8 December 2021. Beef | Peer to peer
In defence of cattle | Why Zopa has pulled out of peer-to-peer lending
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Nicolette Hahn Niman was a vegetarian for 33 years, before she became a cattle rancher. In 2014 she published a book called Defending Beef: the Case for Sustainable Protection. Seven years on from that, she’s just published a substantially revised version of the book—through the eco-publisher Chelsea Green.
It’s a first for Just Two Things to have an article from Modern Farmer, but these are interesting arguments. It’s probably worth saying that this is—from the way it’s described elsewhere—a book that engaged with the issues around beef in a reflective way:
The best thing about my diverse, multi-faceted background is that it really helps me see the complexities of things. I do not view (the issues surrounding beef) as over-simplistic. It’s way more complex than good or bad. I was a vegetarian for 33 years, so I have heard and I have lived all of those arguments about why you shouldn’t eat meat…But at the same time I see the value in animal-based foods.
(Photo: GPA Archive/flickr. Public domain).
One of the things that has happened in the last seven years has been a rapid acceleration of production of plant-based ‘meat’. She’s not a fan, because of the way it is produced:
One of the new parts of the book is an explicit discussion of the alternative meat movement, in which I argue that not only is that not a solution to the problems that are plaguing human health and the food system, but it’s actually more of the same. To me, the problem with our food system is industrialization, and (fake meat is) an industrial food. It’s produced on an agricultural level, industrially, almost universally, and it’s a highly processed food before it gets to your plate.
I facilitated a workshop on the impact of a net zero impact on food systems last month, and the experts in the room were saying similar things—that processed plant-based protein was unlikely to be good for health. (There’s a similar point in the Future of Food Environments report I was involved in earlier this year, though made less explicitly.)
And animals end up helping to regenerate the soils—in qaus for which there are not obvious substitutes:
If you want to have a truly regenerative agricultural system, you have to have the animals. They add an element that cannot be replaced with chemical amendments to the soil. That’s been done for decades and didn’t work. What regenerative agriculture is all about is understanding relationships and connected connections between living things, and trying to foster life. And to me, that is absolutely the direction that farming has to go and whether it’s on a small scale or large scale.
I take the arguments about animals as part of sustainable ans regenerative agriculture system, but I’d have liked to have read more on the methane issues that come with cattle (say, as opposed to sheep) that make them a particular climate change problem.
Looking for that discussion, I found a Guardian article pinned to her Twitter feed where there had been more of a challenge on this.
In her book Defending Beef, Hahn Niman explains how naturalistic cattle grazing adds manure and organic matter to the soil and encourages plants that help draw down carbon. Unlike crops, which are traditionally cultivated by ploughing the soil and releasing carbon, there is a wealth of evidence showing that carefully grazed grasslands sequester carbon.
It’s a bit more complicated then this, though—even carefully managed cattle would reduce their emissions by no more than 60%, and possibly a lot less. But it’s a bit more complicated again: the land that her ranch is on is not suitable for crops, so the cattle help sustain it, and we also know that intensive plough-based farming is a route to soil erosion and increased carbon emissions.
It comes back to the problem of modern agriculture. In the Guardian article Niman quotes the Australian farmer Charles Massy:
“(M)odern agriculture and modern human life we tend to ignore what that functionality looks like – where there should be watercourses, grasslands, forests.” We need to “create agricultural systems that work with the natural land function, rather than just ploughing it and doing whatever we want.”
#2: Why Zopa has pulled out of the peer-to-peer lending market
I gave a talk last week to a group of UK civil servants on horizon scanning, and somewhere in that talk I suggested that when you’re scanning, you’re really only asking three questions about a scan hit:
- Does this confirm something we already know?
- Does this change something we already know?
- Is this something new?
I might come back to that talk here another day, but for the moment this is a long way of saying that when I saw the news that the UK’s largest peer-to-peer lender, Zopa, was getting out of the P2P business, it clearly changed something we already knew.
Because back in the late 2000s, when the emergence of peer-to-peer models seemed to represent a new way of doing business, enabled by the internet, Zopa was the example or the use case that launched a thousand powerpoint slides.
In its own statement to its customers, Zopa blamed bad peer-to-peer lenders and over-stringent regulators for damaging the market:
Sadly, over the last few years, customer trust in P2P investing has been damaged by a small number of businesses whose approach led to material losses for customers investing in those platforms. Linked to this, the changing regulation in the sector has made it challenging to grow and remain commercially viable.
Some of this is true. It’s also the case that Zopa decided a while back to transition to being a bank, and has raised substantial investment against this strategy. Banking-based business models and peer-to-peer business models are like oil and water.
Zopa’s peer-to-peer customers will get their money back—Zopa is buying out all of its peer-to-peer loans at book value. Over the 16 years that it’s been in business as a P2P lender it has offered returns at close to 4%, which is significantly more than a retail saver can get pretty much anywhere else. Default rates by lenders have been low.
(This also speaks to one of the other features of the market; borrowers tended to be from the small and medium enterprise sector, where it’s hard to borrow the small-ish amounts of money that such businesses need, at reasonable rates.)
So having read around the subject a bit, there are a few obvious conclusions.
One: The peer-to-peer sector still exists, and still delivers reasonable returns (several took the opportunity, in one piece I read, to invite Zopa customers to deposit their funds with them).
Two: But it has been damaged by some operators who behaved recklessly and went out of business. One of the iron laws of the finance sector is that when there’s an innovation there’s always someone out there who will exploit it. We saw exactly the same thing in the micro-finance sector in the 2000s.
Three: Because of said operators behaving recklessly, the regulators have imposed regulatory conditions that are probably tighter than the risk/return levels for the sector as a whole justifies. There’s always been a general question in P2P as to whether is trying to encourage it, or trying to kill it off. The P2P sector suggests it shouldn’t be bracketed in with other new investment vehicles, such as crypto currencies, which came up at a recent industry event:
Speakers at the event agreed that the FCA should look at the actual harm that investors face by investing in P2P lending, against what it perceives to be the risks. “There have been high-profile collapses but the loss rates on the whole across the industry are low,” one participant said.“It is important to get a sense of context when deciding what the harm you are looking to mitigate is.”
In turn, this speaks to the role of regulation in enabling or suppressing innovation.
Four: It is clear that the pandemic has reduced the demand for retail savings, and made it harder to raise funds on capital markets. Zopa says that it moved towards a conventional banking model to provide the business with stability. But (see below) it’s a desire for business growth and business returns that is the underlying issue.
Five: Capitalist business models and peer-based business models don’t mix. Zopa has just raised £200+ million of investment funding and plans to float on the London stock exchange next year. Peer-to-peer business models don’t provide the kinds of returns that such investors need to see—and they are a lot harder to scale. There’s a strong reminder here that diversity in ownership models is essential if we want to see diversity in business models.
j2t#223
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