Submitted by: Erico Matias Tavares of Sinclair & Co.
An Interview With Jim Rogers About Water
Jim Rogers is an American investor currently living in Singapore. Jim co-founded Quantum Fund in 1973 which performed very well and outperformed S&P by a very large margin. It gained 4200% over a 10 year period, while S&P only gained about 47% during the same period. In 1980, Mr. Rogers retired from his active roles in the Quantum Fund and became a part-time professor of financial matters at the Business School at Columbia. From 1989 to 1990, he was a moderator for both “Dreyfus Roundtable” (by WCBS) and Profit Motive. In 1998, he established the Rogers Int. Commodity Index, which had great success. Jim Rogers is also the Chairman of Rogers Holdings and Beeland Interests.
Erico Tavares: Jim, thank for being with us today. We would like to talk about water and other agricultural inputs, something you have been very vocal about in recent years.
To set the stage for today’s topic, a few years ago we worked on a biofuels project which took us all around the world. In a trip to Bolivia a pioneering Austrian engineer involved in the sector told us something very interesting. At that time the price of vegetable oils was much cheaper than diesel, prompting many people to start building biofuels facilities across Europe. He said this was crazy and in no way sustainable because crude oil is and always will be the lowest common denominator in an economy.
He was right, and many biofuels today need government support in order to be viable. But looking at the world we can argue that the lowest common denominator is in fact water. Even crude oil increasingly depends on it, particularly in the US with all the fracking. You are known for being ahead of the curve in many markets. As you look at the water situation across the globe, what do you see?
Jim Rogers: Water is one of the great opportunities of our times. If you look at the world there are some huge shortages developing in some parts but there is also a lot of water in other parts, just in the wrong place – like water in Siberia for instance, which is not where most people are.
There are going to be wars in the Middle East over oil east of the Red Sea, but west of that there will be wars over water since there are serious water problems in that region. We will also have problems in the western parts of the US with the depletion of a big aquifer, from what I read.
So we have a lot of water problems in a lot of places. California is making the news right now, but that is not the only place at risk. And if you can figure out ways to clean or transport or pump water you are going to do very well.
ET: Let’s focus on China first, a country you know well. There are reports that a vast proportion of their pure water resources is contaminated, an unfortunate outcome of their rapid industrialization process. Do you have a view on the situation there? Is the Chinese government starting to address the issue?
JR: China has got gigantic water problems. First they have the water in the wrong place and second the water is filthy, terribly polluted in many cases. So the Chinese know that and they are spending a lot of money trying to figure that out. So someone is going to make a lot of money in China helping them to solve their own water problems.
That’s the opportunity right now. Figure out how to get the water from the wrong place to the right place, clean it up and you can get very rich.
ET: We have been involved with companies that are developing innovative ways to do just that. However, one recurring issue is cost. Water ends up being much more expensive once you treat or transport it. So do you think we could actually face some constraints on how to improve access to that resource despite the significant opportunity?
JR: There is no question that we are facing constraints. They are already here in many parts of the world. Water, I presume, is going to get very expensive or else we are going to move to where the water is. This is how societies and civilizations have developed. Once upon a time there was a lot of farming in the Sahara desert that we now know of. It is now a desert and everybody moved away because there is no more water there.
Water is the single most important determination of civilization. I travelled around the world a couple of times and I have seen whole societies that disappeared because the water disappeared. People can survive recession and war, revolution and famine, plague, but they cannot survive without water. That ends the whole story, no matter how smart you think you are.
We have to move or it becomes very expensive, but you have to move because you got to have the water.
ET: Well here in Singapore it rains quite a bit so you guys might do OK.
JR: Actually Singapore is one of the most advanced places for solving water problems, because they have to. They recycle water, figured out ways to capture the water. One of the worries is that if they go to war with Malaysia that would be the end of the story, because Malaysia would just cut off the water. Fortunately, they are not at war and Singapore has been hard at work – I believe that we are now 90% self-sufficient, but still, you got to have the water.
ET: India has been one of the very bright spots in the emerging markets sector lately. Food is obviously very important there, given its weight on disposable income and so forth. A food security professor told us that he recently flew over a large agricultural area there, and salty spots were starting to become very apparent as a result of over-drainage from underground reservoirs. Once salt takes over those lands become unproductive, and this is being reported in other areas as well. Are you aware of this issue? More broadly, is food prices one of the things you track when considering investing in an emerging economy?
JR: To repeat, if you don’t have water you can’t make it. I’m wildly bullish on China but if they don’t solve the water problem there’s no China story. Likewise India has a water problem, worse in fact. There’s no question that India will be in worse shape than China. Northern India has gigantic problems. And that’s a nation of a billion people. Add another 1.3 billion in China and you have a big water problem.
There are great opportunities in water. I haven’t found one that is publicly listed as of yet. I am sure there are several, I am just too lazy to find them. But I would love to find water plays that are substantial and serious.
The problem with water is that you can’t own it. Because if you do, when the crisis comes the politicians will hang you in the public square because you are exploiting Man’s God given right to water. And they will curse and scream at you. But if you find a way to solve the water problem they will build a monument for you. You will be very, very rich. But for goodness sake don’t own the water because if you do they will take it away from you, torture you and execute you.
ET: It looks like California might have yet another dry year ahead. As we all know, the Golden State produces an incredible amount of all varieties of food, which will be impacted if they don’t start getting a lot of water soon. Major reservoirs are already at extremely low levels, and we may be seeing a reversion to a much drier period which actually has been prevalent over the last 1000 years in that region. Is this something that concerns you, not only as an American but also looking at global food supplies as a whole?
JR: The whole Southwest is facing a serious water problem. The aquifer, based on what I read, is drying up out there. And not just in California but all over the Southwest. And if that happens America will have to absorb a gigantic change. If you have water and productive land you will be very, very rich. Because whether we like it or not – now this is not going to happen next year, I don’t think California is going to become a desert any time soon – it is a process which is going on, from what I can read.
And from what I can see nobody in the government seems to know or care about it. The government of California is learning but they are not solving the problem, they are deliberating about the problem. But again it is just not the US, there many places in the world with problems – China, India, the Middle East, many places have big water problems.
ET: Switching gears a bit, you are also a director of a fertilizer company. Do you see constraints developing on that side of the equation going forward?
JR: Well, we all read the same thing, that the supply of phosphorous, which is a vital fertilizer, is not unlimited and will run out at some point in the future. I’m a director of a phosphorous fertilizer company.
This is another reason for people to learn about farming and agriculture. You can farm without fertilizer, people have done that for a long time. But it is less efficient and if you start having phosphorous problems, fertilizer problems and water problems then, my God, there are 7 billion people in the world and there haven’t always been 7 billion people in the world. We may have gigantic changes again.
Civilization shifts again. Not might, we will. This is something that has been going on since the beginning of time. If you see where Mankind has lived over the centuries, I mentioned the Sahara, you mentioned California. There will be great investment opportunities; but longer term there are staggering implications.
ET: You have spoken about the advanced age of many farmers in key countries around the world, such as in the US, Canada, Great Britain and Japan. The demographics in this sector look particularly appalling. What needs to happen so that young people start getting more interested in this activity? Technology development? Higher prices? Do you see a shift occurring here in all your discussions around the world?
JR: There is very little shift. Farming has been a terrible business for 30 years. And when that happens people go to where the money is. They go to Wall Street, wherever the money is.
In America the average age of farmers is 58 because nobody wants to be a farmer anymore. There are farms in Japan that are empty because there is nobody to farm them; they are even experimenting bringing in workers from China, and they don’t like foreigners at all but they have little choice. The average age in Australia is 58. Canada has the oldest age for farmers in recorded history. In the UK the highest rate of suicide is in agriculture. I guess we all know that millions of Indian farmers commit suicide because things are so terrible.
More people in America study public relations than agriculture, because it has been a terrible business. The only that is going to change is for it to become very profitable and for young people to see the farmers getting rich. Of course they will say “those guys are driving Lamborghinis and I want one too so I will become a farmer”.
But it’s not going to happen until it becomes an exciting and profitable business. The Soviets tried to make people farm, they had all these coops or whatever they called them; Mao Tse Tung tried the same thing and eventually ruined Chinese agriculture by forcing people to become farmers. It doesn’t work.
The only way it works is for people to become motivated to become farmers and that will only happen when they get rich. There have been many periods in history where farmers got rich and powerful. It will happen again.
ET: Given all the issues that we have discussed, if these trends persist we will see higher food prices, perhaps significantly so. How can people hedge against this? Should they start growing their own food, purchase the appropriate securities in the markets, buy water treatment companies…?
JR: That’s why you should become a farmer. Buy some land and become a farmer if you like the outdoors. Otherwise you can lease it to a farmer. Make sure you buy land where it is going to rain and that you lease it to a competent farmer, otherwise you will suffer.
There are many ways. You can invest in seed companies, or you can become a tractor salesman, or set up restaurants for the farmers because they will have a lot more money down the road. Buy yourself a second home by a lake in the farm belt, in the places where the farmers are going to be.
There are many ways to participate and to get involved – to hedge if you will. Becoming a stockbroker is not the best way. Farming is the way of the future. But don’t do it unless you like it. If you don’t like it you will find out it’s a lot of hard work and will go broke, like many other farmers. Certainly many have gone broke, committed suicide and so forth over the last 30 years.
Instead you can become a journalist covering the farming sector. Depends on what your skills and interests are. As you look at your life, figure out a way to orient it towards agriculture. If you want to sell, sell something to the farmers.
ET: A quick comment on possible macro implications. The US Federal Reserve excludes food from its core inflation definition, but if prices rise quickly there could be repercussions on the rest of the economy. It seems that Western central banks have spent so much time and effort printing money to avoid deflation that when they finally start getting inflation, driven by a food crisis or any other shock, they will be in a very weak position to tackle it. For one, raising interest rates will put a lot of pressure on government finances given the huge debt loads that they are now carrying. What do you think could happen here?
JR: Throughout history we have had economic slowdowns every four to seven years, every so often. Always have, and always will. Nobody has solved that problem, not even the central banks. We are going to have another one in the world. We are going to have more I should say, and they will get worse because the debt situation is higher and higher. We hear all this talk about austerity and cutting back but every country in the world has higher debt now than it had last year and will have higher debt next year.
The buildup of debt in the US alone is staggering; Japan is staggering, everywhere is staggering. So the next time we have an economic slowdown it is going to be much worse than the last time, and if the world survives that one, the one after that is going to be worse and worse.
Because as you point out, if interest rates go higher – and they will; this current level of interest rates is not only abnormal but absurd, it has never been so low anywhere in the world – with the gigantic amount of debt we are going to have gigantic problems worldwide: more turmoil, we will probably have wars, governments fail, countries fail. This is going to be a mess.
So buy yourself a farm. Be prepared! It’s going to be a serious mess. And hopefully your farm will be far away from the marauding hordes.
ET: Final question. You are also known as the “investment biker”, after driving thousands of miles around the world. Is this how you have generated your best investment ideas, being on the ground and seeing what was actually happening? These days, how do you keep close tabs on the markets?
JR: I drove around the world not for investing but for adventure. Because of who I am, when I go some place I do look around, I do observe. And in my travels I would see opportunities just by the nature of who I am. If I saw something changing I would pursue it.
And that’s a good way to do it. If you have the time and the money to go around the world in a car or a motorcycle do it. It’s a great adventure, at least for me. I’ve done it twice. The investing was a sideline.
But just walking down the street, if you can be observant you can find investment ideas. Sometimes I missed them but other times not, and I capitalized on it. And I read a lot. I don’t know much about basketball but I know what’s going on around the world because I read and that’s my passion.
Start with what interests you. Find the changes in the industry you like and figure out ways to invest and profit from it. This will you put you ahead of Wall Street because this is your passion, so you can get in before anybody else. You can also get out sooner, because Wall Street is always late in getting out.
Over the course of your life you can spot 25 or so good investment opportunities. Concentrate your efforts on understanding them rather than jumping around and you will do very well.
ET: Jim, thank you very much for sharing your knowledge on these important topics. We’ll go drink some water and eat an apple while they’re still cheap!
JR: All the best to you.
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