By Stewart Doan
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Editor’s Note: This week on Open Mic features an insightful conversation with farmer and philanthropist Howard Buffett, the eldest son of billionaire investor Warren Buffett. The chairman-in-waiting of Berkshire Hathaway talks about what drew him to farming over 30 years ago and the management philosophy he employs on his 1240 acre corn and soybean operation near Decatur, Illinois, and offers his views on land prices, biotech crops and the food vs. fuel debate. Equally passionate about the work his Howard G. Buffett Foundation does to promote agricultural development in Africa and Central America, he gives the Obama administration some advice on how to improve the livelihoods of small-scale farmers in poor countries. The interview runs 15 minutes and can be found at
http://www.agri-pulse.com/ or you can click on this link
http://www.agri-pulse.com/Audio-Open-Mic.asp
We have transcribed the unedited, complete version of this week’s Open Mic interview with Howard Buffett below.
SD: Howard, welcome to Agri-Pulse Open Mic.
HB: Thank you for having me.
SD: There’s a great quote about you attributed to your father, who said, “Howie would rather spend an evening on a tractor in the field than on a date with Angelina Jolie.” I guess you could have done just about anything with your life. Why did you choose farming?
HB: Well first of all, I’m not sure he’s 100% accurate on that. The last person I would want mad at me would be Angelina Jolie. Anyway, you know I got into farming in a very strange way. It’s too long a story to tell today but I really kind of fell into it. When I was about twenty years old, I got exposed to it through some neighbors in Nebraska, and I really have always loved equipment and I got to have more opportunity in agriculture. I started to really get fascinated with all of the components that go in to management and growing and producing, so it just kind of grew on me over time.
SD: What does farming do for you, being able to get out on a tractor, get on a combine, and walk rows of corn? What does that do for you?
HB: Well, you know, there’s a couple of a different ways to answer that question. One is, personally, I think that there’s nothing else that compares with being able to get in a combine or a tractor and go out and plant, go out and pick corn, and have that time to yourself to think and to really use that as an opportunity as your own personal time. I think from that standpoint, I mean I travel about eight months out of the year out of the country and come home and have that opportunity to me is really special. And then I use it kind of as Scott Killman from the Wall Street Journal once said, I use it as a traveling office. I take every opportunity I can to get policymakers or farmers from Africa, whoever it is, to spend a day on the farm and understand what works here and what may not work somewhere else. So, it’s also a great tool for me.
SD: What kind of crop did you have this time?
HB: You know, we had record soybeans all through central Illinois, and we also had pretty high soybean prices. That’s about the only time that’s ever happened in my life. Our corn was really kind of, we had some really good corn and then we had some mediocre corn, I think that was pretty consistent across here too. We had a lot of replant that was done this spring. So, it was kind of all over the board, but we were fortunate that we did have some corn that did reasonably well.
SD: Does Howard Buffett handle risk management and marketing of those crops at Buffett Farms?
HB: I handle it but I have a pretty simple philosophy. There were a couple of things that my dad gave me a little advice on. He said, “If you’re going to buy insurance, you’ve got to buy it every year and if you don’t buy it for ten years, you don’t want to start buying it in the middle”. I’ve actually never had insurance so I take that risk, but I’ve never had a loss.
SD: You’ve never bought crop insurance.
HB: I did when I farmed in Nebraska because we have hail that goes through our farm in Nebraska, so I have crop insurance when I farm Nebraska. The twenty years in central Illinois I’ve never had it. Now, I’m not recommending that for other people. I just decided to be self-insured and that’s probably, I think a lot of that decision would have to do with whether or not you…how highly leveraged you were. You know, if you have much leverage, you’ve got to have crop insurance, no question about that. So, I’m fortunate enough, I made that decision to be self-insured and I’ve done that, and so far that’s worked. But, I will tell you if you ask me that sometime in the future, the year after I have a big loss, I probably won’t feel the same way. And, I don’t do a lot of forward contracting. I’ll do a little bit if I can see where I can do a good job of covering costs, but this is a good year to where you can look back and say “Well, I’m glad I didn’t sell a lot of corn at $3.50 or $3.75”. I’ve been waiting to get that first bushel of corn sold for $6.00. I got some sold for $5.97, but I didn’t hit six yet, and now it’s gone down. You know, I think marketing is pretty challenging, and if you understand it really well, you know you can do more with it. But I think the biggest mistake is to think that you understand it really well and try to get clever. So, I keep it pretty simple.
SD: Put some perspective on the last five years in U.S. agriculture. This has been a time like we have never seen before on many fronts, not only with the grain markets but in terms of yields and production costs.
HB: I totally agree with that. I think the last five years has been a pretty amazing ride. I believe, I’m going to throw something in first ahead of that, you know we just saw some ground sell here for over $9,000 an acre last week, and that’s an incredible price, and I think some people are going to make the same mistake that was made in the ‘80s. Some of my friends tell me that I’m wrong, but I’ve never seen anything that doesn’t cycle. So if you look at what the dynamics are today and the economy, there’s a lot of reasons why farm ground has been pushed to these highs. It has to do with extremely low interest rates for a long period of time, anticipation of continued low interest rates. It has to do with the fact that people want a solid investment and land has always been seen that way, people don’t have confidence in the economy at this point to where they still have decided that land is not a better choice. And we’ve had really on and off but consistently enough some great commodity prices. So, I think that eventually – and I can’t predict whether this will be two years or seven years from now – but I think eventually there will be another adjustment in agriculture. But we could still have some really good years ahead of us before that happens.
SD: One more risk management related question before we move on to your foundation and the good work that it does. Does the U.S. government have an obligation to provide farmers with a taxpayer-financed safety net still today, given the prices that we have and the budget problems that the country is going through?
HB: Well, I think the answer more or less is “yes” to something. You know, the demographics of the agriculture community have changed a lot, and that changes the politics of it and everything else. But, the fact is that food security is a huge issue in any country. I just spent last night at dinner with some of the folks from Feeding America, used to be Second Harvest, and I will tell you, I looked at some new statistics and one out of six people in the United States is food insecure. That ought to be pretty shocking to us. I mean, we are the most productive country in the world when it comes to agriculture and we have those kinds of numbers, and if you dig into those numbers deeper, they’re even more shocking. I think people tend to forget what is food security, they tend to forget the choices and the options that we have, and the small amount of the percentage of our income is that goes to food. I know those are all the old arguments that are made, but they haven’t changed. They’re still there, still very valid, very legitimate. So I think from a standpoint of the country, there’s two things the government ought to do related to production agriculture. One is they ought to overhaul the Farm Bill so that we encourage every kind of activity that will help us in a sustainable manner so that we can farm well in a hundred years. I don’t think we’re doing that in terms of our government policy. The other is we should have some kind of safety net to make sure that we can keep farmers productive and in business in some diversity. I realize it’s a controversial subject, when you get into how many acres farmers are farming these days, but if you look at the tax base and you look at the social implications, the education implications, the health implications in terms of what rural America has access to, if every farmer is farming 50,000 acres, I don’t necessarily think that’s a good thing. I think you need to look at what does the policy drive, and does it drive us toward more responsible, long-term ownership and productivity or does it drive us somewhere else? So I think the policy issues are not all where they need to be.
SD: The Howard G. Buffett Foundation is known the world over for its work in the area of subsistence farming, supporting projects in agriculture and nutrition, water, humanitarian conservation. You just got back from Africa earlier this month. Talk about the situation over there.
HB: I just returned a few days ago from Algeria, and I actually went over to Algeria to learn more about something called a moringa tree, which is a great part of an agriforestry program that can really do well in difficult environments and produces a lot of nutrition through it’s fruit. So I went over there to learn about the moringa tree and I spent about four days learning also about the thirty-five year struggle of the Swahari people, who have about 165,000 refugees, and we visited their five camps. So really this trip was a combination of things. We’re trying to learn about agriculture, we are learning kind of about a quiet conflict that’s been going on for decades now, we visited refugees and we looked at the environment they’re living in, and we’re looking at a couple different potential projects in those camps, to assist those camps. It’s kind of a typical combination of the issues we try to deal with, because when you look at subsistence or small-scale farming, you’re really talking about how to achieve food security. The other factors that are really big in Africa are conflict – the latest FAO figures say 60% of hunger is caused by conflict. Those are really big difficult issues to deal with, and in a lot of cases we can’t impact what’s happening with a conflict, but we can go in and try to figure out if there’s a way for us to place some long term impact for these farmers.
SD: Is the U.S. government doing enough in terms of supporting agriculture productivity increases overseas in these poor countries? Trade and market facilitation, that’s the Obama administration’s strategy. It’s a little bit different that what the country has had before. Is it working based on what you see?
HB: Well, I’ll get myself in trouble here with a lot of people probably with this answer. I think that, first of all, I’ve got to give Secretary Clinton a lot of credit for the focus that she has put on this issue and the seriousness with which she has taken it, because it’s at a new level and I know that she believes in doing this. I think that’s really critical to eventually getting it right. What I would say is that I think we’ve gotten it wrong for thirty years and I think if we’re not careful, we’re going to spend a lot more money and get it wrong again. We have this tendency to think that markets and infrastructure and trade and all these things that are great to talk about and I’m not against, but we tend to think that these are going to be the solutions for farmers that are farming one or two acres, that survive on crop diversity, that experience hunger periods every year with their family, they have children die of malnutrition. I mean these are farmers that are farmers by default, not by choice, and there’s probably if you look at the dependence on these small farmers in Africa, about four hundred million people at least. So everybody wants to talk that that’s the target audience, but if you look at the solutions that are being presented, I personally do not believe they are the solutions that are going to solve the problem. And it’s also an incredibly complicated and long-term problem, as you know in agriculture you don’t do anything in a year or two. So, without going into a lot of the details, my concern is that we’re going to spend a lot of money on this, with a very serious and genuine commitment to it, but I don’t think we’re headed completely in the right direction yet.
SD: Then what is the U.S. government’s proper role?
HB: Well, if I had all the resources that the government has, I think I would go about a couple of things differently. One would be that I would try to choose, instead of a number of countries that they are looking at in the Feeding the Future document, I would say what are the three countries where we can really have success? Instead of spreading billions of dollars across a number of countries in a number of different categories, I would go into two or three countries that I really thought I could succeed at and I would do it in a holistic approach. To do that, you have to have a government that is completely committed to this. That is one of the challenges in Africa, is finding those governments. Now there are a few around, but I think I would really take a rifle shot approach rather than a shotgun approach. We’ve done the shotgun approach. We’ve done it for years, the World Bank, IMF, USAID, DFID; I mean all sorts of organizations have done that. Fact is, if you look at hungry people today, we’ve gone backwards. It hasn’t worked. We have to do something differently, so that would be one thing. And another thing I would do is, you know the United States has played a critical role in the last fifty years in food assistance, and that’s always up for debate in terms of what ought to happen, what shouldn’t happen with food assistance. What’s the impact on markets? What’s it do to local economies? And so, I think one of the things that I would definitely do is look at some of the innovative things going on in the world today. The World Food Program has something that we’ve been very engaged in called Purchase for Progress. It is a way to leverage their assets, their procurement and the needs of other hungry people in the region, and engage small farmers and try to pull them in to the economy. There’s one thing I’ve learned with all the projects we’ve done globally in agriculture. You’ve really got two levels, when you get down to the subsistence. If you take the commercial farmers off the top and you take the small-scale farmers that have some access to markets off the top, then you’ve got this big bottom of this pyramid with subsistence farmers. What do you do with that? Well there’s a band across the top, nobody knows how big that is or how deep you can go down, but when you do that those are the people who aren’t pulled into the market. Those are the farmers that with the right opportunity, you can change their lives, you can make them part of the economy, and you can walk away. That’s your exit strategy, to get them into the economy. Then there’s a huge portion to that that goes down further into the pyramid which really does rely on humanitarian assistance, because you are not going to take the poorest of the poor, with no training, no extension, no access to inputs, no seeds, the list goes one, and you can’t pretend that you’re going to turn them into productive farmers overnight. You’ve got to deal with that reality and a lot of people don’t want to deal with it because there’s not a good answer to it and people want answers.
SD: How long does it take, in your view, to get that slice of the farming population in these countries to where they can increase their productivity and make a living for themselves and their families?
HB: I honestly would have no idea how to really give you a good answer to that. I think it’s going to take decades, and again that’s another answer people don’t like to hear. But the truth is, number one, you’re dealing with tens of millions of people. You’re dealing with geographies that are incredibly difficult. You’re dealing with access problems, distribution problems, education problems all related to agriculture. To overcome those things takes a long time.
SD: Are biotech seeds part of the solution to this?
HB: You know that’s a great question. We get caught in the middle on this one because we’re co-funding two drought-tolerant maize projects with the Gates Foundation. They’re putting a lot more money in it than we are but we’re partners with them on that. We’re funding a virus-resistant fully-enhanced sweet potato project with the Danforth Plant Science Center in Saint Louis. We’re looking at a sorghum project right now and a casaba project, so we get hammered along with them on supporting some of this. But the truth is I believe it’s going to take everything. The key is in this instance, I think in the emerging countries, you have to separate the arguments from the issues and there will always be people opposed to this. You’re never going to convince a certain portion of the people that GMOs have benefit; I’ve sat in meetings with people that are opposed to it that will actually say in the meeting that GMOs are decreasing yields. This is what really irritates me, is when there’s not an honest discussion about it because I do believe that there are legitimate reasons at this point in time not to rush in to a place like Africa or most countries in Africa and say that GMOs are the answer. They’re not the answer right now. Can they provide some great alternatives in the future? I believe they can, but you have to have an honest debate about it. When this gentleman said this to me, I said, “How much corn did you grow this year that was triple stack?” and he looks at me and doesn’t have an answer. Well, because they’re talking out of turn and what they want to do is they just want to bash something because they don’t like it. When all you do is throw stones without trying to provide solutions, it’s very hard to solve the problem. GM crops have incredible potential. They’re clearly adding value to the U.S. farm economy and in Australia and some other places where these crops are used, even in South Africa. There’s a huge value there. The question is what’s appropriate and when is it appropriate and how do you have the right debate so that you can eventually take the advantages that these crops offer and use them in places where people can benefit from them.
SD: Let’s talk about another polarizing debate and that is food versus fuel. You’ve got some history in the ethanol business for a time as an executive and on the board at Archer Daniels Midland. Critics of U.S. farm policy and now U.S. biofuels policy claim that the increasing amount of the U.S. corn crop diverted to ethanol is behind higher food prices and a contributing factor to world food shortages. What’s your take on that?
HB: I think that much of that is overblown, but I also think that U.S. farmers have to step back and say, look, there’s a lot of bushels going into ethanol. What does that really mean? How does that impact food security and other issues in the United States and other places? In my opinion, I think you can’t say that it has no impact. But I think you have to define that impact because when most people want to talk about ethanol, they don’t want to give the credit for the DDGs, they don’t think about the fact that all you’re taking is the starch but you still have protein content and other things that you can extract from the corn. People tend to act as if a bushel of corn going to ethanol is a bushel of corn that doesn’t go to some kind of, that has no asset left for food productivity. That’s just not true. So, I think that’s a debate that misses some of the most important part of it, which is really drilling down into it saying how do you divide the value up? Look, if you’re consuming a billion bushels more or five hundred million bushels more of corn, you can’t say it doesn’t have some impact on the market. But the truth is, and this is where I really part company with some people who get into the food versus fuel issue, is I don’t believe that the kind of population we’re talking about and we focus on in Africa – subsistence farmers – I don’t believe food versus fuel has any impact on them. I really don’t, because these are not people that are competing in the global market. These are people that barely even have much opportunity to do anything within a local market. I think to try to say that there’s this trickle-down effect from over here all the way in to someone over in Wombo province in Angola is a huge stretch.
SD: Are you bullish on ethanol and biodiesel as an investment opportunity?
HB: The honest truth is I’m not. I think part of it goes back to the old philosophy Cargill had for years which was we don’t want to get in a business that has to depend on government support. I think from an investment standpoint, that’s always something that you have to take into consideration. I think ethanol has been an interesting run, because we’ve been at it now for a long time and what our argument for ethanol has always been is we’re going to get it more efficient and we’re going to make it better and we won’t need a subsidy. We haven’t done that yet, and I don’t know how much patience there is long term to be able to get that accomplished, but I think there is always a legitimate argument about oil independence. It always gets focused on when oil goes $100 a barrel. So, I think that for us as a country not to be continuing to look at how we do whether it’s wind energy or solar energy or ethanol or biofuels or whatever it is, I think those are things that we have to grasp in the future sooner than later. Now, I actually look at it, if we were to put really serious resources into it, all of those things, every kind of electricity, whatever it is without picking a winner up front and saying really let’s try to be the best in the world and develop the best technology, I think we could be global leaders if we just said let’s really embrace this as a way to change the future in terms of what’s available for energy independence and a more responsible carbon footprint. Talk about something that’s going to take decades, that’s going to take it too, but it’s something that I think we’ve piecemealed it as we’ve gone through. We don’t have a comprehensive energy strategy.
SD: How many more crops do you have in you? Your father has indicated that you will assume the chairmanship at Berkshire Hathaway at some point. When that time comes, will you stay involved in agriculture and stay on the farm there in Decatur, Illinois?
HB: Well, the easiest answer to that, there’s two answers. First, my dad is going to be around a long time. He’s in great health. I’ve never seen him work so hard or have such good spirits, so I think he’s going to be around a long time so I don’t think I have to worry about it for quite a long time. But, the answer is one way or the other, I’ve been putting on a suit and tie and going into a board room and coming home and getting on a tractor for a lot of years, and as long as I can climb up into a cab of a John Deere tractor, then you’re going to see me farming.
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