After 12 years of profiting from the energy and agriculture markets, I resigned my position as a hedge fund portfolio manager last year. Now, as the founder of Sustainable America, I devote a material portion of my time and net worth to helping make our nation’s food and fuel systems more resilient. We do this by trying to get the country to use less oil and grow more food.
Part of my trading “edge” over competitors was that I realized our nation’s food and fuel systems were inextricably linked and I could arbitrage distortions between them. When corn prices were too low and gasoline prices too high, I would buy future ethanol deliveries while selling short gasoline. This link between the sectors was great for generating trading profits, but it also revealed their interconnected vulnerability. Disruptions in the oil market can create shortages in the global food market because of the increased cost of transporting food long distances. Drought in grain belts can drive gasoline prices higher because of demand for corn-based ethanol.
My timing may seem questionable. The link between energy and food looks like it’s about to weaken. The EPA has proposed scaling back the ethanol mandate from 14.4 billion to 13 billion gallons for 2014. This ruling could loosen the grain markets.
Although we are not yet suffering a food or fuel crisis, this is exactly the right time to proactively strengthen these sectors. Being reactive in our national food and fuel systems could be catastrophic. Hurricane Sandy was a wake-up call as to how vulnerable our oil system is. New York, Connecticut, and New Jersey suffered gasoline shortages within days of the storm. The current drought in California, where almost half of our nation’s fruits, vegetables, and nuts are grown, reminds us how vulnerable the supply of food that people actually eat can be. And according to reports, like yesterday’s news from the Intergovernmental Panel on Climate Change, climate change is going to pose an increasing threat to food security around the world.
Individual behavioral changes, like turning off our engines instead of idling, buying hybrid cars, supporting local food sources, or composting are critical to building sustainable fuel and food systems. Thankfully, many of the changes necessary to avoid crisis are also simply the right things to do. Using less oil lowers pollution. Sustainable agriculture practices conserve scarce water resources and reduce the environmental impact of fertilizers and pesticides. Recycling, once a novel practice embraced on the fringe, is now a matter of fact in modern life. We need to accomplish the same mind shift around food and fuel issues: Conserve fuel, take public transportation, buy local, waste less food.
Although I have left the private sector to work in the nonprofit sector, I believe that private sector investments are also needed to accomplish these goals. Business creates tangible, positive change in America. In addition to creating jobs, businesses bring new technologies to market that let consumers choose more sustainable products. But after a wave of unsuccessful investments last decade, there is a troubling dearth of private capital available to the next generation of sustainability-minded entrepreneurs. Few successes and many recent public market flops make venture capitalists fear that clean energy and sustainable agriculture investments are dead money. They have largely moved on to more fashionable investing in social media or mobile technology.
Sustainable America is part of a new wave of nonprofits that support entrepreneurship as a core part of our mission. We are filling a gap in the capital markets by getting money, contacts, and experience to socially responsible entrepreneurs who might otherwise have quit trying. Rather than making grants to other nonprofits, we make angel investments in start-up companies that can bring innovation to market. This is the cutting edge of impact investing, and I urge other nonprofits spend time and money making catalytic investments that can help them achieve their own missions.
A career spent researching and analyzing the energy and food sectors revealed to me a system that needed to be improved. Now, instead of just profiting from the movements of those markets, I’m in a position to try to do something about it. As a trader, I was brutally realistic. Now I am idealistic. I believe our future is a sustainable America.
Nick Tiller
Founder, Sustainable America
