David Chaston on irrigation, Alibaba, a 15 year aberration, more education equals higher incomes, the benefits of fracking; Dilbert & more

David Chaston on irrigation, Alibaba, a 15 year aberration, more education equals higher incomes, the benefits of fracking; Dilbert & more

Here's my edition of Top 10 links from around the Internet today.

We have a Monday-Wednesday-Friday schedule for Top 10. Bernard will be back with his version this Wednesday. We will have another guest posting on Friday.

As always, we welcome your additions in the comments below or via email to david.chaston@interest.co.nz.

See all previous Top 10s here.

1. Irrigation progress
Last week, the Rangitata South Irrigation Scheme was finally at capacity and is supplying water to 16,000 hectares of South Canterbury land.

It is just one of the giant Canterbury irrigation schemes and has cost $115 million to develop.

The first water flowed into the scheme in November 2013 and is only now at capacity.

Storing water is a key strategy to enhance the output of the Canterbury Plains, and many projects are either completed or under development.

They will be central and crucial to the Governments target of doubling New Zealand's farming exports.

The Arundel-based scheme will harvest floodwater from the Rangitata when flows exceed 110 cubic metres per second (cumecs), and it will store up to 16.5 million cubic metres of water in a series of seven storage ponds.

The scheme will be capable of delivering water to irrigate up to 16,000 hectares of land between the Rangitata and Orari rivers, currently involving 33 water users and their farms.

Rooney and his team have also collaborated with the Rangitata Diversion Race scheme to reach a reciprocal agreement which allows the two schemes to share their consented water and further increase the reliability of both schemes.

Water abstraction, filling and emptying of the storage ponds and water supply to the race network will be operated by a state-of-the art automated, wireless telemetry control system.

It includes 13 hydraulic gates, and around 80 kilometres of open races in four main legs.

2. Good price supply!
Giant Chinese ecommerce website Alibaba is grappling with its size. You can buy anything on there, and all its prices are quoted "delivered". But as it is about to be floated on the NYSE it is having to deal with some interesting issues. More from the FT:

Gallium, a silvery liquid at room temperature, is one of the earth’s rarest metals, used in semiconductors, microwave circuits and other advanced electronics.

It also has one other singular application: according to a recent advertisement for the metal on Alibaba, the Chinese ecommerce website: “Gallium stabilises the plutonium.”

Due to its unique bonding properties, gallium is used in the plutonium cores of nuclear bombs, which another advertisement on the same site made clear: “Gallium, used in nuclear weapons.”

Alibaba.com is an ecommerce website belonging to Alibaba Group Holding, the ecommerce company that is to list in New York later this month in what is likely to be the biggest internet initial public offering of all time. But as Alibaba heads to the big time, with an IPO that could value the company at $162bn, the business is having to confront headaches endemic in its model, which involves policing an estimated 11m third-party sellers that use its websites.

The gallium advertisements were placed earlier this year by Litop Non Ferrous Metals, a company based in Guangzhou. At some point in the past four months, both ads appear to have been removed and replaced with less threatening versions. The latest iteration reads: “Gallium: Good price supply!”

3. A 15 year aberration
I have grown to accept that the developing world is catching up with the developed world in terms of wealth and incomes. After all Japan, South Korea and Taiwan, not to mention Hong Kong and Singapore have caught up already (and all have in fact passed New Zealand). China, Brazil, Russia, Mexico, Indonesia et al are on their way along the same path. Or so I thought. But it is not so, says the Economist. The notion of catching up is something that did happen over the past 15 years or so, but the momentum seems to have died out.

They remind us how long it actually took for Japan, South Korea and Taiwan to shift their status, and how important new civil society rules and robust institutions are to that process to take hold.

The past 15 years have changed perceptions regarding just what is possible. But they also deceived people into thinking broad convergence is the natural way of things. It looks like the world is now being reminded that catching up is hard to do, they say. Those last 15 years were an aberration for many aspiring counties.

While the manufacturing sectors of developing economies can quite often come to match the labour productivity of rich-world economies, the distance towards rich-world levels of wealth that an economy can travel simply by developing its manufacturing has been falling. With manufacturing as a proportion of the total economy peaking earlier and at a lower level, emerging economies can now find their catch-up more likely to stall at disappointingly low levels of income.

There could be ways forward for those willing to take them. A new round of global trade liberalisation focused on services could touch off a new wave of globalisation. As industrial employment declines in importance around the world, development increasingly means shifting workers from agriculture into urban service occupations. Expanding the range of services easily traded across borders could enable more developing-economy workers to participate in sectors with rising levels of productivity and wages. But trade in services remains highly restricted.

4. More education = more income
Access to education continues to expand worldwide but the socio-economic divisions between tertiary-educated adults and the rest of society are growing. Governments must do more to ensure that everyone has the same opportunity to a good education early in life, according to a new OECD report.

Basically it shows that more education equals higher incomes. And given the clarity of the data it seems astounding that more people don't go after the benefits. Many do, and many more are however.

In New Zealand a tertiary qualification (that is, any qualification after high school) will get you an income +30% to +50% more than not having it. Those without out it don't seem to be slipping behind, except for women. 

The differences are larger in the US than NZ. But perhaps that just indicates that those without such qualifications are paid so much less.

5. Farmers 1, critics 0
Fonterra is reporting that its production will be up 2% in the coming season, and its already ahead 5% so far. That will be an all-time record. Ditto Australia. The US Department of Agriculture is predicting that this year's harvests of both corn and soybeans in the US will obliterate previous records for both yield per acre and overall production. Record production for crops and animals are being reported in many other countries as well, and prices are falling.

The world is awash in food. Farmers are producing more than we can consume. Malthus' time seems a long way off yet. If fact, his predictions seemed closer in the mid 20 century than they do now.

It's a clear-cut win for modern farming practices, even new techniques like genetically modified crops and animals.

6. The next step
OK, we have talked about 3D printing for a while in this column, but eyes glaze over because it's sort of unrelated to everyday products we use. There are obvious applications in industry for spare parts, and exotic applications like whole house frames. But now comes a very real application: shoes. It turns out Nike is using the technology for customised footwear for athletes, and customised footwear for you (yes, you) could be at your local footwear store soon. And then perhaps you could do it at home.

OLS Systems, the maker of custom, corrective orthotics, is using 3D shoe printing to make orthotic shoes that alleviate a patient’s foot pain and improve comfort. In the process, they are taking the orthotic scanning and prescription process from archaic and sterile to tech-savvy and fashionable. And because the shoes are custom made, patients experience a high level of engagement with the product, while podiatrists enjoy a higher conversion rate at the point-of-sale.

7. This is what we compete with
As the supply of oil grows faster than the demand for it, Americans are paying less for it at the pump. In fact, they are now paying about the same as what they paid in early 2012. The high prices here just reflect the taxes we impose on ourselves, rather than the cost of the product itself. The benefits of fracking are showing up in their cost of living.

8. Is this our future?
This is what happens if you leave the "planners" in charge of the housing market: Stockholm. It might look nice, but socially it's a stunning disaster.

Due to Stockholm’s infamously strict housing market, its citizens are having an incredibly hard time finding an apartment.

There are two main factors underlying this phenomenon. First, the city wait list for a new apartment is now 15 years on average, or 7.7 years in the Greater Stockholm region. Second, Stockholmers live alone. Very alone. In fact, Sweden has the lowest number of persons per household in the OECD, with just 1.99 persons per household, compared to the OECD average of 2.63. And in Stockholm, that numbers is 2.1, almost the lowest for any capital in the world, while the average household size comes in at 41 sq m, on par with other countries.

Stockholm is today one of the few capitals in the world where you cannot simply move to and hope to find a rental. You either have to wait in Stockholm’s official housing line, which has about half a million people ahead of you, or you can wait in one of the co-op lines, which own 28% of rental properties. Yet, if you look to Sweden’s largest co-op, there are exactly zero apartments available in Greater Stockholm.

9. Getting the rules right
An economist, Amit Tyagi, argues that risk weightings should be higher, not lower, during times of housing booms. Makes sense to me. Letting banks set them based on their perception of current (or recent past experience) risk is madness. That's what the RBNZ allows, however.

Moreover, while risk weight is an important macro-prudential lever, it must be used in conjunction with regulators’ other tools. These include mortgage eligibility criteria, such as loan-to-value and loan-to-income ratios, and dynamic provisioning (that is increasing banks’ mandatory loan-loss reserves during housing booms). It is important to calibrate the impact of risk weights on housing-market cycles relative to other measures, not least because excessive and overlapping intervention could itself fuel dangerous cycles.

The reliance of modern banking regulation on risk weighting is nowhere more important than in the mortgage market. If regulators get it wrong, the entire edifice could collapse – yet again. 

10. They get through ...
"Dogs have no money. Isn't that amazing? They're broke their entire lives. But they get through. You know why dogs have no money? No pockets." - Jerry Seinfeld

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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What is Alibaba in 60 seconds from the BBC - http://www.bbc.com/news/business-29149086

Good education = higher incomes .... Thank you David , for pointing out something we all seem to have forgotten , and which the Jewish people have known for over a 1000 years.
Its likely the reason John Key's Jewish refugee mother ensured he finished school  got a degree in business .
Lets face it , education is the only way of eliminating poverty in New Zealand , and we need to start with our children .
New Zealand's state schooling system  has provided to our eldest two ( and is providing to our youngest son )  a world class education , and given them the tools to succeed.
The rest is up to them
This is why I am right behind National and its education policy of ensuring minimum standards are acheived by school kids .
Anything less would be a dissservice to all New Zealanders

Agree Boat man, I am sure you would like to see Free University tuition like a baby boomers generation and perhaps less corporate welfare ?

# 5 - "World awash with food" - what is missing from the volume discussion is the nutritional value/content. Generally as the volume increases, nutrients get diluted i.e. watered down.
Its like buying tomato sauce - the budget brand has more volume/$ but much less tomato content than some other higher priced brands, or even homemade!! 

Strictly speaking not true. There's plenty of wholesome goodness in that corn they manage to grow in the US in between massive droughts. The problem comes at the manufacturing stage when instead of making cornmeal tortillas or polenta the maufacturers turn the maize into corn syrup. 
 
We don't have a food production capacity problem (yet) but we do have a food marketing and distribution problem (big time).
 
As an aside I understand the food safety industry is thinking of phasing out the "best by" date on food because of the wastage it creates. There is nothing wrong with food past its "best by" date - in fact most manufacturers probably put in arbitrary dates because there is no known "best by". Even so every year millions of tons of food are thrown out just because they reach that almost meaningless date.
 
PS do I get prize for being the only one not talking about spies today?

Congrats Kumbel.  The prize is yours.

#7 DC I'd love to see your data proving this.
ie probably incorrect, ie the demand for oil is dropping not NET global supply increasing.
Sure the US is fracking more, (for maybe 2 years) however much of the rest of the world is declining output and using more internally.
So its far more likely we are seeing demand destruction and not supply creation.
 
regards

" The high prices here just reflect the taxes we impose on ourselves"
 
Are you trying to suggest we should remove fuel tax / RUC and make all roads toll roads?  If not what is your alternative solution to pay for the roading network?

Just do as the U.S. and go to concrete for the roads: cheaper than bitumen now, less maintenance, far longer lasting.

I don't follow,  how does using concrete make road building and maintenance cost-free?

Could be bad timing to try and increase Agricultural production into an oversupplied market.
 It pays to check before you double production, if there is demand in the market for double the production, MPI must have missed that class at school.  May have looked good on a $9 payout, on a $4...
 It doesn't look like a 'short term' problem.
 
Extraordinary circumstances
Late last month the European Commission announced a plan to open Private Storage Aid (PSA) to provide emergency market support to dairy products. Last week the commission presented the measure to EU member states and the European Parliament for a vote.
 
"This could buy some time for European countries to find new outlets for their products," says Dorland. "However, it could fall short of providing longer-term price stability because the product will only be taken off the market temporarily." Early next year, the stored product will likely be released into the marketplace, she adds.
 
 

The Wizard of Oz cartoon reminds me of Labour/Green election promises in light of their overstated capital gains tax revenue