Sunday, October 30, 2011

A win for Qantas would be a win for Cairns

The Qantas grounding has obvious threats to the Cairns economy. At least in the short term. It would be expected and hoped that this phase of the dispute will be short and that services will resume this week. Longer term impacts will be more complex related to the dispute itself and the impacts of any subsequent agreement. So it was interesting today to see the blog response from Harry Clarke, an economics professor at La Trobe University: Qantas to finght trade union reactionaries.

Allan Joyce’s move to ground the entire Qantas fleet  today was an inevitable attempt to break the backs of trade unionist reactionaries. As a Qantas shareholder I am dismayed at the current outcome but, as Qantas has not paid dividends for a couple of years,  I support attempts to force the airline to gain competitiveness and staying power.  Having pilots paid over $500,000 annually is inconsistent with this task and the attempts by maintenance engineers and pilots to trash the Qantas brand suggest that the best outcome for these clowns is to be sacked and then sued. Ungracious, overpaid pilots who lie to me about their employer when I travel on their airline arouse nothing within me but contempt. When a firm is losing $2m per day because of a strike the fact that the CEO is paid $5m per year is irrelevant.  He is worth $20m if he can give these reactionary trade unionists the kick up the backside they so richly deserve.  Qantas sells air services as an internationally traded good and international travellers are voting with their feet to support other airlines which offer cheaper and better quality service.  Domestic air services in Australia remain expensive and the service is anything but great. The Australian travelling public deserve better and Australia needs a viable international carrier not a sheltered workshop.
Already the Labor politicians are shaking in their boots at Joyce’s move because it is hardly a good look for the Labor Government but reading Joyce’s press release I support it.  The Government should keep out of this one. Qantas will fail without decisive action and, even though this might cost me money, I’d prefer to see this fight resolved now – it offers the best prospect for competitiveness reforms.  Pilots, engineers, baggage handlers – accept the need for reform or find yourself new jobs.  As the Qantas AGM showed you have no support among shareholders and the travelling public will see you for the contemptible grasping reactionaries that you are. That you attacked the customer base of Qantas as a negotiating tactic should never be forgotten.
Well, I suspect that rant from Harry will not gain unanimmous support of sentiment, which may be an understatement. However, as previously posted, why I like Harry is that he can never be accused of ideological bias and dishes it out in equal measure accross the spectrum. The very next post on Harry's blog starts "Tony Abbott’s idiot populism..... " and then goes on to berate the "dwarf throwers at Catallaxy" which is our most prominent libertarian economic blog with some high profile right wing economists. Yep, he's my kinda guy!!

Regardless, the pay and security demands from the unions here can never be seen as positive for the Cairns economy. It can only ever contribute to slower regional growth and higher risk. The Asia focus of the Qantas business strategy is to our advantage. The concept of job security in airlines indicates that these unions have never grown past their protected public service mentality. The interests of the employees of Qantas, even local employees, are not the interests of Cairns.

As Warren Buffet famously observed, from the perspective of an investor, the best outcome would have been for someone to have shot down the Wright brothers at Kittyhawk given the investor money that has been trashed  in this industry. Qantas is 90 years old. In metaphorical perspective job security in context for this industry is like a 90yo prostitute demanding job security in a brothel.

Note: this may take a couple of extra posts on the Qantas CEO pay, which has been massively misrepresented, and the wider cultural dilemma of our relationship with Asia, and our attitude of cultural superiority .....

Thursday, October 27, 2011

The world moves closer

Loose Change has previously posted a graphic on global economic activity moving closer to Australia. The Global Economy's Shifting Centre Of Gravity is a recent study on this from the London School of Ecconomics.
The article finds that in 1980 the global economy’s centre of gravity was mid-Atlantic. By 2008, from the continuing rise of China and the rest of East Asia, that centre of gravity had drifted to a location east of Helsinki and Bucharest. Extrapolating growth in almost 700 locations across Earth, this article projects the world’s economic centre of gravity to locate by 2050 literally between India and China.

The black dots here are the locations from 1980 up to now, and the red dots the projections up to 2049. With the assistance of an online calculator the great circle flying distances between these points and Cairns is:
1980: 18,140km; 2010: 12,910km; 2049: 7,770km. So, by 2049 the distance of Cairns from the world economy's centre of gravity (WECG) will be cut to less than half what it was in 1980.

The complexities and problems of projecting a 3D location onto the earths surface are outlined in the paper. However, don't yet try to fly to that 2049 WECG as there is not yet an airport at that location in Tibet, and a look at Google earth doesn't show much prospect of there being one any time soon ......

Oliver Marc Hartwich discusses some of the implications at Business Spectator: Is Australia shy of the Asia boom. The new CEO of Cairns Airport seems to understand the strategic location of proximity to Asia.

Wednesday, October 26, 2011

What? Just Three?

Commsec has released its latest State of the States report. This has been widely reported as proclaiming that the two-speed economy is now a three-speed economy. Whatever! Good PR for Commsec perhaps but not really useful in any understanding of the current situation or an appropriate policy response.

The Commsec methodology is based on analysing eight indicators based not just on current relativities between states, but relative to longer term decade trends for each state : "Each quarter CommSec attempts to find out by analysing eight key indicators: economic growth; retail spending; equipment investment; unemployment, construction work done; population growth; housing finance and dwelling commencements." The three-speed methodology appears to give all these equal weighting

The key thing to notice is that among their key indicators they have listed the greatest strength and greatest weakness of each state among the eight categories. The strength of Queensland is investment and the weakness housing starts. So what didn't we know already? The surprise in an economic context is that Queensland, the only state that scores investment as its greatest relative strength (2nd behind WA overall) comes in the bottom division? This is the two-speed economy in Queensland! Queensland stands out for the divergence between strongest and weakest sectors.

Key comment in the report: "But while third fastest, Queensland’s population growth is actually the slowest
rate for that state in 11 years." Loose change has previously posted on this with comments from Bernard Salt on the decline in interstate migration (perhaps now paywalled at The Oz?).

Meanwhile Queensland Economy Watch has a relevant post on the latest OESR report. This includes some commentary on the education sector where we have been banging on for some time on the student visa policy refered to, and have previously posted on recent positive policy changes.

Note: QEW has also posted recently on stamp duty also relevant to population growth but to keep the post short we haven't gone into this and how tax reform to abolish stamp duty would be of most benefit to Queensland but will return to it?

Tuesday, October 25, 2011

pork-barrel economics

The actual title of a research paper, published in the journal Economics Letters, is: Can national infrastructure spending reduce local unemployment? Evidence from an Australian roads program.

Abstract: We examine the effect of a federally-funded local infrastructure spending program on local unemployment rates. To address the likely funding endogeneity problem, we exploit variation in spending due to pork-barreling, and find that higher government expenditure on roads substantially reduces local unemployment.

Highlights ► We examine how federally-funded infrastructure spending affects local unemployment. ► We address funding endogeneity using pork-barrel spending in a road funding program. ► More road spending in a district is associated with a fall in local unemployment. ► Federally-funded infrastructure programs can boost local employment.

The research used a pork-barreled Federal roads infrastructure program in 2001 to analyse the different outcomes between comparable regions where some received funding and some didn't. This enabled an estimation of the positive effect of infrastructure spending on a local economy, as reported by Peter Martin.

This is a similar methodology to another recent study based on changes in local infrastructure spending in Italy caused by mafia investigations involving corrupt politicians:
Organised crime is a nightmare in Italy but it is a blessing for economists because it causes significant changes in government expenditures that are completely unrelated to the current economic environment. If a politician is arrested because of his connections to the mafia, all public investments in infrastructure and construction are put on hold immediately until the investigators have checked if the mafia had been able to channel money into their pockets.
Loose Change refrains from any direct comparison between pork-barreled Federal politics and the corrupt politics of Italy!  

Sunday, October 23, 2011

Parrot Droppings Vol XIV

The peculiar politics of the Far North only seem to make national attention for all the wrong reasons. In the 2007 Federal election campaign it was the Nationals candidate, and ex used car salesman Ian Crossland, who made national headlines with his declaration that "Leichhardt is no place for a woman". I was subsequently informed by an ALP left faction organiser that they agreed and that being female was a disadvantage in Leichhardt!

Not much has changed it seems with our misogynist King Parrot now the State LNP candidate for Cairns amidst some ongoing controversial shennanigans. While his former employer at the Cairns Post has been curiously quiet, media elsewhere has been quite responsive to his candidacy:

Courier Mail:  Can the King of Cairns prove to be the Can Do candidate for Campbell?

SMH:    LNP endorsing 'next Pauline Hanson'.

NineMSN: Drunk girls to blame for rape: LNP candidate.

Courier Mail:  Time LNP and Campbell Newman drew line on Cairns candidate Gavin King

The best response has been from Carrie Miller at The Punch: Gavin King: victim blamer and woman shamer, which I think best frames the issues that seem to have bypassed many. The King Parrot's typical response of satire, or being misunnderstood, is really just a poor excuse for his cliched sterotypes and dogwhistles.

In a more economic context Carrie Miller has also opened with a reference to the King Parrot's description of his domestic arrangements:
“Correct me if I’m wrong, but surely it is obvious that we should perform household chores we are best at, in the interests of efficiency and synergy. In other words, the missus irons my shirt because she is able to do it quickly and easily. In exchange, I make breakfast because pouring milk on to cereal is a task simple enough for me to achieve by 7.30am.
Curiously, domestic chores are the only time I am aware of that the King Parrot has ever referenced economic efficiency, which is not given any consideration at all in relation to issues such as moving public servants to Cairns. The principles of comparative advantage and trade can indeed be applied to domestic duties, as they have at Spousonomics.

When it comes to comparative advantage and trade it is Pareto efficiency which matters, where trade is an advantage to both and neither is made worse off. The King Parrot's simple trade model of swapping ironing for pouring milk is unlikely to be Pareto efficient as he has just made himself better off at his wife's expense. However, we will in good time follow up with an illustrative example of how many toilets he will also need to clean .....


income inequality

An interesting chart from Possum Comatatis on historical income variation between Australia and the USA for the top 1% of income earners. The most curious aspect here, in hstorical context, is that huge spike in Australia back in 1950, associated with the wool boom.

A search uncovered this paper with some interesting historical background: Before the storm: the making of Australian anti-inflationary policy, 1945-1965.

The wool boom in 1950/51 tripled wool prices compared to the previous year’s average. With fixed exchange rates, the sudden windfall directly boosted farmers’ money incomes, and though the Commonwealth Bank made special account calls to prevent it from augmenting bank reserves, the increase in expenditure was enough to take consumer price inflation to an annual rate of around 20 per cent.
The policy response also included a 'horror budget' from the Menzies Guvmint. It makes an interesting comparison between periods with the terms of trade now back up at the same lofty levels, abeit on the back of iron ore and coal rather than a sheep. 

Update: This post form Michael Stutchbury at The Oz last year touces some of the history in context of current debate ...... 

Thursday, October 20, 2011

Lowest unemployment rate in three years!

The Far North unemployment rate edged lower again in September to 6.4%.  A further decline is perhaps even a surprise following last months sharp fall but the numbers were quite consistent, with the participation rate increasing.

The current ABS regional series began in November 2007. In fact, these recent ABS numbers indicate the difference between the unemployment rate of the Far North and the rest of Queensland is now LESS than it was in the first year of the series, before the full impact of GFC and collapse of Lehman in September 2008.

However, it does seem the ABS continue to downgrade working age population growth in recent months to an implied 1.1% or so, based on the employment numbers and participation rate. I doubt that is far inconsistent with the trend for most of Queensland either?

Wednesday, October 19, 2011

Banana Republic of Torres Strait?

Queensland Economy Watch has posted on reports for Torres Straight autonomy!

I agree with his concerns! Also relevant are the calls from some sectors to move public servants to Cairns to 'diversify' the economy. As previously posted Cairns and the Far North are already above average on public sector according to census data. Townsville economy already has an anomolous reliance on the public sector. The NT is already propped up by a public sector funded by the Federal Guvmint.

A autonomous Torres Straight? Does anyone else see a problem here?

Has the lunatic got it right?

Excuse me for my political incorrectness, however I can't help but feel that perhaps the lunatic is correct here and the journalists have got it wrong, or at least deserves more consideration? Actually I had intended to post previously on research that in fact the obsessive requirement in Australia for helmets does little for bike safety and just reduces bike transport!

I will need to revert to the reseacrh links but the reality is that the economics are being perveted in media reports! The requirement for helmets has destroyed public bike options in Australia. This has happened recently in failure of a Melbourne hire scheme because, hey, most people just don't carry a helmet with them, despite such schemes being successful in Europe.

As a lover of  counter-intuitive economics, such as freakonomics, the reality is that people who die early from risky behaviour, be it smoking, drinking, or riding a bike without a helmet, may actually do a fiscal service by reducing the ongoing long term entitlement culture of an ageing society. This is not incorporated in the costs you see in the tabloid media. If you anticipate living long then your smoker friend is actually doing you a favour!

If you want to be safe and live long then it is YOU who may be the burden on society and NOT the smoker, drinker, or helmetless bike rider. There is also research in the USA that helmetless Harley riders serve an unrecognised useful social purpose as a source of organ donations!

The lunatic has been badly done by from the Magistrate, anyone who has had anything to do with Stanley knives in an industrial context would know that this item should be as regulated as guns anyway!
The King Parrot had recently posted, prior to departure from the Cairns Post for a political career, that an appearance before a court wearing thongs was disrespectful. Clearly Jenna Hudson from WIN TV deserves rape for showing up at court like this for the lunatic Stanley knife case?

Bike helmet links:
Scone Police: "You're not in Paris now?"
WA bicycle helmets
Australian children the most chaufered in the developed world

Sunday, October 16, 2011

Occupy the Barron River Hotel?

If corporate greed, financial  stress, and Wall St investment bankers is the target of the Occupy Movement then the ongoing saga of Redcape (ex-Hedley pub fund) may provide the most appropriate local target. Bryan Frith has done his usual thorough job of updating the most recent maneuvres as Goldman Sachs, the evil Wall St death star, continues to orbit Redcape.
The consortium's latest tactic was to force hotel and gaming operator National Leisure & Gaming (NLG) into receivership.
NLG is the lessee of Redcape's NSW pubs and its debt has been recently acquired by Goldman. The Hedley receivers also continue to hold a 19.9% stake in NLG. The NLG receivership apparently creates a default event for Redcape with some potentially punishing consequences for the interest rates on its debt. Goldman has also taken a 40% stake in Redcape's senior debt facility, reportedly at 80c in the dollar.

From the latest report by Frith, it looks like the best offer investors may be able to get will be 10c per security. There was substantial local investment in the float back in 2007, including subsequently unemployed Hedley staff via an employee allocation, at $3.50 per security. Some prominent local business identities have also stayed on board for the ride all the way down.

The latest annual report has some interesting moves among the top 20 security holders, including the appearance of 'Thomas Hedley' with 1,057,163 securities (0.65%). I'm guessing that would be Tom Jnr? Greenacres Holdings has increased its stake during the year and now holds 5,633,246 securities (3.47%).A search shows Greenacres is associated with Bruce McDonald, who is understood to be a business partner of Tom Hedley Jnr. Greenacres has previously had a business address at the Hedley Aumuller St office. Hedley's partner Jeannine Cooke has maintained her 3.13% stake.

Ex Hedley CFO Stephen Donnelly has been active in the last year with his super fund disappearing from the top 20 and his Trust selling down. However, NLT (QLD) Pty Ltd now appears in the top 20 with the same address as Donnelly, and the same number of securities as offloaded by the other two entities. Mr David Row also makes an appearance in the top 20 with 820,000 securities (0.5%), who I believe is the former Hedley Group development manager.

David and Jean Barry of Westco Motors have maintained their 0.62% stake. Redcape director and local business identity Greg Kern has maintained his interest, although he has previously dumped this into the Kern Consulting Group super fund, which I am sure has delighted the fund members. Hedley's receivers remain stuck with their 58% stake. Meanwhile, the comparable ALE pub fund recovered from the GFC hit and is travelling soundly, trading profitably, and providing ongoing income distributions to investors.

The most curious new entrant is Lift Capital Nominees with  0.66%? Lift was a margin lender which collapsed around the some time as the Tricom Opes Prime debacle (which also involved Hedley).

Corporate collapses and unemployed staff, unpaid creditors, financial engineering and huge debts, greed, evil Wall St bankers, corporate intrigue, skinned investors, all closely connected to, and spawned in, the Far North. Redcape also maintains a substantial portfolio of pubs and bottle shops in the Far North. It seems to have all the ingredients to be a local focus for the agenda of the Occupy Movement?

Consequently, KS is contemplating occupancy of the front deck at Redcape's Barron River Hotel as his contribution to the protest. A Sunday session perhaps?

Friday, October 14, 2011

Work for Queensland

From the Gladstone Observer:
SKILL shortages are biting hard in the Gladstone region and the Queensland government is encouraging workers from areas of high unemployment, such as Cairns and the Gold Coast, to up-skill and move, as part of their Work for Queensland program.

Thursday, October 13, 2011

Currency Currents

What a difference a week makes. Todays stronger than expected unemployment numbers have sent the $AUD as high as $1.02 again. Were these really the reports only a week ago:

Cairns Post:  "the Australian dollar could fall to as low as US80c in coming weeks"
ABC: "Dollar dive tipped to boost tourism"
Gold Coast Bulletin: "The Australian dollar may stay below parity until about February."

There has been lots of currency controversy this week with the US Senate passing a measure designed to potentially punish China because of a perceived undervaluation of the Yuan. This chart posted today at macrobusiness provides an interesting perspective.

It would be useful to know when this chart was compiled as some aspects don't seem quite accurate to me on current exchange rates. However, China has been allowing a steady appreciation of the Yuan for many years.

tourism minister bashes qantas union

Martin Ferguson has weighed into the Qantas industrial dispute with some strong comments today threatening to intervene in the dispute to protect tourism.

Tourism Minister Martin Ferguson, following his address to an industry conference in Canberra, said the sector's patience was running out with the unions.
"The sooner the parties get in a room and sort it out the better," he told reporters.
The Australian tourism industry depended on a vital and strong aviation sector, he said.
He described as "un-Australian" comments by Australian Licensed Aircraft Engineers association secretary Steve Purvinas urging people to boycott Qantas.
They also were a sad reflection of his leadership.
"You can have a dispute with employers but there is a responsibility on trade union leaders to never set out to damage Australian industry," Mr Ferguson said 
Qantas has today announced it will ground 5 aircraft and cut uto 100 flights a week. The announced cancelled and rescheduled flights today do not seem to directly affect flights to Cairns, although will of course affect connections.

Wednesday, October 12, 2011

FNQ mining potential?

A recent report at the Cairns Post on prospective mining opportunities in the Far North.
Mr Duck said the community did not appreciate the potential of mining in the region, estimated at $900 million a year with a fly-in, fly-out workforce worth $250 million a year.
 Brett Duck was speaking at the Cairns and Mining Conference 2011 held last Friday.

As previously posted it's not so long ago that mining did play a more significant role in the Cairns economy particularly with nearby gold mining operations, although I have no idea on the prospects of any of these exploration projects. Bill Cummings also presented on 'Can Cairns become a major mining services centre again?'

This map seems to show sort of a bit of a hole up at the pointy end although is restricted to advanced projects so presumably doesn't yet include such as a proposed expansion at Weipa?

 HT: Peter Martin

Tuesday, October 11, 2011

seachangers as yet unmoved

As political momentum builds towards a coming Queensland election an interesting post at the Sydney Morning Herald today on regional policy. We can expect lots of policy on regional support which has already been prominent such as sending public servants from Brisbane to Cairns. So this recent policy in NSW is interesting:

Fewer than 50 households have signed up to a state government scheme to encourage relocation from urban to regional areas in its first three months, casting doubt over a forecast take-up of 7000 a year.
The relocation grant scheme was central to the Coalition's pre-election pitch to create a ''decade of decentralisation'' in NSW.
The Premier, Barry O'Farrell, said the scheme was designed to promote ''whole of NSW growth'' and ease pressure on the Sydney metropolitan area. The Finance Minister, Greg Pearce, told Parliament in June it would help ''kick-start'' regional NSW.
Apparently, a grant of $7,000 is available to move from the Sydney metropolis, including Newcastle and Wollongong, to the regions beyond if you sell up your home and buy in the regions. The marketing apparently includes retirement expos. This appeared in the real estate section of SMH so not surprising that the quoted 'industry expert' recommended an extension to first home buyers.

Perversely, this appears in the week after the tax forum where, again, the inefficiency problem of state property stamp duties in restricting geographic mobility was prominent. It's almost like a deliberate strategy to find the most inefficient means to an end!

Monday, October 10, 2011

Occupy Starbucks!

Although, any display of corporate consumer goods does not reveal what is less transparent in the financial system. Paul Krugman has taken a positive approach to this movement although his support seems more confined to the  financial sector rather than some kind of broad revolution some aspire to. I saw one placard that 'this street is responsible for all global poverty'? Well not really given that outside the USA and Eurozone global poverty continues to decline, and in the same week there was news of a new famine in North Korea. I wasn't aware that Goldman Sachs operated in North Korea? 

From an economic perspective (linked from Krugman) this is perhaps the most nuanced placard of the movement?

Friday, October 7, 2011

Northern Myths?

Browsing further through Harry Clarke's blog I see he has also previously commented on the preliminary Coalition plans for dams and agriculture in Northern Australia: Northern food bowl myths.

When the Coalition announced this week their proposal to double food production in Northern Australia by means of a set of dams my mind wandered to thoughts of the great Bruce Davidson and his monumental study, The Northern Myth, that was written more than 40 years ago. I read it in my final years at high school.  Davidson set out all the reasons why such utopian schemes as that proposed by the Coalition were likely to fail and accurately predicted the problems of the Ord River scheme – poor soils and lack of decent dam sites being significant issues.

I hadn't previously heard of 'The Northern Myth', which was written back in 1965, but a search shows there is a copy in the City Library, which I will put on hold as the library is currently closed for renovations. Loose Change has previously posted on this as well as the presentation from Bill Cummings on agricultural opportunities.

There is also an interesting link to this Crikey blog reviewing 'The Northern Myth' with an endearing quote from Matthew Flinders: 
“…a poor dried up land afflicted by fever and flies and fit only for a college of monks whose religious zeal might cope with the suffocating heat and musketos which admitted no moment of repose.”
Oh dear, one would hope that didn't specifically refer to our own tropical paradise??

Tax forum commentary slams unions

The most profound insight from this weeks tax forum was the quip from Ken Henry that he could have written the script before it started. Apart from his eponymous recent tax review, Henry has a long background in this field and was in Keating's tent back at the 1985 tax summit when Hawke rolled the GST after the business lobby decided to join the unions against the proposal. It took a further 15 years and several elections for the GST to be implemented.

Harry Clarke was a participant at the tax forum this week and has taken aim at the union movement with some very sharp commments:

Generally I found the trade union representatives at this meeting were among the least interesting of the various groups who attended. I couldn’t work out if they were intrinsically stupid or just outlining a preconceived union viewpoint in bad faith -certainly they were not engaging with those who showed their views were wrong. A number of other attendees of various political persuasions made the same observation.  I recalled with sadness the reasons I abandoned Labor in the mid- 1970s. These unionists embodied a kind of  bullying stupidity that must constrain the Labor Party and Australian politics.
There are many interesting posts on Clarke's blog and he is among those I appreciate for an ability to cross ideological lines on any specific issue. Clarke is obviously as equally frustrated as Loose Change with the current standard of public debate:  
My negative comments on the unions are part of a general issue of the role of uninformed public discussion in complex debates on public policy.  Of course some weight must be given to public discussions for strategic reasons but perhaps there is the need to provide information to the various groups before discussion occurs.

The current market economy recidivism has taken us back several decades to previous debates based on populist ignorance. Cairns is suffering from this more than anywhere as recent local parochialism has demonstrated with demands from the parrot cage commentariat and its leaders for the discount Superbutcher to be run out of town and lambasting the evils of 'southern meat'! Southern meat should be dealt with like a witch and burned at the stake ...... which is what Kitchenslut calls a barbecue if Superbutcher can come back to supply the meat :-) 

Thursday, October 6, 2011

Education visa reforms

Loose Change has previously posted on the Feral Guvmint visa policy failure which has hit education exports. Education exports (foreign students) are one of Australias largest export in industries, and also a significant component of the Cairns economy. It is also critical for University funding.

A recent report has been adopted by the Guvmint with reforms to assist the sector and drawn some approving comments including from Paul Kelly, Editor-at-Large with The Australian.

For universities, the main reform gains involve quick and streamlined visa approvals, allowing foreign graduates with a bachelor's degree to work in Australia for another two years and elimination of tough financial tests as conditions of overseas student entry.
It remains perplexing that this has otherwise drawn so little political attention.Strategies to attract students will be of interest. The reforms are restricted to universities and do not include the vocational education and ytraining sector.

Wednesday, October 5, 2011

know your arsehole!

There are some blogs in Cairns that we prefer not to link to, and among those is that of the Cairns KAP candidate who recently ranted on the infamy of Coles milk discounting. Funnily, the initial post refered to Coles CEO, Ian McLeod, as an *arsehole*, which since seems to have been removed? This is the current post: 
What a disgrace. The head of Coles after his company has an increase of 21% in profits during the much hyped GFC, he actually gets paid over $15million. Now I don't begrudge anyone earning a quid, but this bloke is responsible for his company offering FNQ farmers $0.45/litre for their milk. That price is not sustainable.

His company is currently selling the milk they get from their southern suppliers in the no name brands for $1/Litre. This is designed to cripple the industry and reduce the demand for the branded milk which uses FNQ produced milk. If there is no demand for it, which is what happens if everyone keeps buying no-name milk, they will be forced into taking the unsustainable $0.45/litre or walk off their farms.
So going back to the original point his company had an INCREASE of 21% in PROFITS, during the GFC and on top of the fact that they pay this bloke $15million.

Dick Smith is calling for this bloke to give back to the community. Stuff that, just pay the farmers a decent price Coles/Woolies.
For those of us who prefer a more cerebral approach there have been several posts at Core Economics by Stephen King from Monash University. King has previously held a senior position at the ACCC.

Milkonomics, Milk headlines, Milk pricing and exports, and International milk price controversy!

Among the public bar myths in the KKK rant, there is no direct supply arrangement between Coles and the dairy farmers. Coles arrangement is with the dairy processor. The processor then has an arrangement with the farmers who have ACCC exemptions to negotiate collectively.  As analysed by King in those links, it is the processor who is the likely loser from discounted milk, not the farmer. Although that farmer may be in Vistoria, not Queensland.

As I understand the recent agreement by the processor with Tableland farmers has been struck at $0.51c/litre? Curiously, last week in the UK there was a new agreement between Tesco and dairy farmers under a sustainability agreement. In currency adjusted terms this offers the Tesco milk suppliers a price broadly comparable with the suppliers of Australian drinking milk (ex the Victorian exporters who reap a lower average farmgate price), and below what is now received by Tableland dairy farmers. The agreement was welcomed by UK farmers!

Despite that Tesco are now selling retail at a price below AUD$1/litre which our local farmers are screaming is unsustainable! You can find good historical pricing data at Dairy Australia. There is a chart there (which I have not been able to copy) showing that dairy farmgate prices have nothing to do with deregulation more than a decade ago, and nothing to do with Coles or Woolies either! As StephenKing says, they relate to marginal export prices. 45% of Australian dairy produce is exported, mostly from Victoria, which itself comprises a whopping two thirds of the entire Australian dairy industry. 

The KAP has drawn attention to McLeod's bonus pay as a populist distraction. Coles did indeed increase profit 21% last year but how is that relevant to the GFC, or relative returns, or anything else? Coles has been a massively underperforming business for two decades which allowed the Woolworths juggernaut to explode growth in sales and margins. Coles, under McLeod, has finally managed to turn that around and all consumers in Cairns are the winners from the renewed competion.

Despite the turnaround, Coles still trails Woolworths on most performance metrics, sales per sq metre etc. Woolworths profit margins on sales remain up at 7%, with sluggish sales growth, while Coles is around 4% and sales growing. How is this bad for consumers? The size of the bonus payment can be debated but there is no doubt that if there is a CEO who deserves at least a bonus it is McLeod! Frankly, it's refreshing that at least at Wesfarmers he can earn double his boss for the year!

The KAP also claims that Coles has the purpose of deliberately trying to destroy branded milk supplied by the Tableland farmers. The ACCC have already released a detailed finding rejecting predatory pricing. Lets go back to a comment by Stephen King:

What we are really seeing is another step in cheap home-brand milk driving out the branded milk. This happens in industries where there is little product differentiation so that ‘brands’ are more about perception than real added-value.
Yes, exactly, if you are trying to flog a product on the basis of a brand, or locality, with no actual differention in the product then you have a sustainability problem with your business model! Mungalli Farm now comprise 10% of Tableland dairy production and have difficulty sustaining supply. This is despite prices more than double the home brand of the retailers ..... and those same retailers still stock the Mungalli product! Mungalli product is clearly differentiated and at an entirely different quality dimension!

Finally, I couldn't help but be bemused by the KAP adulation of Dick Smith. I was thinking of this while wandering around Woolworths (picking up any competitive specials) and recollecting a time when Dick engaged in a crusade on Aussie owned food with his own brand. Dick Smith bland cheese slices emblazoned with an Aussie flag! Now I wonder what happened to that brand? Ah, nationalism (regionalism?) the last refuge of the scoundrel ......

As far as I am aware the State electorate of Cairns has no dairy farmers and many low income milk consumers? So, who is the *arsehole* ..... at least in a metaphorical sense?

Monday, October 3, 2011

Ig Nobel 2011

This years Ig Nobel Awards have been released. I don't think they quite match last years standard but Australia gets a gong for research showing that some beetles mistake a stubby for a female. It could be theorised that some humans also make this mistake? Personally I'm keen to get a wasabi alarm installed ......although it does occur to me that the reason for taking the time for this post is mostly consistent with the Literature Prize!
 PHYSIOLOGY PRIZE: Anna Wilkinson (of the UK), Natalie Sebanz (of THE NETHERLANDS, HUNGARY, and AUSTRIA), Isabella Mandl (of AUSTRIA) and Ludwig Huber (of AUSTRIA) for their study "No Evidence of Contagious Yawning in the Red-Footed Tortoise."

REFERENCE: 'No Evidence Of Contagious Yawning in the Red-Footed Tortoise Geochelone carbonaria," Anna Wilkinson, Natalie Sebanz, Isabella Mandl, Ludwig Huber, Current Zoology, vol. 57, no. 4, 2011. pp. 477-84.

CHEMISTRY PRIZE: Makoto Imai, Naoki Urushihata, Hideki Tanemura, Yukinobu Tajima, Hideaki Goto, Koichiro Mizoguchi and Junichi Murakami of JAPAN, for determining the ideal density of airborne wasabi (pungent horseradish) to awaken sleeping people in case of a fire or other emergency, and for applying this knowledge to invent the wasabi alarm.

REFERENCE: US patent application 2010/0308995 A1. Filing date: Feb 5, 2009.

MEDICINE PRIZE: Mirjam Tuk (of THE NETHERLANDS and the UK), Debra Trampe (of THE NETHERLANDS) and Luk Warlop (of BELGIUM). and jointly to Matthew Lewis, Peter Snyder and Robert Feldman (of the USA), Robert Pietrzak, David Darby, and Paul Maruff (of AUSTRALIA) for demonstrating that people make better decisions about some kinds of things — but worse decisions about other kinds of things‚ when they have a strong urge to urinate.

REFERENCE: "Inhibitory Spillover: Increased Urination Urgency Facilitates Impulse Control in Unrelated Domains," Mirjam A. Tuk, Debra Trampe and Luk Warlop, Psychological Science, vol. 22, no. 5, May 2011, pp. 627-633.

REFERENCE: "The Effect of Acute Increase in Urge to Void on Cognitive Function in Healthy Adults," Matthew S. Lewis, Peter J. Snyder, Robert H. Pietrzak, David Darby, Robert A. Feldman, Paul T. Maruff, Neurology and Urodynamics, vol. 30, no. 1, January 2011, pp. 183-7.

PSYCHOLOGY PRIZE: Karl Halvor Teigen of the University of Oslo, NORWAY, for trying to understand why, in everyday life, people sigh.

REFERENCE: "Is a Sigh 'Just a Sigh'? Sighs as Emotional Signals and Responses to a Difficult Task," Karl Halvor Teigen, Scandinavian Journal of Psychology, vol. 49, no. 1, 2008, pp. 49–57.

LITERATURE PRIZE: John Perry of Stanford University, USA, for his Theory of Structured Procrastination, which says: To be a high achiever, always work on something important, using it as a way to avoid doing something that's even more important.

REFERENCE: "How to Procrastinate and Still Get Things Done," John Perry, Chronicle of Higher Education, February 23, 1996. Later republished elsewhere under the title "Structured Procrastination."
BIOLOGY PRIZE: Darryl Gwynne (of CANADA and AUSTRALIA and the UK and the USA) and David Rentz (of AUSTRALIA and the USA) for discovering that a certain kind of beetle mates with a certain kind of Australian beer bottle

REFERENCE: "Beetles on the Bottle: Male Buprestids Mistake Stubbies for Females (Coleoptera)," D.T. Gwynne, and D.C.F. Rentz, Journal of the Australian Entomological Society, vol. 22, , no. 1, 1983, pp. 79-80

PHYSICS PRIZE: Philippe Perrin, Cyril Perrot, Dominique Deviterne and Bruno Ragaru (of FRANCE), and Herman Kingma (of THE NETHERLANDS), for determining why discus throwers become dizzy, and why hammer throwers don't.

REFERENCE: "Dizziness in Discus Throwers is Related to Motion Sickness Generated While Spinning," Philippe Perrin, Cyril Perrot, Dominique Deviterne, Bruno Ragaru and Herman Kingma, Acta Oto-laryngologica, vol. 120, no. 3, March 2000, pp. 390–5.
 MATHEMATICS PRIZE: Dorothy Martin of the USA (who predicted the world would end in 1954), Pat Robertson of the USA (who predicted the world would end in 1982), Elizabeth Clare Prophet of the USA (who predicted the world would end in 1990), Lee Jang Rim of KOREA (who predicted the world would end in 1992), Credonia Mwerinde of UGANDA (who predicted the world would end in 1999), and Harold Camping of the USA (who predicted the world would end on September 6, 1994 and later predicted that the world will end on October 21, 2011), for teaching the world to be careful when making mathematical assumptions and calculations.
PEACE PRIZE: Arturas Zuokas, the mayor of Vilnius, LITHUANIA, for demonstrating that the problem of illegally parked luxury cars can be solved by running them over with an armored tank.

PUBLIC SAFETY PRIZE: John Senders of the University of Toronto, CANADA, for conducting a series of safety experiments in which a person drives an automobile on a major highway while a visor repeatedly flaps down over his face, blinding him.
REFERENCE: "The Attentional Demand of Automobile Driving," John W. Senders, et al., Highway Research Record, vol. 195, 1967, pp. 15-33. VIDEO