Author: admin heyokha

On a recent trip to Tibet, Heyokha team had the opportunity to see how things are in one of China’s most remote and desolated areas. It turned out reality was quite different from what we were expecting.

Hidden on the highest plateau in the world, Tibet is known as being the home of golden monasteries and imposing mountain ranges. For most visitors Tibet’s attractions will be of a spiritual nature: secluded sceneries, chanting monks in temples and local pilgrims whispering mantras while turning their prayer wheels and prostrating themselves. It is captivating, inspiring and boundlessly photogenetic.

This is what people write about after their travels, what is posted on Instagram and it is also how Tibet is depicted in movies, etc. It is true, Tibet has such a level of piety and faith that it seems to belong to an earlier, almost ancient age. Yet, this is a one-sided view of the region that has shown double digit GDP growth (!) for the past 24 years .

Our own mystic and spiritual view of the country was eagerly satisfied by our Tibetan tour guide, who welcomed each of us with a Khata, the white Tibetan scarf that symbolises purity and compassion. We consumed all of the brochure-promised experiences, until we found ourselves dumbfounded by an otherwise perfectly mundane act. It was the sight of a monk flipping out his smartphone…

We came to realise it kind-of “troubled” us to find the supposedly traditional and spiritual Tibet being ‘polluted’ and made ‘inauthentic’ by such modernity. Of course, we realise such feelings are totally misplaced – after all, who are we to decide that Tibetans are to refrain themselves from the comforts of modern life? But experiencing that brief moment of discomfort – when reality bashes into misconception – is a valuable lesson.

Our reaction highlights that certain narratives perpetuate, even long after reality has changed. Apparently, this is a popular topic among anthropologists, some of whom are of the view that promotional efforts by both governments and the tourist industry capitalise on one-sided histories and imaginaries of countries and places, and thus keep such narratives alive.

As investors are only human, we are certainly not immune to these biased and outdated narratives in our investment decisions. The remedy for this is obviously to go see things for yourself – Heyokha style.

“You know nothing, John Snow…”

Wise words spoken by a barbarian lady to a future King.

One of the things that surprised us the most, is the extent to which Chinese tech companies managed to penetrate such remote area characterised by tradition and spirituality. Here is what caught our attention:

QR Code Stickers

We saw many shops in Tibet accepting Alipay and WeChat Pay, even the shops located in monasteries. Extrapolating from our observation that QR codes have penetrated most corners of Tibet, we think that the penetration across other Chinese rural and suburban areas must be very high as well.

As such, we feel that while online payments still “only” make-up about 20% of all payments in China, it represents not a “work in progress” but rather the population racing to catch up to a technology that is here to stay.

Food delivery apps

With altitude-induced headaches making the thought of leaving our hotel rooms a herculean challenge, food-delivery apps such as Meituan proved to be one of the most useful apps during our stay in Lhasa and Shigatse. Not only did the app give us access to delicious food, it also secured our supply line to much needed painkillers and oxygen cylinders.

With such a strong footprint across the various regions in China and expected growth of China’s online food and grocery delivery market, we will be keeping a close eye on Meituan Dianping’s $ 60bn planned IPO.

Bike sharing apps

2017 was the year of Bike Sharing in China. During our trip, the yellow bikes of bicycle sharing company ofo emerged everywhere, even in Tibet. To see how the company rolled out its operations to such remote areas is very impressive. The bikes are being used by all kinds of people ranging from kinds to grandpa’s and students to monks. Unfortunately, we didn’t dare to try to book and ride the bikes, anticipating further oxygen deficiencies…

Wrapping it up:
Our views will always be shaped by narratives. For us, our Tibet experience confirms that seeing things on the ground is essential in recognising what is usually not being told. While modernity in China may be associated with metropolitan cities like Shanghai and Beijing, it became clear to us that the reach of its tech giants goes all the way into the remote regions, albeit perhaps in part driven by Chinese tourism. With tech manifesting in Indonesia as well, we should not be mistaken to think that the tech revolution in Indonesia will be limited to its major cities.

Admin heyokha

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Recently, both the Indonesian Ministry of Agriculture and the Jakarta office of the US Department of Agriculture (USDA) reported on corn production and harvested area. While the numbers always show some differences due to the use of different methodologies, this time the gap widened significantly.

Corn harvested area 2014-2017: MoA vs. USDA data

Looking at the graph above, USDA data suggests a significantly lower growth of harvested area in the past four years. The gap with the Indonesian government’s data is big. In 2017, the Indoensian government reported 5.5mn ha corn harvested area, while the USDA reported 3.45mn ha. That is a gap of 2.05mn ha!

This highlights the difficulty of obtaining the right data in emerging markets, and leads us to wonder which data is more reliable in this case.

Since it would require a good amount of resources to verify the absolute levels agriculture output, we choose to focus on verifying the change in harvested area.

We believe that USDA data tend to understate the corn area expansion. Here is why.

Sanity check 1: rising farming inputs suggest higher output

Take a look at pesticide sales data, for example. We argued before that pesticides sales by commercial producers should be a fair proxy to indicate production trends in farming activities.

Unlike seed and fertiliser, pesticide is least prone to substitution effects. For example, commercial seed purchases can be substituted by seeds grown by farmers themselves, while commercial fertilisers can be substituted by organic waste.

For pesticides, however, there are hardly any substitutes. Homemade organic pesticides, for example, are barely scalable and too ineffective to save one’s farmland from becoming an all-you-can-eat buffet for insects and pests.

BISI reported +33% CAGR pesticide sales growth in the food crops area growth during the Jokowi agri reform (2014-2017) while its market share and average selling price did not change much. It is a significant acceleration from the 13% CAGR 2011-2014 before the reform kicked in.

Sanity check 2: forestry companies have added sizable intercropping area

Another set of data also indicates that USDA data is too conservative. If we look at data from SOE Forestry company Perhutani 2016 annual report, no less than 118k ha of their forestry area have been allocated for corn intercropping by the local farmers.

Separately, the SOE plantation company PTPN 2 has stated that approximately 73k ha of corn has been intercropped by local farmers in the PTPN’s palm oil areas. Young palm oil trees are not yet productive, thus planting corn as the intercrop makes sense.

The sum of 118k ha from Perhutani and 73k ha from PTPN 2 alone is 191k ha incremental corn harvested area. This is already bigger than the entire increase in corn harvested area from 2015 to 2017 based on USDA data!

Sanity check 3: conversion from other food crops

The increase in corn harvested area also could be explained by the shrinking harvested area of other food crops.

From 2014 to 2017, corn harvested areas have increased by 1.7mn ha. And the expansion is being compensated by other food crop areas shrinking by 0.7mn ha in the same period.

The explanation for the expansion in corn harvested area is mainly economics, as favourable domestic corn price has encouraged farmers to switch to corn farming.
Another reason is that some other crops have yields that are not competitive globally. For instance, Indonesian soybean production yield is only 1.5 ton/ha.

This is less than half of US yield of 3.4 ton/ha using GMO seed. In the end, soybean is more ideal for subtropical countries rather than tropical given that soybean is more drought sensitive relative to corn.

Incremental must be real

In summary, adding corn intercropping from young forest and CPO areas and conversion from other food crops already explains 0.9mn ha out of 1.7mn ha increase in corn harvested area.

The rest could easily be explained by recent village infrastructure build up. New dams, water basins, and better irrigation systems have increased the number of plantings per year.

To sum up, there is no way to know exactly which data is accurate. This gap of 2mn ha is so big that it needs closing. Simple approaches, however, suggest that the actual increase in harvested area should be closer to Indonesian government’s data.

 

 

Admin heyokha

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By Wuddy Warsono

Okay, by now I had fully accepted that I would be spending Chinese New Year’s Eve alone, in my hospital room in New York.

Since this was my first time doing so, I was tempted to read some tips on how to deal with New Year blues. Admittedly, I typed “How do you deal with loneliness on New Year’s Eve?” on Google, but then decided not to proceed. I suspected I would feel even more miserable after reading the tips.

Then, around 6 pm, someone knocked on my door. It was the lady who helps me with the laundry. Earlier today, she asked me if I wanted anything for New Year’s Eve. I told her that – me being Indonesian – nasi and mie goreng would do the trick. She didn’t respond…

Now there she was again. It didn’t take long before a familiar spicy aroma filled the room and gave away what was in her bag; nasi and mie goreng!

I asked her if she would join me for a bit and she gracefully accepted. I am sure her family was waiting for her. Yet, she was willing to spend about half an hour with me, so that I felt better. I tried to pay for the food, but the lady said she was happy to treat me. She declined the money.

Maybe all along I have been too busy, too absorbed by a demanding work schedule, to notice kind acts by strangers around me. Or maybe such kindness is rare. I really don’t know.

What I do know is this: what she did was sweet and generous, especially because she doesn’t know me. The kind act of a stranger is very contagious. I feel like being helpful to people around me, whether I know them or not. I want to “repay” the sincere kindness of this lady.

In other words, she made the world a better place, if only for a little bit, through a simple yet powerful act.

We actively look for the antidote for loneliness in our portfolio
The experience with the laundry lady inspired us and reminds us of what is really important in life. One area that we have been focusing on – and more so in the future – are investable solutions to one of the biggest endemic problems in today’s life: despair over loneliness.

Former Surgeon General Vivek Murthy summarised his experience as a doctor in an article in The Harvard Business Review: “During my years caring for patients, the most common pathology I saw was not heart disease or diabetes; it was loneliness.”

The irony is that despite technological progress and prosperity, more and more people are feeling lonely and alienated. While technology is not the only reason, it is clearly a key driver in feeding this epidemic of loneliness and social isolation. In many places, the urbanisation trend has contributed to forming a generation that is uprooted from their traditional ways.

We have been investing in what we believe are the antidotes for loneliness. One such investment is the Hong Kong based pet supply retailer Whiskers N Paws. This company has created an opportunity to get away from the hustle of Hong Kong’s busy city life and connect with others who share their love for animals.

Despite technological progress, more people are feeling lonely and alienated. Enhancing the richness of the companionship between both humans and animals brings back the sense of community, an antidote for loneliness and despair.

We trust that animals, like dogs, nurture empathy and will do a better job at that than even the most sophisticated AI aiming to simulate it. And empathy, we believe, is the ultimate antidote for loneliness and despair.

We will continue to look for more investment ideas in this area.

Admin heyokha

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Reading The New Case for Gold, we came across one very interesting chapter where the author James Rickards discussed a BBC interview with Andrea Sella, a professor of chemistry at University College London.

Prof Sella provided an in-depth review of the periodic table of the elements to explain why gold, among all the atomic structures in the known universe, is uniquely and ideally suited to be money in the physical world.

We can (rather painfully) recall the periodic table of the elements from high school chemistry class. A total of 118 elements are represented, from hydro-gen (atomic number 1) to ununoctium (# 118). Nothing physical in the known universe that is not made of one of these elements or a molecular combination. If we are looking for money, we will find it here.

Prof Sella quickly dismissed ten elements on the right-hand side of the table, including helium (He), argon (Ar), and neon (Ne). They are all gases at room temperature and would literally float away. Clearly not good as money.

Elements such as mercury (Hg) and bromine (Br) are liquid at room temperature, so they are all out. Arsenic (As) is rejected for a very obvious reason: because not everyone is convinced that money is poison. Turning to the left-hand side of the periodic table, we get twelve alkaline elements. The problem is that they dissolve or explode on contact with water. Saving money for a rainy day is a good idea, but not if the money dissolves when it rains.

The next elements to be discarded are those of Uranium (U), Plutonium (Pu), and Thorium (Th), for the simple reason that they are radioactive. Also included in this group are thirty radioactive ele-ments made only in labs that decompose moments after they are created.

Most other elements are also unsuitable as money. Iron (Fe), copper (Cu), and lead (Pb) don’t make the final cut because they rust or corrode. No one wants money that debases itself, we should leave the debasement business to the central bankers.

Aluminium (Al) is too flimsy and Titanium (Ti) is too hard to smelt. With this process of elimination, there are only eight candidates left for use as money: the noble metals. While all of them are rare, only gold and silver are available in sufficient quan-tities to make a practical money supply. The rest are too rare.

Thus, only two elements, silver and gold, left. Both are scarce but not impossibly rare. Both also have a relatively low melting point and are therefore easy to turn into coins, ingots, and jewellery. Out of these two, silver reacts with minute amounts of sulphur in the air.

Also, gold (Au) has one final attraction: it’s golden. All of the other metals are silvery in co-lour, except copper which turns green when exposed to air.

 

Admin heyokha

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In our 1Q 2017 report, we discussed how tech companies design their products to activate pleasure centres in our brain so that we get hooked. Digital drugs, so to speak.
While we worried about people’s loss of creativity and inability to do “deep work” as a consequence of these addictive and distracting products, it seems much more is at stake. And that is, the wellbeing of our young kids.

Source: https://pulptastic.com/

That is at least the message of a recent thought-provoking article written by Professor of psychology Jean M. Twenge, in which she describes unprecedented shifts in teen behaviour that are coinciding with the proliferation of smartphones (see graphs below for two examples).

In the piece, Twenge writes that it’s not an exaggeration to describe the post-millennial cohort – those born between 1995 and 2012 – as being on the brink of the worst mental health crisis in decades. Much of this deterioration can supposedly be traced to their phones.

Source: The Atlantic

Behaviour is indeed changing at an unprecedented pace and parents are probably as guilty in dealing with the “digital drugs” problem. We’ve disengaged ourselves since we’re too busy looking down at our screens. The painful reality is that we as parents are equally distracted.

In a world where kids are increasingly staying inside their semi-gilded cages and don’t have a proper chance to spread their wings, it is refreshing to share the following pictures from our extensive trip to the remote places of Indonesia.

Partly thanks to limited 3G network in the remote areas, family members are still communicating face to face and kids still have real (as opposed to digital) friends. They can’t just block each other over a disagreement.

The digital era will arrive there sooner or later, but for now, life in the remote areas is a timely reminder of the “good old days” where real contact and real friends bring joy. This is definitely one of Heyokha’s new year resolutions.

Kids in Blitar, East Java, are still playing real games outdoor instead of playing “League of Legends” in their smartphone. (right) Instead of sharing the baby picture on Instagram to harvest “likes”, this mother in Mahakam Ulu in deep Kalimantan forest brought the real baby to see relatives. (left)

Admin heyokha

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In our reports, we have been arguing that one area that’s less prone to digital disruption is the farming sector. In one of our key markets, Indonesia, the digital revolution has actually helped the sector rather than disrupting it.

With farmers having better access to information about prices of rice, corn, and chilli for example, they can maximize their selling price. Also, the agricultural reform of Indonesia’s current government has been running for about two years now. Many initiatives have been undertaken, but communicating these to the farmers is a challenge on its own.

We learned from our many trips across Indonesia that a big majority of the farmers are not really using smartphones. However, better network coverage and a big push in rural Indonesia from Chinese phone makers like OPPO is gradually changing the landscape.

We have witnessed how the Indonesian government has adapted and learned to use social media to broadcast the programs on agricultural reform. One example is the campaign to push a farmer insurance program designed to protect farmers from losses resulting from floods and pests (see add here).

There are anecdotes that this insurance program has been very effective this year since many farm-lands were affected by various kind of pests. The farmer insurance program helps to keep farmers’ planting appetite strong and helps to avoid farmers resorting to loan sharks for a “solution” to their financial woes.

What we would like to stress is that this insurance program is just one of the many components of the Indonesian agricultural reform aimed at improving farmers’ welfare. Except for rising production output and declining poverty levels in villages, new job data from The Central Statistics Agency (BPS) Indonesia also seem to indicate that the farming sector is benefitting.

Shift of workers from agri to service industry slowed down
As yet another indicator of the success of the program, we would like to point out a chart (see below) from Indonesian national labour force survey, Sakernas. The survey suggests that for the first time in a decade, workers’ shift from agriculture to service industry has slowed.

More jobs added in agri than in industry sector
Another chart (see below) from the same institution suggests that, in contrary to common belief, the number of employed workers in the agriculture sector has increased by 1mn in the period from Feb 2016 to Feb 2017. The addition is multiple times the size of addition in the manufacturing sector.

Unemployment rate in villages (=farmers) declined further
Based on data from the Indonesian statistics agency, the unemployment rate in the villages has been on the way down, from 4.35% in Feb 2016 to 4.01% in August 2017. During our trip to the villages, farmers informed us that it is generally difficult to find workers to help them during the harvest time.

We expect the trend of falling unemployment in Indonesian rural areas to continue given that various ministry-level proposals have been made aiming to incentivise people to stay and work in the villages.

No doubt that, reflecting the economic reality in the villages, a vast majority of these proposals will impact the farming area.

As the numbers are hard to argue with, we trust that investors should be more open-minded about the success of the Indonesian agricultural reform.

Admin heyokha

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According to the critics, a decline in terms of trade would indicate that farmers’ economic position is deteriorating and thus that the reform program is ineffective.
While such conclusion might be an intuitive one, it’s not necessarily the right one.

This is because the terms of trade as calculated by the Indonesian Statistics Agency BPS only signals the relative development of input and output prices, but tells nothing about sales quantity and input quality.

As such, it may not say much about farmers’ income either. Let us explain.

Farmers’ output and input price index is calculated based on Laspeyres price index, the formula is as follow:

Qo means the quantity is a constant factor hence increase in crops harvest does not affect the index.

For example, due to larger supply, a year with a good harvest may yield lower average sales prices as compared to the previous year.

This sales price decline would deteriorate the terms of trade. Yet, due to the higher quantity sold, the good harvest is likely to bring in more money for each farmer as compared to a bad harvest sold at higher prices due to shortage of supply.

Also, the terms of trade measure says nothing about the quality of the inputs. For example, the adoption of higher quality inputs – such as the more expensive, but higher yielding hybrid seeds – may increase input costs.

This would deteriorate the terms of trade. Yet, the higher production yields following the use of these higher quality inputs are not captured in the terms of trade calculation.
We believe the efforts made by the government are primarily aimed at improving the three drivers of production: the surface used for agriculture, yields per hectare and the number of plantings per year.

The terms of trade captures exactly none of these drivers. As such, we may quickly dismiss the usage of terms of trade as a suitable measure to assess the effectiveness of the government reform efforts in the agricultural sector.

BPS and The Indonesian Center for Agricultural Socio Economic and Policy Studies are fully aware that this metric does not measure farmer’s income and they are taking steps to improve the methodology to account for this.

Admin heyokha

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