Institutional Adviser was on a break earlier this week, so the usual Wednesday blog was pushed back a day. The break was akin to a corporate, team-building offsite. The difference was that as a company with one employee, the team was me, myself and I.
The reality was that my son was required to do work experience for this week and as my son needs a bit of support, I had the honour of accompanying him on his work placement. From a formal perspective, the employer of the work placement was located on the Isle of Man and their business was farming; less formally it was my sister’s farm! Not that I’m endorsing nepotism, but it did seem a brilliant opportunity to give my son a taste of a few days of work in the countryside. The downside was, however, that I used to spend my university holidays working on the farm so my brother-in-law knew I could be deployed to some – semi-effective – use.
So the corporate offsite entailed gathering sheep over Manx hill land, scrambling through sheep-filled ‘races’ (essentially a series of gates to filter the sheep into a narrow run), dispensing wormer via oral syringes and collecting the wool from newly sheared sheep. This was about as polar opposite an experience relative to my typical daily commute down the stairs to my home office and plonking myself down in front of two screens for the duration of the day.
It did, however, give me a bit of an opportunity for reflection, so to that extent fulfilled one of the often cited objectives of a corporate off-site. In particular, it made me consider the difference between what we often refer to the ‘real economy’ versus the somewhat ethereal world of investment. The tangible nature of the land and the livestock and the produce they create are so often the underpinnings of the companies in which we invest. Yet in the world of finance that tangibility is often forgotten – we think in terms of earnings, cashflow profitability in the abstract rather than the things that lead to those earnings in the first place.
But the market dynamic was certainly illustrated clearly to me in one respect. Many years ago when I worked on the farm one of the summer time jobs was ‘wrapping’ the wool. This would involve taking the newly shorn fleece, pulling a section of it into a thinner strip, folding and wrapping the bulk of the fleece into a ball which would be tied secured by the strip. The end result would be a football-sized ball of wool that would be deposited into a bag, ready for dispatch to market. My experience this year was very different, however. The price today for the wool being shorn is about 30p a kilo and let’s say for the sake of argument one fleece weighs 2 kilos (it can vary significantly by breed). The labour cost is around £1.25 per sheep shorn and then there is a cost to clean and transport the wool. The maths very quickly don’t add up, resulting in the situation I witnessed where the wool was piled up only to be discarded, lost. For the good of their health, the sheep still have to be shorn but what was at one point a profitable by-product now goes to waste.
I suppose it is an illustration of economics at work. The price is driven by supply and demand and that equation is not working in the farmers’ favour. Given the incredible attention given to ESG considerations at the moment, it is frustrating to think that this product could not be put to some other, profitable or at least useful purpose.
Anyway, the first leg of my son’s work experience is complete. Today’s work experience is being spent at a hairdresser’s salon. I did wonder if he could apply his new-found knowledge of sheep shearing beneficial, but perhaps he will be constrained to brushing the floor and making the tea!
