The Cost of Tighter Euro­pean Bor­der Se­cu­rity

Bloomberg Businessweek (North America) - - Global Economics -

Per­ma­nent con­trols would de­stroy the busi­ness model of Ger­man in­dus­try, says Rainer Hunds­dör­fer, chief ex­ec­u­tive of­fi­cer of Ebm-papst. It’s es­sen­tial to move parts quickly from one fac­tory to an­other (page 24). “That’s why the trucks go non­stop,” he says. “They come here, they un­load, they load, and off they go.” Based in Mulfin­gen in cen­tral Ger­many, his com­pany has fac­to­ries in the Czech Repub­lic, Hun­gary, and Slo­vakia. The parts Unc­zorg is car­ry­ing orig­i­nated in Tapolca and Celldömölk, Hun­gary, and trav­eled more than 800 kilo­me­ters (500 miles) be­fore be­ing off­loaded in Mulfin­gen for fur­ther man­u­fac­tur­ing. Whether con­trols are here to stay de­pends on mi­grant flows. Ger­man Fed­eral Min­is­ter of the In­te­rior Thomas de Maiz­ière said ear­lier in April that his country may end pass­port mon­i­tor­ing on the Aus­trian bor­der by May 12 if the num­ber of refugees try­ing to cross re­mains low. But Aus­tria is con­sid­er­ing new checks on the Bren­ner Pass route, a cru­cial high­way link with north­ern Italy. Thou­sands of mi­grants are ex­pected to cross the Mediter­ranean to Italy alone, es­pe­cially from Libya, in com­ing months, Ital­ian of­fi­cials say. On April 13, Euro­pean Union Pres­i­dent Don­ald Tusk told the Euro­pean Par­lia­ment in Stras­bourg, France, that the EU would be “un­able to pre­vent po­lit­i­cal catas­tro­phes” if it failed to stem ir­reg­u­lar mi­gra­tion or re­store au­thor­ity over mi­gra­tion pol­icy. “Here I mean the col­lapse of Schen­gen, loss of con­trol over our ex­ter­nal borders with all its im­pli­ca­tions for our se­cu­rity, po­lit­i­cal chaos in the EU, a wide­spread feel­ing of in­se­cu­rity, and ul­ti­mately the tri­umph of pop­ulism and ex­trem­ism,” he said.

At the Aus­tria-ger­many check­point where Unc­zorg is stuck, a line of trucks stretches back some 6 kilo­me­ters, ex­haust fumes mix­ing with the stench of ma­nure spread on nearby fields. Un­der a big white can­vas tent, four po­lice of­fi­cers search a large gray van. Two are armed with ma­chine guns in ad­di­tion to their ser­vice pis­tols, un­der or­ders is­sued fol­low­ing the ter­ror at­tacks in Brus­sels. “You have no idea how many ways I’ve seen the smug­glers hide peo­ple,” says Karsten Eber­hardt, a Ger­man po­lice com­mis­sioner. “If you carve out a hol­low space un­der the seat and put a board in front, you can hide a pretty large per­son.”

Michala Mar­cussen, chief econ­o­mist at So­ciété Générale in Paris, says the po­lit­i­cal cost of Schen­gen’s col­lapse would be as dra­matic as the eco­nomic fall­out. “We’ve just been through the euro cri­sis and re­build­ing in­sti­tu­tions,” she says. “It’s bet­ter to fix Schen­gen, as it shows the

Pro­jected value of gross do­mes­tic prod­uct lost from 2016 to 2025, as­sum­ing new bor­der con­trols raise im­port prices on in­tra-euro­pean trade by 1 per­cent in EU mem­ber states* U.K. € 87b France € 81b Ger­many € 77b Italy € 49b Spain € 46b Poland € 18b Aus­tria € 14b

ca­pac­ity to do things. That would give peo­ple con­fi­dence we could deal with shocks in the fu­ture.” � John Fol­lain, Carolynn Look, and Matthew Camp­bell, with Si­mon Kennedy and Jones Hay­den

The bot­tom line Bor­der-free move­ment, which has done more than any other ini­tia­tive to unify Europe, is be­ing con­strained by the refugee cri­sis.

con­cerns. “If we open th­ese com­pounds, lower-qual­ity peo­ple would come in and steal the flow­ers and throw garbage all over the place,” she says. “And if cars come through the gar­den, they’ll be honk­ing their horns all the time. It will to­tally dis­turb the peace.” �Bloomberg News

The bot­tom line China’s gated suburbs are be­ing threat­ened by an ur­ban­iza­tion plan to in­crease pop­u­la­tion den­sity and re­duce traf­fic and smog.

com­pet­i­tive, and the U.S. may fall to third place among wheat ex­porters this year, be­hind Rus­sia and Canada. In 2014, the U.S. was the No. 1 ex­porter. Wheat-sown acreage in the U.S. has fallen steadily for decades. Over time, that’s given U.S. wheat less sway over global mar­kets. The re­sult is a changed land­scape for farm­ers like Pen­ner—an ex-pres­i­dent of the Na­tional As­so­ci­a­tion of Wheat Grow­ers who this year plans to plant as much corn as wheat. “Peo­ple are vot­ing with their pock­et­books,” says Pen­ner, whose 660 acres are about 50 miles north of Wi­chita. In the 1970s, 90 per­cent of what he planted was wheat. “Our prod­uct re­mains very high­qual­ity, but tech­nol­ogy has im­proved for corn and soy­beans. When you look at where you can make money, wheat is a less at­trac­tive choice.”

U.S. wheat ex­ports are pro­jected to drop 9.3 per­cent this year, to 21.1 mil­lion met­ric tons, in the sea­son end­ing May 31. That’s the low­est since 1972, govern­ment data show. Stored do­mes­tic wheat, at a five-year high, dis­cour­ages plant­ing. Acreage for win­ter wheat fell to the sec­ond-low­est since 1913, ac­cord­ing to the Agri­cul­ture De­part­ment.

Ukraine and Rus­sia’s Black Sea re­gion boast some of the best land for wheat. Czarist Rus­sia was the world’s top ship­per. By 1972, how­ever, wheat pro­duc­tion had fallen so far be­cause of com­mu­nist mis­man­age­ment that the Soviet Union had to buy from Amer­ica.

To­day, Rus­sia is again the No. 1 ex­porter, while Ukraine is in fifth place. They’re swal­low­ing the Mid­dle East­ern mar­kets, once Amer­i­can wheat’s top des­ti­na­tion. The weather in Canada, the sec­ond-big­gest ex­porter, has got­ten warmer, re­sult­ing in longer grow­ing sea­sons and bumper crops. Ar­gentina, Aus­tralia, France, Ger­many, Kaza­khstan, and play­ers in East­ern Europe are step­ping up ship­ments.

The re­sult is an end to clear U.S. lead­er­ship in global mar­kets, says Alan Tracy, pres­i­dent of U.S. Wheat As­so­ci­ates, the in­dus­try’s ex­port pro­mo­tion arm. “We’re no longer go­ing to lead in vol­ume ev­ery year,” he says. “The sav­ing grace for us is that to­tal global wheat trade has in­creased, and we can still sell plenty of what our farm­ers pro­duce.”

Wheat lost some of its ap­peal for U.S. farm­ers be­cause the grain has missed out on both the biotech and bio­fu­els rev­o­lu­tions that have made corn and soy­beans the pre­em­i­nent crops. From 1990, the last time wheat acreage topped corn, to this year’s fore­cast crop, wheat plant­ings fell 36 per­cent, to 49.6 mil­lion acres. Corn rose 26 per­cent, to 93.6 mil­lion acres, and soy­beans in­creased 42 per­cent, to 82.2 mil­lion acres.

Al­most all corn and soy in the U.S. since the late 1990s has been ge­net­i­cally mod­i­fied (GM) to bet­ter com­bat pests and weather stress. The re­sult is a boost in yields (bushels per acre) and prof­its. GM crops need less wa­ter, ex­pand­ing the range for wheat’s ri­vals to drier re­gions in the North and West.

Wheat can be ge­net­i­cally mod­i­fied, too. But con­sumers don’t want to eat sta­ples such as bread that are based on ge­net­i­cally mod­i­fied or­gan­isms (GMOS), and biotech wheat hasn’t been ap­proved for com­mer­cial sale any­where in the world. That ban has pre­vented con­tro­versy but has also kept yields stag­nant. “The wheat in­dus­try never wanted GMOS, be­cause they wor­ried about how con­sumers would re­act,” says Allen Feather­stone, an agri­cul­tural econ­o­mist at Kansas State Univer­sity in Man­hat­tan. “You can see over time how it made farm­ers turn to other crops.”

Qual­ity U.S. wheat still com­mands a dol­lar a bushel more than ri­val wheat. “We’re not sell­ing a com­mod­ity so much as we’re sell­ing an in­gre­di­ent” that bakes bet­ter in cook­ies, cakes, and high-qual­ity breads, says U.S. Wheat As­so­ci­ates’ Tracy.

While GMO adop­tion re­mains

Acreage planted in the U.S. Soy­beans First ge­net­i­cally mod­i­fied corn and soy­beans planted in the U.S. Wheat Rus­sia be­comes a net ex­porter of wheat

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