Tourism - An Industry Perspective

Tourism is an industry about sharing, sharing experience - culture, history, nature, each other, tourism is all fun all of the time. It is often asserted that WW2 saved the economy, brought the world out of  a depression - if that's true, it should the tourism industry's mission to effect prosperity through happy human exchange. 

To some degree it is the case that tourism is generating prosperity, tourism's "multiplier effect" is better than most industries. Tourism has a good capital invested versus revenue generated ratio relative to other industries - good margins. Tourism has an excellent environmental footprint versus revenue generated ratio, in the main tourism's environmental foot print is light or rides on whats in place anyway - by way of example - the transportation network is there anyway.  Tourism holds as a priority the athletics of its operating area, in British Columbia, it has been the tourism industry that has lobbied for visual quality maintenance  and enhancement along major transpiration corridors for example.   

The tourism industry spans camping at one end of the use continuum and 5 star resorts at the other, the common theme throughout is people. People and expectations, meet expectations - people have what they expected, exceed expectations - people are pleased. The definition of excellence is as diverse as the people people involved, this is both the challenge and the interest of the business. The key in to success in the tourism is an intimate - in-depth understanding of your patrons. In provisioning opportunity for enjoyment, it almost becomes necessary to know the patron better than they know themselves. People live with ostensible interests, the ones that market them socially and then they have their real wants, needs and desires. It is the marrying of the ostensible with the underlying interests, while ensuring expectations are met, that finds success. 

         

My background in tourism stems from operating a fly fishing resort for a number of years, the resort was remotely located, fly in or horse in only. The largest number of guests was 20, but rarely did we exceed 12 people, the day rate was $200 / day plus transportation, normally helicopter. It was a highly personalized environment, one came to know the guests - this was a unique industry circumstance in that many guests came for years. The ostensible rationale for attending the resort was fly fishing, and there where some fly fishing fanatics to be sure, where I witnessed the most joy however, was at the dinner table or visiting at the lodge. For the most part, the joy emanated from a fresh social environment, the unique coalescence of as social opportunity absent history or baggage and a socioeconomic natural zone - it really gives people the opportunity to be the best version of themselves. The point of the discourse is that the underlying interests where more important than the ostensible interest for coming, this was particularly true in this operations case, as this fishing resort was atypical in that a large number of our patrons were women. An effort to engineer a group of people to facilitate fulfilling exchange was, as important, perhaps more important, than people having the opportunity to catch fish. 

In life, people have needs, wants and desires, in tourism people have wants and desires - see to them and success will come.  

As tourism is a business about people, it is, like no other, a marketing dependent business - unless you've established a clientele. A start up tourism enterprise requires a large marketing budget, and in a normal tourism offering with flux and change in clientele, maintenance marketing efforts need to be as high as 10% of gross revenues. In pursuing marketing venues or avenues, vertical efforts nearly always out perform non-specific or horizontal venues - this industry likes targeted efforts. The goal of course is to establish a steady group of patrons that share the love of the experience offered, that happens readily in some operating circumstances. 

In Canada, we have seasonality that affects our offerings, likely in a larger degree than other jurisdictions. The challenge we face in the industry is to ensure complete asset utilization - destination resorts often see assets at or near idle for half the year. The key then is to seek means by which to build out usage into the shoulder seasons and off seasons. In designing a business approach to tourism, one needs to be cognisant that the excellent margins in the business can be challenged by overhead and plan accordingly. 

I've always been a believer in essentials, invest in essentials because people always need them, the tourism industry has challenged that thesis - even in economic downturns, people need fun and seek it out. There are instances where the utilization generally migrates to areas of less compensatory requirement, but if you positioned yourself in the right space you can skirt this as well. 

The tourism industry is a exciting space, people pursuing their passions, escape, adventure - it is all people all of the time - you just have to get to know them.     

Agriculture - An Industry Perspective

Agriculture offers a complex management challenge, it is the harnessing and enhancement of natural systems; natural systems and all their complexity. Business and the bucolic ideals of rural life find both harmony and conflict in the modern agricultural complex, where agro enterprise is gradually usurping the family farm. One laments the de-ruralisation of Canadian society, as with it goes more than just the bucolic ideals of farm life, with it goes the agrarian culture that made Canada a place of compassion, independence and community.

Agriculture now, more than ever, has as its stock and trade commodities. Commodities have a market characteristic of having a trading price that hovers at or near the average cost of production, in this environment success and failure occurs at the margins. Efficiency is found in an agro enterprise that is at the optimum scale, to ensure full asset utilization, to ensure sufficient mass to access the technologies that come into play in the modern agro space and to have sufficient product volume to access the full array of financial management tools, so one can step away from being the speculator and focus on production.

There is opportunity now to occupy more and more of the supply chain given the panoply of technologies available, the business of agriculture no longer has to stop at the farm gate. As is exemplified by most of the livestock industry, as margins become compressed as the industry matured participation extend along the supply chain.  To be effective in extending participation along the full supply chain, from the field to the consumer, sufficient scale to have a presence in the market for the end product is required. For those who venture in to this space successfully they are supported by every trend in the modern food consumption matrix. People today want to know where their food is coming from and whats in it - the key here is to have the consumer pay a little extra as opposed to a lot and as the producer enjoy the profit garnered from every stage in the supply chain.   

It is critical to examine the land base as more than a farm or ranch, it is critical explore it opportunity across industries. Companion enterprise opportunities abound, and they add more than just revenue, they add human resource actuation that is synergistic and beyond what agriculture alone can offer. By way of example - a cabin on one acre of land can net $3000 dollars annually, that exceeds cropping opportunities by a considerable margin. The Poundmaker ethanol plant has been very successful in exploiting the synergies that arise from the proximal location of an ethanol plant to a large feedlot. Ethanol plants as stand alone entities are very marginal, feedlots as a stand alone entity are marginal - as companion enterprises they can become profitable.

See link below for land purchase assessment and market opportunities 

http://nthomson2.blogspot.ca/2014/03/the-right-time-of-rural-land-in-bcs.html

The dominate trend in agriculture is the burgeoning emerging economies and the capacity for them to generate a expanded middle class - people are going to eat more and better foods. The question then becomes, how can a specific operation access the benefits inherent in that trend. The challenge here is sufficient product mass to address export opportunity, much of the government's thrust in the integration of the supply chain has been for the domestic market - policy has been developed with the market garden mentality. The key here is to generate enough product mass to generate interest in any given market channel - the key here is scale scale scale. One needs to contemplate the product spectrum, assess a given landbase's capacity to produce a given product, determine the product mass required to effectively access a market and build the business model to suite. For this to occur one needs to free thinking from an existing landbase's dimensions and operating conventions.

  

In general today, the scientific expertise - agronomists, veterinarians, animal scientists etc.- are detached from the production process, it is rare for an operation to be of sufficient size to hold this talent in house. Much of the operational intelligence at play in agriculture comes from government extension programs. The the challenge that arises is acre by acre site specific data that informs the management process. How many operations have accurate enough yield versus input data to calculate accurately the marginal benefit of excelled use of one input or another. The calculations are simple enough, the challenge is getting the source data specific to a given operation. There is detailed work to be done to determine yield volumes vis a vis a given variable - variety, fertilizer application, water application etc.- yet farm specific data is lacking. By way of example, fertilizer recommendations are often regional, when there are variances in requirement at the field level. When operating in an environment affected by the realities of  commodities for an extended period of time - generations in some cases - investment in truly understanding your immediate circumstances can pay massive dividends, as small returns are compounded over a long operating horizon.

Applied technology today offers much opportunity, there is a massive amount of latent marginal benefit to be garnered by the application of technology - in today's environment its hard to know what is there functioning and its potential, and its even more difficult to be innovative in applying emerging and desperate technologies to optimize a given operation. You know as you read this that opportunities are passing you by, you are just unable to process the mass of information to find them - it is the corundum of the known unknowns. 

The future of agriculture is bright, people have to eat, there are going to be more and wealthier people - the key is to look at the horizon, pick the trends that suite your circumstance and build the business model to suite - of course I would love to help. 

    

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The Right Time for Rural Land in BC's Interior

There are always junctures that provision an entry point to a market, it maybe that in British Columbia Agricultural land is at that point. There is a large inventory of substantive properties available, this large inventory has suppressed price of late – under 1 % per annum increase in the price since 2008. This flattening of the curve, seemingly at its nadir, has taken place with interest rates at an all-time low. There is a matrix of influencing factors that affects land prices, the ability to buy land and the ability to support that purchase ultimately are the key determinants in price setting.

Agricultural Lands in British Columbia have prices far beyond the ability of agriculture to support, agriculture land quality or capacity affects prices, but in no way accounts for the full value or the floor on land value. In British Columbia only 2.5 percent of the province is arable land, 95% of the province is crown land, couple these realities with the Canadian / Western cultural inclination to want to own land and one realizes that British Columbia ought to be exceeding the national average.

The matrix below indicates the degree to which BC has lagged the balance of the country in property price increases.  

Data - Farm Credit Corp.

The graph below indicates how little agricultural activity affects land prices; only when the orange line is below 1 are fundamental farm factors supporting price, if that is true of US crop land it is likely to be true of BC as well, perhaps more so given this graph focuses on cropping land. 

 Data - USDA

The challenge we face in BC is in having agricultural properties being self-supporting entities. Various farm types are more affected than others, note Beef Cattle operations in the matrix below – it has historically been the case that cattle have failed to carry land ownership cost or to withstand opportunity cost assessment.

Data - Farm Credit Corp.

Presently, throughout the province there is a large inventory of Ranch properties and prices are remaining flat, even, as stated above, in the face of low interest rates.  Throughout the interior, the predominate agricultural activity is ranching and ranching is presently enjoying a relatively good period – improved cattle prices and low interest rates, so one may deduct that the agricultural activity on ranches is less influencing on price than is ancillary factors (as supported by the USDA graph above & FCC quote below). There has been a long evolution in the lumber industry that has reduced labour requirement, thus, stifling local economies, add to that the violent correction in the US housing market (mitigated to some degree by exports to the Chinese market) and the interior has had slow growth for an extended period of time.

“Farm Credit - Agricultural Land Value Report October 2010 - British Columbia was the only province to see a decrease in farmland values by an average of 0.9 per cent over the first six months of 2010. Values were unchanged in the previous reporting period and decreased 0.7 per cent in the first half of 2009.In the first six months of 2010, economic factors largely external to agriculture had the greatest influence on farmland values. Economic uncertainty and the high Canadian dollar hindered investment in many sectors. This, in turn, led to lower demand for land and less expansion of existing operations. Overall, the B.C. land market was relatively flat during the first six months of 2010, with slight decreases in the Abbotsford, Clinton and Cloverdale regions. Sales of land for agriculture purposes were limited in some areas of the province.”

It is the sense of the writer that the US housing market will show mild improvement until about 2018 and at that point it should move into a long and strong growth pattern. This prediction is based on the belief that there was a confluence of cycle ends – major economic cycle, business cycle and technology cycle and well as, the resulting the commodity supper cycle correction or slowing – all of which collided with a grotesques financial deepening to create the down turn in 2008 – the real world economic cycles are now, one by one, running their course. One would anticipate that the inverse of 2008 will be true in 2018 – this thesis is shored up to some degree by severe downturns, 1930 etc., normally taking a decade to recover from.

It seems a prudent time to build an inventory of agricultural land, the inventory of ranches for sale is high, there have been recent sales that have effected downward pressure on the market. Anecdotally, one is noticing a larger number of price reductions occurring on listed properties. So with a large inventory and market picture with positive characteristics; the question then remains, which properties  are best positioned to garner increased value.

It has been established quite clearly that agricultural actives, particularly cattle ranching, are a means by which to maintain lands functionality but offer little support to ownership. One then considers ancillary attributes in the selection criteria; proximity to urban centers, timber assets, tourism attributes, companion enterprise opportunities - attributes that can build returns on the land. There are many such properties available now, one needs only to develop operations that carry the land assets with respect to fair returns and the land appreciation is a clear capital gain.  If one observes the first graph for the period starting 2001 through to 2006 exceptional gains were made; there is every reason to believe that we are approaching a similar cycle – starting in and around 2018.

FCC 2013 Land Value Report

FCC - Historical Land Prices

Real Estate - Agriculture Works

Supply Management Reform – Dairy Industry - Conference Board of Canada

Supply Management Reform – Dairy Industry - Conference Board of Canada

It is clear that in Canada the supply management system needs to be reformed, specific to dairy, the interests embedded in the present regulatory modality of conduct are retarding the industry's growth. As an individual who wants to enter the industry at a scale and at a pace that is practical, as an individual who attempted to seek the support of the present industry complex to engage in business and was in effect rebuked for my efforts, there is no one more enthusiastic to see reform here. I believe there is a viable place on the WORLD stage for the Canadian Dairy industry; the question is “how to shed the baggage of the present supply management system”. This posting is in response to the Conference Board of Canada’s Report – REFORMING DAIRY SUPPLY MANAGEMENT, THE CASE FOR GROWTH. This is an outstanding work and warrants study by anyone who wants to see the Canadian Dairy industry removed from the constraints of the past.

CLICK HERE FOR MY PROFESSIONAL WEBSITE

 The report does an excellent job of quantifying the industry and the cost of supply management. It understates or, to some degree, neglects to stress the mass of capital that is sitting latent at a market value of 23 billion dollars; the cost of quota ownership zaps the industry of vital resources. The report shows the 600 million dollars or so each year that it costs farmers to finance quota, it fails to project where farmers would be if they had those resources deployed toward production rather than licensing.
 Also absent was a quantification of the regulatory overhead the industry now carries, other industries are absent Boards to manage them, and the market manages itself. The incremental increase in the product of $260 per family per year would be more tolerable if farmers were getting it, but much of it flows to the administrative aspects of the regulatory process.

 The new industry vision is a welcome expression of a brave and viable way forward with a strong argument to support it. There is no doubt that the present state of the industry and the regulatory regime is affected and stunted, both domestically and internationally. I personally attempted to start a dairy-related business that in no way diminished incumbents in the industry, was innovative and at scale and would eventually integrate with the present system – it was met with near-violent opposition.
 The present industry quota value of $23 billion is massive, yet the report suggested that we buy the industry out at approximately $5 billion. One understands the rationale presented in the report, the vintage of the quota affects the cost or benefit of ownership; the fact remains, however, that any dairy farmer now in possession of the quota can sell it for fair market value – to institute a transition strategy that deviates from fair market value is going to meet resistance from the industry regardless of whether one can pencil out a justification. The challenge is that Quota is viewed as an asset with a market value, and producers, if not reimbursed at FMV, will be in a position of loss relative to the status quo. One can make the argument and demonstrate a relative advantage to one producer over the other; however, you are saying to the industry with a quota valued at 23 billion that the buyout is 5 billion - it is a hard sell.

 The quota system was developed by the government, and it generated a quota that had value at issuance as much as later. The presence of value is substantiated both by the rationale for creating quota and by the subsequent valuation that evolved via government-sanctioned and created exchanges. The report states, “And the policy can be justified because, as a matter of law, new entrants were required to buy quota as a condition of entry into the business whereas the initial quota allocation was issued at no cost." This approach takes the position that farmers should not need to realize a capital gain on their quota asset funded by taxpayers or consumers.” This is analogous to the government asserting that because a family has had land since it was homesteaded or granted by the government, then it should be valued less upon expropriation than a family's land that was purchased shortly after. The key consideration here is that the government defined and permitted the quota system to evolve, and the value of the quota was a product of government intervention in the marketplace. The government chose to effect a subsidy, and the license to garner that subsidy had and has value. The transition needs to be equitable Yes, the math does count, but it must be just as well. It is unfair that consumers have subsidized approximately $260 / household/year – the government intervention in the market generated this unfairness. It would be unfair also to take from farmers an asset that has been held and sustained at the cost of opportunities foregone. 

The transition needs to be as rapid as possible, and the government will have to pay. The farmers should receive the FMV for the quota over ten years, said rights transferable by sale.  The government can finance this transition from debt, and the increase in production and expansion of industrial activities via the export markets will likely go a long way to paying the bill over the buyout period – it surely will over time.