persistently operate in such a direction as to weaken (rather than to strengthen) the case for free trade,” protection might be justified.

His idea of a desirable welfare position is not an overly naive one in which all individuals are necessarily better off, but “it is sufficient that everybody could be better off.” He distances himself from the idea that “perfect mobility of factors within each country is a necessary condition for the ideal classical model”, going on to assert that “what really causes trouble and may make trade detrimental and justify protection is rigidity of factor prices, which may or may not be associated with immobility of factors.” The most likely factor to experience difficulty transitioning between industries is that of labour.

Expanding this theory further, Brecher (1974) examined a number of scenarios involving real wage rigidity, starting with one in which free trade was combined with unemployment; he analysed the consequences of using different policy instruments. If the importable is labour-intensive to produce, a tariff would increase employment and output, by shielding domestic industry. But capital and labour would move disproportionately into the protected industry; also there would be a by-product consumption distortion.

When the demand for a product, reflected in its price, is proportionate to the marginal cost for each firm and product, there is zero distortion. But protectionism can mean the output swells beyond sustainable consumer demand, as that industry is protected from foreign competition and, more indirectly, may benefit from tariff revenue.

The Austrian school holds that distortions of this kind inevitably self-correct over the course of the business cycle, and ‘creative destruction’ can mean boom-time companies do not survive when they lose policy protection.

The second scenario Brecher modelled was polarised between a subsistence, and an advanced sector, where high skills and/or costly technology necessitated a wage rate in excess of the opportunity cost of labour – i.e. higher than the marginal product of labour in the subsistence sector. To phrase it in plain English, these advanced sectors would have trouble attracting capital which could be profitably employed in more basic industries.

This form of domestic distortion, he argued, necessitates subsidies in place of tariffs or taxes on trade. Because the revenue effect is negative and so higher distorting consumption taxes are needed, he acknowledges the extent of the offsetting subsidies may have to be incomplete.

The distortions not offset are weighed against the new distortions created as a consequence of financing the subsidies. While not a perfect solution, he concludes it is ‘first-best’, the most beneficial option, to deal with distortions in this way.

This theory of ‘domestic distortions’, which Haberler led the field in, is admittedly a far cry away from his origins as an Austrian School disciple, a staunch defender of the principle of unimpeded trade. This just goes to demonstrate his intellectual versatility and ability to break with orthodoxy and form new approaches.

But today it might be time for a new school of thought on the subject. As is so often the case in institutions where collective decision-making is skewed by relative economic and political weight, the WTO is governed to a large extent by the vested interests of the countries with the biggest economic muscle. Trade or customs unions like that existing within the EU and the proposed Trans-Pacific Partnership (TRIPS) which Trump made guillotining one of his first official presidential acts, only yield a net benefit to those participating in them.

For those countries outside the golden circle, they can face significant obstacles to equitable trade not limited to tariffs; customs’ scrutiny of imports is far lower, for example, within the EU which has a unified legislative framework to enforce commercial and legal standards. Trump’s announcement of his intention to renew the North American Free Trade Agreement is another step towards his avowed position as a champion of ‘free trade’[1] and greater competitiveness.



‘The Normative Theory of International Trade’ – W. M. Corden, Australian National University, Canberra  (Seminar Paper no.230)

‘Gottfried Haberler (1900 – 1995)’ – Joseph T. Salerno.

‘Some Problems in the Pure Theory of International Trade’ – Gottfried Haberler, 1950

‘Gottfried Haberler’s Contributions to International Trade Theory and Policy’ – Robert E. Baldwin, The Quarterly Journal of Economics vol. 97, No. 1 (Feb 1982), p.141-48



Sound the alarm! The vehicles which sound sirens when speed limit is broken

14 Jul

One South American mining company uses remote vehicle monitoring devices to tell employers when drivers are speeding or brake suddenly. Some systems also sound an internal alarm which warns the driver they have committed an offence.

Satellite tracking devices are used by many mining companies in Latin America to prevent the loss of valuable assets through theft or accident.


Who needs a speeding ticket when you set off a deafening alarm if you break the speed limit?

How would you feel if your employer had access to automated performance logs of your quality of driving, and to track your vehicle’s movement in real-time?

Loss Prevention – the truck driver’s Fort Knox

Physical checkpoints proved insufficient to keep tabs on transport vehicles’ movements for one mining company in Peru, one of the case studies in a white paper on ‘3 Reasons Why Mining Companies Need Satellite Tracking’. Previously, one checkpoint would record the truck’s departure time, and notify the checkpoint at its destination what time it should arrive by. If it failed to arrive by the appointed time, the search would begin.

The problem was that the journey between mine and foundry took seven hours, and it took a further three to four hours from the foundry to the storage stations. Hundreds of miles of lonely road separated the checkpoints, making recovery of a stolen vehicle and its precious cargo like finding a thimble dropped somewhere in Hyde Park. But with more tree cover.

SkyWave, the satellite communications company that issued the white paper, described how infrastructure provider Geo Supply Peru created a tracking system for the mining company using both cellular and satellite-based GPRS signals. The network coverage for remote regions in Peru is insufficient to give an unbroken picture of the vehicles’ route and location.

The facility’s web-based user interface lets clients check on every vehicle in their fleet at any given point, in real time. Additional functionality is generated through ‘geofences’, virtual gates which automatically notify the client when trucks enter and leave. These generate accurate data on journey time, which employers can use to gauge how far efficiency initiatives are improving productivity.

Finally, the installation of a panic button ensures that, when hi-jacked or held up an emergency message is sent to the relevant authorities immediately, via the satellite system.


Don’t brake suddenly… you’re being watched!

Another mining company, that made heavy use of the narrow, two-lane Yungas Road, which has a formidable accidental death rate of 200-300 a year, is an indirect user of SkyWave’s satellites. It contracted Bolivia’s MONNET, provider of applications to manage vehicle fleets for distribution, sales, service, security, cargo and passenger transport, to provide more effective tracking technology for its drivers.

Again, the satellite signals were used in tandem with cellular networks to ensure continuance of coverage. When out of range of network stations, MONNET’s SureLinx device stores detailed location information in its memory, for transmission via cellular GPRS immediately cellular service is again available.

Most significant, though, was the provision of driver performance monitoring. Driver ‘incidents’, including speeding and hard braking, are reported and pooled to generate driver reports and a Driver Performance Index. SkyWave’s white paper says, “This index is a measure of the number of violations per kilometre recorded by the SureLinx and takes into account the severity of the violations. This information allows mining companies to identify drivers that need the most training,” (or will need to find another job), “as well as reward drivers who exhibit good driving behaviour.”

The net result of this innovation, states the report, combined with “Driver training and in-cab auditory alarms when a violation is detected have led drivers to use equipment more carefully and have reduced wear on vehicles.”

Theft prevention measures were also part of the package, with the installation of card readers in each vehicle. Possession of an identification card is as important as the ignition key, as no vehicle will turn on without having first scanned and validated a corresponding ID card.

At least with this efficiency-enhancing innovation, truckers still drive the lorries themselves; the latest emerging technology is self-driving transport vehicles. The drivers will not necessarily be out of a job, as for now the idea is to use the technology to give them breaks while driving, enhancing productivity by reducing the need to stop and rest when tired. Yet there is serious talk of dispatching fleets of several self-piloted transport vehicles, headed nominally by one human-piloted lorry. One thing is certain – the age-old commandment of ‘Don’t take your hands off the wheel!’ might no longer apply.

Machines – More Efficient than People

25 Jun
energy efficiency

Carbon efficiency is a squeaky green offshoot of operational efficiency.

How automating manufacturing can reduce carbon emissions and boost efficiency

The ‘Internet of Things’ is far from being a future trend. It has already arrived in most sophisticated manufacturing and petrochemical plants, where temperature and pressure conditions must be kept at optimal levels at all times; and reactions and assembly lines are so multifarious that the potential for human error cannot be allowed to intercede.

Almost all machines in modern factories have a number of settings, or configurations. To adjust the all the settings manually could take a month, or more. If all components are linked to an overarching control system, the time taken is reduced dramatically, to a matter of days.

Nunzio Bonavita, business development manager for ABB Measurement Products, Italy, in his discussion of how automation increases efficiency, cites the example of the petrochemical complex in Termoli, Italy, where “complex chemical processes” are controlled by over 500 feedback control loops.

Bonavita states, “Manually re-tuning such a large number of loops would require six to eight months of highly-skilled (and rarely available) technicians.” But, that “After installing an Advanced Process Control Solution to provide control loop optimization and monitoring, a single engineer was able to re-tune the whole plant in just three weeks.”

He notes also that the self-adjusting functionality of the control devices meant that fuel wastage was minimised, and the plant’s overall consumption of methane was cut by more than 5%.

Another example is Qatar’s aluminium smelting complex Qatalum, near Mesajeed Industrial City. The 17-facility complex is one of the world’s largest, and also one of the most efficient aluminium smelters. All 17 plants are connected through an automated process control system.

A system this big really necessitates automated configuration: in total the network comprises more than 1,000 ‘nodes’, connection points and communication endpoints. The technical contractors brought in to install a unified control and monitoring system, ZMS Technology, used Hirschman’s Industrial HiVision network managing system (NMS).

The reported benefits of this programme are that it was compatible with a range of devices from different manufacturers and, describes ‘Automation World’ magazine, “The ability of the NMS to detect inconsistencies between parameter configurations reduced troubleshooting time.”

Additionally, it had the advantage common to all automated systems, which is that the history of configuration levels was documented, leaving a comprehensive log that could be scrutinised in the event of operational problems or just to find further efficiency gains.

A particular issue in the hot and arid Qatari climate is cable breakdown, and Qatalum often suffered from cable crimping and transmission errors as a result. An integrated control system can “dig down from the port to the switch and even to the cable to identify an area of potential failure.” Without the Industrial NMS capability, and what was the only solution in the olden days, was “to shut down a portion of the network and sending a process engineer to troubleshoot—a very expensive process,” reported ‘Automation World’.

The final way in which industrial network management systems make plant operators’ lives easier is by allowing for remote operational access – though internet security precautions are paramount. The 2012 incident at state-owned and state-of-the-art oil producers Saudi Aramco, where a malware attack enabled anti-government forces to spy on and even interfere with communication processes, provided a lesson for other facilities dependent on a computerised control system. Passwords must be continually updated and hardware disks brought on-site subject to checks.


The Future of Food: Home-Grown Meat. Stem Cell Burger’s Next Stage of Development

31 Mar

Professor Mark Post claims his stem cell burger could hold the solution to growing global meat demand. He explained how his scientists are trying to achieve that final elusive lab result – making it something people want to eat.

The nineteenth-century doom-laden Malthusian prophecy of global starvation due to population growth has still not come to pass. But today there is a major factor impacting world food supplies, and that is our nigh universal love for meat. Around 70% of arable farmland is dedicated to crops, not for human consumption, but to feed the cattle we serve up as steaks, sausages, mincemeat, burgers, kebabs…. To produce 15g of meat, an animal must be fed 100g of vegetables. That is not an efficient productivity ratio.

And because of the growing demand for meat in emerging market diets, the proportion of arable land used to feed these animals is on course to increase. The diet in developing economies is approaching the west’s trophic level of 2.3 (where a completely carnivorous individual would have a trophic level of 3, and a vegetarian one of 2). Some experts claim that at current rates of expansion, by 2050 all the world’s crops will be needed just to sustain production of the world’s meat products.

The solution coined by Mark Post, of the Department of Physiology at Maastricht University in the Netherlands, was to grow animal tissue using muscle stem cells. Stem cells are the components of body tissues that can differentiate to grow and replace damaged cells very fast. Every vertebrate has these stem cells in their muscle tissue.

Stem cells grow very, very fast. Given the right nourishment and environmental conditions, they double 35 times. One muscle extract obtained through a biopsy from a live animal can yield 10,000kg of meat. After differentiation, they merge to form a smooth wall of muscle. Still, the scale at which this growth occurs is small. The resulting rings of muscle cells are just 2.5cm long and 1mm in diameter. Further expansion is difficult, because they have no blood vessels to transport nutrients to cells in the centre.


This is an area Post is keen to explore, and sees two possible solutions: either an “artificial channel system to mimic the blood vessel system”, or to grow a biological blood transport system, complete with tiny capillaries. It seems this could necessitate an artificial pump, but he suggested that “stimuli coming from the interior cells that drive growth and repair” could be sufficient to direct the flow of nutrients. His ultimate goal, he said, was to create an authentic T-bone steak, – without harming any animals in the process.

Post claimed his original idea was to make a sausage and “present it to the audience while the pig was running around honking.” But after he presented the proposal to Google founder Larry Page, his new patron insisted as a condition of his support that it was a burger, rather than a sausage, as Post had first envisioned.

“I wanted to produce a sausage, and present it to the audience while the pig was running around honking.” (Mark Post, Maastricht University)

Another way the professor proposes to enhance the technology is through tailoring the proteins and amino acids the meat contains. He states that in future, they might remove harmful proteins such as those which cause colon cancer. And that they would incorporate fat cells, which would serve the dual purpose of making the burger juicier, and of improving its nutritional content: the fatty acids, when separated from their respective glycerol molecule, are essential for bodily functions including steroid synthesis, and in the phospolipid bilayer which forms a part of the plasma membrane in all body cells.

Fun Fact:

A number of other important biological molecules are also lipids. Vitamins A, E and K are terpenes, compounds similar to steroids but somewhat smaller. Steroids, of which Vitamin D and cholesterol are two examples, are lipids consisting of four interlinked rings of carbon atoms. Other important steroids are derived from cholesterol, among them the sex hormones progesterone and testosterone, and the hormone aldosterone secreted by the adrenal cortex. Bile salts, such as glycocholate and taurocholate, are polar metabolic products of cholesterol necessary for functioning digestion of lipids.


Here comes the science…

Tests have been conducted as to the ideal solution to promote adipogenesis, adipose or fat stem cell replication. Post cites Lin et al, ‘Tissue Engineering A,’ 2011, as having demonstrated the effectiveness of ADSC in collagen gel for this purpose. The expression of fatty acids Rosi, Phytanic and Linoleic acids were especially boosted, and to a lesser extent myristoleic and elaidic acids.

The optimum condition to enlarge and increase muscle cells is achieved through subjecting them to tension (“Muscle cells are exercise junkies,” says Post), so stretching them between two points gives them an effective workout that could also increase the muscle mass. It has been found that electrical currents stimulate muscle activity, but over time this wears them out rather than building them up.

In addition, the team is experimenting with the solutions it will use on the muscle tissue as it is being incubated. By coating the cells with a substance such as Matrigel, at a concentration of 1:200, you create an immersive 3D culture environment. In contrast, a petri dish donates nutrition via a flat, 2D surface. Matrigel was the most effective coatings tested, causing the highest relative expression of stem cells. Other coatings trialled in the experiment were laminine (concentration 1:10) and biolaminine (concentration 1:25).

A potential obstacle to sustainability is that, in addition to the original biopsy, calve serum is used to deliver vital nutrients. Eventually if cultivation of muscle cells can be scaled up, it would be possible to grow new cell populations out of cells already synthesised in the laboratory. But to maintain a supply of calve serum would necessitate diverse herds of livestock; something Post wants to phase out, as an inefficient use of land and corn. They have had promising results with a few non-serum media.*[1]

The first three stem cell burgers were served up live on TV last August to notable food critics, author Josh Schonwald and Hanni Ruetzler of Future Food Studio, who gave the home-grown dish what Post calls a polite but honest reception. The cost of this particular menu item was in total €250,000 in equipment, materials and labour. In order to make the process efficient and cost-effective, the team would have to expand production to a commercial scale. The task of modelling how to achieve this was contracted to J.Rowley, allegedly the world’s largest supplier of stem cells for laboratory purposes.

J. Rowley’s model did not account for all the further enhancements envisioned for the process. It made a number of technical assumptions: that 52 population doublings were possible; that the achievable cell concentration in the microcarrier culture would be 7.0e6 cells/ml; and the microcarrier concentration 10g/L. Consultants at J.Rowley mapped out a method by which cells were conveyed from plates to flasks, to a cell factory to a cell culture, via a mixing facility to a filling facility, and culminating in a discrete freeze drier. The final cost per kg of beef production? An average of $65.57, which at current exchange rates is £39.33. At the current retail price of meat, this seems on a par with livestock farmed the traditional way.

The headline figure is that a single bioreactor, incorporating 13 cycles per year, could feed a population of 10595. Each batch of cells yielded by the chain of production would yield 35000kg of meat, without endangering the life of a single cow.

That’s 175,000,000,000,000 individual, artificially synthesised cells, for those of you who are impressed by big numbers.

And why stop there? Post jokingly hypothesised about the creation of ‘animal hybrids’, meat containing components for two or more different species. Pick and Mix…He theorised that technically, it would be possible for people to grow meat at home in domestic incubators, provided they tended their incubator with the same care and patience as a garden or allotment.

Hey, it sounds fantastical. But five years ago, what would you have said in response to someone who claimed they could ‘grow meat’?

[1] If you are interested, results for the solution 6% Xerum free + Mix +1% P/S/A ingevoren aliquots suggested it could be a viable alternative.

Food retailer Kroger joins Dow Jones Sustainability Index, for the conscientious investor

30 Sep

The Dow Jones Sustainability Index (DJSI) will see a new addition to its lineup of ethically tested, high market cap global companies, as US firm Kroger joins the roster. Retail food chain Kroger, which produces its own food line and also operates 7326 ‘fine jewelry’ stores, announced its inaugural listing on 27 September.

Kroger’s president and CEO Rodney McMullen declared: “Inclusion in the Dow Jones Sustainability Index is an important mile marker and a sign of real progress for Kroger.” He continued modestly, “While we take great pride in the strides we have made to reduce our impact on the environment and to operate as good stewards in our communities, we have more work to do. We intend to continue pursuing our long-term sustainability goals with enthusiasm and determination.”

Firms like Kroger are assessed by the DJSI’s partner RabecoSAM, which questions a pool of 2500 of the largest world companies, based on free-float market cap, on several criteria. In 2013, a total of 1,831 were rated, with 818 completing questionnaires and 1,013 assessed exclusively using public information.

The first criterion is environmental, for which the assessment is based on the CDP framework, with the firm submitting figures on its greenhouse gas emissions, energy use, risks to its supply chain, and measures it is taking to remedy these. It is also assessed on its water usage and possible deforestation impact.

The CDP is a non-governmental body which collects information on the global corporate environmental footprint to “harness market forces to drive change.” The weight of its membership – at last count 81% of the top global 500 make detailed reports to it – means it enables cities and government to gain “awareness of where to make strategic changes in order to save money.”

As part of its submission, Kroger described how it was making progress towards the Environmental Protection Agency’s Zero Waste threshold of 90% in all its retail locations: to reach its goal, it said, it would increase the ‘diversion rate’ to 65% for all stores by the end of 2013, and to 70% by the end of 2015.

As part of its current 58% diversion rate, Kroger utilises processes like converting its waste to biogas through anaerobic digestion. At the Ralphs/Food4 Less distribution centre, it processes around 150 tons of food waste daily, which will offset more than 20% of the energy demand for the 650,000 square foot Ralphs/Food4 Less distribution centre, and reduce the net distance of truck trips by over 500,000 miles a year.

The other DJSI criteria incorporate stakeholder engagement, i.e. the extent of local or employee ownership and involvement; product stewardship; operational eco-efficiency, for which there are two possible denominators to standardize the environmental data provided, revenues and production volume. And finally, recent addition Financial Stability and Systemic Risk.

The evaluators explain, “The new criterion aims to measure both the ex-ante level of complexity, using the Financial Stability Board, (FSB) framework as a proxy and the ex-post receipt of state aid, still outstanding to date.”

Kroger takes a leading role in grassroots community work, as a founding partner of Feeding America, a nationwide outreach programme for those in food poverty. In 2012, it worked with over 80 local food banks to donate the equivalent of 200million meals. As regards product stewardship, it claims its implementation of a refrigerant management plan and improved fleet productivity has led to a 4.8% reduction in its overall carbon footprint.

Weighting the index – what kind of a punch does the USA pack?

DJSI evaluators take 600 or 800 of the largest companies in the distinct regions of the USA, North America, Europe, the Eurozone, Emerging Markets, and Asia-Pacific. Korea and Australia are treated as individual entities. The various geographical sets form separate funds as well as being aggregated for the DJSI World, ex-US and World Developed Composite indexes. The team selects the top 10 or 20% firms from reach region in terms of sustainability, and groups them into industry categories, appointing an industry leader for each one.

Nestle leads the ‘Food, Beverage and Tobacco’ group. Since recovering from the scandal surrounding its campaign to promote powdered milk as a breast feeding substitute several years ago, it has gone from strength to strength. Woolworths is fighting back from Australia, leading the ‘Food & Staples Retailing’ Group. French telecoms giant Alcatel-Laurent heads the ‘Technology Hardware & Equipment’ Group, and Switzerland’s Roche tops the ‘Pharmaceuticals Biotechnology & Life Sciences’ Group. Citigroup, headquartered in the US, was considered the most ethical among ‘Diversified Financials’.

Putting aside comparative virtuosity scores of the global heavyweights, it is interesting to see that the DJSI outperformed the Dow Jones today (27 Sep), at the start of trading at 9.34am GMT-4. While the Dow was down 157.41 (-1.03%), the DJSI World Developed Composite Index was -0.99%, and the North America Composite -0.50%.

Moving away from the ‘broad-market’ indexes to the DJSI Blue-Chips which select only the most profitable companies, the World ex-US 80 were up 0.16%; while the Japan 40 was up an impressive 0.36% and Asia Pacific had climbed 0.26%, as smart money continues to flow towards these highly liquid markets.

Most significantly, the NA ex call Index, a subindex which excludes gambling, tobacco, armaments and firearms, and adult entertainment (there are additional either/or options for these last two sectors), had fallen just -0.40% compared to the NA Composite’s -0.50%. An enduring testimony to the benefits of being a conscientious investor?

Adjudicator appointed to prevent supermarket giants abusing suppliers

1 Jul



The role of ‘Groceries Code Adjudicator’ has been formally established in law, with powers to advise suppliers to major supermarkets and to arbitrate disputes.

In line with a clause requiring the position’s creation under the Groceries Supply Code of Practice, an independent adjudicator was required to ensure the Code was fully and effectively incorporated into the terms of supply between major retailers and suppliers. This decision was supported through a consultation with 60 stakeholders.

It has emerged that the blockbuster supermarkets have occasionally been guilty of abusing their superior market position. This is delineated clearly in the fact a rule was required stipulating that retailers “may not require suppliers to pay for shelf space, although payments may be required for promotions or new product listings, where the payments are proportional to the risk incurred by the retailer in stocking the new line.”

Farmers have to pay supermarkets a ‘risk premium’ to stock their more unusual produce? What would it take to sweeten the deal on a cake recipe that had never been trialled? A line of damson jam? Should small suppliers have to subsidise the likes of Tesco and Sainsburys for the type of ‘risk’ that is a normal part of business life? Does consumer demand for ever-cheaper groceries come at a very high price for British agriculture?

The Groceries Code also stated that retailers “may not require suppliers to make payments for wastage unless due to the supplier’s default or negligence, or as provided for in the supply agreement.” Which suggests that previously, if stock went past its sell-by date while on the shelf, the supermarket would have been able to claim compensation?

Christine Tacon, who has been appointed the Adjudicator, will receive submissions and complaints in strict confidentiality. The department is already open to allegations of violation of the Code but stresses, “We will only be able to launch investigations after we have completed our consultation and finalised our guidance. We anticipate this will be by the end of the year.”

Further information on the relevant bills is available on the Department of Fair Trading website, but the results of the consultation were not published in full because many of the submissions were made in confidence. Those consulted included major retailers, suppliers, trade associations, non government organisations (NGO’s), unions, other Government bodies, church groups, charities and a number of private individuals (most of whom responded in support of ActionAid’s “Who Pays?” campaign.) All those who consented were sent a copy.

The Department of Fair Trading also stresses that only those engaged as suppliers or vendors of groceries, as defined in the following list, fall under the remit of the GCA. “Groceries” consist of: “food (other than that sold for consumption in the store), pet food, drinks (alcoholic and non-alcoholic, other than that sold for consumption in the store), cleaning products, toiletries and household goods.”

The definition does not include “petrol, clothing, DIY products, financial services, pharmaceuticals, newspapers, magazines, greetings cards, CDs, DVDs, videos and audio tapes, toys, plants, flowers, perfumes, cosmetics, electrical appliances, kitchen hardware, gardening equipment, books, tobacco and tobacco products.” So any tobacco company worried it is not getting a fair deal for its carcinogenic carbon-sticks will have to go elsewhere. Dyson too would not be able to cry foul if Aldi reneged on a contract for its vacuum technology, at least not to the Groceries Code Adjudicator.

Among the other important clauses of the Code are that “A Designated Retailer must not require significant changes to supply chain procedures without reasonable notice in writing or full compensation for costs incurred as a result of the failure to give reasonable notice.” Also, that payment must be sent through a reasonable time after invoice.


Prize-winning Invention from Finland Could Help End Offshore Gas-flaring

18 Mar

The newly patented GasReformer device can recycle waste gas emitted in oil production, and reuse it to power oil rigs. Wärtsilä claims that by using the GasReformer, and a dual-fuel engine which alternates between oil and associated gas, operators can cut the need for bunkered fuel oil by about 35–39 tons per day; so as well as drastically reducing CO2 emissions, it increases operational efficiency.

The device is aimed principally at offshore oil rigs, which have little capability of storing the associated (petroleum) gas produced from crude oil, when it is heated to make it less viscous, and easier to pump and handle. This associated gas is, if untreated, too volatile for use as fuel because it contains a lot of heavier hydrocarbons. Many oil production facilities burn off this waste gas, as the cheapest and easiest way of getting rid of it. This practice is known as gas flaring, and is not without negative environmental and social effects.

The Problem of Gas Flaring

Gas flaring is most prevalent in Russia, with Nigeria the second most culpable. It seems almost a criminal waste in Nigeria, where gas and electricity supplies are well below that necessary to meet demand. South Africa, which has a third of the population of Nigeria, generates more than 10 times as much as power. This being said, in September 2014 Nigeria publicly committed to tripling its natural gas production from 4 billion cubic feet (1.2 billion cubic metres, bcm) a day, to 11 billion cubic feet (3.45 bcm) a day. Gas treatment facilities will form part of the expensive, comprehensive new infrastructure.

Figures for gas flaring volume in 2013, derived from satellite data, are still a work in progress by the World Bank. But the Global Gas Flaring Reduction (GGFR) public-private partnership, led by the World Bank, has reported that global volumes fell by by 20% between 2005 and 2011, from 172 bcm to 140 bcm. In 2011 Russia still burnt off 37.4bcm of ‘waste’ gas, which could have been reused with the necessary infrastructure. At the 2011 GGFR forum, Rachel Kyte of the World Bank claimed that in sub-Saharan Africa, purely for lack of equipment to store and treat it, the gas then flared was equivalent to half the total energy consumption.

Perhaps the most significant step taken to combat the practice is in Iraq, where a combined venture between Shell, Mitsubishi and Iraq’s South Gas Company, the special purpose venture ‘Basrah Gas Company’ launched in 2013 claimed to be “the world’s largest flares reduction project”. Compressors were leased to capture and process gas flared from three major oil fields in southern Iraq – Rumaila, West Qurna 1 and Zubair.

How does it Work Again?

The GasReformer reduces emissions by stabilizing gas rich in heavy hydrocarbons, converting it to a methane-rich product that can be reused in dual-fuel engines. The equipment ensures the methane number of any fuel gas is improved to 100 ± 5 by converting the heavier hydrocarbons to synthesis gas (H2 + CO), and finally to methane (CH4).This process is based on the established practice of “steam reforming,” which is performed in refineries and petrochemical plants: in this context, of deriving hydrogen from hydrocarbons. The GasReformer using the same catalytic process but different conditions (of heat and pressure).

The company Wärtsilä Gas Systems, Helsinki, has won the Offshore Technology Conference’s 2013 Spotlight on New Technology for its invention. The demanding selection criteria for the award, which state that a winning invention must be “original, groundbreaking, and capable of revolutionizing the offshore E&P industry”, reflects the product’s proven and significant benefits for offshore exploration and production.

See a list of the Offshore Technology Conference’s 2013 Spotlight on New Technology’s other winners here…

Director Wärtsilä Oil & Gas Systems Tore Lunde said: “The uniqueness of the GasReformer is in its ability to convert unwanted heavier fractions from the gas into methane. By turning otherwise waste gas into fuel, the system significantly lowers operating costs while notably enhancing environmental sustainability. In locations where flaring is prohibited, this is especially important.”


Seven dividends that will be gone by tomorrow! Going, going…

12 Mar

March 13 is the ex date for the following selection of dividend-awarding companies. I elucidate the financial highlights for each one.

1. Standard Chartered. The new preliminary dividend is 34.92p. Overall, its annual dividend is up by 10.5%. SC proclaims this is the tenth consecutive year of income and profit growth, with income growing 8% to $19.9bn. Primarily this was earned through wholesale banking, up 9% in 2012. It cites an increasingly efficient network between existing areas of operations: in 2012 over 50% of client income from wholesale banking was generated outside of the home market country of its clients. Hold onto.

2. Hargreaves Lansdown, financial service provider, will pay an interim ordinary dividend of 6.3p per share. At last count, its shares were trading at a buy price of 895p. Its 2012 report states, “After careful review of the company’s future cash requirements the Board has decided to increase the second (final) dividend and pay an ordinary dividend of 10.55p per share (2011: 8.41p) and an increased special dividend of 6.54p per share (2011: 5.96p) – an annual total of 18.87p. Some fine tuning in accounts has generated modest return for shareholders.

3. Dechra Pharmaceuticals’ interim dividend paid in April is 4.34p; that of November 2012 was 8.50p. It claims its dividend per share increased 10.3% in 2012, and underlying earnings per share were 2.7%. However, actual EPS fell because of two major product acquisitions: worldwide rights (excluding Canada) to equine lameness treatment HY-50; and Eurovet Animal Health BC, which develops, registers and markets ‘added value’ animal products. Future growth potential?

4. Genus, which applies biotechnology to animal breeding, raised its interim dividend 11% to 5.0p. Although it saw a 5% fall in statutory pre-tax profits to £24.8m,
adjusted pre-tax profits were up 2% in constant currencies at £23.1m – down 1% on an actual currency basis. Its expansion plans include a porcine joint venture in China. Is bio-engineered food the future?

5. Synectics Security Systems has increased its final dividend from 4.5 to 5.0 pence, bringing the total dividend for the year to 7.5p. Its 2012 annual report did not seem publicly available, but its delayed share price is currently spread between a bid 410.00p and ask of 420.00p.

6. Tracsis, railway service provider, has approved an interim dividend of 0.3p per share (up from 0.2p, 2012). The small but expanding company saw its revenue increase by 29% to £4.9m, and profit before tax increase 50% to £1.7m. Growth was thanks to its first contract with a major UK operator for new rail freight product FreightTRACS, and the sale of its Compass reporting system to the New Zealand market. It cites continued demand for its passenger counting and analytics service TRACS optimisation software.  Take a ride onboard the gravy train.

7. Interquest Group, IT and Technology Recruitment firm, is distributing a second interim dividend of 2p per share. Its shares at last viewing were trading at 65GBX (though they fell today by 1-1.52%).

Uranium still a risk; Black Stone expands its resources

15 Jan
  1. Dramatic news from Uranium Resources, which has announced a reverse stock split with a one-for-five ratio. The move, which will increase the price of each share by five times by reducing the total shares issued by the same factor, was necessary to enable it to meet the minimum bid request required to keep its NASDAQ listing. The decision was approved by 73.9% of its stockholders in a vote on Jan 14.

Uranium stocks have been earmarked by as generally undervalued in view of the expanding market for nuclear energy in 2013. However, the companies it suggests taking a strategic position in are Cameo, which it describes as a “profitable and well-known uranium producer”; and Denison Mines Corp for its large stake in the Athabasca Basin in Canada, which contains some of the world’s richest high-grade uranium deposits. Cameo is predicted by analysts to earn $1.38 in 2013. Denison, whose shares are trading at just over $1, might yield larger pay-offs in the long-term but have a less established record.


2. Colossal $1.4bn equity raised by Blackstone Minerals LP, one of the biggest privately held royalty and fee mineral owners in the US and headquartered in Houston, Texas.

As a result of a multi-stage exchange process, investors in institutional funds and co-investment vehicles exchanged diverse interests in Blackstone Mineral’s assets for $1.1bn in partnership units.

President and Chief Operating Officer Hallie A. Vanderhider stated: “Whether it was through an exchange or the purchase of new equity, our investors now own units in a large, diversified collection of oil and gas assets with attractive current yield and upside potential.”

In addition, Blackstone forked out $295m in cash for its own interests, a move Vanderhider lauded as representing the best deal for all sides: “those who wished either to sell their interests or remain in their existing investment vehicles have been able to do so.”

CEO Thomas Carter is quoted as saying the deal has given Black Stone “the critical mass to move quickly on significant mineral acquisitions without putting undue pressure on our balance sheet,” but the company has not issued any further details as to its future plans.

From its humble roots as a local family-owned business, Blackstone Minerals has grown to encompass 50,000 wells across 41 states.

Advising the deal was a Specified Investor Group (SIG), formed of Vinson and Elkins LLP who counselled on legal matters, and Tudor Pickering Holt and Co. as financial advisers.