Speaker 1: Welcome to Bloomberg Opinion listeners. I'm Bonnie Quinn. This week,
Speaker 1: it's deeply dysfunctional, has turned antidemocratic, and it's a huge
Speaker 1: problem for the nation. Jonathan Bernstein on echoes of past
Speaker 1: eras for the Republican Party in today's GOP and these
Speaker 1: are the cheapest calories that are at there. David Fickling
Speaker 1: on the food insecurity and worse potentially coming for huge populations.
Speaker 1: First though, it's been two years since George Floyd was
Speaker 1: murdered on twenty and of course the movement towards accountability
Speaker 1: on race in the wake of that moment. This week,
Speaker 1: John Rogers, junior founder of Arial Investments, was a guest
Speaker 1: of the Economic Club of New York and I got
Speaker 1: to speak with him. Rogers will celebrate forty years of
Speaker 1: Ariels founding next year, yet Ariel is still one of
Speaker 1: a tiny fraction of minority run investment firms. I spoke
Speaker 1: with Rogers about change in the industry and I got
Speaker 1: his thoughts on the macro environment. Let's get straight into it.
Speaker 1: It's been a tough time, John, with almost eighteen billion
Speaker 1: dollars in assets on an management how are you looking
Speaker 1: at this market? Itself when we're looking at it as
Speaker 1: a time for opportunity. You know, Warren Buffett always talks
Speaker 1: about the ball at somebody should be your friend. And
Speaker 1: when you have this kind of dramatic shifts in the market,
Speaker 1: and so many companies have changed so dramatically, we think
Speaker 1: there's an opportunity to take advantage of some real, real,
Speaker 1: unique bargains in this environment. So we've been adding to
Speaker 1: our positions each and every week, finding more and more
Speaker 1: areas where again we're excited about putting money to work.
Speaker 1: Is this a major pivot point or is this just
Speaker 1: a resetting of repricing? Well, I think it's In some ways,
Speaker 1: it's a I guess it's a repricing high pe multiples
Speaker 1: have had a multiple compression because you know, with interest
Speaker 1: rates going higher, you don't want to pay a lot
Speaker 1: for future earnings they are gonna be delivered ten twenty
Speaker 1: years down the road. And this ToxS had gone too far.
Speaker 1: I think they were too expensive and people just hadn't
Speaker 1: factored in the higher interest rates and how much it
Speaker 1: can impact how you value these businesses. So we've had
Speaker 1: an array of events contribute to the as well as
Speaker 1: as you say, massive inflation and huge on certainty. Do
Speaker 1: we see more of a sell off? I think we're
Speaker 1: getting You know, you never know. We all know this
Speaker 1: is impossible to predict the markets, and you know we're
Speaker 1: long term investors with a turtle, you know, as a
Speaker 1: logo to remind us the patient's winds. But I do
Speaker 1: feel like the amount of pessimism in gloom in the
Speaker 1: market is so high. Everywhere we go people are talking
Speaker 1: about how afraid that they are, so when there's so
Speaker 1: much pessimism, so much barishness. I do believe you mentioned
Speaker 1: John Templeton earlier. He always said you want to buy
Speaker 1: when there's maximum pessimism. I think we're getting into that
Speaker 1: type of environment that gives me optimism that we're starting
Speaker 1: to bottom here. Let's talk a little bit about the
Speaker 1: economy and what the federalers are is trying to do
Speaker 1: in order to engineer a softish lending. Do we get
Speaker 1: to neutral by the end of the year and roughly
Speaker 1: where is that. One thing I've learned over the thirty
Speaker 1: nine years that i've been an arial is what gets
Speaker 1: you as always the surprises, the things you didn't think about,
Speaker 1: the things you couldn't have worried about. So I think
Speaker 1: when you have all the Federal Reserve and all the
Speaker 1: top economists in the world, and everybody fixated on whether
Speaker 1: we can avoid this recession, whether that can do the
Speaker 1: right thing, I don't think they're gonna be too far off.
Speaker 1: I don't think there'll be some big negative surprise they
Speaker 1: will come from this. It's so well identified, it so
Speaker 1: well talked about, So I don't think we'll get hurt
Speaker 1: by it. So that's a lot of optimism we have
Speaker 1: heard in the last couple of days alone from various
Speaker 1: investors suggesting that it's a very narrow path to avoid
Speaker 1: a recession. What is the likelihood that we can avoid
Speaker 1: that recession. Well, someday we'll have another recession. You know,
Speaker 1: everyone is always predicting many more recessions than ever occur.
Speaker 1: That's sort of one of those cliches that we all
Speaker 1: talk about and here about. So I don't see a
Speaker 1: recession coming anytime soon. As we talk to our management teams,
Speaker 1: you know, we've just gone through the learning season. We've
Speaker 1: been on the phone with CEOs and CFOs of dozens
Speaker 1: of companies in the last several weeks. Everyone is telling
Speaker 1: us they're seeing no signs of a recession. The consumer
Speaker 1: has a lot of money. The consumer has been saving.
Speaker 1: We know the low unemployment rate, so we don't think
Speaker 1: it can be a consumer lead recession. I think it
Speaker 1: will be a ways off. But if it comes a
Speaker 1: little bit early, I means it'll just end a little
Speaker 1: bit earlier. You know, people always think it's like this
Speaker 1: great bookie man out there, we have this great recession.
Speaker 1: But eventually, you know, we all know, once you have
Speaker 1: the recession, we have a recovery. And you know, when
Speaker 1: you go to the annual meeting for Berkshire, Hathaway and
Speaker 1: my you know, my favorite thing is he always talked
Speaker 1: about what the dial did last century, how it started
Speaker 1: at sixty six and ended it over eleven thousand. I
Speaker 1: keep reminding myself that last century we had great depression,
Speaker 1: we had many recessions. We had World War one, World
Speaker 1: War two, we had a pandemic. We get through these.
Speaker 1: You know, he always says, our capitalist democracy is the
Speaker 1: best system ever invented, And so I try not to
Speaker 1: get too troubled by this short term worry of something
Speaker 1: that can commit it. So we do get through them.
Speaker 1: But it's the question of the damage that's done. I
Speaker 1: guess in the getting through them. When you talk to
Speaker 1: all of these CEO, CFO, supply chain managers and so on,
Speaker 1: and I know you do, you speak to them on
Speaker 1: a quarterly basis, at least, what are their main worries
Speaker 1: right now? I think the supply chain issue is a
Speaker 1: worry for a lot of the companies we talked to.
Speaker 1: You know, it's called it's it's it's a headwind. It's
Speaker 1: just you know, it's a problem. But they're working through
Speaker 1: it and for the most part getting through it, and
Speaker 1: with some challenges, some higher expenses they would have hoped,
Speaker 1: but it's not a catastrophe by any means. At the
Speaker 1: same time, I think people are worried about inflation these managements.
Speaker 1: As we know, most CEOs have never lived through an
Speaker 1: inflationary period before. They don't know what to expect, They
Speaker 1: don't know how this can impact them. But so far,
Speaker 1: so good. People are feeling they're able to raise prices,
Speaker 1: and you know, so we're spending a lot of time
Speaker 1: trying to check on that, double check on that, ask
Speaker 1: all these management teams how they're dealing with it, But
Speaker 1: so far they're managing it. So inflation still at an
Speaker 1: eight percent handle. We're not sure exactly how fast it's
Speaker 1: going to come down or what kind of outside factors
Speaker 1: are going to help it come down, because right now
Speaker 1: things are not alleviating all that much when it comes
Speaker 1: to energy prices and frictions in the system. Where do
Speaker 1: you see the FED being able to bring inflation down
Speaker 1: to by the end of the year. I'm not sure
Speaker 1: by the end of the year it will be down
Speaker 1: very much, you know. I still think that they got
Speaker 1: started too late, and they kept saying this was transitory,
Speaker 1: kept saying it was transitory, and they didn't quite get
Speaker 1: it right. So ultimately it's gonna take longer for it
Speaker 1: to get under control. So whether we get there by
Speaker 1: the end of the year, maybe it's the middle of
Speaker 1: next year, but eventually they obtain this beast and things
Speaker 1: will be back on track. So if you could put
Speaker 1: a figure on it, or if you could cite what
Speaker 1: some of your CEOs are telling you, are they seeing
Speaker 1: six percent still at the end of the year four
Speaker 1: to five, I think it will be higher, since nically
Speaker 1: higher than that, that's our view. I would take the
Speaker 1: over on how high inflation will be at the end
Speaker 1: of the year. It's been two years since George Floyd's
Speaker 1: murder on and the movement towards accountability on race. In
Speaker 1: the wake of that moment, I spoke with John Rogers
Speaker 1: on the financial industry and it's race record. We began
Speaker 1: with his own experience and the people that led him
Speaker 1: into finance, starting with his father. I was very fortunate.
Speaker 1: My dad was a Tuskegee airman and you flew over
Speaker 1: a hundred missions in World War Two. And he was
Speaker 1: thirty nine when I was born, so he had a
Speaker 1: lot of time to decide exactly what I was going
Speaker 1: to do. At different ages and certain agents had of
Speaker 1: a checking account, certain age, I had a saving his account.
Speaker 1: I mentioned my being a vendor. I had to have
Speaker 1: a summer job by the time I was sixteen, and
Speaker 1: then by the time I was twelve, I had to
Speaker 1: have a stock market portfolio, and right, yeah, it was
Speaker 1: a great idea. And you know the thing was he
Speaker 1: my parents were divorced when I was three, So I'd
Speaker 1: go visit my dad on the weekends and he'd have
Speaker 1: his newsletters piled up for me to read, and the
Speaker 1: annual reports and the quarterly reports the companies that he
Speaker 1: had invested in for me. He wasn't wealthy. It was
Speaker 1: two hundred fifty dollars here and five dollars there. But
Speaker 1: as the years went on, and you know, and then
Speaker 1: he took me to meet his stockbroker, guy named Stacy Adams,
Speaker 1: who was the first American stockbroker in the South Street.
Speaker 1: You know, he became my role model, he became my mentor.
Speaker 1: I just go and sit with Stacy and watched the
Speaker 1: ticker tape go by, and he was this unique guy.
Speaker 1: He'd been there forever. But to have him there for
Speaker 1: me all the difference, and my father introduced me to him,
Speaker 1: and it just became a labor of love. It came
Speaker 1: fun well and a phenomenal that you had that you know,
Speaker 1: so many people don't know, most people don't you know,
Speaker 1: you're probably the exception that you had a dad that
Speaker 1: was that interested in that, you know, aware of how
Speaker 1: young he should start teaching you, and that you had
Speaker 1: other mentors like that. If you went out there today,
Speaker 1: would there be any more mentors or is the ratio
Speaker 1: still that tiny? It feels to me like, you know,
Speaker 1: I've been in this business years that not that much
Speaker 1: has changed in that time. So what about forty years.
Speaker 1: Has much changed in forty years. Um, it's it's changed.
Speaker 1: It's it's it's you know, and it's accelerating and changed.
Speaker 1: Since the George Floyd murder, there's a much much more
Speaker 1: rigorous and serious efforts to diversify the financial services industry.
Speaker 1: Melody Hops and you know and my co CEO, and
Speaker 1: we're both getting more opportunities to speak to groups like this,
Speaker 1: speak to boards of directors, speaking to different types of
Speaker 1: organizations and political leaders. There really is a push and
Speaker 1: I'm starting to see some real traction and something's happening.
Speaker 1: I think I have to stay here in New York City.
Speaker 1: I have to say, you guys have been way way
Speaker 1: ahead of any other city in the country by far
Speaker 1: with the kind of leadership. You know, we've had from
Speaker 1: you know, the kinchin Alds to the world and others
Speaker 1: and leadership roles, but also the Ray mcguires and Bill
Speaker 1: Lewis's that have been an investment banking, We've had a
Speaker 1: lot of progress in private equity. So New York City
Speaker 1: is one that I think is just really truly making
Speaker 1: a difference. But unfortunately it hasn't been extrapolated throughout the
Speaker 1: United states and the way that it should. Well, there's
Speaker 1: one statistics that I just found absolutely terrifying from one
Speaker 1: of your surveys, and that it's that one point two
Speaker 1: percent of all assets under management are a minority you
Speaker 1: owned firms. Is that still the case? And that's that's
Speaker 1: for all minority firms. I think the data correct, so
Speaker 1: it's not just African American or Latin X. Now the
Speaker 1: numbers are really really bad when it comes to money
Speaker 1: management mutual funds. And what makes that a particularly heartbreaking
Speaker 1: as you all know here again here in New York,
Speaker 1: you know, so much of the wealth and jobs and
Speaker 1: philanthropy comes through Wall Street. That's a part of the
Speaker 1: economy where again it's been so successful. You have the
Speaker 1: high profit margins, and in the past, so many progressive institutions,
Speaker 1: even when they wanted to do the right thing, they
Speaker 1: did it through the term supplier diversity, which implies that, okay,
Speaker 1: if you're gonna work with minority owned business, it's going
Speaker 1: to come through supply chain, construction, catering, janitorial services, office
Speaker 1: supplies the lowest margin part of the spin. And we're
Speaker 1: the least amount of wealth of been creating, and we
Speaker 1: have hard data that shows that you know from Mackenzie
Speaker 1: and BCG showing in the Chicago land spend business and
Speaker 1: professional services is seventy five billion dollars profit margins five.
Speaker 1: Construction is tenth on the list at roughly twenty five
Speaker 1: billion dollars profit margins less than one. So if you
Speaker 1: really want to make difference, you have to get rid
Speaker 1: of this term supplier diversity. The University of Chicago coin
Speaker 1: to term business diversity, and now our Civic Committee is
Speaker 1: used in that terminology. In Chicago are eighty four largest
Speaker 1: businesses the Barack Obama Foundations using the terminology business diversity.
Speaker 1: So I think to make a difference, we have to
Speaker 1: signal to two people you want to be able to
Speaker 1: do business minorities and everything that we do that it's
Speaker 1: kind of a kind of unconscious or implicit bias if
Speaker 1: you only work with minority firms in the commodity parts
Speaker 1: of spend and not in the most lucrative parts of
Speaker 1: our economy. So this that's the reality. And the other
Speaker 1: part I would say, lastly outside it's disappointing, is I
Speaker 1: bet if you look at one point two percent, most
Speaker 1: of that spend is coming from government and Unfortunately, the universities,
Speaker 1: the hospitals and museums, many of the anchorings, tuitions, and
Speaker 1: the foundations have been the least progressive. You would have
Speaker 1: expected the exact opposite, but they have been the least
Speaker 1: for progressive. What changes that? Is it just complacency? Is it? Well,
Speaker 1: this is the way we've been doing it for the
Speaker 1: last twenty thirty four years. Therefore, let's just sign up
Speaker 1: the dotted line again. What gets the fire a lit?
Speaker 1: I think you're right. I think it's partly the fact
Speaker 1: that people done it the same way for fifty years,
Speaker 1: you know, just supply or diversity construction being the focus,
Speaker 1: and everyone just thinks that's the way to do it
Speaker 1: without actually thinking about it. People have this definition of
Speaker 1: small business that hasn't been really thought through in an
Speaker 1: economy where these giant companies that are trillion dollar market caps,
Speaker 1: so the prison with which people look at these things
Speaker 1: they just look at them the same way and having
Speaker 1: to evolved as our economy has evolved into this again
Speaker 1: professional services, capital, light industries, less manufacturing. So that you see, right,
Speaker 1: people have an adjusted People haven't changed in the way
Speaker 1: that the world is. The second thing is because there's
Speaker 1: so few of us in the finance to services industry.
Speaker 1: I was lucky to, you know, learn about the marketscy
Speaker 1: or earlier, he said earlier, but then be on boards
Speaker 1: like a on corporation in Chicago for eighteen years and
Speaker 1: watch Pat Ryan build that into extraordinary enterprise and see
Speaker 1: how a successful financial and professional services business can grow
Speaker 1: and thrive and create all kinds of jobs and philanthropy
Speaker 1: and political empowerment and all aspects. You have, Pats a genius.
Speaker 1: But because there's so few of us in those spots.
Speaker 1: When we sit on a board of a hospital or
Speaker 1: a museum and university, when they put someone who's diverse
Speaker 1: on those boards, it's often people who are not coming
Speaker 1: with a lot of financial services experience, and so they're
Speaker 1: there to think about maybe social justice issues, but not
Speaker 1: as comfortable raising their hand and pushing for economic justice.
Speaker 1: And um, I mean Dr King used to talk about
Speaker 1: that all the time, that many progressive white Americans deplore
Speaker 1: prejudice but except or ignore economic injustice. And so you
Speaker 1: have to have progressive leaders and people of coloring the board.
Speaker 1: We're willing to fight that sort of standard way of
Speaker 1: looking at the world. John Rogers Jr. Of Aurial Investments,
Speaker 1: don't forget to get in touch. All thoughts and opinions welcome.
Speaker 1: I'm at Vonnie Quinn on Twitter or email v Quinn
Speaker 1: at Bloomberg dot net. Bloomberg Opinion is also available, by
Speaker 1: the way, as a podcast on Apple, Spotify or wherever
Speaker 1: you get your podcasts. A review of this week's primaries
Speaker 1: Now with Jonathan Bernstein. Jonathan, we had the extraordinarily interesting
Speaker 1: primary that we knew it was going to be. Obviously,
Speaker 1: not just Pennsylvania happened this week. We had Kentucky, Oregon, Idaho,
Speaker 1: and North Carolina. But what do we learn overall that
Speaker 1: might be applicable to national campaigns. Well, certainly, one of
Speaker 1: the things that we're confirming out of these last set
Speaker 1: of primaries is that, you know, if you look at it,
Speaker 1: in one sense, Republican voters are not zombies who do
Speaker 1: whatever Donald Trump says. We've had a series now of candidates,
Speaker 1: whether it's the Idaho lieutenant governor who Trump endorsed, or
Speaker 1: Dr Oz in Pennsylvania or j d Vance who won
Speaker 1: his Senate nomination, of these candidates are getting about a
Speaker 1: third of the vote. Now, we've had a couple who
Speaker 1: did a little better, and incumbents the Trump endorses are
Speaker 1: doing perfectly well as you would expect because they're incumbents.
Speaker 1: But you know that means that a contested races, two
Speaker 1: thirds of Republican voters are very comfortable ignoring or opposing
Speaker 1: what Donald Trump tells them to do. So that's something
Speaker 1: when people say it's Trump's party, he controls them. It's
Speaker 1: certainly not the case that all Republican voters are sort
Speaker 1: of in a cult of Trump and will do whatever
Speaker 1: he says. At the same time, you point out in
Speaker 1: one of your recent columns that Trump is um is
Speaker 1: not exactly everything Trump says at the moment. It's this
Speaker 1: incarnation of writing radicalism that changes over time. So if
Speaker 1: you were a Republican operative, how much would you be
Speaker 1: paying attention to what Trump is doing and saying? And
Speaker 1: how much would you be paying attention to the two
Speaker 1: thirds of Republican primary voters that are either ignoring some
Speaker 1: of what he says or all of what he says? Well, exactly,
Speaker 1: it's not that the Republican part he has suddenly become
Speaker 1: a functional normal party in some of these cases. The
Speaker 1: reason that Trump's candidates are only getting a third of
Speaker 1: the vote is because even more radical candidates are getting
Speaker 1: a big chunkle of vote. This goes back, as you said, historically,
Speaker 1: to Joe McCarthy to Nixon, to Gingrich to the Tea Party,
Speaker 1: and it's not the same in every incarnation, but there
Speaker 1: are deep connections between that strain of the Republican Party
Speaker 1: all the way going back to the ninety fifties or
Speaker 1: before that, and the strain that is now the dominant
Speaker 1: coalition within the Republican Party, and it's deeply dysfunctional, has
Speaker 1: turned antidemocratic, and it's a huge problem for the nation.
Speaker 1: What happens in the cycle where you see that part
Speaker 1: of the party dominance ebbs. That's a good question and
Speaker 1: I don't have a good answer for that. Um I
Speaker 1: don't really have a good answer for why it comes
Speaker 1: and goes, but where it is now is extremely dangerous.
Speaker 1: You know, the nominee for governor of Pennsylvania, radical candidate
Speaker 1: who Trump endorsed only at the last minute, so he
Speaker 1: really rose to front runner status on his own. His
Speaker 1: campaign is based on that he would if he's governor
Speaker 1: of Pennsylvania certified the Republican candidate as the winner of
Speaker 1: the presidential election regardless of what the voters saying. Yeah,
Speaker 1: and you sort of have to do a double take
Speaker 1: and wait, is that really where they are? And the
Speaker 1: answer is yes, that is really where a number of
Speaker 1: these politicians have found themselves. And you know, the democracy
Speaker 1: can't work if one of the political parties is essentially
Speaker 1: anti democratic. Jonathan, what role did Kathy Barnett fulfill in
Speaker 1: the end um? This is the extremely radical candidate who
Speaker 1: had been in Washington and January six, etcetera, etcetera, and
Speaker 1: ran for Senate and wound up getting quite a bit
Speaker 1: of support in Republican talk radio, but then fell short
Speaker 1: in the actual election, in part because Republican aligned media
Speaker 1: turned against her in the last week. Trump also came
Speaker 1: out against her, but when she gave her post election statements,
Speaker 1: she singled out I believe Sean Hannity for coming after
Speaker 1: her and for interfering in the election. Of course, that's
Speaker 1: not interfering selection. That's how parties work, is there. You know,
Speaker 1: party actors weigh in on on elections. It's unusual to
Speaker 1: have party aligned media at such a central portion of
Speaker 1: the party so important to who picks which candidate. But
Speaker 1: that's essentially where the Republican Party is now, and that's
Speaker 1: one of the reasons that they've become so radical, and
Speaker 1: that they are willing to nominate people like the candidate
Speaker 1: for governor who are probably lousy candidates who may well
Speaker 1: lose an election that Republicans could win, but that as
Speaker 1: long as it's a good product you in the Republican marketplace,
Speaker 1: in the conservative marketplace, that's fine with them. They're making
Speaker 1: money off of it. It's starry telling that the Senate
Speaker 1: primary between Dr Oz David Warmick, obviously Kathy Ornett was
Speaker 1: in there as well, ended up being so close. Does
Speaker 1: it say anything about the amount of money that's being spent.
Speaker 1: It does. Two of the candidates spent a lot of
Speaker 1: money and a lot of very close and the third
Speaker 1: spent a lot less money that probably made her more
Speaker 1: vulnerable to the last minute attacks. One of the reasons
Speaker 1: she had a chance is because the two leading candidates
Speaker 1: spent a ton of money attacking each other, both their
Speaker 1: own campaigns and outside organized groups that played in the race,
Speaker 1: and spent a lot of money attacking the other candidate.
Speaker 1: So money matters, But it's never been as simple as
Speaker 1: money determines the nomination Jonathan Bernstein there and next week
Speaker 1: brings primaries in Georgia, Arkansas, and Alabama. We will be
Speaker 1: back with Jonathan Bernstein for a review. It's known as
Speaker 1: red gold. It's been feeding billions of people in places
Speaker 1: such as India. Indonesia embargoed as export last months, and
Speaker 1: we're seeing that pattern replicate across markets, with India banning
Speaker 1: most exports of feet this week, sending prices of feet skyrocketing.
Speaker 1: I asked David Fickling, what is this mysterious red gold.
Speaker 1: Palm oil which people probably have heard a fair bit
Speaker 1: about from some of the environmental campaigns. Most of the
Speaker 1: world's palm oil is made in Indonesia and Malaysia, and
Speaker 1: palm oil is the core of the global vegetable oil market,
Speaker 1: which is it does not get a lot of attention,
Speaker 1: but vegetable oils are absolutely crucial for multiple ways. Now,
Speaker 1: to be clear, palm oil is about of all vegetable oil.
Speaker 1: So when you hear, for instance, in relation to the
Speaker 1: war in Ukraine, there was a lot of talk about
Speaker 1: Ukraine is the biggest producer of sun flour oil and
Speaker 1: those exports would end and that would be a problem.
Speaker 1: This is true, but sun Floril is two to five
Speaker 1: percent of global vegetable oil supply. Palm oil is being
Speaker 1: oil is about everything else is about ten percent. So
Speaker 1: palm oil is absolutely crucial. And also I think it's
Speaker 1: important to understand it's a product with multiple different uses.
Speaker 1: You can use it for food. It's an ingredient in
Speaker 1: all sorts of foods. That's a lovely mouth feel, frankly
Speaker 1: from ducts with palm oil in them. Um. It's also
Speaker 1: a very cheap cooking oil, and you'll see in countries
Speaker 1: like India it's the largest importer of palm oil. It's
Speaker 1: a good value cooking all. It's not particularly healthy, but
Speaker 1: it's a very cheap sort of calories we look at
Speaker 1: we've been reading that Indian street vendors have to actually
Speaker 1: steam at the moment because of a lack of palm
Speaker 1: oils that are not able to fry their food exactly.
Speaker 1: And this is an interesting thing in the aspect of
Speaker 1: global nutrition and hunger. Like I said, if you look
Speaker 1: at the calories that you get from a kilogram, for instance,
Speaker 1: of cereal staples of wheat or rice, the calories from
Speaker 1: vegetables are about thirty cheaper than that, and the calories
Speaker 1: from sugar are about cheaper than the starchy staples. So
Speaker 1: the reason things like fat and sugar are so crucial
Speaker 1: to nutrition in lower income countries is that is the
Speaker 1: cheapest sort of calories out there. And this is one
Speaker 1: of the reasons. I mean, actually going back to Pakistan,
Speaker 1: Pakistan has um some of the highest and fastest rising
Speaker 1: rates of things like type two diabetes of anywhere in
Speaker 1: the world. And you're seeing this transition in a lot
Speaker 1: of lower middle income countries from under nourishment problems of
Speaker 1: proportion of people being overweight, being substantially hard in the
Speaker 1: proportion of people underweight. And that's not unconnected to the
Speaker 1: fact that these are the cheapest calories that are out there.
Speaker 1: That's a phenomenal thing. I did not know that at all,
Speaker 1: and it's actually that's it's a pretty tragic in fact.
Speaker 1: But at the same time, without this palm oil, these
Speaker 1: populations are also in trouble and they're not getting the
Speaker 1: palm oil or it's it's the prices inflated. Explained to us,
Speaker 1: what's going on. Yeah, this is where we come back
Speaker 1: to Indonesia and we come back again to this issue
Speaker 1: of import dependence in the mid two thousands, Indonesia was
Speaker 1: looking at the rising price of crude oil and it's
Speaker 1: growing dependence on imports of crude oil, and did very
Speaker 1: similar to what you see in the US, saying well,
Speaker 1: the solution to this is we blend in some biofuel.
Speaker 1: And this is also there may be environmental benefits to this,
Speaker 1: although there's question marks around that which we can we
Speaker 1: can come to later. So there have been blending mandates
Speaker 1: very similar to the blending mandates that you see in
Speaker 1: the US. Here in Australia where I live, there's a
Speaker 1: lot of blended fuel as well, for blending in a
Speaker 1: rising proportion of palm oul derived biodiesel into into road fuel,
Speaker 1: and at present thirty percent of road fuel has to
Speaker 1: be derived from palm bio diesel. Now that's a problem
Speaker 1: because the capacity of the palm oil plantations to supply
Speaker 1: this is fairly limited. And although transport fuel is a
Speaker 1: fairly small source of palm oil demand at this point
Speaker 1: maybe like fifteen percent of the total, whereas goes to food,
Speaker 1: it's the bit that's growing faster, and in Indonesia it's
Speaker 1: growing fastest due to a government mandate. There's no way
Speaker 1: around the blending mandate. So if you look for the
Speaker 1: past few years back to about more than half of
Speaker 1: the growth of palm ol demand globally has been Indonesian
Speaker 1: domestic demands, and that's putting pressure on the whole sector.
Speaker 1: The Indonesia has essentially put an embargo on exports of
Speaker 1: palm oil and palm al derivatives altogether. Prices have risen
Speaker 1: very fast over the last three years. That's pushing up
Speaker 1: the prices of cooking oil from palm oil in Indonesia.
Speaker 1: It's a political problem for Indonesia. In an attempt to
Speaker 1: push down those prices, you have this export embargo, but
Speaker 1: of course that pushes the price pressure onto other countries,
Speaker 1: particularly as as I said, India, the biggest importer of
Speaker 1: palm oil, which is ultimately sort of cutting nutritional calories,
Speaker 1: not the highest quality nutritional calories, but raising the cost
Speaker 1: of those calories to Indians. All of this is feeding inflation.
Speaker 1: I guess we see this with a of fuels, but
Speaker 1: one country can feed inflation around the entire world, to
Speaker 1: the point of austin governments absolutely. And you can think
Speaker 1: of Indonesia in relation to palma or Indonesia, Malaysia certainly
Speaker 1: they are the opeque of palm oil. You know, they control,
Speaker 1: in fact a much more substantial share of the palm
Speaker 1: oil market and the vegetable market as a whole OPEC plus.
Speaker 1: Even if you put all the other economies that you know,
Speaker 1: Russia in that did account for barely fifty percent of
Speaker 1: global crude oil supply, Indonesia and Malaysia put them together,
Speaker 1: it's six plus of vegetable oil supply. Is there a substitute, David?
Speaker 1: I mean, obviously sunflower oil at least coming from Ukraine.
Speaker 1: It's going to be a problem, you know, in the
Speaker 1: near future. And as you say, it's only a tiny
Speaker 1: present of oil globally. But is there a substitute for
Speaker 1: palm oil. I'm going to sound like a bit of
Speaker 1: a broken record here, but it's a little bit similar
Speaker 1: to Pakistan. I think the solution is renewables and electrification.
Speaker 1: Electric vehicles in Indonesia, actually they're running costs are substantially
Speaker 1: cheaper than internal combustion engine vehicles. That's despite the fact
Speaker 1: that Indonesia very heavily subsidizes fuel and bio fuel. The
Speaker 1: problem is the infrastructure is not there. The government had
Speaker 1: a target by one that they would have a hundred
Speaker 1: and seventy thousand charging stations. In fact, they're only a
Speaker 1: hundred forty eight um, so no zeros afterward, It okay
Speaker 1: against a hundred and seventy You know, if you have
Speaker 1: a look at a country like India. India has made
Speaker 1: great strides around two and three wheelers, scooters and rickshaws
Speaker 1: to electrify that fleet and is moving quite fast, not
Speaker 1: moving fast enough. But the point is if you look
Speaker 1: at India, it's energy production is not the cleanest. It's
Speaker 1: one of the world's biggest uses of coal in the grid,
Speaker 1: but you're seeing a fast increase in renewable production and crucially,
Speaker 1: electrification of the road sector is moving at a fair pace.
Speaker 1: And you see this in China as well, another country
Speaker 1: of course, very dependent on imports of petroleum. If you
Speaker 1: power your road sector with a large and rising share
Speaker 1: of electric vehicles, and you power your grid with a
Speaker 1: rising share of domestically produced energy, ideally for climate reasons,
Speaker 1: that should be renewable energy. But in the case of
Speaker 1: India China, a lot of that is still coal, but
Speaker 1: it will still actually have a less of a climate
Speaker 1: impact of footprint and petroleum because of the efficiencies of
Speaker 1: electric vehicles. You do that and you reduce the dependence
Speaker 1: on imported petroleum, and you reduce the dependence on bio
Speaker 1: fuel which really should not be going into road vehicles
Speaker 1: where there is a good alternatives. Now, well, that sounds
Speaker 1: like it's quite a long term plan. So just to
Speaker 1: answer for is then why is it called red gold
Speaker 1: palm oil. It's fantastically profitable for some of the sort
Speaker 1: of lowest income constituency groups in Indney here in Malaysia,
Speaker 1: and this is the reason. You know, I talk about
Speaker 1: a bit of a biofield industrial complex in Indonesia similar
Speaker 1: to what you have with corn ethanol in the US.
Speaker 1: There are a lot of rural votes in palmer production.
Speaker 1: Small holders account for more of production. All of those
Speaker 1: people vote, and these are people who really need the
Speaker 1: income from it. That's one of the things that makes
Speaker 1: this hard thing to break. There was an interesting study
Speaker 1: last year that looked at mayoral elections in Indonesia and
Speaker 1: it found that in the run up to a mayor election,
Speaker 1: when palmer prices are high, you see an eighteen percent
Speaker 1: rise in deforestation. And that's essentially because they argue mayors
Speaker 1: are sort of loosening some of the regulations against deforestation
Speaker 1: to win votes in the election. It's it's popular. Bear
Speaker 1: in mind with Indonesia, there are some big elections coming up.
Speaker 1: We are seeing palma prices at a record. The world,
Speaker 1: i think, clearly is hoping that we've seen the end
Speaker 1: of the expansion of palmer plantations and deforestation. One these
Speaker 1: plantations are established there by a fuel is pretty good
Speaker 1: in climate terms, that sort of six or seventy less
Speaker 1: than petroleum. But if you cut down rainforest to build
Speaker 1: a new plantation, the emissions work out is roughly twice
Speaker 1: what they are from petroleum. So what the world needs
Speaker 1: to do at this point is to maximize the yield
Speaker 1: from his palmer plantations that have already been established. But
Speaker 1: what we can't afford to do is increase the area
Speaker 1: that's planted. But looking at the politics of it, looking
Speaker 1: at the economics of it, at these high prices, I
Speaker 1: wouldn't want to bet that deforestation has ended. David Fickling there,
Speaker 1: we're now choosing to exit all conversations. Not with you, though,
Speaker 1: Do get in touch. I'm at Bonney Quinn on Twitter
Speaker 1: or email v Quinn at Bloomberg dot net. We're produced
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