" I heard it through the AgLine"

July 27, 2011

 

 

·        Government hoarding causing food price surge

·        Films may help growers adapt to new fungicides

·        Allegations fly over California pesticide policy

·        Pakistanis planting trees to slow desert advance  

·        GPS rights raise big-spectrum issues

 

 

Government hoarding causing food price surge

 

(Bloomberg) – Cargill Inc. Chief Executive Officer Greg Page, who runs the largest agricultural company in the U.S., has a good idea whom to blame for the global surge in food prices at the end of 2010: governments.

 

Page urged 708 delegates and guests at the National Grain and Feed Association convention in San Diego in March to take action, Bloomberg Markets magazine reports in its September issue. He said government hoarding was the biggest contributor to the rise in prices, which had soared 15 percent from October through January and pushed 44 million people into poverty, according to the World Bank.

 

“Ill-timed, ill planned and really a beggar-thy-neighbor strategy,” Page, 59, said of moves by Russia and others to ban grain exports as droughts and floods helped send stockpiles to their lowest levels in two generations.

 

Page warned that further disruptions might ratchet up costs so much that governments would jump in with more regulations -- not only on grain shipments but also on energy, trade and financial markets. Such moves could discourage investing in agriculture and hurt the poor.

 

“We have to make sure lawmakers share our understanding,” he said, imploring the executives to increase their lobbying to keep government hands off agricultural markets.

 

Private Sector

 

Cargill is a big fan of the private sector -- and of privacy, period. Founded in 1865 by William Cargill, son of a Scottish sea captain, the agricultural-commodities giant is in its seventh generation of family ownership, a record unmatched by any other major U.S. firm.

 

About 100 descendants of William Cargill control the company, which is based amid the mansions and lakes of Minneapolis suburb Wayzata, Minnesota. Shareholder equity -- the difference between assets and liabilities on Cargill’s balance sheet -- almost doubled to $29.5 billion during the 4 ½ years that ended in November and included the worst U.S. recession in seven decades.

 

Including its Mosaic Co. (MOS) fertilizer unit, Cargill’s revenue jumped 15 percent to $91.8 billion in the nine months that ended in February, the month before Page called for anti-intervention lobbying. Profit in the period almost doubled to $3.5 billion from a year earlier as food prices peaked.

 

‘They Are the Chain’

 

Through the planet’s food anxiety, Cargill has kept its name out of the public eye. There are no Cargill-branded products in supermarkets, and executives seldom speak with the press.

 

Yet, Cargill has a huge hand in feeding the world. With 131,000 employees, it runs one of the country’s largest operations for converting corn into biofuels, as well as food for people and animals. It’s the No. 1 U.S. salt marketer and a top buyer and seller of cocoa and sugar. The No. 2 U.S. beef producer, Cargill can slice a cow 431 ways and fashion precise cuts so Wal-Mart Stores Inc. (WMT) doesn’t have to hire a butcher for every one of its shops.

 

“Cargill sells seed and chemicals to farmers, buys their grain, transports it to Cargill feedlots, kills the cattle and sells the beef,” says Dan Basse, president of Chicago-based research firm AgResource Co.

 

“They’re not part of the food chain; they are the chain.”

 

Whitney MacMillan, 81, one of seven Cargill billionaires and a former CEO of the company, is among the biggest advocates for staying private, says C. Daniel Clemente. A Virginia lawyer, Clemente advised family members on governance for 11 years through 2005 and still speaks with James Cargill II, the founder’s great-grandson. The marriage of MacMillan’s grandfather and William Cargill’s daughter, Edna, in 1895 merged the families and initiated joint control of the business.

 

Family Dilemma

 

The Cargills and MacMillans faced a family-control dilemma when the biggest shareholder, 85-year-old matriarch Margaret Cargill, died in 2006.

 

MacMillan and other elders opposed selling Margaret’s 17.5 percent stake to fulfill her philanthropic wishes, people familiar with the situation say. The opponents worried that once her shares hit the market, younger family members would support a public offering of the whole company, the people say.

 

Cargill instead shed its 64 percent stake in Mosaic, North America’s No. 2 fertilizer company. The split-off satisfied two sets of interests. Because Mosaic’s market value had surged to $30.5 billion in May from $6.1 billion when Margaret died, her trustees accepted the increasingly valuable Mosaic stock in exchange for her Cargill stake. The move also defused potential support for an IPO by raising cash for family shareholders.

 

Respect, Not Passion

 

Family members and Margaret’s estate received Mosaic shares worth $11.7 billion in a May 25, 2011, distribution designed to meet tax-free requirements. Cargill itself added $7.3 billion to its treasury. Senior managers and an employee stock plan received a combined $400 million, bringing the split-off’s total value to $19.4 billion. Cargill’s wealth helped it pull off the deal and stay private just as commodities giant Glencore International Plc launched its $10 billion IPO.

 

“I can’t think of any other company that can release $19 billion without changing ownership,” says Mark Connelly, a fertilizer and chemical company analyst at Credit Agricole Securities USA in New York. “If Cargill hadn’t owned two-thirds of Mosaic, they’d be going public right now.”

 

Cargill may not dodge an IPO forever. With Whitney MacMillan’s eventual death, a generation that includes his daughter, Elizabeth Schmidt, will gain clout, Clemente says.

 

“Among the younger people I talked with, there was respect for elders like Whitney,” he says. “There wasn’t a lot of passion for keeping the company private.”

 

Page, MacMillan, Schmidt and other family members declined to comment.

 

So-called Efficiencies

 

Patrick Woodall, research director at Washington advocacy group Food & Water Watch, says consumers and farmers lose when companies have so much clout.

 

In meatpacking, four companies -- Tyson Foods Inc. (TSN), Cargill, JBS SA (JBSS3) and National Beef Packing Co. -- controlled more than 80 percent of U.S. output, according to a 2008 press release from the U.S. Department of Justice. The department had sued JBS to block its proposed acquisition of National Beef.

 

From 1989 to 2008, the inflation-adjusted price per pound that Cargill and other middlemen paid beef farmers dropped by a third, to 80 cents, Woodall says. In comparison, inflation- adjusted retail prices for a pound of ground beef slipped by just a penny, to $2.41, Woodall says.

 

“The so-called efficiencies of the market are profits squeezed out of farmers but not passed on to consumers,” he says.

 

‘Nourishing People’

 

Cargill’s ability to shape huge swaths of the food system rankles Mary Hendrickson, a rural sociology professor at the University of Missouri in Columbia, who has studied food oligopolies.

 

When French Agriculture Minister Bruno Le Maire pushed Group of 20 countries to stabilize prices in June by sharing grain-reserve information and limiting export restrictions, he first met with Cargill and other agribusiness giants to get their backing.

 

“It used to be the role of national governments to make sure people had enough to eat,” Hendrickson says. “For-profit companies are not set up to worry about the 40 percent of the population that makes less than $2 a day.”

 

Cargill donates 2 percent of pretax earnings to improving nutrition, health, education and the environment, according to its website.

 

“Our goal is to be the global leader in nourishing people,” Page says on the site.

 

Chance to Dance

 

In his San Diego speech, Page reiterated support for free- market policies, including limits on export bans, as the best way to feed people. That’s because willing buyers and sellers -- not governments -- negotiate prices.

 

Page said food safety keeps him awake at night. Last year, Cargill settled, for an undisclosed amount, a lawsuit filed by Stephanie Smith, a Minnesota dance instructor who was paralyzed after eating a Cargill-produced hamburger tainted with E. coli. Smith had asked for $100 million plus medical expenses.

 

In a joint statement with Cargill, Smith’s lawyer said the settlement meant she would have care for life and a chance to dance again. Cargill said it invested $1 billion to improve safety. Three months later, it recalled beef in eight states when three more people became ill.

 

The world zeroed in on food contamination in May when E. coli started killing at least 49 people in 13 European countries. Officials had to test seeds from Europe, Asia and Africa to identify a potential culprit.

 

Goldman Sachs of Trading

 

“We know less and less about where our food comes from,” Hendrickson says. “This knowledge resides with Cargill and other big companies.”

 

Cargill developed its expertise over the course of almost 150 years. Early on, the company acquired and transported corn, wheat and soybeans in the U.S. and converted them to flour, oil and other food commodities. By 2010, as drought cut Russian harvests by a third, Cargill was so globally entrenched that it was able to ship wheat from Europe to Egypt -- the world’s largest wheat importer -- and supply Europe’s need for animal feed with U.S. corn.

 

“Cargill is the Goldman Sachs of commodities trading,” Connelly says. “They have real-time insight into dozens of markets and use it to add value in all their businesses.”

 

In 1998, Cargill began a campaign to bolster trading profits by inventing starches, sweeteners and other products that command premium prices. Forty percent of Cargill’s revenue came from trading and 40 percent from food ingredients in the six months ended on Nov. 30. Cargill focuses mainly on selling ingredients to Sara Lee Corp. (SLE) and other food makers and maintains only a handful of retail brands such as Robin Hood flour.

 

Spending More on Food

 

Cargill plans to invest $18 billion during the five years through 2015, half for discretionary investments such as acquisitions, according to in-house magazine “Cargill News.”

 

“No matter where we do business in 66 countries, we see per capita incomes rising and consumers electing to spend more on meat, milks, eggs and confection,” Page said in a January phone interview with Bloomberg News after announcing the Mosaic split-off. He singled out emerging markets, such as India and China.

 

Truvia Story

 

Truvia, a Cargill-owned brand of sweetener made from a sunflower-related plant called stevia, shows Cargill’s global reach. The company pays 58,000 farmers in China and Argentina to grow the plant and then processes it in Mexico, “Cargill News” says. Private-equity unit CarVal Investors LLC provides loans for farmers. A retired scientist from Cargill’s seed business bred stevia variants that resist disease. Cargill’s salt unit, whose Diamond Crystal brand is in supermarkets, helps with marketing.

 

Less than three years after Cargill introduced Truvia, it’s the second-largest zero-calorie sweetener and is found in products including Coca-Cola Co. (KO)’s vitaminwater.

 

Margaret Cargill’s death wasn’t the first time the families faced losing power. In 1994, James Cargill, the founder’s grandson, and his daughter, Marianne Liebmann, came within minutes of suing to block an employee stock ownership plan that was shifting control to management, Clemente says. Whitney MacMillan had allowed the ESOP to be set up that way because he believed management -- not family -- creates value, Clemente says.

 

Some family members challenged MacMillan’s performance as CEO that year, Clemente says. From 1990 to 1994, cash-strapped Cargills and MacMillans sold 600,000 shares back to the company at an average price of $73.30, according to a Wasserstein Perella & Co. report. Those shares would be worth about $40,000 apiece today based on their valuation in the Mosaic deal.

 

Margaret’s Trusts

 

All sides agreed to governance reforms in 1995, says Wayne G. Broehl Jr., author of “Cargill: From Commodities to Customers” (Dartmouth College Press, 2008).

 

The board now consists of six outside directors and five each from the family and management. Cargill agreed to limit ESOP voting power and pay dividends equal to 10 percent of earnings, so family members wouldn’t have to sell shares, according to Clemente.

 

The changes created stability until Margaret’s death. In her later years, William Cargill’s granddaughter set up trusts to support the Episcopal Church, San Diego Humane Society, American Red Cross and other charities. Lead trustee Christine Morse had to accelerate gift giving after Margaret’s death or lose tax-exempt status, Mosaic CEO Jim Prokopanko says.

 

Saving Ecosystems

 

All sides were relieved when fertilizer prices rose and Morse could accept Mosaic shares in return for Margaret’s stake. Morse declined to comment through spokeswoman Sallie Gaines.

 

After the Margaret A. Cargill Philanthropies sells its Mosaic shares, it expects to rank third in assets in the U.S., behind the Bill & Melinda Gates Foundation and the Ford Foundation, Gaines says. Its first major gifts, to protect coastal ecosystems in western Canada, Alaska and Micronesia, came in July, she says.

 

Mosaic executives welcomed the split-off because the company couldn’t grow faster while tied to Cargill, Prokopanko says. He can now consider creating shares to finance the construction of a $4 billion potash mine. He also may issue stock or borrow to acquire potash companies in Chile or phosphate producers in Australia and Mexico.

 

Page described part of the company’s motivation for the split-off in the January phone interview.

 

“We needed to meet the needs of our legacy Cargill shareholders who’ve expressed an energetic desire to remain private,” he said.

 

IPO Debates

 

Clemente points to James Cargill, who died in 2006 at age 82, as an example of how family members have debated an IPO. He was so opposed, Clemente says, he argued whenever the question arose. His wife, Mary Janet, who died last year, said it was absurd not to sell when the Japanese were buying trophy assets like Rockefeller Center in the 1980s, Clemente says. James II, 62, is willing to listen to pros and cons, Clemente says.

 

After seven generations, ties to founder William Cargill are fading. No family member has a top management job and none has been as active as Whitney MacMillan in building the company and insisting that it stay private.

 

Clemente says he thinks Cargill will go public within 10 years, or sooner if food prices stop surging. If that happens, Cargill, which has defied the odds by managing to stay private for 146 years, would reveal more of its hand about what it takes to feed the planet.

 

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Film helps growers adapt to new fungicides

 

(USDA-ARS) – For decades, methyl bromide has been an extremely important tool for vegetable, strawberry, deciduous fruit, nursery, and ornamental growers in their efforts to combat soil-dwelling nematodes, diseases, and weeds. But the fumigant is being phased out because of its harmful effects on the Earth’s protective stratospheric ozone layer, and alternative fumigants are presenting new challenges for growers and regulatory officials who want to keep the air clean.

 

The Agricultural Research Service has been conducting research to find the best alternatives to the fumigant since the mid-1990s, and because of the issue’s critical importance, the agency initiated a special areawide pest-management project 5 years ago that made several additional research efforts possible. As part of that 5-year effort, ARS researchers in Florida and California are helping to minimize release of the alternative fumigants into the atmosphere with studies focused on fumigant emission rates and the effectiveness of tarps used as barriers to cover fumigated soil. The work also is designed to assist the U.S. Environmental Protection Agency (EPA) and other regulators charged with developing new fumigant requirements to better protect people who use them or live near treated fields.

 

Under requirements being imposed by EPA, growers who use fumigants will need to establish buffer areas around treated fields to protect neighbors from excessive exposure and develop detailed management plans that include either fumigant monitoring or notifying neighbors of fumigant applications. Experience in California suggests that many growers and pesticide applicators have been able to adapt to these types of fumigant requirements within about a year. But many smaller operations, particularly those near suburbs, may be unable to meet the proposed standards because of their proximity to homes, institutions, and public rights-of way. These include some California strawberry growers and south Florida growers of tomatoes, peppers, and cucumbers, says Dan Chellemi, an ARS plant pathologist at the U.S. Horticultural Research Laboratory in Fort Pierce, Florida.

 

The financial implications could be significant. In Florida, for instance, tomatoes were a $622 million crop in 2008, and bell peppers were valued at $267 million.

Field studies conducted by Chellemi, Husein A. Ajwa, a former ARS scientist now with the University of California-Davis, and colleagues, showed that implementation of recently developed application equipment and methods reduced emissions to levels far below those found in previous studies. “We found that the differences were quite significant,” Chellemi says.

 

Chellemi and colleagues applied several alternative fumigants under commercial application conditions at three sites near Duette, Florida, and three sites near Tifton, Georgia. The fumigants included chloropicrin, metam sodium, metam potassium, dimethyldisulfide, and 1,3-dichloropropene (sold as Telone). The fumigants were injected into the soil using shanks and low-disturbance coulters mounted on tractors, application methods that are becoming standard practice. The soil was then immediately covered with plastic tarps designed to prevent the fumigant from escaping.

 

The researchers used different types of plastic tarps, selected sites that included different soil types, and recorded the temperatures and moisture levels of the soil at times when the fumigants were applied. They also set up weather stations to monitor wind speeds and air sampling stations to track emission levels.

 

They found that emission rates could be drastically affected by the quality of the soil and the type of covering used. Coverings include tarps made with polyethylene or metal and VIF’s (virtually impermeable films), which have layers of nylon or other materials imbedded in them. The researchers found that in dry soils with low organic matter content, VIFs worked best at keeping emissions low, while in areas with moisture above field capacity, a more permeable metalized film was equally as effective at reducing emissions. Their studies confirmed that good agricultural practices are critical factors in determining how much fumigant is released into the atmosphere. The EPA has used the results, published in the journal Atmospheric Environment, along with results from other recent research, to develop the fumigant standards currently being considered.

 

Testing Film Quality

 

ARS researcher Sharon Papiernik and her colleagues used specially designed chambers to test the permeability of dozens of films used in field trials to come up with a “resistance factor” that measures each film’s ability to serve as a fumigant barrier. Papiernik sandwiched each film between two chambers, injected fumigants into one chamber, and measured both the fumigant that passed through the film into the second (receiving) chamber and fumigant that remained in the source chamber. Because each fumigant had a different chemistry, each behaved differently with each tarp.

 

The researchers tested 200 film-chemical combinations, including those used in large-scale field trials from the areawide pest management project, and came up with a resistance factor that can be used to determine emission rates for each film and fumigant under a wide range of growing conditions and weather patterns. Papiernik is research leader of the North Central Agricultural Research Laboratory in Brookings, South Dakota.

 

The results, reported online last year in the Journal of Environmental Quality, showed that the VIFs were in fact significantly better barriers to fumigant diffusion than the polyethylene films, but their effectiveness varied depending on the fumigant tested. Some VIFs were less effective under higher humidity levels.

 

The EPA is developing this approach as the standard testing method for evaluating agricultural plastics used in soil fumigation. The results, along with those from other studies, have provided basic standards for film manufacturers and guidance for growers on which films offer the best options for reducing fumigant emissions.

 

Math Makes It Simple

 

A major goal in many fumigant studies is determining the amount of gas released from the soil during the fumigation period. But measuring and calculating emissions is no easy task. It means trying to estimate how much of a fumigant is released in an outdoor environment, where variables range from the chemistry of the fumigant to the temperature and the amount of water vapor in the air.

 

Such constantly shifting variables make it difficult to determine not only the amount of fumigant being released, but also its effectiveness at killing pests.

 

Researchers also need to determine how emissions rates are affected by a complicated list of crop-management decisions, such as the permeability of the film being used, the amount of time the film covers the fumigated soil, and the depth of the shank used to inject the treatment into the soil.

 

Scott Yates, research leader of the Contaminant Fate and Transport Unit at the U.S. Salinity Lab in Riverside, California, took a mathematical approach to the problem and developed a model focused on determining fumigant volatilization rates, the amount of fumigant retained in the soil, the amount released into the air, and the relationship between soil-chemical properties and emissions.

 

In work published in the Journal of Environmental Quality, Yates used the model to calculate fumigant emission rates that compared reasonably well to actual methyl bromide emissions observed in field trials where a polyethylene film was used to cover an 8-acre field. The model can be used to determine how a fumigant will be distributed throughout a field and offers a consistent method for determining emission rates under a wide variety of crop-management scenarios.—By Dennis O'Brien, Agricultural Research Service Information Staff.

 

This research supports the USDA priority of responding to climate change and is part of Methyl Bromide Alternatives (#308) and Air Quality (#203), two ARS national programs described at www.nps.ars.usda.gov.

 

To reach scientists mentioned in this story, contact Dennis O’Brien, USDA-ARS Information Staff, 5601 Sunnyside Ave., Beltsville, MD 20705-5129; (301) 504-1624.

 

"Helping Growers Adapt to Changing Rules on Fumigants" was published in the July 2011 issue of Agricultural Research magazine.

 

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Allegations fly over California pesticide policy

 

RICHMOND (KCBS) – A coalition of health and environmental groups has stirred up a hornet’s nest at the State Department of Food and Agriculture, contending that the state is too quick to use pesticides to eradicate invasive pests.

 

Coalition member Nan Wishner of California Environmental Health Initiative is asking the department to slow down as it prepares an environmental impact report on controlling and eradicating invasive pests.

 

”Sit down at the table with the best scientific minds who are already researching it,” said Wishner. “There’s a team of entomologists at UC Davis who have been working on what they call the 21st century paradigm for controlling agricultural pests and invasive species.”

 

Food and Ag spokesman Steve Lyle said that his agency is listening to the coalition.

 

”We are interested in the ideas that they bring, and we’re interested in meeting with any group with compelling ideas about how to attack the invasive species problem that threatens California,” said Lyle.

 

He said that he strongly disagrees with the coalition’s assertion that state Food and Ag takes a “one size fits all approach,” to fighting pests. Lyle contends the agency tries not to use pesticides whenever possible.

 

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Pakistanis planting trees to slow desert advance

 

KARACHI, Pakistan (AlertNet) – Every day, Jeeja Meghwar and her son spend up to 10 hours tending her three-acre farm in Nagarparker. They grow lemons, onions, tomatoes and chillies - crops that earn Meghwar enough to support herself and her two children.

 

But another key crop also lines the edges of her dry farmland: over 400 indigenous trees, planted as part of an agro-forestry campaign to beat back desertification in arid Tharparker district and improve lives and livelihoods.

 

Some 90 percent of Pakistan's land has been classified as arid or semi-arid, according to Tanveer Arif, head of Pakistan’s Society for Conservation and Protection of Environment (SCOPE). Unsustainable land management practices are only making things worse.

 

“Approximately one-fourth of the country’s population is poor and directly dependent on natural resources for their livelihoods - whether agriculture, hunting, forestry or fisheries," Arif said. “But limited knowledge about the consequences of desertification and extremely inadequate institutional capacity to combat it have exacerbated the problem."

 

 The result? Decreased soil fertility, deforestation, and a loss of crop productivity and biodiversity.

 

Now, however, as part of an agro-forestry effort backed by Pakistan’s ministry of environment, the U.N. Development Programme, the Global Environmental Facility and the International Union for the Conservation of Nature-Pakistan, 600 poor families are getting land and assistance, in exchange for planting indigenous trees.

 

Meghwar, a widow whose family had struggled since her husband’s death six years ago, received her land, free seeds and fertilizer in February and agreed to plant trees as a windbreak and to reduce soil erosion and keep moisture in the ground.

 

Some of the trees – such as the lemons – also will provide her with a source of income.

 

The 60-year-old says life is now very different than during the bleak years after her husband, a tenant farmer for a landlord in Nagarparker, died six years ago.

 

"My husband was the family's only breadwinner," she says. "With his untimely death, our economic condition started worsening. My children and I were so poor, we suffered from hunger and acute malnutrition."

 

The project, called Sustainable Land Management to Combat Desertification in Pakistan, aims to fight land degradation, desertification and the effects of drought in Pakistan, and to protect and restore degraded ecosystems and the services they provide.

 

The project, which aims to reach 800 families, is just one of several initiatives in Tharparkar district , 490 km (300 miles) northeast of Karachi, that encourage local communities to take up agro-forestry in the hopes of beating back the expanding desert.

 

Spread over more than 22,000 sq km (13,670 sq mi), Tharparkar district is home to 1.5 million people whose livelihoods rely on grazing animals and subsistence agriculture - all of which is at the mercy of Pakistan's erratic monsoonal rains.

 

TECHNOLOGY AND TREES

 

 The solution to making life easier, experts say, lies in efforts to improve ecosystem resilience by better managing natural resources such as trees and water, and promoting the use of alternative and renewable energy.

 

“Encouraging pastoral communities to do things such as use new techniques to conserve underground water, manage their livestock more efficiently and protect local biodiversity can all go a long way to addressing the problems of desertification and sustainable land management,” says Kella Lekhraj, the Sindh province coordinator for the sustainable land management project.

 

That same philosophy drives another SCOPE-led agro-forestry and sustainable grazing project in Tharparker backed by Drynet , Catholic Relief Services and the World Food Programme. The project, started in 2003, has led to the establishment of about 35 small demonstration agro-pastoral farms.

 

They combine food crops, agro-forestry and managed grazing, and double as demonstration plots that farmers from other parts of the country can visit to learn techniques for combating desertification.

 

Tharparker residents say the programs are making a difference.

 

Noor Mohammad Hingorjo, 46, a livestock farmer in Tharparkar's Mehari village, said he was once deeply worried about fast-vanishing water and grazing in the area.

 

But he now looks after 3,300 indigenous trees, grown from 740 seedlings SCOPE gave him to plant on his land three years ago. The trees help check the spread of the desert by stablising the sand dunes in and around his land, and providing food for his animals.

 

"My livestock now have a continuous supply of fodder, and have grown healthy and multiplied," he said.

 

The project, “has saved me and my family from slipping into a trap of hunger and poverty."

 

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GPS rights raise big-spectrum issues

 

(PC World) – The argument raging over LightSquared's proposed LTE network and possible interference with GPS services is actually two arguments over two sets of frequencies, both of which the startup hopes eventually to use.

 

One of the bands allocated to LightSquared, called the "upper band," sits right next to spectrum set aside exclusively for GPS (Global Positioning System). Its "lower" band is farther from the GPS frequencies but has been used by satellite services that make GPS more accurate. In both cases, the signals from LightSquared's LTE (Long-Term Evolution) towers would be stronger than those of the satellite-based services. But beyond that, the issues are very different.

 

LightSquared plans to offer wholesale mobile capacity over both a satellite and a terrestrial LTE network, which other service providers can sell to subscribers separately or as one service. In January, the U.S. Federal Communications Commission agreed to let the company use spectrum in the MSS (Mobile Satellite Service) band for LTE. But first, it will require LightSquared to resolve potential interference with GPS.

 

The first step in that process was a series of tests focused on the upper band, which LightSquared had planned to use for its initial rollout. Those tests found massive disruption to GPS, so the carrier proposed starting out in the lower band and using the higher frequencies only after the problems there had been worked out. Interference in the lower band is not likely to affect as many GPS devices, though critics say the impact might still be significant for many devices.

 

A heated dispute

 

The LightSquared interference debate is among the most heated in recent years in the U.S., pitting the critical and widely used GPS service against a new mobile data entrant with a new technology and business model. The FCC and mobile industry agree that more spectrum will be needed to meet the country's mobile data needs in the coming years, but critics say it would be a mistake to allocate these particular bands to a 4G cellular network.

 

The argument over the upper band (1545.2MHz to 1555.2MHz) is especially notable because it doesn't involve any operator transmitting signals on anyone else's frequencies.

 

Both LightSquared and GPS vendors and users agree that the proposed LTE base stations would not generate signals outside LightSquared's assigned band. GPS satellites also stick to their own channels when sending information down to receivers, including personal navigation devices and cellphones. The receivers don't transmit anything at all, but only "listen" for transmissions from the GPS satellites.

 

But backers of LightSquared and of GPS don't agree on why the two networks ended up clashing. GPS backers say it's because the LTE network is billions of times more powerful than the distant satellites that until now have been alone in the MSS band. For its part, LightSquared faults GPS vendors for not equipping their receivers with stronger filters that can tune out the nearby signals.

 

Like cellphones and FM radios, GPS receivers take in analog waves and try to extract the signals that modulate those waves. To get the best possible signal, they may take in radio waves from all across the GPS band. Generally, the more of the band that a receiver can use, the more precise its location information can be. But if the receiver picks up irrelevant signals, that makes it harder to discern location data.

 

The challenge is to make a receiver that's sensitive to transmissions on every frequency up to the edge of the band but not to transmissions from outside it. When two different bands are right next to each other, as with GPS and LightSquared's upper band, that becomes harder. When one set of signals is stronger than the other, that adds another degree of difficulty.

 

LightSquared believes it's possible to solve the problem with commercially viable filters. Its opponents think that can't be done.

 

"There has never been, nor will there ever be, a filter than can block out signals in an immediately adjacent band that are so much more powerful," the Coalition to Save Our GPS said in a written response to LightSquared's plan.

 

GPS satellites broadcast a 50-watt signal from 12,000 miles up, across an entire continent, said Pete Large, a vice president at GPS vendor Trimble Navigation who works with the Coalition. By contrast, the LTE base stations used in the recent tests produced signals of up to 1,600 watts within about a mile of GPS receivers. LightSquared's signals were stronger by 1 billion times or more, Large said.

 

Not a brand-new problem

 

This isn't the first time a spectrum dispute has grown out of a situation where both sides were sticking to their frequencies. Mobile operator Nextel, which was acquired by Sprint in 2005, pieced together its network from many different bits of spectrum and subsequently faced a problem with adjacent-band interference. Its patchwork of frequencies in the 800MHz band were interleaved with spectrum assigned to public-safety and private wireless systems.

 

"Everyone was doing what they were allowed to do, but basically everyone was getting interference," said analyst Tim Farrar of TMF Associates.

 

In 2005, Nextel agreed to gradually move some of its operations to spectrum in the 1.9GHz band and allow for simplification of the 800MHz band into fewer, wider sections. Sprint Nextel spent billions of dollars to move public-safety users to other bands, and the process took several years, Farrar said.

 

Another so-called "adjacent interference" problem in the U.S. affected police radios that used frequencies close to analog TV channel 14, said Dale Hatfield, an adjunct professor at the University of Colorado at Boulder and a former chief of the FCC's Office of Engineering and Technology. Like the LightSquared issue, that interference problem involved one network operating at higher power than the other. The problem eventually was solved with stronger filters on the police-radio receivers, as well as other steps, Hatfield said.

 

It's much more common for spectrum fights to involve two types of users sharing the same frequencies, said Farpoint Group analyst Craig Mathias. In fact, in the U.S., most radio bands legally can be used for more than one type of service, he said. Exclusive licensed frequencies, such as the GPS band, LightSquared's upper and lower bands, and the channels auctioned off to mobile operators, are exceptions rather than the rule.

 

Sharing can lead to conflict. For example, after the IEEE (Institute of Electrical and Electronics Engineers) created the 802.11a standard that brought Wi-Fi to parts of the 5GHz band, the popular wireless LAN technology started to pose a threat to other applications in the band, such as military radar. Even though the frequencies were unlicensed and Wi-Fi use was permitted, it was classified as a "secondary" use. Radar and other applications were "primary" uses, with higher priority.

 

In response, the IEEE passed the 802.11h specification in 2003. It included dynamic frequency selection, which can detect other devices in a channel and shift the Wi-Fi operation to another channel, and transmission power control, which allows Wi-Fi devices to reduce the strength of their signals to limit interference with satellites.

 

Another band, another problem

 

Having two networks vying for the same frequencies is the problem in LightSquared's lower band, from 1526MHz to 1536MHz. This band has been used by GPS augmentation services, which send additional location data to GPS receivers that require more precise bearings. As a result, the receivers for those services are set to listen for signals in the band where LightSquared wants to operate its LTE network, which could cause interference with GPS augmentation.

 

Used for purposes including agriculture, construction, mapping and surveying, this technology can determine a receiver's location to within two centimeters, according to agricultural equipment maker John Deere, which sells augmented GPS systems. Ironically, LightSquared itself helps to provide these services. The company's satellite business, formerly called SkyTerra, is already operating and sells satellite capacity to Omnistar, a GPS augmentation provider. Omnistar was acquired in March by Trimble Navigation.

 

LightSquared has acknowledged there is an interference problem in the lower band but said it affects fewer than 1 percent of all GPS devices. LightSquared believes interference with GPS augmentation can be solved by providing those services on different frequencies and implementing a simple filter to keep receivers from listening for them in LightSquared's band.

 

But to solve the problem, LightSquared will need to learn more about how GPS augmentation receivers work, and the companies that make them have not been willing to talk, said LightSquared Executive Vice President Martin Harriman.

 

Trimble's Large disputed this. "We offered them everything they wanted to know," Large said.

 

According to some of their official rhetoric, LightSquared and its opponents are far from agreement on either the upper or the lower band. But Harriman thinks it can all be worked out after a short breather.

 

"What we have suggested is that we all take a little bit of time out ... or calm down a little bit and get more rational," he said. "It's going to take us multiple months to study it in detail, do more testing and determine what the options are." Those might involve changes to GPS, LightSquared's network, or both. But actually carrying out the solution could take much longer, he acknowledged.

 

At least one GPS vendor thinks the problem in LightSquared's upper band can be solved. GPS filters have been improved over the past several years so they can work in close proximity to the many other radios in cell phones, said Kanwar Chadha, founder of GPS silicon vendor SiRF and chief marketing officer of CSR, which now owns SiRF. Building one that could tune out the powerful LTE signals would only be a matter of time and money, Chadha said. He did not speculate on how much time and money but shared Harriman's hope for more dialog.

 

"Within the next several months, we should be able to figure out whether there is a cost-effective way to handle it or not," he said.

 

"These sorts of things can be and have been resolved in the past by engineers working together," said Hatfield, the former FCC official.

 

The growing demand for mobile services may lead to more adjacent interference issues as regulators and service providers try to make more efficient use of every bit of wireless spectrum, he said.

 

"As you jam people tighter and tighter together ... these sorts of conflicts become somewhat inevitable," Hatfield said.

 

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