Pecan in Your Pie? Market Mechanics, Economics and Globalization

Executive Summary: Pecan pie is not quite apple pie, but it is as American as it comes. The humble pecan in your pecan pie may have a very interesting story to tell of growing up in a hot climate across the border, making it over in crowded containers, and finding its way to your plate through an oligopsony. An interesting tale about globalization. From the desk of A-Great-Story-From-2013-Is-Better-Told-Than-Never. Also, from the desk of Not-Quite-Bourdain-But-It-Will-Do.

Introduction

Pecan pie is American. Pecans are also American. Mostly. The U.S. is the world's largest pecan producer. A significant quantity of pecans are also grown in Mexico though- in 2012, Mexican pecans were 70% of all U.S. pecan imports by dollar value. Bet you didn't know that. Why would someone in Mexico care to grow pecans?

What follows is a structured account of a perception altering, freewheeling conversation about the humble pecan in your pecan pie:
Where? A random rooftop bar in NYC on a Friday evening.
Who? A friendly Mexican pecan farmer in town, with his brother, to soak in the U.S. Open.

These insights (highlighted below in italics) into pecans from Mexico and the global pecan industry, covering markets, demand, supply, buyers, global trade, a decade long product horizon and a multi-decade pricing perspective, are from a random conversation with a Mexican farmer. Specific annual data points have been added to confirm insights from the one time conversation. Of course, not all aspects of the conversation made it to the blog.

Climate

Pecans need hot and dry conditions to grow. They can be grown in regions approximating USDA hardiness zones 5 to 9, provided summers are also hot and humid. Depending on the variety, pecan trees require 205 to 233 frost-free days for the nuts to reach maturity, thus restricting pecan production to southern states in the U.S. Jimenez, Chihuahua in Mexico has the right conditions for it, and is close enough to America for Mexican farmers to nurture a source of revenue in the desert environment.

Other countries producing pecans include Australia, Brazil, Israel, Peru, and South Africa.

Local Operating Conditions and Conditions

Water is key to pecan farming. However, digging wells in the Mexican desert requires licenses. These local conditions and regulation, has directed Mexican farmers toward developing advanced irrigation systems.

Insight: Mexican irrigation systems thus need to be more advanced than those in the U.S.

Jimenez, Chihuahua in Mexico is about 200 miles from the U.S. border in Mexico and also contends with some of the socio-economic problems and strife seen at the U.S.- Mexico border.

Competitive Space

Insight: In 2012, Georgia led the U.S. in pecan production, with production for all pecans (improved varieties and native and seedling). 

Georgia's production reached 100 million pounds, followed by New Mexico at 65 million pounds, Texas at 55 million pounds, Oklahoma at 25 million pounds and Arizona at 20 million pounds. Production was up in each of these states except Georgia.  (NASS 2013)

Insight: China is emerging as a strong buyer of pecans globally and seeks to develop local supply. Mexican farmers were not concerned about potential Chinese supply impacting global suppliers in the medium term, primarily due to the time it takes for pecan trees to mature. 

Insight: Grafted trees reach maturity by the seventh year (seedling trees require another 2-3 years), and most cultivars remain productive for decades when properly managed.

Buyers

Insight: There are five major buyers in America for pecans in the U.S., who exchange information on pecan supply, quality and pricing. This enhances their buying power in most situations.

In 2012, the United States imported pecans valued at $282.0 million, down slightly from $286.8 million during 2011. Mexico remained the dominant supplier, providing shelled pecans, in-shell pecans and pecan products valued at $200.8 million.

Variability in U.S. production, not U.S. demand, impacts buying power. From 1970 to 1999, imports (shelled basis) ranged from a low of 0.2% (1981) of total U.S. production that year, to a high of 52% (1986).

Insight: Chinese buyers have attempted to gain greater control of the buying process and sought to trade directly with Mexico. However, with the U.S. as the largest market and the largest grower of pecans, the Chinese have not been successful so far. U.S. continues to export significant quantities of pecans to China.

U.S. pecan exports were valued at $486.9 million in 2012, up 30 percent from 2011. Hong Kong remained the primary destination for U.S. in-shell pecan exports, with sales reaching $165.4 million, a 69 percent jump from 2011. Vietnam was the second largest in-shell pecan market, purchasing pecans valued at $67.9 million, a whopping 115 percent increase. Mexican purchases declined in 2012, falling to $34.2 million.  (FAS 2012)

Demand, Market and Price Elasticity

Of tree nut consumption in the United States, pecans rank third behind almonds and English walnuts. Pecan per capita availability has held nearly constant over the past several decades, ranging from 0.38 pounds in 1968 to 0.47 pounds consumed per person in 2010.

Insight: Walnuts and even peanuts function as effective pecan substitutes. This constant demand and access to substitutes creates a narrow price range. At the time of the conversation with the Mexican pecan farmers, suppliers were getting prices at the higher end of a 100 year time frame.

Growing Chinese market demand, continued U.S. buying power and favorable U.S. food export programs have combined to provide the U.S. pecan industry with access to expanding new markets.

2012 data is a great illustration of price elasticity. The 2012 U.S. pecan crop totaled 302.8 million pounds or 151,400 tons, a 12 percent increase from 2011. The value of the 2012 pecan crop decreased 27 percent to $476.8 million. Total crop value declined as grower prices fell, partly because of increased crop size.  (ERS 2013, NASS 2013)

In 2011, average pecan prices dropped to $1.57 per pound, down from 2010 average prices of $2.43 per pound. Average prices also dipped for each of the five major pecan-producing states.  (NASS 2013)

From 1970 to 1999, U.S. average pecan prices ranged from a low of 29.8 cents (1971) per in-shell pound to a high of $1.14 (1992) per in-shell pound for native pecans, and from 35.4 cents (1971) to $1.57 (1992) per in-shell pound for improved pecans. During this same period, U.S. improved pecans averaged 78.2 cents per pound, while native or seedling pecans averaged 49.7 cents per pound an average price difference of 28.5 cents per pound. Caveat- differences in prices from state to state reflect national and local difference in supply and demand, as well as differences in quality, nut meats obtained, and market outlets.

Next time you look at a pecan, and find a wild look in its eye, you can safely assume there is a story to tell.


What do you think?




References:
http://www.agmrc.org/commodities__products/nuts/pecans/
http://aces.nmsu.edu/pubs/_z/Z501/
http://www.wherefoodcomesfrom.com/article/303-2942/Pecan-Production-By-State-In-Order-Of-Production#.UtWX3PtZuio

Film Industry, Digitalization and Creative Empowerment: "Side by Side"

Executive Summary: In the context of the excellent documentary, "Side By Side", here is a quick snapshot of digitalization's impact on the film industry along the dimensions of film making process, creativity, innovation, innovation collaboration, end product quality-trade offs between digital and film, the human factor, and history and trends. Is it digital vs. film, or digital and film? Or is this debate a distraction? From the desk of No-Industry-Is-An-Island-Unto-Itself.

Overview

Digitalization has impacted our lives in many ways, specifically, how we-
- Connect with people,
- Search for, find, and utilize information and entertainment, and,
- Get things done.

Over the years, there has been quite a bit of news about digitalization's impact on the publishing industry (you could blame the NYT's media desk for a lot of it). I have talked about a "fly on the wall" documentary, "Page One: Inside The New York Times", which describes the impact, here.

On the other hand, there has been relatively less news about digitalization's impact on the film industry beyond the usual reviews about special effects laden movies.

How has the film industry been dealing with the digitalization of the world around them?

Some Initial Questions

Waiting in a standby line for the sold out film, "Side by Side", at the Tribeca Film Festival, I roped in fellow film enthusiasts, waiting in line, into an interesting discussion about digital technology's impact on the film industry. Some of the questions raised were:
- Do you lose out on quality (cinematic experience) with digital films?
- Is 3D really better?
- Would actors be replaced by machines?
- Digitalization impacts jobs and people's lives- is it really a good idea if it does that?
- Wouldn't human experience be lesser in movies driven by machines?

Thoughts Before the Screening- Baseline Ideas

My initial reaction to a lot of these challenges was:
- Human beings have been telling stories for ages- this is just another tool to help us tell stories.
- Any narration would always have to rely on creativity in the story, and on how well the story is told.
- Film was a technological advancement in telling stories. Digitalization is just another step in this story telling evolution.
- Human beings would always want "real world" contact with another person (there are anecdotes about conversational skills of teenagers that seem to prove otherwise).

I am of the view that this digital vs. film debate is a distraction. The conversation should be able the story *you* want to tell, and the story *you* want to hear.

"Side by Side"

The documentary, "Side by Side", premiered at the Tribeca Film Festival, provides a bird's eye view of how digitalization has affected the film industry. It was surprisingly well equipped to handle a lot of the questions raised.

Here are a few of the areas it covered:

Film-making Process and Creative Empowerment:

An anecdote by a woman filmmaker summed up the empowering outcome of digitalization. A woman filmmaker (an actor on Girls, on HBO) admits that she would not have been able to make a movie if it were not for digital technology. She was daunted by movie making process as a complex film "undertaking".

As the documentary slices through the various facets of film making you can see this creative empowerment theme through the various film making steps below:
1. Movie development and production:
- shooting and production
- acting and actors
- film direction,
- cinematography and camerwork,
- film editing, and,
- post production
2. Film planning and budgeting decision making
3. Film distribution,
4. Film screening, and finally,
5. Film archiving.

Digitalization has forced changes in the degree of creative control and influence asserted by each step of the creative process. While independent movies had embraced digital technology early on, fully aware of the detrimental impact on cinematic quality at that time, big budget movies appear to have  begun to embrace digital technology as a tool for budget control.

Movie making creativity:

The documentary covers while getting industry greats and pioneers, from George Lucas to Scorsese, to spill their guts about the creative impact of their choice between using film and digital media for their film releases.

While some directors have relished
- the flexibility and freedom of instant feedback,
- the removal of the 10 minute shot, and,
- the cost constraints of using expensive film for footage,
some others have decried the loss of cinematic experience in moving to digital.

One filmmaker was concerned that the quality of films has dropped drastically since anyone can now make a movie thanks to digital technology. Quote: "there is no taste maker". Christopher Nolan believes (and correctly so, for now) that digital does not match film in quality.

Scorsese points out that for effective storytelling, you must return to the wells of human creativity. David Lynch summed the pro digitalization view on storytelling and cinematic experience aptly, by drawing a parallel with the publishing industry, through the analogy that "everybody and his brother has paper and a pen..."

Innovation, and  Innovation collaboration:

A striking example of innovation was the team behind RED cameras talking about how they rigged a camera mechanism overnight to enable the rowing sequence for "The Social Network" to be shot. While George Lucas had collaborated with Sony on "Star Wars: Episode 2" to move digital camera technology along, this is a different order of innovation collaboration.

As with changes in creative control and influence exerted by each step of film making, the potential for innovation is leading to a need for greater collaboration and participation across each area associated with movie making.

End Product Quality- Trade offs between digital and film:

The documentary pulls no punches on the technical details of how film captures images and how digital technology has advanced over the years. Digital technology, in many ways, is still short of the cinematic experience that film can provide.

While digital technology is catching up, it has a lead in:
1. Night sequences of the type shot in the movie "Collateral",
2. Movies of the type "Star Wars",
3. The active sequences of the type shot at the beginning of Danny Boyle's "Slumdog Millionaire", and,
4. The rowing sequences in the movie "The Social Network".

The Human Factor:

The movie making team is changing on the dimensions skills, creativity expectations, collaboration, creative control and turnaround time.

"Side by Side" clearly lays out the human impact of this massive change. George Lucas had to call a summit at his home to deal with the backlash from his decision to shoot Star Wars: Episode 2. Some members of the industry accused him of shooting on film and claiming he was shooting in digital, because "digital could never be that good".

It has been a tumultuous period for the film industry, with old skills being replaced by new, especially in functions like editing, and post production.

History and Trends:

The film covers the gamut of the movie making ecosystem, from George Lucas' and James Cameron's big budget movie technology toys to a student at NYU's film school, shooting a film on a Canon 7D. Her take was that while the Canon 7D is not a movie camera, it allows her to focus on the story and turn in her project within the time and budget constraints.

Conclusion:

The film industry has had its fair share of upheavals, like the publishing industry.
It will continue to embrace the advantages of digital technology.
Story telling skills will always be in demand.

Finally, this all hinges on the movie goer enjoying the experience. That has been a different story altogether, as you can see in this article here:
http://www.nytimes.com/2012/05/20/magazine/how-to-enjoy-going-to-the-movies-again.html?_r=1&smid=tw-nytimes&seid=auto

My view? This documentary put me firmly on the side of the view that this debate is a distraction. It should be able the story you want to tell, and the the story you want to watch. Use the tools you believe will help you deliver and enjoy the experience your way.

What do you think?

Economic Recoveries.

Executive Summary: What would explain the length of the jobless recovery phase in an economic recovery? Would we find answers by comparing trends across recessions, or by comparing trends across countries, or by both? From the desk of I-Think-Therefore-Economics-Exists.

 

The employment/ population ratio has hit a low point not seen in a long while:  http://research.stlouisfed.org/publications/net/page10.pdf

While you can utilize publicly available statistics to make your own charts and form your own views, here is a way to structure thoughts around it:

1. How do you compare recoveries and the nature of unemployment across recessions in the same country?
2. How do you compare recoveries and the nature of unemployment across countries during the same recession period? 

Comparing Economic Recoveries Across Countries During the Same Recession Period.

Since there have been comparisons between the European economies and the American economy:

1. How do the trends in the employment/ population ratio compare across countries?
2. Are European economies more likely to have structural changes in unemployment rates than the US?

Comparing Economic Recoveries Across Recessions in the Same Country.

What does the increasing "length" of the jobless recovery phase in a recovery mean, as a trend across recessions?

Is there something in the nature of the economy, the nature of the macroeconomic entities in the economy, the depth of the recession, or the boom period prior the recession that has primacy in terms of its impact on the nature of the recovery?

Here is one pattern of Socratic thought that explores the two questions above.

Is the increasing length of jobless recovery phase in a recovery, as a trend across recessions, a function of:

1. The increasingly service oriented nature of the economy?
2. An increasing dependence on large monolithic corporate entities over time as drivers of economic performance, with the dependence changing from direct hiring to a greater multiplier effect across the economic ecosystem in terms of dampening hiring?
3. The nature of work available to labor, which has changed from hyper-local activity, to increasingly being touched by global supply chains?
4. An increasing delinking of corporate performance, financial institution performance and "real" economy performance?
5. The degree of specialization, and education, require for work, requiring a greater time for individuals to unlearn, turn around and relearn?
• E.g. I talked about Baked by Melissa here, and surprise, surprise, it has expanded to four stores in NYC.
6. A greater population density in large metropolitan areas over time?
• This may be counter intuitive, if you think in terms of supply, where people band together to create economic activity (not everybody can be an entrepreneur).
• However, if you think in terms of depressed demand, which translates into opportunity for economic activity of a certain type, this may be a worthwhile line of inquiry.
7. Our lifestyles, which are less community driven, and hence make turnaround during recessions more difficult?
• E.g. This may be an effect seen in decreasing labor activism (ed- analysis to be done) with each passing recession.
8. A psychological effect (animal spirits) of the nature of the boom period that preceded it?
• E.g. How long did the Dutch economy take to recover from the tulip boom?
9. Simply the depth of the recession?

What do you think?

Note: Throw someone a thought provoking point about economics, and ye shall reap many more thoughts in return. These thoughts were first published in a macroeconomics forum, in the week of July 16th, 2011. Thank you, Prof. Rosensweig.

Financial Crisis: Economists comment

If, like me, you would like to hear what seasoned economists think about the current financial crisis, below is an interesting site called The Economists' Voice:
http://www.bepress.com/ev/

Its a subscription site- however, the individual subscription fee does not cost an arm and a leg.

It was shortlisted for the best new journal here:
http://www.alpsp.org/ngen_public/default.asp?ID=251#new

Many thanks to Lori Sullivan for sharing the site.