Citation
No substitute for tobacco

Material Information

Title:
No substitute for tobacco the search for farm diversification in Appalachian Kentucky
Creator:
Swanson, Mark A
Publication Date:
Language:
English
Physical Description:
xiii, 202 leaves : ; 29 cm.

Subjects

Subjects / Keywords:
Agriculture ( jstor )
Capitalism ( jstor )
Counties ( jstor )
Crops ( jstor )
Farmers ( jstor )
Farms ( jstor )
Leases ( jstor )
Poverty ( jstor )
Tobacco ( jstor )
Vegetables ( jstor )
Anthropology thesis, Ph.D ( lcsh )
Dissertations, Academic -- Anthropology -- UF ( lcsh )
Genre:
bibliography ( marcgt )
theses ( marcgt )
non-fiction ( marcgt )

Notes

Thesis:
Thesis (Ph.D.)--University of Florida, 2001.
Bibliography:
Includes bibliographical references (leaves 191-201).
General Note:
Printout.
General Note:
Vita.
Statement of Responsibility:
by Mark A. Swanson.

Record Information

Source Institution:
University of Florida
Holding Location:
University of Florida
Rights Management:
Copyright [name of dissertation author]. Permission granted to the University of Florida to digitize, archive and distribute this item for non-profit research and educational purposes. Any reuse of this item in excess of fair use or other copyright exemptions requires permission of the copyright holder.
Resource Identifier:
028255620 ( ALEPH )
49241368 ( OCLC )

Downloads

This item has the following downloads:


Full Text











NO SUBSTITUTE FOR TOBACCO: THE SEARCH FOR FARM DIVERSIFICATION
IN APPPALACHIAN KENTUCKY









By

MARK A SWANSON


A DISSERTATION PRESENTED TO THE GRADUATE SCHOOL OF THE
UNIVERSITY OF FLORIDA IN PARTIAL FULFILLMENT OF THE
REQUIREMENTS FOR THE DEGREE OF
DOCTOR OF PHILOSOPHY

UNIVERSITY OF FLORIDA

2001



























Copyright 2001

by

Mark A. Swanson


























This work is dedicated to my grandfather, Milton Ruhnke, who is the reason for my
interest in farming and my immense respect for farmers everywhere.














ACKNOWLEDGMENTS

I want to thank Dr. Gerald Murray, my committee chair, for his guidance and

assistance throughout my graduate school career at the University of Florida. I also

greatly appreciate the assistance of the members of my supervisory committee, Dr. H.

Russell Bernard, Dr. Christina Gladwin and Dr. Abe Goldman of the University of

Florida, and Dr. Lorraine Garkovich of the University of Kentucky, for their support and

advice throughout the Ph.D. process.

Special thanks go to the Agricultural Extension agents in Morgan and Wolfe

Counties, Mr. Chris Lindon and Mr. Ted Johnson, for their assistance, advice, and

friendship during the research for this dissertation. They, along with staff at the Farm

Service Administration offices and other officials I worked with during my time in

eastern Kentucky, were consistently patient, helpful, and encouraging.

To the farmers of Morgan and Wolfe Counties I owe a special debt of gratitude.

Without their willingness to answer a virtually unlimited supply of questions, this

research would not have been possible.

I thank the Wenner-Gren Foundation for Anthropological Research for their

generous financial support for the research phase of this project.

I will always be in debt to my parents, Harold and Wanda Swanson, for raising

me in a manner to promote intellectual curiosity, critical thinking, and a love of learning

that have served me well and will continue to do so throughout the rest of my life.









Finally, I could never have completed this long and difficult process without the

unflagging support and love from my wife, Dr. Nancy Schoenberg, and our wonderful

children Rachel and Benjamin Swanson. It is because of them that all of the work to

attain this degree has been worthwhile.















TABLE OF CONTENTS

page

ACKNOW LEDGM ENTS ........................................................................................... iv

LIST OF TABLES .......................................................................................................... x

LIST OF FIGURES........................................................................................................ xi

ABSTRACT..................................................................................................................xii

CHAPTERS

1 INTRODUCTION ....................................................................................................... 1

2 METHODS AND SAMPLE CHARACTERISTICS.................................................... 6

Research Site Selection................................................................................................ 7
Data Collection............................................................................................................ 8
Sampling and Survey Data Collection........................................................................ 10
Description of Sample ............................................................................................... 13
Production Data ............................................................................. ...................... 13
M management Data............................................................. ....... ... ........... .......... 15
Demographic Data................................................................................................. 16


3 UNITED STATES AGRICULTURE: TRENDS AND THEORIES .......................... 19

Trends in United States Agriculture........................................................................... 19
Farm Population .................................................................................................... 20
The Changing U.S. Agricultural Structure ............................................................. 20
Definitions........................................................................................ ..................... 25
Family farms...................................................................................................... 25
Part-time farms .................................................................................................. 27
Small farms ........................................................................................................ 28
Theories of Agricultural Change................................................................................ 33
Fam ily Farms in a Capitalist Economy................................................................... 33
The Future of the Family Farm .............................................................................. 34
M arxist Perspectives on the Family Farm ............................................................... 35
The inevitability of capitalist agriculture............................................................ 35
The persistence of non-capitalist agriculture....................................................... 36









Precursors to the disappearing fam ily farm debate ............................................. 39
Implications of U .S. Agrarian Change.................................................................... 42


4 APPALACHIAN CULTURE AND AGRICULTURE............................................... 44

Appalachian N natural, Social, and Econom ic H istory.................................................. 45
The Environm ent ................................................................................................ 45
Human H history ...................................................................................................... 48
Industrial D evelopm ent in Appalachia ..................................................... ........... 52
D oes Appalachia Really Exist? .................................................... .............................. 54
The Invention of Appalachia ......................................................... ........ ............ 54
The Politics of Appalachia ................................................... .................................. 56
Self-definition in Appalachia .............................................. ..... ........................... 57
Appalachian Kentucky Today.................................................................................... 58
Eastern Kentucky: The Heart of Appalachian Poverty............................................ 58
ARC's D stressed Counties Program ...................................................................... 58
Eastern Kentucky Poverty Indicators..................................................................... 59
Explanations for Appalachian Poverty .................................................................... 63
The Culturalist Approach....................................................................................... 63
Yesterday's People ........................................................................................... 63
The culture of poverty.... ............... ........................................... ............... 66
Critiques of the culture of poverty...................................................................... 67
Em pirical tests of the culture of poverty theory.................................................. 72
Bureaucratic Realism ................................................................ .......................... 74
The Structuralist Approach .................................................................................... 76
A N ew Synthesis? .......................................................................... .................. 77
Comparing the Approaches to Appalachian Poverty............................................... 78
Traditional Appalachian Agriculture and Economy.................................................... 80
Conclusions ............................................................................................................... 83


5 TOBACCO: THE CORNERSTONE OF APPALACHIAN AGRICULTURE........... 85

The Tobacco Production Process ............................................................................... 86
Land Preparation ................................................................................................... 86
Seeding.................................................................................................................. 87
Setting Tobacco..................................................................................................... 89
Cultivating, Topping, and Sucker Control.............................................................. 89
Cutting and H ousing.............................................................................................. 89
Stripping................................................................................................................ 91
The Tobacco Program ................................................................................................ 91
Origins of the Tobacco Program ............................................................................ 92
Tobacco Quotas and Price Supports....................................................................... 93
Quota Fluctuations................................................................................................. 98
Factors affecting dem and ................................................................................... 99
Farm er perspectives on quota cuts.................................................................... 101









Contracting......................................................................................................... 102
M ailbox Payments .............................................................................................. 105
P h a se II................................................................... ................................. ........ 10 6
Tobacco Loss Assistance Program ................................................................... 107
Buyout Proposals................................................................................................. 108
Tobacco Farming and Diversification...................................................................... 109
Conclusions........................................................................... .................................. 112


6 THE SEARCH FOR TOBACCO ALTERNATIVES............................................... 113

Vegetables............................................................................................................... 113
Vegetable Production for Processors.................................................................... 115
East Kentucky Vegetable Producers Association.................................................. 117
Direct M marketing ................................................................................................. 119
Farmers markets .............................................................................................. 120
Roadside sales ................................................................................................. 122
L iv e sto ck ................................................................................................................. 12 3
G o ats ............................................................... .................................................. 12 4
C battle ................................................................................................................... 12 5
Kentucky's Agricultural Development Process........................................................ 126
The County Agricultural Development Councils.................................................. 128
Public forums................................................................................................... 131
Development of county comprehensive plans................................................... 134
The Kentucky Agricultural Development Board .............................................. 135
Local funding priorities.................................................................................... 136
The politics of opposition................................................................................. 137
Conclusions .................................................................. ......................... .................. 139


7 INDIVIDUAL RESPONSES................................................................................... 140

Tobacco Production Decisions................................................................................. 141
Tobacco Production in 2000 ............................................................................... 142
Responses to quota cuts ................................................................................ 143
Explanations for varying responses to quota cuts............................................. 145
Alternative Farm Products....................................................................................... 150
Influences on Alternative Crop Production .......................................................... 151
Problems with Alternative Crops......................................................................... 154
Production difficulties...................................................................................... 154
M marketing problems......................................................................................... 155
Prices received................................................................................................. 156
Conclusions............................................................................................................. 157









8 CASE STUDIES ..................................................................................................... 161

The Part-Time Family Farmer ................................................................................. 161
The Full-Time Renter............................................................................................ 163
The Tobacco Farm Landlord.................................................................................... 165
The Full-Time Vegetable Farmer............................................................................. 168
C o n clu sio n s .............................................................. ............................................... 17 0


9 CONCLUSION ....................................................................................................... 172

Key Findings ........................................................................................................... 172
Theoretical Lessons ................................................................................................. 174
The Future of Farming in Eastern Kentucky............................................................ 176


APPENDICES

A SURVEY INSTRUM ENT...................................................................................... 178

B COSTS AND RETURNS OF TOBACCO PRODUCTION..................................... 189

LIST OF REFERENCES ............................................................................................. 191

BIOGRAPHICAL SKETCH ....................................................................................... 202














LIST OF TABLES



Table Page

2-1 Land ownership and rental, 2000 .......................................................................... 14

2-2 Average amounts of tobacco quota, by means of access, 2000 .............................. 14

2-3 Age and education of respondents......................................................................... 16

2-4 Participation in off-farm work............................................................................... 16

2-5 Percentage of total household income from farm................................................... 17

2-6 Total household income................................................................................. 18

3-1 Farm Population, 1900-1990................................................................................. 21

3-2 U.S. farm distribution by acreage, 1900- 1997..................................................... 22

3-3 Farms by annual gross sales .................................................................................. 26

3-4 Principal Occupation, as reported by farm operators .............................................28

3-5 Days worked off-farm by principal operator, 1997................................................ 29

3-6 Small farms by gross sales, 1997............................................................................ 31

4-1 Median Household Income ................................................................................... 61

4-2 Percentage of people living in poverty .................................................................. 62

4-3 Educational attainment, 1990................................................................................ 63

7-1 Quota access by farmers, 2000............................................................................. 143

7-2 Farmer response to quota cuts............................................................................... 144

7-3 Has farmer ever tried non-traditional crops?......................................................... 151














LIST OF FIGURES


Eig Dis re

3-1 Distribution of U.S. farms by gross sales, 1997.....................................................23

3-2 Distribution of Kentucky farms by gross sales, 1997.........................................24

3-3 Distribution of farms by acreage, 1997.................................................................. 30

4-1 Persistently Distressed Counties in Appalachia, 1960 and 1990 ............................ 60

5-1 Changes in national tobacco marketing quota, 1990-2001 ..................................... 99















Abstract of Dissertation Presented to the Graduate School
of the University of Florida in Partial Fulfillment of the
Requirements for the Degree of Doctor of Philosophy

NO SUBSTITUTE FOR TOBACCO: THE SEARCH FOR FARM DIVERSIFICATION
IN APPALACHIAN KENTUCKY


By

Mark A. Swanson

December 2001

Chairman: Gerald Murray
Major Department: Department of Anthropology


Farmers in Appalachian Kentucky are facing significant changes in their farming

operations as a result of major cuts in their most important cash crop, burley tobacco.

Over the last three years, the amount of burley tobacco that can be grown under the

federal tobacco program has been slashed by nearly two-thirds as demand for cigarettes

has decreased and imports of less-expensive foreign tobacco have increased. This

research examines how tobacco farmers in two eastern Kentucky counties are responding

to the loss of such a large proportion of their farm income.

Farmers in the study region exhibit many of the same characteristics as farms

across the United States, with small, part-time farms representing the majority of all

farms and off-farm income constituting an essential source of household income for farm

Families. Loss of income from tobacco sales over the last three years has forced farmers

to rely more heavily on off-farm income or develop ways of enhancing farm income. The
\-








high levels of poverty and economic distress in this part of Appalachia make the cuts in

farm income even more problematic.

With the long-term prospects of tobacco as a major income source tenuous at best,

farmers are searching for alternative agricultural enterprises to support their farming

operations. Interest in agricultural diversification throughout tobacco-dependent regions

is not new, but the large cuts in tobacco sales and production since 1998 have intensified

the long-term search for alternative sources of agricultural income for Kentucky farmers.

Despite renewed efforts to promote agricultural diversification with the establishment of

a well funded statewide agricultural development program, few farmers in the study

region have incorporated new farm products into tobacco dependent farm operations. The

reasons for the reluctance of tobacco farmers to produce nontraditional agricultural

commodities are explored by this research, along with local and statewide efforts to

promote farm diversification.













CHAPTER 1
INTRODUCTION

In 1997, the amount of burley tobacco U.S. farmers were allowed to produce

reached the second highest level in history. Within only three years, however, the

marketing quota for burley tobacco had dropped to its lowest level in more than four

decades. Over that three year period, the amount ofburley tobacco that farmers could

produce and sell under the federal tobacco program dropped by 65%. Burley tobacco is

the most important, and often the only, cash crop on eastern Kentucky farms. This

research seeks to understand the factors shaping farmer responses to the drastic

reductions in their primary cash crop.

The demise of tobacco production in the United States has been predicted for

years, and each downturn in the tobacco markets prompts renewed attention to the need

for agricultural diversification in tobacco producing regions. Yet few efforts towards

diversification have been successful, at least in the region of eastern Kentucky where this

research was conducted. Would the drastic cuts in burley tobacco production of the late

1990s prompt lasting efforts towards diversification?

This research into the factors affecting farmer decision-making about agricultural

diversification is intended to add to the body of theoretical literature on the relative

importance of material or structural forces and non-economic or subjective forces

shaping human behavior. The findings in this research support the argument that while

material forces are the predominant influences on aggregate human behavior, non-

material factors can be influential in determining the effects of material forces on the









community and individual levels. This theoretical perspective will be developed through

an examination of theories and patterns of U.S. agricultural change, causes and solutions

to persistent poverty, and debate over the causes of Appalachian underdevelopment and

poverty.

This research was conducted in two counties in the eastern Kentucky portion of

the Appalachian mountains. Morgan and Wolfe counties are predominately rural, with

the nearest metropolitan area over an hour's drive away. Wolfe County is the smaller of

the two counties, with 223 square miles and a population of 7,065 in the 2000 U.S.

Census. The county seat of Campton is quite small, with a population of 424, one grocery

store, several gas stations and convenience stores, and a scattering of other retail stores.

Campton is strategically placed at the intersection of two major highways-the Mountain

Parkway, a four lane divided highway connecting the area with Lexington, the nearest

metropolitan area, and U.S. Highway 15, which runs south into the Appalachian

mountains and the regional centers of Jackson and Hazard. Campton is the only town of

any size in Wolfe county; the other communities in the county consist of a handful of

houses and a convenience store or two. The population is overwhelmingly white (99.2%)

and poor; the poverty rate in Wolfe County is among the highest in the nation.

Morgan County is nearly twice as large as Wolfe County, with 381 square miles

and a population of 13,948. West Liberty, the Morgan County seat, is a considerably

larger town than Campton; its population of 3,277 (plus the surrounding rural areas)

supports at least five grocery stores, several restaurants and fast food outlets, a movie

theater, a branch campus of the regional university, and the Eastern Kentucky

Correctional Complex, a medium security prison that is the largest in the state. Because








of the prison, Morgan County has a higher minority population (5.4% nonwhite) than

Wolfe County, but the non-institutionalized population is overwhelmingly white; I did

not see any minorities in over a year of travelling around the county.

The rural landscape of the two counties is beautiful, with heavily wooded

mountains divided by valleys of flat land carved by streams. Narrower valleys, or

hollows (pronounced hollers) branch off from the main valleys and are dotted with

houses, mobile homes, and farms. Most agriculture is practiced in these valleys, although

in a few areas, the mountain ridges are wide enough to support cultivation. Farms are

marked by the presence of large black tobacco-drying barns, quite commonly with a

basketball hoop mounted on one side'. The Daniel Boone National Forest occupies the

western portion of both counties and the Red River Gorge, part of which is in Wolfe

County, is a world-renowned spot for rock climbing.

The beauty of the study region stands in contrast with the severe and persistent

poverty that characterizes the region. As will be discussed in Chapter 4, both study

counties are classified as persistently distressed counties by the Appalachian Regional

Commission. In the context of this economic deprivation, the prospect of the significant

cut in agricultural income that would result from an end to tobacco production is

alarming. The precarious economy of the study region is one reason for the extensive

attention paid to the possibility of alternative agricultural products that could compensate,

at least in part, for tobacco income.





Basketball has been described as the state religion of Kentucky. I regularly had to
schedule meetings around televised games of the University of Kentucky men's
basketball team!









The findings of this research suggest that agricultural diversification will be a

difficult, if not unattainable goal for most farmers in the region. Despite intense interest

in and discussion about the uncertain future of tobacco, farms in the study area remain

overwhelmingly dependent on this critical cash crop. The reasons for this difficulty in

diversification, it will be argued, are both structural and attitudinal in origin. While the

primary causes of continued dependence on tobacco are economic-no other crop is

anywhere near as profitable as tobacco-the reluctance to experiment with alternative

crops is, in part, due to mindsets created by past experiences and the nature of the federal

tobacco program. Farmers regularly repeated to me the phrase "There's no substitute for

tobacco." Given the expectations created by participation in the federal tobacco program,

that assessment is likely to prove accurate.

Before introducing the specifics of tobacco farming and the search for alternative

farm products in eastern Kentucky, this work will attempt to provide a context within

which the situation in the study region can be better understood. Chapter 2 briefly

outlines the methods used in this research and some of the characteristics of the sample of

tobacco farmers surveyed. Chapter 3 discusses trends in U.S. agriculture and some of the

key social science theories to explain those trends. Chapter 4 provides an overview of

Appalachia, including data on the levels of poverty in the study region and the theoretical

debates about the causes of Appalachian poverty. Chapter 5 describes the important

features of the tobacco production process and the federal tobacco program. Chapter 6

discusses some of the efforts in the region to promote alternative farm products,

examining the reasons why these efforts have been largely unsuccessful. Chapter 7

focuses on individual decisions about tobacco and alternative crop production. Chapter 8






5


provides case studies of four farmers. These case studies help portray the context within

which agricultural production decisions are made. Finally, Chapter 9 offers some

conclusions about the prospects for agricultural diversification in eastern Kentucky.













CHAPTER 2
METHODS AND SAMPLE CHARACTERISTICS



Data for this research come from 13 months offieldwork in Morgan and Wolfe

counties. Data collection utilized two of the primary methods common in cultural

anthropology-participant observation and survey research. Bernard (1995) distinguishes

between two types of participant observation, the participating observer and the

observing participant. The participating observer does not take on the role of the people

being studied, but does involve himself or herself in the daily lives of the research

subjects. In contrast, the observing participant actually takes on the role of the research

subjects, studying their behavior and attitudes from within. Like most anthropologists,

my role was as a participating observer as I worked in tobacco production, attended and

facilitated meetings, and helped to draft various documents for agricultural organizations

in the study area. Combined with informal interviewing and survey research, this mix of

methods allows researchers to collect and interpret both qualitative and quantitative data.

The initial months of the research focused on participant observation with the goal of

understanding the key issues regarding tobacco farming and agricultural diversification in

eastern Kentucky. That understanding was used to develop a questionnaire that was -

administered in the last months of the research period. This chapter describes the process

of selection of the research counties, the methods of data collection used, the sampling

strategy and survey administration process (as well as the problems that arose with this








component), and concludes with descriptive statistics to provide a picture of the

agricultural situation in the study counties.




Research Site Selection

Preliminary research for this project focused on the East Kentucky Vegetable

Producers Association (EKVPA), a vegetable marketing cooperative to be discussed at

length in Chapter 6. In addition to interviews with members of the board of directors and

the manager of EKVPA, I attended several board meetings of the organization at the

invitation of these officials. As will be discussed in Chapter 6, these board meetings

focused on the serious managerial, financial, and organizational problems plaguing

EKVPA, problems that were to lead to the closing of the organization in December 1999.

When the organization eventually folded, the focus on EKVPA planned in the original

research proposal for this project had to be abandoned. Nonetheless, the question of if

and how farmers are diversifying farms highly dependent on tobacco remained the central

research question.

While I had originally planned to use the EKVPA membership as a sampling

frame for farmers seeking to diversify into alternative crop production, the closing of

EKVPA allowed me to focus my research on just two of the fifteen counties served by

EKVPA. In retrospect, this focus allowed me to develop a better understanding of the

local agricultural community dynamics that affect farm diversification decisions. After

meeting with Cooperative Extension agents in a number of eastern Kentucky counties, I

decided to focus on two counties, Morgan and Wolfe, for this research. The counties are

contiguous and have fundamentally similar agricultural economies, but Morgan County is








nearly twice the size in population and 75% larger in land area. By working in two

counties, I was able to reduce the danger that findings would be tied to idiosyncratic

county-specific factors. My intent was to make the findings as generalizable as possible

to other parts of Appalachian Kentucky. In fact, as will be seen in Chapter 6, there were

some significant differences in the ways the statewide agricultural development process

unfolded in the two study counties. Research in two counties does not, of course,

guarantee generalizability to the entire state, but it does provide some methodological

safeguards.




Data Collection

Throughout the research, I met often with the county extension agents and Farm

Service Agency officials from both counties. These officials proved to be among the most

important of my key informants, as they regularly talked to a wide range of farmers, were

involved in every agricultural diversification program in the region, and were able to

suggest key farmers with whom I should speak. It soon became clear, however, that these

officials tended to direct me towards a certain type of farmer-the more educated and

affluent farmers who were more likely to interact with agricultural officials. Thus, I was

typically urged to talk to large-scale farmers, farmers who served on the various county

committees administering federal agricultural programs, and farmers who were articulate

and vocal about agricultural issues. I was not, I realized, being directed to talk with small-

scale farmers, tenant farmers, or farmers with low levels of education, a situation I made

a conscious effort to remedy.








In addition to formal and informal interviews with agricultural officials and a

wide range of farmers, 1 regularly attended public meetings sponsored by the extension

service and commodity producer organizations, business meetings of the county

committees administering the federal agricultural programs, and other public gatherings

of farmers. As will be discussed in Chapter 6, I also attended and facilitated meetings of

the newly created County Agricultural Development councils in both Morgan and Wolfe

counties.

One of the difficulties I continually faced in this research was something I had not

encountered in my previous research in developing countries. Unlike anthropologists

working in rural communities and small towns in developing countries, I did not

regularly "run into" farmers, but instead generally had to arrange meetings in advance.

My work with several farmers in tobacco production, along with my regular attendance at

and participation in meetings of agricultural organizations allowed some of the informal

interaction central to participant observation. There were few places where farmers "hung

out", although I did spend time talking informally with farmers in the several farm supply

stores in the region. Indeed, one informant noted that community events that had helped

provide coherence to local communities in the past were not common anymore. Bernard

(1995) notes that hanging out is one of the important parts of participant observation, and

I had to make a conscious effort to compensate for the lack of hanging out possible in this

research setting. For example, I was generally the first person to arrive and almost always

the last person to leave community meetings, using this time as a way to chat informally

with other meeting attendees and establish my presence as routine. By doing this, I was

able to observe the significant controversy that developed in the county agricultural








development councils discussed in Chapter 6. In addition to observing the disputes during

the meetings, however, my ubiquitous presence after the meetings gave me the

opportunity to hear candid appraisals of the meetings by those involved in the

controversies.

Despite the limitations on standard participant observation, I was able to meet

with and interview a wide range of farmers. By using lists of individuals who rented and

leased quota, I was able to identify farmers who did not fit the profile of those generally

recommended for interviews by agricultural officials. Once the survey phase of the

research began, I made a special effort to explore critical questions with renters and

small-scale farmers who I was less likely to speak with during the initial stages of

research.




Sampling and Survey Data Collection

Survey data collection was conducted from November 2000 to April 2001. The

sample was drawn from a list of farmers with marketing cards to sell tobacco. This list is

limited to farmers actually growing tobacco, or those who have tenants growing tobacco

on their land. There were a total of 1299 people in the two counties issued a marketing

card, 66% live in Morgan County and 34% in Wolfe County. All 1299 names were

numbered and a random number table was used to draw the sample. A sample of 250

names was drawn. Names selected for the sample were contacted in approximately the

order in which they were drawn. The person named on the marketing card was

telephoned and asked if he or she was actually producing the tobacco, or if someone else








was tending it. If that person was the grower, an interview was scheduled; if not, the

grower's name was obtained and that person was then contacted.

Reaching individuals in the sample proved challenging, as there were no

telephone numbers on the list and the addresses were often rural routes. Most telephone

numbers were located cross-referencing the telephone book and asking extension agents

and FSA staff for assistance. Nevertheless, of the 250 names selected in the sample, 42

could not be contacted due to lack of phone numbers or addresses, and 21 declined to be

interviewed or failed to meet the interviewer as arranged. Of the remaining 187 names,

113 interviews were completed, representing 8.7% of the total number of people issued

marketing cards. While the target sample size was 200, difficulties in arranging

interviews resulted in a considerably smaller sample. Interviews were conducted in the

farmer's home, and the combination of more extensive driving than anticipated and

scheduling difficulties limited the number of interviews that could be completed.

Additionally, I had some difficulty hiring appropriate research assistants; of the four I

hired and trained, only two actually conducted any interviews. As a result, I conducted 82

of the 113 interviews. The survey instrument is provided in Appendix A.

Concerns about informant accuracy led me to discard some of the data collected

with the survey instrument. Many farmers had only vague estimations for a number of

questions, particularly those regarding labor (both family and hired), crop yields (other

than tobacco), and plans for future farm enterprises. The problem of informant accuracy,

discussed by Bernard and colleagues (Bernard, Killworth, Kronenfeld, and Salier 1984),

is an extraordinarily difficult one. In general, I found that questions concerning data over

a year old tended to evoke speculative and uncertain answers; not surprisingly, for








example, people were far more able to confidently report the number of pounds of

tobacco they were entitled to sell in the current crop year than the same data from two

years previous. However, the data concerning 1998 tobacco production, for example, was

so tentative that I chose to exclude it from analysis. While I have included analysis of

some other questionable data, I have noted my concerns with it in the text. A related

problem developed with questions about alternative crop production. As discussed in

Chapter 7, almost all alternative crop production took place at least 4 to 5 years ago, and

the data about that production tended to be quite vague. Thus, while farmers could tell me

the reasons they abandoned vegetable production, for example, they were unlikely to

remember information about acreage, yields, prices received, and other potential

independent variables. In fact, this difficulty in informant recall was so acute that the

survey instrument did not even attempt to collect such data, as its validity would have

been highly suspect.

It could be argued that in research concerning decision-making, the accuracy of

the data (barring intentional misrepresentation) is less important than knowing on what

information informants are basing their decisions. Even if an estimate by a farmer that

10% of his or her household comes from farming is widely incorrect, that 10%/ figure is

what he or she believes is correct and is the information on which decisions are based. Of

course, it should be made explicit that the data collected in this research is based on

informant recall and opinions, rather than direct measurement.








Description of Sample

While specific data from the sample are incorporated into relevant portions of the

text of this work, a brief overview of some of the descriptive statistics collected will help

paint the picture of farming in the study region.

Production Data

Farmer access to various kinds of agricultural land, either by ownership or rental,

is portrayed in Table 2-1. In the 2000 crop year, 39.8% (n=45) of the farmers surveyed

rented at least some tobacco quota1 and land, 70.8% (n=80) owned at least some quota,

and 44.2% (n=50) leased at least some quota. Table 2-2 displays the number of pounds of

tobacco quota owned, rented, and leased for the 2000 crop year. For both Table 2-1 and

2-2, the high standard deviations of these means reflect the highly unequal land

distribution in the region. All of the data presented in Tables 2-1 and 2-2 are combined

for the two study counties; t-tests indicate no significant differences in these means, or

any other means calculated, for the two counties.

While all the farmers in the sample raise tobacco, hay and cattle production are

also common. Nearly half (47.8%, n=54) of the farmers sampled raise at least some hay,

and 26.5% (n=30) are involved in cattle production. Among those raising hay, the mean

number of acres raised is 46, with a large standard deviation of 71.6 acres and a median

of 20 acres. Among those raising cattle, the mean number of cattle owned is 32.6, with a

standard deviation of 27.2 and a median of 22.5 cattle. The number of cattle owned in

2000 may be lower than in a normal year; since 1999 was a year of severe drought in the


The tobacco production system will be fully explained in Chapter 5; briefly, tobacco
quota refers to the number of pounds of tobacco a farmer can grow under the federal
tobacco program. Farmers may own quota to grow on their own land, they may lease









region, many farmers sold a large portion of their cattle and many had not replaced them

yet due to high livestock prices.




Table 2-1: Land ownership and rental, 2000
Mean acreage Standard Deviation
Cropland owned 11.93 30.91

Cropland rented 6.74 14.09

Pasture owned 21.82 40.78

Pasture rented 15.49 47.54

Hayground owned 5.67 11.60

Hayground rented 17.32 45.69

Other land owned 47.58 124.97

Other land rented 7.68 37.52


_____________________________________________________________ I


Table 2-2: Average amounts of tobacco quota, by means of access, 2000
Median pounds of Mean pounds of Standard
________ tobacco quota tobacco quota Deviation
Owned 950 1457 1359
Rented 6600 10,281 10,586
Leased 1150 2829 3126


quota from others to grow on their own land, or they may rent quota and grow the
tobacco on the land of the quota owner.








Management Data

Several questions were included in the survey to gauge management skills and

practices of area farmers. One important management tool is soil testing, a low-cost

means for farmers to identify the types and amounts of fertilizer and lime that should be

applied for a specific crop. University of Kentucky Extension specialists recommend that

on high value crops, such as tobacco, soil tests should be conducted annually. For lower

value crops, soil tests are recommended at least every three to four years (Thorn et al.

1977). Farmers in the study region are not, in general, following these recommendations.

Over one-third (35.8%, n=39) have never tested their tobacco soil, and only 7.1% (n=8)

test tobacco soil annually. Other farmland is tested even less often; of those farmers

raising hay, 69%/o (n=40) have never had a soil test of their hay ground, and 77.6% (n=45)

of farmers with pasture have never tested their pasture soil.

One particularly valuable information resource to assist farmers in agricultural

management and production is the county extension service. Both of the study counties

have a full-time agricultural extension agent who acts as a intermediary between farmers

and the research conducted by University of Kentucky extension scientists. County

agricultural agents can offer assistance with disease and pest identification and mitigation

recommendations, crop variety selection, and a host of other information services. Yet

among the sample, 33% (n=37) of the farmers have never talked with their county

extension agent, and another 30.4% (n=34) speak with the extension agent once a year or

less.








Demographic Data

Table 2-3 displays the mean, median, and standard deviation of the age and

education level of farmers in the sample. The relatively high age of farmers in the region

is often raised as a concern by area farmers about the future of farming in the region.


Table 2-3: Age and education of respondents
Median Mean Standard
Deviation
Age 50 50.7 11.1
Years of formal education 11 9.8 3.1


Most of the farmers in the study region are part-time farmers who also have off-

farm employment. Table 2-4 divides the sample into those in which the principal farmer

does not work off-farm, those in which the principal farmer works between 1 and 20

hours per week off-farm, and those in which the principal farmer works more than 20

hours per week off-farm. Over 60% of farmers in the sample fall into this latter category,

indicating the importance of off-farm work in the region. In addition, 18.6% (n=21)

report that they are retired from off-farm jobs.




Table 2-4: Partici nation in off-farm work
Hours per week Number of farmers Percent
0 38 33.6
1 to 20 3 2.7
Over 20 68 60.2
Total 109 96.5


The importance of farm income as a proportion of total household income is

displayed in Table 2-5. Nearly half of all respondents indicated that 20% or less of their









total income is generated by the farm. For most farmers in the sample, then, agricultural

income can be seen as a supplement to, rather than a significant proportion of, total

income. Approximately one-quarter of all respondents earn more than half their total

household income from farm sources. Thus, while farm income is a relatively minor

portion of total income for the majority of farmers in the sample, many do rely heavily on

farm income.




Table 2-5: Percentage of total household income from farm
______Frequency Percent Cumulative Percent
10% or less 28 24.8 24.8
11%-20% 25 22.1 46.9
21%-30% 12 10.6 57.5
31%-40% 10 8.8 66.3
41%-50% 8 7.1 73.4
51%-60% 3 2.7 76.1
61%-70% 4 3.5 79.6
71%-80% 3 2.7 82.3
81%-90% 9 8.0 90.3
91%-100% 10 8.8 99.1
Missing 1 .9 100.0
Total 113 100.0 100.0


Finally, Table 2-6 displays the reported total household income of farmers in the

sample. Nearly one-third of the farm families earn less than $20,000 annually, while only

16% earn over $45,000 per year.

These data paint a picture of a region characterized by part-time farming,

commonly a mix of tobacco and hay production2. As will be shown in the next chapter,

the predominance of part-time farming in the region mirrors the agricultural structure of


2 Hay is often sowed on fields that would normally be planted to tobacco. In response to
cuts in the amount of tobacco that can be raised under the federal tobacco program, many
farmers sow these fields into hay, which they may or may not cut and bale.









the United States as a whole. Additionally, access to the means of production in the study

region, both land and the right to grow tobacco (tobacco quota), is highly variable. This

variability has led to important disputes within the counties between farmers with

differing access to the means of production, a situation that will be discussed later in this

work.




Table 2-6: Total household income
______Frequency Percent Cumulative percent
$5-10,000 5 4.7 4.7
$10-15,000 15 14.2 18.9
$15-20,000 11 10.4 29.3
$20-25,000 17 16.0 45.3
$25-30,000 19 17.9 63.2
$30-35,000 12 11.3 74.5
$35-40,000 2 1.9 76.4
$40-45,000 4 3.8 80.2
$45-50,000 4 3.8 84
$50-55,000 2 1.9 85.9
$55-60,000 5 4.7 90.6
$60-65,000 2 1.9 92.5
$65-70,000 4 3.8 96.3
over $70,000 4 3.8 100.1













CHAPTER 3
UNITED STATES AGRICULTURE: TRENDS AND THEORIES

Ongoing changes in U.S. agriculture have been studied extensively by agricultural

economists, rural sociologists, anthropologists, and other academics. The persistence of

non-capitalist forms of production in agriculture within the capitalist economy of the

United States has challenged economic theory for an explanation. The changes in the

OUnited States' agrarian structure that have been documented and the theories developed

to explain those changes are a logical starting point for an examination of agricultural

change in Kentucky.




Trends in United States Agriculture

For the first century of its existence, the United States was primarily an

agricultural country. By 1880, slightly less than a half (43.8%) of the total U.S.

population lived on farms. While land under cultivation and the total farm population

continued to grow through the early years of the 20th century, farm residents decreased

as a share of the total population; by 1930, less than a quarter of the U.S. population lived

on farms' (Albrecht and Murdock 1990).




1 The Agricultural Census currently relies on gross sales in its definition of what to count
as a farm. Starting in 1974, a farm was defined as "any place from which $1,000 or more
of agricultural products were sold, or normally would have been sold, during the census
year." (U.S.D.A. 1999). This replaced an earlier definition that combined minimum sales
with acreage in the definition of a farm. (U.S. Department of Commerce, Bureau of the
Census
1980).








Farm Population

Since 19400, the pace of change in American agriculture has increased

dramatically. The spread of labor saving machinery, particularly the tractor, has enabled

far fewer people to work the no longer expanding land base, and the development of

chemical fertilizers, pesticides, and hybrid seeds have led to significant increases in per

acre productivity. Fueled by these technological changes, farm population, both in actual

number and as a portion of the total U.S. population, plummeted in the last half of the

20th century. Table 3-1 displays the changes in farm population in the country as a

whole, within the state of Kentucky, and in the study counties. At its peak in 1940, U.S.

farm population was over 30.5 million (Albrecht and Murdock 1990), accounting for 23.2

% of the total U.S. population. By 1990, farm population had dropped to just under 3.9

million, representing less than 1.6% of the nation's population (U.S. Department of

Commerce 1990). Not surprisingly, as farm population has dropped, average farm

acreage has increased significantly, from 175 acres in 1940 (Albrecht and Murdock 1990)

to 487 acres in 1997 (U.S.D.A. 1999).

The Changing U.S. Agricultural Structure

While a nearly tripling of average farm size is dramatic, averages mask some

important changes taking place in the United States' agrarian structure. A number of

researchers (Albrecht and Murdock 1990; Bonanno 1987; Gladwin and Zulauf 1989;

Stockdale 1982) have noted the development of a bimodal distribution pattern in U.S.

farming, with relatively few large farms responsible for an increasing share of

agricultural production, sales, and farm assets. At the same time, small farms have been











Table 3-1: Farm Population, 1900-1990__________________________
Year United States Kentucky Morgan Co. Wolfe Co
farm % total farm % total farm % total farm % total
population population population population population population population population
1900 29,875,000 39% (a) (a) 12,233 96% 8092 92%
1930 30,529,000 25% 1,815,563 69% 13,361 88% 7249 86%
1960 15,635,000 9% 546868 18% 6280 57% 3489 53%
1990 3,871,583 2% 174,204 5% 1797 15% 939 14%
Sources: Data on U.S. population 1900-1960 drawn from Historical Statistics of the United States: Colonial Times to 1970 (U.S.
Department of Commerce, Bureau of the Census 1975). All other data from Census of the United States (U.S. Department of
Commerce, Bureau of the Census)
Note: (a) data not collected by Census








seen, particularly since the early 1970s, as "increasing in numbers and holding their own

in terms of acreage and aggregate production" (Buttel 1990:109). The development of

this bimodal distribution over time is evident in Table 3-2, which presents the distribution

of U.S. farms by acreage from 1900 through 1997. The categories showing the most

dramatic increases over time are the smallest and largest acreages, with the middle range

decreasing as a percentage of all farms. Figure 3-1 shows this bimodal distribution at the

present time across the United States using gross sales data from the 1997 Census of

Agriculture.




Table 3-2: U.S. farm distribution by acreage, 1900-1997
1900 1940 1969 1978 1987 1997
Under 10 acres 4.7% 8.3% 5.9% 8.7% 8.8% 7.9%
10-49 acres 29.0% 29.2% 17.3% 19.2% 19.8% 21.3%
50-99 acres 23.8% 21.2% 16.8% 15.6% 14.9% 15.3%
100-499 acres 39.9% 37.0% 46.4% 41.3% 38.9% 36.3%
500-999 acres 1.8% 2.7% 7.9% 8.7% 9.6% 9.1%
1000 or more acres 0.8% 1.7% 5.5% 6.5% 8.1% 10.2%
Total number of 5,740,000 6,102,000 2,730,000 2,478,642 2,087,759 1,932,261
farmsI
Sources: Data for 1900-1969 are from Historical Statistics of the United States: Colonial
Times to 1970, Part 1, U.S. Department of Commerce, Bureau of the Census 1975. Data
from 1978-1997 are from the Census of Agriculture for each year.


This bimodal distribution, however, is not uniform across the United States, but reflects

geographic differences within U.S. agriculture. Studies of agricultural structure have

found that the types of farm operation tend to cluster, with corporate-commercial farming

concentrated in the southwestern U.S., particularly California, large individually-operated

farms concentrated in the upper Midwest, and small farm agriculture widely spread

across the county (Thomas, Howell, Wang, and Albrecht 1996; Wimberley 1987).










3 0 % .-
& ;. : .. .* ,:* :*",:,':** ^ "^
0 25%
20% ,....
,. .., : .: ,, ...... ., Less than $2,500
20% n 8$2,500 to $4,999
15 o "$5, 000 to $9,999
JE 15% ..C"
3 ,$10,000 to $19,999
S10% -*$20,000 to $99,999
U$100,000 and over
2 5%
0.
0% ---
Size of farm by gross sales

Figure 3-1: Distribution of U.S. farms by gross sales, 1997



Source: 1997 Census of Agriculture, U.S.D.A.


Figure 3-2 demonstrates that the bimodal distribution of farms characterizing the

U.S. as a whole is not predominant in Kentucky. For simplification, Figures 3-1 and 3-2

combine the largest gross sales categories from the Census of Agriculture ($100,000 to

$249,000, $250 to $499,999, and $500,000 or more), masking the fact that only 3% of

Kentucky farms, and no farms in the study counties, registered gross sales in the two

highest categories while 9% of farms nationally fall into those groupings. The

geographical regions are more similar on the smaller end of gross sales; in the U.S.,

Kentucky, and both study counties, from 20 to 25% of all farms had gross sales under

$2500 in 1997.

























Figure 3-2: Distribution of Kentucky farms by gross sales, 1997



Source: 1997 Census of Agriculture, U.S.D.A.


Between these relatively few large and highly productive farms and the numerous

but low-production farms is what has been called "disappearing middle"-medium-sized

family owned and operated farms. The alleged disappearance of the "traditional" family

farm, in which the family provides the bulk of the labor resources and the farm, in turn,

supports the family, has received a significant amount of attention from politicians, social

commentators, and researchers. Barlett, for example, argues that conclusions about the

disappearing middle are based on static definitions of mid-sized farms based on gross

sales data. She suggests that family farms are getting larger, but are still remaining family

farms-the middle isn't disappearing, but it is getting bigger (Barlett 1986). To

compensate for this "moving target" of the mid-sized farms, Gladwin and Zulauf defined

a mid-sized farm as one that can provide a standard of living comparable to the national

average. Using this definition, based on a comparison of net farm income and national


30%
25% : i "=;,:. "i :"

m Less than $2,500
20% .. $2,500 to $4,999
o $5,000 to $9,999
[a $10,000 to $19,999
10%0 $20,000 to $99,999
m $100,000 and over
5%
0%-- ---


Morgan Co.


Kentucky








household median income, they concluded that mid-sized farms did indeed decline in

terms of number, output, and profit (Gladwin and Zulauf 1989).

Concurrent with this decline in mid-sized farms, the small farm sector has

emerged as a persistent, rather than transitory, type of agricultural unit. In fact, small

part-time farms are the norm in the study counties, as will be discussed in Chapter 4.

Small farms, family farms, and part-time farms have received significant attention in the

context of U.S. agriculture, and while there is clearly significant overlap between these

types of farms, the overlap is not complete.

Definitions

Studies of agriculture in advanced capitalist countries tend to define farms based

on the use of hired and family labor, land area, and financial data such as gross sales and

net income. In the United States, the selection of variables is largely shaped by the type

of data collected by the Census of Agriculture conducted every five years. Acreage and

sales data are the most commonly used, in part, because these are "the only measures of

size consistently collected by the Agricultural Census, and thus the only measures

available on a national scope for an extended period" (Gladwin and Zulauf 1989).

Family farms

Peterson, Dickson, and Bowker (1989) discuss both emic and etic definitions of

the term "family farm" and how those definitions vary according to the uses being made

of the term. Based on a survey of anthropology and agricultural economics students, they

developed an emic definition of a family farm as one using the family as the primary

labor source, producing primarily for the market, and providing the main source of

income for the family. According to this emic definition, family farms are generally









passed down through generations and tend to have a high level of concern with

conservation in land management.

Etic definitions of the family farm developed by USDA officials and agricultural

economists tend to focus on the quantifiable elements of the emic definitions, particularly

the role of family labor sources and the amount of income generated by the farm. Gross

sales data is the type most commonly used by agricultural economists, with definitions

excluding both the very large and very small farms. According to Peterson (1989), most

agricultural economists define family farms as those with annual gross sales between

$40,000 and $250,000. As Table 3-3 shows, however, using this definition would exclude

the vast majority of farms in the country, and even more so in Kentucky and the study

region, from the category of family farms.




Table 3-3: Farms by annual gross sales
Annual gross sales U.S. Kentucky Morgan Co. Wolfe Co.
Under $40,000 71% 85% 93% 95%
$40,000 $249,999 21% 13% 6% 5%
Over $250,000 8% 3% 0% 0%
Source: 1997 Census of Agriculture, U.S.D.A.,


From a policy perspective that seeks to influence the level of agricultural

production, exclusion of farms generating low levels of gross sales makes sense, given

the low percentage of the marketed food in this country they produce. But from a

theoretical perspective examining the process of transformation of the agricultural sector

from domination by family farms to domination by capitalist farms, these low-income

farms should be included with other family farms. Fuller (Fuller 1984) suggests a

classification system differentiating between full-time farming households, in which no








members have off-farm employment, and multiple job-holding households, which can be

divided into those whose total off-farm income exceeds farm income and those where

farm income exceeds off-farm income.

Simple commodity production (SCP) is a more precise, theoretical term than

family farm, although the two terms are largely denoting the same phenomena in the

United States (Deere 1987). Simple commodity producers produce for the capitalist

market and depend on the sale of those commodities for access to the means of

production (land, labor, credit) rather than accessing the means of production through

direct, non-market means, such as kinship or communal labor-sharing arrangements

(Ennew, Hirst, and Tribe 1977; Friedmann 1980; Friedmann 1978).

Reinhardt and Barlett (1989) argue that the most important distinguishing feature

of a family farm is its dual role as a unit of both production and consumption, a feature

shared by part-time and full-time farms. Although the part-time farm relies on non-

household production in addition to on-farm work, the farming is still carried out

primarily by family members. If understanding why family farms have persisted under

capitalism is the analytical goal, part-time farms are an important part of the picture.

Part-time farms

Although part-time farms have been an increasingly common form of agricultural

enterprise in the United States, exactly what is meant by this term is not clear. Fuller

(1984) notes that studies commonly don't provide an explicit definition of a part-time

farm. Instead, most rely on a combination of the number of days spent involved in off-

farm work and the amount of income derived from off-farm sources, particularly

measured as a proportion of total farm revenue. He notes, however, that the difficulty in

effectively calculating farm income creates problems with this method. Fuller concludes








that differentiating between a part-time farmer and a part-time farm helps to clarify the

issue. A part-time farmer is one who works only part-time on the farm. A part-time farm

"is one for which, with the current level of resources, the labor demand is less than a full

year's work" (Fuller 1984:209). Unfortunately, the Census of Agriculture does not

collect data on the level of off-farm income or the labor "demand" of a given farm. The

collection of such data would be extremely difficult, as the level of capital investment in

agriculture can significantly decrease the number of human labor hours required

(Bonanno 1987). Labor data from the Census are limited to wage labor hired by farms

and days of off-farm labor performed by farm operators. Perhaps the best indicator of

part-time farming is self-characterization by farm operators. Table 3-4 shows that a

strong majority of farmers in the study counties consider farming their secondary

occupation. Similarly, Table 3-5 shows Kentucky farmers are more likely than farmers

elsewhere to work off-farm.




Table 3-4: Principal Occupation, as reported by farm operators
Principal occupation U.S. Kentucky Morgan Co. Wolfe Co.
of operator
Farming 50% 41% 35% 34%
Other 50% 59% 65% 66%
Source: 1997 Census of Agriculture


Small farms

Not surprisingly, there is significant overlap between part-time farms and small

farms. Within advanced capitalist societies, however, part-time farming exists among

family-operated farms from small to quite large. Conversely, many small farms are full-








time operations with little or no off-farm income, and these small farmers are historically

"overrepresented among rural poverty groups in the United States and elsewhere" (Buttel

1990:107). Clearly, the opportunities, needs, and constraints are significantly different

between full time and part time operators of small farms.




Table 3-5: Days worked off-farm by principal operator, 1997
U.S. Kentucky Morgan Co. Wolfe Co.
None 42% 37% 32% 37%
Less than 100 days 9% 8% 9% 7%
100 days or more 49% 55% 58% 56%
Source: 1997 Census of Agriculture


The most obvious criteria by which to measure farm size is acreage. However,

acreage requirements can differ vastly depending upon the type of farming operation.

Thus, while studies of upper Midwest grain farms have defined small farms as those with

50 acres or less (Harper, Fliegel, and Es 1980; Schroeder, Fliegel, and van Es 1985), a 50

acre tobacco farm could produce well over 100,000 pounds with a net income of

$100,000 or more. Even within the same type of farm, the quality of land can vary

greatly. A livestock producer, for example, can raise far more animals per acre in the

higher rainfall regions of the Midwest or south than in the desert southwest. Figure 3-3

displays farm acreage from the 1997 Agricultural Census for the U.S., Kentucky, and the

study counties. As with the gross sales data, the striking feature of Figure 3-3 is the

extremely small proportion of Kentucky farms in the largest size category. Interestingly,

Kentucky and the study counties have a considerably higher percentage of farms in the

middle range (50-179 acres) compared with the U.S. as a whole, even though gross sales

from Kentucky and study county farms are skewed towards the smallest categories. This








discrepancy reveals a limitation in using acreage to define small farms; without

understanding land use, absolute acreage can mean little. In the study counties, for

example, many farms include significant amounts of wooded, mountainous, and other

non-cultivable land. Thus, while the total land area may be large, the useable land area

may be considerably smaller.



50%
45% ....
a0 40% -> ......^' .j *-i; ......, .,;; -----*" "- "i~ff
40% ar
x~z. m1-9 acres
...................; 10-49acres
S30%
w 50-179 acres
25% ...
20% 180-499 acres
F m 500-999 acres
15%l B 1000 or more
5%
0%
U.S. Kentucky Morgan Co. Wolfe Co.



Figure 3-3: Distribution of farms by acreage, 1997.


Source: 1997 Census of Agriculture, U.S.D.A.


In addition to overestimating the amount of productive land, a reliance on

measures of land area ignores the importance of the type of farming operation. A twenty

or thirty acre vegetable farm, for example, is a considerably more substantial operation

than a similarly sized wheat or corn farm. For this reason, farm sales data has been the

most commonly used means of measuring farm size.








Because of the problems with using land area-based definitions, studies of small

farms tend to rely on gross sales (Albrecht 1992; Carlin and Crecink 1979; Schulman,

Garrett, and Luginbuhl 1985; Tweeten and Amponsah 1996). Gross sales have the

advantage of not being subject to such factors as intensity of agricultural operations, the

level of capital investment in labor saving technology, and other variables related to farm

management, focussing instead solely on output. Although there is no agreed upon cutoff

level for small farms, studies generally include those with $20,000 to $25,000 or less in

annual gross sales. Table 3-6 utilizes that dichotomy in presenting national, state and

county level gross sales data. By this definition of small farms, both Kentucky and the

study counties have a significantly higher percentage of small farms than the U.S. as a

whole.



Table 3-6: Small farms by gross sales, 1997
U.S. Kentucky Morgan Co. Wolfe Co.
Under $20,000 61% 73% 81% 88%
$20,000 and over 139% 27% 19% 12%
Source: 1997 Census of Agriculture, U.S.D.A.

Despite the utility of gross sales data in suggesting the scale of farming

operations, they provide little information on the relationship between these sales and the

well-being of farm operators. Several researchers have compared net farm income to

median household income in an effort to define farm size based on profitability. For

example, a U.S.D.A. definition of small farms includes

all farm families (a) whose family net income from all sources (farm and
nonfarm) is below the median non-metropolitan income of the state, (b)
who depend on farming for a significant though not necessarily a majority
of their income, and (c) whose family members provide most of the labor
and management (Carlin and Crecink 1979: 933).








Following these criteria, small farms are, by definition, low-income farms. There are

several problems with this sort of definition. First, it equates small farms with low

incomes. A very large farm, as delineated by definitions of gross sales or acreage, would

be classified as a small farm if its margin of profit is small. Second, substantially similar

farms could be classified differently solely due to differing levels of off-farm income. In

short, this definition is of a low-income farm household, rather than of a small farm. As

Carlin and Crecink note, proponentsns of this type definition generally are more

concerned about issues of limited resource farms and farm poverty than about other types

of issues" (Carlin and Crecink 1979:933).

Another effort to link definitions of farm size to external measures of well-being

was developed by Gladwin and Zulauf(1989). They looked at mid-sized, rather than

small, farms, and defined mid-sized farms as those providing a farm income equal to the

median U.S. household income, plus or minus 50 %. Thus to them, a mid-sized farm is

one that can provide its operators with a standard of living comparable to non-farm

households. This definition explicitly excludes off-farm income, focussing on the farm,

rather than the farm household. Presumably, any farm that provides its operators with less

than this level of farm income would be considered a small farm.

One fundamental definitional question about part-time farms and small farms has

to do with the primary focus of analysis. In the Census of Agriculture, emphasis is placed

on the principle operator, or the farmer. The section of the census form collecting

demographic data asks only about the residence, principal occupation, off-farm work,

age, race, gender, and ethnicity of the operator (senior partner or person in charge) of the








farm (U.S.D.A. 1999:D-12). Many researchers, however, have stressed the importance of

focussing on the farm family, rather than just the principal operator.




Theories of Agricultural Change

The changes taking place in U.S. agriculture have, in many respects, been

paralleled by changes in eastern Kentucky agriculture. While eastern Kentucky has seen

few of the large farms making up part of the national bimodal distribution of farm sizes,

the challenges facing family farms in the region are much like those facing family farms

across the nation. Agricultural economists, rural sociologists, anthropologists, and others

have debated the theoretical aspects of the changes in U.S. agriculture, and those

theoretical discussions can shed light on the eastern Kentucky agricultural structure and

economy as well.

Family Farms in a Capitalist Economy

The presence of family farms within an advanced capitalist economy such as that

of the United States has posed an intriguing challenge to agricultural theorists. Why has a

fundamentally non-capitalist form of production-one based on family rather than wage

labor-continued to persist rather than being subsumed by capitalist farms?

The single most important distinguishing characteristic of capitalist enterprises is

the separation of labor from the means of production and the consequent sale of labor as a

commodity (Roseberry 1989; Wolf 1982). Put more simply, capitalists hire labor, rather

than doing the majority of the work themselves. On family farms, the resident kin group

provides the bulk of the labor needed to work the farm, while on capitalist farms, hired

labor (and often management) carry out the work in return for a wage (Reinhardt and








Barlett 1989). Related to this distinction are differences in the objectives of the family

farm and the capitalist farm. In the latter, the farm is seen as an investment, and the

success of that investment is seen in the ability to earn a rate of profit comparable to that

which could be obtained in other investments. In contrast, while family farmers are also

vitally interested in the ability to make money from the farm, they may also have other

objectives, such as maintaining a rural lifestyle (Reinhardt and Barlett 1989) or passing

the farm on to the next generation (Salamon 1989; Salamon 1992). These kinds of

subjective orientations have encouraged the persistence of family farms even when the

family's investment of capital and labor could earn a higher return outside of agriculture.

The Future of the Family Farm

The future of the family farm in advanced capitalist economies has been

approached from a variety of perspectives by researchers. Neo-classical economists have

argued that capitalist growth combined with relatively inelastic demand for food has

allowed consumers to spend a decreasing proportion of their rising incomes on food. At

the same time, technological advances have resulted in an increased supply of food,

leading to a drop in farm prices. Together with government commodity pricing programs

which favor increasingly larger farm operations, these decreasing prices are pushing mid-

sized farmers to either expand production, cut back and become part-time farmers, or

leave the agricultural sector altogether. As a result of these forces, the number and

contribution of mid-sized farms decreased dramatically even prior to the farm crisis of

the 1980s. However, during the decade prior to the farm crisis, the number of part-time,

small farms remained fairly constant while their share of the total number of farms has

increased (Gladwin and Zulauf 1989). This suggests that while not producing significant

amounts of produce for the market, part-time farming has proven a viable means for








many farmers to stay in agriculture. Neo-classical economics does not, however, provide

a compelling explanation for why part-time farmers have remained in agriculture. That

has been the subject of considerable debate among Marxist and neo-Marxist scholars of

U.S. agriculture.

Marxist Perspectives on the Family Farm

Buttel (1990) notes that the persistence of family farms in an otherwise

predominately capitalist economy led most North American rural sociologists to discount

the validity of Marxist models, which were seen as predicting the displacement of family

farms by capitalist farms. Marxist and neo-Marxist scholars, however, have taken two

major routes to explain the seeming persistence of family farms under capitalism. The

first school, represented by de Janvry and Deere (de Janvry 1981; Deere 1987; Deere and

de Janvry 1979), sees the development of capitalist relations within agriculture as

inevitable and looks at the ways the state encourages a shift from simple commodity

production to larger capitalist farms. The second school, represented by Mann and

Dickinson (1978), seeks to explain the persistence of non-capitalist forms of agrarian

production. The broad theoretical debates between and within these schools of thought

can inform studies of agricultural change on the local level, helping place that change

into a larger context.

The inevitability of capitalist agriculture

While recognizing that noncapitalist forms of agricultural production have

persisted far longer than many had expected, one group of theorists emphasizes how,

regardless of the pace, U.S. and other Western agriculture is moving inexorably towards

capitalist development and proletarianization (de Janvry 1981; Deere 1987; Deere and de

Janvry 1979). This perspective emphasizes the role of the state in promoting capitalist








development through state-sponsored research aimed at reducing some of the risks and

conditions that make investments in agriculture less attractive to capital. Examples of

such government actions promoting capitalist agriculture include the development of crop

varieties that mature faster or are less susceptible to pests, promotion of capital-intensive

technology appropriate to larger-scale farming, investment in irrigation which has

facilitated large-scale capitalist farming in the American Southwest, and commodity

programs that can make the agricultural sector more conducive to capitalist investment'

(Buttel 1990). Empirically, there is some evidence that the differentiation of farms into

part-time, semi-proletarianized farmers and large-scale capitalist farms is occurring in the

United States. In areas such as California where agricultural production can go on nearly

year round, capitalist farms proliferate (Thomas et al. 1996; Wimberley 1987).

Nationwide, the disappearance of mid-sized farms demonstrated by Gladwin and Zulauf

(1987) is resulting in an increasing part-time farm sector, in which dependence on off-

farm work is growing. While this clearly demonstrates the process of the

proletarianization of many farmers that goes hand-in-hand with farm consolidation, the

evidence indicating that larger farms are becoming capitalist is less convincing. Since

labor requirements on large farms can be and often are fulfilled by increasing investment

in technology, the separation of labor and ownership of the means of production which

signifies the transition to capitalism is not a given.

The persistence of non-capitalist agriculture

In contrast to this emphasis on the ways capitalism is penetrating the agricultural

sector of the United States and other capitalist economies, other theorists have explored


1 As will be discussed in Chapter 5, government actions can have the opposite effect. The
federal tobacco program has served to maintain simple commodity production in the








the reasons for the persistence of non-capitalist forms of agricultural production,

particularly family farms. This school of thought, represented by Mann and Dickinson

and Friedmann (1980; 1978), looked to elaborate Marxist explanations for the slow and

uneven penetration of capitalism into the agricultural sector. According to Mann and

Dickinson (1978), the seasonal and high risk nature of agricultural production make it

relatively unprofitable and thus a less desirable arena for investment of capital. The

seasonality of temperate agriculture means that productive resources (such as land and

machinery) are left unused for relatively long periods, while the vagaries of weather,

pests, and other natural risks have been more difficult to control than risks in industries

such as manufacturing. These barriers to capitalist penetration of agriculture are not,

Mann and Dickinson (1987b) stress, immutable, but do help explain the persistence of

noncapitalist forms of production in agriculture. Netting (1989) elaborates on some of the

advantages family farms have over capitalist farms that hire labor, including higher labor

reliability and productivity and greater ease of management in small farm operations.

This analysis of advantages family farms have over capitalist firms is largely held by

neoclassical analysts as well as Marxists (Gladwin and Zulauf 1989). Mann and

Dickinson go beyond this description of family farm advantages, however, to discuss

some of the actions of the state designed to facilitate capitalist agriculture, actions which

will be discussed below.

Another competitive advantage family farms hold over capitalist agriculture

relates to the objectives of the enterprise discussed above. Many family farmers have

proven willing to operate even with incomes below that which would be needed to make



study region, making capitalist penetration of this type of farming difficult.








the profit capitalist farms require (Deere 1987; Friedmann 1980; Friedmann 1978;

Reinhardt and Barlett 1989), particularly considering the relatively large capital

investment in land and machinery common in farming. Non-economic objectives of

family farmers focus on farming as a lifestyle, rather than just an occupation, and may

include such lifestyle issues as working together as a team, raising children in an

agricultural setting, and love of the land (Garkovich, Bokemeier, and Foote 1995). It

should be noted that family farmers differ in their objectives and how satisfied they are

with low rates of return in agriculture (Garkovich, Bokemeier, and Foote 1995); Salamon

(1989; 1992) has distinguished two groups of farmers in the Corn Belt of Illinois, groups

which generally reflect ethnic background and are differentiated by the importance of

entrepreneurial profit in their farming objectives. Barlett (1993) describes different

management styles among Georgia farmers that vary by the importance of rapid growth

and short-term profit, noting that the more ambitious managers (those focused on growth

and high profits) were the farmers most likely to go out of business during the farm crisis.

In sum, the differing objectives and the biological and managerial advantages held by

smaller family farms have slowed the rate of capitalist penetration into the agricultural

sector, but the trend is towards an increasingly important role for capitalist farms.

A modification of this second school of thought, advanced by Mooney (1983;

1987), suggests that capitalism has already significantly penetrated the agrarian sector of

advanced capitalist economies such as the United States. Central to his argument is the

proposition that the complete separation of labor and the ownership of the means of

production is not a prerequisite to capitalism in all cases. Specifically, he argues that

simple commodity production can persist within capitalism because of the development








of "more efficient, less risky means by which capital may appropriate the surplus value of

direct producers in agriculture" (Mooney 1983). He suggests that tenancy, debt, contract

production, and off-farm work are all mechanisms by which farmers can retain control

over the means of production and thus resist proletarianization. Through each of these

mechanisms, surplus value is extracted from simple commodity producers by non-

agrarian capitalists-landlords, financiers, agribusiness, and employers, respectively.

These mechanisms by which capitalism indirectly penetrates simple commodity

production all exist in the study region, as will be discussed in later chapters.

Mooney continues his analysis by criticizing structural Marxist explanations for

the uneven penetration of agriculture by capitalism. He argues that the reliance on

structural factors, such as those used by Mann and Dickinson to explain why capital has

not been attracted to agriculture, ignores more subjective reasons why farmers are willing

to go to extreme lengths to remain in farming. As discussed above, the objectives of the

farm family have been seen by many as an important difference between simple

commodity producers and capitalist farms (Friedmann 1980; Friedmann 1978; Reinhardt

and Barlett 1989; Salamon 1989). Indeed, farmers in this research repeatedly stressed

such motivations as a desire to work outdoors and to be one's own boss when explaining

their continued participation in farming. Accused of over-reliance on such subjective

factors (Mann and Dickinson 1987b), Mooney stresses that he is interested in the

interaction of such subjective reasons with the objective conditions focused on by neo-

Marxist analyses (Mooney 1987).

Precursors to the disappearing family farm debate

This debate over the fate of family farms in capitalist economies is not a new one,

nor is the debate over the relative importance of structural and subjective factors. An








initial version of the debate took place in the works of A.V Chayanov and Lenin over the

future of the Russian peasantry, and a later version centered on the future of the peasantry

in Latin America, particularly Mexico, in the 1970s. Much of the Chayanov-Lenin debate

centered around the level of integration of the family farm sector with the market

economy. Chayanov argued that peasant or family farm in Russia and much of the rest of

the non-European world was not tightly connected to the market economy and that

production decisions were made based on family needs and resources at various stages of

the demographic cycle. The separation of the peasantry from the larger society also

shielded them from the infinite wants which keep people in a market economy working

beyond that needed for minimum levels of subsistence. Lenin, on the other hand, felt

Russian peasant was closely integrated into the national market economy. This

connection to the capitalist economy, he argued, was leading to differentiation (and

eventual elimination) of the Russian peasant population into capitalists and proletarians.

While some of this debate foreshadowed the current debate over the future of the family

farm in industrialized countries, in particular the role ascribed to subjective factors

affecting the growth of capitalist agriculture, there are important differences. Most

importantly, family farmers in the U.S. and other industrialized countries are not

separated from the market economy, as Chayanov argued the Russian peasantry was.

Most family farmers today consume little of their own production and rely on sales of

commodities to support the household.

The campesanista-decampesanista debate in Latin American studies also

examined the future of peasant/family farmers but did so in the context of dependent,

peripheral economies. A number of researchers have suggested Appalachia is an "internal








periphery", with much the same relation to the larger U.S. economy as other peripheral

regions have (Lewis, Johnson, and Askins 1978; Lohmann 1990; Walls 1978). The

campesanistas, led by Roger Bartra, argued that the peasantry serves important functions

for the capitalist sector, providing capital with both cheap food and cheap semi-

proletarian labor (Deere 1987; Harris 1978). The campesanistas saw, however, the

process of depeasantization/proletarianization advancing (Harris 1978), but argued its

pace was limited because a peripheral capitalist economy would be unable to absorb a

fully proletarianized peasantry. The campesanista position, then, focuses on the structural

conditions that shape inevitable rural proletarianization and the penetration of agriculture

by capitalism. The decampesanistas, on the other hand, focused on the subjective role of

the peasants in actively resisting full proletarianization, through collective efforts to stay

tied to the land. They called attention to efforts by peasant groups throughout Mexico

(and Latin America in general) to strengthen consciousness of peasants as a class with

common interests and to advance those interests through local and national politics

(Deere 1987; Harris 1978). Much of this debate is not central to the U.S. situation

because the number of U.S. farmers pushed off the family farm is quite small, relative to

the size of the total national labor force. In some regions, such as Appalachia, the

campesanista/decampesanista debate is more relevant, since there are not adequate full-

time wage labor jobs for farmers struggling to maintain the family farm. Collective action

of the type described by the decampanistas were important in the development of the

tobacco program in the early 20th century, as discussed in the previous chapter. However,

there seems little evidence today of collective action or consciousness on the part of small

farmers, either in the U.S. as a whole or in Appalachian Kentucky.








Implications of U.S. Agrarian Change

This examination of change in the agricultural structure of the United States

reveals several key facts. First, farm size, measured by acreage or gross sales, has taken

on a bimodal distribution. Relatively few very large farms produce the bulk of

agricultural products in the U.S., while small farms have grown in numbers, if not in

share of agricultural output. Second, part-time farming has proliferated, as smaller farms

turn to off-farm labor to supplement farm income. Third, the family farm, characterized

by a reliance on family sources of labor, has not been replaced by capitalist agricultural

firms.

The persistence of small, part-time, and family farms in the advanced capitalist

economies of the world has posed intriguing theoretical questions. Is this persistence just

a bump in the road to a more fully capitalist agricultural sector, or are there fundamental

structural reasons for the slow and limited penetration of agriculture by capitalist

economic relations? What is the role of subjective factors, such as a desire to remain in

farming and to pass the farm along to future generations, in the ability of family farms to

operate under conditions that make agriculture an undesirable arena for capital

investment?

While recognizing the dominance of structural factors in the development of the

U.S. agricultural economy, I agree with Mooney and the decampanistas that non-material

factors can shape that development. As will be seen in the next chapter, this debate over

the relative importance of structural and other factors has been prominent in non-

agricultural studies as well. This research consistently found that when asked about their

reasons for farming, the objective criteria of economic return was far less important to

Appalachian farmers than non-economic factors such as a love of farming. Incorporating






43


such subjective motivations does not alter the long-term trend towards the penetration of

capitalist relations in agriculture, as the discussion of changes in the tobacco economy in

Chapter 5 will reveal. Subjective factors can, I will argue, shape the form and pace of the
development oa capitalist agricultural system.
development of a capitalist agricultural system.













CHAPTER 4
APPALACHIAN CULTURE AND AGRICULTURE

What is Appalachia? Is it a geophysical region, a subculture, a political creation,

an internal colony, or a figment of overactive imaginations? Various scholars have

characterized the region in each of these ways, and each is a partial, but only partial,

answer to the question. In the nearly four decades of the field of Appalachian studies,

defining the entity being studied has proven to be an elusive goal. It is an important goal,

however, as many have attributed the economic and social problems facing the region as

a result of its special circumstances. Debates within Appalachian studies offer competing

explanations for the social and economic realities in the region, including the shape of

agricultural change in Appalachia.

As Chapter 3 demonstrated, the changes in agriculture in eastern Kentucky are

part of a larger trend in the U.S. agricultural sector. While eastern Kentucky lacks the

large farms responsible for most agricultural production in the United States, the

predominance of the small-farm sector in eastern Kentucky is similar to that found across

the country. The question then arises about how similar tobacco farming in eastern

Kentucky is to small-scale farming elsewhere in the United States. Do Appalachian

farmers make the decisions they do because of their shared Appalachian cultural values,

or are their motivations similar to those of small-scale farmers in other regions of the

United States?








Appalachian Natural, Social, and Economic History

Understanding of a region begins with an understanding of the environmental and

historical forces that have shaped that region. Environment, particularly in the case of

Appalachia, has been used as an explanation for its (supposedly) unique cultural

attributes and its economic situation, including the persistent poverty that characterizes a

significant portion of the region. The social and economic history of Appalachia has also

had a major impact on the cultural and economic development of the region.

The Environment

Mountains, trees and coal are the fundamental environmental features that have

shaped human development of the region. The Appalachian mountains are composed of

three parallel belts running from northeastern Alabama to southern New York. The

easternmost belt, known as the Blue Ridge Belt, ranges from ten to sixteen miles wide in

Virginia and Maryland to seventy miles wide in North Carolina. The eastern slopes of the

Blue Ridge are rugged and steep, with altitudes ranging over 6000 feet. The western

slopes of the Blue Ridge, in contrast, are more gradual, giving way to broad valleys. The

Great Smoky mountains form the northwestern boundary of the Blue Ridge Belt, in

eastern Tennessee and northwestern North Carolina (Campbell 1969).

The central belt of the Appalachians is the Great Valley, or Appalachian Valley.

The Valley encompasses Pennsylvania's Cumberland Valley, the Shenandoah Valley of

Virginia, and the Coosa River Valley of Georgia and Alabama, and served as a major

migration route for European settlers moving into the southern United States (Beaver

1984).

The westernmost belt is the Allegheny-Cumberland Belt or Cumberland Plateau,

the region in which this research was conducted. John C. Campbell, who with his wife









Olive Dame Campell conducted the first scholarly study of the region they coined "the

Southern Highlands," described the Cumberland Plateau "as a great wall facing the

Greater Appalachian Valley and sloping gradually to the northwest toward the Interior

Lowlands" (Campbell 1969:15). As another writer puts it, after passing over the ridges

and valleys of the eastern belt, "you will reach a wooded ridge that fails to descend into

any valley" (Salstrom 1995:76-77). The Plateau is an ancient mesa with thousands of

narrow, twisting hollows formed by erosion. Most of the resulting landscape is hilly and

wooded, with only narrow valleys around streams and relatively wide ridges providing

the level and rich land needed for crop production. Peaks in the Cumberland Plateau

reach altitudes of four thousand feet in Kentucky and Virginia, and the region

encompasses all of West Virginia, the eastern third of Kentucky, and eastern Tennessee.

The Cumberland Plateau is where the richest coal deposits in the eastern United States

have been mined for over a century (Beaver 1984).

Scholars utilize varied terminology to refer to different parts of Appalachia. In

addition to the geophysical regions discussed above, reference is commonly made to

southern Appalachia and central Appalachia. Southern Appalachia generally refers to that

part of the region below the Mason-Dixon line, i.e., all of West Virginia, Kentucky,

Virginia, and other Appalachian states to the south. The term central Appalachia denotes

the Appalachian counties of West Virginia, Kentucky, and Tennessee. Accordingly,

central Appalachia and the Cumberland Plateau refer to roughly the same region.

Northern Appalachia has received considerably less attention; it refers to the Appalachian

counties in Maryland, Pennsylvania, New York, and Ohio. This terminology is not hard

and fast, and some of it conflicts with the regional designations used by the Appalachian









Regional Commission, the federal agency charged with economic development of the

region.

The mountains and valleys of Appalachia are blanketed by deciduous forest,

including oak, hickory, maple, walnut, and-until blight devastated the population by the

1930s-American chestnut. As late as 1900, over 75% of the southern portion of

Appalachia, including all of Appalachian Kentucky, remained in woodland. The forests

supported, and continue to support, varied wildlife, including the now prominent deer and

wild turkey.

Within the mountains of central Appalachia lie vast deposits of coal, formed over

300 million years ago from decaying plants and other organic matter. Appalachia has

long been a primary source for bituminous coal, a type of coal historically in high

demand due to its heating potential. While a considerable portion of the region's coal has

already been mined, and Appalachia's share of national coal production has dropped with

the development of coal strip mines in the American west, Appalachia retains over one-

fourth of the underground and one-eighth of the surface reserves of coal in the U.S.

(Harvey 1986).

The environment of eastern Kentucky offers an important clue for some of the

differences in the shape of agricultural change in Appalachia compared to the nationwide

agricultural changes discussed in the previous chapter. The rugged topography of the

region limits farming to relatively small fields in the valleys and hollows among the

mountains. These small, non-contiguous fields present a barrier to the efficiencies of

scale that can give large farms a competitive advantage over their smaller counterparts.








Human History

Prior to European settlement, Native Americans-ultimately the Cherokee-

utilized central and southern Appalachia for hunting and gathering wild food sources.

The Cherokee population was concentrated in settlements along river banks in the Blue

Ridge region, particularly eastern Tennessee, western North Carolina, northern Georgia,

and northwestern South Carolina, where they practiced horticulture based on corn, beans,

and squash. While horticulture and permanent settlements were concentrated in the Blue

Ridge, a wide expanse of Appalachia was used for hunting grounds, including most of

Kentucky (Goodwin 1977). In Kentucky, the last known Indian town was in present day

Clark County, on the western edge of Appalachian Kentucky. That town, however, was

abandoned during the 1750s, and

when European explorers and then pioneers began to appear in greater
numbers [after 1750], the area that became Kentucky had no permanent
Indian settlements, with one or two possible minor exceptions. A number
of tribes continued to use the land, however, sometimes setting up hunting
camps that might remain fixed for months at a time, sometimes hunting in
the area for shorter periods, sometimes waging tribal warfare, sometimes
using the land as a passageway between northern and southern tribes
(Harrison and Klotter 1997).



The settlement of Appalachia by whites did not take place in a uniform fashion or

simultaneously across the entire region. Salstrom posits three economic subregions of

southern Appalachia, each with its own pattern of settlement and economic development.

What Salstrom calls "older Appalachia" was the first of southern Appalachia's regions to

be settled by whites. It encompasses the Appalachian Valley, from northwestern

Virginia's Shenandoah Valley to northeastern Alabama, over 600 miles away. Salstrom

describes the settlement period of older Appalachia as being rife with entrepreneurship








and land speculation, rather than the subsistence agriculture often associated with

Appalachia. Agriculture primarily focused on livestock, taking advantage of plentiful

land, "and relatively little effort often sufficed to guarantee everyone's subsistence,

leaving people with time to seek income beyond their actual needs" (Salstrom 1995:81).

Salt deposits led to thriving businesses based on long distance trade, and the salt industry

stimulated the iron industry, due to demand for kettles to boil down brine to make dry

salt. The economy of the region was vibrant, with barter often more important than cash

exchange. Growth was rapid through the 1830s, when growth in the region slowed

considerably. Older Appalachia, according to Salstrom, was spared the population

pressures that later plagued other regions of Appalachia because there remained vast

unsettled spaces to the west, providing an outlet for the growing population.

Intermediate Appalachia, according to Salstrom's typology, developed to the

south and east of older Appalachia in the mountains and valleys of North Carolina and

Georgia. The western highlands of this region remained in Cherokee control until the

1830s, delaying settlement by whites until the Appalachian Valley to the northwest was

heavily populated. Although settlement began much earlier, the rate of population growth

peaked from the 1820s through the 1840s, with growth continuing through the end of the

century. As the frontier of intermediate Appalachia pressed west, a lively extraction

economy based on furs, ginseng, and gold, developed along with farming and raising

livestock.

As the last of Appalachia's three subregions to be settled, newer Appalachia

developed in the Cumberland Plateau portions of eastern Kentucky, southwestern West

Virginia and east-central Tennessee. According to Salstrom,








It constituted the last extensive frontier in the eastern United States. Not
until the 1880s did its frontier conditions show signs of ending, and some
of it remained wilderness into the twentieth century. Thus this last-settled
subregion was still partly frontier during the rapid industrialization that
began here in the late nineteenth century.(Salstrom 1995)



Settlers of European descent entered the Cumberland Plateau of Kentucky from

two directions. The northern parts of the Plateau, what is now east central Kentucky,

were settled from the west, with settlers entering from the Bluegrass region of Kentucky

around Lexington. The part of the Plateau that is now southeastern Kentucky was settled

from the east, with pioneers passing through the Cumberland and other gaps from the

Appalachian Valley. Groups of settlers would seek out valleys, preferably with fresh-

water springs and/or salt licks, where they would establish homesteads (Collins, Eller,

and Taul 1996). The development of this Appalachian frontier followed a regular pattern:

During the early settlement period, hunting and gathering were
commercially more important than agriculture. Generally, within the first
year, the frontier family had harvested enough to meet its immediate
needs. By the end of the second year, there was sufficient food to feed the
additional livestock. A surplus sometimes remained at the end of the third
year. When the harvests of field and forest exceeded the needs of the
family, the farmer began to consider ways to turn the surplus into needed
goods and services. (Collins, Eller, and Taul 1996:3)



As the Cumberland Plateau accommodated more and more people, newer

Appalachia faced a problem not encountered in the earlier epochs of Appalachian

settlement. While U.S. territorial expansion provided an escape valve for earlier

population pressures, by the time the Cumberland Plateau began to reach the end of its

frontier period, most of the western frontier lands had also been claimed. As a result,

newer Appalachia saw average farm size decrease by nearly two-thirds from 1850 to









1890, a higher rate of decrease than in either of the earlier settled parts of Appalachia

(Salstrom 1995). Nonetheless, self-sufficient farming remained a goal; in the late 1800s

and early 1900s, as capitalist firms were beginning to develop resource extraction

industries in the region, Appalachia had the greatest proportion of self-sufficient farms in

the nation, and even as late as 1930, there were over 150,000 self-sufficient farms in the

region (Eller 1979; Precourt 1983). The ethnographic studies of Beech Creek beginning

in the 1940s have provided a glimpse into the family-based subsistence farms of

Appalachia in the more isolated parts of the Plateau. Beech Creek is the pseudonym for

an eastern Kentucky community that was extremely isolated and still roadless when

sociologist James Brown first studied the area. While we should be careful not to assume

that this was a timeless, unchanging community exactly parallel to Appalachian

communities of a century earlier (Lewis and Billings 1997; Wolf 1982), the high level of

subsistence agriculture as late as the 1940s does demonstrate the potential for agricultural

self-sufficiency in this environment. As Billings, Blee and Swanson relate, "In the 1940s,

eighty-nine percent of all farm production was consumed at home, and only a small

surplus (principally tobacco) was marketed commercially. Despite some part-time wage

labor and the influx of government monies through pensions and farm subsidies, cash

levels in the neighborhood were exceedingly low. Annual expenditures averaged $84 per

capital in 1942" (Billings, Blee, and Swanson 1986:155). Furthermore, this high level of

farm self-sufficiency was recorded when population pressures had led to small

landholdings and less ability to supplement farm products with hunting.

Despite the ability of farmers in more isolated regions such as Beech Creek to

sustain a subsistence agricultural economy, the picture was not the same in more








accessible parts of Appalachia. The rapid decrease in farm size, coupled with increasing

competition from newly mechanized Midwestern farms, facilitated the industrial

development of the Cumberland Plateau. With decreasing landholdings and less

opportunity to sell agricultural surplus, Appalachian farmers became a ready pool of

wage labor for the capitalist enterprises that were beginning to take an interest in the

natural and human resources of the region.

Industrial Development in Appalachia

After the Civil War, industrial expansion accelerated rapidly in the United States.

By the late 1880s, timber resources in the northeastern U.S. began to diminish, and

eastern industrialists turned to Appalachia for new sources of virgin timber. Initially,

logging was selective, with farm families cutting the most highly desired trees in the

agricultural slack season. These logs were then transported, usually via creeks and rivers,

to large lumber mills in Nashville, Frankfort, Cincinnati, and other cities. This initial

stage of timber exploitation did not significantly alter agrarian life in Appalachia; logging

was done by families, rather than logging crews, and provided some much needed cash

income to farm families (Eller 1982).

While such a system benefited farmers, it did not provide lumber mills with the

needed steady supply of raw materials. By the 1890s, railroads had been built through

much of Appalachia, and timber companies began to buy large tracts of timberland, hire

logging crews, and ship the logs to mills by branch rail lines. As Eller describes it:

between 1890 and 1920 the lumber barons purchased and cut over huge
tracts of mountain timberland, devastating the region's forests in one of
the most frenzied timber booms in American history. For thousands of
mountaineers, the coming of the timber industry not only meant the loss of
valuable woodland, but it meant the first major form of nonagricultural
work as well (Eller 1982:87).










As the timber resources became increasingly depleted, development of

Appalachia's extensive coal resources accelerated. Linked to the national economic

recovery from the economic panic of 1893, coal production in Appalachia skyrocketed;

by 1930, Appalachian coal accounted for nearly 80% of all U.S. coal production (Collins,

Eller, and Taul 1996). This rapid growth was facilitated by the historical settlement

pattern of the Cumberland Plateau region and the concurrent disappearance of the frontier

elsewhere in the United States. As Salstrom explains,

the sequence of settlement does not, of course, explain why rich seams of
bituminous coal underlay the plateau, but the plateau's late settlement
does help explain why so much of its coal was mined. Coal extraction
came to dominate newer Appalachia's economy not only "because it was
there" but also because a subsistence crisis began to threaten this
subregion, motivating many of its people to work for wages so low that
numerous coal operators were attracted to the plateau from perfectly good
coalfields elsewhere in the United States. (Salstrom 1995:90)

Agriculture remained important, as subsistence farming effectively subsidized the low

wages paid to miners. By the early part of the 20th century, some coal operators had even

started to encourage their employees to plant large gardens by providing free fencing and

plowing, and seeds and fertilizer at cost (Salstrom 1995). This function of agriculture in

subsidizing industrial development is a common pattern globally and is often cited as one

reason for the persistence of family-based agriculture in industrializing regions (de

Janvry 1981; Deere and de Janvry 1979).

The region known commonly known as Appalachia, then, has a unique social and

economic history as a result of its position as the last frontier region in the eastern United

States. But does that history make Appalachia a distinct subcultural entity within the








larger United States culture? While many casual observers would accept the notion that

Appalachia has a distinct culture, Appalachian scholars are far from agreed on that point.




Does Appalachia Really Exist?

Appalachia, as a region, has been the subject of extensive public and private

endeavors to enhance development-economic, social, and educational-over the last

forty years. Many of these programs, administered by groups such as the Christian

Appalachian Project, are specifically targeted at Appalachia as a distinct and unique

region. The agricultural programs affecting Appalachian farmers, however, are generally

not specific to the region but are state- or nation-wide in scope. If Appalachia is a truly

distinct and unique cultural region, a strong case could be made that agricultural

programs there need to be tailored to the region. A review of the Appalachian studies

literature suggests that the evidence for the existence of Appalachia as a separate

subculture is tenuous, at best.

The Invention of Appalachia

During most of the period of its settlement, Appalachia was not viewed as a

distinctive cultural region, but instead as one of a number of frontier regions in the United

States. Starting in the last quarter of the nineteenth century, however, the term

Appalachia began to take on cultural, instead of just geophysical, connotations. One of

the first characterizations of Appalachia as a cultural region distinct from the rest of the

U.S. was the travel account of Will Wallace Harney, a doctor who wrote about his

experiences in an 1873 article in Lippincott's Magazine called "A Strange Land and

Peculiar People" (Shapiro 1978). This title, which has become infamous in Appalachian








studies, helps demonstrate how the region is defined as "other" than the larger American

culture. A number of Appalachian scholars have suggested, in fact, that the entire

designation of Appalachia has been created, promoted, and maintained by outsiders.

These scholars trace the grouping of the mountain south under the label Appalachia to

writers in popular magazines on the East Coast, such as Lippincott's, during the post

Civil War era. These "local-color" writers described several parts of the United States,

including Appalachia, as being distinct from and out of step with urban America. Local

color writings included travelogues, such as Harney's, and short fiction placed in

locations new to the Eastern readership of the literary magazines that published the work.

Much of the fiction was placed in "olden times," the pre-Civil War period before

America became industrialized, modernized, even civilized. The local color

writers sought to describe to their readers different ways of life from the accepted norm,

drawing comparisons between the lives of the (normal) readers and the exotic subjects.

While the local color movement wrote about many parts of America, their focus on

Appalachia was unique, as Shapiro (1978:17) describes it.

Unlike most of the areas described by the local colorists, Appalachia was
not in fact separated from America by ethnic, geographic, or chronological
distance. The mountaineers were native-born, white, Anglo-Saxon,
Protestant. The mountain region was not only in America, but in that part
of America which had been settled by the first generation of frontiersmen,
hence where the rude conditions of the frontier ought long ago to have
given way to the more sophisticated and "civilized" conditions of modem
life. It was indeed the perception of the "otherness" of Appalachia despite
this similarity and proximity which had seemed most intriguing to the first
group of writers who followed Harney's lead in using the southern
mountains as subject or setting for literature.

This characterization of Appalachia as the other was the fundamental product of

the "invention of Appalachia" as Batteau (1990) calls it. The region was presented not as

it was, but as outsiders wished it to be. The impact of the local color movement on the








nation's perception of the Appalachian region was significant. No longer was Appalachia

just another frontier region, complete with the problems and opportunities common to all

frontiers. The local color writers played a major role in defining Appalachia to the rest of

the country, and the solidifying image of Appalachia they advanced incorporated and

perpetuated many of the negative stereotypes now commonly held about the region,

including sensationalist subjects such as moonshining, feuding, and random violence.

Furthermore, the popular perception that Appalachians were a group apart from the rest

of the country helped direct, and was reinforced by, political focus on the region.

The Politics of Appalachia

The image of Appalachia as the other was reinforced by its discovery by

American politicians, particularly following John F. Kennedy's presidential primary

campaign in West Virginia. The report of the President's Appalachian Regional

Commission, which led to the creation of the Appalachian Regional Commission (ARC),

stressed the distinctiveness of the region as separate from the country as a whole and the

need to bring Appalachia and its people into full membership in American society

(Isserman 1997; Roosevelt 1964). By 1967, there were 397 counties in 13 states officially

designated as Appalachia by the ARC (Wood and Bischak 2000). Nine more counties

have since been added by Congress, bringing the total number to 406 counties. The

designation of a county as part of Appalachia has often been due to political, as much as

any other reasons (Bradshaw 1992). Official designation of a county as part of

Appalachia opens the door to significant federal resources, and the resulting range of

counties considered Appalachia is vast.

Since 1965, over $15 billion has been spent by the ARC, along with state and

local governments, on economic and social development programs in Appalachia. The








majority of these funds have gone to highway development, with additional support for

programs to promote business and community development, better housing and health

care, and educational improvement (Wood and Bischak 2000). Funds for Appalachian

development were severely slashed during the 1980s, and while funding for highway

programs have since risen, appropriations for other programs remains severely limited,

and overall funds remain well below levels attained in the 1970s (Wood and Bischak

2000).

Self-definition in Appalachia

After more than a century of outsiders' labeling the mountains of Kentucky, West

Virginia, Tennessee and neighboring states as "Appalachia", it is interesting to note that

the label is little used by the people of the region. People involved in the economic

development and handicraft industries have reason to use the term Appalachia; in the

former case Appalachian identity opens doors to funding sources, and in the latter case it

provides a coherent image around which a myriad of crafts can be identified and sold.

Outside of these groups, however, I have not heard the term "Appalachia" used in nearly

two years of fieldwork in the region. Instead, people generally identify themselves by

their county of origin or residence or, more rarely, as residents of "the mountains." The

farmers I have worked with acknowledge some shared problems created by topography

(small field size) and distance to population centers, but do not express any regional

commonality due to shared values or customs. Indeed, the evidence for the existence of

Appalachia would not seem to justify tailoring agricultural programs specifically to the

culture of the region, as opposed to focusing on problems common to farmers throughout

the country. However, Appalachia does exist as a region in the minds of most Americans,








and central Appalachia in particular shares a legacy of poverty, low educational levels,

and physical distance from major population centers.




Appalachian Kentucky Today

The primary image of Appalachia that comes to mind for most in the United

States is poverty. By any of a number of different measures, much of Appalachia has

presented the United States with some of its most persistent pockets of poverty (Brown

and Warner 1991; Duncan 1996). Despite decades of concerted federal, state, and local

efforts directed towards economic and social development, many parts of central

Appalachia, in particular, remain mired in poverty. Poverty rates in central Appalachia

remain nearly twice the national average (Tickamyer and Tickamyer 1987). Yet as large

and diverse as Appalachia is, it is not surprising that the distribution of poverty is not

uniform across the region.

Eastern Kentucky: The Heart of Appalachian Poverty

Although pockets of poverty exist throughout the region officially defined as

Appalachia, the greatest concentration of poverty is in eastern Kentucky and southern

West Virginia. Despite considerable improvement in the economic situation of most

Appalachian residents, residents of this area continue to face high poverty and

unemployment rates and low levels of educational attainment.

ARC's Distressed Counties Program

The Appalachian Regional Commission (ARC) developed its Distressed

Counties program to target funding and track changes in regional poverty. To identify

distressed counties, the ARC created a composite measure based on the unemployment








and poverty rates, the per capital market income (income excluding transfer payments),

and the infant mortality rate'. In 1960, 54% of the 399 Appalachian counties were

classified as distressed; by 1990, that figure dropped by half to 27%. The progress,

however, has not been uniform. Eastern Kentucky has consistently been over-represented

in the distressed category; in 1960, 90% of Appalachian Kentucky's counties were

distressed, and that figure had only dropped to 76% by 1990. Figure 4-1 dramatically

displays the disproportionate incidence of poverty in eastern Kentucky as compared to

other parts of Appalachia.

In an assessment of the Distressed Counties Program, Wood and Bischak (2000)

identify some of the characteristics which have hindered economic development in the

persistently distressed counties. In comparison with more successful counties,

Appalachian counties that remained mired in the distressed category tended to 1) start

more distressed (in 1960) than other counties; 2) be more isolated from urban areas; 3)

have more rugged terrain, affecting the accessibility to jobs and the ability to attract new

industry; and 4) have high reliance for jobs in mining and government. It is worthwhile to

note that the first three of these four characteristics cannot be altered by government or

other programs. In general, counties in southern states, such as Georgia and Alabama, did

better economically than did counties from border states, such as Kentucky.

Eastern Kentucky Poverty Indicators

The economic boom of the late 1990s has resulted in some improvement of

economic indicators for eastern Kentucky counties, although these counties continue to




In FY 1988, Appalachia's infant mortality rate had dropped to the national rate, and the
ARC stopped using infant mortality in the determination of distressed status.



















* Persistently Distressed (98 counties)


GCOg.


Figure 4-1: Persistently Distressed Counties in Appalachia, 1960 and 1990
Source: Woods and Bischak (2000). Reprinted with permission of Appalachian Regional
Commission.








lag behind the state as a whole. In the study counties of Morgan and Wolfe, for example,

the number of people in poverty dropped 7.5% and 4.0%, respectively, in the period

1989-1997. This contrasts with a statewide drop in the number of people in poverty

of8.4% (Zimmerman and Breazeale 2001). Employment data for Morgan and Wolfe

counties is even more encouraging; from 1990 to 1998, the total number of people

employed increased by 21% in Morgan County and 30.7% in Wolfe County2, compared

with a 17.4% increase in the state as a whole. Nevertheless, the study region still falls far

behind the state as a whole in most key indicators. Median household income figures

from 1989-1997 are presented in Table 4-1, demonstrating that the study counties remain

considerably behind the state and national figures.




Table 4-1: Median Household Income
1989 1993 1995 1997

United States $34,213 $36,959 $40,611 $44,568

Kentucky $22,534 $25,222 $28,929 $31,730

Morgan $13,229 $16,450 $18,842 $20,627

Wolfe $11,000 $12,925 $16,745 $16,323

Sources: Data for the U.S. drawn from Statistical Abstract of the United States, Census
Bureau, U.S. Department of Commerce. Data for Kentucky and counties are from Census
Bureau's Small Area Income and Poverty Estimates, U.S. Department of Commerce.


Similarly, Table 4-2 shows the dramatically higher poverty rates in the study counties, as

compared with the rest of the state and the nation. Wolfe County's 1997 poverty rate is


2 The employment figures in Wolfe County have worsened considerably since this data
was collected. Over the summer of 2000, the county's largest private employer, a








one of the highest in the nation; although slightly lower, it is statistically

indistinguishable from the highest county poverty rate in the United States (U.S.

Department of Commerce 2001).





Table 4-2: Percentage of people living in poverty
1989 1993 1995 1997

United States 12.8% 15.1% 13.8% 13.3%

Kentucky 19.0% 19.7% 17.9% 16.0%

Morgan 38.8% 37.4% 36.3% 32.3%

Wolfe 44.3% 40.0% 38.9% 36.6%

Sources: Data for the U.S. drawn from Statistical Abstract of the United States, Census
Bureau, U.S. Department of Commerce. Data for Kentucky and counties are from Census
Bureau's Small Area Income and Poverty Estimates, U.S. Department of Commerce.


Another commonly used indicator of development is educational level. Low

levels of formal education are strongly linked to regions of persistent poverty (Brown and

Warner 1991). Kentucky as a whole, and eastern Kentucky specifically, has traditionally

had low educational levels compared to the nation as a whole. While a significant effort

is underway across the state and in the study area to increase educational attainment,

Table 4-3 shows that in 1990, educational attainment levels for Kentucky, and

particularly the study counties, remained considerably below national levels.


computer parts manufacturer, closed down costing the county 200 to 250 jobs, about 8%
of all the jobs in the county (Butters 2000).








Table 4-3: Educational attainment, 1990
Percent completing Percent completing Percent completing 4
less than 9 years high school or more years of
college
U.S. 10.4 75.2 20.3
Kentucky 19.0 64.6 13.6
Morgan Co. 39.1 44.1 6.7
Wolfe Co. 38.8 42.8 7.7
Source: 1990 Census of Population, Census Bureau, U.S. Department of Commerce.


Explanations for Appalachian Poverty

The most vexing questions in Appalachian studies involve the search for

explanations for the persistently high levels of poverty in Appalachia. While most

scholars have utilized elements of more than one explanatory approach in their work, four

key approaches in the literature will be discussed here.

The Culturalist Approach

One influential school of thought identifies Appalachian culture, as personified in

the personalities and behaviors of individual Appalachians, as the underlying cause of

Appalachian poverty. This approach is best known in Appalachia through the work of

Jack Weller. A more general application of the same explanatory approach to poverty is

anthropologist Oscar Lewis' work on the culture of poverty.

Yesterday's People

One of the most influential works on Appalachia is Jack Weller's (1965)

Yesterday's People: Life in Contemporary Appalachia. Weller, a Presbyterian minister

and missionary who moved to Appalachia in the early 1950s, wrote an impressionistic

account of Appalachian culture that closely follows the culture of poverty concept of

anthropologist Oscar Lewis (1965; 1966). In his introduction, Weller describes the

process which led him to write Yesterday's People as "the realization that perhaps I was








faced with a different way of life, a separate subculture based upon premises I was not

aware of' (Weller 1965:1). Weller outlines what he sees as the major traits represented in

Appalachian culture: individualism, traditionalism, fatalism, action seeking, the

psychology of fear, and person orientation. Some of these, such as individualism and

fatalism, he views as consequences of a history of frontier life in the rugged mountains.

Rural families, those "isolated by distance, by lack of roads, and by choice (Weller

1965:88)" are the most extreme examples of the Appalachian individualism, but the lack

of civic commitment is noted in all residence patterns. Other traits, particularly

traditionalism and action seeking, he describes but offers no explanations of origin.

Weller portrays Appalachian social life as fragmented, with little sense of community.

Children are raised to be highly dependent on the family, making them reluctant to move

away in search of better opportunity. Politics and the associated corruption and nepotism

become an important way to advance individual, rather than community interests. Weller

explicitly argues that these traits taken together make up an Appalachian personality

resistant to change, cooperative development efforts, risk taking and, in general,

incorporation into the modern life of America. He identifies as primary obstacles to

change the unwillingness of the mountaineer to change, the pressure of family and friends

against change, and the importance of interpersonal ties that discourage changes in roles,

along with the structural reasons of limited opportunity and outmigration of those most

amenable to change. In an oft-quoted phrase, Weller asserts that "The greatest challenge

of Appalachia, and the most difficult, is its people" (1965:7).

Weller provides us with a self-admitted non-academic perspective, drawing

generalizations based on his experiences living in the region. The intent and effect is to








set Appalachia apart from the rest of the country, akin to the 19th century characterization

of Appalachia as "a strange land and peculiar people." His work provides little of the

economic and structural context which could help explain the origins and prevalence of

the attitudes he describes. Because of this shortcoming, academics have been dismissive

of Weller's work, despite its public popularity (Lewis and Billings 1997).

Weller's Yesterday's People was not a significant departure from earlier

explanations of Appalachian poverty. From the "local-color" writers of eastern popular

magazines in the late 1800s to television's Beverly Hillbillies, Appalachians have been

portrayed as different from and inferior to the rest of America. Weller was writing during

a period of American belief in progress, largely measured by acquisition of material

goods. He proclaims that "Most Americans are 'progressive'; that is, we look ahead with

at least some expectation of joy and encouragement... We expect our children to have

more than we have of the things that make life enjoyable and comfortable. They will have

better education, better jobs" (Weller 1965:34). Being confronted with people who didn't

share those expectations convinced him, and most Americans, of the otherness of

Appalachians. People who don't want the things we want, don't share the same values,

don't actively work for a better future for their children must be different, in a negative

way, from the rest of us. Weller's understanding of Appalachia also fits well with the

modernization theory which was a dominant paradigm of the time-if people wish to

advance, they need to become more like us.3




3 Interestingly, Weller changed his views on the adaptive nature of traits such as
fatalism; after over a decade more of work in the region, "seeing his own bright hopes
dashed by the rapacious demands of an extractive industry, and watching agency funds
dry up, he notes that the people are realistic in accepting those things that powerful








The culture of poverty

While Weller's work is not academic in nature, anthropologist Oscar Lewis's

concept of a culture of poverty is based on many of the same precepts. The culture of

poverty thesis emerging from Oscar Lewis' work in Mexico, Puerto Rico and the urban

United States has been highly controversial, both in the academic and popular arenas.

Lewis proposes that, under certain conditions, a subculture of Western societies can

develop among the poor, with attitudes and values that serve to perpetuate poverty in

succeeding generations. This subculture of poverty, he suggests, can develop in capitalist

economies with persistently high rates of unemployment and underemployment, in which

upward social mobility is seen as possible and poverty viewed as the result of individual

failure. Lewis identified some 70 traits characterizing the culture of poverty, a list

including attitudinal, behavioral, social and material aspects of life. Among the most

debilitating of these traits are disengagement from social institutions, minimal

community organization, a sense of fatalism and helplessness, and a lack of deferred

gratification and planning for the future (Lewis 1966).

When Lewis advanced his theory of the culture of poverty, the United States was

involved in a public debate about poverty, with the focus on Appalachian poverty

triggered in part by John F. Kennedy's West Virginia primary campaign in 1960. Lewis

suggested his theory could help tie together "a number of phenomena hitherto viewed as

peculiar to certain racial, national or regional groups" (Lewis 1966:25). Thus, the same

sorts of cultural factors are seen as perpetuating poverty in rural Appalachia, urban


political, economic, and environmental circumstances have proven cannot be changed"
(Beaver 1982).








African-American slums, Native American reservations, the shantytowns of Mexico City,

and other regions of persistent poverty in the Western world.

Critiques of the culture of poverty

The culture of poverty theory has been sharply criticized, both in academic

literature and in debates over public policy. Valentine (1971: 211) notes that the anti-

poverty programs in the United States starting in the 1960s were "justified and

rationalized" by culture of poverty theories advanced by academics. Yet academic

criticism of poverty culture theory was extensive, and the critiques of Lewis' theory can

be grouped into three major categories: 1) the inappropriate use of the culture concept; 2)

disagreements with Lewis' ideas about cause and effect; and 3) concerns about the

research methods upon which Lewis based his theory.

1. Inappropriate use of culture concept. Lewis' use of the term culture has

been sharply criticized by several anthropologists, who suggest that whatever Lewis' list

of 70 traits is, it does not constitute a culture. While there is significant debate within the

discipline about what culture is, Valentine (1968:3) suggests a broad consensus, at least

among cultural anthropologists, that culture is "the entire way of life followed by a

people", the rules which generate and guide behavior, the organization of experience

shared by members of a community. Lewis claims that the culture of poverty "is a culture

in the traditional anthropological sense in that it provides human beings with a design for

living, with a ready-made set of solutions for human problems, and so serves a significant

adaptive function" (1966:19). He uses the terms "culture of poverty" and "subculture of

poverty" somewhat interchangeably, although he suggests that the more accurate term is

"subculture" and explains he used the term "culture" instead in order to avoid confusing

the popular audience that he intended to reach with his books (Lewis 1969). However, the








use of the term "subculture" does not avoid the problem of a fundamental misapplication

of the culture concept. Lewis is struck by how similar a certain segment of the poor is in

various ethnic, regional, and national groups, but this trans-ethnic, trans-national quality

of the culture of poverty prevents it from properly being called a culture. As Leeds puts

it:

If, however, standard uses of the term 'culture' are maintained, then the
culture of poverty-which, according to Lewis, can occur in all kinds of
different traditions and social systems---cannot be a culture, though it may
be some other kind of system, subsystem, or trait complex. It is not
unique; it is not specific to a time and place and tradition; it has no
particular or unique meaning structure; it is not sociogeographically
isolable. (1971:232)

The problem is more than one of just semantics. Lewis strongly emphasizes that

not all poor people exhibit the culture of poverty and estimates (on what basis is unclear)

that only about 20 percent of the people living below the poverty line in the US live in a

culture of poverty (Lewis 1966:25). These particular poor people are not congregated in

geographically-defined neighborhoods separate from the poor who do not live in the

culture of poverty, they don't interact only or even primarily with each other, and even a

members of a single family display differing amounts of the culture of poverty (Lewis

1969). This is particularly true in central Appalachia, where conspicuous wealth and

abject poverty are often completely intermingled (Duncan 1996; Duncan and

Lamborghini 1994). As Leeds (1971:233) notes, "Lewis is unable conceptually to specify

... the distinction between those who are poor but not living in the culture of poverty"

and those who are poor but "living in it," let alone provide a systemic analysis of how

poor people dynamically are sorted out into the one category or the other."

If Lewis is not describing a culture or subculture, what is he describing? He does

not suggest that the traits of the culture of poverty are diffused from one nation or ethnic








group to another, but is instead describing how different types of people in different

places adapt in a similar manner to similar constellations of economic and social

conditions, conditions limited to Western capitalist societies. These adaptations to an

environment of poverty may well be passed down along family lines, as children learn

coping strategies from their parents.

Closer examination of the traits Lewis ascribes to the culture of poverty makes

clearer their link to Western capitalism. In fact, many of the traits aren't adaptations to

poverty, but are instead indicators or correlates of poverty-unemployment,

underemployment, unskilled work, low-status occupations, meager wages, lack of

education, crowded living quarters, and deteriorated housing. As Valentine (1968:116)

asks "Are these phenomena not better understood as conditions or symptoms of being

poor rather than as inculcated patterns of social tradition?" Similarly, Leeds concludes

that

the behavioral characteristics, residential conditions, etc., that stimulated
Oscar Lewis to posit a culture of poverty are largely interpretable as direct
consequences of the operation of some specific aspect of capitalist societal
systems ... One does not have to postulate a social state of mind, or
culture, carried by structured social systems by means of characteristic
sociocultural processes, to account for them. The structural-functional
interpretation is simpler, involves fewer assumptions, and consistently
corresponds more closely to the statistical data and to the variations found
in the qualitative data. (1971:277-278)



Many of the other traits Lewis says characterize the culture of poverty are

negative behavioral and attitudinal attributes (including lack of family solidarity, low

levels of community organization, and a sense of hopelessness). These traits can, as

Lewis himself (Lewis 1966:21) suggests, be seen as "an adaptation and a reaction of the

poor to their marginal position in a class-stratified, highly individuated, capitalistic







society." However, Lewis goes a step further and suggests that these behavioral and

attitudinal attributes are not just reactions to, but become factors perpetuating poverty.

2. Disagreements with Lewis' ideas about cause and effect. Accepting, for

now, that these behavioral and attitudinal attributes do, indeed, characterize the poor in a

way that distinguishes them from the rest of society, Lewis asserts, rather than

demonstrates, that these attributes become causes rather than simply effects of, or

reactions to, poverty. Lewis recognizes the material basis for the attitudes he describes,

but argues that "[o]nce the culture of poverty has come into existence it tends to

perpetuate itself By the time slum children are six or seven they have usually absorbed

the basic attitudes and values of their subculture. Thereafter they are psychologically

unready to take full advantage of changing conditions or improving opportunities that

may develop in their lifetime" (Lewis 1966:21). It is through this psychological

incorporation of the values and attitudes, asserts Lewis, that the culture of poverty shifts

from effect to cause. Leacock (1971:13) argues, however, that "to say or imply that

values and motivations are set by six or seven flies in the face of findings in

developmental psychology."

Not only does Lewis argue that these learned and transmitted attitudes and

behaviors contribute to keeping people in poverty, but he also suggests that they are

deeply entrenched in the children of the culture of poverty. In fact, he sees them as so

entrenched that he makes the rather bold claim, again with no evidence, that "it is much

more difficult to undo the culture of poverty than to cure poverty itself' (Lewis 1966:25).

3. Concerns about research methods. Lewis' methods in studying poverty may

account for some of the problems with the culture of poverty theory discussed above. His







studies focused on families, rather than the more traditional community study approach in

complex societies. He describes his method in studying Puerto Rican families, in which

he and his research team assembled data on 100 "representative" families in urban Puerto

Rico and 50 families of their relatives in New York City. Utilizing questionnaires, open-

ended interviews and psychological tests, he establishes the context for an intensive

study, essentially participant observation and the elicitation of life histories, of a selected

few families (Lewis 1966).

Critics of Lewis have pointed out a number of limitations of using the family and

the unit of study. First, the initial 150 "representative" families were selected in a manner

that most certainly did not ensure their representativeness. Rather than any attempt at

drawing a random sample, Lewis utilized social workers and barrio-level political leaders

in San Juan to recruit participants, selected in a purposive sample to include a wide range

of characteristics in which the researchers were interested (Lewis 1965). While this

sample apparently laid the groundwork for La Vida, the book is focused on the Rios

family, a family he notes is far from typical (Valentine 1968). In fact, Lewis says that

"the Rios family is closer to the expression of an unbridled id than any other people I

have studied" (1965:xxvi). Finally, even if the Rios family and the rest of the sample are

in some way representative of a particular segment of Puerto Rican culture in San Juan

and New York, the extrapolation of characteristics of a relatively few families drawn in a

purposive sample to an entire culture is questionable, to say the least (Bernard 1995;

Valentine 1968).

Lewis' family study approach is also partially responsible for problems with the

culture concept discussed above. In part because of his reliance on family studies and







histories, he emphasizes the role of families in transmitting the culture of poverty from

generation to generation. He talks about the culture of poverty as transmitted through

families "a way of life handed on from generation to generation along family lines"

(Lewis 1966:19). As Leeds (1971:233) points out, however, cultures are held by

societies, not families, and "[e]xtrapolations from family histories to an alleged "culture"

simply fail to deal with the majority of institutional and social frameworks in which

families are embedded."

These methodological problems are not unique to Lewis; they are widespread in

anthropological research. Indeed, ethnographic work often generates results that are more

hypotheses to be tested than cross-cultural truths to be accepted. And although Lewis's

defense of the culture of poverty theory is vigorous, he agrees that his "formulation of a

subculture of poverty is simply a challenging hypothesis which should be widely tested

by empirical research" (1969:191).

Empirical tests of the culture of poverty theory

There are several aspects of the theory that can be tested, although the critical

question of cause and effect does not easily lend itself to such a process. Short of lifting

one group out of poverty and comparing the incidence of the traits postulated by Lewis

with that of a control group, it is difficult to see how such a hypothesis could be tested.

A cornerstone of the culture of poverty theory is that poor people, or at least some

segment of the poor, exhibit the traits of the culture of poverty at a higher rate than do the

nonpoor. Although Valentine (1968) argues that these traits are equally prevalent among

the middle class, neither he nor Lewis offers any data to support their respective

positions. Of course, even if the poor do exhibit these traits at higher rates, that would

settle little since both Valentine and Lewis agree that the traits are the result of poverty.







At the very least, however, it would behoove culture of poverty theorists to determine if

the traits in question do appear at higher rates among poor people.

Two empirical tests of parts of Lewis' theory that have been conducted were

carried out on rural populations in the southern U.S. Although Lewis developed the

theory based on research in urban settings, he did suggest that blacks and Southern whites

were two populations exhibiting the traits of the culture of poverty. David Miller (1976)

tested the relationship between one central trait discussed by Lewis, the level of social

participation, and a series of dependent variables. Miller found no significant

relationships between social participation and the income, education, sex, home

ownership and potential geographic mobility of household heads. However, the research

did reveal that the children of parents with high levels of social participation were

significantly more likely to be better educated and to move greater distances from home,

two variables which presumably enhance the possibility of climbing out of poverty.

Miller concludes that there is at least some support for the idea that some of the poor

transmit low esteem for formal education and fear of moving away from home to their

children. These are traits often attributed to people in eastern Kentucky and elsewhere in

Appalachia.

Another empirical test of the culture of poverty was conducted by Billings, who

compared Appalachian and non-Appalachian poor on some of the traits most closely

associated with the culture of poverty. If the culture of poverty were a valid explanation

for higher levels of Appalachian poverty, Appalachians would be expected to exhibit the

traits at higher levels. Billings (1974) constructed a four-item scale based on fifteen

attitudinal questions from a survey of rural and urban residents of North Carolina.







Billings considers the scale a measure of "Middle-Class Orientation", based on levels of

fatalism, achievement orientation, and pessimism. He compared the degree of middle

class orientation of rural Appalachian, urban, and non-Appalachian rural North

Carolinians, finding no significant differences between the groups. While the

Appalachians were somewhat less likely to express high agreement with middle class

values than the other two groups, he found that region predicts middle-class orientation

less well than any other variable considered, including ethnicity, occupation, rurality, age,

and education. Billings concludes that the differences in development and poverty in the

three regions are better explained by structural economic differences-principally the

dependence of mountain counties on the coal industry-than by attitudinal characteristics

of rural Appalachians.

While describing a pattern of ideals and behaviors that have perplexed many

observers, culturalist explanations for poverty in Appalachia and elsewhere, such as those

advanced by Jack Weller and Oscar Lewis,fail to give adequate attention to the material

conditions that have created the mindsets and related behaviors they describe. The

conditions creating this "culture" of the poor have not been removed; and until they are,

the evidence suggests that attributing poverty to culture is not warranted.

Bureaucratic Realism

Another influential explanatory model of the causes of Appalachian poverty is

characterized by a focus on technical rather than attitudinal barriers to development.

Bureaucratic realism is the term use by Lohmann (1990) to describe the neoclassical

perspective of the federal and state agencies, including the Appalachian Regional

Commission, that are promoting economic development programs in Appalachia. This

perspective views the problem of poverty as one of economic underdevelopment, rather







than anything distinctive to a particular place or people (Brown and Warner 1991). The

solution to poverty is jobs, and federal and state efforts to combat Appalachian poverty

has centered on creating more jobs through infrastructure development, industrial

recruitment, and the development of regional growth centers. The regional growth center

was at the core of the ARC efforts from the inception of the Commission. The majority of

funds disbursed through the ARC in its early years went to a limited number of urban

centers. According to growth center theory, development in these urban areas would

trickle down to the Appalachia's more rural and disadvantaged areas (Wood and Bischak

2000). While the regional growth strategy has resulted in improvements to these limited

urban areas, the trickle down effect has been less successful than anticipated. This lack of

success with the regional growth center strategy led to the ARC's development of the

Distressed Counties Program discussed above. The bureaucratic realism perspective on

Appalachian poverty differs from the other perspectives discussed here in the assumption

that poverty is the same wherever it occurs -- a straightforward economic problem with

technical solutions such as roads, industrial parks, tax incentives, and job training.

Appalachian poverty is viewed as, at its core, not different than poverty anywhere else,

and its solutions will be the same in Appalachia as elsewhere. While poverty in many

parts of Appalachia has decreased dramatically under policies of bureaucratic realism,

much of that improvement can be attributed to urbanization (Wood and Bischak 2000)

rather than any specific government programs. The failure of the programs of the ARC to

address poverty in the persistently distressed regions of the Cumberland Plateau suggests

an alternative framework for understanding Appalachian poverty is warranted.







The Structuralist Approach

In a clear reaction to culturalist explanations, as well as in an implicit rejection of

the bureaucratic realism approach, a generation of scholars turned to structural factors to

explain Appalachian poverty. David Walls' 1978 "Internal Colony or Internal Periphery?

A Critique of Current Models and an Alternative Formulation" is representative of this

approach. After briefly rejecting the culturalist and regional development models as

explanations for and solutions to poverty, Wall goes into a more extensive discussion of

models that look to basic economic structures of power as the causes of poverty.

Although sympathetic to the model of internal colonialism, which suggests that outside

industrial capital has colonized the region using low paid local labor and extracting

wealth from Appalachia, Wall suggests that the standard models of internal capitalism are

overly strained in their application to the Appalachian case. His solution is to analyze

Appalachia "in the context of advanced capitalism in the United States" (Walls 1978:331)

with an understanding of class structure and the role of the state in promoting capitalist

interests. Walls argues that Wallerstein's world systems theory, and particularly the

related concept of internal periphery, is a good explanatory model for Appalachia. Walls

pays special attention to Wallerstein's concept of a semi-periphery, an intermediary

between core and peripheral regions that serves to blunt the polarization into rich and

poor, thus avoiding provoking alliances between poor regions or countries. This strategy

has been successful in the case of Appalachia, Walls suggests, as Northern and Southern

Appalachia have moved to semi-peripheral status in the U.S., while Central Appalachia

languishes in the periphery.

The scale on which structuralists such as Walls and Wallerstein write is far

removed from the local-level perspectives central to anthropology (Batteau 1983;







Roseberry 1989; Wolf 1982). There is no clear place, for example, for local ethnography

in an analysis of national and global economic forces bending local and regional

economies to their purposes and needs. What local-level factors have shaped the form

that these larger structural pressures have created?

A New Synthesis?

The structuralist explanations of poverty exemplified by Walls have been seen by

a number of Appalachian scholars as paying too little attention to the role of local culture

in regional, national, and international processes of capitalism. Rural sociologist Cynthia

Duncan (1992; 1996; 1994) studied multiple rural communities to explore the ways social

relations, class conflict, and ideology interact with economic conditions to perpetuate

poverty. In her comparison of poverty in rural Appalachia and rural New England,

Duncan starts with an understanding of the differing economic and employment bases of

the two regions. The more diverse New England economy fostered a large middle class

which bridge the gap between rich and poor. In contrast, the bust of the Appalachian coal

economy has resulted in a stark division between haves and have-nots. A small handful

of elite residents control community affairs through their ownership of the most

important businesses, their influence over local politicians who control the public sector

jobs (the primary source of employment in many communities), and manipulation of

public services such as schools to meet their, rather than the broader community's, needs.

Duncan utilizes Swidler's (1986) concept of culture as a toolkit, where the tools are

"habits, skills, symbols, and ways of seeing and acting," and suggests the contents of the

toolkits vary by social class and community (Duncan and Lamborghini 1994:439). Lewis

and Billings argue the toolkit concept is a useful one in that cultureue is now presumed to

exert a significant influence upon its holders not because of how it shapes the goals they







pursue, but rather through the repertoire of knowledge, skills, and memories actively

negotiated, reinterpreted, and applied in ever-changing situations to achieve those goals"

(Lewis and Billings 1997:32). These efforts by Appalachian scholars to understand the

way local culture can shape and reform the impact of large-scale structural forces are

similar to the approaches taken by other social scientists, including anthropologists

including Eric Wolf (1982) and William Roseberry (1989).

Comparing the Approaches to Appalachian Poverty

The primary difference between these four approaches to the study of Appalachia

is the differing conception of the underlying causes of persistent poverty. Weller

addressed in the Appalachian context what Oscar Lewis did from a cross-cultural

perspective, attributing Appalachia's economic problems to deficiencies in the

personalities and attitudes of Appalachians. Bureaucratic realism sees poverty as a

technical, economic problem without significant cultural influences. Walls represents

scholars who have sought explanations for regional problems in national and

international economic systems and the periphery status of Appalachia within those

systems. Duncan is one of a growing group of researchers who examine the cultural

ramifications of differential access to power, manifested in social class distinctions and

varying abilities to operate effectively in society. This approach is one being developed in

several social science disciplines; anthropologist William Roseberry has advocated a

comparable view of culture, although he expresses it in a different manner. Roseberry

calls for a materialist conception of culture that sees ideas and symbols as products of

material and social life that are used in situations "characterized by differential access to

political and economic power" (1989:37).







It is this approach that acknowledges the dominant nature of structural forces

while recognizing the ability of local culture to shape the outcome of those forces that

offers the best explanatory model. Duncan's work on rural poverty in the U.S. is part of a

larger movement in the social sciences to understand how local-level, cultural processes

respond to and interact with structural economic forces on an everyday basis. Although

she starts with a discussion of the underlying economic situation, her work is necessarily

based on ethnographic fieldwork; only by understanding how people perceive and use

such things as class, values, and power can we comprehend the social context of

community interactions.

This examination of Appalachian poverty and culture helps set the stage for a

clearer understanding of agricultural decision making in the region. For example, very

few farms in the study counties are diversifying their farm operations away from an

extremely high dependence on tobacco. Each of these four approaches would look to

different causes for this situation. The culturalists, such as Weller and Lewis, would

argue that it is a result of Appalachian worldview, with Appalachian farmers taking a

fatalistic approach to the changing agricultural economy, resistant to any group-oriented

solutions because of their high degree of individualism and disengagement from social

institutions and community organizations. The neoclassical bureaucratic realists, in

contrast, would suggest that Appalachian farmers are stymied by the lack of roads and

other infrastructure that could make more options available to them. The structuralist

approach would look to Appalachia's position as a peripheral region from which

international capital extracts wealth and would suggest that the economic difficulties







facing Appalachian farmers serve to depress wages in the area and increase the level of

exploitation.

The final approach, the one taken by this researcher, acknowledges the dominant

influence of such structural forces as international markets in tobacco and the increasing

concentration of U.S. agriculture while recognizing that local realities, such as a love of

tobacco farming and mistrust of authority figures, also help shape the decisions available

to Appalachian farmers. The historical and present day agricultural economy is best

understood, I would argue, using this type of theoretical framework.




Traditional Appalachian Agriculture and Economy

Like U.S. agriculture in general, agriculture in central Appalachia has changed

significantly in its century and a half history. The changes in Appalachian agriculture

developed in the context of the larger Appalachian economy, and in many ways it

provides a textbook example of the interplay of capitalism and simple commodity

production or family farming debated by Mann and Dickinson (1978; 1987a; 1987b) and

Mooney (1983; 1987).

The case of Appalachia provides us with stark contrasts between differing

economic strategies and types. One the one hand, its economy has been dominated for the

last century by large-scale capitalist industry, most notably coal mining, with a long

history of violent struggles between the proletarian labor force and owners of industry

(Eller 1982; Scott 1995; Whisnant 1981). On the other hand, it is home to what has been

called the "American Peasantry" (Vogeler 1975). As such, Appalachia offers an excellent







opportunity to see how advanced industrial capitalism and petty commodity producers or

family farmers have interacted in the past and today.

Unlike the overall economy, the agricultural economy of Appalachia, both

historically and presently, can not be properly described as capitalist. As discussed in

Chapter 3, the defining feature of capitalism is the separation of labor from the means of

production and the consequent sale of labor as a commodity (Roseberry 1989; Wolf

1982). While there is not a clear rule about what proportion of labor being hired qualifies

a firm as capitalist, the vast majority of farms in Appalachia come nowhere near that

threshold. Historically, Appalachia's agriculture has been primarily subsistence-oriented,

with varying levels of petty commodity production. Even today, most Appalachian

farmers rely primarily on family labor sources for the production of cash crops, most

notably tobacco. There are some tobacco farmers who hire a substantial portion of their

labor and who are therefore capitalist farmers, but that is the exception rather than the

rule.

Capitalist agriculture, in which owners of land and other means of production hire

workers and profit from the excess value created by those workers, has been slow to

penetrate the agricultural sector in many parts of the world, even in industrialized

countries. In Appalachia, capitalist enterprises drastically transformed the social and

physical landscape with development of timber and coal resources starting in the late

1800s (Eller 1982). While economic, ecological, and demographic changes precipitated

by this capitalist expansion greatly affected the agricultural sector, these changes did not

result in a capitalist agricultural economy.







Instead of an economy in which labor is sold as a commodity and utilized by

property owners to generate profits, Appalachian agriculture has traditionally been

family-based subsistence agriculture, supplemented by petty commodity production

(Precourt 1983). Family-based agriculture, whether subsistence or petty commodity

production, operates in distinctly non-capitalistic ways. Production on these subsistence

farms was geared towards use rather than exchange. Billings et al. describe how "family

ownership of the means of production and non-wage family labor were not rationalized to

produce a 'surplus' beyond family needs.... This way of life contrasts sharply with

market-oriented agriculture oriented toward exchange" (Billings, Blee, and Swanson

1986:158).4 Additionally, in such a non-market economy, people exhibited a relatively

low level of motivation for the acquisition of personal property, a motivation

misinterpreted by many outsiders. Some of the pejorative comments by ethnographers of

the 1940s through 1960s about the character of mountain residents are rooted in a

misunderstanding of a set of values

distinct from those of more advanced capitalist societies but nonetheless
shaped by economic rationality. The mountain people's indifference to the
rituals and desires of an industrial society was consistent with their life of
self-sufficient production and local networks for consumption. The muted
hierarchies of worth and achievement were reflective of a social
stratification system still shaped as much by mutual exchange as by
competitive gain. (Billings, Blee, and Swanson 1986:156)

While Appalachian families produced the majority of the products on their own farms,

there was extensive local exchange between households. However, this exchange was

personal and carried out on the basis of reciprocity rather than profit (Billings, Blee, and

Swanson 1986; Precourt 1983).


4 One should be careful not to equate market-oriented agriculture with capitalist










Conclusions

The spread of capitalist economic relations since the late 1800s has been dramatic

in Appalachia. The relative isolation of the region from the national capitalist economy

meant that the rapid expansion of logging and mining, followed in many areas by

manufacturing, represented a sudden transition from a family-based economy to a

capitalist economy for many Appalachians. As self-sufficient subsistence farming

became increasingly difficult, agriculturalists began to supplement farm work with wage

labor in the coal mines, timber industry, manufacturing sector and, more recently, the

service economy.

The changes in Appalachian agriculture discussed here are not substantially

different than the changes in U.S. agriculture described in Chapter 3. The increasing

numerical dominance of small farms seen nationally is even more pronounced in

Kentucky, although the terrain in eastern Kentucky has limited the development of the

large farms that predominate agricultural production on the national level. The

uniqueness of small-farm agriculture in Appalachian Kentucky is not attributable to

Appalachian culture or a culture of poverty, but to the federal tobacco program.

As Appalachian agriculture has moved away from subsistence farming and to an

increased reliance on cash cropping combined with off-farm work, tobacco has taken on

an increasing importance. The nature of the crop itself combined with provisions of the

federal tobacco program have conditioned Appalachian farmers to expect certain things

from potential crops. Tobacco is a low risk crop with a minimum guaranteed price that


agriculture. Petty commodity producers, or family farmers, produce for the market but do







will give very high returns to the farmer. Yet farmers realize that the amount of tobacco

they can grow under the federal tobacco program is very unlikely to return to the high

levels prior to the beginning of quota cuts in 1998. How they react to that realization is

the subject of this research.


so using primarily family labor resources rather than hiring wage labor.












CHAPTER 5
TOBACCO: THE CORNERSTONE OF APPALACHIAN AGRICULTURE

A prerequisite to an understanding of Appalachian agriculture is an understanding

of tobacco, both the crop itself and the federal tobacco program. As a critically important

cash crop in Appalachian Kentucky for over a century, tobacco has had an extraordinary

impact on the face of the region's agriculture. Tobacco accounts for half of Kentucky's

crop receipts, while using less than 1% of the state's farmland (Snell and Goetz 1997).

Kentucky has the fourth largest number of farms in the United States, while the state only

ranks 20th in harvested cropland, suggesting the importance of small farms in the state's

agricultural landscape. Tobacco is the driving force behind the survival of small farms in

Kentucky; in the 1997 Census of Agriculture, over half of all farms in the state reported

raising tobacco. In the study counties, that figure is considerably higher; in 1997, 88% of

Morgan County farms and 89% of Wolfe County farms raised tobacco (U.S.D.A. 1999).

Both the crop itself and the tobacco program administered by the federal

government have unique characteristics that have shaped agriculture in Kentucky and

created special challenges for the development of alternative agricultural crops. Tobacco

is an extremely labor-intensive crop, which has helped to limit farm concentration and

keep tobacco farms relatively small. The tobacco program has reinforced this, restricting

the shift of tobacco production from the small farms of eastern Kentucky to larger farms

in the central or western parts of the state.







The Tobacco Production Process

As a land- and labor-intensive crop, tobacco is well-suited for the small farms

characteristic of eastern Kentucky. Most farmers in the region have small holdings, rarely

growing more than five acres of tobacco, and often considerably less'. Other than field

preparation and cultivation, virtually all of the work is done by hand. Seeding,

transplanting, cutting, housing, and stripping all are tasks requiring significant amounts of

manual labor. Traditionally, the source of labor has been family members, but most

farmers today hire at least a portion of the labor needed for some or all of these tasks. A

look at the tobacco production cycle will help to portray the environment in which

agricultural diversification decisions are (or are not) being made.

Land Preparation

As the most important, and often the only, crop on eastern Kentucky farms,

tobacco is grown on the flattest, most fertile fields available to the farmer. Typically, this

means that the same ground is used repeatedly for tobacco, although disease problems

may encourage crop rotation. After the tobacco is harvested in the fall, a cover crop is

planted to protect the soil from wind and water erosion and to build soil organic matter.

The most common cover crop used is winter wheat. In some cases, the wheat is cut in the

spring and fed to livestock prior to incorporating the crop residue into the soil.

Land preparation is the least labor-intensive portion of the entire tobacco

production process, but also requires even landless farmers to make a substantial


SBecause the tobacco program regulates poundage, rather than acreage, most farmers
express the size of their operation in pounds, rather than acreage. In general, tobacco
produces about 2000 pounds per acre, although that varies with management practices
and growing conditions. The average number of pounds produced by farmers in the
sample for the 2000 crop year was just over 9000 pounds, suggesting an average tobacco







investment of capital for the purchase of a tractor. While tractors are most important for

their use in field preparation (plowing and disking) and setting of transplants, they are

also used in cultivation of fields and pulling of wagons during harvest and on-farm

processing of tobacco.

Seeding

The selection of tobacco seed variety is one of the most important ways farmers

can combat disease problems. Some of the most common and serious diseases that can

affect tobacco, including black root rot, black shank, and blue mold, are very difficult to

control once they develop, so breeding programs at the University of Kentucky, the

University of Tennessee and elsewhere have focused on incorporating disease resistance

into new tobacco varieties. Farmers learn about new seed varieties in several ways,

particularly from Cooperative Extension Service field trials and informational meetings

and from farm store dealers who sell tobacco seed. The best-attended Extension meeting

during the study period was, by far, the annual tobacco meeting at which University of

Kentucky experts discussed tobacco variety trials.

Traditionally, tobacco has been hand-seeded in nursery beds prepared the

previous fall. Beds are covered with plastic and treated with methyl bromide gas for

several days in the fall to sterilize the soil and destroy any weed seeds (van Willigen and

Eastwood 1998). Beds are planted in early spring and covered with fabric row covers to

protect from frosts. Tobacco plants are ready for transplanting about six weeks after

seeding; if field conditions prevent transplanting at that time, the plants can be held in the


acreage of approximately four and a half acres. The largest tobacco farmer in the sample
raised just under 61,000 pounds, which would require about 30 acres.




Full Text
xml version 1.0 encoding UTF-8
REPORT xmlns http:www.fcla.edudlsmddaitss xmlns:xsi http:www.w3.org2001XMLSchema-instance xsi:schemaLocation http:www.fcla.edudlsmddaitssdaitssReport.xsd
INGEST IEID EU3XB1ZAF_UC3YAG INGEST_TIME 2014-05-14T22:41:07Z PACKAGE AA00020470_00001
AGREEMENT_INFO ACCOUNT UF PROJECT UFDC
FILES



PAGE 1

12 68%67,787( )25 72%$&&2 7+( 6($5&+ )25 )$50 ',9(56,),&$7,21 ,1 $333$/$&+$1 .(178&.< U D @ r L Lf§ %\ 0$5. $ 6:$1621 2Vn $ ',66(57$7,21 35(6(17(' 72 7+( *5$'8$7( 6&+22/ 2) 7+( 81,9(56,7< 2) )/25,'$ ,1 3$57,$/ )8/),//0(17 2) 7+( 5(48,5(0(176 )25 7+( '(*5(( 2) '2&725 2) 3+/2623+< 81,9(56,7< 2) )/25,'$

PAGE 2

&RS\ULJKW E\ 0DUN $ 6ZDQVRQ

PAGE 3

7KLV ZRUN LV GHGLFDWHG WR P\ JUDQGIDWKHU 0LOWRQ 5XKQNH ZKR LV WKH UHDVRQ IRU P\ LQWHUHVW LQ IDUPLQJ DQG P\ LPPHQVH UHVSHFW IRU IDUPHUV HYHU\ZKHUH

PAGE 4

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

PAGE 5

)LQDOO\ FRXOG QHYHU KDYH FRPSOHWHG WKLV ORQJ DQG GLIILFXOW SURFHVV ZLWKRXW WKH XQIODJJLQJ VXSSRUW DQG ORYH IURP P\ ZLIH 'U 1DQF\ 6FKRHQEHUJ DQG RXU ZRQGHUIXO FKLOGUHQ 5DFKHO DQG %HQMDPLQ 6ZDQVRQ ,W LV EHFDXVH RI WKHP WKDW DOO RI WKH ZRUN WR DWWDLQ WKLV GHJUHH KDV EHHQ ZRUWKZKLOH Y

PAGE 6

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

PAGE 7

3UHFXUVRUV WR WKH GLVDSSHDULQJ IDPLO\ IDUP GHEDWH ,PSOLFDWLRQV RI 86 $JUDULDQ &KDQJH $33$/$&+,$1 &8/785( $1' $*5,&8/785( $SSDODFKLDQ 1DWXUDO 6RFLDO DQG (FRQRPLF +LVWRU\ 7KH (QYLURQPHQW +XPDQ +LVWRU\ ,QGXVWULDO 'HYHORSPHQW LQ $SSDODFKLD 'RHV $SSDODFKLD 5HDOO\ ([LVW" 7KH ,QYHQWLRQ RI $SSDODFKLD 7KH 3ROLWLFV RI $SSDODFKLD 6HOIGHILQLWLRQ LQ $SSDODFKLD $SSDODFKLDQ .HQWXFN\ 7RGD\ (DVWHUQ .HQWXFN\ 7KH +HDUW RI $SSDODFKLDQ 3RYHUW\ $5&fV 'LVWUHVVHG &RXQWLHV 3URJUDP (DVWHUQ .HQWXFN\ 3RYHUW\ ,QGLFDWRUV ([SODQDWLRQV IRU $SSDODFKLDQ 3RYHUW\ 7KH &XOWXUDOLVW $SSURDFK
PAGE 8

&RQWUDFWLQJ 0DLOER[ 3D\PHQWV 3KDVH ,, 7REDFFR /RVV $VVLVWDQFH 3URJUDP %X\RXW 3URSRVDOV 7REDFFR )DUPLQJ DQG 'LYHUVLILFDWLRQ &RQFOXVLRQV 7+( 6($5&+ )25 72%$&&2 $/7(51$7,9(6 9HJHWDEOHV 9HJHWDEOH 3URGXFWLRQ IRU 3URFHVVRUV (DVW .HQWXFN\ 9HJHWDEOH 3URGXFHUV $VVRFLDWLRQ 'LUHFW 0DUNHWLQJ )DUPHUV PDUNHWV 5RDGVLGH VDOHV /LYHVWRFN *RDWV &DWWOH .HQWXFN\f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

PAGE 9

&$6( 678',(6 7KH 3DUW7LPH )DPLO\ )DUPHU 7KH )XOO7LPH 5HQWHU 7KH 7REDFFR )DUP /DQGORUG 7KH )XOO7LPH 9HJHWDEOH )DUPHU &RQFOXVLRQV &21&/86,21 .H\ )LQGLQJV 7KHRUHWLFDO /HVVRQV 7KH )XWXUH RI )DUPLQJ LQ (DVWHUQ .HQWXFN\ $33(1',&(6 $ 6859(< ,167580(17 % &2676 $1' 5(78516 2) 72%$&&2 352'8&7,21 /,67 2) 5()(5(1&(6 %,2*5$3+,&$/ 6.(7&+ L[

PAGE 10

/,67 2) 7$%/(6 7DEOH 3DJH /DQG RZQHUVKLS DQG UHQWDO $YHUDJH DPRXQWV RI WREDFFR TXRWD E\ PHDQV RI DFFHVV $JH DQG HGXFDWLRQ RI UHVSRQGHQWV 3DUWLFLSDWLRQ LQ RIIIDUP ZRUN 3HUFHQWDJH RI WRWDO KRXVHKROG LQFRPH IURP IDUP 7RWDO KRXVHKROG LQFRPH )DUP 3RSXODWLRQ 8 6 IDUP GLVWULEXWLRQ E\ DFUHDJH f§ )DUPV E\ DQQXDO JURVV VDOHV 3ULQFLSDO 2FFXSDWLRQ DV UHSRUWHG E\ IDUP RSHUDWRUV 'D\V ZRUNHG RIIIDUP E\ SULQFLSDO RSHUDWRU 6PDOO IDUPV E\ JURVV VDOHV 0HGLDQ +RXVHKROG ,QFRPH 3HUFHQWDJH RI SHRSOH OLYLQJ LQ SRYHUW\ (GXFDWLRQDO DWWDLQPHQW 4XRWD DFFHVV E\ IDUPHUV )DUPHU UHVSRQVH WR TXRWD FXWV +DV IDUPHU HYHU WULHG QRQWUDGLWLRQDO FURSV" [

PAGE 11

/,67 2) ),*85(6 )LJXUH 3DJH 'LVWULEXWLRQ RI 86 IDUPV E\ JURVV VDOHV 'LVWULEXWLRQ RI .HQWXFN\ IDUPV E\ JURVV VDOHV 'LVWULEXWLRQ RI IDUPV E\ DFUHDJH 3HUVLVWHQWO\ 'LVWUHVVHG &RXQWLHV LQ $SSDODFKLD DQG &KDQJHV LQ QDWLRQDO WREDFFR PDUNHWLQJ TXRWD [L

PAGE 12

$EVWUDFW RI 'LVVHUWDWLRQ 3UHVHQWHG WR WKH *UDGXDWH 6FKRRO RI WKH 8QLYHUVLW\ RI )ORULGD LQ 3DUWLDO )XOILOOPHQW RI WKH 5HTXLUHPHQWV IRU WKH 'HJUHH RI 'RFWRU RI 3KLORVRSK\ 12 68%67,787( )25 72%$&&2 7+( 6($5&+ )25 )$50 ',9(56,),&$7,21 ,1 $33$/$&+,$1 .(178&.< %\ 0DUN $ 6ZDQVRQ 'HFHPEHU &KDLUPDQ *HUDOG 0XUUD\ 0DMRU 'HSDUWPHQW 'HSDUWPHQW RI $QWKURSRORJ\ )DUPHUV LQ $SSDODFKLDQ .HQWXFN\ DUH IDFLQJ VLJQLILFDQW FKDQJHV LQ WKHLU IDUPLQJ RSHUDWLRQV DV D UHVXOW RI PDMRU FXWV LQ WKHLU PRVW LPSRUWDQW FDVK FURS EXUOH\ WREDFFR 2YHU WKH ODVW WKUHH \HDUV WKH DPRXQW RI EXUOH\ WREDFFR WKDW FDQ EH JURZQ XQGHU WKH IHGHUDO WREDFFR SURJUDP KDV EHHQ VODVKHG E\ QHDUO\ WZRWKLUGV DV GHPDQG IRU FLJDUHWWHV KDV GHFUHDVHG DQG LPSRUWV RI OHVVH[SHQVLYH IRUHLJQ WREDFFR KDYH LQFUHDVHG 7KLV UHVHDUFK H[DPLQHV KRZ WREDFFR IDUPHUV LQ WZR HDVWHUQ .HQWXFN\ FRXQWLHV DUH UHVSRQGLQJ WR WKH ORVV RI VXFK D ODUJH SURSRUWLRQ RI WKHLU IDUP LQFRPH )DUPHUV LQ WKH VWXG\ UHJLRQ H[KLELW PDQ\ RI WKH VDPH FKDUDFWHULVWLFV DV IDUPV DFURVV WKH 8QLWHG 6WDWHV ZLWK VPDOO SDUWWLPH IDUPV UHSUHVHQWLQJ WKH PDMRULW\ RI DOO IDUPV DQG RIIIDUP LQFRPH FRQVWLWXWLQJ DQ HVVHQWLDO VRXUFH RI KRXVHKROG LQFRPH IRU IDUP IDPLOLHV /RVV RI LQFRPH IURP WREDFFR VDOHV RYHU WKH ODVW WKUHH \HDUV KDV IRUFHG IDUPHUV WR UHO\ PRUH KHDYLO\ RQ RIIIDUP LQFRPH RU GHYHORS ZD\V RI HQKDQFLQJ IDUP LQFRPH 7KH

PAGE 13

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

PAGE 14

&+$37(5 ,1752'8&7,21 ,Q WKH DPRXQW RI EXUOH\ WREDFFR 86 IDUPHUV ZHUH DOORZHG WR SURGXFH UHDFKHG WKH VHFRQG KLJKHVW OHYHO LQ KLVWRU\ :LWKLQ RQO\ WKUHH \HDUV KRZHYHU WKH PDUNHWLQJ TXRWD IRU EXUOH\ WREDFFR KDG GURSSHG WR LWV ORZHVW OHYHO LQ PRUH WKDQ IRXU GHFDGHV 2YHU WKDW WKUHH \HDU SHULRG WKH DPRXQW RI EXUOH\ WREDFFR WKDW IDUPHUV FRXOG SURGXFH DQG VHOO XQGHU WKH IHGHUDO WREDFFR SURJUDP GURSSHG E\ b %XUOH\ WREDFFR LV WKH PRVW LPSRUWDQW DQG RIWHQ WKH RQO\ FDVK FURS RQ HDVWHUQ .HQWXFN\ IDUPV 7KLV UHVHDUFK VHHNV WR XQGHUVWDQG WKH IDFWRUV VKDSLQJ IDUPHU UHVSRQVHV WR WKH GUDVWLF UHGXFWLRQV LQ WKHLU SULPDU\ FDVK FURS 7KH GHPLVH RI WREDFFR SURGXFWLRQ LQ WKH 8QLWHG 6WDWHV KDV EHHQ SUHGLFWHG IRU \HDUV DQG HDFK GRZQWXUQ LQ WKH WREDFFR PDUNHWV SURPSWV UHQHZHG DWWHQWLRQ WR WKH QHHG IRU DJULFXOWXUDO GLYHUVLILFDWLRQ LQ WREDFFR SURGXFLQJ UHJLRQV
PAGE 15

FRPPXQLW\ DQG LQGLYLGXDO OHYHOV 7KLV WKHRUHWLFDO SHUVSHFWLYH ZLOO EH GHYHORSHG WKURXJK DQ H[DPLQDWLRQ RI WKHRULHV DQG SDWWHUQV RI 8 6 DJULFXOWXUDO FKDQJH FDXVHV DQG VROXWLRQV WR SHUVLVWHQW SRYHUW\ DQG GHEDWH RYHU WKH FDXVHV RI $SSDODFKLDQ XQGHUGHYHORSPHQW DQG SRYHUW\ 7KLV UHVHDUFK ZDV FRQGXFWHG LQ WZR FRXQWLHV LQ WKH HDVWHUQ .HQWXFN\ SRUWLRQ RI WKH $SSDODFKLDQ PRXQWDLQV 0RUJDQ DQG :ROIH FRXQWLHV DUH SUHGRPLQDWHO\ UXUDO ZLWK WKH QHDUHVW PHWURSROLWDQ DUHD RYHU DQ KRXUfV GULYH DZD\ :ROIH &RXQW\ LV WKH VPDOOHU RI WKH WZR FRXQWLHV ZLWK VTXDUH PLOHV DQG D SRSXODWLRQ RI LQ WKH 86 &HQVXV 7KH FRXQW\ VHDW RI &DPSWRQ LV TXLWH VPDOO ZLWK D SRSXODWLRQ RI RQH JURFHU\ VWRUH VHYHUDO JDV VWDWLRQV DQG FRQYHQLHQFH VWRUHV DQG D VFDWWHULQJ RI RWKHU UHWDLO VWRUHV &DPSWRQ LV VWUDWHJLFDOO\ SODFHG DW WKH LQWHUVHFWLRQ RI WZR PDMRU KLJKZD\Vf§WKH 0RXQWDLQ 3DUNZD\ D IRXU ODQH GLYLGHG KLJKZD\ FRQQHFWLQJ WKH DUHD ZLWK /H[LQJWRQ WKH QHDUHVW PHWURSROLWDQ DUHD DQG 86 +LJKZD\ ZKLFK UXQV VRXWK LQWR WKH $SSDODFKLDQ PRXQWDLQV DQG WKH UHJLRQDO FHQWHUV RI -DFNVRQ DQG +D]DUG &DPSWRQ LV WKH RQO\ WRZQ RI DQ\ VL]H LQ :ROIH FRXQW\ WKH RWKHU FRPPXQLWLHV LQ WKH FRXQW\ FRQVLVW RI D KDQGIXO RI KRXVHV DQG D FRQYHQLHQFH VWRUH RU WZR 7KH SRSXODWLRQ LV RYHUZKHOPLQJO\ ZKLWH bf DQG SRRU WKH SRYHUW\ UDWH LQ :ROIH &RXQW\ LV DPRQJ WKH KLJKHVW LQ WKH QDWLRQ 0RUJDQ &RXQW\ LV QHDUO\ WZLFH DV ODUJH DV :ROIH &RXQW\ ZLWK VTXDUH PLOHV DQG D SRSXODWLRQ RI :HVW /LEHUW\ WKH 0RUJDQ &RXQW\ VHDW LV D FRQVLGHUDEO\ ODUJHU WRZQ WKDQ &DPSWRQ LWV SRSXODWLRQ RI SOXV WKH VXUURXQGLQJ UXUDO DUHDVf VXSSRUWV DW OHDVW ILYH JURFHU\ VWRUHV VHYHUDO UHVWDXUDQWV DQG IDVW IRRG RXWOHWV D PRYLH WKHDWHU D EUDQFK FDPSXV RI WKH UHJLRQDO XQLYHUVLW\ DQG WKH (DVWHUQ .HQWXFN\ &RUUHFWLRQDO &RPSOH[ D PHGLXP VHFXULW\ SULVRQ WKDW LV WKH ODUJHVW LQ WKH VWDWH %HFDXVH

PAGE 16

RI WKH SULVRQ 0RUJDQ &RXQW\ KDV D KLJKHU PLQRULW\ SRSXODWLRQ b QRQZKLWHf WKDQ :ROIH &RXQW\ EXW WKH QRQLQVWLWXWLRQDOL]HG SRSXODWLRQ LV RYHUZKHOPLQJO\ ZKLWH GLG QRW VHH DQ\ PLQRULWLHV LQ RYHU D \HDU RI WUDYHOOLQJ DURXQG WKH FRXQW\ 7KH UXUDO ODQGVFDSH RI WKH WZR FRXQWLHV LV EHDXWLIXO ZLWK KHDYLO\ ZRRGHG PRXQWDLQV GLYLGHG E\ YDOOH\V RI IODW ODQG FDUYHG E\ VWUHDPV 1DUURZHU YDOOH\V RU KROORZV SURQRXQFHG KROOHUVf EUDQFK RII IURP WKH PDLQ YDOOH\V DQG DUH GRWWHG ZLWK KRXVHV PRELOH KRPHV DQG IDUPV 0RVW DJULFXOWXUH LV SUDFWLFHG LQ WKHVH YDOOH\V DOWKRXJK LQ D IHZ DUHDV WKH PRXQWDLQ ULGJHV DUH ZLGH HQRXJK WR VXSSRUW FXOWLYDWLRQ )DUPV DUH PDUNHG E\ WKH SUHVHQFH RI ODUJH EODFN WREDFFRGU\LQJ EDUQV TXLWH FRPPRQO\ ZLWK D EDVNHWEDOO KRRS PRXQWHG RQ RQH VLGH 7KH 'DQLHO %RRQH 1DWLRQDO )RUHVW RFFXSLHV WKH ZHVWHUQ SRUWLRQ RI ERWK FRXQWLHV DQG WKH 5HG 5LYHU *RUJH SDUW RI ZKLFK LV LQ :ROIH &RXQW\ LV D ZRUOGUHQRZQHG VSRW IRU URFN FOLPELQJ 7KH EHDXW\ RI WKH VWXG\ UHJLRQ VWDQGV LQ FRQWUDVW ZLWK WKH VHYHUH DQG SHUVLVWHQW SRYHUW\ WKDW FKDUDFWHUL]HV WKH UHJLRQ $V ZLOO EH GLVFXVVHG LQ &KDSWHU ERWK VWXG\ FRXQWLHV DUH FODVVLILHG DV SHUVLVWHQWO\ GLVWUHVVHG FRXQWLHV E\ WKH $SSDODFKLDQ 5HJLRQDO &RPPLVVLRQ ,Q WKH FRQWH[W RI WKLV HFRQRPLF GHSULYDWLRQ WKH SURVSHFW RI WKH VLJQLILFDQW FXW LQ DJULFXOWXUDO LQFRPH WKDW ZRXOG UHVXOW IURP DQ HQG WR WREDFFR SURGXFWLRQ LV DODUPLQJ 7KH SUHFDULRXV HFRQRP\ RI WKH VWXG\ UHJLRQ LV RQH UHDVRQ IRU WKH H[WHQVLYH DWWHQWLRQ SDLG WR WKH SRVVLELOLW\ RI DOWHUQDWLYH DJULFXOWXUDO SURGXFWV WKDW FRXOG FRPSHQVDWH DW OHDVW LQ SDUW IRU WREDFFR LQFRPH %DVNHWEDOO KDV EHHQ GHVFULEHG DV WKH VWDWH UHOLJLRQ RI .HQWXFN\ UHJXODUO\ KDG WR VFKHGXOH PHHWLQJV DURXQG WHOHYLVHG JDPHV RI WKH 8QLYHUVLW\ RI .HQWXFN\ PHQfV EDVNHWEDOO WHDP

PAGE 17

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f7KHUHfV QR VXEVWLWXWH IRU WREDFFRf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

PAGE 18

SURYLGHV FDVH VWXGLHV RI IRXU IDUPHUV 7KHVH FDVH VWXGLHV KHOS SRUWUD\ WKH FRQWH[W ZLWKLQ ZKLFK DJULFXOWXUDO SURGXFWLRQ GHFLVLRQV DUH PDGH )LQDOO\ &KDSWHU RIIHUV VRPH FRQFOXVLRQV DERXW WKH SURVSHFWV IRU DJULFXOWXUDO GLYHUVLILFDWLRQ LQ HDVWHUQ .HQWXFN\

PAGE 19

&+$37(5 0(7+2'6 $1' 6$03/( &+$5$&7(5,67,&6 'DWD IRU WKLV UHVHDUFK FRPH IURP PRQWKV RI ILHOGZRUN LQ 0RUJDQ DQG :ROIH FRXQWLHV 'DWD FROOHFWLRQ XWLOL]HG WZR RI WKH SULPDU\ PHWKRGV FRPPRQ LQ FXOWXUDO DQWKURSRORJ\f§SDUWLFLSDQW REVHUYDWLRQ DQG VXUYH\ UHVHDUFK %HUQDUG f GLVWLQJXLVKHV EHWZHHQ WZR W\SHV RI SDUWLFLSDQW REVHUYDWLRQ WKH SDUWLFLSDWLQJ REVHUYHU DQG WKH REVHUYLQJ SDUWLFLSDQW 7KH SDUWLFLSDWLQJ REVHUYHU GRHV QRW WDNH RQ WKH UROH RI WKH SHRSOH EHLQJ VWXGLHG EXW GRHV LQYROYH KLPVHOI RU KHUVHOI LQ WKH GDLO\ OLYHV RI WKH UHVHDUFK VXEMHFWV ,Q FRQWUDVW WKH REVHUYLQJ SDUWLFLSDQW DFWXDOO\ WDNHV RQ WKH UROH RI WKH UHVHDUFK VXEMHFWV VWXG\LQJ WKHLU EHKDYLRU DQG DWWLWXGHV IURP ZLWKLQ /LNH PRVW DQWKURSRORJLVWV P\ UROH ZDV DV D SDUWLFLSDWLQJ REVHUYHU DV ZRUNHG LQ WREDFFR SURGXFWLRQ DWWHQGHG DQG IDFLOLWDWHG PHHWLQJV DQG KHOSHG WR GUDIW YDULRXV GRFXPHQWV IRU DJULFXOWXUDO RUJDQL]DWLRQV LQ WKH VWXG\ DUHD &RPELQHG ZLWK LQIRUPDO LQWHUYLHZLQJ DQG VXUYH\ UHVHDUFK WKLV PL[ RI PHWKRGV DOORZV UHVHDUFKHUV WR FROOHFW DQG LQWHUSUHW ERWK TXDOLWDWLYH DQG TXDQWLWDWLYH GDWD 7KH LQLWLDO PRQWKV RI WKH UHVHDUFK IRFXVHG RQ SDUWLFLSDQW REVHUYDWLRQ ZLWK WKH JRDO RI XQGHUVWDQGLQJ WKH NH\ LVVXHV UHJDUGLQJ WREDFFR IDUPLQJ DQG DJULFXOWXUDO GLYHUVLILFDWLRQ LQ HDVWHUQ .HQWXFN\ 7KDW XQGHUVWDQGLQJ ZDV XVHG WR GHYHORS D TXHVWLRQQDLUH WKDW ZDV DGPLQLVWHUHG LQ WKH ODVW PRQWKV RI WKH UHVHDUFK SHULRG 7KLV FKDSWHU GHVFULEHV WKH SURFHVV RI VHOHFWLRQ RI WKH UHVHDUFK FRXQWLHV WKH PHWKRGV RI GDWD FROOHFWLRQ XVHG WKH VDPSOLQJ VWUDWHJ\ DQG VXUYH\ DGPLQLVWUDWLRQ SURFHVV DV ZHOO DV WKH SUREOHPV WKDW DURVH ZLWK WKLV

PAGE 20

FRPSRQHQWf DQG FRQFOXGHV ZLWK GHVFULSWLYH VWDWLVWLFV WR SURYLGH D SLFWXUH RI WKH DJULFXOWXUDO VLWXDWLRQ LQ WKH VWXG\ FRXQWLHV 5HVHDUFK 6LWH 6HOHFWLRQ 3UHOLPLQDU\ UHVHDUFK IRU WKLV SURMHFW IRFXVHG RQ WKH (DVW .HQWXFN\ 9HJHWDEOH 3URGXFHUV $VVRFLDWLRQ (.93$f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

PAGE 21

QHDUO\ WZLFH WKH VL]H LQ SRSXODWLRQ DQG b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f§WKH PRUH HGXFDWHG DQG DIIOXHQW IDUPHUV ZKR ZHUH PRUH OLNHO\ WR LQWHUDFW ZLWK DJULFXOWXUDO RIILFLDOV 7KXV ZDV W\SLFDOO\ XUJHG WR WDON WR ODUJHVFDOH IDUPHUV IDUPHUV ZKR VHUYHG RQ WKH YDULRXV FRXQW\ FRPPLWWHHV DGPLQLVWHULQJ IHGHUDO DJULFXOWXUDO SURJUDPV DQG IDUPHUV ZKR ZHUH DUWLFXODWH DQG YRFDO DERXW DJULFXOWXUDO LVVXHV ZDV QRW UHDOL]HG EHLQJ GLUHFWHG WR WDON ZLWK VPDOO VFDOH IDUPHUV WHQDQW IDUPHUV RU IDUPHUV ZLWK ORZ OHYHOV RI HGXFDWLRQ D VLWXDWLRQ PDGH D FRQVFLRXV HIIRUW WR UHPHG\

PAGE 22

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fUXQ LQWRf IDUPHUV EXW LQVWHDG JHQHUDOO\ KDG WR DUUDQJH PHHWLQJV LQ DGYDQFH 0\ ZRUN ZLWK VHYHUDO IDUPHUV LQ WREDFFR SURGXFWLRQ DORQJ ZLWK P\ UHJXODU DWWHQGDQFH DW DQG SDUWLFLSDWLRQ LQ PHHWLQJV RI DJULFXOWXUDO RUJDQL]DWLRQV DOORZHG VRPH RI WKH LQIRUPDO LQWHUDFWLRQ FHQWUDO WR SDUWLFLSDQW REVHUYDWLRQ 7KHUH ZHUH IHZ SODFHV ZKHUH IDUPHUV fKXQJ RXWf DOWKRXJK GLG VSHQG WLPH WDONLQJ LQIRUPDOO\ ZLWK IDUPHUV LQ WKH VHYHUDO IDUP VXSSO\ VWRUHV LQ WKH UHJLRQ ,QGHHG RQH LQIRUPDQW QRWHG WKDW FRPPXQLW\ HYHQWV WKDW KDG KHOSHG SURYLGH FRKHUHQFH WR ORFDO FRPPXQLWLHV LQ WKH SDVW ZHUH QRW FRPPRQ DQ\PRUH %HUQDUG f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

PAGE 23

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b OLYH LQ 0RUJDQ &RXQW\ DQG b LQ :ROIH &RXQW\ $OO QDPHV ZHUH QXPEHUHG DQG D UDQGRP QXPEHU WDEOH ZDV XVHG WR GUDZ WKH VDPSOH $ VDPSOH RI QDPHV ZDV GUDZQ 1DPHV VHOHFWHG IRU WKH VDPSOH ZHUH FRQWDFWHG LQ DSSUR[LPDWHO\ WKH RUGHU LQ ZKLFK WKH\ ZHUH GUDZQ 7KH SHUVRQ QDPHG RQ WKH PDUNHWLQJ FDUG ZDV WHOHSKRQHG DQG DVNHG LI KH RU VKH ZDV DFWXDOO\ SURGXFLQJ WKH WREDFFR RU LI VRPHRQH HOVH

PAGE 24

ZDV WHQGLQJ LW ,I WKDW SHUVRQ ZDV WKH JURZHU DQ LQWHUYLHZ ZDV VFKHGXOHG LI QRW WKH JURZHUf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b RI WKH WRWDO QXPEHU RI SHRSOH LVVXHG PDUNHWLQJ FDUGV :KLOH WKH WDUJHW VDPSOH VL]H ZDV GLIILFXOWLHV LQ DUUDQJLQJ LQWHUYLHZV UHVXOWHG LQ D FRQVLGHUDEO\ VPDOOHU VDPSOH ,QWHUYLHZV ZHUH FRQGXFWHG LQ WKH IDUPHUf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f FURS \LHOGV RWKHU WKDQ WREDFFRf DQG SODQV IRU IXWXUH IDUP HQWHUSULVHV 7KH SUREOHP RI LQIRUPDQW DFFXUDF\ GLVFXVVHG E\ %HUQDUG DQG FROOHDJXHV %HUQDUG .LOOZRUWK .URQHQIHOG DQG 6DOLHU f LV DQ H[WUDRUGLQDULO\ GLIILFXOW RQH ,Q JHQHUDO IRXQG WKDW TXHVWLRQV FRQFHUQLQJ GDWD RYHU D \HDU ROG WHQGHG WR HYRNH VSHFXODWLYH DQG XQFHUWDLQ DQVZHUV QRW VXUSULVLQJO\ IRU

PAGE 25

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f LV OHVV LPSRUWDQW WKDQ NQRZLQJ RQ ZKDW LQIRUPDWLRQ LQIRUPDQWV DUH EDVLQJ WKHLU GHFLVLRQV (YHQ LI DQ HVWLPDWH E\ D IDUPHU WKDW b RI KLV RU KHU KRXVHKROG FRPHV IURP IDUPLQJ LV ZLGHO\ LQFRUUHFW WKDW b ILJXUH LV ZKDW KH RU VKH EHOLHYHV LV FRUUHFW DQG LV WKH LQIRUPDWLRQ RQ ZKLFK GHFLVLRQV DUH EDVHG 2I FRXUVH LW VKRXOG EH PDGH H[SOLFLW WKDW WKH GDWD FROOHFWHG LQ WKLV UHVHDUFK LV EDVHG RQ LQIRUPDQW UHFDOO DQG RSLQLRQV UDWKHU WKDQ GLUHFW PHDVXUHPHQW

PAGE 26

'HVFULSWLRQ RI 6DPSOH :KLOH VSHFLILF GDWD IURP WKH VDPSOH DUH LQFRUSRUDWHG LQWR UHOHYDQW SRUWLRQV RI WKH WH[W RI WKLV ZRUN D EULHI RYHUYLHZ RI VRPH RI WKH GHVFULSWLYH VWDWLVWLFV FROOHFWHG ZLOO KHOS SDLQW WKH SLFWXUH RI IDUPLQJ LQ WKH VWXG\ UHJLRQ 3URGXFWLRQ 'DWD )DUPHU DFFHVV WR YDULRXV NLQGV RI DJULFXOWXUDO ODQG HLWKHU E\ RZQHUVKLS RU UHQWDO LV SRUWUD\HG LQ 7DEOH ,Q WKH FURS \HDU b Q f RI WKH IDUPHUV VXUYH\HG UHQWHG DW OHDVW VRPH WREDFFR TXRWD DQG ODQG b Q f RZQHG DW OHDVW VRPH TXRWD DQG b Q f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b Q f RI WKH IDUPHUV VDPSOHG UDLVH DW OHDVW VRPH KD\ DQG b Q f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

PAGE 27

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

PAGE 28

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f )DUPHUV LQ WKH VWXG\ UHJLRQ DUH QRW LQ JHQHUDO IROORZLQJ WKHVH UHFRPPHQGDWLRQV 2YHU RQHWKLUG b Q f KDYH QHYHU WHVWHG WKHLU WREDFFR VRLO DQG RQO\ b Q f WHVW WREDFFR VRLO DQQXDOO\ 2WKHU IDUPODQG LV WHVWHG HYHQ OHVV RIWHQ RI WKRVH IDUPHUV UDLVLQJ KD\ b Q f KDYH QHYHU KDG D VRLO WHVW RI WKHLU KD\ JURXQG DQG b Q f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
PAGE 29

'HPRJUDSKLF 'DWD 7DEOH GLVSOD\V WKH PHDQ PHGLDQ DQG VWDQGDUG GHYLDWLRQ RI WKH DJH DQG HGXFDWLRQ OHYHO RI IDUPHUV LQ WKH VDPSOH 7KH UHODWLYHO\ KLJK DJH RI IDUPHUV LQ WKH UHJLRQ LV RIWHQ UDLVHG DV D FRQFHUQ E\ DUHD IDUPHUV DERXW WKH IXWXUH RI IDUPLQJ LQ WKH UHJLRQ 7DEOH $JH DQG HGXFDWLRQ RI UHVSRQGHQWV 0HGLDQ 0HDQ 6WDQGDUG 'HYLDWLRQ $JH
PAGE 30

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b RU OHVV bb bb bb bb bb bb bb bb bb 0LVVLQJ 7RWDO )LQDOO\ 7DEOH GLVSOD\V WKH UHSRUWHG WRWDO KRXVHKROG LQFRPH RI IDUPHUV LQ WKH VDPSOH 1HDUO\ RQHWKLUG RI WKH IDUP IDPLOLHV HDUQ OHVV WKDQ DQQXDOO\ ZKLOH RQO\ b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

PAGE 31

WKH 8QLWHG 6WDWHV DV D ZKROH $GGLWLRQDOO\ DFFHVV WR WKH PHDQV RI SURGXFWLRQ LQ WKH VWXG\ UHJLRQ ERWK ODQG DQG WKH ULJKW WR JURZ WREDFFR WREDFFR TXRWDf LV KLJKO\ YDULDEOH 7KLV YDULDELOLW\ KDV OHG WR LPSRUWDQW GLVSXWHV ZLWKLQ WKH FRXQWLHV EHWZHHQ IDUPHUV ZLWK GLIIHULQJ DFFHVV WR WKH PHDQV RI SURGXFWLRQ D VLWXDWLRQ WKDW ZLOO EH GLVFXVVHG ODWHU LQ WKLV ZRUN 7DEOH 7RWDO KRXVHKROG LQFRPH )UHTXHQF\ 3HUFHQW &XPXODWLYH SHUFHQW RYHU

PAGE 32

&+$37(5 81,7(' 67$7(6 $*5,&8/785( 75(1'6 $1' 7+(25,(6 2QJRLQJ FKDQJHV LQ 8 6 DJULFXOWXUH KDYH EHHQ VWXGLHG H[WHQVLYHO\ E\ DJULFXOWXUDO HFRQRPLVWV UXUDO VRFLRORJLVWV DQWKURSRORJLVWV DQG RWKHU DFDGHPLFV 7KH SHUVLVWHQFH RI QRQFDSLWDOLVW IRUPV RI SURGXFWLRQ LQ DJULFXOWXUH ZLWKLQ WKH FDSLWDOLVW HFRQRP\ RI WKH 8QLWHG 6WDWHV KDV FKDOOHQJHG HFRQRPLF WKHRU\ IRU DQ H[SODQDWLRQ 7KH FKDQJHV LQ WKH 28QLWHG 6WDWHVf DJUDULDQ VWUXFWXUH WKDW KDYH EHHQ GRFXPHQWHG DQG WKH WKHRULHV GHYHORSHG WR H[SODLQ WKRVH FKDQJHV DUH D ORJLFDO VWDUWLQJ SRLQW IRU DQ H[DPLQDWLRQ RI DJULFXOWXUDO FKDQJH LQ .HQWXFN\ 7UHQGV LQ 8QLWHG 6WDWHV $JULFXOWXUH )RU WKH ILUVW FHQWXU\ RI LWV H[LVWHQFH WKH 8QLWHG 6WDWHV ZDV SULPDULO\ DQ DJULFXOWXUDO FRXQWU\ %\ VOLJKWO\ OHVV WKDQ D KDOI bf RI WKH WRWDO 8 6 SRSXODWLRQ OLYHG RQ IDUPV :KLOH ODQG XQGHU FXOWLYDWLRQ DQG WKH WRWDO IDUP SRSXODWLRQ FRQWLQXHG WR JURZ WKURXJK WKH HDUO\ \HDUV RI WKH WK FHQWXU\ IDUP UHVLGHQWV GHFUHDVHG DV D VKDUH RI WKH WRWDO SRSXODWLRQ E\ OHVV WKDQ D TXDUWHU RI WKH 8 6 SRSXODWLRQ OLYHG RQ IDUPV $OEUHFKW DQG 0XUGRFN f 7KH $JULFXOWXUDO &HQVXV FXUUHQWO\ UHOLHV RQ JURVV VDOHV LQ LWV GHILQLWLRQ RI ZKDW WR FRXQW DV D IDUP 6WDUWLQJ LQ D IDUP ZDV GHILQHG DV fDQ\ SODFH IURP ZKLFK RU PRUH RI DJULFXOWXUDO SURGXFWV ZHUH VROG RU QRUPDOO\ ZRXOG KDYH EHHQ VROG GXULQJ WKH FHQVXV \HDU f 8 6 '$ f 7KLV UHSODFHG DQ HDUOLHU GHILQLWLRQ WKDW FRPELQHG PLQLPXP VDOHV ZLWK DFUHDJH LQ WKH GHILQLWLRQ RI D IDUP 8 6 'HSDUWPHQW RI &RPPHUFH %XUHDX RI WKH &HQVXV f

PAGE 33

)DUP 3RSXODWLRQ 6LQFH WKH SDFH RI FKDQJH LQ $PHULFDQ DJULFXOWXUH KDV LQFUHDVHG GUDPDWLFDOO\ 7KH VSUHDG RI ODERU VDYLQJ PDFKLQHU\ SDUWLFXODUO\ WKH WUDFWRU KDV HQDEOHG IDU IHZHU SHRSOH WR ZRUN WKH QR ORQJHU H[SDQGLQJ ODQG EDVH DQG WKH GHYHORSPHQW RI FKHPLFDO IHUWLOL]HUV SHVWLFLGHV DQG K\EULG VHHGV KDYH OHG WR VLJQLILFDQW LQFUHDVHV LQ SHU DFUH SURGXFWLYLW\ )XHOHG E\ WKHVH WHFKQRORJLFDO FKDQJHV IDUP SRSXODWLRQ ERWK LQ DFWXDO QXPEHU DQG DV D SRUWLRQ RI WKH WRWDO 8 6 SRSXODWLRQ SOXPPHWHG LQ WKH ODVW KDOI RI WKH WK FHQWXU\ 7DEOH GLVSOD\V WKH FKDQJHV LQ IDUP SRSXODWLRQ LQ WKH FRXQWU\ DV D ZKROH ZLWKLQ WKH VWDWH RI .HQWXFN\ DQG LQ WKH VWXG\ FRXQWLHV $W LWV SHDN LQ 86 IDUP SRSXODWLRQ ZDV RYHU PLOOLRQ $OEUHFKW DQG 0XUGRFN f DFFRXQWLQJ IRU b RI WKH WRWDO 86 SRSXODWLRQ %\ IDUP SRSXODWLRQ KDG GURSSHG WR MXVW XQGHU PLOOLRQ UHSUHVHQWLQJ OHVV WKDQ b RI WKH QDWLRQfV SRSXODWLRQ 86 'HSDUWPHQW RI &RPPHUFH f 1RW VXUSULVLQJO\ DV IDUP SRSXODWLRQ KDV GURSSHG DYHUDJH IDUP DFUHDJH KDV LQFUHDVHG VLJQLILFDQWO\ IURP DFUHV LQ $OEUHFKW DQG 0XUGRFN f WR DFUHV LQ 86 $ f 7KH &KDQJLQJ 86 $JULFXOWXUDO 6WUXFWXUH :KLOH D QHDUO\ WULSOLQJ RI DYHUDJH IDUP VL]H LV GUDPDWLF DYHUDJHV PDVN VRPH LPSRUWDQW FKDQJHV WDNLQJ SODFH LQ WKH 8QLWHG 6WDWHVf DJUDULDQ VWUXFWXUH $ QXPEHU RI UHVHDUFKHUV $OEUHFKW DQG 0XUGRFN %RQDQQR *ODGZLQ DQG =XODXI 6WRFNGDOH f KDYH QRWHG WKH GHYHORSPHQW RI D ELPRGDO GLVWULEXWLRQ SDWWHUQ LQ 86 IDUPLQJ ZLWK UHODWLYHO\ IHZ ODUJH IDUPV UHVSRQVLEOH IRU DQ LQFUHDVLQJ VKDUH RI DJULFXOWXUDO SURGXFWLRQ VDOHV DQG IDUP DVVHWV $W WKH VDPH WLPH VPDOO IDUPV KDYH EHHQ

PAGE 34

7DEOH )DUP 3RSXODWLRQ
PAGE 35

VHHQ SDUWLFXODUO\ VLQFH WKH HDUO\ V DV fLQFUHDVLQJ LQ QXPEHUV DQG KROGLQJ WKHLU RZQ LQ WHUPV RI DFUHDJH DQG DJJUHJDWH SURGXFWLRQf %XWWHO f 7KH GHYHORSPHQW RI WKLV ELPRGDO GLVWULEXWLRQ RYHU WLPH LV HYLGHQW LQ 7DEOH ZKLFK SUHVHQWV WKH GLVWULEXWLRQ RI 8 6 IDUPV E\ DFUHDJH IURP WKURXJK 7KH FDWHJRULHV VKRZLQJ WKH PRVW GUDPDWLF LQFUHDVHV RYHU WLPH DUH WKH VPDOOHVW DQG ODUJHVW DFUHDJHV ZLWK WKH PLGGOH UDQJH GHFUHDVLQJ DV D SHUFHQWDJH RI DOO IDUPV )LJXUH VKRZV WKLV ELPRGDO GLVWULEXWLRQ DW WKH SUHVHQW WLPH DFURVV WKH 8QLWHG 6WDWHV XVLQJ JURVV VDOHV GDWD IURP WKH &HQVXV RI $JULFXOWXUH 7DEOH 8 6 IDUP GLVWULEXWLRQ E\ DFUHDJH f§ 8QGHU DFUHV b b b b b b DFUHV b b b b b b DFUHV b b b b b b DFUHV b b b b b b DFUHV b b b b b b RU PRUH DFUHV b b b b b b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f

PAGE 36

P /HVV WKDQ + WR ’ WR ’ WR ‘ WR A DQG RYHU )LJXUH 'LVWULEXWLRQ RI 8 6 IDUPV E\ JURVV VDOHV 6RXUFH &HQVXV RI $JULFXOWXUH 86'$ )LJXUH GHPRQVWUDWHV WKDW WKH ELPRGDO GLVWULEXWLRQ RI IDUPV FKDUDFWHUL]LQJ WKH 8 6 DV D ZKROH LV QRW SUHGRPLQDQW LQ .HQWXFN\ )RU VLPSOLILFDWLRQ )LJXUHV DQG FRPELQH WKH ODUJHVW JURVV VDOHV FDWHJRULHV IURP WKH &HQVXV RI $JULFXOWXUH WR WR DQG RU PRUHf PDVNLQJ WKH IDFW WKDW RQO\ b RI .HQWXFN\ IDUPV DQG QR IDUPV LQ WKH VWXG\ FRXQWLHV UHJLVWHUHG JURVV VDOHV LQ WKH WZR KLJKHVW FDWHJRULHV ZKLOH b RI IDUPV QDWLRQDOO\ IDOO LQWR WKRVH JURXSLQJV 7KH JHRJUDSKLFDO UHJLRQV DUH PRUH VLPLODU RQ WKH VPDOOHU HQG RI JURVV VDOHV LQ WKH 86 .HQWXFN\ DQG ERWK VWXG\ FRXQWLHV IURP WR b RI DOO IDUPV KDG JURVV VDOHV XQGHU LQ

PAGE 37

(/HVV WKDQ % WR ’ WR ’ WR % WR ( DQG RYHU .HQWXFN\ 0RUJDQ &R :ROIH &R )LJXUH 'LVWULEXWLRQ RI .HQWXFN\ IDUPV E\ JURVV VDOHV 6RXUFH &HQVXV RI $JULFXOWXUH 8 6 $ %HWZHHQ WKHVH UHODWLYHO\ IHZ ODUJH DQG KLJKO\ SURGXFWLYH IDUPV DQG WKH QXPHURXV EXW ORZSURGXFWLRQ IDUPV LV ZKDW KDV EHHQ FDOOHG fGLVDSSHDULQJ PLGGOHff§PHGLXPVL]HG IDPLO\ RZQHG DQG RSHUDWHG IDUPV 7KH DOOHJHG GLVDSSHDUDQFH RI WKH fWUDGLWLRQDOf IDPLO\ IDUP LQ ZKLFK WKH IDPLO\ SURYLGHV WKH EXON RI WKH ODERU UHVRXUFHV DQG WKH IDUP LQ WXUQ VXSSRUWV WKH IDPLO\ KDV UHFHLYHG D VLJQLILFDQW DPRXQW RI DWWHQWLRQ IURP SROLWLFLDQV VRFLDO FRPPHQWDWRUV DQG UHVHDUFKHUV %DUOHWW IRU H[DPSOH DUJXHV WKDW FRQFOXVLRQV DERXW WKH GLVDSSHDULQJ PLGGOH DUH EDVHG RQ VWDWLF GHILQLWLRQV RI PLGVL]HG IDUPV EDVHG RQ JURVV VDOHV GDWD 6KH VXJJHVWV WKDW IDPLO\ IDUPV DUH JHWWLQJ ODUJHU EXW DUH VWLOO UHPDLQLQJ IDPLO\ IDUPVf§WKH PLGGOH LVQfW GLVDSSHDULQJ EXW LW LV JHWWLQJ ELJJHU %DUOHWW f 7R FRPSHQVDWH IRU WKLV fPRYLQJ WDUJHWf RI WKH PLGVL]HG IDUPV *ODGZLQ DQG =XODXI GHILQHG D PLGVL]HG IDUP DV RQH WKDW FDQ SURYLGH D VWDQGDUG RI OLYLQJ FRPSDUDEOH WR WKH QDWLRQDO DYHUDJH 8VLQJ WKLV GHILQLWLRQ EDVHG RQ D FRPSDULVRQ RI QHW IDUP LQFRPH DQG QDWLRQDO

PAGE 38

KRXVHKROG PHGLDQ LQFRPH WKH\ FRQFOXGHG WKDW PLGVL]HG IDUPV GLG LQGHHG GHFOLQH LQ WHUPV RI QXPEHU RXWSXW DQG SURILW *ODGZLQ DQG =XODXI f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fWKH RQO\ PHDVXUHV RI VL]H FRQVLVWHQWO\ FROOHFWHG E\ WKH $JULFXOWXUDO &HQVXV DQG WKXV WKH RQO\ PHDVXUHV DYDLODEOH RQ D QDWLRQDO VFRSH IRU DQ H[WHQGHG SHULRGf *ODGZLQ DQG =XODXI f )DPLO\ IDUPV 3HWHUVRQ 'LFNVRQ DQG %RZNHU f GLVFXVV ERWK HPLF DQG HWLF GHILQLWLRQV RI WKH WHUP IDPLO\ IDUP DQG KRZ WKRVH GHILQLWLRQV YDU\ DFFRUGLQJ WR WKH XVHV EHLQJ PDGH RI WKH WHUP %DVHG RQ D VXUYH\ RI DQWKURSRORJ\ DQG DJULFXOWXUDO HFRQRPLFV VWXGHQWV WKH\ GHYHORSHG DQ HPLF GHILQLWLRQ RI D IDPLO\ IDUP DV RQH XVLQJ WKH IDPLO\ DV WKH SULPDU\ ODERU VRXUFH SURGXFLQJ SULPDULO\ IRU WKH PDUNHW DQG SURYLGLQJ WKH PDLQ VRXUFH RI LQFRPH IRU WKH IDPLO\ $FFRUGLQJ WR WKLV HPLF GHILQLWLRQ IDPLO\ IDUPV DUH JHQHUDOO\

PAGE 39

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f PRVW DJULFXOWXUDO HFRQRPLVWV GHILQH IDPLO\ IDUPV DV WKRVH ZLWK DQQXDO JURVV VDOHV EHWZHHQ DQG $V 7DEOH VKRZV KRZHYHU XVLQJ WKLV GHILQLWLRQ ZRXOG H[FOXGH WKH YDVW PDMRULW\ RI IDUPV LQ WKH FRXQWU\ DQG HYHQ PRUH VR LQ .HQWXFN\ DQG WKH VWXG\ UHJLRQ IURP WKH FDWHJRU\ RI IDPLO\ IDUPV 7DEOH )DUPV E\ DQQXD JURVV VDOHV $QQXDO JURVV VDOHV 86 .HQWXFN\ 0RUJDQ &R :ROIH &R 8QGHU b b b b b b b b 2YHU b b b b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f VXJJHVWV D FODVVLILFDWLRQ V\VWHP GLIIHUHQWLDWLQJ EHWZHHQ IXOOWLPH IDUPLQJ KRXVHKROGV LQ ZKLFK QR

PAGE 40

PHPEHUV KDYH RIIIDUP HPSOR\PHQW DQG PXOWLSOH MREKROGLQJ KRXVHKROGV ZKLFK FDQ EH GLYLGHG LQWR WKRVH ZKRVH WRWDO RIIIDUP LQFRPH H[FHHGV IDUP LQFRPH DQG WKRVH ZKHUH IDUP LQFRPH H[FHHGV RIIIDUP LQFRPH 6LPSOH FRPPRGLW\ SURGXFWLRQ 6&3f LV D PRUH SUHFLVH WKHRUHWLFDO WHUP WKDQ IDPLO\ IDUP DOWKRXJK WKH WZR WHUPV DUH ODUJHO\ GHQRWLQJ WKH VDPH SKHQRPHQD LQ WKH 8QLWHG 6WDWHV 'HHUH f 6LPSOH FRPPRGLW\ SURGXFHUV SURGXFH IRU WKH FDSLWDOLVW PDUNHW DQG GHSHQG RQ WKH VDOH RI WKRVH FRPPRGLWLHV IRU DFFHVV WR WKH PHDQV RI SURGXFWLRQ ODQG ODERU FUHGLWf UDWKHU WKDQ DFFHVVLQJ WKH PHDQV RI SURGXFWLRQ WKURXJK GLUHFW QRQPDUNHW PHDQV VXFK DV NLQVKLS RU FRPPXQDO ODERUVKDULQJ DUUDQJHPHQWV (QQHZ +LUVW DQG 7ULEH )ULHGPDQQ )ULHGPDQQ f 5HLQKDUGW DQG %DUOHWW f DUJXH WKDW WKH PRVW LPSRUWDQW GLVWLQJXLVKLQJ IHDWXUH RI D IDPLO\ IDUP LV LWV GXDO UROH DV D XQLW RI ERWK SURGXFWLRQ DQG FRQVXPSWLRQ D IHDWXUH VKDUHG E\ SDUWWLPH DQG IXOOWLPH IDUPV $OWKRXJK WKH SDUWWLPH IDUP UHOLHV RQ QRQn KRXVHKROG SURGXFWLRQ LQ DGGLWLRQ WR RQIDUP ZRUN WKH IDUPLQJ LV VWLOO FDUULHG RXW SULPDULO\ E\ IDPLO\ PHPEHUV ,I XQGHUVWDQGLQJ ZK\ IDPLO\ IDUPV KDYH SHUVLVWHG XQGHU FDSLWDOLVP LV WKH DQDO\WLFDO JRDO SDUWWLPH IDUPV DUH DQ LPSRUWDQW SDUW RI WKH SLFWXUH 3DUWWLPH IDUPV $OWKRXJK SDUWWLPH IDUPV KDYH EHHQ DQ LQFUHDVLQJO\ FRPPRQ IRUP RI DJULFXOWXUDO HQWHUSULVH LQ WKH 8QLWHG 6WDWHV H[DFWO\ ZKDW LV PHDQW E\ WKLV WHUP LV QRW FOHDU )XOOHU f QRWHV WKDW VWXGLHV FRPPRQO\ GRQfW SURYLGH DQ H[SOLFLW GHILQLWLRQ RI D SDUWWLPH IDUP ,QVWHDG PRVW UHO\ RQ D FRPELQDWLRQ RI WKH QXPEHU RI GD\V VSHQW LQYROYHG LQ RII IDUP ZRUN DQG WKH DPRXQW RI LQFRPH GHULYHG IURP RIIIDUP VRXUFHV SDUWLFXODUO\ PHDVXUHG DV D SURSRUWLRQ RI WRWDO IDUP UHYHQXH +H QRWHV KRZHYHU WKDW WKH GLIILFXOW\ LQ HIIHFWLYHO\ FDOFXODWLQJ IDUP LQFRPH FUHDWHV SUREOHPV ZLWK WKLV PHWKRG )XOOHU FRQFOXGHV

PAGE 41

WKDW GLIIHUHQWLDWLQJ EHWZHHQ D SDUWWLPH IDUPHU DQG D SDUWWLPH IDUP KHOSV WR FODULI\ WKH LVVXH $ SDUWWLPH IDUPHU LV RQH ZKR ZRUNV RQO\ SDUWWLPH RQ WKH IDUP $ SDUWWLPH IDUP fLV RQH IRU ZKLFK ZLWK WKH FXUUHQW OHYHO RI UHVRXUFHV WKH ODERU GHPDQG LV OHVV WKDQ D IXOO \HDUfV ZRUNf )XOOHU f 8QIRUWXQDWHO\ WKH &HQVXV RI $JULFXOWXUH GRHV QRW FROOHFW GDWD RQ WKH OHYHO RI RIIIDUP LQFRPH RU WKH ODERU fGHPDQGf RI D JLYHQ IDUP 7KH FROOHFWLRQ RI VXFK GDWD ZRXOG EH H[WUHPHO\ GLIILFXOW DV WKH OHYHO RI FDSLWDO LQYHVWPHQW LQ DJULFXOWXUH FDQ VLJQLILFDQWO\ GHFUHDVH WKH QXPEHU RI KXPDQ ODERU KRXUV UHTXLUHG %RQDQQR f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b b b b b b b b 6RXUFH &HQVXV R I $JULFXOWXUH 6PDOO IDUPV 1RW VXUSULVLQJO\ WKHUH LV VLJQLILFDQW RYHUODS EHWZHHQ SDUWWLPH IDUPV DQG VPDOO IDUPV :LWKLQ DGYDQFHG FDSLWDOLVW VRFLHWLHV KRZHYHU SDUWWLPH IDUPLQJ H[LVWV DPRQJ IDPLO\RSHUDWHG IDUPV IURP VPDOO WR TXLWH ODUJH &RQYHUVHO\ PDQ\ VPDOO IDUPV DUH IXOO

PAGE 42

WLPH RSHUDWLRQV ZLWK OLWWOH RU QR RIIIDUP LQFRPH DQG WKHVH VPDOO IDUPHUV DUH KLVWRULFDOO\ fRYHUUHSUHVHQWHG DPRQJ UXUDO SRYHUW\ JURXSV LQ WKH 8QLWHG 6WDWHV DQG HOVHZKHUHf %XWWHO f &OHDUO\ WKH RSSRUWXQLWLHV QHHGV DQG FRQVWUDLQWV DUH VLJQLILFDQWO\ GLIIHUHQW EHWZHHQ IXOO WLPH DQG SDUW WLPH RSHUDWRUV RI VPDOO IDUPV 7DEOH 'D\V ZRUNHG RIIIDUP E\ SULQFLSDO RSHUDWRU 86 .HQWXFN\ 0RUJDQ &R :ROIH &R 1RQH b b b b /HVV WKDQ GD\V b b b b GD\V RU PRUH b b b b 6RXUFH &HQVXV RI $JULFXOWXUH 7KH PRVW REYLRXV FULWHULD E\ ZKLFK WR PHDVXUH IDUP VL]H LV DFUHDJH +RZHYHU DFUHDJH UHTXLUHPHQWV FDQ GLIIHU YDVWO\ GHSHQGLQJ XSRQ WKH W\SH RI IDUPLQJ RSHUDWLRQ 7KXV ZKLOH VWXGLHV RI XSSHU 0LGZHVW JUDLQ IDUPV KDYH GHILQHG VPDOO IDUPV DV WKRVH ZLWK DFUHV RU OHVV +DUSHU )OLHJHO DQG (V 6FKURHGHU )OLHJHO DQG YDQ (V f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f FRPSDUHG ZLWK WKH 86 DV D ZKROH HYHQ WKRXJK JURVV VDOHV IURP .HQWXFN\ DQG VWXG\ FRXQW\ IDUPV DUH VNHZHG WRZDUGV WKH VPDOOHVW FDWHJRULHV 7KLV

PAGE 43

GLVFUHSDQF\ UHYHDOV D OLPLWDWLRQ LQ XVLQJ DFUHDJH WR GHILQH VPDOO IDUPV ZLWKRXW XQGHUVWDQGLQJ ODQG XVH DEVROXWH DFUHDJH FDQ PHDQ OLWWOH ,Q WKH VWXG\ FRXQWLHV IRU H[DPSOH PDQ\ IDUPV LQFOXGH VLJQLILFDQW DPRXQWV RI ZRRGHG PRXQWDLQRXV DQG RWKHU QRQFXOWLYDEOH ODQG 7KXV ZKLOH WKH WRWDO ODQG DUHD PD\ EH ODUJH WKH XVHDEOH ODQG DUHD PD\ EH FRQVLGHUDEO\ VPDOOHU b b e b 2f 6L b UD b b b b b b b Y 1 f & 0 OOOOOOO ZZZ Z LOO OLOL OLSJ A DFUHV + DFUHV ’ DFUHV ’ DFUHV ‘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

PAGE 44

%HFDXVH RI WKH SUREOHPV ZLWK XVLQJ ODQG DUHDEDVHG GHILQLWLRQV VWXGLHV RI VPDOO IDUPV WHQG WR UHO\ RQ JURVV VDOHV $OEUHFKW &DUOLQ DQG &UHFLQN 6FKXOPDQ *DUUHWW DQG /XJLQEXKO 7ZHHWHQ DQG $PSRQVDK f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b b b b DQG RYHU b b b b 6RXUFH &HQVXV RI $JULFXOWXUH 86'$ 'HVSLWH WKH XWLOLW\ RI JURVV VDOHV GDWD LQ VXJJHVWLQJ WKH VFDOH RI IDUPLQJ RSHUDWLRQV WKH\ SURYLGH OLWWOH LQIRUPDWLRQ RQ WKH UHODWLRQVKLS EHWZHHQ WKHVH VDOHV DQG WKH ZHOOEHLQJ RI IDUP RSHUDWRUV 6HYHUDO UHVHDUFKHUV KDYH FRPSDUHG QHW IDUP LQFRPH WR PHGLDQ KRXVHKROG LQFRPH LQ DQ HIIRUW WR GHILQH IDUP VL]H EDVHG RQ SURILWDELOLW\ )RU H[DPSOH D 86'$ GHILQLWLRQ RI VPDOO IDUPV LQFOXGHV DOO IDUP IDPLOLHV Df ZKRVH IDPLO\ QHW LQFRPH IURP DOO VRXUFHV IDUP DQG QRQIDUPf LV EHORZ WKH PHGLDQ QRQPHWURSROLWDQ LQFRPH RI WKH VWDWH Ef ZKR GHSHQG RQ IDUPLQJ IRU D VLJQLILFDQW WKRXJK QRW QHFHVVDULO\ D PDMRULW\ RI WKHLU LQFRPH DQG Ff ZKRVH IDPLO\ PHPEHUV SURYLGH PRVW RI WKH ODERU DQG PDQDJHPHQW &DUOLQ DQG &UHFLQN f

PAGE 45

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fSfUR3RQHQWV RI WKLV W\SH GHILQLWLRQ JHQHUDOO\ DUH PRUH FRQFHUQHG DERXW LVVXHV RI OLPLWHG UHVRXUFH IDUPV DQG IDUP SRYHUW\ WKDQ DERXW RWKHU W\SHV RI LVVXHVf &DUOLQ DQG &UHFLQN f $QRWKHU HIIRUW WR OLQN GHILQLWLRQV RI IDUP VL]H WR H[WHUQDO PHDVXUHV RI ZHOOEHLQJ ZDV GHYHORSHG E\ *ODGZLQ DQG =XODXI f 7KH\ ORRNHG DW PLGVL]HG UDWKHU WKDQ VPDOO IDUPV DQG GHILQHG PLGVL]HG IDUPV DV WKRVH SURYLGLQJ D IDUP LQFRPH HTXDO WR WKH PHGLDQ 86 KRXVHKROG LQFRPH SOXV RU PLQXV b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f RI WKH

PAGE 46

IDUP 8 6' $ 'f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f§RQH EDVHG RQ IDPLO\ UDWKHU WKDQ ZDJH ODERUf§FRQWLQXHG WR SHUVLVW UDWKHU WKDQ EHLQJ VXEVXPHG E\ FDSLWDOLVW IDUPV" 7KH VLQJOH PRVW LPSRUWDQW GLVWLQJXLVKLQJ FKDUDFWHULVWLF RI FDSLWDOLVW HQWHUSULVHV LV WKH VHSDUDWLRQ RI ODERU IURP WKH PHDQV RI SURGXFWLRQ DQG WKH FRQVHTXHQW VDOH RI ODERU DV D FRPPRGLW\ 5RVHEHUU\ :ROI f 3XW PRUH VLPSO\ FDSLWDOLVWV KLUH ODERU UDWKHU WKDQ GRLQJ WKH PDMRULW\ RI WKH ZRUN WKHPVHOYHV 2Q IDPLO\ IDUPV WKH UHVLGHQW NLQ JURXS SURYLGHV WKH EXON RI WKH ODERU QHHGHG WR ZRUN WKH IDUP ZKLOH RQ FDSLWDOLVW IDUPV KLUHG ODERU DQG RIWHQ PDQDJHPHQWf FDUU\ RXW WKH ZRUN LQ UHWXUQ IRU D ZDJH 5HLQKDUGW DQG

PAGE 47

%DUOHWW f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f RU SDVVLQJ WKH IDUP RQ WR WKH QH[W JHQHUDWLRQ 6DODPRQ 6DODPRQ f 7KHVH NLQGV RI VXEMHFWLYH RULHQWDWLRQV KDYH HQFRXUDJHG WKH SHUVLVWHQFH RI IDPLO\ IDUPV HYHQ ZKHQ WKH IDPLO\f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n VL]HG IDUPHUV WR HLWKHU H[SDQG SURGXFWLRQ FXW EDFN DQG EHFRPH SDUWWLPH IDUPHUV RU OHDYH WKH DJULFXOWXUDO VHFWRU DOWRJHWKHU $V D UHVXOW RI WKHVH IRUFHV WKH QXPEHU DQG FRQWULEXWLRQ RI PLGVL]HG IDUPV GHFUHDVHG GUDPDWLFDOO\ HYHQ SULRU WR WKH IDUP FULVLV RI WKH V +RZHYHU GXULQJ WKH GHFDGH SULRU WR WKH IDUP FULVLV WKH QXPEHU RI SDUWWLPH VPDOO IDUPV UHPDLQHG IDLUO\ FRQVWDQW ZKLOH WKHLU VKDUH RI WKH WRWDO QXPEHU RI IDUPV KDV LQFUHDVHG *ODGZLQ DQG =XODXI f 7KLV VXJJHVWV WKDW ZKLOH QRW SURGXFLQJ VLJQLILFDQW DPRXQWV RI SURGXFH IRU WKH PDUNHW SDUWWLPH IDUPLQJ KDV SURYHQ D YLDEOH PHDQV IRU

PAGE 48

PDQ\ IDUPHUV WR VWD\ LQ DJULFXOWXUH 1HRFODVVLFDO HFRQRPLFV GRHV QRW KRZHYHU SURYLGH D FRPSHOOLQJ H[SODQDWLRQ IRU ZK\ SDUWWLPH IDUPHUV KDYH UHPDLQHG LQ DJULFXOWXUH 7KDW KDV EHHQ WKH VXEMHFW RI FRQVLGHUDEOH GHEDWH DPRQJ 0DU[LVW DQG QHR0DU[LVW VFKRODUV RI 86 DJULFXOWXUH 0DU[LVW 3HUVSHFWLYHV RQ WKH )DPLO\ )DUP %XWWHO f QRWHV WKDW WKH SHUVLVWHQFH RI IDPLO\ IDUPV LQ DQ RWKHUZLVH SUHGRPLQDWHO\ FDSLWDOLVW HFRQRP\ OHG PRVW 1RUWK $PHULFDQ UXUDO VRFLRORJLVWV WR GLVFRXQW WKH YDOLGLW\ RI 0DU[LVW PRGHOV ZKLFK ZHUH VHHQ DV SUHGLFWLQJ WKH GLVSODFHPHQW RI IDPLO\ IDUPV E\ FDSLWDOLVW IDUPV 0DU[LVW DQG QHR0DU[LVW VFKRODUV KRZHYHU KDYH WDNHQ WZR PDMRU URXWHV WR H[SODLQ WKH VHHPLQJ SHUVLVWHQFH RI IDPLO\ IDUPV XQGHU FDSLWDOLVP 7KH ILUVW VFKRRO UHSUHVHQWHG E\ GH -DQYU\ DQG 'HHUH GH -DQYU\ 'HHUH 'HHUH DQG GH -DQYU\ f VHHV WKH GHYHORSPHQW RI FDSLWDOLVW UHODWLRQV ZLWKLQ DJULFXOWXUH DV LQHYLWDEOH DQG ORRNV DW WKH ZD\V WKH VWDWH HQFRXUDJHV D VKLIW IURP VLPSOH FRPPRGLW\ SURGXFWLRQ WR ODUJHU FDSLWDOLVW IDUPV 7KH VHFRQG VFKRRO UHSUHVHQWHG E\ 0DQQ DQG 'LFNLQVRQ f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f 7KLV SHUVSHFWLYH HPSKDVL]HV WKH UROH RI WKH VWDWH LQ SURPRWLQJ FDSLWDOLVW

PAGE 49

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f (PSLULFDOO\ WKHUH LV VRPH HYLGHQFH WKDW WKH GLIIHUHQWLDWLRQ RI IDUPV LQWR SDUWWLPH VHPLSUROHWDULDQL]HG IDUPHUV DQG ODUJHVFDOH FDSLWDOLVW IDUPV LV RFFXUULQJ LQ WKH 8QLWHG 6WDWHV ,Q DUHDV VXFK DV &DOLIRUQLD ZKHUH DJULFXOWXUDO SURGXFWLRQ FDQ JR RQ QHDUO\ \HDU URXQG FDSLWDOLVW IDUPV SUROLIHUDWH 7KRPDV HW DO :LPEHUOH\ f 1DWLRQZLGH WKH GLVDSSHDUDQFH RI PLGVL]HG IDUPV GHPRQVWUDWHG E\ *ODGZLQ DQG =XODXI f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

PAGE 50

WKH UHDVRQV IRU WKH SHUVLVWHQFH RI QRQFDSLWDOLVW IRUPV RI DJULFXOWXUDO SURGXFWLRQ SDUWLFXODUO\ IDPLO\ IDUPV 7KLV VFKRRO RI WKRXJKW UHSUHVHQWHG E\ 0DQQ DQG 'LFNLQVRQ DQG )ULHGPDQQ f ORRNHG WR HODERUDWH 0DU[LVW H[SODQDWLRQV IRU WKH VORZ DQG XQHYHQ SHQHWUDWLRQ RI FDSLWDOLVP LQWR WKH DJULFXOWXUDO VHFWRU $FFRUGLQJ WR 0DQQ DQG 'LFNLQVRQ f WKH VHDVRQDO DQG KLJK ULVN QDWXUH RI DJULFXOWXUDO SURGXFWLRQ PDNH LW UHODWLYHO\ XQSURILWDEOH DQG WKXV D OHVV GHVLUDEOH DUHQD IRU LQYHVWPHQW RI FDSLWDO 7KH VHDVRQDOLW\ RI WHPSHUDWH DJULFXOWXUH PHDQV WKDW SURGXFWLYH UHVRXUFHV VXFK DV ODQG DQG PDFKLQHU\f DUH OHIW XQXVHG IRU UHODWLYHO\ ORQJ SHULRGV ZKLOH WKH YDJDULHV RI ZHDWKHU SHVWV DQG RWKHU QDWXUDO ULVNV KDYH EHHQ PRUH GLIILFXOW WR FRQWURO WKDQ ULVNV LQ LQGXVWULHV VXFK DV PDQXIDFWXULQJ 7KHVH EDUULHUV WR FDSLWDOLVW SHQHWUDWLRQ RI DJULFXOWXUH DUH QRW 0DQQ DQG 'LFNLQVRQ Ef VWUHVV LPPXWDEOH EXW GR KHOS H[SODLQ WKH SHUVLVWHQFH RI QRQFDSLWDOLVW IRUPV RI SURGXFWLRQ LQ DJULFXOWXUH 1HWWLQJ f HODERUDWHV RQ VRPH RI WKH DGYDQWDJHV IDPLO\ IDUPV KDYH RYHU FDSLWDOLVW IDUPV WKDW KLUH ODERU LQFOXGLQJ KLJKHU ODERU UHOLDELOLW\ DQG SURGXFWLYLW\ DQG JUHDWHU HDVH RI PDQDJHPHQW LQ VPDOO IDUP RSHUDWLRQV 7KLV DQDO\VLV RI DGYDQWDJHV IDPLO\ IDUPV KDYH RYHU FDSLWDOLVW ILUPV LV ODUJHO\ KHOG E\ QHRFODVVLFDO DQDO\VWV DV ZHOO DV 0DU[LVWV *ODGZLQ DQG =XODXI f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

PAGE 51

WKH SURILW FDSLWDOLVW IDUPV UHTXLUH 'HHUH )ULHGPDQQ )ULHGPDQQ 5HLQKDUGW DQG %DUOHWW f SDUWLFXODUO\ FRQVLGHULQJ WKH UHODWLYHO\ ODUJH FDSLWDO LQYHVWPHQW LQ ODQG DQG PDFKLQHU\ FRPPRQ LQ IDUPLQJ 1RQHFRQRPLF REMHFWLYHV RI IDPLO\ IDUPHUV IRFXV RQ IDUPLQJ DV D OLIHVW\OH UDWKHU WKDQ MXVW DQ RFFXSDWLRQ DQG PD\ LQFOXGH VXFK OLIHVW\OH LVVXHV DV ZRUNLQJ WRJHWKHU DV D WHDP UDLVLQJ FKLOGUHQ LQ DQ DJULFXOWXUDO VHWWLQJ DQG ORYH RI WKH ODQG *DUNRYLFK %RNHPHLHU DQG )RRWH f ,W VKRXOG EH QRWHG WKDW IDPLO\ IDUPHUV GLIIHU LQ WKHLU REMHFWLYHV DQG KRZ VDWLVILHG WKH\ DUH ZLWK ORZ UDWHV RI UHWXUQ LQ DJULFXOWXUH *DUNRYLFK %RNHPHLHU DQG )RRWH f 6DODPRQ f KDV GLVWLQJXLVKHG WZR JURXSV RI IDUPHUV LQ WKH &RUQ %HOW RI ,OOLQRLV JURXSV ZKLFK JHQHUDOO\ UHIOHFW HWKQLF EDFNJURXQG DQG DUH GLIIHUHQWLDWHG E\ WKH LPSRUWDQFH RI HQWUHSUHQHXULDO SURILW LQ WKHLU IDUPLQJ REMHFWLYHV %DUOHWW f GHVFULEHV GLIIHUHQW PDQDJHPHQW VW\OHV DPRQJ *HRUJLD IDUPHUV WKDW YDU\ E\ WKH LPSRUWDQFH RI UDSLG JURZWK DQG VKRUWWHUP SURILW QRWLQJ WKDW WKH PRUH DPELWLRXV PDQDJHUV WKRVH IRFXVHG RQ JURZWK DQG KLJK SURILWVf ZHUH WKH IDUPHUV PRVW OLNHO\ WR JR RXW RI EXVLQHVV GXULQJ WKH IDUP FULVLV ,Q VXP WKH GLIIHULQJ REMHFWLYHV DQG WKH ELRORJLFDO DQG PDQDJHULDO DGYDQWDJHV KHOG E\ VPDOOHU IDPLO\ IDUPV KDYH VORZHG WKH UDWH RI FDSLWDOLVW SHQHWUDWLRQ LQWR WKH DJULFXOWXUDO VHFWRU EXW WKH WUHQG LV WRZDUGV DQ LQFUHDVLQJO\ LPSRUWDQW UROH IRU FDSLWDOLVW IDUPV $ PRGLILFDWLRQ RI WKLV VHFRQG VFKRRO RI WKRXJKW DGYDQFHG E\ 0RRQH\ f VXJJHVWV WKDW FDSLWDOLVP KDV DOUHDG\ VLJQLILFDQWO\ SHQHWUDWHG WKH DJUDULDQ VHFWRU RI DGYDQFHG FDSLWDOLVW HFRQRPLHV VXFK DV WKH 8QLWHG 6WDWHV &HQWUDO WR KLV DUJXPHQW LV WKH SURSRVLWLRQ WKDW WKH FRPSOHWH VHSDUDWLRQ RI ODERU DQG WKH RZQHUVKLS RI WKH PHDQV RI SURGXFWLRQ LV QRW D SUHUHTXLVLWH WR FDSLWDOLVP LQ DOO FDVHV 6SHFLILFDOO\ KH DUJXHV WKDW VLPSOH FRPPRGLW\ SURGXFWLRQ FDQ SHUVLVW ZLWKLQ FDSLWDOLVP EHFDXVH RI WKH GHYHORSPHQW

PAGE 52

RI fPRUH HIILFLHQW OHVV ULVN\ PHDQV E\ ZKLFK FDSLWDO PD\ DSSURSULDWH WKH VXUSOXV YDOXH RI GLUHFW SURGXFHUV LQ DJULFXOWXUHf 0RRQH\ f +H VXJJHVWV WKDW WHQDQF\ GHEW FRQWUDFW SURGXFWLRQ DQG RIIIDUP ZRUN DUH DOO PHFKDQLVPV E\ ZKLFK IDUPHUV FDQ UHWDLQ FRQWURO RYHU WKH PHDQV RI SURGXFWLRQ DQG WKXV UHVLVW SUROHWDULDQL]DWLRQ 7KURXJK HDFK RI WKHVH PHFKDQLVPV VXUSOXV YDOXH LV H[WUDFWHG IURP VLPSOH FRPPRGLW\ SURGXFHUV E\ QRQ DJUDULDQ FDSLWDOLVWVf§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f ,QGHHG IDUPHUV LQ WKLV UHVHDUFK UHSHDWHGO\ VWUHVVHG VXFK PRWLYDWLRQV DV D GHVLUH WR ZRUN RXWGRRUV DQG WR EH RQHfV RZQ ERVV ZKHQ H[SODLQLQJ WKHLU FRQWLQXHG SDUWLFLSDWLRQ LQ IDUPLQJ $FFXVHG RI RYHUUHOLDQFH RQ VXFK VXEMHFWLYH IDFWRUV 0DQQ DQG 'LFNLQVRQ Ef 0RRQH\ VWUHVVHV WKDW KH LV LQWHUHVWHG LQ WKH LQWHUDFWLRQ RI VXFK VXEMHFWLYH UHDVRQV ZLWK WKH REMHFWLYH FRQGLWLRQV IRFXVVHG RQ E\ QHR 0DU[LVW DQDO\VHV 0RRQH\ f 3UHFXUVRUV WR WKH GLVDSSHDULQJ IDPLO\ IDUP GHEDWH 7KLV GHEDWH RYHU WKH IDWH RI IDPLO\ IDUPV LQ FDSLWDOLVW HFRQRPLHV LV QRW D QHZ RQH QRU LV WKH GHEDWH RYHU WKH UHODWLYH LPSRUWDQFH RI VWUXFWXUDO DQG VXEMHFWLYH IDFWRUV $Q

PAGE 53

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f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fLQWHUQDO

PAGE 54

SHULSKHU\f ZLWK PXFK WKH VDPH UHODWLRQ WR WKH ODUJHU 8 6 HFRQRP\ DV RWKHU SHULSKHUDO UHJLRQV KDYH /HZLV -RKQVRQ DQG $VNLQV /RKPDQQ :DOOV f 7KH FDPSHVDQLVWDV OHG E\ 5RJHU %DUWUD DUJXHG WKDW WKH SHDVDQWU\ VHUYHV LPSRUWDQW IXQFWLRQV IRU WKH FDSLWDOLVW VHFWRU SURYLGLQJ FDSLWDO ZLWK ERWK FKHDS IRRG DQG FKHDS VHPLn SUROHWDULDQ ODERU 'HHUH +DUULV f 7KH FDPSHVDQLVWDV VDZ KRZHYHU WKH SURFHVV RI GHSHDVDQWL]DWLRQSUROHWDULDQL]DWLRQ DGYDQFLQJ +DUULV f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f WR VWUHQJWKHQ FRQVFLRXVQHVV RI SHDVDQWV DV D FODVV ZLWK FRPPRQ LQWHUHVWV DQG WR DGYDQFH WKRVH LQWHUHVWV WKURXJK ORFDO DQG QDWLRQDO SROLWLFV 'HHUH +DUULV f 0XFK RI WKLV GHEDWH LV QRW FHQWUDO WR WKH 8 6 VLWXDWLRQ EHFDXVH WKH QXPEHU RI 8 6 IDUPHUV SXVKHG RII WKH IDPLO\ IDUP LV TXLWH VPDOO UHODWLYH WR WKH VL]H RI WKH WRWDO QDWLRQDO ODERU IRUFH ,Q VRPH UHJLRQV VXFK DV $SSDODFKLD WKH FDPSHVDQLVWDGHFDPSHVDQLVWD GHEDWH LV PRUH UHOHYDQW VLQFH WKHUH DUH QRW DGHTXDWH IXOOn WLPH ZDJH ODERU MREV IRU IDUPHUV VWUXJJOLQJ WR PDLQWDLQ WKH IDPLO\ IDUP &ROOHFWLYH DFWLRQ RI WKH W\SH GHVFULEHG E\ WKH GHFDPSDQLVWDV ZHUH LPSRUWDQW LQ WKH GHYHORSPHQW RI WKH WREDFFR SURJUDP LQ WKH HDUO\ WK FHQWXU\ DV GLVFXVVHG LQ WKH SUHYLRXV FKDSWHU +RZHYHU WKHUH VHHPV OLWWOH HYLGHQFH WRGD\ RI FROOHFWLYH DFWLRQ RU FRQVFLRXVQHVV RQ WKH SDUW RI VPDOO IDUPHUV HLWKHU LQ WKH 8 6 DV D ZKROH RU LQ $SSDODFKLDQ .HQWXFN\

PAGE 55

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

PAGE 56

VXFK VXEMHFWLYH PRWLYDWLRQV GRHV QRW DOWHU WKH ORQJWHUP WUHQG WRZDUGV WKH SHQHWUDWLRQ RI FDSLWDOLVW UHODWLRQV LQ DJULFXOWXUH DV WKH GLVFXVVLRQ RI FKDQJHV LQ WKH WREDFFR HFRQRP\ LQ &KDSWHU ZLOO UHYHDO 6XEMHFWLYH IDFWRUV FDQ ZLOO DUJXH VKDSH WKH IRUP DQG SDFH RI WKH GHYHORSPHQW RI D FDSLWDOLVW DJULFXOWXUDO V\VWHP

PAGE 57

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

PAGE 58

$SSDODFKLDQ 1DWXUDO 6RFLDO DQG (FRQRPLF +LVWRU\ 8QGHUVWDQGLQJ RI D UHJLRQ EHJLQV ZLWK DQ XQGHUVWDQGLQJ RI WKH HQYLURQPHQWDO DQG KLVWRULFDO IRUFHV WKDW KDYH VKDSHG WKDW UHJLRQ (QYLURQPHQW SDUWLFXODUO\ LQ WKH FDVH RI $SSDODFKLD KDV EHHQ XVHG DV DQ H[SODQDWLRQ IRU LWV VXSSRVHGO\f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
PAGE 59

2OLYH 'DPH &DPSHOO FRQGXFWHG WKH ILUVW VFKRODUO\ VWXG\ RI WKH UHJLRQ WKH\ FRLQHG fWKH 6RXWKHUQ +LJKODQGVf GHVFULEHG WKH &XPEHUODQG 3ODWHDX fDV D JUHDW ZDOO IDFLQJ WKH *UHDWHU $SSDODFKLDQ 9DOOH\ DQG VORSLQJ JUDGXDOO\ WR WKH QRUWKZHVW WRZDUG WKH ,QWHULRU /RZODQGVf &DPSEHOO f $V DQRWKHU ZULWHU SXWV LW DIWHU SDVVLQJ RYHU WKH ULGJHV DQG YDOOH\V RI WKH HDVWHUQ EHOW f\RX ZLOO UHDFK D ZRRGHG ULGJH WKDW IDLOV WR GHVFHQG LQWR DQ\ YDOOH\f 6DOVWURP f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f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
PAGE 60

5HJLRQDO &RPPLVVLRQ WKH IHGHUDO DJHQF\ FKDUJHG ZLWK HFRQRPLF GHYHORSPHQW RI WKH UHJLRQ 7KH PRXQWDLQV DQG YDOOH\V RI $SSDODFKLD DUH EODQNHWHG E\ GHFLGXRXV IRUHVW LQFOXGLQJ RDN KLFNRU\ PDSOH ZDOQXW DQGf§XQWLO EOLJKW GHYDVWDWHG WKH SRSXODWLRQ E\ WKH Vf§$PHULFDQ FKHVWQXW $V ODWH DV RYHU b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fV FRDO KDV DOUHDG\ EHHQ PLQHG DQG $SSDODFKLDfV VKDUH RI QDWLRQDO FRDO SURGXFWLRQ KDV GURSSHG ZLWK WKH GHYHORSPHQW RI FRDO VWULS PLQHV LQ WKH $PHULFDQ ZHVW $SSDODFKLD UHWDLQV RYHU RQH IRXUWK RI WKH XQGHUJURXQG DQG RQHHLJKWK RI WKH VXUIDFH UHVHUYHV RI FRDO LQ WKH 86 +DUYH\ f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

PAGE 61

+XPDQ +LVWRU\ 3ULRU WR (XURSHDQ VHWWOHPHQW 1DWLYH $PHULFDQVf§XOWLPDWHO\ WKH &KHURNHHf§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f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f 7KH VHWWOHPHQW RI $SSDODFKLD E\ ZKLWHV GLG QRW WDNH SODFH LQ D XQLIRUP IDVKLRQ RU VLPXOWDQHRXVO\ DFURVV WKH HQWLUH UHJLRQ 6DOVWURP SRVLWV WKUHH HFRQRPLF VXEUHJLRQV RI VRXWKHUQ $SSDODFKLD HDFK ZLWK LWV RZQ SDWWHUQ RI VHWWOHPHQW DQG HFRQRPLF GHYHORSPHQW :KDW 6DOVWURP FDOOV fROGHU $SSDODFKLDf ZDV WKH ILUVW RI VRXWKHUQ $SSDODFKLDfV UHJLRQV WR EH VHWWOHG E\ ZKLWHV ,W HQFRPSDVVHV WKH $SSDODFKLDQ 9DOOH\ IURP QRUWKZHVWHUQ 9LUJLQLDfV 6KHQDQGRDK 9DOOH\ WR QRUWKHDVWHUQ $ODEDPD RYHU PLOHV DZD\ 6DOVWURP GHVFULEHV WKH VHWWOHPHQW SHULRG RI ROGHU $SSDODFKLD DV EHLQJ ULIH ZLWK HQWUHSUHQHXUVKLS

PAGE 62

DQG ODQG VSHFXODWLRQ UDWKHU WKDQ WKH VXEVLVWHQFH DJULFXOWXUH RIWHQ DVVRFLDWHG ZLWK $SSDODFKLD $JULFXOWXUH SULPDULO\ IRFXVHG RQ OLYHVWRFN WDNLQJ DGYDQWDJH RI SOHQWLIXO ODQG fDQG UHODWLYHO\ OLWWOH HIIRUW RIWHQ VXIILFHG WR JXDUDQWHH HYHU\RQHfV VXEVLVWHQFH OHDYLQJ SHRSOH ZLWK WLPH WR VHHN LQFRPH EH\RQG WKHLU DFWXDO QHHGVf 6DOVWURP f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f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fV WKUHH VXEUHJLRQV WR EH VHWWOHG QHZHU $SSDODFKLD GHYHORSHG LQ WKH &XPEHUODQG 3ODWHDX SRUWLRQV RI HDVWHUQ .HQWXFN\ VRXWKZHVWHUQ :HVW 9LUJLQLD DQG HDVWFHQWUDO 7HQQHVVHH $FFRUGLQJ WR 6DOVWURP

PAGE 63

,W FRQVWLWXWHG WKH ODVW H[WHQVLYH IURQWLHU LQ WKH HDVWHUQ 8QLWHG 6WDWHV 1RW XQWLO WKH V GLG LWV IURQWLHU FRQGLWLRQV VKRZ VLJQV RI HQGLQJ DQG VRPH RI LW UHPDLQHG ZLOGHUQHVV LQWR WKH WZHQWLHWK FHQWXU\ 7KXV WKLV ODVWVHWWOHG VXEUHJLRQ ZDV VWLOO SDUWO\ IURQWLHU GXULQJ WKH UDSLG LQGXVWULDOL]DWLRQ WKDW EHJDQ KHUH LQ WKH ODWH QLQHWHHQWK FHQWXU\6DOVWURP f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n ZDWHU VSULQJV DQGRU VDOW OLFNV ZKHUH WKH\ ZRXOG HVWDEOLVK KRPHVWHDGV &ROOLQV (OOHU DQG 7DXO f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f $V WKH &XPEHUODQG 3ODWHDX DFFRPPRGDWHG PRUH DQG PRUH SHRSOH QHZHU $SSDODFKLD IDFHG D SUREOHP QRW HQFRXQWHUHG LQ WKH HDUOLHU HSRFKV RI $SSDODFKLDQ VHWWOHPHQW :KLOH 8 6 WHUULWRULDO H[SDQVLRQ SURYLGHG DQ HVFDSH YDOYH IRU HDUOLHU SRSXODWLRQ SUHVVXUHV E\ WKH WLPH WKH &XPEHUODQG 3ODWHDX EHJDQ WR UHDFK WKH HQG RI LWV IURQWLHU SHULRG PRVW RI WKH ZHVWHUQ IURQWLHU ODQGV KDG DOVR EHHQ FODLPHG $V D UHVXOW QHZHU $SSDODFKLD VDZ DYHUDJH IDUP VL]H GHFUHDVH E\ QHDUO\ WZRWKLUGV IURP WR

PAGE 64

D KLJKHU UDWH RI GHFUHDVH WKDQ LQ HLWKHU RI WKH HDUOLHU VHWWOHG SDUWV RI $SSDODFKLD 6DOVWURP f 1RQHWKHOHVV VHOIVXIILFLHQW IDUPLQJ UHPDLQHG D JRDO LQ WKH ODWH V DQG HDUO\ V DV FDSLWDOLVW ILUPV ZHUH EHJLQQLQJ WR GHYHORS UHVRXUFH H[WUDFWLRQ LQGXVWULHV LQ WKH UHJLRQ $SSDODFKLD KDG WKH JUHDWHVW SURSRUWLRQ RI VHOIVXIILFLHQW IDUPV LQ WKH QDWLRQ DQG HYHQ DV ODWH DV WKHUH ZHUH RYHU VHOIVXIILFLHQW IDUPV LQ WKH UHJLRQ (OOHU 3UHFRXUW f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f WKH KLJK OHYHO RI VXEVLVWHQFH DJULFXOWXUH DV ODWH DV WKH V GRHV GHPRQVWUDWH WKH SRWHQWLDO IRU DJULFXOWXUDO VHOIVXIILFLHQF\ LQ WKLV HQYLURQPHQW $V %LOOLQJV %OHH DQG 6ZDQVRQ UHODWH ,Q WKH V HLJKW\QLQH SHUFHQW RI DOO IDUP SURGXFWLRQ ZDV FRQVXPHG DW KRPH DQG RQO\ D VPDOO VXUSOXV SULQFLSDOO\ WREDFFRf ZDV PDUNHWHG FRPPHUFLDOO\ 'HVSLWH VRPH SDUWWLPH ZDJH ODERU DQG WKH LQIOX[ RI JRYHUQPHQW PRQLHV WKURXJK SHQVLRQV DQG IDUP VXEVLGLHV FDVK OHYHOV LQ WKH QHLJKERUKRRG ZHUH H[FHHGLQJO\ ORZ $QQXDO H[SHQGLWXUHV DYHUDJHG SHU FDSLWD LQ %LOOLQJV %OHH DQG 6ZDQVRQ f )XUWKHUPRUH WKLV KLJK OHYHO RI IDUP VHOIVXIILFLHQF\ ZDV UHFRUGHG ZKHQ SRSXODWLRQ SUHVVXUHV KDG OHG WR VPDOO ODQGKROGLQJV DQG OHVV DELOLW\ WR VXSSOHPHQW IDUP SURGXFWV ZLWK KXQWLQJ 'HVSLWH WKH DELOLW\ RI IDUPHUV LQ PRUH LVRODWHG UHJLRQV VXFK DV %HHFK &UHHN WR VXVWDLQ D VXEVLVWHQFH DJULFXOWXUDO HFRQRP\ WKH SLFWXUH ZDV QRW WKH VDPH LQ PRUH

PAGE 65

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f :KLOH VXFK D V\VWHP EHQHILWHG IDUPHUV LW GLG QRW SURYLGH OXPEHU PLOOV ZLWK WKH QHHGHG VWHDG\ VXSSO\ RI UDZ PDWHULDOV %\ WKH V UDLOURDGV KDG EHHQ EXLOW WKURXJK PXFK RI $SSDODFKLD DQG WLPEHU FRPSDQLHV EHJDQ WR EX\ ODUJH WUDFWV RI WLPEHUODQG KLUH ORJJLQJ FUHZV DQG VKLS WKH ORJV WR PLOOV E\ EUDQFK UDLO OLQHV $V (OOHU GHVFULEHV LW EHWZHHQ DQG WKH OXPEHU EDURQV SXUFKDVHG DQG FXW RYHU KXJH WUDFWV RI PRXQWDLQ WLPEHUODQG GHYDVWDWLQJ WKH UHJLRQfV IRUHVWV LQ RQH RI WKH PRVW IUHQ]LHG WLPEHU ERRPV LQ $PHULFDQ KLVWRU\ )RU WKRXVDQGV RI PRXQWDLQHHUV WKH FRPLQJ RI WKH WLPEHU LQGXVWU\ QRW RQO\ PHDQW WKH ORVV RI YDOXDEOH ZRRGODQG EXW LW PHDQW WKH ILUVW PDMRU IRUP RI QRQDJULFXOWXUDO ZRUN DV ZHOO (OOHU f

PAGE 66

$V WKH WLPEHU UHVRXUFHV EHFDPH LQFUHDVLQJO\ GHSOHWHG GHYHORSPHQW RI $SSDODFKLDfV H[WHQVLYH FRDO UHVRXUFHV DFFHOHUDWHG /LQNHG WR WKH QDWLRQDO HFRQRPLF UHFRYHU\ IURP WKH HFRQRPLF SDQLF RI FRDO SURGXFWLRQ LQ $SSDODFKLD VN\URFNHWHG E\ $SSDODFKLDQ FRDO DFFRXQWHG IRU QHDUO\ b RI DOO 86 FRDO SURGXFWLRQ &ROOLQV (OOHU DQG 7DXO f 7KLV UDSLG JURZWK ZDV IDFLOLWDWHG E\ WKH KLVWRULFDO VHWWOHPHQW SDWWHUQ RI WKH &XPEHUODQG 3ODWHDX UHJLRQ DQG WKH FRQFXUUHQW GLVDSSHDUDQFH RI WKH IURQWLHU HOVHZKHUH LQ WKH 8QLWHG 6WDWHV $V 6DOVWURP H[SODLQV WKH VHTXHQFH RI VHWWOHPHQW GRHV QRW RI FRXUVH H[SODLQ ZK\ ULFK VHDPV RI ELWXPLQRXV FRDO XQGHUOD\ WKH SODWHDX EXW WKH SODWHDXfV ODWH VHWWOHPHQW GRHV KHOS H[SODLQ ZK\ VR PXFK RI LWV FRDO ZDV PLQHG &RDO H[WUDFWLRQ FDPH WR GRPLQDWH QHZHU $SSDODFKLDfV HFRQRP\ QRW RQO\ fEHFDXVH LW ZDV WKHUHf EXW DOVR EHFDXVH D VXEVLVWHQFH FULVLV EHJDQ WR WKUHDWHQ WKLV VXEUHJLRQ PRWLYDWLQJ PDQ\ RI LWV SHRSOH WR ZRUN IRU ZDJHV VR ORZ WKDW QXPHURXV FRDO RSHUDWRUV ZHUH DWWUDFWHG WR WKH SODWHDX IURP SHUIHFWO\ JRRG FRDOILHOGV HOVHZKHUH LQ WKH 8QLWHG 6WDWHV 6DOVWURP f $JULFXOWXUH UHPDLQHG LPSRUWDQW DV VXEVLVWHQFH IDUPLQJ HIIHFWLYHO\ VXEVLGL]HG WKH ORZ ZDJHV SDLG WR PLQHUV %\ WKH HDUO\ SDUW RI WKH WK FHQWXU\ VRPH FRDO RSHUDWRUV KDG HYHQ VWDUWHG WR HQFRXUDJH WKHLU HPSOR\HHV WR SODQW ODUJH JDUGHQV E\ SURYLGLQJ IUHH IHQFLQJ DQG SORZLQJ DQG VHHGV DQG IHUWLOL]HU DW FRVW 6DOVWURP f 7KLV IXQFWLRQ RI DJULFXOWXUH LQ VXEVLGL]LQJ LQGXVWULDO GHYHORSPHQW LV D FRPPRQ SDWWHUQ JOREDOO\ DQG LV RIWHQ FLWHG DV RQH UHDVRQ IRU WKH SHUVLVWHQFH RI IDPLO\EDVHG DJULFXOWXUH LQ LQGXVWULDOL]LQJ UHJLRQV GH -DQYU\ 'HHUH DQG GH -DQYU\ f 7KH UHJLRQ NQRZQ FRPPRQO\ NQRZQ DV $SSDODFKLD WKHQ KDV D XQLTXH VRFLDO DQG HFRQRPLF KLVWRU\ DV D UHVXOW RI LWV SRVLWLRQ DV WKH ODVW IURQWLHU UHJLRQ LQ WKH HDVWHUQ 8QLWHG 6WDWHV %XW GRHV WKDW KLVWRU\ PDNH $SSDODFKLD D GLVWLQFW VXEFXOWXUDO HQWLW\ ZLWKLQ WKH

PAGE 67

ODUJHU 8QLWHG 6WDWHV FXOWXUH" :KLOH PDQ\ FDVXDO REVHUYHUV ZRXOG DFFHSW WKH QRWLRQ WKDW $SSDODFKLD KDV D GLVWLQFW FXOWXUH $SSDODFKLDQ VFKRODUV DUH IDU IURP DJUHHG RQ WKDW SRLQW 'RHV $SSDODFKLD 5HDOO\ ([LVW" $SSDODFKLD DV D UHJLRQ KDV EHHQ WKH VXEMHFW RI H[WHQVLYH SXEOLF DQG SULYDWH HQGHDYRUV WR HQKDQFH GHYHORSPHQWf§HFRQRPLF VRFLDO DQG HGXFDWLRQDOf§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fV 0DJD]LQH FDOOHG f$ 6WUDQJH /DQG DQG 3HFXOLDU 3HRSOHf 6KDSLUR f 7KLV WLWOH ZKLFK KDV EHFRPH LQIDPRXV LQ $SSDODFKLDQ

PAGE 68

VWXGLHV KHOSV GHPRQVWUDWH KRZ WKH UHJLRQ LV GHILQHG DV fRWKHUf WKDQ WKH ODUJHU $PHULFDQ FXOWXUH $ QXPEHU RI $SSDODFKLDQ VFKRODUV KDYH VXJJHVWHG LQ IDFW WKDW WKH HQWLUH GHVLJQDWLRQ RI $SSDODFKLD KDV EHHQ FUHDWHG SURPRWHG DQG PDLQWDLQHG E\ RXWVLGHUV 7KHVH VFKRODUV WUDFH WKH JURXSLQJ RI WKH PRXQWDLQ VRXWK XQGHU WKH ODEHO $SSDODFKLD WR ZULWHUV LQ SRSXODU PDJD]LQHV RQ WKH (DVW &RDVW VXFK DV /LSSLQFRWWfV GXULQJ WKH SRVW &LYLO :DU HUD 7KHVH fORFDOFRORUf ZULWHUV GHVFULEHG VHYHUDO SDUWV RI WKH 8QLWHG 6WDWHV LQFOXGLQJ $SSDODFKLD DV EHLQJ GLVWLQFW IURP DQG RXW RI VWHS ZLWK XUEDQ $PHULFD /RFDO FRORU ZULWLQJV LQFOXGHG WUDYHORJXHV VXFK DV +DUQH\fV DQG VKRUW ILFWLRQ SODFHG LQ ORFDWLRQV QHZ WR WKH (DVWHUQ UHDGHUVKLS RI WKH OLWHUDU\ PDJD]LQHV WKDW SXEOLVKHG WKH ZRUN 0XFK RI WKH ILFWLRQ ZDV SODFHG LQ fROGHQ WLPHVf WKH SUH&LYLO :DU SHULRG EHIRUH $PHULFD EHFDPH LQGXVWULDOL]HG PRGHUQL]HG HYHQ FLYLOL]HG 7KH ORFDO FRORU ZULWHUV VRXJKW WR GHVFULEH WR WKHLU UHDGHUV GLIIHUHQW ZD\V RI OLIH IURP WKH DFFHSWHG QRUP GUDZLQJ FRPSDULVRQV EHWZHHQ WKH OLYHV RI WKH QRUPDOf UHDGHUV DQG WKH H[RWLF VXEMHFWV :KLOH WKH ORFDO FRORU PRYHPHQW ZURWH DERXW PDQ\ SDUWV RI $PHULFD WKHLU IRFXV RQ $SSDODFKLD ZDV XQLTXH DV 6KDSLUR f GHVFULEHV LW 8QOLNH PRVW RI WKH DUHDV GHVFULEHG E\ WKH ORFDO FRORULVWV $SSDODFKLD ZDV QRW LQ IDFW VHSDUDWHG IURP $PHULFD E\ HWKQLF JHRJUDSKLF RU FKURQRORJLFDO GLVWDQFH 7KH PRXQWDLQHHUV ZHUH QDWLYHERUQ ZKLWH $QJOR6D[RQ 3URWHVWDQW 7KH PRXQWDLQ UHJLRQ ZDV QRW RQO\ LQ $PHULFD EXW LQ WKDW SDUW RI $PHULFD ZKLFK KDG EHHQ VHWWOHG E\ WKH ILUVW JHQHUDWLRQ RI IURQWLHUVPHQ KHQFH ZKHUH WKH UXGH FRQGLWLRQV RI WKH IURQWLHU RXJKW ORQJ DJR WR KDYH JLYHQ ZD\ WR WKH PRUH VRSKLVWLFDWHG DQG fFLYLOL]HGf FRQGLWLRQV RI PRGHUQ OLIH ,W ZDV LQGHHG WKH SHUFHSWLRQ RI WKH fRWKHUQHVVf RI $SSDODFKLD GHVSLWH WKLV VLPLODULW\ DQG SUR[LPLW\ ZKLFK KDG VHHPHG PRVW LQWULJXLQJ WR WKH ILUVW JURXS RI ZULWHUV ZKR IROORZHG +DUQH\fV OHDG LQ XVLQJ WKH VRXWKHUQ PRXQWDLQV DV VXEMHFW RU VHWWLQJ IRU OLWHUDWXUH 7KLV FKDUDFWHUL]DWLRQ RI $SSDODFKLD DV WKH RWKHU ZDV WKH IXQGDPHQWDO SURGXFW RI WKH fLQYHQWLRQ RI $SSDODFKLDf DV %DWWHDX f FDOOV LW 7KH UHJLRQ ZDV SUHVHQWHG QRW DV LW ZDV EXW DV RXWVLGHUV ZLVKHG LW WR EH 7KH LPSDFW RI WKH ORFDO FRORU PRYHPHQW RQ WKH

PAGE 69

QDWLRQf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fV SUHVLGHQWLDO SULPDU\ FDPSDLJQ LQ :HVW 9LUJLQLD 7KH UHSRUW RI WKH 3UHVLGHQWfV $SSDODFKLDQ 5HJLRQDO &RPPLVVLRQ ZKLFK OHG WR WKH FUHDWLRQ RI WKH $SSDODFKLDQ 5HJLRQDO &RPPLVVLRQ $5&f VWUHVVHG WKH GLVWLQFWLYHQHVV RI WKH UHJLRQ DV VHSDUDWH IURP WKH FRXQWU\ DV D ZKROH DQG WKH QHHG WR EULQJ $SSDODFKLD DQG LWV SHRSOH LQWR IXOO PHPEHUVKLS LQ $PHULFDQ VRFLHW\ ,VVHUPDQ 5RRVHYHOW f %\ WKHUH ZHUH FRXQWLHV LQ VWDWHV RIILFLDOO\ GHVLJQDWHG DV $SSDODFKLD E\ WKH $5& :RRG DQG %LVFKDN f 1LQH PRUH FRXQWLHV KDYH VLQFH EHHQ DGGHG E\ &RQJUHVV EULQJLQJ WKH WRWDO QXPEHU WR FRXQWLHV 7KH GHVLJQDWLRQ RI D FRXQW\ DV SDUW RI $SSDODFKLD KDV RIWHQ EHHQ GXH WR SROLWLFDO DV PXFK DV DQ\ RWKHU UHDVRQV %UDGVKDZ f 2IILFLDO GHVLJQDWLRQ RI D FRXQW\ DV SDUW RI $SSDODFKLD RSHQV WKH GRRU WR VLJQLILFDQW IHGHUDO UHVRXUFHV DQG WKH UHVXOWLQJ UDQJH RI FRXQWLHV FRQVLGHUHG $SSDODFKLD LV YDVW 6LQFH RYHU ELOOLRQ KDV EHHQ VSHQW E\ WKH $5& DORQJ ZLWK VWDWH DQG ORFDO JRYHUQPHQWV RQ HFRQRPLF DQG VRFLDO GHYHORSPHQW SURJUDPV LQ $SSDODFKLD 7KH

PAGE 70

PDMRULW\ RI WKHVH IXQGV KDYH JRQH WR KLJKZD\ GHYHORSPHQW ZLWK DGGLWLRQDO VXSSRUW IRU SURJUDPV WR SURPRWH EXVLQHVV DQG FRPPXQLW\ GHYHORSPHQW EHWWHU KRXVLQJ DQG KHDOWK FDUH DQG HGXFDWLRQDO LPSURYHPHQW :RRG DQG %LVFKDN f )XQGV IRU $SSDODFKLDQ GHYHORSPHQW ZHUH VHYHUHO\ VODVKHG GXULQJ WKH V DQG ZKLOH IXQGLQJ IRU KLJKZD\ SURJUDPV KDYH VLQFH ULVHQ DSSURSULDWLRQV IRU RWKHU SURJUDPV UHPDLQV VHYHUHO\ OLPLWHG DQG RYHUDOO IXQGV UHPDLQ ZHOO EHORZ OHYHOV DWWDLQHG LQ WKH V :RRG DQG %LVFKDN f 6HOIGHILQLWLRQ LQ $SSDODFKLD $IWHU PRUH WKDQ D FHQWXU\ RI RXWVLGHUVf ODEHOLQJ WKH PRXQWDLQV RI .HQWXFN\ :HVW 9LUJLQLD 7HQQHVVHH DQG QHLJKERULQJ VWDWHV DV f$SSDODFKLDf LW LV LQWHUHVWLQJ WR QRWH WKDW WKH ODEHO LV OLWWOH XVHG E\ WKH SHRSOH RI WKH UHJLRQ 3HRSOH LQYROYHG LQ WKH HFRQRPLF GHYHORSPHQW DQG KDQGLFUDIW LQGXVWULHV KDYH UHDVRQ WR XVH WKH WHUP $SSDODFKLD LQ WKH IRUPHU FDVH $SSDODFKLDQ LGHQWLW\ RSHQV GRRUV WR IXQGLQJ VRXUFHV DQG LQ WKH ODWWHU FDVH LW SURYLGHV D FRKHUHQW LPDJH DURXQG ZKLFK D P\ULDG RI FUDIWV FDQ EH LGHQWLILHG DQG VROG 2XWVLGH RI WKHVH JURXSV KRZHYHU KDYH QRW KHDUG WKH WHUP f$SSDODFKLDf XVHG LQ QHDUO\ WZR \HDUV RI ILHOGZRUN LQ WKH UHJLRQ ,QVWHDG SHRSOH JHQHUDOO\ LGHQWLI\ WKHPVHOYHV E\ WKHLU FRXQW\ RI RULJLQ RU UHVLGHQFH RU PRUH UDUHO\ DV UHVLGHQWV RI fWKH PRXQWDLQVf 7KH IDUPHUV KDYH ZRUNHG ZLWK DFNQRZOHGJH VRPH VKDUHG SUREOHPV FUHDWHG E\ WRSRJUDSK\ VPDOO ILHOG VL]Hf DQG GLVWDQFH WR SRSXODWLRQ FHQWHUV EXW GR QRW H[SUHVV DQ\ UHJLRQDO FRPPRQDOLW\ GXH WR VKDUHG YDOXHV RU FXVWRPV ,QGHHG WKH HYLGHQFH IRU WKH H[LVWHQFH RI $SSDODFKLD ZRXOG QRW VHHP WR MXVWLI\ WDLORULQJ DJULFXOWXUDO SURJUDPV VSHFLILFDOO\ WR WKH FXOWXUH RI WKH UHJLRQ DV RSSRVHG WR IRFXVLQJ RQ SUREOHPV FRPPRQ WR IDUPHUV WKURXJKRXW WKH FRXQWU\ +RZHYHU $SSDODFKLD GRHV H[LVW DV D UHJLRQ LQ WKH PLQGV RI PRVW $PHULFDQV

PAGE 71

DQG FHQWUDO $SSDODFKLD LQ SDUWLFXODU VKDUHV D OHJDF\ RI SRYHUW\ ORZ HGXFDWLRQDO OHYHOV DQG SK\VLFDO GLVWDQFH IURP PDMRU SRSXODWLRQ FHQWHUV $SSDODFKLDQ .HQWXFN\ 7RGD\ 7KH SULPDU\ LPDJH RI $SSDODFKLD WKDW FRPHV WR PLQG IRU PRVW LQ WKH 8QLWHG 6WDWHV LV SRYHUW\ %\ DQ\ RI D QXPEHU RI GLIIHUHQW PHDVXUHV PXFK RI $SSDODFKLD KDV SUHVHQWHG WKH 8QLWHG 6WDWHV ZLWK VRPH RI LWV PRVW SHUVLVWHQW SRFNHWV RI SRYHUW\ %URZQ DQG :DUQHU 'XQFDQ f 'HVSLWH GHFDGHV RI FRQFHUWHG IHGHUDO VWDWH DQG ORFDO HIIRUWV GLUHFWHG WRZDUGV HFRQRPLF DQG VRFLDO GHYHORSPHQW PDQ\ SDUWV RI FHQWUDO $SSDODFKLD LQ SDUWLFXODU UHPDLQ PLUHG LQ SRYHUW\ 3RYHUW\ UDWHV LQ FHQWUDO $SSDODFKLD UHPDLQ QHDUO\ WZLFH WKH QDWLRQDO DYHUDJH 7LFNDP\HU DQG 7LFNDP\HU f
PAGE 72

DQG SRYHUW\ UDWHV WKH SHU FDSLWD PDUNHW LQFRPH LQFRPH H[FOXGLQJ WUDQVIHU SD\PHQWVf DQG WKH LQIDQW PRUWDOLW\ UDWH ,Q b RI WKH $SSDODFKLDQ FRXQWLHV ZHUH FODVVLILHG DV GLVWUHVVHG E\ WKDW ILJXUH GURSSHG E\ KDOI WR b 7KH SURJUHVV KRZHYHU KDV QRW EHHQ XQLIRUP (DVWHUQ .HQWXFN\ KDV FRQVLVWHQWO\ EHHQ RYHUUHSUHVHQWHG LQ WKH GLVWUHVVHG FDWHJRU\ LQ b RI $SSDODFKLDQ .HQWXFN\fV FRXQWLHV ZHUH GLVWUHVVHG DQG WKDW ILJXUH KDG RQO\ GURSSHG WR b E\ )LJXUH GUDPDWLFDOO\ GLVSOD\V WKH GLVSURSRUWLRQDWH LQFLGHQFH RI SRYHUW\ LQ HDVWHUQ .HQWXFN\ DV FRPSDUHG WR RWKHU SDUWV RI $SSDODFKLD ,Q DQ DVVHVVPHQW RI WKH 'LVWUHVVHG &RXQWLHV 3URJUDP :RRG DQG %LVFKDN f LGHQWLI\ VRPH RI WKH FKDUDFWHULVWLFV ZKLFK KDYH KLQGHUHG HFRQRPLF GHYHORSPHQW LQ WKH SHUVLVWHQWO\ GLVWUHVVHG FRXQWLHV ,Q FRPSDULVRQ ZLWK PRUH VXFFHVVIXO FRXQWLHV $SSDODFKLDQ FRXQWLHV WKDW UHPDLQHG PLUHG LQ WKH GLVWUHVVHG FDWHJRU\ WHQGHG WR f VWDUW PRUH GLVWUHVVHG LQ f WKDQ RWKHU FRXQWLHV f EH PRUH LVRODWHG IURP XUEDQ DUHDV f KDYH PRUH UXJJHG WHUUDLQ DIIHFWLQJ WKH DFFHVVLELOLW\ WR MREV DQG WKH DELOLW\ WR DWWUDFW QHZ LQGXVWU\ DQG f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fV LQIDQW PRUWDOLW\ UDWH KDG GURSSHG WR WKH QDWLRQDO UDWH DQG WKH $5& VWRSSHG XVLQJ LQIDQW PRUWDOLW\ LQ WKH GHWHUPLQDWLRQ RI GLVWUHVVHG VWDWXV

PAGE 73

)LJXUH 3HUVLVWHQWO\ 'LVWUHVVHG &RXQWLHV LQ $SSDODFKLD DQG 6RXUFH :RRGV DQG %LVFKDN f 5HSULQWHG ZLWK SHUPLVVLRQ RI $SSDODFKLDQ 5HJLRQDO &RPPLVVLRQ

PAGE 74

ODJ EHKLQG WKH VWDWH DV D ZKROH ,Q WKH VWXG\ FRXQWLHV RI 0RUJDQ DQG :ROIH IRU H[DPSOH WKH QXPEHU RI SHRSOH LQ SRYHUW\ GURSSHG b DQG b UHVSHFWLYHO\ LQ WKH SHULRG 7KLV FRQWUDVWV ZLWK D VWDWHZLGH GURS LQ WKH QXPEHU RI SHRSOH LQ SRYHUW\ RI%b =LPPHUPDQ DQG %UHD]HDOH f (PSOR\PHQW GDWD IRU 0RUJDQ DQG :ROIH FRXQWLHV LV HYHQ PRUH HQFRXUDJLQJ IURP WR WKH WRWDO QXPEHU RI SHRSOH HPSOR\HG LQFUHDVHG E\ b LQ 0RUJDQ &RXQW\ DQG b LQ :ROIH &RXQW\ FRPSDUHG ZLWK D b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fV 6PDOO $UHD ,QFRPH DQG 3RYHUW\ (VWLPDWHV 8 6 'HSDUWPHQW RI &RPPHUFH 6LPLODUO\ 7DEOH VKRZV WKH GUDPDWLFDOO\ KLJKHU SRYHUW\ UDWHV LQ WKH VWXG\ FRXQWLHV DV FRPSDUHG ZLWK WKH UHVW RI WKH VWDWH DQG WKH QDWLRQ :ROIH &RXQW\fV SRYHUW\ UDWH LV 7KH HPSOR\PHQW ILJXUHV LQ :ROIH &RXQW\ KDYH ZRUVHQHG FRQVLGHUDEO\ VLQFH WKLV GDWD ZDV FROOHFWHG 2YHU WKH VXPPHU RI WKH FRXQW\fV ODUJHVW SULYDWH HPSOR\HU D

PAGE 75

RQH RI WKH KLJKHVW LQ WKH QDWLRQ DOWKRXJK VOLJKWO\ ORZHU LW LV VWDWLVWLFDOO\ LQGLVWLQJXLVKDEOH IURP WKH KLJKHVW FRXQW\ SRYHUW\ UDWH LQ WKH 8QLWHG 6WDWHV 86 'HSDUWPHQW RI &RPPHUFH f 7DEOH 3HUFHQWDJH RI SHRSOH OLYLQJ LQ SRYHUW\ 8QLWHG 6WDWHV b b b b .HQWXFN\ b b b b 0RUJDQ b b b b :ROIH b b b b 6RXUFHV 'DWD IRU WKH 86 GUDZQ IURP 6WDWLVWLFDO $EVWUDFW RI WKH 8QLWHG 6WDWHV &HQVXV %XUHDX 86 'HSDUWPHQW RI &RPPHUFH 'DWD IRU .HQWXFN\ DQG FRXQWLHV DUH IURP &HQVXV %XUHDXfV 6PDOO $UHD ,QFRPH DQG 3RYHUW\ (VWLPDWHV 86 'HSDUWPHQW RI &RPPHUFH $QRWKHU FRPPRQO\ XVHG LQGLFDWRU RI GHYHORSPHQW LV HGXFDWLRQDO OHYHO /RZ OHYHOV RI IRUPDO HGXFDWLRQ DUH VWURQJO\ OLQNHG WR UHJLRQV RI SHUVLVWHQW SRYHUW\ %URZQ DQG :DUQHU f .HQWXFN\ DV D ZKROH DQG HDVWHUQ .HQWXFN\ VSHFLILFDOO\ KDV WUDGLWLRQDOO\ KDG ORZ HGXFDWLRQDO OHYHOV FRPSDUHG WR WKH QDWLRQ DV D ZKROH :KLOH D VLJQLILFDQW HIIRUW LV XQGHUZD\ DFURVV WKH VWDWH DQG LQ WKH VWXG\ DUHD WR LQFUHDVH HGXFDWLRQDO DWWDLQPHQW 7DEOH VKRZV WKDW LQ HGXFDWLRQDO DWWDLQPHQW OHYHOV IRU .HQWXFN\ DQG SDUWLFXODUO\ WKH VWXG\ FRXQWLHV UHPDLQHG FRQVLGHUDEO\ EHORZ QDWLRQDO OHYHOV FRPSXWHU SDUWV PDQXIDFWXUHU FORVHG GRZQ FRVWLQJ WKH FRXQW\ WR MREV DERXW b RI DOO WKH MREV LQ WKH FRXQW\ %XWWHUV f

PAGE 76

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f ZRUN RQ WKH FXOWXUH RI SRYHUW\
PAGE 77

IDFHG ZLWK D GLIIHUHQW ZD\ RI OLIH D VHSDUDWH VXEFXOWXUH EDVHG XSRQ SUHPLVHV ZDV QRW DZDUH RIf :HOOHU f :HOOHU RXWOLQHV ZKDW KH VHHV DV WKH PDMRU WUDLWV UHSUHVHQWHG LQ $SSDODFKLDQ FXOWXUH LQGLYLGXDOLVP WUDGLWLRQDOLVP IDWDOLVP DFWLRQ VHHNLQJ WKH SV\FKRORJ\ RI IHDU DQG SHUVRQ RULHQWDWLRQ 6RPH RI WKHVH VXFK DV LQGLYLGXDOLVP DQG IDWDOLVP KH YLHZV DV FRQVHTXHQFHV RI D KLVWRU\ RI IURQWLHU OLIH LQ WKH UXJJHG PRXQWDLQV 5XUDO IDPLOLHV WKRVH fLVRODWHG E\ GLVWDQFH E\ ODFN RI URDGV DQG E\ FKRLFH :HOOHU ff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f7KH JUHDWHVW FKDOOHQJH RI $SSDODFKLD DQG WKH PRVW GLIILFXOW LV LWV SHRSOHf f :HOOHU SURYLGHV XV ZLWK D VHOIDGPLWWHG QRQDFDGHPLF SHUVSHFWLYH GUDZLQJ JHQHUDOL]DWLRQV EDVHG RQ KLV H[SHULHQFHV OLYLQJ LQ WKH UHJLRQ 7KH LQWHQW DQG HIIHFW LV WR

PAGE 78

VHW $SSDODFKLD DSDUW IURP WKH UHVW RI WKH FRXQWU\ DNLQ WR WKH WK FHQWXU\ FKDUDFWHUL]DWLRQ RI $SSDODFKLD DV fD VWUDQJH ODQG DQG SHFXOLDU SHRSOHf +LV ZRUN SURYLGHV OLWWOH RI WKH HFRQRPLF DQG VWUXFWXUDO FRQWH[W ZKLFK FRXOG KHOS H[SODLQ WKH RULJLQV DQG SUHYDOHQFH RI WKH DWWLWXGHV KH GHVFULEHV %HFDXVH RI WKLV VKRUWFRPLQJ DFDGHPLFV KDYH EHHQ GLVPLVVLYH RI :HOOHUfV ZRUN GHVSLWH LWV SXEOLF SRSXODULW\ /HZLV DQG %LOOLQJV f :HOOHUnV
PAGE 79

7KH FXOWXUH RI SRYHUW\ :KLOH :HOOHUfV ZRUN LV QRW DFDGHPLF LQ QDWXUH DQWKURSRORJLVW 2VFDU /HZLVfV FRQFHSW RI D FXOWXUH RI SRYHUW\ LV EDVHG RQ PDQ\ RI WKH VDPH SUHFHSWV 7KH FXOWXUH RI SRYHUW\ WKHVLV HPHUJLQJ IURP 2VFDU /HZLVf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f :KHQ /HZLV DGYDQFHG KLV WKHRU\ RI WKH FXOWXUH RI SRYHUW\ WKH 8QLWHG 6WDWHV ZDV LQYROYHG LQ D SXEOLF GHEDWH DERXW SRYHUW\ ZLWK WKH IRFXV RQ $SSDODFKLDQ SRYHUW\ WULJJHUHG LQ SDUW E\ -RKQ ) .HQQHG\fV :HVW 9LUJLQLD SULPDU\ FDPSDLJQ LQ /HZLV VXJJHVWHG KLV WKHRU\ FRXOG KHOS WLH WRJHWKHU fD QXPEHU RI SKHQRPHQD KLWKHUWR YLHZHG DV SHFXOLDU WR FHUWDLQ UDFLDO QDWLRQDO RU UHJLRQDO JURXSVf /HZLV f 7KXV WKH VDPH VRUWV RI FXOWXUDO IDFWRUV DUH VHHQ DV SHUSHWXDWLQJ SRYHUW\ LQ UXUDO $SSDODFKLD XUEDQ SROLWLFDO HFRQRPLF DQG HQYLURQPHQWDO FLUFXPVWDQFHV KDYH SURYHQ FDQQRW EH FKDQJHGf %HDYHU f

PAGE 80

$IULFDQ$PHULFDQ VOXPV 1DWLYH $PHULFDQ UHVHUYDWLRQV WKH VKDQW\WRZQV RI 0H[LFR &LW\ DQG RWKHU UHJLRQV RI SHUVLVWHQW SRYHUW\ LQ WKH :HVWHUQ ZRUOG &ULWLTXHV RI WKH FXOWXUH RI SRYHUW\ 7KH FXOWXUH RI SRYHUW\ WKHRU\ KDV EHHQ VKDUSO\ FULWLFL]HG ERWK LQ DFDGHPLF OLWHUDWXUH DQG LQ GHEDWHV RYHU SXEOLF SROLF\ 9DOHQWLQH f QRWHV WKDW WKH DQWLn SRYHUW\ SURJUDPV LQ WKH 8QLWHG 6WDWHV VWDUWLQJ LQ WKH V ZHUH fMXVWLILHG DQG UDWLRQDOL]HGf E\ FXOWXUH RI SRYHUW\ WKHRULHV DGYDQFHG E\ DFDGHPLFV
PAGE 81

XVH RI WKH WHUP VXEFXOWXUH GRHV QRW DYRLG WKH SUREOHP RI D IXQGDPHQWDO PLVDSSOLFDWLRQ RI WKH FXOWXUH FRQFHSW /HZLV LV VWUXFN E\ KRZ VLPLODU D FHUWDLQ VHJPHQW RI WKH SRRU LV LQ YDULRXV HWKQLF UHJLRQDO DQG QDWLRQDO JURXSV EXW WKLV WUDQVHWKQLF WUDQVQDWLRQDO TXDOLW\ RI WKH FXOWXUH RI SRYHUW\ SUHYHQWV LW IURP SURSHUO\ EHLQJ FDOOHG D FXOWXUH $V /HHGV SXWV LW ,I KRZHYHU VWDQGDUG XVHV RI WKH WHUP nFXOWXUHn DUH PDLQWDLQHG WKHQ WKH FXOWXUH RI SRYHUW\f§ZKLFK DFFRUGLQJ WR /HZLV FDQ RFFXU LQ DOO NLQGV RI GLIIHUHQW WUDGLWLRQV DQG VRFLDO V\VWHPVf§FDQQRW EH D FXOWXUH WKRXJK LW PD\ EH VRPH RWKHU NLQG RI V\VWHP VXEV\VWHP RU WUDLW FRPSOH[ ,W LV QRW XQLTXH LW LV QRW VSHFLILF WR D WLPH DQG SODFH DQG WUDGLWLRQ LW KDV QR SDUWLFXODU RU XQLTXH PHDQLQJ VWUXFWXUH LW LV QRW VRFLRJHRJUDSKLFDOO\ LVRODEOH f 7KH SUREOHP LV PRUH WKDQ RQH RI MXVW VHPDQWLFV /HZLV VWURQJO\ HPSKDVL]HV WKDW QRW DOO SRRU SHRSOH H[KLELW WKH FXOWXUH RI SRYHUW\ DQG HVWLPDWHV RQ ZKDW EDVLV LV XQFOHDUf WKDW RQO\ DERXW SHUFHQW RI WKH SHRSOH OLYLQJ EHORZ WKH SRYHUW\ OLQH LQ WKH 86 OLYH LQ D FXOWXUH RI SRYHUW\ /HZLV f 7KHVH SDUWLFXODU SRRU SHRSOH DUH QRW FRQJUHJDWHG LQ JHRJUDSKLFDOO\GHILQHG QHLJKERUKRRGV VHSDUDWH IURP WKH SRRU ZKR GR QRW OLYH LQ WKH FXOWXUH RI SRYHUW\ WKH\ GRQnW LQWHUDFW RQO\ RU HYHQ SULPDULO\ ZLWK HDFK RWKHU DQG HYHQ D PHPEHUV RI D VLQJOH IDPLO\ GLVSOD\ GLIIHULQJ DPRXQWV RI WKH FXOWXUH RI SRYHUW\ /HZLV f 7KLV LV SDUWLFXODUO\ WUXH LQ FHQWUDO $SSDODFKLD ZKHUH FRQVSLFXRXV ZHDOWK DQG DEMHFW SRYHUW\ DUH RIWHQ FRPSOHWHO\ LQWHUPLQJOHG 'XQFDQ 'XQFDQ DQG /DPERUJKLQL f $V /HHGV f QRWHV /HZLV LV XQDEOH FRQFHSWXDOO\ WR VSHFLI\ WKH GLVWLQFWLRQ EHWZHHQ WKRVH ZKR DUH SRRU EXW QRW OLYLQJ LQ WKH FXOWXUH RI SRYHUW\ DQG WKRVH ZKR DUH SRRU EXW OLYLQJ LQ LW OHW DORQH SURYLGH D V\VWHPLF DQDO\VLV RI KRZ SRRU SHRSOH G\QDPLFDOO\ DUH VRUWHG RXW LQWR WKH RQH FDWHJRU\ RU WKH RWKHU ,I /HZLV LV QRW GHVFULELQJ D FXOWXUH RU VXEFXOWXUH ZKDW LV KH GHVFULELQJ" +H GRHV QRW VXJJHVW WKDW WKH WUDLWV RI WKH FXOWXUH RI SRYHUW\ DUH GLIIXVHG IURP RQH QDWLRQ RU HWKQLF

PAGE 82

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nW DGDSWDWLRQV WR SRYHUW\ EXW DUH LQVWHDG LQGLFDWRUV RU FRUUHODWHV RI SRYHUW\f§XQHPSOR\PHQW XQGHUHPSOR\PHQW XQVNLOOHG ZRUN ORZVWDWXV RFFXSDWLRQV PHDJHU ZDJHV ODFN RI HGXFDWLRQ FURZGHG OLYLQJ TXDUWHUV DQG GHWHULRUDWHG KRXVLQJ $V 9DOHQWLQH f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f 0DQ\ RI WKH RWKHU WUDLWV /HZLV VD\V FKDUDFWHUL]H WKH FXOWXUH RI SRYHUW\ DUH QHJDWLYH EHKDYLRUDO DQG DWWLWXGLQDO DWWULEXWHV LQFOXGLQJ ODFN RI IDPLO\ VROLGDULW\ ORZ OHYHOV RI FRPPXQLW\ RUJDQL]DWLRQ DQG D VHQVH RI KRSHOHVVQHVVf 7KHVH WUDLWV FDQ DV /HZLV KLPVHOI /HZLV f VXJJHVWV EH VHHQ DV DQ DGDSWDWLRQ DQG D UHDFWLRQ RI WKH SRRU WR WKHLU PDUJLQDO SRVLWLRQ LQ D FODVVVWUDWLILHG KLJKO\ LQGLYLGXDWHG FDSLWDOLVWLF

PAGE 83

VRFLHW\ +RZHYHU /HZLV JRHV D VWHS IXUWKHU DQG VXJJHVWV WKDW WKHVH EHKDYLRUDO DQG DWWLWXGLQDO DWWULEXWHV DUH QRW MXVW UHDFWLRQV WR EXW EHFRPH IDFWRUV SHUSHWXDWLQJ SRYHUW\ 'LVDJUHHPHQWV ZLWK /HZLVn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f /HZLV f ,W LV WKURXJK WKLV SV\FKRORJLFDO LQFRUSRUDWLRQ RI WKH YDOXHV DQG DWWLWXGHV DVVHUWV /HZLV WKDW WKH FXOWXUH RI SRYHUW\ VKLIWV IURP HIIHFW WR FDXVH /HDFRFN f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f /HZLV f &RQFHUQV DERXW UHVHDUFK PHWKRGV /HZLVn PHWKRGV LQ VWXG\LQJ SRYHUW\ PD\ DFFRXQW IRU VRPH RI WKH SUREOHPV ZLWK WKH FXOWXUH RI SRYHUW\ WKHRU\ GLVFXVVHG DERYH +LV

PAGE 84

VWXGLHV IRFXVHG RQ IDPLOLHV UDWKHU WKDQ WKH PRUH WUDGLWLRQDO FRPPXQLW\ VWXG\ DSSURDFK LQ FRPSOH[ VRFLHWLHV +H GHVFULEHV KLV PHWKRG LQ VWXG\LQJ 3XHUWR 5LFDQ IDPLOLHV LQ ZKLFK KH DQG KLV UHVHDUFK WHDP DVVHPEOHG GDWD RQ UHSUHVHQWDWLYH IDPLOLHV LQ XUEDQ 3XHUWR 5LFR DQG IDPLOLHV RI WKHLU UHODWLYHV LQ 1HZ
PAGE 85

KLVWRULHV KH HPSKDVL]HV WKH UROH RI IDPLOLHV LQ WUDQVPLWWLQJ WKH FXOWXUH RI SRYHUW\ IURP JHQHUDWLRQ WR JHQHUDWLRQ +H WDONV DERXW WKH FXOWXUH RI SRYHUW\ DV WUDQVPLWWHG WKURXJK IDPLOLHV D ZD\ RI OLIH KDQGHG RQ IURP JHQHUDWLRQ WR JHQHUDWLRQ DORQJ IDPLO\ OLQHVf /HZLV f $V /HHGV f SRLQWV RXW KRZHYHU FXOWXUHV DUH KHOG E\ VRFLHWLHV QRW IDPLOLHV DQG >H[WUDSRODWLRQV IURP IDPLO\ KLVWRULHV WR DQ DOOHJHG FXOWXUH VLPSO\ IDLO WR GHDO ZLWK WKH PDMRULW\ RI LQVWLWXWLRQDO DQG VRFLDO IUDPHZRUNV LQ ZKLFK IDPLOLHV DUH HPEHGGHG 7KHVH PHWKRGRORJLFDO SUREOHPV DUH QRW XQLTXH WR /HZLV WKH\ DUH ZLGHVSUHDG LQ DQWKURSRORJLFDO UHVHDUFK ,QGHHG HWKQRJUDSKLF ZRUN RIWHQ JHQHUDWHV UHVXOWV WKDW DUH PRUH K\SRWKHVHV WR EH WHVWHG WKDQ FURVVFXOWXUDO WUXWKV WR EH DFFHSWHG $QG DOWKRXJK /HZLVnV GHIHQVH RI WKH FXOWXUH RI SRYHUW\ WKHRU\ LV YLJRURXV KH DJUHHV WKDW KLV IRUPXODWLRQ RI D VXEFXOWXUH RI SRYHUW\ LV VLPSO\ D FKDOOHQJLQJ K\SRWKHVLV ZKLFK VKRXOG EH ZLGHO\ WHVWHG E\ HPSLULFDO UHVHDUFKf f (PSLULFDO WHVWV RI WKH FXOWXUH RI SRYHUW\ WKHRU\ 7KHUH DUH VHYHUDO DVSHFWV RI WKH WKHRU\ WKDW FDQ EH WHVWHG DOWKRXJK WKH FULWLFDO TXHVWLRQ RI FDXVH DQG HIIHFW GRHV QRW HDVLO\ OHQG LWVHOI WR VXFK D SURFHVV 6KRUW RI OLIWLQJ RQH JURXS RXW RI SRYHUW\ DQG FRPSDULQJ WKH LQFLGHQFH RI WKH WUDLWV SRVWXODWHG E\ /HZLV ZLWK WKDW RI D FRQWURO JURXS LW LV GLIILFXOW WR VHH KRZ VXFK D K\SRWKHVLV FRXOG EH WHVWHG $ FRUQHUVWRQH RI WKH FXOWXUH RI SRYHUW\ WKHRU\ LV WKDW SRRU SHRSOH RU DW OHDVW VRPH VHJPHQW RI WKH SRRU H[KLELW WKH WUDLWV RI WKH FXOWXUH RI SRYHUW\ DW D KLJKHU UDWH WKDQ GR WKH QRQSRRU $OWKRXJK 9DOHQWLQH f DUJXHV WKDW WKHVH WUDLWV DUH HTXDOO\ SUHYDOHQW DPRQJ WKH PLGGOH FODVV QHLWKHU KH QRU /HZLV RIIHUV DQ\ GDWD WR VXSSRUW WKHLU UHVSHFWLYH SRVLWLRQV 2I FRXUVH HYHQ LI WKH SRRU GR H[KLELW WKHVH WUDLWV DW KLJKHU UDWHV WKDW ZRXOG VHWWOH OLWWOH VLQFH ERWK 9DOHQWLQH DQG /HZLV DJUHH WKDW WKH WUDLWV DUH WKH UHVXOW RI SRYHUW\

PAGE 86

$W WKH YHU\ OHDVW KRZHYHU LW ZRXOG EHKRRYH FXOWXUH RI SRYHUW\ WKHRULVWV WR GHWHUPLQH LI WKH WUDLWV LQ TXHVWLRQ GR DSSHDU DW KLJKHU UDWHV DPRQJ SRRU SHRSOH 7ZR HPSLULFDO WHVWV RI SDUWV RI /HZLVn WKHRU\ WKDW KDYH EHHQ FRQGXFWHG ZHUH FDUULHG RXW RQ UXUDO SRSXODWLRQV LQ WKH VRXWKHUQ 8 6 $OWKRXJK /HZLV GHYHORSHG WKH WKHRU\ EDVHG RQ UHVHDUFK LQ XUEDQ VHWWLQJV KH GLG VXJJHVW WKDW EODFNV DQG 6RXWKHUQ ZKLWHV ZHUH WZR SRSXODWLRQV H[KLELWLQJ WKH WUDLWV RI WKH FXOWXUH RI SRYHUW\ 'DYLG 0LOOHU f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f FRQVWUXFWHG D IRXULWHP VFDOH EDVHG RQ ILIWHHQ DWWLWXGLQDO TXHVWLRQV IURP D VXUYH\ RI UXUDO DQG XUEDQ UHVLGHQWV RI 1RUWK &DUROLQD

PAGE 87

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f§SULQFLSDOO\ WKH GHSHQGHQFH RI PRXQWDLQ FRXQWLHV RQ WKH FRDO LQGXVWU\f§WKDQ E\ DWWLWXGLQDO FKDUDFWHULVWLFV RI UXUDO $SSDODFKLDQV :KLOH GHVFULELQJ D SDWWHUQ RI LGHDOV DQG EHKDYLRUV WKDW KDYH SHUSOH[HG PDQ\ REVHUYHUV FXOWXUDOLVW H[SODQDWLRQV IRU SRYHUW\ LQ $SSDODFKLD DQG HOVHZKHUH VXFK DV WKRVH DGYDQFHG E\ -DFN :HOOHU DQG 2VFDU /HZLVIDLO WR JLYH DGHTXDWH DWWHQWLRQ WR WKH PDWHULDO FRQGLWLRQV WKDW KDYH FUHDWHG WKH PLQGVHWV DQG UHODWHG EHKDYLRUV WKH\ GHVFULEH 7KH FRQGLWLRQV FUHDWLQJ WKLV fFXOWXUHf RI WKH SRRU KDYH QRW EHHQ UHPRYHG DQG XQWLO WKH\ DUH WKH HYLGHQFH VXJJHVWV WKDW DWWULEXWLQJ SRYHUW\ WR FXOWXUH LV QRW ZDUUDQWHG %XUHDXFUDWLF 5HDOLVP $QRWKHU LQIOXHQWLDO H[SODQDWRU\ PRGHO RI WKH FDXVHV RI $SSDODFKLDQ SRYHUW\ LV FKDUDFWHUL]HG E\ D IRFXV RQ WHFKQLFDO UDWKHU WKDQ DWWLWXGLQDO EDUULHUV WR GHYHORSPHQW %XUHDXFUDWLF UHDOLVP LV WKH WHUP XVH E\ /RKPDQQ f WR GHVFULEH WKH QHRFODVVLFDO SHUVSHFWLYH RI WKH IHGHUDO DQG VWDWH DJHQFLHV LQFOXGLQJ WKH $SSDODFKLDQ 5HJLRQDO &RPPLVVLRQ WKDW DUH SURPRWLQJ HFRQRPLF GHYHORSPHQW SURJUDPV LQ $SSDODFKLD 7KLV SHUVSHFWLYH YLHZV WKH SUREOHP RI SRYHUW\ DV RQH RI HFRQRPLF XQGHUGHYHORSPHQW UDWKHU

PAGE 88

WKDQ DQ\WKLQJ GLVWLQFWLYH WR D SDUWLFXODU SODFH RU SHRSOH %URZQ DQG :DUQHU f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fV PRUH UXUDO DQG GLVDGYDQWDJHG DUHDV :RRG DQG %LVFKDN f :KLOH WKH UHJLRQDO JURZWK VWUDWHJ\ KDV UHVXOWHG LQ LPSURYHPHQWV WR WKHVH OLPLWHG XUEDQ DUHDV WKH WULFNOH GRZQ HIIHFW KDV EHHQ OHVV VXFFHVVIXO WKDQ DQWLFLSDWHG 7KLV ODFN RI VXFFHVV ZLWK WKH UHJLRQDO JURZWK FHQWHU VWUDWHJ\ OHG WR WKH $5&f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f UDWKHU WKDQ DQ\ VSHFLILF JRYHUQPHQW SURJUDPV 7KH IDLOXUH RI WKH SURJUDPV RI WKH $5& WR DGGUHVV SRYHUW\ LQ WKH SHUVLVWHQWO\ GLVWUHVVHG UHJLRQV RI WKH &XPEHUODQG 3ODWHDX VXJJHVWV DQ DOWHUQDWLYH IUDPHZRUN IRU XQGHUVWDQGLQJ $SSDODFKLDQ SRYHUW\ LV ZDUUDQWHG

PAGE 89

7KH 6WUXFWXUDOLVW $SSURDFK ,Q D FOHDU UHDFWLRQ WR FXOWXUDOLVW H[SODQDWLRQV DV ZHOO DV LQ DQ LPSOLFLW UHMHFWLRQ RI WKH EXUHDXFUDWLF UHDOLVP DSSURDFK D JHQHUDWLRQ RI VFKRODUV WXUQHG WR VWUXFWXUDO IDFWRUV WR H[SODLQ $SSDODFKLDQ SRYHUW\ 'DYLG :DOOVn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f :DOOV f ZLWK DQ XQGHUVWDQGLQJ RI FODVV VWUXFWXUH DQG WKH UROH RI WKH VWDWH LQ SURPRWLQJ FDSLWDOLVW LQWHUHVWV :DOOV DUJXHV WKDW :DOOHUVWHLQnV ZRUOG V\VWHPV WKHRU\ DQG SDUWLFXODUO\ WKH UHODWHG FRQFHSW RI LQWHUQDO SHULSKHU\ LV D JRRG H[SODQDWRU\ PRGHO IRU $SSDODFKLD :DOOV SD\V VSHFLDO DWWHQWLRQ WR :DOOHUVWHLQn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

PAGE 90

5RVHEHUU\ :ROI f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f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f DQG PDQLSXODWLRQ RI SXEOLF VHUYLFHV VXFK DV VFKRROV WR PHHW WKHLU UDWKHU WKDQ WKH EURDGHU FRPPXQLW\nV QHHGV 'XQFDQ XWLOL]HV 6ZLGOHUnV f FRQFHSW RI FXOWXUH DV D WRRONLW ZKHUH WKH WRROV DUH KDELWV VNLOOV V\PEROV DQG ZD\V RI VHHLQJ DQG DFWLQJ DQG VXJJHVWV WKH FRQWHQWV RI WKH WRRONLWV YDU\ E\ VRFLDO FODVV DQG FRPPXQLW\ 'XQFDQ DQG /DPERUJKLQL f /HZLV DQG %LOOLQJV DUJXH WKH WRRONLW FRQFHSW LV D XVHIXO RQH LQ WKDW >FMXOWXUH LV QRZ SUHVXPHG WR H[HUW D VLJQLILFDQW LQIOXHQFH XSRQ LWV KROGHUV QRW EHFDXVH RI KRZ LW VKDSHV WKH JRDOV WKH\

PAGE 91

SXUVXH EXW UDWKHU WKURXJK WKH UHSHUWRLUH RI NQRZOHGJH VNLOOV DQG PHPRULHV DFWLYHO\ QHJRWLDWHG UHLQWHUSUHWHG DQG DSSOLHG LQ HYHUFKDQJLQJ VLWXDWLRQV WR DFKLHYH WKRVH JRDOVf /HZLV DQG %LOOLQJV f 7KHVH HIIRUWV E\ $SSDODFKLDQ VFKRODUV WR XQGHUVWDQG WKH ZD\ ORFDO FXOWXUH FDQ VKDSH DQG UHIRUP WKH LPSDFW RI ODUJHVFDOH VWUXFWXUDO IRUFHV DUH VLPLODU WR WKH DSSURDFKHV WDNHQ E\ RWKHU VRFLDO VFLHQWLVWV LQFOXGLQJ DQWKURSRORJLVWV LQFOXGLQJ (ULF :ROI f DQG :LOOLDP 5RVHEHUU\ f &RPSDULQJ WKH $SSURDFKHV WR $SSDODFKLDQ 3RYHUW\ 7KH SULPDU\ GLIIHUHQFH EHWZHHQ WKHVH IRXU DSSURDFKHV WR WKH VWXG\ RI $SSDODFKLD LV WKH GLIIHULQJ FRQFHSWLRQ RI WKH XQGHUO\LQJ FDXVHV RI SHUVLVWHQW SRYHUW\ :HOOHU DGGUHVVHG LQ WKH $SSDODFKLDQ FRQWH[W ZKDW 2VFDU /HZLV GLG IURP D FURVVFXOWXUDO SHUVSHFWLYH DWWULEXWLQJ $SSDODFKLDn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f f

PAGE 92

,W LV WKLV DSSURDFK WKDW DFNQRZOHGJHV WKH GRPLQDQW QDWXUH RI VWUXFWXUDO IRUFHV ZKLOH UHFRJQL]LQJ WKH DELOLW\ RI ORFDO FXOWXUH WR VKDSH WKH RXWFRPH RI WKRVH IRUFHV WKDW RIIHUV WKH EHVW H[SODQDWRU\ PRGHO 'XQFDQn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fV SRVLWLRQ DV D SHULSKHUDO UHJLRQ IURP ZKLFK LQWHUQDWLRQDO FDSLWDO H[WUDFWV ZHDOWK DQG ZRXOG VXJJHVW WKDW WKH HFRQRPLF GLIILFXOWLHV

PAGE 93

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f DQG 0RRQH\ f 7KH FDVH RI $SSDODFKLD SURYLGHV XV ZLWK VWDUN FRQWUDVWV EHWZHHQ GLIIHULQJ HFRQRPLF VWUDWHJLHV DQG W\SHV 2QH WKH RQH KDQG LWV HFRQRP\ KDV EHHQ GRPLQDWHG IRU WKH ODVW FHQWXU\ E\ ODUJHVFDOH FDSLWDOLVW LQGXVWU\ PRVW QRWDEO\ FRDO PLQLQJ ZLWK D ORQJ KLVWRU\ RI YLROHQW VWUXJJOHV EHWZHHQ WKH SUROHWDULDQ ODERU IRUFH DQG RZQHUV RI LQGXVWU\ (OOHU 6FRWW :KLVQDQW f 2Q WKH RWKHU KDQG LW LV KRPH WR ZKDW KDV EHHQ FDOOHG WKH $PHULFDQ 3HDVDQWU\ 9RJHOHU f $V VXFK $SSDODFKLD RIIHUV DQ H[FHOOHQW

PAGE 94

RSSRUWXQLW\ WR VHH KRZ DGYDQFHG LQGXVWULDO FDSLWDOLVP DQG SHWW\ FRPPRGLW\ SURGXFHUV RU IDPLO\ IDUPHUV KDYH LQWHUDFWHG LQ WKH SDVW DQG WRGD\ 8QOLNH WKH RYHUDOO HFRQRP\ WKH DJULFXOWXUDO HFRQRP\ RI $SSDODFKLD ERWK KLVWRULFDOO\ DQG SUHVHQWO\ FDQ QRW EH SURSHUO\ GHVFULEHG DV FDSLWDOLVW $V GLVFXVVHG LQ &KDSWHU WKH GHILQLQJ IHDWXUH RI FDSLWDOLVP LV WKH VHSDUDWLRQ RI ODERU IURP WKH PHDQV RI SURGXFWLRQ DQG WKH FRQVHTXHQW VDOH RI ODERU DV D FRPPRGLW\ 5RVHEHUU\ :ROI f :KLOH WKHUH LV QRW D FOHDU UXOH DERXW ZKDW SURSRUWLRQ RI ODERU EHLQJ KLUHG TXDOLILHV D ILUP DV FDSLWDOLVW WKH YDVW PDMRULW\ RI IDUPV LQ $SSDODFKLD FRPH QRZKHUH QHDU WKDW WKUHVKROG +LVWRULFDOO\ $SSDODFKLDn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f :KLOH HFRQRPLF HFRORJLFDO DQG GHPRJUDSKLF FKDQJHV SUHFLSLWDWHG E\ WKLV FDSLWDOLVW H[SDQVLRQ JUHDWO\ DIIHFWHG WKH DJULFXOWXUDO VHFWRU WKHVH FKDQJHV GLG QRW UHVXOW LQ D FDSLWDOLVW DJULFXOWXUDO HFRQRP\

PAGE 95

,QVWHDG RI DQ HFRQRP\ LQ ZKLFK ODERU LV VROG DV D FRPPRGLW\ DQG XWLOL]HG E\ SURSHUW\ RZQHUV WR JHQHUDWH SURILWV $SSDODFKLDQ DJULFXOWXUH KDV WUDGLWLRQDOO\ EHHQ IDPLO\EDVHG VXEVLVWHQFH DJULFXOWXUH VXSSOHPHQWHG E\ SHWW\ FRPPRGLW\ SURGXFWLRQ 3UHFRXUW f )DPLO\EDVHG DJULFXOWXUH ZKHWKHU VXEVLVWHQFH RU SHWW\ FRPPRGLW\ SURGXFWLRQ RSHUDWHV LQ GLVWLQFWO\ QRQFDSLWDOLVWLF ZD\V 3URGXFWLRQ RQ WKHVH VXEVLVWHQFH IDUPV ZDV JHDUHG WRZDUGV XVH UDWKHU WKDQ H[FKDQJH %LOOLQJV HW DO GHVFULEH KRZ IDPLO\ RZQHUVKLS RI WKH PHDQV RI SURGXFWLRQ DQG QRQZDJH IDPLO\ ODERU ZHUH QRW UDWLRQDOL]HG WR SURGXFH D nVXUSOXVn EH\RQG IDPLO\ QHHGV 7KLV ZD\ RI OLIH FRQWUDVWV VKDUSO\ ZLWK PDUNHWRULHQWHG DJULFXOWXUH RULHQWHG WRZDUG H[FKDQJHf %LOOLQJV %OHH DQG 6ZDQVRQ f $GGLWLRQDOO\ LQ VXFK D QRQPDUNHW HFRQRP\ SHRSOH H[KLELWHG D UHODWLYHO\ ORZ OHYHO RI PRWLYDWLRQ IRU WKH DFTXLVLWLRQ RI SHUVRQDO SURSHUW\ D PRWLYDWLRQ PLVLQWHUSUHWHG E\ PDQ\ RXWVLGHUV 6RPH RI WKH SHMRUDWLYH FRPPHQWV E\ HWKQRJUDSKHUV RI WKH V WKURXJK V DERXW WKH FKDUDFWHU RI PRXQWDLQ UHVLGHQWV DUH URRWHG LQ D PLVXQGHUVWDQGLQJ RI D VHW RI YDOXHV GLVWLQFW IURP WKRVH RI PRUH DGYDQFHG FDSLWDOLVW VRFLHWLHV EXW QRQHWKHOHVV VKDSHG E\ HFRQRPLF UDWLRQDOLW\ 7KH PRXQWDLQ SHRSOHnV LQGLIIHUHQFH WR WKH ULWXDOV DQG GHVLUHV RI DQ LQGXVWULDO VRFLHW\ ZDV FRQVLVWHQW ZLWK WKHLU OLIH RI VHOIVXIILFLHQW SURGXFWLRQ DQG ORFDO QHWZRUNV IRU FRQVXPSWLRQ 7KH PXWHG KLHUDUFKLHV RI ZRUWK DQG DFKLHYHPHQW ZHUH UHIOHFWLYH RI D VRFLDO VWUDWLILFDWLRQ V\VWHP VWLOO VKDSHG DV PXFK E\ PXWXDO H[FKDQJH DV E\ FRPSHWLWLYH JDLQ %LOOLQJV %OHH DQG 6ZDQVRQ f :KLOH $SSDODFKLDQ IDPLOLHV SURGXFHG WKH PDMRULW\ RI WKH SURGXFWV RQ WKHLU RZQ IDUPV WKHUH ZDV H[WHQVLYH ORFDO H[FKDQJH EHWZHHQ KRXVHKROGV +RZHYHU WKLV H[FKDQJH ZDV SHUVRQDO DQG FDUULHG RXW RQ WKH EDVLV RI UHFLSURFLW\ UDWKHU WKDQ SURILW %LOOLQJV %OHH DQG 6ZDQVRQ 3UHFRXUW f 2QH VKRXOG EH FDUHIXO QRW WR HTXDWH PDUNHWRULHQWHG DJULFXOWXUH ZLWK FDSLWDOLVW

PAGE 96

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

PAGE 97

ZLOO JLYH YHU\ KLJK UHWXUQV WR WKH IDUPHU
PAGE 98

&+$37(5 72%$&&2 7+( &251(56721( 2) $33$/$&+,$1 $*5,&8/785( $ SUHUHTXLVLWH WR DQ XQGHUVWDQGLQJ RI $SSDODFKLDQ DJULFXOWXUH LV DQ XQGHUVWDQGLQJ RI WREDFFR ERWK WKH FURS LWVHOI DQG WKH IHGHUDO WREDFFR SURJUDP $V D FULWLFDOO\ LPSRUWDQW FDVK FURS LQ $SSDODFKLDQ .HQWXFN\ IRU RYHU D FHQWXU\ WREDFFR KDV KDG DQ H[WUDRUGLQDU\ LPSDFW RQ WKH IDFH RI WKH UHJLRQfV DJULFXOWXUH 7REDFFR DFFRXQWV IRU KDOI RI .HQWXFN\fV FURS UHFHLSWV ZKLOH XVLQJ OHVV WKDQ b RI WKH VWDWHfV IDUPODQG 6QHOO DQG *RHW] f .HQWXFN\ KDV WKH IRXUWK ODUJHVW QXPEHU RI IDUPV LQ WKH 8QLWHG 6WDWHV ZKLOH WKH VWDWH RQO\ UDQNV WK LQ KDUYHVWHG FURSODQG VXJJHVWLQJ WKH LPSRUWDQFH RI VPDOO IDUPV LQ WKH VWDWHfV DJULFXOWXUDO ODQGVFDSH 7REDFFR LV WKH GULYLQJ IRUFH EHKLQG WKH VXUYLYDO RI VPDOO IDUPV LQ .HQWXFN\ LQ WKH &HQVXV RI $JULFXOWXUH RYHU KDOI RI DOO IDUPV LQ WKH VWDWH UHSRUWHG UDLVLQJ WREDFFR ,Q WKH VWXG\ FRXQWLHV WKDW ILJXUH LV FRQVLGHUDEO\ KLJKHU LQ b RI 0RUJDQ &RXQW\ IDUPV DQG b RI :ROIH &RXQW\ IDUPV UDLVHG WREDFFR 86'$ f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

PAGE 99

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f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

PAGE 100

LQYHVWPHQW RI FDSLWDO IRU WKH SXUFKDVH RI D WUDFWRU :KLOH WUDFWRUV DUH PRVW LPSRUWDQW IRU WKHLU XVH LQ ILHOG SUHSDUDWLRQ SORZLQJ DQG GLVNLQJf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f %HGV DUH SODQWHG LQ HDUO\ VSULQJ DQG FRYHUHG ZLWK IDEULF URZ FRYHUV WR SURWHFW IURP IURVWV 7REDFFR SODQWV DUH UHDG\ IRU WUDQVSODQWLQJ DERXW VL[ ZHHNV DIWHU VHHGLQJ LI ILHOG FRQGLWLRQV SUHYHQW WUDQVSODQWLQJ DW WKDW WLPH WKH SODQWV FDQ EH KHOG LQ WKH DFUHDJH RI DSSUR[LPDWHO\ IRXU DQG D KDOI DFUHV 7KH ODUJHVW WREDFFR IDUPHU LQ WKH VDPSOH UDLVHG MXVW XQGHU SRXQGV ZKLFK ZRXOG UHTXLUH DERXW DFUHV

PAGE 101

EHG E\ PRZLQJ RYHU WKH WRSV :KHQ WKH IDUPHU LV UHDG\ WR WUDQVSODQW WKH VHHGOLQJV WKH\ DUH SXOOHG E\ KDQG IURP WKH VHHGEHG D YHU\ ODERULQWHQVLYH DQG WD[LQJ SURFHVV $Q LQFUHDVLQJO\ FRPPRQ DOWHUQDWLYH WR QXUVHU\ EHGV LV WKH XVH RI IORDW EHGV 7KH IORDW V\VWHP XWLOL]HV VW\URIRDP WUD\V ZLWK RU PRUH FHOOV WKDW DUH ILOOHG ZLWK D JURZLQJ PHGLXP DQG IORDWHG LQ ZDWHU 7KH IORDW V\VWHP FDQ EH GHVLJQHG TXLWH VLPSO\ ZLWK OXPEHU W\SLFDOO\ [ ERDUGVf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f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f

PAGE 102

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f DORQJ ZLWK WKH fVXFNHUVf WKDW JURZ IURP WKH EDVH RI WKH VWDON 7RSSLQJ LV GRQH E\ KDQG EXW UHTXLUHV UHODWLYHO\ OLWWOH ODERU 6XFNHU FRQWURO IRUPHUO\ D WHGLRXV DQG WLPHFRQVXPLQJ KDQG SURFHVV LV QRZ GRQH FKHPLFDOO\ E\ VSUD\LQJ WKH UHFHQWO\WRSSHG FURS ZLWK D FRPSRXQG ILUVW GHYHORSHG LQ WKH V &KHPLFDO VXFNHU FRQWURO VDYHV DV PXFK DV WKLUW\ KRXUV RI ODERU SHU DFUH RI WREDFFR YDQ :LOOLJHQ DQG (DVWZRRG f &XWWLQJ DQG +RXVLQJ 7KH PRVW GLIILFXOW DQG GHPDQGLQJ SDUW RI WKH WREDFFR SURGXFWLRQ SURFHVV LV FXWWLQJ DQG KRXVLQJ RI WKH ULSH OHDI ,Q WKH KHDW RI PLG$XJXVW WR ODWH 6HSWHPEHU WKH \HOORZLQJ WREDFFR LV FXW DW WKH EDVH RI WKH WKLFN VWDON ZLWK D WREDFFR NQLIH VSHDUHG RQWR

PAGE 103

VWLFNV DQG WUDQVSRUWHG WR D EDUQ ZKHUH LW LV KXQJ WR FXUH )RU PRVW IDUPHUV WKLV LV GRQH HQWLUHO\ E\ KDQG DQG UHSUHVHQWV WKH ODUJHVW LQSXW RI ODERU LQ WKH WREDFFR SURGXFWLRQ SURFHVV $Q DFUH RI WREDFFR WDNHV DERXW WZHQW\HLJKW KRXUV WR FXW DQG KRXVH f 1RW RQO\ LV WKH SURFHVV GLIILFXOW LW LV DOVR GDQJHURXV &XWV IURP WKH WREDFFR NQLIH DQG VWDEELQJ WKH KDQG RQ WKH WREDFFR VWLFNV DUH FRPPRQ DQG ZRUNHUV PD\ EH VXEMHFW WR JUHHQ WREDFFR VLFNQHVV FDXVHG E\ DEVRUSWLRQ RI QLFRWLQH WKURXJK WKH VNLQ YDQ :LOOLJHQ DQG (DVWZRRG f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f§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

PAGE 104

WHPSHUDWXUH KXPLGLW\ DQG VWRUDJH FRQGLWLRQV EXW JHQHUDOO\ UDQJHV IURP IRXU WR VL[ ZHHNV 0DVVLH DQG 6PLOH\ f 6WULSSLQJ $IWHU WKH WREDFFR KDV SURSHUO\ FXUHG WKH OHDYHV PXVW EH UHPRYHG IURP WKH VWDON SULRU WR EDOLQJ IRU PDUNHW %HFDXVH WKH OHDYHV DUH YHU\ EULWWOH VWULSSLQJ PXVW RFFXU ZKHQ KXPLGLW\ OHYHOV DUH KLJK HQRXJK IRU WKH WREDFFR WR UHDEVRUE VRPH PRLVWXUH &XUHG WREDFFR WKDW LV PRLVW HQRXJK IRU VWULSSLQJ LV UHIHUUHG WR DV fLQ FDVHf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f LV WLPH FRQVXPLQJ EXW QRW SK\VLFDOO\ GHPDQGLQJ $V D UHVXOW IDPLO\ ODERU VRXUFHVf§ LQFOXGLQJ TXLWH \RXQJ FKLOGUHQf§FDQ EH LPSRUWDQW LQ WREDFFR SURGXFWLRQ 7KH 7REDFFR 3URJUDP 1RWKLQJ KDV DIIHFWHG WKH VWUXFWXUH RI HDVWHUQ DQG FHQWUDO .HQWXFN\ DJULFXOWXUH LQ WKH ODVW \HDUV DV PXFK DV KDV WKH IHGHUDO WREDFFR SURJUDP 7KURXJK LWV V\VWHPV RI SURGXFWLRQ FRQWUROV DQG SULFH JXDUDQWHHV VPDOOVFDOH .HQWXFN\ IDUPV KDYH UHPDLQHG

PAGE 105

ILQDQFLDOO\ YLDEOH RYHU D SHULRG ZKHQ FRPSDUDEOH IDUPV LQ RWKHU UHJLRQV RI WKH FRXQWU\ KDYH VXIIHUHG HFRQRPLF GHYDVWDWLRQ 7KLV LV QRW WR VD\ WKDW WREDFFR IDUPHUV KDYH QRW IDFHG HFRQRPLF GLIILFXOWLHV 7REDFFR UHPDLQV KRZHYHU D FRQVLVWHQWO\ SURILWDEOH FURS EHFDXVH RI WKH WREDFFR SURJUDP 6RPH DJULFXOWXUDO HFRQRPLVWV VXJJHVW LQ IDFW WKDW LI WKH WREDFFR SURJUDP ZHUH HOLPLQDWHG WREDFFR SURGXFWLRQ LQ $SSDODFKLD PLJKW FHDVH HQWLUHO\ %URZQ 6QHOO DQG 7LOOHU f 7REDFFR IDUPHUV DUH ZHOO DZDUH RI WKHLU GHSHQGHQFH RQ WKLV SURJUDP DQG KDYH FRQVLVWHQWO\ YRLFHG WKHLU VWURQJ VXSSRUW IRU LWV FRQWLQXDWLRQ $V RQH IDUPHU VDLG f,fOO NHHS JURZLQf fEDFFHU DV ORQJ DV ,fYH JRW D EDVH DV ORQJ DV ZHfYH JRW WKH SURJUDPf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fSOXJ DQG WZLVWf FKHZLQJ WREDFFRf RYHU SHUFHQW RI VPRNLQJ WREDFFR DQG RYHU SHUFHQW RI VQXII SURGXFWV &DPSEHOO f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

PAGE 106

FURS \HDUV DQG KHOG SRROV RI WKH PDMRULW\ RI WKH EXUOH\ FURSV LQ WKRVH \HDUV 7KH 6RFLHW\ ZDV QRW KRZHYHU VXFFHVVIXO LQ QHJRWLDWLQJ WKH VDOH RI WKH SRROHG FURS WR WKH WUXVW OHDYLQJ WZR \HDUV RI WREDFFR XQVROG LQ WKH SRRO 7KH 6RFLHW\ WKHQ FDOOHG IRU LWV PHPEHUV WR SODQW QR WREDFFR DW DOO LQ DQG EXUOH\ SURGXFWLRQ GURSSHG E\ RYHU SHUFHQW )ROORZLQJ WKLV VXFFHVVIXO ER\FRWW WKH WUXVW DJUHHG WR SXUFKDVH WKH 6RFLHW\fV SRROHG WREDFFR DW SULFHV QHJRWLDWHG ZLWK WKH 6RFLHW\ UDWKHU WKDQ ZLWK LQGLYLGXDO IDUPHUV $OWKRXJK WKH %XUOH\ 7REDFFR 6RFLHW\ ZDV XQDEOH WR VXVWDLQ LWVHOI SULFHV SDLG WR WREDFFR IDUPHUV VWD\HG UHODWLYHO\ KLJK XQWLO ZKHQ LQFUHDVHG GHPDQG IXHOHG E\ ::, VROGLHUV OHG WR RYHUSURGXFWLRQ DQG D SULFH FUDVK YDQ :LOOLJHQ DQG (DVWZRRG f 7KH FXUUHQW WREDFFR SURJUDP GHYHORSHG DV SDUW RI )'5fV 1HZ 'HDO OHJLVODWLRQ 7KH $JULFXOWXUDO $GMXVWPHQW $FW VRXJKW WR LQFUHDVH UXUDO LQFRPH E\ FRQWUROOLQJ RYHUSURGXFWLRQ RI DJULFXOWXUDO FRPPRGLWLHV VSHFLILFDOO\ ZKHDW FRUQ FRWWRQ ULFH SHDQXWV DQG WREDFFR 3DDUOEHUJ f :KLOH WKH VXSSO\ FRQWURO SURYLVLRQV RI 1HZ 'HDO OHJLVODWLRQ KDYH EHHQ UHYRNHG IRU PRVW FURSV WKH\ KDYH EHHQ UHWDLQHG IRU WREDFFR (YHU\ WKUHH \HDUV WREDFFR SURGXFHUV FDQ YRWH ZKHWKHU RU QRW WR UHWDLQ WKH WREDFFR SURJUDP DQG WKH VXSSRUW IRU WKH SURJUDP E\ IDUPHUV KDV FRQVLVWHQWO\ EHHQ RYHUZKHOPLQJ ,Q )HEUXDU\ .HQWXFN\ IDUPHUV YRWHG SHUFHQW LQ IDYRU RI PDLQWDLQLQJ WKH SURJUDP 3DWWRQ f 7REDFFR 4XRWDV DQG 3ULFH 6XSSRUWV 7KH WREDFFR SURJUDP LV EDVHG RQ D V\VWHP RI PDUNHWLQJ TXRWDV DQG SULFH VXSSRUWV (DFK \HDU WKH 86' $ GHWHUPLQHV WKH DPRXQW RI WREDFFR WKDW FDQ EH JURZQ LQ WKH FRPLQJ FURS \HDU 7KLV GHWHUPLQDWLRQ LV EDVHG RQ WKH OHYHO RI WREDFFR LQ WKH SRRO DZDLWLQJ VDOH DQWLFLSDWHG GHPDQG IURP WKH WREDFFR FRPSDQLHV DQG SURMHFWHG H[SRUW GHPDQG ,QGLYLGXDO IDUPHUVf WREDFFR TXRWDV DUH DGMXVWHG DW WKH VDPH OHYHOV DV WKH

PAGE 107

QDWLRQDO TXRWD 7KH SULFH VXSSRUW OHYHO LV GHWHUPLQHG EDVHG RQ FKDQJHV LQ WKH PDUNHW SULFH LQ WKH SUHYLRXV \HDU DQG IDUPVf FRVWV RI SURGXFWLRQ 6QHOO f 8QGHU WKH SURJUDP WREDFFR TXRWD LV DVVLJQHG WR LQGLYLGXDO IDUPV (DFK IDUP KDV D EDVLF TXRWD LWV VKDUH RI WKH QDWLRQDO WREDFFR TXRWD ,I D IDUP GRHV QRW PDUNHW H[DFWO\ LWV EDVLF TXRWD WKH GLIIHUHQFH LV DGGHG RU VXEWUDFWHG WR WKH QH[W \HDUfV FURS UHVXOWLQJ LQ ZKDW LV FDOOHG HIIHFWLYH TXRWD 7KLV KHOSV WR FXVKLRQ VZLQJV LQ SURGXFWLRQ OHYHOV GXH WR SRRU FURSV 7KH TXRWD FXW RI b ZDV FXVKLRQHG E\ FDUU\RYHU VLQFH WKH FURS ZDV D YHU\ SRRU RQH GXH WR GURXJKW )DUPHUV UHFHLYH D PDUNHWLQJ FDUG IURP WKH 86'$fV )DUP 6HUYLFH $JHQF\ DOORZLQJ WKHP WR VHOO D VHW QXPEHU RI SRXQGV RI EXUOH\ WREDFFR :KHQ IDUPHUV WDNH WKHLU EDOHG WREDFFR WR D WREDFFR ZDUHKRXVH IRU VDOH LW LV LQVSHFWHG DQG JUDGHG E\ JRYHUQPHQW JUDGHUV ZKRVH FRVWV DUH SDLG E\ IDUPHUV (DFK JUDGH RI WREDFFR LV JXDUDQWHHG WR VHOO IRU D PLQLPXP SULFH FXUUHQWO\ DURXQG SHU SRXQGf %X\HUV IURP WREDFFR FRPSDQLHV WKHQ ZDON WKURXJK WKH ZDUHKRXVH DQG ELG RQ WKH EDOHV RI WREDFFR ,I D EDOH IDLOV WR DWWUDFW WKH IORRU SULFH LW LV VROG DW WKH VXSSRUW SULFH WR WKH %XUOH\ 7REDFFR *URZHUV &RRSHUDWLYH DQG SODFHG LQ WKH fSRROf 7KH FRRSHUDWLYH SD\V IDUPHUV ZLWK ORDQV IURP WKH IHGHUDO &RPPRGLW\ &UHGLW &RUSRUDWLRQ ZKLFK DUH UHSDLG ZLWK LQWHUHVW ZKHQ WKH SRRO VWRFNV DUH VROG (YHU\ SRXQG RI WREDFFR VROG LQFOXGHV D IHH WR FRYHU WKH FRVW RI PDLQWDLQLQJ WKH SRRO VR WKDW RQO\ PLQLPDO DGPLQLVWUDWLYH FRVWV IRU WKH SURJUDP DUH ERUQH E\ WD[SD\HUV 6QHOO f ,Q DGGLWLRQ IDUPHUV PXVW SD\ WKH JUDGLQJ IHH DQG D ZDUHKRXVH IHH ERWK 6WDUWLQJ ZLWK WKH FURS \HDU WKH UXOHV IRU FDUU\LQJ RYHU XQVROG TXRWD IURP RQH \HDU WR WKH QH[W ZLOO EH FKDQJHG &XUUHQWO\ WKH HQWLUH FURS IURP RQH \HDU FDQ EH FDUULHG RYHU WR WKH QH[W DV ORQJ DV WKH FURS LV JURZQ RQFH HYHU\ WKUHH \HDUV 6WDUWLQJ QH[W \HDU FDUU\RYHU ZLOO EH OLPLWHG E\ D FRPSOLFDWHG IRUPXOD EDVHG RQ WKH QDWLRQDO WRWDO RI

PAGE 108

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f /RFDO LQIRUPDQWV HVWLPDWHG WKH UDWH RI UHWXUQ DV VOLJKWO\ ORZHU LQ WKH VWXG\ UHJLRQ GXH WR VRPHZKDW ORZHU \LHOGV 7KH FRPSDUDEOH UDWH RI UHWXUQ IRU RWKHU FURSV JURZQ FRPPHUFLDOO\ LQ WKH UHJLRQ UDQJHV IURP SHU DFUH IRU FRUQ WR SHU DFUH IRU JUDVV OHJXPH KD\ RU b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f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

PAGE 109

TXRWDf§RZQHUVKLS OHDVLQJ DQG UHQWLQJ 4XRWD RZQHUV RZQ D IDUP WR ZKLFK TXRWD LV DWWDFKHG 7KH RULJLQDO DOORWPHQWV ZHUH PDGH RQ WKH EDVLV RI WKH DPRXQW RI WREDFFR EHLQJ JURZQ RQ WKH ODQG LQ WKH V YDQ :LOOLJHQ DQG (DVWZRRG f 7KH TXRWD LV SDVVHG RQ ZLWK WKH IDUP WKURXJK VDOH RU LQKHULWDQFH 6DOHV RI TXRWD DORQH DUH QRW WKH QRUP EXW VLQFH SDVVDJH RI WKH )DUP 3RXQGDJH 4XRWD 5HYLVLRQV $FW RI TXRWD FDQ EH VROG VHSDUDWHO\ IURP WKH IDUP 6QHOO DQG &KDPEHUV f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fV )DUP 6HUYLFH $JHQF\ )6$f UHJXODWHV DQG IDFLOLWDWHV OHDVLQJ RI TXRWD WKURXJK HVWDEOLVKPHQW RI D VWDUW GDWH IRU OHDVLQJ SRVWLQJ RI OLVWV DW WKH )6$ RIILFH RI WKRVH ZLVKLQJ WR OHDVH LQ RU RXW TXRWD DQG WUDQVIHUULQJ WKH TXRWD WR WKH PDUNHWLQJ FDUG RI WKH LQGLYLGXDO OHDVLQJ LQ WKH TXRWD /HDVLQJ LQ TXRWD LV DQ RSWLRQ OLPLWHG WR IDUPHUV ZLWK DGHTXDWH ODQG IRU WREDFFR

PAGE 110

SURGXFWLRQ RU IDU PRUH UDUHO\ WR WKRVH ZKR DUUDQJH D FDVKEDVHG UHQWDO RI ODQG IRU FURS SURGXFWLRQ 2QH LPSRUWDQW OLPLWDWLRQ RQ WKH OHDVLQJ RI WREDFFR TXRWD LV WKDW DOO OHDVLQJ PXVW WDNH SODFH ZLWKLQ FRXQW\ OLQHV 7KLV OLPLWDWLRQ KDV SUHYHQWHG WKH FRQFHQWUDWLRQ RI WREDFFR SURGXFWLRQ LQ WKH FHQWUDO DQG ZHVWHUQ SDUWV RI WKH VWDWH ZKHUH ODUJHUVFDOH WREDFFR IDUPV FDQ SURGXFH WKH FURS PRUH HFRQRPLFDOO\ %URZQ 6QHOO DQG 7LOOHU f ,Q -DQXDU\ RI .HQWXFN\ WREDFFR IDUPHUV DSSURYHG FURVVFRXQW\ OHDVLQJ RI WREDFFR LQ D UHIHUHQGXP FRQGXFWHG E\ WKH )DUP 6HUYLFH $GPLQLVWUDWLRQ )6$f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f QHHGHG IRU FURS SURGXFWLRQ &HUWDLQ DJULFXOWXUDO FKHPLFDOV DUH DOVR VRPHWLPHV WKH UHVSRQVLELOLW\ RI UHQWHUV WKHVH FKHPLFDOV W\SLFDOO\ SHUIRUP IXQFWLRQV SUHYLRXVO\ GRQH E\ KDQG VXFK DV VXFNHU FRQWURO WRSSLQJ DQG ,Q WKH LQLWLDO UHIHUHQGXP D PDMRULW\ RI WKRVH YRWLQJ DSSURYHG FURVVFRXQW\ OHDVLQJ 7KH VXFFHVVIXO ODZVXLW FKDUJHG WKDW WKH DXWKRUL]LQJ OHJLVODWLRQ UHTXLUHG D PDMRULW\ RI TXRWD

PAGE 111

ZHHG FRQWURO $IWHU VDOH RI WKH FURS WKH SURFHHGV DUH VSOLW EHWZHHQ WKH TXRWD RZQHU DQG UHQWHU XVXDOO\ RQ D EDVLV ,Q WKH VWXG\ DUHD WKH VXUYH\ IRXQG WKDW MXVW RYHU SHUFHQW RI WKH VDPSOH UHQWHG DW OHDVW VRPH WREDFFR fRQ WKH KDOYHV DQG QHDUO\ D TXDUWHU RI WKH VDPSOH UHSRUWHG UHQWLQJ DV WKHLU RQO\ PHDQV RI DFFHVV WR TXRWD 7HQDQF\ FDQ DV ZLOO EH GHPRQVWUDWHG LQ WKH FDVH VWXG\ FKDSWHU EH D IRUP RI FDSLWDOLVW DJULFXOWXUH DQG LV LW ZLOO EH UHFDOOHG RQH RI WKH ZD\V WKDW 0RRQH\ f KDV VXJJHVWHG FDSLWDOLVP H[WUDFWV VXUSOXV YDOXH IURP VLPSOH FRPPRGLW\ SURGXFHUV 7REDFFR TXRWD WKHQ VKRXOG EH VHHQ DV DQ HVVHQWLDO PHDQV RI SURGXFWLRQ LQ WKH 8QLWHG 6WDWHV MXVW DV DUH ODQG DQG ODERU :LWKRXW TXRWD IDUPHUV FDQQRW SURGXFH DQG VHOO WREDFF 4XRWD FDQ EH YLHZHG DV D FRPPRGLW\ VLQFH LW FDQ EH ERXJKW VROG OHDVHG DQG UHQWHG 7KH FRPPRGLILFDWLRQ RI WREDFFR TXRWD KRZHYHU LV RQO\ OLPLWHG 7KH FURVVn FRXQW\ UHVWULFWLRQV RQ OHDVLQJ DQG VDOH RI TXRWD PHDQ WKDW TXRWD RZQHUV FDQQRW WUDQVIHU TXRWD LQ D IUHH PDUNHW EXW RQO\ LQ D YHU\ OLPLWHG JHRJUDSKLF DUHD $V D UHVXOW OHDVH SULFHV PD\ EH VLJQLILFDQWO\ GLIIHUHQW MXVW DFURVV FRXQW\ OLQHV 4XRWD )OXFWXDWLRQV :KLOH .HQWXFN\ IDUPHUV DUH DFFXVWRPHG WR DQQXDO FKDQJHV LQ WREDFFR TXRWD WKH DQG TXRWD FXWV ZHUH RI DQ XQSUHFHGHQWHG PDJQLWXGH 7KH TXRWD UHSUHVHQWV D b FXW IURP WKH QHDU UHFRUG KLJK TXRWD OHYHO RI DQG RQO\ b RI WKH DYHUDJH TXRWD OHYHO RYHU WKH SUHYLRXV WHQ \HDUV :KLOH TXRWD OHYHOV UHERXQGHG LQ ZLWK D b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

PAGE 112

SURJUDP :ROIH &RXQW\ 1HZV f WKH TXRWD LV VWLOO RQO\ b RI WKH \HDU DYHUDJH TXRWD OHYHO )LJXUH VKRZV WKH IOXFWXDWLRQ LQ QDWLRQDO EXUOH\ WREDFFR TXRWD OHYHOV IURP WR LQ ‘R F R &/ rff§ R 0 F R R 2 )LJXUH &KDQJHV LQ QDWLRQDO WREDFFR PDUNHWLQJ TXRWD 6RXUFH )6$ f )DFWRUV DIIHFWLQJ GHPDQG 1DWLRQDO EXUOH\ WREDFFR PDUNHWLQJ TXRWDV DUH GHYHORSHG EDVHG RQ D IRUPXOD LQFRUSRUDWLQJ WKH WREDFFR FRPSDQLHVf EX\LQJ LQWHQWLRQV WKH SURMHFWHG H[SRUW GHPDQG DQG UHVHUYH VWRFN OHYHOV 7KHVH IDFWRUV DUH LQ WXUQ DIIHFWHG E\ FKDQJHV LQ GRPHVWLF GHPDQG IRU FLJDUHWWHV DQG WKH LQFUHDVHG XVH RI IRUHLJQSURGXFHG EXUOH\ ERWK LQ GRPHVWLF DQG IRUHLJQ FLJDUHWWH SURGXFWLRQ $V WREDFFR FRPSDQLHV DUH IDFHG ZLWK KXJH ODZVXLW YHUGLFWV DQG RXW RI FRXUW VHWWOHPHQWV WKH\ KDYH UHVSRQGHG E\ LQFUHDVLQJ FLJDUHWWH SULFHV DQG VXEVWLWXWLQJ OHVV H[SHQVLYH IRUHLJQ SURGXFHG WREDFFR IRU 86 EXUOH\

PAGE 113

'HFUHDVHG VPRNLQJ 8 6 FLJDUHWWH SURGXFWLRQ KLW LWV SHDN RI ELOOLRQ FLJDUHWWHV LQ 6LQFH WKDW WLPH WD[ DQG VHWWOHPHQWLQGXFHG SULFH LQFUHDVHV KDYH UHVXOWHG LQ D b LQFUHDVH LQ WKH SULFH RI FLJDUHWWHV LQ WKH 8QLWHG 6WDWHV /DUJHO\ LQ UHVSRQVH WR WKHVH SULFH LQFUHDVHV GRPHVWLF FLJDUHWWH FRQVXPSWLRQ KDV GHFOLQHG E\ DSSUR[LPDWHO\ b VLQFH DQG H[SRUWV RI 86 SURGXFHG FLJDUHWWHV KDYH GURSSHG E\ DURXQG ELOOLRQ FLJDUHWWHV DV WKH FRPSDQLHV VKLIW 86 SURGXFWLRQ WR RYHUVHDV SODQWV %DUULQJ VLJQLILFDQW IXWXUH SULFH KLNHV WKH DQQXDO OHYHO RI GHFOLQH LQ GRPHVWLF FLJDUHWWH VDOHV LV H[SHFWHG WR UHYHUW WR PRUH WUDGLWLRQDO OHYHOV RI WR b 6QHOO f ,QFUHDVHG XVH RI IRUHLJQ WREDFFR $W WKH VDPH WLPH GRPHVWLF FLJDUHWWH SURGXFWLRQ KDV GHFOLQHG LPSRUWV RI EXUOH\ WREDFFR KDYH EHHQ LQFUHDVLQJ )DUPHUV DUH YHU\ DZDUH RI WKHLU IRUHLJQ FRPSHWLWLRQ DQG PDQ\ EODPH WKH WREDFFR FRPSDQLHV DQG WREDFFR SURGXFWLRQ H[SHUWV DW WKH 8QLYHUVLW\ RI .HQWXFN\ DQG RWKHU WREDFFR UHVHDUFK FHQWHUV IRU IDFLOLWDWLQJ DQG SURPRWLQJ IRUHLJQ SURGXFWLRQ RI EXUOH\ WREDFFR RYHU WKH ODVW VHYHUDO GHFDGHV 86 EXUOH\ LPSRUWV FXUUHQWO\ DFFRXQW IRU DERXW b RI WKH WRWDO EXUOH\ XVH E\ 86 PDQXIDFWXUHUV DQG LPSRUWV ZHUH b KLJKHU LQ WKH ILUVW SDUW RI FRPSDUHG WR WKH VDPH SHULRG LQ 6QHOO f %HFDXVH RI WKH ODUJH VXSSOLHV RI IRUHLJQ EXUOH\ WREDFFR SULFHV RI QRQ86 EXUOH\ KDYH EHHQ GHFUHDVLQJ DW WKH VDPH WLPH 86 EXUOH\ SULFHV KDYH EHHQ LQFUHDVLQJ &XUUHQWO\ IRUHLJQ EXUOH\ FRVWV DSSUR[LPDWHO\ b RI WKH 86 SURGXFHG OHDI *LYHQ WKLV SULFH GLIIHUHQWLDO LW LV QRW VXUSULVLQJ WKDW H[SRUWV RI 86 EXUOH\ WREDFFR KDYH EHHQ GURSSLQJ )URP WR 86 EXUOH\ H[SRUWV IHOO IURP PLOOLRQ SRXQGV WR PLOOLRQ SRXQGV 6QHOO f WKH SURVSHFWV IRU D UHYHUVDO RI WKDW WUHQG VHHP EOHDN DOWKRXJK PDQ\ IDUPHUV H[SUHVV KRSH WKDW WKH WUDGH

PAGE 114

GHDO ZLWK &KLQD UDWLILHG E\ &RQJUHVV LQ ZLOO RSHQ XS WKH &KLQHVH PDUNHW IRU 86 WREDFFR H[SRUWV +LJK OHYHOV RI VWRFNSLOHG WREDFFR 7KH UHOXFWDQFH RI WKH WREDFFR FRPSDQLHV WR SXUFKDVH PXFK RI WKH GURXJKW GDPDJHG EXUOH\ FURS ZDV D PDMRU UHDVRQ IRU WKH GUDVWLF TXRWD FXWV IRU WKH VXEVHTXHQW FURS \HDU $OWKRXJK WKH %XUOH\ 7REDFFR *URZHUV &RRSHUDWLYH $VVRFLDWLRQ ZDV XQGHU VRPH SUHVVXUH WR VHOO RII WKH VXUSOXV VWRFNV DW D VLJQLILFDQW GLVFRXQW WKH\ GHFOLQHG WR GR VR 0F.LQQH\ DQG .XHJHO f :LWK WKH OHYHOV RI VXUSOXV WREDFFR UHPDLQLQJ KLJK IXUWKHU TXRWD UHGXFWLRQV ZHUH FRQVLGHUHG OLNHO\ IRU WKH FURS \HDU +RZHYHU .HQWXFN\fV VHQLRU 86 6HQDWRU 0LWFK 0F&RQQHOO ZDV VXFFHVVIXO LQ LQVHUWLQJ ODQJXDJH LQWR WKH $JULFXOWXUH $SSURSULDWLRQV ELOO WR GHFODUH WKH FURS D GLVDVWHU DQG IRUJLYH IHGHUDO ORDQV RI 6 PLOOLRQ PDGH WR WKH %XUOH\ &RRSHUDWLYH /LFNLQJ 9DOOH\ &RXULHU Ef )DUPHU SHUVSHFWLYHV RQ TXRWD FXWV :KLOH PRVW IDUPHUV UHFRJQL]H WKH UROH RI WREDFFR LPSRUWV LQ WKH TXRWD FXWV PDQ\ DOVR DWWULEXWH D PDMRU SRUWLRQ RI WKH EODPH WR SROLWLFLDQV DQG WKH UDVK RI ODZVXLWV DJDLQVW PDMRU WREDFFR FRPSDQLHV 0XFK RI WKLV UHVHDUFK ZDV FRQGXFWHG GXULQJ WKH SUHVLGHQWLDO FDPSDLJQ DQG 3UHVLGHQW &OLQWRQ DQG SUHVLGHQWLDO FDQGLGDWH $ *RUH DQG DQWLVPRNLQJ SROLWLFLDQV LQ JHQHUDO ZHUH VHHQ E\ PDQ\ IDUPHUV DV WKH VRXUFH RI WREDFFRfV SUREOHPV 0RVW RI WKHVH IDUPHUV GLG QRW PDNH H[SOLFLW WKH FRQQHFWLRQ EHWZHHQ DQWLVPRNLQJ SROLWLFLDQV DQG TXRWD FXWV DV RQH IDUPHU SXW LW ZKHQ DVNHG WKH FDXVH RI WKH TXRWD FXWV 7KH JRYHUQPHQW DQG 0U 3UHVLGHQW ,I KH KDGQfW VWDUWHG WKH >DQWLVPRNLQJ@ FDPSDLJQ KH VWDUWHG WREDFFR ZRXOGQfW EH LQ WKH VKDSH LWfV LQ ULJKW QRZ GRQfW KDYH QR LGHD >KRZ WKDW FDXVHG WKH FXWV@ WKDWfV MXVW P\ YLHZ RQ LW WKLQN WKH SUHVLGHQW LV WKH RQH ZKR KDV VFUHZHG HYHU\WKLQJ XS IRU WKH WREDFFR IDUPHU

PAGE 115

2WKHU IDUPHUV PDGH PRUH H[SOLFLW WKH OLQN EHWZHHQ SROLWLFDO SUHVVXUH WKH ODZVXLWV DQG LQFUHDVLQJ WREDFFR LPSRUWV $V RQH GHVFULEHG WKH VLWXDWLRQ 7KHVH ODZVXLWV DQG JRYHUQPHQW UHJXODWLRQV DUH FRVWLQJ WKH WREDFFR FRPSDQLHV PLOOLRQV $QG VR WKH FRPSDQLHV DUH JRLQJ RYHUVHDV WR EX\ WREDFFR FKHDSHU ,WfV QRW DV JRRG DV ZKDW ZH JURZ EXW WKH\ FDQf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f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b VXSSRUW IURP IDUPHUV +RZHYHU WKH WREDFFR FRPSDQLHV OHG E\ 3KLOLS 0RUULV KDYH EHJXQ WR LPSOHPHQW FKDQJHV LQ WKHLU EX\LQJ SUDFWLFHV WKDW VRPH IDUP OHDGHUV IHDU FRXOG GRRP

PAGE 116

WKH WREDFFR SURJUDP 6WDUWLQJ GXULQJ WKH JURZLQJ VHDVRQ 3KLOLS 0RUULV WKH ODUJHVW 8 6 WREDFFR FRPSDQ\ FRQWUDFWHG GLUHFWO\ ZLWK WREDFFR JURZHUV WR SXUFKDVH WKHLU FURS GLUHFWO\ ZLWKRXW JRLQJ WKURXJK WKH DXFWLRQ V\VWHP $ UHSUHVHQWDWLYH RI 3KLOLS 0RUULV KHOG D ZHOODGYHUWLVHG SXEOLF PHHWLQJ LQ WKH VWXG\ UHJLRQ WR LQWURGXFH WKH f7REDFFR )DUPHU 3DUWQHULQJ 3URJUDPf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f OHDG DQG LQLWLDWH FRQWUDFWLQJ IRU WKH JURZLQJ VHDVRQ DQG DSSUR[LPDWHO\ b RI WKH EXUOH\ FURS LV H[SHFWHG WR VHOO XQGHU FRQWUDFW 6QHOO f 7KH WREDFFR FRQWUDFWLQJ SURJUDPV DUH VHHQ E\ PDQ\ IDUP OHDGHUV DV WKH ILUVW VWHS WRZDUGV WKH HQG RI WKH IHGHUDO WREDFFR SURJUDP 7KH %XUOH\ 7REDFFR *URZHUV &RRSHUDWLYH KDV WDNHQ WKH OHDG LQ RSSRVLQJ FRQWUDFWLQJ VHHLQJ LW DV DQ XQGHUPLQLQJ RI WKH ORQJWHUP VXSSRUW RI WKH WREDFFR FRPSDQLHV IRU WKH IHGHUDO WREDFFR SURJUDP :KLOH WKH IDUPHUV ZKR UDLVH WREDFFR XQGHU FRQWUDFW DUH VWLOO VXEMHFW WR WKH TXRWD OLPLWDWLRQV DQG WKH DVVHVVPHQW WR FRYHU WKH FRVWV RI PDLQWDLQLQJ WKH SURJUDP WKH\ GR QRW SD\ WKH

PAGE 117

ZDUHKRXVH IHH DQG JUDGLQJ FRVWV 7KH FRQWUDFWLQJ SURJUDP LQLWLDWHG E\ 3KLOLS 0RUULV KDG FRPSDQ\ UHSUHVHQWDWLYHV JUDGH WKH WREDFFR UDWKHU WKDQ JRYHUQPHQW JUDGHUV )DUPHUV SURGXFLQJ XQGHU FRQWUDFWV UHFHLYHG WR FHQWV SHU SRXQG PRUH WKDQ JURZHUV VHOOLQJ WKURXJK WKH WUDGLWLRQDO DXFWLRQ V\VWHP ZLWK WKH GLIIHUHQFH SULPDULO\ GXH WR WKH JUDGLQJ DQG ZDUHKRXVH FRVWV WKH FRQWUDFW JURZHUV ZHUH VSDUHG 6FKUHLQHU f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fV DV VLPSOH DV WKDW .XHJHO DQG 0F.LQQH\ f )DUPHUV LQ WKH VWXG\ UHJLRQ DOVR H[SUHVVHG JUDYH FRQFHUQV DERXW FRQWUDFWLQJ VHHLQJ DV D ELJ VWHS WRZDUGV WKH HOLPLQDWLRQ RI WREDFFR SURGXFWLRQ LQ HDVWHUQ .HQWXFN\ %HFDXVH PRVW HDVWHUQ .HQWXFN\ WREDFFR IDUPV DUH UHODWLYHO\ VPDOO IDUPHUV EHOLHYH WKH FRPSDQLHV ZLOO E\SDVV WKHP DQG FRQWUDFW RQO\ ZLWK ODUJHU SURGXFHUV $V RQH IDUPHU SXW LW :KDW ZLOO KDSSHQ >LQ WKH QH[W IHZ \HDUV@ LV WKH ELJ IDUPHUV GRZQ LQ /H[LQJWRQ DQG SODFHV OLNH WKDW ZLOO HQG XS ZLWK FRQWUDFWV IURP WKHVH ZDUHKRXVHV DQG WKH\nOO FORVH XV RXW KHUH LQ WKLV FRXQWU\ 7KDWnV P\ RSLQLRQ 7KH\nYH MXVW DERXW GRQH WKDW QRZ

PAGE 118

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f 0DLOER[ 3D\PHQWV :KLOH WKH SRRU TXDOLW\ RI WKH FURS DQG WKH GHHS FXWV LQ TXRWD IRU WKH JURZLQJ VHDVRQ FDXVHG D VXEVWDQWLDO LPSDFW RQ WKH DUHD IDUP HFRQRP\ DQG RQ LQGLYLGXDO IDUPV WZR LPSRUWDQW SURJUDPV SURYLGHG FDVK SD\PHQWV RU ZKDW 6QHOO f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f 7KLV 3KDVH ,, SD\PHQW LV WR FRPSHQVDWH WREDFFR SURGXFHUV IRU ORVVHV WKH\ DUH H[SHFWHG WR VXIIHU IURP WKH GHFUHDVH LQ SURGXFWLRQ UHVXOWLQJ IURP WKH KLJKHU FLJDUHWWH SULFHV XVHG WR ILQDQFH WKH VHWWOHPHQW 2$3 f 7KH VHFRQG SURJUDP SURYLGLQJ PDLOER[ SD\PHQWV LV WKH 7REDFFR /RVV $VVLVWDQFH 3URJUDP 7/$3f IXQGHG E\ WKH IHGHUDO JRYHUQPHQW DV D GLUHFW UHVSRQVH WR WKH ILQDQFLDO ORVV IDFHG E\ WREDFFR IDUPLQJ FRPPXQLWLHV

PAGE 119

3KDVH ,, 2YHU D WZHOYH \HDU SHULRG .HQWXFN\ ZLOO UHFHLYH VOLJKWO\ XQGHU b RI WKH 3KDVH ,, IXQGV IURP WKH WREDFFR FRPSDQLHV D WRWDO RI DERXW ELOOLRQ WR EH SDLG RXW WR IDUPHUV 7KH .HQWXFN\ 7REDFFR 6HWWOHPHQW 7UXVW &RUSRUDWLRQ PRUH FRPPRQO\ NQRZQ DV WKH 3KDVH ,, ERDUG GHYHORSHG D SODQ IRU IXQG GLYLVLRQ DQG DQ DSSOLFDWLRQ SURFHVV 7KH ERDUG LV FKDLUHG E\ WKH JRYHUQRU DQG LWV PHPEHUVKLS FRQVLVWV RI WKUHH DGGLWLRQDO VWDWH RIILFLDOV DQG QLQH LQGLYLGXDOV DSSRLQWHG E\ WKH JRYHUQRU f 7KH IXQGV DUH WR EH GLYLGHG LQ WKLUGV EHWZHHQ TXRWD RZQHUV WKH IDUPV RQ ZKLFK WKH FURS LV JURZQ DQG WKH JURZHU RU WHQDQW ZKR LQYHVWHG ODERU LQ WKH WREDFFR SURGXFWLRQ SURFHVV $Q LQGLYLGXDO FDQ UHFHLYH SD\PHQWV IRU DQ\ RU DOO RI WKHVH VWDWXVHVf§D TXRWDn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f 7KXV D TXRWD RZQHU JURZLQJ KLV RU KHU RZQ WREDFFR UHFHLYHG DERXW FHQWV SHU SRXQG RI TXRWD KHOG LQ IRU WKH DYHUDJH TXRWD KROGLQJ RI SRXQGV DPRQJ JURZHUV LQ WKH VDPSOH WKDW HTXDOHG D SD\PHQW RI QHDUO\ 0RUJDQ &RXQW\ IDUPHUV UHFHLYHG D WRWDO RI DOPRVW PLOOLRQ RI 3KDVH ,, SD\PHQWV LQ 2$3 f ZKLOH :ROIH &RXQW\ UHFHLYHG MXVW XQGHU

PAGE 120

7REDFFR /RVV $VVLVWDQFH 3URJUDP 7KH 7REDFFR /RVV $VVLVWDQFH 3URJUDP 7/$3f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f WR IDUPHUV IRU WKH FURS \HDU WKXV WRWDOHG MXVW RYHU FHQWV SHU SRXQG IRU TXRWD RZQHUV DQG FHQWV HDFK IRU JURZLQJ IDUPV DQG WHQDQWV $ TXRWD RZQHU UDLVLQJ KLV RU KHU RZQ WREDFFR WKHQ UHFHLYHG SHU SRXQG RI WREDFFR ZKLOH IDUPHUV JURZLQJ OHDVHG WREDFFR RQ WKHLU RZQ ODQG UHFHLYHG FHQWV SHU SRXQG DQG WHQDQWV UHFHLYHG FHQWV SHU SRXQG 7KH VLJQLILFDQFH RI WKHVH SD\PHQWV LV VHHQ E\ FRPSDULQJ WKH SHU SRXQG UHFHLYHG E\ TXRWD RZQHUV JURZLQJ WKHLU RZQ WREDFFR WR WKH SHU SRXQG DYHUDJH SULFH UHFHLYHG IRU WKH WREDFFR LWVHOI $V RQH IDUPHU SXW LW f7KHVH WREDFFR SD\PHQWV DUH WKH RQO\ WKLQJ WKDWfV VDYHG WKH IDUPHU IURP WKHVH TXRWD FXWVf %HFDXVH RI WKH SD\PHQWV FRPELQHG ZLWK FDUU\RYHU IURP WKH FURS JURZHUV LQ WKH VWXG\ UHJLRQ HDUQHG QHDUO\ DV PXFK WREDFFR LQFRPH LQ DV WKH\ UHFHLYHG IURP WKHLU FURSV /LFNLQJ 9DOOH\ &RXULHU Ff 7KHVH PDLOER[ SD\PHQWV KDYH KHOSHG VRIWHQ WKH LPSDFW RI WKH PDVVLYH TXRWD FXWV RI WKH ODWH V EXW WKH\ DUH QRW VHHQ DV D UHOLDEOH VRXUFH RI LQFRPH IRU IDUPHUV 7KH 3KDVH ,, SD\PHQWV DUH H[SHFWHG WR FRQWLQXH WKURXJKRXW WKH \HDU SURJUDP EXW IXWXUH 7 /$3 SD\PHQWV ZLOO UHTXLUH &RQJUHVVLRQDO DSSURYDO :KLOH WKH VHYHUH ILQDQFLDO VLWXDWLRQ

PAGE 121

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fV &RPPLVVLRQ RQ 7REDFFR 3ROLF\ D WHQ PHPEHU SDQHO LQFOXGLQJ IDUPHUV KHDOWK DGYRFDWHV DQG HFRQRPLVWV DSSRLQWHG E\ 3UHVLGHQW &OLQWRQ 7KH NH\ IHDWXUHV RI WKLV SURSRVDO LQFOXGH D FHQW IHGHUDO WD[ LQFUHDVH RQ FLJDUHWWHV ZKLFK ZLOO EH XVHG WR IXQG WKH SURSRVDO UHJXODWLRQ RI WKH WREDFFR LQGXVWU\ E\ WKH )RRG DQG 'UXJ $GPLQLVWUDWLRQ )'$f DQG WKH HVWDEOLVKPHQW RI D IHGHUDO RUJDQL]DWLRQ WR SURPRWH DQG IXQG DJULFXOWXUDO GLYHUVLILFDWLRQ LQ WREDFFR SURGXFLQJ UHJLRQV %XUOH\ 7REDFFR &RRSHUDWLYH f 7KH SODQ SURSRVHV XVLQJ WKH IXQGV JHQHUDWHG E\ WKH WD[ LQFUHDVH WR EX\ RXW WREDFFR TXRWD RZQHUV DQG JURZHUV 4XRWD RZQHUV ZRXOG UHFHLYH SHU SRXQG DSSUR[LPDWHO\ \HDUV RI OHDVH SD\PHQWV LQ WKH VWXG\ UHJLRQf DQG JURZHUV ZRXOG UHFHLYH HLWKHU SHU SRXQG LI WKH\ FKRRVH WR HQG EXUOH\ SURGXFWLRQ RU SHU SRXQG LI WKH\ FKRVH WR FRQWLQXH EXUOH\ SURGXFWLRQ 7KH UHVWUXFWXUHG IHGHUDO WREDFFR SURJUDP

PAGE 122

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fV 86 6HQDWRUV KDYH H[SUHVVHG VWURQJ UHVHUYDWLRQV DERXW WKH SURSRVDO DQG KDYH LQGLFDWHG LWV FKDQFHV IRU &RQJUHVVLRQDO HQDFWPHQW DUH VOLP )XUWKHUPRUH DFFRUGLQJ WR WKH FKLHI DJULFXOWXUDO DLGH WR 86 6HQDWRU 7RP +DUNLQ ',$f WKH QHZ FKDLU RI WKH 6HQDWH $JULFXOWXUH &RPPLWWHH WKH 6HQDWRU KDV QR SODQV WR EULQJ XS WKH EX\RXW SURSRVDO LQ WKH IRUHVHHDEOH IXWXUH SHUVRQDO FRPPXQLFDWLRQ ZLWK 0DUN +DOYHUVRQf 7REDFFR )DUPLQJ DQG 'LYHUVLILFDWLRQ $V GHPDQG IRU WREDFFR GHFUHDVHV WKHUH KDV EHHQ LQFUHDVLQJ DWWHQWLRQ WR WKH SUREOHP RI DJULFXOWXUDO GLYHUVLILFDWLRQ LQ WREDFFRGHSHQGHQW UHJLRQV RI WKH 8QLWHG 6WDWHV 7ZR NH\ VWXGLHV ZKLFK PHULW DWWHQWLRQ KHUH DUH =DEDZDfV VWXG\ RI VKDGH WREDFFR SURGXFHUV LQ QRUWK )ORULGD DQG D PRUH UHFHQW VXUYH\ RI WREDFFR IDUPHUV DFURVV WKH

PAGE 123

VRXWKHDVWHUQ 8QLWHG 6WDWHV GHVLJQHG WR HOLFLW DWWLWXGLQDO GDWD DERXW IDUPHU SHUVSHFWLYHV RQ GLYHUVLILFDWLRQ =DEDZD f FRQGXFWHG D FRPSUHKHQVLYH VWXG\ RI WKH UHVSRQVHV RI QRUWK )ORULGD IDUPHUV WR WKH GHPLVH RI VKDGH WREDFFR WKHLU SULPDU\ FDVK FURS LQ WKH PLG V 6KDGH WREDFFR LV XVHG WR PDNH FLJDU ZUDSSHUV DQG WKH UHJLRQ VWXGLHG E\ =DEDZD ZDV HVVHQWLDOO\ WKH RQO\ SODFH LQ WKH 8QLWHG 6WDWHV WKLV W\SH RI WREDFFR ZDV SURGXFHG =DEDZD f 6KDGH WREDFFR ZDV SURGXFHG XQGHU FRQWUDFW ZLWK EX\HUV ZKR VXSSOLHG WKH PRQH\ QHHGHG IRU WKH H[WHQVLYH FDSLWDO LQSXWV IRU SURGXFWLRQ 7KXV ZKLOH VKDGH WREDFFR GLG QRW IDOO XQGHU WKH VDPH W\SH RI IHGHUDO WREDFFR SURJUDP GLVFXVVHG DERYH VKDGH IDUPHUV DQG EXUOH\ IDUPHUV DOLNH HQMR\HG SURWHFWHG JXDUDQWHHG PDUNHWV DW KLJK SULFHV IRU D ODERU LQWHQVLYH FURS =DEDZDf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

PAGE 124

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f SDFNLQJ KRXVHV IRU VDOH $V ZLOO EH GLVFXVVHG DW VRPH OHQJWK LQ &KDSWHUV DQG WKH ODFN RI UHOLDEOH PDUNHWLQJ RXWOHWV KDV SURYHQ WR EH D PDMRU EDUULHU WR DOWHUQDWLYH FURS SURGXFWLRQ LQ HDVWHUQ .HQWXFN\ 7KH VXUYH\ RI WREDFFR JURZHUV DFURVV WKH VRXWKHDVWHUQ 8QLWHG 6WDWHV E\ $OWPDQ DQG FROOHDJXHV $OWPDQ /HYLQH +RZDUG DQG +DPLOWRQ f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

PAGE 125

&RQFOXVLRQV 7KH IHGHUDO WREDFFR SURJUDPf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

PAGE 126

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n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

PAGE 127

GLVWULFW LQ :ROIH &RXQW\ SXUFKDVHG HTXLSPHQW WR EXLOG UDLVHG EHGV DQG OD\ SODVWLF VSHFLILFDOO\ IRU WKH SURGXFWLRQ RI YHJHWDEOHV 7KDW HTXLSPHQW LV DYDLODEOH WR DUHD IDUPHUV DW D QRPLQDO UHQWDO FRVW 'HVSLWH VXFK VXSSRUW IRU YHJHWDEOH SURGXFWLRQ ERWK IDUPHUV ZKR KDYH DQG WKRVH ZKR KDYHQf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fW UHTXLUH DQ\ VSHFLDO PDQDJHPHQW RU PDUNHWLQJ DELOLW\ 1RZ YHJHWDEOHV \RX KDYH WR ZDWFK WKHP OLNH D KDZN FKHFNLQJ RQ WKHP HYHU\ GD\ IRU SHVWV RU GLVHDVHV $QG ZKHQ WKH\fUH UHDG\ WR EH KDUYHVWHG \RX KDYH WR GR LW ULJKW DZD\ QRW D GD\ RU WZR ODWHU ZKHQ \RX KDYH WKH WLPH RU WKH KHOS )DUPHUV LQ HDVWHUQ .HQWXFN\ KDYH KDG VHYHUDO RSSRUWXQLWLHV WR JURZ YHJHWDEOHV FRPPHUFLDOO\ IRU ZKROHVDOH PDUNHWLQJ DOWKRXJK QRQH RI WKHVH RSSRUWXQLWLHV KDYH SURYHQ WR EH VXFFHVVIXO RYHU WKH ORQJWHUP &XUUHQWO\ RQO\ b RI WKH IDUPHUV LQ WKH VDPSOH Q f DUH JURZLQJ YHJHWDEOHV FRPPHUFLDOO\ DOWKRXJK b Q f KDYH JURZQ YHJHWDEOHV FRPPHUFLDOO\ LQ WKH SDVW 7KH ODUJH QXPEHU RI IRUPHU YHJHWDEOH SURGXFHUV DWWHVWV WR VRPH RI WKH GLIILFXOWLHV LQ SURPRWLQJ DOWHUQDWLYH FURS SURGXFWLRQ LQ WKH UHJLRQ ,Q IDFW WKH QHJDWLYH H[SHULHQFHV PDQ\ JURZHUV KDYH KDG ZLWK YHJHWDEOH SURGXFWLRQ FUHDWH UHOXFWDQFH RQ WKH SDUW RI PDQ\ RWKHU IDUPHUV IRU DQ\ IXWXUH YHJHWDEOH SURGXFWLRQ

PAGE 128

9HJHWDEOH 3URGXFWLRQ IRU 3URFHVVRUV 7KH VLQJOH ODUJHVW JURXS RI IDUPHUV LQ WKH VDPSOH ZKR KDYH JURZQ YHJHWDEOHV FRPPHUFLDOO\ GLG VR IRU VDOH WR YHJHWDEOH SURFHVVRUV (OHYHQ RI WKH WZHQW\ILYH IDUPHUV LQ WKH VDPSOH bf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fHP 7KH\ >WKH SURFHVVRUV@ ZDQW WKH UHG EHOO SHSSHUV %\ WKH WLPH ZH JHW fHP VHW RXW LQ WKLV DUHD E\ WKH WLPH WKH\ JHW UHG \RXfUH OLDEOH WR JHW D IURVW
PAGE 129

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f 7KHVH UHWXUQV DUH FRPSDUDEOH WR RU DERYH WKDW UHJXODUO\ DWWDLQHG ZLWK WREDFFR DOWKRXJK LW LV SRVVLEOH WKDW IDUPHUV JURZLQJ LQ FRRSHUDWLRQ ZLWK ([WHQVLRQ SHUVRQQHO PD\ KDYH DFKLHYHG KLJKHU UHWXUQV WKDQ ZRXOG EH H[SHFWHG IURP WKH fDYHUDJHf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

PAGE 130

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f ZDV IRUPHG LQ LQ UHVSRQVH WR WKH GLIILFXOWLHV LQ PDUNHWLQJ SURGXFH LQ DQ DUHD ZLWKRXW ODUJH SRSXODWLRQ FHQWHUV /LNH RWKHU PDUNHWLQJ FRRSHUDWLYHV (.93$ SRROHG PHPEHUVn SURGXFH DQG DUUDQJHG WUDQVSRUW DQG VDOH WR ZKROHVDOHUV DOORZLQJ VPDOO SURGXFHUV WR UHGXFH VKLSSLQJ FRVWV DQG JDLQ DFFHVV WR SXUFKDVHUV XQZLOOLQJ WR GHDO ZLWK LQGLYLGXDO VPDOOVFDOH SURGXFHUV &RELD f 7KH KLVWRU\ RI YHJHWDEOH PDUNHWLQJ LQ WKLV UHJLRQ RI .HQWXFN\ PDGH LW GLIILFXOW IRU (.93$ WR DWWDLQ KLJK OHYHOV RI WUXVW LQ WKH FRPPXQLW\ 6WXGLHV RI FRRSHUDWLYHV VXJJHVW WKDW WUXVW LV D NH\ HOHPHQW LQ WKH VXFFHVV RI FRRSHUDWLYHV /DVOH\ DQG %DXPHO f (.93$ UHSUHVHQWHG WKH VHFRQG DWWHPSW WR VWDUW D PDUNHWLQJ FRRSHUDWLYH LQ WKLV SDUW RI HDVWHUQ .HQWXFN\ ,Q WKH HDUO\ V WKH VWDWH RI .HQWXFN\ DQG 6DYH WKH &KLOGUHQ VXSSRUWHG GHYHORSPHQW RI D PDUNHWLQJ FRRSHUDWLYH WKURXJK FRQVWUXFWLRQ RI D UHIULJHUDWHG VWRUDJH IDFLOLW\ LQ /HH &RXQW\ MXVW VRXWKZHVW RI WKH VWXG\ UHJLRQ 7KH IDFLOLW\ ZDV DSSUR[LPDWHO\ PLOHV IURP &DPSWRQ LQ :ROIH &RXQW\ DQG QHDUO\ PLOHV IURP :HVW /LEHUW\ LQ 0RUJDQ &RXQW\ EHFDXVH RI WKH GLIIHUHQFH LQ GLVWDQFH IDUPHUV LQ :ROIH

PAGE 131

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f 'HVSLWH WKHVH SUREOHPV DSSUR[LPDWHO\ IDUPHUV ZHUH DFWLYH PHPEHUV RI (.93$ LQ WKH FURS \HDU SD\LQJ D DQQXDO PHPEHUVKLS IHH D b FRPPLVVLRQ WR FRYHU DGPLQLVWUDWLYH FRVWV DQG DFWXDO ODERU FRVWV IRU FOHDQLQJ JUDGLQJ DQG WUDQVSRUWLQJ WKH SURGXFH WR EX\HUV 3URGXFH ZDV VROG WR VXSHUPDUNHWV ODUJH GLVFRXQW VWRUH FKDLQV VXFK DV :DO0DUW DQG ZKROHVDOHUV 2Q PXOWLSOH RFFDVLRQV KRZHYHU EX\HUV UHMHFWHG WKH SURGXFH GXH WR TXDOLW\ SUREOHPV VDGGOLQJ WKH JURZHUVf§HYHQ WKRVH ZKRVH KLJK TXDOLW\ SURGXFH KDG EHHQ SRROHG ZLWK VXEVWDQGDUG SURGXFHf§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

PAGE 132

SURYLGH ERDUG PHPEHUV ZLWK D FOHDU DFFRXQWLQJ RI FXUUHQW GHEWV DQG DFFRXQWV UHFHLYDEOH )XUWKHUPRUH VHYHUDO ERDUG PHPEHUV YRLFHG GHHS FRQFHUQ ZKHQ WKH PDQDJHU UHSRUWHG WKDW KH KLPVHOI ZDV WKH RQO\ JURZHU WR PDNH PRQH\ RQ WKH VDOH RI IDOO FDEEDJH LQ $OWKRXJK KH DQQRXQFHG KLV LQWHQWLRQ WR WXUQ DOO KLV SURILWV RYHU WR WKH FRRSHUDWLYH WKH DSSHDUDQFH RI LPSURSULHW\ ZDV FOHDU $V WKH LQGLYLGXDO UHVSRQVLEOH IRU ILQGLQJ EX\HUV IRU WKH FRRSHUDWLYHfV SURGXFH WKH IDFW WKDW KH IRXQG EX\HUV SULPDULO\ IRU ZKDW KH KDG SURGXFHG KLPVHOI GLG OLWWOH WR HQKDQFH WKH ERDUGf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f 7KLV FRPHV DW D FRVW KRZHYHU DV GLUHFW PDUNHWLQJ FDQ UHTXLUH VLJQLILFDQW WLPH PDUNHWLQJ VDYY\ DQG VWURQJ LQWHUSHUVRQDO VNLOOV 7ZR NLQGV RI GLUHFW

PAGE 133

PDUNHWLQJ RI YHJHWDEOHV REVHUYHG LQ WKH VWXG\ UHJLRQ ZHUH D ORFDO IDUPHUVf PDUNHW DQG URDGVLGH VDOHV RI SURGXFH )DUPHUV PDUNHWV )DUPHUV PDUNHWV DUH DQ LQFUHDVLQJO\ SRSXODU ZD\ IRU IDUPHUV WR VHOO SURGXFH GLUHFWO\ WR FRQVXPHUV DQG IRU FRQVXPHUV WR EX\ IUHVK ORFDOO\ JURZQ YHJHWDEOHV %HWZHHQ DQG WKH QXPEHU RI IDUPHUV PDUNHWV LQFUHDVHG b LQ WKH 8QLWHG 6WDWHV DQG RYHU PDUNHWV DUH LQ RSHUDWLRQ WRGD\ $06 f ,Q WKH VWXG\ UHJLRQ RQO\ WKH ODUJHU RI WKH WZR FRXQWLHV 0RUJDQ &RXQW\ KDV D IDUPHUV PDUNHW )DUPHUV PDUNHWV RIIHU VHYHUDO DGYDQWDJHV IRU JURZHUV MXVW VWDUWLQJ LQ YHJHWDEOH SURGXFWLRQ DQG PDUNHWLQJ )DUPHUV PDUNHWV UHTXLUH PLQLPDO VWDUWXS FRVWV IRU JURZHUV UHTXLULQJ OLWWOH PRUH WKDQ D YHKLFOH WR WUDQVSRUW SURGXFH DQG D PHPEHUVKLS RU VWDOO IHH IRU DFFHVV WR WKH PDUNHW )DUPHUV FDQ VWDUW RXW E\ JURZLQJ PXFK VPDOOHU TXDQWLWLHV RI SURGXFH WKDQ ZRXOG JHQHUDOO\ EH WKH FDVH IRU ZKROHVDOH SURGXFWLRQ VXFK DV YHJHWDEOH SURFHVVRUV DQG PDUNHWLQJ FRRSHUDWLYHV 7KLV VPDOOVFDOH VWDUWXS DOORZV IDUPHUV WR UHVROYH SURGXFWLRQ DQG TXDOLW\ SUREOHPV EHIRUH LQYHVWLQJ ODUJH DPRXQWV RI FDSLWDO LQ WKH SURGXFWLRQ RI QHZ FURSV $GGLWLRQDOO\ WKH SULFH UHFHLYHG E\ IDUPHUV DW IDUPHUV PDUNHWV LV VXEVWDQWLDOO\ KLJKHU WKDQ ZKROHVDOH DV LV WUXH LQ PRVW NLQGV RI GLUHFW PDUNHWLQJ DQG WKHUH LV QR ZDLWLQJ IRU SD\PHQW DV LV RIWHQ WKH FDVH ZLWK ZKROHVDOHUV *LEVRQ f 7KH SULPDU\ GLVDGYDQWDJH WR IDUPHUV PDUNHWV IURP D SURGXFHU SHUVSHFWLYH LV WKH WLPH DQG HIIRUW UHTXLUHG WR VHOO SURGXFH )DUPHUV PXVW SUHSDUH WKH SURGXFH IRU VDOH WUDQVSRUW LW WR WKH IDUPHUV PDUNHW ORFDWLRQ DQG VWDII WKHLU VDOHV GLVSOD\ $V ZLOO EH GLVFXVVHG LQ WKH QH[W FKDSWHU WKLV WLPH UHTXLUHPHQW LV WKH PDMRU REVWDFOH WR GLUHFW PDUNHWLQJ IRU PRVW RI WKH IDUPHUV LQ WKH UHJLRQ

PAGE 134

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f§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f PDUNHW SDUWLFLSDQWV

PAGE 135

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f§ LQFOXGLQJ EHUULHV KRQH\ DQG SXPSNLQVf§WKURXJK URDGVLGH VWDQGV EXW OLNH WKH IDUPHUV PDUNHW YHQGRUV WKHVH VHOOHUV ZHUH QRW WREDFFR IDUPHUV ,QVWHDG WKH URDGVLGH YHJHWDEOH YHQGRUV ZLWK ZKRP VSRNH ZHUH DOO UHWLUHHV DQG WKH WLPH FRPPLWPHQW UHTXLUHG E\ WKLV PHWKRG RI VDOHV GLG QRW FRQIOLFW ZLWK RIIIDUP HPSOR\PHQW 7KHVH YHQGRUV GHVFULEHG WKHLU IDUPLQJ DQG PDUNHWLQJ PRUH DV D KREE\ WKDQ DV DQ LPSRUWDQW VRXUFH RI OLYHOLKRRG 2QO\ RQH IDUPHU JUHZ DQG VROG YHJHWDEOHV RQ D ODUJH VFDOH 0LWFK D SVHXGRQ\Pf UDLVHG DFUHV RI YHJHWDEOHV WKDW ZHUH VROG SULPDULO\ WKURXJK D URDGVLGH VWDQG 0LWFK ZDV D FOHDU H[DPSOH RI WKH SRWHQWLDO RI YHJHWDEOH SURGXFWLRQ LQ WKH UHJLRQ EXW ZDV IUHTXHQWO\ KHOG XS E\ RWKHU IDUPHUV DV DQ H[FHSWLRQ UDWKHU WKDQ DQ H[DPSOH ,Q D W\SLFDO FRPPHQW RQH IDUPHU QRWHG 0LWFKfV YHJHWDEOH IDUP LV SURILOHG LQ &KDSWHU

PAGE 136

:H >WREDFFR IDUPHUV@ FDQfW DOO JURZ YHJHWDEOHV OLNH 0LWFK GRHV ,I HYHU\ IDUPHU LQ 0RUJDQ &RXQW\ >ZHUH WR@ VXGGHQO\ EHFRPH DQ H[SHUW LQ YHJHWDEOH SURGXFWLRQ DQG FRXOG SURGXFH WKH PD[LPXP RI YHJHWDEOHV WKDW WKH\ FRXOG SURGXFH ZH ZRXOG JURZ IDU PRUH WKDQ ZH FRXOG HYHU VHOO LQ WKH FRXQW\ :H FRXOG IHHG DOO RI .HQWXFN\ ,Wn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f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

PAGE 137

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fSD\f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f $VVRFLDWLRQ DQG D UHJLRQDO VWDWH XQLYHUVLW\ 'XULQJ WKH UHVHDUFK SHULRG +HUH WKH WHUP IDUP LV XVHG DFFRUGLQJ WR WKH 86'$ GHILQLWLRQ DV D SODFH SURGXFLQJ RU PRUH LQ DJULFXOWXUDO SURGXFWV DQQXDOO\

PAGE 138

WKHVH WZR JURXSV KDG D JUDQW WR VXEVLGL]H WKH WUDQVSRUWDWLRQ RI JRDWV WR OLYHVWRFN PDUNHWV RQ WKH HDVWHUQ VHDERDUG RI WKH 8QLWHG 6WDWHV 3ULFHV UHFHLYHG IRU JRDWV DUH KLJKHU LQ WKHVH OLYHVWRFN PDUNHWV VLQFH WKH GHPDQG IRU JRDW PHDW LV KLJKHVW DFFRUGLQJ WR LQIRUPDQWVf QHDUHU HDVWFRDVW LPPLJUDQW SRSXODWLRQV )DUPHUV DOVR VHOO JRDWV DW ORFDO OLYHVWRFN DXFWLRQV WKURXJKRXW HDVWHUQ .HQWXFN\ (IIRUWV WR SURPRWH JRDW SURGXFWLRQ DPRQJ WREDFFR IDUPHUV KDYH PHW ZLWK OLPLWHG VXFFHVV $W DQ LQIRUPDWLRQDO PHHWLQJ RQ JRDW SURGXFWLRQ FRVSRQVRUHG E\ WKH :ROIH &RXQW\ ([WHQVLRQ RIILFH DQG WKH (DVW .HQWXFN\ *RDW 3URGXFHUVf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b Q f RI WKH VDPSOH RZQ DQ\ FDWWOH DW DOO $PRQJ FDWWOH RZQHUV WKH QXPEHU RI DGXOW FRZV RZQHG UDQJHV IURP WR ZLWK D PHDQ RI VOLJKWO\ RYHU DQG D VWDQGDUG GHYLDWLRQ RI 7KH PHGLDQ QXPEHU RI DGXOW FRZV RZQHG LV WKH PHDQ LV VNHZHG E\

PAGE 139

WKH WKUHH IDUPHUV LQWHUYLHZHG ZKR HDFK RZQ RYHU DGXOW FRZV $OO RWKHU IDUPHUV LQ WKH VDPSOH RZQ RU IHZHU DGXOW FRZV 7KH SRWHQWLDO IRU WKH LQFUHDVH LQ OLYHVWRFN LV VXJJHVWHG E\ WKH IDFW WKDW D PDMRULW\ RI IDUPHUV bf KDYH SDVWXUHODQG \HW RQO\ b RZQ DQ\ FDWWOH $GGLWLRQDOO\ b RZQ DW OHDVW VRPH fRWKHUf ODQG SDUWLFXODUO\ ZRRGHG ODQG PXFK RI ZKLFK FRXOG EH FOHDUHG DQG WXUQHG LQWR SDVWXUH 0DQ\ RI WKH ODUJHUVFDOH FDWWOH RZQHUV DUH PHPEHUV RI WKH 0RXQWDLQ &DWWOHPHQfV $VVRFLDWLRQ ZKLFK LQFOXGHV FDWWOH IDUPHUV IURP DFURVV HDVWHUQ .HQWXFN\ 7KH 0RXQWDLQ &DWWOHPHQf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fV $JULFXOWXUDO 'HYHORSPHQW 3URFHVV ,Q UHFRJQLWLRQ RI WKH EOHDN IXWXUH RI WREDFFR .HQWXFN\ KDV EHJXQ D VWDWHZLGH DJULFXOWXUDO GHYHORSPHQW SURJUDP WR SURPRWH GLYHUVLILFDWLRQ RQ WKH VWDWHfV WREDFFR IDUPV 0RUH WKDQ MXVW D SODQQLQJ SURFHVV WKH .HQWXFN\ SURJUDP LQFOXGHV VLJQLILFDQW ILQDQFLDO VXSSRUW IRU DJULFXOWXUDO GLYHUVLILFDWLRQ HIIRUWV E\ LQGLYLGXDOV DQG JURXSV 7KH LQYHVWPHQW RI DJULFXOWXUDO GHYHORSPHQW IXQGV LV RYHUVHHQ E\ D VWDWH ERDUG $OPRVW DOO bf RI IDUPHUV ZLWK DGXOW FRZV DOVR UHSRUWHG KDYLQJ FDOYHV 6LQFH WKH GDWD ZDV FROOHFWHG RYHU WKH WLPH GXULQJ ZKLFK FDOYHV DUH XVXDOO\ ERP WKH GDWD RQ QXPEHUV RI FDOYHV LV QRW FRPSDUDEOH EHWZHHQ LQWHUYLHZV FRQGXFWHG DW GLIIHUHQW WLPHV

PAGE 140

DQG D FRXQW\ FRXQFLO IRU HDFK RI WKH VWDWHf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fV WREDFFR IDUPHUV )XQGLQJ IRU WKLV DPELWLRXV DJULFXOWXUDO GHYHORSPHQW LQLWLDWLYH FRPH IURP .HQWXFN\fV VKDUH LQ WKH 0DVWHU 6HWWOHPHQW $JUHHPHQW 06$f EHWZHHQ WKH PDMRU GRPHVWLF WREDFFR FRPSDQLHV DQG WKH DWWRUQH\V JHQHUDO RI VWDWHV 7KH 06$ GLUHFWV WKH WREDFFR FRPSDQLHV WR SD\ ELOOLRQ RYHU WKH QH[W \HDUV WR FRPSHQVDWH WKH VWDWHV IRU SDVW VPRNLQJ UHODWHG H[SHQGLWXUHV .HQWXFN\ ZLOO UHFHLYH ELOOLRQ RYHU WKH OLIH RI WKH $JUHHPHQW 7KH 06$ DOVR LQFOXGHG GLUHFW SD\PHQWV WR IDUPHUV WKH 3KDVH IXQGV GLVFXVVHG LQ &KDSWHU ,Q SDVVLQJ WKH DJULFXOWXUDO GHYHORSPHQW OHJLVODWLRQ WKH *HQHUDO $VVHPEO\ UHVHUYHG KDOI RI WKH VWDWHfV VKDUH RI WKH 06$ WR DJULFXOWXUDO GLYHUVLILFDWLRQ ZLWK WKH UHPDLQGHU JRLQJ WR HDUO\ FKLOGKRRG GHYHORSPHQW SURJUDPV DQG KHDOWK FDUH SURJUDPV 7KH PRQLHV LQ WKH 5XUDO 'HYHORSPHQW )XQG DUH DGPLQLVWHUHG E\ WKH QHZO\FUHDWHG 6WDWH $JULFXOWXUDO 'HYHORSPHQW %RDUG D ILIWHHQ PHPEHU ERDUG FRQVLVWLQJ RI VWDWH JRYHUQPHQW RIILFLDOV DQG HOHYHQ DSSRLQWHHV RI WKH JRYHUQRU LQFOXGLQJ IDUPHUV DJULEXVLQHVV H[SHUWV DQG UHSUHVHQWDWLYHV RI )DUP %XUHDX DQG WKH VWDWH &KDPEHU RI &RPPHUFH 7KH VWDWH ERDUG

PAGE 141

KDV GLUHFW FRQWURO RYHU b RI WKH DJULFXOWXUDO IXQGV ZLWK b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fV FRRSHUDWLYH H[WHQVLRQ DJHQW IRU DJULFXOWXUH ZDV GLUHFWHG WR SURYLGH DGPLQLVWUDWLYH VXSSRUW IRU WKH FRXQW\ FRXQFLO $W WKH VHYHUDO PHHWLQJV DWWHQGHG ZKHQ FRXQW\ FRPPLWWHHV ZHUH VHOHFWLQJ WKHLU QRPLQHHV IRU WKH FRXQW\

PAGE 142

DJULFXOWXUDO GHYHORSPHQW FRXQFLO LW ZDV HDV\ IRU WKH FRPPLWWHHV WR UHDFK D FRQVHQVXV FKRLFH WKHUH ZDV QR FRQWURYHUV\ DW DOO ZLWKLQ WKHVH FRPPLWWHHV RQ WKH FDQGLGDWHV VHOHFWHG :LWKLQ WKH VWXG\ FRXQWLHV WKH VHOHFWLRQ SURFHVV FUHDWHG D FRXQFLO PHPEHUVKLS ODUJHO\ FRQVLVWLQJ RI SURPLQHQW PHPEHUV RI WKH ORFDO DJULFXOWXUDO FRPPXQLW\ 2QO\ D UHODWLYHO\ VPDOO SHUFHQWDJH RI IDUPHUV HYHU VHUYH RQ WKH FRXQW\ OHYHO ERDUGV WKDW RYHUVHH JRYHUQPHQW DJULFXOWXUDO SURJUDPV DQG LW LV QRW XQXVXDO IRU WKHVH IHZ SHRSOH WR VHUYH RQ PXOWLSOH ERDUGV HLWKHU VLPXOWDQHRXVO\ RU VHTXHQWLDOO\ &RXQFLO PHPEHUV LQ WKH WZR FRXQWLHV LQFOXGHG EDQNHUV IDUP LPSOHPHQW GHDOHUV WHDFKHUV EOXH FROODU ZRUNHUV DQG UHWLUHHV ,Q NHHSLQJ ZLWK WKH SUHGRPLQDQFH RI SDUW WLPH IDUPLQJ LQ WKH UHJLRQ RQO\ WZR RI WKH VL[WHHQ FRXQFLO PHPEHUV LQ WKH WZR VWXG\ FRXQWLHV DUH IXOO WLPH IDUPHUV &RXQFLO PHPEHUV DUH QRW FRPSHQVDWHG IRU WKHLU WLPH DQG ZRUN DQG PDQ\ PHPEHUV UHSHDWHG WKHLU EHOLHI WKDW WKHLU ZRUN ZLOO HDUQ WKHP PRUH HQPLW\ WKDQ WKDQNV LQ WKH FRPPXQLW\ ,QGHHG FRQYHUVDWLRQV ZLWK IDUPHUV LQ ERWK FRXQWLHV UHYHDOHG D VWURQJ FXUUHQW RI PLVWUXVW IRU ORFDO DJULFXOWXUDO OHDGHUV DV ZLOO EH GLVFXVVHG EHORZ 7KH PHPEHUV RI WKH WZR FRXQW\ FRXQFLOV GLIIHU VLJQLILFDQWO\ IURP IDUPHUV LQ JHQHUDO LQ WKH UHJLRQ $V GLVFXVVHG DERYH WKH VHOHFWLRQ SURFHVV IDYRUV PRUH HVWDEOLVKHG DQG JHQHUDOO\ ODUJHUVFDOH IDUPHUV 2QH JRRG SUR[\ IRU IDUP VL]H LQ D UHJLRQ VR KHDYLO\ GHSHQGHQW RQ WREDFFR LV TXRWD RZQHUVKLS ZKLFK LV D PDWWHU RI SXEOLF UHFRUG :KLOH IDUPHUV FDQ DQG GR UHQW DQG OHDVH TXRWD TXRWD KROGHUV RZQ WKLV FULWLFDO PHDQV RI SURGXFWLRQ 7KH GLIIHUHQFH LQ DYHUDJH TXRWD RZQHUVKLS EHWZHHQ FRXQW\ FRXQFLO PHPEHUV RI WKH WZR VWXG\ FRXQWLHV DQG ZLWK TXRWD KROGHUV LQ JHQHUDO VXJJHVWV RQH UHDVRQ ZK\ WKH WZR FRXQW\ FRXQFLOV KDYH RSHUDWHG VRPHZKDW GLIIHUHQWO\

PAGE 143

,Q :ROIH &RXQW\ WKH HLJKW PHPEHUV RI WKH FRXQW\ FRXQFLO RZQ D PHDQ RI SRXQGV RI TXRWD IRU WKH FURS \HDU ZLWK LQGLYLGXDO RZQHUVKLS UDQJLQJ IURP QRQH PHPEHUVf WR SRXQGV 7KLV FRPSDUHV ZLWK D FRXQW\ZLGH PHDQ RI SRXQGV RI TXRWD DQG D PHGLDQ RI ,Q FRQWUDVW WKH PHDQ TXRWD RZQHUVKLS RI WKH 0RUJDQ &RXQW\ FRXQFLO PHPEHUV LV SRXQGV ZLWK LQGLYLGXDO RZQHUVKLS UDQJLQJ IURP QRQH PHPEHUf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

PAGE 144

GLVWUXVW RI WKH VWDWH ERDUG WKURXJKRXW WKLV SURFHVV VXJJHVWLQJ WKDW WKH SROLWLFDO DJHQGDV RI WKH JRYHUQRU DQG RWKHU VWDWH RIILFLDOV RQ WKH ERDUG ZRXOG PDNH WKH GHFLVLRQV PDGH DW WKH FRXQW\ OHYHO ODUJHO\ LUUHOHYDQW 7KH FRXQW\ FRPSUHKHQVLYH SODQ ZDV LQWHQGHG WR FUHDWH D EOXHSULQW IRU WKH DJULFXOWXUDO GHYHORSPHQW SURFHVV LQ WKH LQGLYLGXDO FRXQW\ *XLGHOLQHV IURP WKH VWDWH ERDUG HYHQWXDOO\ GLUHFWHG WKH FRXQFLOV WR LQFOXGH LQ WKH FRPSUHKHQVLYH SODQ DQ DVVHVVPHQW RI WKH FRXQW\fV DJULFXOWXUDO VWUHQJWKV DQG ZHDNQHVVHV VKRUW DQG ORQJ WHUP SULRULWLHV IRU VSHQGLQJ WKH FRXQW\f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fV SROLFLHV )RU H[DPSOH WKH JRYHUQRU KDV UHFHQWO\ SXVKHG WKH VWDWH ERDUG WR H[SORUH ELRWHFKQRORJ\ DV DQ HPHUJLQJ LQGXVWU\ DOWKRXJK NQRZ RI QR ORFDOOHYHO SXVK IRU ELRWHFKQRORJ\ GHYHORSPHQW DV D PHDQV RI IDUP GLYHUVLILFDWLRQ

PAGE 145

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b RI WKH IDUPHUV DW WKH PHHWLQJ ZDV SURPRWLRQ RI WKH EHHI FDWWOH LQGXVWU\ LQ WKH FRXQW\ 7KH FRXQW\ FRXQFLO FKDLU ZKR LV DOVR WKH KHDG RI WKH ORFDO FDWWOHPHQfV DVVRFLDWLRQ WKHQ DQQRXQFHG DQ RQJRLQJ HIIRUW WR GHYHORS D OLYHVWRFN PDUNHWLQJ IDFLOLW\ LQ WKH FRXQW\ DQG QRWHG WKDW WKLV ZDV D JRRG ILW IRU WKH SULRULWLHV VHOHFWHG 7KH OLYHVWRFN PDUNHWLQJ IDFLOLW\ SURSRVDO KDG EHHQ GHYHORSHG RYHU WKH ODVW \HDU E\ WKH FRXQFLO FKDLU VHYHUDO RWKHU PHPEHUV RI WKH FRXQFLO WKH FRXQW\ DJULFXOWXUDO

PAGE 146

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fV WKLQNLQJ RQ WKH VXEMHFW ,Q D FRQWHQWLRXV PHHWLQJ D QXPEHU RI IDUPHUV REMHFWHG WR ZKDW WKH\ VDZ DV DQ RYHUO\ ODUJH HPSKDVLV RQ FDWWOH VLQFH PDQ\ RI WKH WREDFFR IDUPHUV WKH DJULFXOWXUDO GHYHORSPHQW SURJUDP ZDV LQWHQGHG WR KHOS DUH ODQGOHVV VKDUHFURSSHUV RU YHU\ VPDOOVFDOH ODQGRZQHUV IRU ZKRP FDWWOH DUH QRW D YLDEOH RSWLRQ :KLOH REMHFWLQJ WR DQ RYHUFRPPLWPHQW RI FRXQW\ IXQGV WR D VLQJOH SULRULW\ WKHVH IDUPHUV DFNQRZOHGJHG WKH LPSRUWDQFH RI EHHI FDWWOH LQ 0RUJDQ &RXQW\fV DJULFXOWXUDO HFRQRP\ 'HVSLWH WKHVH FRQFHUQV LQFOXGLQJ D FDOO IRU UHYRWLQJ WKH SULRULWLHV WKH FRXQFLO FKDLU UHVLVWHG HIIRUWV WR UHYLVLW WKH SULRULWL]DWLRQ LVVXH &RXQFLO PHPEHUV VWUHVVHG WKDW DOWKRXJK WKH WRS SULRULW\ ZRXOG UHPDLQ OLYHVWRFN WKH\ ZHUH RSHQ WR RWKHU SULRULWLHV DQG SURSRVDOV DV ZHOO 2QH ERDUG PHPEHU LQYROYHG LQ WKH OLYHVWRFN $FFRUGLQJ WR VWDWLVWLFV IURP WKH &HQVXV RI $JULFXOWXUH b RI 0RUJDQ &RXQW\fV IDUPV UDLVH FDWWOH DQG VDOHV RI FDWWOH DQG FDOYHV DFFRXQWHG IRU b RI JURVV DJULFXOWXUDO VDOHV 86'$ f $V GLVFXVVHG HDUOLHU WKH SURSRUWLRQ RI DFWLYH WREDFFR IDUPV DOVR UDLVLQJ FDWWOH ZDV VRPHZKDW ORZHU LQ WKH VDPSOH bf 7KLV LV OLNHO\ GXH WR IDUPHUV SDUWLFXODUO\ UHWLUHHV ZKR OHDVH RU UHQW RXW WKHLU WREDFFR TXRWD EXW FRQWLQXH WR UDLVH FDWWOH ZKLFK DUH OHVV GHPDQGLQJ LQ WHUPV RI ODERU $Q H[DPSOH RI WKLV W\SH RI IDUPHU LV SURILOHG LQ &KDSWHU

PAGE 147

IDFLOLW\ HIIRUW ZDV TXRWHG LQ WKH ORFDO SDSHU UHJDUGLQJ WKH QHHG WR GHYHORS SURSRVDOV DLPHG DW ODQGOHVV RU QHDU ODQGOHVV IDUPHUV f,W ZLOO EH KDUGHU WR FRPH XS ZLWK ZD\V WR XVH WKLV PRQH\ WR KHOS WKHVH IDUPHUVf $OGHQ &ROOLQV D PHPEHU RI WKH FRXQFLO DFNQRZOHGJHG %XW ERWK KH DQG /DQH >WKH FRXQFLO FKDLU@ DQG RWKHUV RQ WKH FRXQFLO HPSKDVL]HG WKDW WKH 3KDVH PRQH\ ZLOO EH DYDLODEOH IRU YDULRXV DJULFXOWXUDO SURJUDPV WR KHOS GLYHUVLI\ WKH FRXQW\fV IDUP HFRQRP\ f7KH HQWLUH DPRXQW ZLOO QRW EH VSHQW RQ RQH SURMHFWf WKH\ VDLG /LFNLQJ 9DOOH\ &RXULHU Df 'HVSLWH WKHVH DVVXUDQFHV PDQ\ RI WKRVH FRQFHUQHG DERXW DQ RYHUHPSKDVLV RQ OLYHVWRFN FRQWLQXHG WR H[SUHVV FRQFHUQ WKDW WKH FRXQFLO KDG VHW LQWR SODFH D SURFHVV WKDW ZRXOG QRW PHHW WKHLU QHHGV DV IDUPHUV XQDEOH WR GLYHUVLI\ LQWR OLYHVWRFN 'HYHORSPHQW RI FRXQW\ FRPSUHKHQVLYH SODQV $IWHU WKH SXEOLF PHHWLQJV WKH FRXQW\ FRXQFLOV PHW WR EHJLQ GUDIWLQJ WKH FRXQW\ SODQV EDVHG DW OHDVW LQ SDUW RQ FRPPXQLW\ LQSXW ,Q ERWK FRXQW\ FRXQFLOV PRQLWRUHG WKH WDVN RI ZULWLQJ WKH FRXQW\ SODQ IHOO WR WKH FRXQW\ DJULFXOWXUDO H[WHQVLRQ DJHQW YROXQWHHUHG WR DVVLVW ERWK WKH FRXQW\ DJHQWV LQ GUDIWLQJ WKH SODQV EDVHG RQ LGHDV GLVFXVVHG LQ WKH SXEOLF IRUXPV DQG EXVLQHVV PHHWLQJV RI WKH FRXQFLOV 7KH GUDIW FRPSUHKHQVLYH SODQV ZHUH WKHQ GLVFXVVHG DQG PRGLILHG E\ WKH FRXQW\ FRXQFLOV ,Q DOO RI WKLV SURFHVV WKH FRXQW\ FRXQFLOV UHFHLYHG RQO\ OLPLWHG JXLGDQFH IURP WKH VWDWH ERDUG LQ WKH IRUP RI VXJJHVWHG IRUPDW DQG WRSLFV WR LQFOXGH LQ WKH FRXQW\ SODQV 7KH FRPSOHWHG SODQV ZHUH WKHQ VXEPLWWHG WR WKH VWDWH ERDUG IRU UHYLHZ %RWK SODQV HPSKDVL]HG GHYHORSPHQW RI WKH OLYHVWRFN DQG IRUDJH VHFWRUV DUHDV LQ ZKLFK QXPHURXV IDUPHUV DOUHDG\ KDYH H[SHULHQFH DQG GHYHORSPHQW RI SURJUDPV WR HQKDQFH WKH DELOLW\ RI DUHD IDUPHUV WR PDUNHW WKHLU SURGXFW %RWK FRXQW\ FRXQFLOV DOVR KRZHYHU DWWHPSWHG WR ZULWH WKH SODQ DV JHQHUDOO\ DV SRVVLEOH VR DV QRW WR SUHFOXGH DQ\ SURSRVDOV IRU IXQGLQJ LQ XQDQWLFLSDWHG DUHDV 7KXV WKH :ROIH &RXQW\ SODQ HPSKDVL]HG TXLFN UHWXUQ SURGXFWLRQ

PAGE 148

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f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

PAGE 149

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f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

PAGE 150

7KH VWDWH ERDUG KDV PDGH LW FOHDU WKDW PRVW IXQGLQJ ZLOO JR WR SURSRVDOV VXEPLWWHG E\ ORFDO RU UHJLRQDO RUJDQL]DWLRQV DQG JURXSV UDWKHU WKDQ LQGLYLGXDO IDUPHUV ,Q 0RUJDQ &RXQW\ WKH &DWWOHPHQfV $VVRFLDWLRQ GLG VXEPLW LWV DSSOLFDWLRQ IRU D OLYHVWRFN PDUNHWLQJ IDFLOLW\ 7KH SURSRVDO ZRXOG FRVW RI WKH FRXQW\fV EXGJHW IRU WKH ILUVW WZR \HDUV RI WKH DJULFXOWXUDO GHYHORSPHQW SURJUDP &RPPLWWLQJ VXFK D ODUJH SHUFHQWDJH bf RI WKH FRXQW\f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f*RRG ULGGDQFH 1RZ PD\EH ZH FDQ JHW VRPH ZRUN GRQH LQVWHDG RI MXVW DUJXLQJ DERXW WKLQJVf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

PAGE 151

IXQGV WR SURPRWH DJULFXOWXUH LQ WKH FRXQW\ PDQ\ IDUPHUV H[SUHVVHG GLVEHOLHI WKDW DQ\ RI WKH IXQGV ZRXOG PDNH WKHLU ZD\ WR WKH fFRPPRQf IDUPHU ,QVWHDG WKH\ VDZ ODUJHU PRUH DIIOXHQW IDUPHUV DV OLNHO\ WR UHDS DOO WKH EHQHILWV RI WKH DJULFXOWXUDO GHYHORSPHQW SURJUDP MXVW DV WKH\ GLG IRU RWKHU SURJUDPV &RPPRQO\ WKLV GLYLVLRQ EHWZHHQ WKH ZHDN DQG WKH SRZHUIXO LQ WKH DUHD ZDV H[SUHVVHG LQ WHUPV RI WKH OLWWOH PDQ YHUVXV WKH ELJ PDQ $V RQH IDUPHU SXW LW ,W GRQfW PXFK PDWWHU ZKDW WKH\ VSHQG LW RQ ,WfOO DOO JR WR WKH ELJ PDQ DQ\ZD\ 7KH OLWWOH PDQ OLNH PH QHYHU JHWV QRWKLQJ IURP WKHVH SURJUDPV ,WfV WKH ULFK JX\V ZKR NQRZ WKH SHRSOH KDQGLQJ RXW WKH PRQH\ WKDW JHW DOO RI LW 7KH OLWWOH PDQ ZRQfW QHYHU JHW QRQH RI LW $QRWKHU IDUPHU VRXQGHG D VLPLODU QRWH RI UHVLJQDWLRQ ZKHQ KH QRWHG ,W DOO GHSHQGV RQ KRZ WKH\ GLVK LW RXW ,I WKH\ GLVK LW RXW LQ JUDQW IRUP D ORW RI LW ZLOO EH ZDVWHG 7KHUHfOO EH D ORW RI SHRSOH fLQ WKH NQRZf JHW DKROG RI WKH PRQH\ DQG GR ZKDW WKH\ ZDQW $QG WKHUHf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

PAGE 152

&RQFOXVLRQV 7KH SUHFDULRXV QDWXUH RI WKH WREDFFR LQGXVWU\ KDV PRWLYDWHG D JUHDW GHDO RI SXEOLF GLVFRXUVH DERXW IDUP GLYHUVLILFDWLRQ
PAGE 153

&+$37(5 ,1',9,'8$/ 5(63216(6 7KH VHYHUH FXWV LQ WREDFFR TXRWD EHWZHHQ DQG OHIW HDVWHUQ .HQWXFN\ IDUPHUV IDFLQJ GLIILFXOW FKRLFHV 7KHVH FKRLFHV FDQ EH GLYLGHG LQWR WZR PDMRU DUHDVf§ ZKDW WR GR ZLWK WKH WREDFFR SURGXFWLRQ SDUW RI WKHLU IDUPV DQG ZKDW RWKHU IDUP SURGXFWV LI DQ\ ZLOO EH JURZQ WR FRPSHQVDWH IRU WKH ORVV RI WREDFFR UHYHQXH $FFRUGLQJO\ WKLV FKDSWHU DGGUHVVHV WZR GHSHQGHQW YDULDEOHV f WKH OHYHO RI WREDFFR SURGXFWLRQ LQ FRPSDUHG WR WKH OHYHO DQG f WKH GHFLVLRQ WR SURGXFH DOWHUQDWLYH IDUP SURGXFWV 7KH QDWXUH RI IDUP GHFLVLRQV DQG WKH WLPLQJ RI WKH UHVHDUFK KDYH DIIHFWHG WKH DELOLW\ RI WKLV UHVHDUFK WR ILQG H[SODQDWLRQV IRU WKHVH WZR GHSHQGHQW YDULDEOHV $V GLVFXVVHG HDUOLHU WKLV UHVHDUFK ZDV FRQGXFWHG LQ WKH FURS \HDU IROORZLQJ WKH PRVW GUDVWLF FXW LQ WREDFFR TXRWDV LQ KLVWRU\ $OWKRXJK WKH WZR SUHYLRXV \HDUV KDG DOVR VHHQ TXRWD FXWV EXUOH\ WREDFFR IDUPHUV KDYH EHFRPH DFFXVWRPHG WR WKH IOXFWXDWLRQV LQ WREDFFR TXRWDV VHH )LJXUH f DQG HVSHFLDOO\ IRU WKH PDMRULW\ RI IDUPHUV IRU ZKRP WREDFFR FRQVWLWXWHV D UHODWLYHO\ VPDOO SRUWLRQ RI WRWDO LQFRPH WKH LQFOLQDWLRQ LV WR fULGH RXWf FXWV LQ TXRWD 7KLV LV D UDWLRQDO SROLF\ LI DV KDV EHHQ WKH FDVH KLVWRULFDOO\ TXRWDV ZLOO UHWXUQ WR KLJKHU OHYHOV LQ VXEVHTXHQW \HDUV 7KH b FXW LQ WREDFFR TXRWDV IRU WKH FURS \HDU KRZHYHU ZDV VLJQLILFDQW HQRXJK WR IRUFH VRPH IDUPHUV WR PDNH GHFLVLRQV DERXW FRPSHQVDWLQJ IRU WKH ORVV RI TXRWD 7KH GHFLVLRQ DERXW ZKHWKHU RU QRW WR DFFHVV DGGLWLRQDO TXRWD E\ UHQWLQJ RU OHDVLQJ LQ DQ DWWHPSW WR PDLQWDLQ WREDFFR LQFRPH OHYHOV ZDV D GHFLVLRQ WKDW FRXOG EH PDGH LQ WKH VKRUWWHUP HIIHFWLYH IRU WKH FURS \HDU ,Q

PAGE 154

WKLV FKDSWHU ZLOO WUHDW WKLV GHFLVLRQ DV D GHSHQGHQW YDULDEOH DQG ZLOO VHDUFK IRU WKH IDFWRUV WKDW PD\ SRVVLEO\ FRQWULEXWH WR D IDUPHUf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b ZLWK WKH FXW IRU WKH FURS \HDU DORQH WRWDOLQJ MXVW RYHU b 7KH ILUVW DQG PRVW LPPHGLDWH GHFLVLRQ IDUPHUV IDFHG LQ WKH ZDNH RI WKHVH FXWV FRQFHUQHG WKHLU OHYHO RI WREDFFR SURGXFWLRQ 7KH GUDVWLF TXRWD FXWV OHIW IDUPHUV ZLWK VHYHUDO RSWLRQV )LUVW WKH\ FRXOG TXLW WREDFFR SURGXFWLRQ OHDVLQJ RU UHQWLQJ RXW WKHLU

PAGE 155

UHPDLQLQJ TXRWD 6HFRQG IDUPHUV FRXOG DEVRUE WKH FXWV LQ TXRWD DFFHSWLQJ D ORVV RI RYHU KDOI RI WKHLU PDLQ FDVK FURS LQFRPH RYHU WKUHH \HDUV )LQDOO\ WKH\ FRXOG VHHN DGGLWLRQDO TXRWD WKURXJK SXUFKDVH UHQWDO RU OHDVLQJ WR DWWHPSW WR FRPSHQVDWH IRU WKH TXRWD FXWV 7KLV UHVHDUFK IRFXVHV RQ WKH ODWWHU WZR RSWLRQV %HIRUH GLVFXVVLQJ WKHVH RSWLRQV LQ GHWDLO LW ZLOO EH KHOSIXO WR H[DPLQH WKH WREDFFR SURGXFWLRQ LQ SODFH LQ WKH VWXG\ UHJLRQ 7REDFFR 3URGXFWLRQ LQ :LWK WKH DPRXQW RI WREDFFR SURGXFWLRQ VWULFWO\ UHJXODWHG E\ WKH TXRWD V\VWHP WKH W\SH RI DFFHVV WR TXRWD LV RQH RI WKH PRVW LPSRUWDQW IDFWRUV VKDSLQJ SURGXFWLRQ GHFLVLRQV )DUPHUV FDQ f RZQ TXRWD DQG WKH ODQG RQ ZKLFK WR SURGXFH WREDFFR f OHDVH TXRWD IRU WREDFFR SURGXFWLRQ RQ WKHLU RZQ ODQG DQG f UHQW WREDFFR JURZLQJ WKH FURS RQ WKH TXRWD RZQHUfV ODQG IRU D VKDUH RI WKH SURFHHGV )RU WKH FURS \HDU b Q f RI WKH VDPSOH RZQHG DW OHDVW VRPH RI WKH TXRWD WKH\ IDUPHG b Q f OHDVHG TXRWD DQG b Q f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fIUHHG XSf QHDUO\ KDOI WKH ODQG LQ WREDFFR SURGXFWLRQ WKH SUHYLRXV \HDU PRVW ODQGRZQHUV FDQ VXSSOHPHQW WKHLU TXRWD WKURXJK OHDVHV UDWKHU WKDQ E\ UHQWLQJ $V RXWOLQHG LQ $SSHQGL[ % OHDVLQJ ZKLFK %HFDXVH WKLV UHVHDUFK VDPSOHG RQO\ DFWLYH IDUPHUV LQ LW GLG QRW FDSWXUH WKRVH IDUPHUV ZKR FKRVH WR DEDQGRQ WREDFFR SURGXFWLRQ SULRU WR WKDW JURZLQJ VHDVRQ

PAGE 156

FRVWV IDUPHUV D VHW DPRXQW SHU SRXQG RI TXRWD RIIHUV IDUPHUV ZLWK DYDLODEOH FURS ODQG D JUHDWHU UHWXUQ WKDQ UHQWLQJ LQ ZKLFK SURFHHGV DUH VSOLW EHWZHHQ WKH JURZLQJ WHQDQW DQG WKH ODQGORUG ZKR RZQV WKH TXRWD DQG ODQG XVHG IRU SURGXFWLRQ 5HVSRQVHV WR TXRWD FXWV )DUPHUV LQ WKH VWXG\ UHJLRQ UHVSRQGHG WR WKH FXWV LQ WREDFFR TXRWD IRU WKH FURS \HDU LQ VHYHUDO ZD\V 2QH JURXS DEVRUEHG WKH b FXW DVVHVVHG DJDLQVW HYHU\ EXUOH\ WREDFFR TXRWD LQ WKH FRXQWU\ UDLVLQJ b RI WKH WREDFFR UDLVHG LQ 2WKHUV VRXJKW WR PLQLPL]H WKH FXWEDFNV E\ DFFHVVLQJ LQFUHDVHG TXRWD WKURXJK OHDVLQJ RU UHQWLQJ TXRWD IURP QRQSURGXFLQJ TXRWD RZQHUV LQ WKH FRXQW\ 7KLV VWUDWHJ\ LV QRW ZLWKRXW FRVW SDUWLFXODUO\ IRU IDUPHUV UHQWLQJ TXRWD $V RXWOLQHG LQ $SSHQGL[ % WKH SURILW IURP WREDFFR LV PDUNHGO\ ORZHU IRU OHDVHUV DQG UHQWHUV WKDQ IRU TXRWD RZQHUV 6LQFH UHQWHG TXRWD PXVW EH JURZQ RQ WKH TXRWD RZQHUfV ODQG WHQDQW IDUPHUV ZKR WHQG WREDFFR RQ PXOWLSOH IDUPV PD\ VSHQG VLJQLILFDQW WLPH DQG IXHO WUDQVSRUWLQJ WKHPVHOYHV WKHLU PDFKLQHU\ DQG WKHLU ZRUNHUV WR PXOWLSOH IDUPV WR FDUU\ RXW QHFHVVDU\ WREDFFR SURGXFWLRQ WDVNV 7DEOH 4XRWD DFFHVV E\ IDUPHUV 0RGH RI $FFHVV 1 b 2ZQ TXRWD RQO\ /HDVH TXRWD RQO\ 5HQW TXRWD RQO\ 2ZQ DQG OHDVH TXRWD 2ZQ DQG UHQW TXRWD /HDVH DQG UHQW TXRWD 2ZQ OHDVH DQG UHQW TXRWD 727$/

PAGE 157

7KH GHSHQGHQW YDULDEOH FRQVLGHUHG KHUH LV QRW WKH DPRXQW RI WREDFFR JURZQ EXW WKH SHUFHQWDJH RI SURGXFWLRQ UHSUHVHQWHG E\ WKH SURGXFWLRQ OHYHO 7KXV D ILJXUH RI PHDQV WKDW WKH IDUPHU JUHZ b DV PXFK WREDFFR LQ DV LQ )DUPHUV ZKR FRPSOHWHO\ DEVRUEHG WKH b TXRWD UHGXFWLRQ IRU WKH FURS \HDU ZRXOG PHDVXUH RQ WKLV YDULDEOH 7KH GLVWULEXWLRQ RI IDUPHU UHVSRQVHV GLVSOD\HG LQ 7DEOH IDOO LQWR WKUHH GLVWLQFW FDWHJRULHV f $EVRUSWLRQ RI FXWVf§IDUPHUV ZKR DEVRUEHG WKH TXRWD FXWV E\ JURZLQJ RQO\ b DV PXFK WREDFFR RU OHVV WKDQ WKH\ JUHZ WKH SUHYLRXV \HDU f 3DUWLDO FRPSHQVDWLRQ IRU FXWVf§IDUPHUV ZKR SDUWLDOO\ EXW QRW FRPSOHWHO\ FRPSHQVDWHG IRU WKH FXWV JURZLQJ b OHVV WREDFFR LQ WKDQ LQ f )XOO FRPSHQVDWLRQ IRU FXWVf§IDUPHUV ZKR JUHZ DV PXFK RU PRUH WREDFFR LQ DV LQ E\ DGGLWLRQDO OHDVLQJ RU UHQWLQJ RI TXRWD 7DEOH )DUPHU UHVSRQVH WR F XRWD FXWV 5HVSRQVH 1XPEHU 3HUFHQWDJH &XPXODWLYH SHUFHQWDJH $EVRUSWLRQ RI FXWV b b 3DUWLDO FRPSHQVDWLRQ IRU FXWV b b )XOO FRPSHQVDWLRQ IRU FXWV b b :KLOH WKH WULFKRWRP\ SUHVHQWHG LQ 7DEOH FDWHJRUL]HV WKH DFWLRQV RI IDUPHUV LQ RUGHU WR PDNH WKH GHSHQGHQW YDULDEOH PRUH XQGHUVWDQGDEOH WKH GHSHQGHQW YDULDEOH LV QRW D FDWHJRULFDO RU RUGLQDO PHDVXUHPHQW ,QVWHDG WKH GHSHQGHQW YDULDEOH LV PHDVXUHG DW WKH 7KH YDOXH IRU WKLV YDULDEOH ZDV REWDLQHG E\ GLYLGLQJ WKH WRWDO WREDFFR SURGXFWLRQ IRU RZQHG UHQWHG DQG OHDVHG TXRWDf E\ WKH WRWDO WREDFFR SURGXFWLRQ IRU

PAGE 158

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f DUH HGXFDWLRQ DJH DPRXQW RI FURSODQG WRWDO KRXVHKROG LQFRPH OHYHO RI UHOLDQFH RQ IDUP LQFRPH DV D SHUFHQWDJH RI WRWDO KRXVHKROG LQFRPH OHYHO RI RIIIDUP HPSOR\PHQW DQG OHYHO RI KRXVHKROG ODERU UHVRXUFHV (GXFDWLRQ (GXFDWLRQ KDV EHHQ IRXQG WR DIIHFW IDUPLQJ GHFLVLRQV LQ D QXPEHU RI VWXGLHV SDUWLFXODUO\ LQ WKH DGRSWLRQ RI QHZ WHFKQRORJLHV RU SUDFWLFHV &KLEQLN 1RZDN f 'DWD FROOHFWHG LQ WKLV UHVHDUFK VXJJHVW HGXFDWLRQ LQIOXHQFHV RYHUDOO ,QGLYLGXDO IDUPHUV FRPSHQVDWHG IRU WKH b FXW LQ TXRWD E\ OHDVLQJ DQG UHQWLQJ DGGLWLRQDO TXRWD

PAGE 159

KRXVHKROG LQFRPH DQG WKH SHUFHQWDJH RI WRWDO LQFRPH SURGXFHG E\ DJULFXOWXUH EXW QRW WREDFFR SURGXFWLRQ GHFLVLRQV 7KH UHODWLRQVKLS EHWZHHQ OHYHO RI HGXFDWLRQ DQG WKH SHUFHQWDJH FKDQJH LQ WREDFFR UDLVHG EHWZHHQ DQG ZDV YHU\ ZHDN 3HDUVRQ FRUUHODWLRQ f DQG ZDV QRW VWDWLVWLFDOO\ VLJQLILFDQW S f 7KLV ODFN RI DVVRFLDWLRQ LV QRW VXUSULVLQJ VLQFH WRWDO KRXVHKROG LQFRPH RI PRUH HGXFDWHG SHRSOH LV OHVV GHSHQGHQW RQ WREDFFR DQG RWKHU IDUP UHFHLSWV WKH ORVV RI WREDFFR LQFRPH UHSUHVHQWV D VPDOOHU SHUFHQWDJH ORVV RI LQFRPH WKDQ IRU IDUPHUV ZKR UHO\ PRUH RQ IDUP LQFRPH VRXUFHV $JH $QRWKHU IDFWRU WKDW FRXOG DIIHFW WKH UHVSRQVHV WR WKH TXRWD FXWV LV DJH
PAGE 160

K\SRWKHVL]HG WR EH PRUH OLNHO\ WR JURZ D KLJKHU SHUFHQWDJH RI WKHLU WREDFFR SURGXFWLRQ OHYHOV LQ ,Q RWKHU ZRUGV DV WKH LQGHSHQGHQW YDULDEOH RI WHQGDEOH ODQG RZQHUVKLS DV PHDVXUHG LQ DFUHVf LQFUHDVHV WKH GHSHQGHQW YDULDEOH SHUFHQWDJH RI WREDFFR SURGXFWLRQ JURZQ LQ f VKRXOG LQFUHDVH &RUUHODWLRQ DQDO\VLV OHDGV WR D UHMHFWLRQ RI WKLV K\SRWKHVLV ILQGLQJ D ZHDN DQG LQVLJQLILFDQW QHJDWLYH FRUUHODWLRQ +RZHYHU ZKHQ WKH LQGHSHQGHQW YDULDEOH RI FURSODQG RZQHUVKLS LV PHDVXUHG DV D SHUFHQWDJH RI DOO FURSODQG IDUPHG UDWLR RI RZQHG WR UHQWHG FURSODQGf WKH QHJDWLYH FRUUHODWLRQ LV VWURQJHU U f DQG PRUH VLJQLILFDQW S f 7KLV VXJJHVWV DOWKRXJK QRW FRQFOXVLYHO\ WKDW IDUPHUV ZKR RZQ D JUHDWHU SRUWLRQ RI WKHLU ODQG GHFUHDVHG WKHLU WREDFFR SURGXFWLRQ PRUH LQ WHUPV RI SHUFHQWDJHf IURP WR WKDQ IDUPHUV RZQLQJ D VPDOOHU SHUFHQWDJH RI WKHLU ODQG ,Q RWKHU ZRUGV IDUPHUV OHVV UHOLDQW RQ UHQWLQJ DQG WKXV RZQLQJ D JUHDWHU SHUFHQWDJH RI WKHLU FURSODQGf GHFUHDVHG WKHLU WREDFFR SURGXFWLRQ PRUH WKDQ IDUPHUV PRUH UHOLDQW RQ UHQWLQJ 7RWDO KRXVHKROG LQFRPH 7KH GHFLVLRQ WR DEVRUE WKH TXRWD FXWV JURZLQJ b OHVV WREDFFR LQ WKDQ LQ DOVR HQWDLOV D GHFLVLRQ WR DEVRUE D b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

PAGE 161

H[WUHPHO\ ZHDN 6SHDUPDQfV UKR f DQG QRW DW DOO VLJQILFDQW S f VR WKLV K\SRWKHVLV PXVW EH UHMHFWHG 5HOLDQFH RQ IDUP LQFRPH 7KH QH[W IDFWRU K\SRWKHVL]HG WR DIIHFW WKH UHVSRQVH WR TXRWD FXWV LV WKH OHYHO RI UHOLDQFH RQ IDUP LQFRPH DV D SHUFHQWDJH RI WRWDO KRXVHKROG LQFRPH +RXVHKROGV WKDW UHO\ PRUH KHDYLO\ RQ IDUP LQFRPH DUH H[SHFWHG WR DFFHVV DGGLWLRQDO TXRWD WKURXJK OHDVLQJ DQG UHQWLQJ LQ DQ DWWHPSW WR PDLQWDLQ WREDFFR SURGXFWLRQ DW RU QHDU OHYHOV $JDLQ WKH GLUHFWLRQ RI WKH FRUUHODWLRQ 3HDUVRQfV U f ZDV DV K\SRWKHVL]HG DV UHOLDQFH RQ IDUP LQFRPH LQFUHDVHV GHFUHDVHV LQ WKH DPRXQW RI WREDFFR JURZQ ZLOO EH VPDOOHUf EXW WKH UHODWLRQVKLS ZDV QRW VLJQLILFDQW S f 7KH PRVW REYLRXV H[SODQDWLRQ IRU WKLV ODFN RI VLJQLILFDQW FRUUHODWLRQ KDV WR GR ZLWK VFDOH )DUPHUV ZLWK WKH KLJK OHYHOV RI WREDFFR SURGXFWLRQ FKDUDFWHULVWLF RI IXOO WLPH RU QHDUO\ IXOO WLPH IDUPHUV ORVW PXFK PRUH TXRWD LQ WHUPV RI SRXQGV WKDQ GLG SDUWWLPH JURZHUV ZLWK ORZHU WREDFFR SURGXFWLRQ $OWKRXJK WKH SHUFHQWDJH FXW ZDV WKH VDPH D IDUPHU ZKR UDLVHG SRXQGV LQ ORVW SRXQGV RI TXRWD ZKLOH D IDUPHU ZKR UDLVHG SRXQGV LQ ORVW RQO\ SRXQGV RI TXRWD (VSHFLDOO\ LQ WKH fTXRWD SRRUf HQYLURQPHQW DIWHU WKH b TXRWD FXW RI ILQGLQJ SRXQGV RI TXRWD WR UHQW RU OHDVH ZLWKLQ WKH FRXQW\ ZRXOG EH D PXFK PRUH GLIILFXOW WDVN WKDQ ILQGLQJ SRXQGV RI TXRWD +RXVHKROG ODERU UHVRXUFHV 7KLV UHVHDUFK PHDVXUHG DYDLODEOH KRXVHKROG ODERU UHVRXUFHV LQ WZR ZD\V )LUVW WKH QXPEHU RI KRXUV RI RIIIDUP ZRUN SHU ZHHN E\ WKH SULQFLSDO IDUP RSHUDWRU ZDV PHDVXUHG DV D SUR[\ IRU WKH WLPH WKDW LQGLYLGXDO KDG WR

PAGE 162

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f EXW WKH UHODWLRQVKLS LV QRW VLJQLILFDQW S f 7KLV ODFN RI VLJQLILFDQW DVVRFLDWLRQ LV PRVW OLNHO\ GXH WR WKH IDFW WKDW WKH WLPH QHHGHG WR SURGXFH WKH VDPH DPRXQW RI WREDFFR LQ DV LQ LV WKH VDPH RU RQO\ PDUJLQDOO\ PRUH LI WKH ORVW TXRWD LV PDGH XS E\ UHQWLQJ IURP VHYHUDO VHSDUDWH IDUPV )DUPHUV ZKRVH RIIIDUP MREV DOORZHG WKHP WR UDLVH SRXQGV RI WREDFFR LQ ZRXOG VWLOO KDYH WLPH WR UDLVH SRXQGV RI WREDFFR LQ LI WKH\ FDQ JDLQ DFFHVV WR WKH DGGLWLRQDO TXRWD WR PDNH XS IRU WKH b FXW )DUPHUV ZHUH FRQVLVWHQWO\ XQDEOH WR SURYLGH UHOLDEOH HVWLPDWHV RI KRZ PDQ\ KRXUV WKH\ ZRUNHG DW RQIDUP WDVNV 0RVW ZHUH KRZHYHU DEOH WR FRQILGHQWO\ UHSRUW WKH QXPEHU RI RIIIDUP KRXUV SHU ZHHN WKH\ ZHUH HPSOR\HG 7KH SULQFLSDO IDUP RSHUDWRUV ZHUH RYHUZKHOPLQJO\ PDOH RQO\ RQH SULQFLSDO IDUPHU bf LQ WKH VDPSOH ZDV IHPDOH 7RWDO WREDFFR SURGXFWLRQ LQ ZDV QRW VXUSULVLQJO\ QHJDWLYHO\ FRUUHODWHG ZLWK WKH QXPEHU RI RIIIDUP ZRUN KRXUV SHU ZHHN U Sf

PAGE 163

,Q WKH FDVH RI WRWDO IDPLO\ ODERU UHVRXUFHV K\SRWKHVL]HG WKDW DV WKH QXPEHU RI IDPLO\ PHPEHUV LQYROYHG LQ WREDFFR SURGXFWLRQ LQFUHDVHV WKH DGGLWLRQDO ODERU VXSSO\ ZLOO DOORZ IDUPHUV WR UDLVH D KLJKHU SHUFHQWDJH RI WKH WREDFFR SURGXFWLRQ OHYHO LQ 7KLV K\SRWKHVLV KRZHYHU PXVW EH UHMHFWHG DV WKH GLUHFWLRQ RI WKH UHODWLRQVKLS LV RSSRVLWH WKDW H[SHFWHG U f 7KH UHODWLRQVKLS LQGLFDWHG KRZHYHU LV QRW VLJQLILFDQW S f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

PAGE 164

DJULFXOWXUDO GLYHUVLILFDWLRQ
PAGE 165

f 7KH OHYHO RI IRUPDO HGXFDWLRQ RI WKH SULPDU\ IDUP RSHUDWRU LV SRVLWLYHO\ FRUUHODWHG ZLWK WKH OLNHOLKRRG RI DOWHUQDWLYH FURS SURGXFWLRQ 7KH KLJKHU GHPDQGV RQ PDQDJHULDO H[SHUWLVH DQG OHDUQLQJ QHZ SURGXFWLRQ SURFHVVHV LV OLNHO\ WR PDNH HQWU\ LQWR DOWHUQDWLYH FURS SURGXFWLRQ SDUWLFXODUO\ YHJHWDEOHV HDVLHU IRU IDUPHUV ZLWK PRUH IRUPDO HGXFDWLRQ f $V UHOLDQFH RQ IDUPLQJ LQFUHDVHV KLJKHU b RI KRXVHKROG LQFRPHf WKH OLNHOLKRRG RI DOWHUQDWLYH FURS SURGXFWLRQ ZLOO LQFUHDVH +RXVHKROGV PRUH UHOLDQW RQ IDUPLQJ DUH PRUH OLNHO\ WR VHHN DOWHUQDWLYH FURSV DV D KHGJH DJDLQVW WKH XQFHUWDLQ IXWXUH RI WREDFFR DV D FDVK FURS f $V WKH DPRXQW RI FURSODQG RZQHG LQFUHDVHV ERWK LQ WHUPV RI DFUHDJH DQG DV D SHUFHQWDJH RI DOO FURSODQG IDUPHG UHQWHG DQG RZQHGf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

PAGE 166

OHVV OLNHO\ WR QHHG WR FRPSHQVDWH IRU ORVW WREDFFR LQFRPH 6LQFH WKHVH FRQWUDGLFWRU\ K\SRWKHVHV VHHP HTXDOO\ OLNHO\ WKH LQGHSHQGHQW YDULDEOH RI WRWDO KRXVHKROG LQFRPH ZDV LQFOXGHG IRU H[SORUDWRU\ SXUSRVHV 7R WHVW WKHVH K\SRWKHVHV WKH GHSHQGHQW YDULDEOH RI DOWHUQDWLYH FURS SURGXFWLRQ ZDV GLFKRWRPL]HG KDYH WULHG DQG KDYH QRW WULHGf DQG PXOWLSOH ORJLVWLF UHJUHVVLRQ ZDV FDUULHG RXW /RJLVWLF UHJUHVVLRQ SURYLGHV D UHJUHVVLRQOLNH DQDO\VLV RI GDWD ZKHQ WKH GHSHQGHQW YDULDEOH LV FDWHJRULFDO :DOVK DQG 2OOHQEXUJHU f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

PAGE 167

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f§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

PAGE 168

$QRWKHU SUREOHP FLWHG E\ VHYHUDO IDUPHUV ZDV WKH DPRXQW DQG QDWXUH RI WKH WLPH UHTXLUHG WR SURGXFH KLJK TXDOLW\ YHJHWDEOHV VXLWDEOH IRU PDUNHWLQJ IUHVK 1RW RQO\ LV WKH DPRXQW RI ODERU VLJQLILFDQW EXW WKH WLPLQJ RI WKDW ODERU LV PXFK OHVV IOH[LEOH WKDQ LV ODERU IRU WREDFFR SURGXFWLRQ 2QH FRXSOH ZKR H[SUHVVHG LQWHUHVW LQ IUHVK YHJHWDEOH SURGXFWLRQ QRWHG WKH GLIILFXOW\ RI EDODQFLQJ IXOOWLPH RIIIDUP ZRUN ZLWK YHJHWDEOH SURGXFWLRQ DQG PDUNHWLQJ HVSHFLDOO\ GLUHFW PDUNHWLQJ YLD IDUPHUVf PDUNHWV DQG VLPLODU RXWOHWV :H ERWK ZRUN DOO GD\ ORQJ DQG UDLVH RXU WREDFFR LQ WKH HYHQLQJV DQG RQ WKH ZHHNHQGV ZKHQHYHU ZH FDQ VTXHH]H LW LQ 7KHUHfV QR ZD\ ZH FRXOG VSHQG D ORW RI WLPH VHOOLQJ ZKDW ZH JURZ DW D IDUPHUVf PDUNHW RU DORQJVLGH WKH URDGf§ZHfYH JRW WLPH WR SURGXFH D FURS RU VHOO D FURS EXW QRW ERWK 2WKHU IDUPHUV SDUWLFXODUO\ WKRVH ZKR KDYH QRW JURZQ YHJHWDEOHV FRPPHUFLDOO\ ZHUH SRVLWLYH DERXW WKH DELOLW\ RI DUHD IDUPHUV WR UDLVH DOWHUQDWLYH FURSV 7\SLFDO RI WKHVH IDUPHUV ZDV RQH ZKR ERDVWHG f:H FDQ JURZ MXVW DERXW DQ\ FURS KHUH LQ 0RUJDQ &RXQW\ 7KH SUREOHP LV LQ VHOOLQJ ZKDW ZH JURZ ,W GRQfW GR PXFK JRRG WR JURZ LW LI \RX FDQfW VHOO LWf 0DUNHWLQJ SUREOHPV $ PRUH FRPPRQ FRPSODLQW E\ IDUPHUV DERXW WKHLU H[SHULHQFHV ZLWK YHJHWDEOHV ZDV WKH GLIILFXOW\ LQ PDUNHWLQJ WKHLU SURGXFW $V GLVFXVVHG DERYH H[SHULHQFHV LQ PDUNHWLQJ WKURXJK WKH YHJHWDEOH PDUNHWLQJ FRRSHUDWLYHV LQ HDVWHUQ .HQWXFN\ ZHUH H[WUHPHO\ QHJDWLYH 0RVW IDUPHUV KDG H[SHULHQFHG DEQRUPDOO\ GHOD\HG RQ HYHQ QRQn SD\PHQW IRU WKHLU SURGXFH DQG PDQ\ FRPSODLQHG RI fH[FHVVLYHf FXOOLQJ RI VXESDU TXDOLW\ SURGXFH 7KH SD\PHQW SUREOHPV RI WKH FRRSHUDWLYHV ZHUH SULPDULO\ WKH UHVXOW RI PDQDJHPHQW IDLOXUHV DOWKRXJK WKHVH SUREOHPV ZHUH H[DFHUEDWHG E\ D ODFN RI DGHTXDWH ZRUNLQJ FDSLWDO 7KH TXDOLW\ FRQWURO LVVXH LV VRPHZKDW GLIIHUHQW YHJHWDEOHV PDUNHWHG IRU IUHVK FRQVXPSWLRQ PXVW PHHW H[WUHPHO\ GHPDQGLQJ TXDOLW\ VWDQGDUGV RU WKH\ ZLOO QRW EH

PAGE 169

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f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f WKH\ GLG QRW JHW WKH

PAGE 170

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

PAGE 171

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fZHnYH EHHQ WDONLQJ DERXW

PAGE 172

DOWHUQDWLYH FURSV IRU \HDUV QRZ ,I WKHUH ZHUH DQ\ ZHnG KDYH IRXQG WKHP E\ QRZ 7KHUH LV QR VXEVWLWXWH IRU WREDFFR 7KLV ODWWHU H[SODQDWLRQ LV DQ H[DPSOH RI D QRQVWUXFWXUDO FDXVDO IRUFH VKDSLQJ SURGXFWLRQ GHFLVLRQV RI HDVWHUQ .HQWXFN\ IDUPHUV $WWLWXGHV WRZDUGV DQG H[SHFWDWLRQV DERXW DOWHUQDWLYH FURSV ZKLOH FUHDWHG E\ WKH VWUXFWXUDO UHDOLW\ RI WKH IHGHUDO WREDFFR SURJUDP KDYH SURYHQ WR KDYH VWD\LQJ SRZHU EH\RQG WKH OLIH RI WKRVH VWUXFWXUDO FRQGLWLRQV (YHQ WKRXJK PRVW DQDO\VWV DQG IDUPHUV GRQfW H[SHFW D UHWXUQ WR WKH KLJK SUH OHYHOV RI WREDFFR SURGXFWLRQ WREDFFR UHPDLQV WKH VWDQGDUG E\ ZKLFK DOO RWKHU IDUP RSWLRQV DUH MXGJHG 2QH RI WKH PRVW VWULNLQJ FRPPHQWV UHSHDWHGO\ KHDUG IURP IDUPHUV DERXW ZK\ WKH\ GLVOLNHG UDLVLQJ DOWHUQDWLYH FURSV ZDV WKDW f, GLGQfW JHW WKH SULFH H[SHFWHGf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f H[SHULHQFHV ZLWK WREDFFR SURGXFWLRQ $OWHUQDWLYHO\ WKH VWUXFWXUDO IRUFHV WKDW KDYH SXVKHG IDUP IDPLOLHV DFURVV WKH

PAGE 173

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

PAGE 174

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

PAGE 175

$V D UHVXOW *DU\ KDV OHDVHG LQ HQRXJK SRXQGV WR JURZ HYHQ PRUH WREDFFR LQ WKDQ LQ SUHYLRXV \HDUV LQ RUGHU WR REWDLQ D FRPSDUDEOH QHW WREDFFR LQFRPH $V KH SXW LW :KHQ \RX VWDUW OHDVLQJ WR PDNH XS IRU WKH SRXQGV WKDW JRW FXW \RXfUH EHVW RII WR>OHDVH H[WUD@ WR WU\ WR FRPSHQVDWH IRU WKDW H[WUD FRVW WKDW \RX KDYH LQ \RXU OHDVH 6R WKDWfV ZKDW WULHG WR GR KDG WR WU\ WR DFFRPPRGDWH DQG PDNH XS IRU WKH OHDVH WKDW KDG WR SD\ IRU IRU WKH SRXQGV WKDW JRW FXW *DU\f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fW PDNH fELJ PRQH\f RQ WKHVH DOWHUQDWLYH FURSV KH ZDV KDSS\ ZLWK WKH UHVXOWV DQG FRQWLQXHG JURZLQJ SHSSHUV XQWLO WKH EX\HUV SXOOHG RXW RI WKH UHJLRQ +H GLG QRWH WKDW WKHUH ZHUH D QXPEHU RI ZHDWKHUUHODWHG SURGXFWLRQ SUREOHPV WKH ILQDO \HDU EXW KH UHFRJQL]HV WKDW VXFK YDULDELOLW\ LV SDUW RI IDUPLQJ +H H[SUHVVHG KLV LQWHUHVW LQ JURZLQJ SHSSHUV DJDLQ LI D PDUNHW FDQ EH HVWDEOLVKHG IRU WKHP SDUWLFXODUO\ LI WREDFFR FRQWLQXHV WR GHFUHDVH LQ LPSRUWDQFH DV D FDVK FURS *DU\fV IXOOWLPH MRE LV DV D ERRNNHHSHU IRU D ORFDO 0RUJDQ &RXQW\ EXVLQHVV DQG KLV ZLIH ZRUNV IXOOWLPH IRU WKH FRXQW\ JRYHUQPHQW 7KHLU FRPELQHG KRXVHKROG LQFRPH LV MXVW XQGHU SHU \HDU ZLWK VOLJKWO\ PRUH WKDQ b RI WKDW FRPLQJ IURP WREDFFR KLV RQO\ IDUP LQFRPH VRXUFH ,I JURZLQJ WREDFFR ZHUH QR ORQJHU YLDEOH DV ZRXOG OLNHO\ EH WKH FDVH LI WKH WREDFFR SURJUDP ZHUH WR HQG *DU\ VD\V WKDW WKH ORVV RI LQFRPH ZRXOG

PAGE 176

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fV OLNH JHWWLQJ DOO \RXU LQYHVWPHQW EDFN DW WKH HQG RI WKH \HDU LQ RQH OXPS VXP :H FRXOG JHW E\ ZLWKRXW LW EXW LWfV UHDO QLFH WR KDYH WKDW ELJ FKHFN LQ 'HFHPEHU MXVW EHIRUH &KULVWPDV 7KLV LGHD RI WREDFFR DV DQ LPSRUWDQW VXSSOHPHQW WR RIIIDUP LQFRPH LV D FRPPRQ WKHPH DPRQJ DUHD IDUPHUV 7REDFFR LQFRPH LV FLWHG DV WKH VRXUFH IRU WUXFN SD\PHQWV IDUP WD[HV HGXFDWLRQ VDYLQJV &KULVWPDV SUHVHQWV DQG RWKHU fH[WUDVf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

PAGE 177

RI KLV ODQGORUGV H[SHFW 7HG WR SD\ IRU WKH KHUELFLGH DQG VXFNHU FRQWURO FKHPLFDOV ZKLOH DQRWKHU SD\V IRU DOO LQSXWV H[FHSW IHUWLOL]HU ,Q DOO WKUHH FDVHV WKH FURS LV GLYLGHG fRQ WKH KDOYHVf ZLWK WKH WHQDQW DQG ODQGORUG VSOLWWLQJ WKH SURFHHGV IURP WKH WREDFFR HTXDOO\ 7HG GRHV DOPRVW DOO RI WKH ODERU UHTXLUHG IRU KLV WREDFFR SURGXFWLRQ KLPVHOI DOWKRXJK KLV ZLIH KHOSV ZLWK SODQWLQJ WKH VHHGEHG DQG VHWWLQJ WKH SODQWV LQ WKH VSULQJ 7KH RQO\ SKDVH RI SURGXFWLRQ IRU ZKLFK KH KDV WR KLUH ODERU LV WKH FXWWLQJ DQG KRXVLQJ RI WKH FURS EXW HYHQ LQ WKRVH ODERULQWHQVLYH MREV KH LV DEOH WR GR PRVW RI WKH ZRUN KLPVHOI ,Q DGGLWLRQ WR WREDFFR 7HG DOVR UHQWV DFUHV RI SDVWXUH IRU KLV ILYH KRUVHV DQG RYHU DFUHV RI KD\ JURXQG SD\LQJ DQQXDO FDVK UHQW IRU WKH XVH RI WKLV ODQG +H UDLVHG DQ HVWLPDWHG WRQV RI KD\ DOPRVW DOO RI ZKLFK KH KDG DOUHDG\ VROG E\ 1RYHPEHU ZKHQ KH ZDV LQWHUYLHZHG +D\ VDOHV DFFRXQW IRU DERXW RQHWKLUG RI KLV IDUP LQFRPH ZLWK WREDFFR PDNLQJ XS WKH UHPDLQLQJ WZRWKLUGV 7KH IDUP JHQHUDWHV DSSUR[LPDWHO\ KDOI RI KLV DQQXDO LQFRPH ZLWK WKH EDODQFH FRPLQJ IURP GLVDELOLW\UHWLUHPHQW SD\PHQWV DQG KLV ZLIHfV SDUWWLPH MRE 7HG UHSUHVHQWV WKH W\SH RI IDUPHU ZKR ZRXOG OLNHO\ EH KXUW PRVW E\ DQ HQG WR WREDFFR SURGXFWLRQ LQ WKH VWXG\ UHJLRQ $OWKRXJK KH ZRXOG FRQWLQXH ZLWK DQG H[SDQG KLV KD\ SURGXFWLRQ LI WREDFFR fZHQW RXWf LW ZRXOG EH YHU\ GLIILFXOW WR FRPSHQVDWH IRU WREDFFR LQFRPH ZLWK KD\ DORQH :KHQ DVNHG LI KH KDG HYHU FRQVLGHUHG JURZLQJ DOWHUQDWLYH FURSV KH VRPHZKDW MRNLQJO\ VXJJHVWHG KHfG OLNH WR JURZ KHPS 7KH SRVVLEOH OHJDOL]DWLRQ RI KHPS DV D UHSODFHPHQW FURS IRU WREDFFR KDV EHHQ KRWO\ GHEDWHG RYHU WKH ODVW VHYHUDO \HDUV LQ .HQWXFN\ ZLWK WKH SURSRVDO YHU\ FRQWURYHUVLDO LQ WKH ODZ HQIRUFHPHQW FRPPXQLW\ GXH WR IHDUV DERXW WKH GLIILFXOW\ RI GLVWLQJXLVKLQJ KHPS IURP LOOHJDO PDULMXDQD FXOWLYDWLRQ 7HG KDV OLWWOH LQWHUHVW LQ RWKHU DOWHUQDWLYH FURSV QRWLQJ WKDW

PAGE 178

IDUPHUV KH NQRZV ZKR SURGXFHG YHJHWDEOHV IRU WKH PDUNHWLQJ FRRSHUDWLYH PDGH OLWWOH RU QR PRQH\ RU LQ VRPH FDVHV HYHQ ORVW PRQH\ 7KH 7REDFFR )DUP /DQGORUG -RKQ LV D \HDU ROG ZLGRZHU ZKR UDLVHV WREDFFR DQG FDWWOH RQ KLV IDUP LQ 0RUJDQ &RXQW\ +H IDUPHG ZKLOH JURZLQJ XS XQWLO ILQLVKLQJ KLJK VFKRRO ZKHQ KH PRYHG WR 2KLR ZKHUH KH VSHQW PRVW RI KLV DGXOW OLIH ZRUNLQJ DW DQ LQGXVWULDO MRE +H QRWHG WKDW HDVWHUQ .HQWXFN\fV ORZ ZDJHV LQ WKH V DQG V OHG WR D EUDLQ GUDLQ WKRVH ZLWK LQLWLDWLYH VXFK DV -RKQ ZKR ZDQWHG WR PDNH VXFFHVVHV RI WKHPVHOYHV PRYHG QRUWK LQWR WKH LQGXVWULDO FLWLHV RI 2KLR DQG 0LFKLJDQ :KLOH KH PDGH JRRG PRQH\ LQ WKLV MRE KH GHFLGHG WR UHWXUQ WR 0RUJDQ &RXQW\ DQG IDUPLQJ $V KH GHVFULEHV LW KDG D JRRG MRE WKDW OHIW EHFDXVH \RX GLGQfW KDYH QR LGOH WLPH 7KLV RXWILW WKDW ZRUNHG IRU WKH\ SD\HG ZHOO EXW WKHUHfV RWKHU WKLQJV LQ OLIH EHVLGHV PRQH\ ,WfV DOO ULJKW WR KDYH PRQH\ EXW GRQfW NLOO \RXUVHOI WU\LQf WR JHW LW -RKQ UHWLUHG DW DJH DQG VWDUWHG GUDZLQJ KLV UHWLUHPHQW EHQHILWV LPPHGLDWHO\ XQWLO WKH\ ZHUH fGUDZHG RXWf ZKHQ KH WXUQHG +H QRZ UHOLHV RQ 6RFLDO 6HFXULW\ UHWLUHPHQW SD\PHQWV VXSSOHPHQWHG E\ KLV IDUP LQFRPH +H PRYHG EDFN WR 0RUJDQ &RXQW\ VHYHQWHHQ \HDUV DJR DQG SXUFKDVHG D IDUP ODWHU DGGLQJ WR LW WKH IDUP RQ ZKLFK KH JUHZ XS DIWHU EX\LQJ RXW KLV VLEOLQJVf VKDUHV +H DQG RQH RI KLV VRQV ZKR LV QRW LQYROYHG LQ IDUPLQJ OLYH WRJHWKHU RQ WKH IDUP +H KDV RQH RWKHU VRQ LQ WKH DUHD DOVR QRW LQWHUHVWHG LQ IDUPLQJ DQG D GDXJKWHU OLYLQJ LQ 2KLR -RKQ KDV UHVSRQGHG WR WKH WREDFFR TXRWD FXWV RI UHFHQW \HDUV E\ OHDVLQJ LQ DGGLWLRQDO TXRWD +H RZQHG SRXQGV RI TXRWD IRU DQG OHDVHG LQ DGGLWLRQDO SRXQGV ZKLFK ZDV JURZQ RQ DSSUR[LPDWHO\ DFUHV +H DYHUDJHV

PAGE 179

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f7KLV \HDU P\ TXRWD LV SRXQGV >SOXV FDUULHG RYHU IURP @ EXW ,fP JRQQD OHDVH WKLV UHQWHU HQRXJK WREDFFHU LQ WR PDNH KLP WHQ RU HOHYHQ WKRXVDQG SRXQGV ,I \RX JRW D JRRG UHQWHU \RX WU\ WR WDNH FDUH RI KLPf 6LQFH WKH WREDFFR KDUYHVW LV VSOLW LQ KDOI EHWZHHQ -RKQ DQG KLV WHQDQW WKHLU JRDO LV WR UDLVH EHWZHHQ DQG SRXQGV SHU \HDU -RKQ SD\V IRU WKH SRXQGV RI OHDVHG WREDFFR XS IURQW EXW WKH FRVW RI WKH OHDVHG TXRWD LV VSOLW HTXDOO\ EHWZHHQ WHQDQW DQG ODQGORUG KDOI RI WKH OHDVH FRVW LV VXEWUDFWHG IURP WKH WHQDQWfV WREDFFR LQFRPH ZKHQ WKH FURS LV VROG $V WKH ODQGORUG -RKQ SD\V IRU DOO RWKHU LQSXWV ZLWK WKH WHQDQW UHVSRQVLEOH IRU DOO ODERU FRVWV -RKQ VWUHVVHV f,I \RXfUH JRQQD WUHDW D UHQWHU ULJKW WKDWfV WKH ZD\ \RX RXJKW WR GR LWf ,Q DGGLWLRQ WR KLV WREDFFR -RKQ UDLVHV FDWWOH RQ DFUHV RI SDVWXUH DQG KD\ JURXQG $OO DFUHV DUH SODQWHG LQ D PL[ RI KD\ ERWK JUDVVHV DQG FORYHUV DQG WKLV JURXQG FDQ EH XVHG HLWKHU DV KD\ RU SDVWXUH ,Q WKH VHYHUH GURXJKW OHG -RKQ WR JUD]H KLV FDWWOH RQ WKH HQWLUH DFUHV DIWHU WKH LQLWLDO VSULQJ FXWWLQJ RI KD\ +H FXUUHQWO\ KDV FRZV DQG D EXOO DQG H[SHFWV WR UDLVH DQG VHOO FDOYHV WKLV \HDU :LWK WKH ODQG WKDW KH QRZ KDV -RKQ FRXOG UDLVH PRUH FDWWOH EXW KH KDV GHFLGHG WR OLPLW KLV KHUG WR LWV SUHVHQW

PAGE 180

VL]H fRQ DFFRXQW RI P\ DJH DQG WDNLQf FDUH RI WKHP,Q DGGLWLRQ WR FDULQJ IRU KLV FDWWOH DQG FXWWLQJ KD\ KH RFFDVLRQDOO\ KHOSV RXW KLV UHQWHU ZLWK ZRUN RQ WKH WREDFFR FURS :KLOH WKH PL[ FKDQJHV VRPHZKDW IURP \HDU WR \HDU LQ WKH SDVW DERXW RI -RKQfV IDUP LQFRPH FRPHV IURP WREDFFR DQG IURP FDWWOH %HFDXVH RI WKH VHYHUH FXWV LQ WKH TXRWD LQFRPH IURP FDWWOH VKRXOG LQFUHDVH LQ LPSRUWDQFH KH H[SHFWV KLV IDUP LQFRPH WR EH EDODQFHG IDLUO\ HTXDOO\ EHWZHHQ WREDFFR DQG FDWWOH /DQG ZKLFK ZDV XVHG IRU WREDFFR SURGXFWLRQ GXULQJ \HDUV RI KLJKHU TXRWD KDV EHHQ VRZQ LQWR JUDVV IRU KD\ DQG SDVWXUH -RKQ KDV QHYHU UDLVHG DQ\ QRQWUDGLWLRQDO FURSV DOWKRXJK KH KDV JURZQ FRP IRU IHHGLQJ WR KLV FDWWOH LQ WKH SDVW +LV DVVHVVPHQW RI DOWHUQDWLYH FURSV LV WKDW PRVW RI WKRVH WKLQJV WKDW WKH ([WHQVLRQ 6HUYLFH KDV EURXJKW LQ KHUH WR WU\ WR KHOS SHRSOH PDNH D OLYLQJ HYHU\ RQH RI fHP ,fYH VHHQ KDV IDLOHG 7KH\ KDYH WDONHG fHP LQWR JURZLQJ FDEEDJH WKH\fYH WDONHG WKHP LQWR JURZLQJ SHSSHUV WKH\fYH WDONHG WKHP LQWR JURZLQJ FXFXPEHUV DQG HYHU\ RQH RI WKHP SURMHFWV LV VLPSO\ IDLOHG 2QH PDQ WKDW JURZHG WKH FDEEDJH WKH ILUVW URXQG SLFNLQf KH JRW ULG RI >VROG@ +H WRRN VR PDQ\ FUDWHV RI FDEEDJH RYHU WKHUH >WR (.93$MDQG WKH\ GLGQfW JHW ULG RI WKHP WKH\ VDW WKHUH LQ WKH FRROHU fWLO WKH\ VSRLOHG 6R WKDWfV ZKDW \RXfUH XS DJDLQVW 6R LWfV WKH VDPH ZD\ RQ WKH FXFXPEHUV DQG WKH SHSSHUV :HfYH KDG SHRSOH WKDW VRPH RI fHP KDYH PDGH SUHWW\ JRRG PRQH\ RQ SHSSHUV DW FHUWDLQ WLPHV DQG WKHQ VRPHERG\ ZLOO PHVV LW XS -RKQ LV YHU\ DFWLYH LQ WKH ORFDO DJULFXOWXUDO FRPPXQLW\ VHUYLQJ RQ VHYHUDO RI WKH FRXQW\ FRPPLWWHHV WKDW DGPLQLVWHU WKH IHGHUDO DJULFXOWXUDO SURJUDPV +H LV D SULPH H[DPSOH RI WKH ZD\V LQ ZKLFK ORFDO DJULFXOWXUDO OHDGHUV RIWHQ SURPRWH WKH LQWHUHVWV RI PRUH HVWDEOLVKHG DIIOXHQW IDUPHUV RYHU WKRVH RI VPDOOHUVFDOH RU ODQGOHVV IDUPHUV ,Q PHHWLQJV RI WKHVH FRPPLWWHHV DQG HOVHZKHUH KH LV D VWURQJ DGYRFDWH RI UHLPEXUVLQJ TXRWD RZQHUV UDWKHU WKDQ UHQWHUV RU JURZHUV IRU WKH FXWV LQ WREDFFR TXRWD +H VHHV ODQGRZQHUV DV EHDULQJ WKH EUXQW RI WKH TXRWD FXWV SURSHUW\ WD[HV DUH KLJKHU RQ ODQG ZLWK

PAGE 181

WREDFFR TXRWD DWWDFKHG DQG WKH ORVV RI TXRWD UHSUHVHQWV D ORQJWHUP GHFUHDVH LQ WKH YDOXH RI ODQG :KLOH ODQGORUGV VXFK DV -RKQ ZHUH QRW VHOHFWHG IRU WKH VDPSOH VLQFH WKH\ DUH QRW DFWLYH WREDFFR JURZHUV -RKQf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

PAGE 182

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fV YHJHWDEOH IDUP LV RIWHQ FLWHG E\ DUHD IDUPHUV DV DQ REVWDFOH WR UDWKHU WKDQ DQ H[DPSOH RI DOWHUQDWLYH FURS SURGXFWLRQ )DUPHUV RIWHQ VXJJHVWHG WKDW LI PRUH WKDQ D KDQGIXO RI RWKHU IDUPHUV HPXODWHG 0LWFKfV VWUDWHJ\ WKH ORFDO PDUNHW ZRXOG EH IORRGHG )XUWKHUPRUH WKH\ QRWH WKDW IHZ IDUPHUV KDYH DV LGHDO RI D ORFDWLRQ DV 0LWFKfV IDUP IRU VXFK D YHQWXUH WKH IDUP RFFXSLHV ULFK ERWWRP ODQG DGMDFHQW WR WKH PDMRU KLJKZD\ LQ WKH UHJLRQ :KLOH VRPH VPDOOVFDOH IDUPHUV LQ WKH DUHD KDYH H[SUHVVHG LQWHUHVW LQ 0LWFKfV IDUP DQG WKH ([WHQVLRQ 6HUYLFH KDV KHOG ILHOG GD\V RQ WKH IDUP WR VKRZ WKH SRWHQWLDO RI YHJHWDEOH SURGXFWLRQ LQ WKH UHJLRQ OLWWOH LQWHUHVW KDV EHHQ VKRZQ E\ PRVW WREDFFR IDUPHUV 7KH IXWXUH RI 0LWFKf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fV UHDO LGHQWLW\ ZLOO EH REYLRXV WR DQ\RQH LQ WKH UHJLRQ

PAGE 183

0LWFKf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

PAGE 184

WREDFFR IDUPHUV DV GLVFXVVHG LQ WKH SUHYLRXV FKDSWHU RWKHUV PLJKW ZHOO ILQG GLUHFW PDUNHWLQJ RI YHJHWDEOHV D YLDEOH RSWLRQ LI WKH\ FDQ RYHUFRPH WKH DWWLWXGLQDO EDUULHUV WKDW UHVXOW IURP FRPSDULQJ HYHU\ SRVVLEOH DOWHUQDWLYH SURGXFW ZLWK WREDFFR

PAGE 185

&+$37(5 &21&/86,21 7KH GLIILFXOW\ LQ GHYHORSLQJ QHZ DJULFXOWXUDO SURGXFWV IRU HDVWHUQ .HQWXFN\ LV QRW VXUSULVLQJ LI WKHUH ZHUH REYLRXV DQG VLPSOH VROXWLRQV WKH\ ZRXOG KDYH EHHQ LPSOHPHQWHG \HDUV DJR
PAGE 186

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

PAGE 187

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

PAGE 188

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f /HZLV f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b Q f UHSRUWLQJ D WRWDO DQQXDO KRXVHKROG LQFRPH RI OHVV WKDQ
PAGE 189

FRXOG HDVLO\ EH DWWULEXWHG WR PDQ\ LI QRW PRVW RI WKH IDUP IDPLOLHV LQWHUYLHZHG +RZHYHU WKH FXOWXUH RI SRYHUW\ GRHV QRW RIIHU DQ\ FRQFHSWXDO UHDVRQV IRU ORFDWLQJ VRPH RI WKHVH IDPLOLHV ZLWKLQ WKH FXOWXUH RI SRYHUW\ DQG RWKHUV RXWVLGH RI LW ,I WKHUH LV QR ZD\ WR NQRZ ZKR LV DQG ZKR LV QRW LQ WKH FXOWXUH RI SRYHUW\ WKH XWLOLW\ RI WKH WKHRU\ LV JUHDWO\ UHGXFHG )LQDOO\ WKH ILQGLQJV RI WKLV UHVHDUFK DOVR VXSSRUW 0RRQH\fV f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

PAGE 190

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

PAGE 191

$33(1',; $ 6859(< ,167580(17 1DPH 'DWH &RXQW\ ,QWHUYLHZHU *HQHUDO )DUP GDWD f +RZ PDQ\ DFUHV GR \RX RZQ DQG UHQW" 2ZQ UHQW FURSODQG SDVWXUHODQG KD\ RWKHU ZRRGHG IDOORZf f :KDW LV WKH EDVLF TXRWD \RX RZQ IRU f +RZ PXFK FDUU\RYHU GLG \RX KDYH IURP

PAGE 192

f +RZ PXFK TXRWD GLG \RX OHDVH IRU +RZ PXFK GLG WKDW TXRWD FRVW \RX" 3RXQGV OHDVHG 3ULFH SHU SRXQG UDQJHf f :KDW LV WKH PRVW \RX ZRXOG SD\ WR OHDVH WREDFFR" f +DYH \RX SXUFKDVHG DQ\ TXRWD LQ WKH ODVW \HDUV" f LI \HVf +RZ PXFK" f :KHQ" f +RZ PDQ\ SRXQGV RI TXRWD GLG \RX UHQW IRU f 'HVFULEH WKH UHQWDO DUUDQJHPHQW f :KR SD\V IRU LQSXWV VHHG IHUWLOL]HU HWFf" 2ZQHU UHQWHU f :KRVH PDFKLQHU\ DQG HTXLSPHQW LV XVHG" 2ZQHU 5HQWHU f :KR SURYLGHV WKH EDP DQG VWLFNV" 2ZQHU UHQWHU :KDW SRUWLRQ RI WKH LQFRPH JRHV WR WKH JURZHU"

PAGE 193

&URS FKRLFH f %HVLGHV WREDFFR ZKDW FURSV GLG \RX JURZQ LQ WKH FURS \HDU LQ DFUHV\LHOGf &URS $FUHV
PAGE 194

f :KHQ LV WKH ODVW WLPH \RX KDG \RXU VRLO WHVWHG" f +RZ RIWHQ GR \RX KDYH \RXU VRLO WHVWHG" FURS QHYHU HYHU\ \HDUV RU OHVV HYHU\ \UV HYHU\ \UV HYHU\ \HDU 7REDFFR +D\ 3DVWXUH &RP 2WKHU f 3DVWXUH PDQDJHPHQW +RZ RIWHQ GR \RX QHYHU HYHU\ HYHU\ HYHU\ \UV HYHU\ \HDU \HDUV RU OHVV \UV DSSO\ IHUWLOL]HU" VSUD\ IRU ZHHG FRQWURO" DGG OLPH" UHVHHG" f :KDW NLQG RI SDVWXUH JUDVV GR \RX JURZ" f 'R \RX URWDWH \RXU OLYHVWRFN EHWZHHQ SDVWXUHV" <(6 12 f +RZ RIWHQ" f :KHQ LV WKH ODVW WLPH \RX GLG ZRUN WR LPSURYH SDVWXUH TXDOLW\"

PAGE 195

f +D\ PDQDJHPHQW +RZ RIWHQ GR \RX QHYHU HYHU\ HYHU\ HYHU\ \UV HYHU\ \HDU \HDUV RU OHVV \UV DSSO\ IHUWLOL]HU" VSUD\ IRU ZHHG FRQWURO" DGG OLPH" UHVHHG" f :KDW NLQG RI KD\ JUDVV GR \RX JURZ" f +D\ 6WRUDJH :KDW SHUFHQWDJH RI \RXU KD\ GR \RX 3HUFHQWDJH VKRXOG WRWDO bf VWRUH RXWVLGH XQFRYHUHG" VWRUH RXWVLGH FRYHUHG" ZUDSS LQ SODVWLF" VWRUH LQ D EDP" /LYHVWRFN FXUUHQWO\ RQ KRZ PDQ\ VROG ODVW \HDU ERXJKW LQ ODVW DFUHV RI JUDVV" \U FDWWOH FDOYHV FDOYHV FRZV FRZV

PAGE 196

EXOOV EXOOV KRUVHV JRDWV RWKHU )DUP 5HFRUGV f 'R \RX NHHS UHFRUGV RQ \RXU IDUP RSHUDWLRQ" ,I \HV ZKDW NLQGV" 7D[ UHFHLSWV RQO\ 7\SH FRPSXWHU KDQGZULWWHQ LQ KHDG VHHG FRVWV IXHO FRVWV PDFKLQHU\ FRVWV /DERU KRXUV SHU FURS SHVWLFLGHV SHU FURS IHUWLOL]HU SHU FURS YDULHW\ \LHOGV ILHOG \LHOGV

PAGE 197

/DERU f :KDW DUH WKH IDUP MREV WKDW QHHG WKH PRVW ODERU" f :KR LQ \RXU KRXVHKROG ZRUNV RQ WKH IDUP" f FKLHI IDUPHUf§KRZ PDQ\ KRXUVZHHN GXULQJ EXVLHVW WLPH" f RWKHU IDPLO\ PHPEHUVf§ UHODWLRQVKLS FURSV ZRUNHG" 7\SH RI WREDFFR ZRUN OLYH LQ KRXVHKROG" SDLG IRU IDUPZRUN" f 'R \RX KLUH DGGLWLRQDO ODERU" f :KDW FURSV GR WKH\ ZRUN" f +RZ PXFK GR \RX ZLOO \RXf SD\ RXW LQ ODERU IRU WKH FURS \HDU" 7REDFFR f 'R \RX XVH WREDFFR" FLUFOHf 6PRNH &KHZ 'RQfW XVH f :KDW GR \RX WKLQN DERXW FODLPV WKDW WREDFFR FDXVHV KHDOWK SUREOHPV" f 'R \RX KDYH DQ\ FRQFHUQV DERXW SXEOLF RSLQLRQ WRZDUGV WREDFFR" 4XLW

PAGE 198

:KDW GR \RX WKLQN DUH WKH PDMRU FDXVHV RI WKH UHFHQW FXWV LQ WREDFFR TXRWD" +RZ ORQJ GR \RX H[SHFW WKH IHGHUDO WREDFFR SURJUDP ZLOO ODVW" +RZ ORQJ GR \RX H[SHFW WR FRQWLQXH JURZLQJ WREDFFR" +RZ ZLOO \RXU IDUP FKDQJH LI \RX FDQfW JURZ DQ\ PRUH WREDFFR" ,QIRUPDWLRQ VRXUFHV :KHUH GR \RX KHDU DERXW QHZ IDUPLQJ SUDFWLFHV" UHFRUG OLVWf :KLFK RI WKHVH LV PRVW LPSRUWDQW" 1H[W" UDQN HQWLUH OLVWf +RZ RIWHQ GR \RX WDON ZLWK WKH FRXQW\ H[WHQVLRQ DJHQW DERXW DJULFXOWXUH" FLUFOHf PRUH WKDQ RQFH D PRQWK RQFH D \HDU DERXW RQFH D PRQWK OHVV WKDQ RQFH D \HDU HYHU\ PRQWKV QHYHU HYHU\ PRQWKV +RZ PDQ\ H[WHQVLRQ SURJUDPV RU ILHOG GD\V GR \RX JR WR HDFK \HDU"

PAGE 199

2IIIDUP DFWLYLWLHV )RU HDFK KRXVHKROG PHPEHU ZRXOG \RX SOHDVH WHOO PH DERXW HPSOR\PHQW RII WKH IDUP" 5HODWLRQVKLS WR IDQQHU NLQG RI ZRUN RU UHWLUHGf KRXUV SHU ZHHN RI RIIIDUP ZRUN b ZDJHV FRQWULEXWHG WR KRXVHKROG EXGJHW 6HOI *RDOV f :KDW DUH WKH JRRG WKLQJV DERXW EHLQJ D IDUPHU" f :KDW DUH WKH SUREOHPV ZLWK EHLQJ D IDUPHU" f 'R \RX KDYH FKLOGUHQ LQWHUHVWHG WDNLQJ RYHU \RXU IDUP" f :KDW DUH \RXU ORQJWHUP SODQV IRU \RXU IDUP" 'R \RX WKLQN WKH IDUP ZLOO KDYH PDMRU FKDQJHV LQ WKH IXWXUH"

PAGE 200

f +RZ PDQ\ \HDUV KDYH \RX IDUPHG" f 'LG \RX LQKHULW WKLV IDUP IURP \RXU SDUHQWV" ,I VR KRZ ORQJ KDV LW EHHQ LQ \RXU IDPLO\" 3URJUDPV WR KHOS IDUPHUV f $V SDUW RI WKH UHFHQW WREDFFR VHWWOHPHQW HDFK FRXQW\ LQ .HQWXFN\ LV UHFHLYLQJ IXQGV WR LQYHVW LQ ORFDO DJULFXOWXUH DQG D FRPPLWWHH KDV EHHQ IRUPHG WR GHFLGH KRZ WKLV PRQH\ ZLOO EH VSHQW LQ WKLV FRXQW\ +RZ GR \RX WKLQN WKLV PRQH\ VKRXOG EH XVHG WR KHOS DJULFXOWXUH LQ WKLV DUHD" 3UREH RQ WKLVf +RXVHKROG GHPRJUDSKLFV f $UH \RX D QDWLYH RI WKH FRXQW\" f LI \HV f +DYH \RX HYHU OLYHG RXWVLGH FRXQW\" f :KHUH DQG IRU KRZ ORQJ" f LI QR f :KHUH DUH \RX IURP" f +RZ ORQJ KDYH \RX EHHQ LQ FRXQW\" f 'LG \RX IDUP HOVHZKHUH"

PAGE 201

f 1RZ ,nG OLNH WR DVN DERXW DOO WKH SHRSOH ZKR OLYH LQ WKLV KRXVHKROG )RU HDFK ZKDW LV WKHLU 5HODWLRQVKLS WR IDUPHU $JH JHQGHU HGXFDWLRQ ,QFRPH f :KDW SURSRUWLRQ RI \RXU IDUP LQFRPH FDPH IURP VDOHV RI HDFK RI WKH IROORZLQJ" FURS b IDUP LQFRPH b IDUP LQFRPH b IDUP LQFRPH WREDFFR FRP KD\ FDWWOH RWKHU OLVWf f :KDW SURSRUWLRQ RI \RXU WRWDO KRXVHKROG LQFRPH LV IURP IDUPLQJ" f :KDW LV \RXU WRWDO KRXVHKROG LQFRPH" 8QGHU RYHU

PAGE 202

$33(1',; % &2676 $1' 5(78516 2) 72%$&&2 352'8&7,21 %UHDNGRZQ RI FRVWV DQG UHWXUQV RI WREDFFR SURGXFWLRQ 7\SH RI ZRUN 8QLW FRVW 7RWDO &RVW &RVW WR WHQDQW RU RZQHU" )LHOG WLOODJHSUHSDUDWLRQ 3ORZ KRXUV # KRXUf 7HQDQW 'LVF KRXU # KRXUf 7HQDQW 7UDQVSODQW SURGXFWLRQ IORDW SODQWVf SHU DFUH 7HQDQW )HUWLOL]HU SXUFKDVH DQG DSSOLFDWLRQ OEV SHU DFUH 2ZQHU +HUELFLGH 7HQDQW 7UDQVSODQWLQJ ODERU KRXUV # KRXU 7HQDQW &XOWLYDWLRQ WLPHV # KRXU 7HQDQW )XQJLFLGH 2ZQHU 7RSSLQJ DQG VSUD\LQJ 7HQDQW *URZWK UHWDUGDQW 7HQDQW +DUYHVW ODERU KRXUV # KRXU 7HQDQW 6WULSSLQJ ODERU KRXUV # KRXU 7HQDQW

PAGE 203

7RWDO FRVWV 5HWXUQV OEV WREDFFR # OE 7RWDO SURILW 4XRWD OHDVH LI QHHGHGf OEV # SRXQG 9DULHV 1HW SURILW RQ OHDVHG TXRWD ([SHQVHV DQG SURILWV E\ W\SH RI TXRWD DFFHVV ([SHQVHV 6KDUH RI VDOHV SURFHHGV 1HW SURILW 4XRWD RZQHU 7HQDQW 4XRWD OHDVHU

PAGE 204

/,67 2) 5()(5(1&(6 $OEUHFKW 'RQ ( 7KH &RUUHODWHV RI )DUP &RQFHQWUDWLRQ LQ $PHULFDQ $JULFXOWXUH 5XUDO 6RFLRORJ\ f r $OEUHFKW 'RQ ( DQG 6WHYH + 0XUGRFN 7KH 6RFLRORJ\ RI 8 6 $JULFXOWXUH $Q (FRORJLFDO 3HUVSHFWLYH $PHV ,RZD 6WDWH 8QLYHUVLW\ 3UHVV $OWPDQ 'DYLG 'RXJODV : /HYLQH *HRUJH +RZDUG DQG +DO +DPLOWRQ 7REDFFR )DUPHUV DQG 'LYHUVLILFDWLRQ 2SSRUWXQLWLHV DQG %DUULHUV 7REDFFR &RQWURO $06 $JULFXOWXUDO 0DUNHWLQJ 6HUYLFHf )DUPHUV 0DUNHW )DFWV 86' $ KWWSZZZDPVXVGDJRYIDUPHUVPDUNHWVIDFWVKWP %DUOHWW 3HJJ\ ) 7KH 'LVDSSHDULQJ 0LGGOH DQG 2WKHU 0\WKV RI WKH &KDQJLQJ 6WUXFWXUH RI $JULFXOWXUH ,Q $JULFXOWXUDO &KDQJH &RQVHTXHQFHV IRU 6RXWKHUQ )DUPV DQG 5XUDO &RPPXQLWLHV 0ROQDU HG SS %RXOGHU &2 :HVWYLHZ 3UHVV $PHULFDQ 'UHDPV 5XUDO 5HDOLWLHV )DPLO\ )DUPV LQ &ULVLV &KDSHO +LOO 8QLYHUVLW\ RI 1RUWK &DUROLQD 3UHVV %DWWHDX $ODQ $SSDODFKLD DQG $PHULFD $XWRQRP\ DQG 5HJLRQDO 'HSHQGHQFH /H[LQJWRQ 8QLYHUVLW\ 3UHVV RI .HQWXFN\ 7KH ,QYHQWLRQ RI $SSDODFKLD 7XFVRQ 8QLYHUVLW\ RI $UL]RQD 3UHVV %HDYHU 3DWULFLD $SSDODFKLDQ )DPLOLHV /DQG 2ZQHUVKLS DQG 3XEOLF 3ROLF\ ,Q +ROGLQJ 2Q WR WKH /DQG DQG WKH /RUG .LQVKLS 5LWXDO /DQG 7HQXUH DQG 6RFLDO 3ROLF\ LQ WKH 5XUDO 6RXWK 5 / +DOO DQG & % 6WDFN HGV SS $WKHQV 7KH 8QLYHUVLW\ RI *HRUJLD 3UHVV $SSDODFKLDQ &XOWXUDO $GDSWDWLRQV $Q 2YHUYLHZ ,Q &XOWXUDO $GDSWDWLRQV WR 0RXQWDLQ (QYLURQPHQWV 9RO 3 %HDYHU DQG % / 3DUULQJWRQ HGV SS 6RXWKHUQ $QWKURSRORJLFDO 6RFLHW\ 3URFHHGLQJV $WKHQV 8QLYHUVLW\ RI *HRUJLD 3UHVV

PAGE 205

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
PAGE 206

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nV $PKHUVW ,QWHUQDWLRQDO 6WXGLHV $UHD 3URJUDP 8QLYHUVLW\ RI 0DVVDFKXVHWWV 'HHUH &DUPHQ 'LDQD DQG $ODLQ GH -DQYU\ $ &RQFHSWXDO )UDPHZRUN IRU WKH (PSLUDO $QDO\VLV RI 3HDVDQWV $PHULFDQ -RXUQDO RI $JULFXOWXUDO (FRQRPLFV

PAGE 207

'XQFDQ &\QWKLD 0 3HUVLVWHQW 3RYHU\ LQ $SSDODFKLD 6FDUFH :RUN DQG 5LJLG 6WUDWLILFDWLRQ ,Q 5XUDO 3RYHUW\ LQ $PHULFD & 0 'XQFDQ HG SS :HVWSRUW &7 $XEXUQ 8QGHUVWDQGLQJ 3HUVLVWHQW 3RYHUW\ 6RFLDO &ODVV &RQWH[W LQ 5XUDO &RPPXQLWLHV 5XUDO 6RFLRORJ\ f 'XQFDQ &\QWKLD 0 DQG 1LWD /DPERUJKLQL 3RYHUW\ DQG 6RFLDO &RQWH[W LQ 5HPRWH 5XUDO &RPPXQLWLHV 5XUDO 6RFLRORJ\ f $ (OOHU 5RQDOG /DQG DQG )DPLO\ $Q +LVWRULFDO 9LHZ RI 3UHLQGXVWULDO $SSDODFKLD $SSDODFKLDQ -RXUQDO 0LQHUV 0LOOKDQGV DQG 0RXQWDLQHHUV ,QGXVWULDOL]DWLRQ RI WKH $SSDODFKLDQ 6RXWK .QR[YLOOH 8QLYHUVLW\ RI 7HQQHVVHH 3UHVV (QQHZ -XGLWK 3DXO +LUVW DQG .HLWK 7ULEH n3HDVDQWU\n DV DQ (FRQRPLF &DWHJRU\ -RXUQDO RI 3HDVDQW 6WXGLHV f )ULHGPDQQ +DUULHW 6LPSOH &RPPRGLW\ 3URGXFWLRQ DQG :DJH /DERXU LQ WKH $PHULFDQ 3ODLQV -RXUQDO RI 3HDVDQW 6WXGLHV f +RXVHKROG 3URGXFWLRQ DQG WKH 1DWLRQDO (FRQRP\ &RQFHSWV IRU WKH $QDO\VLV RI $JUDULDQ )RUPDWLRQV -RXUQDO RI 3HDVDQW 6WXGLHV f )6$ )DUP 6HUYLFH $JHQF\f %XUOH\ 7REDFFR 6XSSRUW 3URJUDP DQG 5HODWHG ,QIRUPDWLRQ SS :DVKLQJWRQ & )DUP 6HUYLFH $JHQF\ 8QLWHG 6WDWHV 'HSDUWPHQW RI $JULFXOWXUH )XOOHU $QWKRQ\ 0 3DUW7LPH )DUPLQJ 7KH (QLJPDV DQG WKH 5HDOLWLHV 5HVHDUFK LQ 5XUDO 6RFLRORJ\ DQG 'HYHORSPHQWn *DUNRYLFK /RUUDLQH -DQHW / %RNHPHLHU DQG %DUEDUD )RRWH +DUYHVW RI +RSH )DPLO\ )DUPLQJ)DUPLQJ )DPLO\ /H[LQJWRQ 8QLYHUVLW\ 3UHVV RI .HQWXFN\ *LEVRQ (ULF 6HOO :KDW
PAGE 208

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f +DUULV 5LFKDUG / 0DU[LVP DQG WKH $JUDULDQ 4XHVWLRQ LQ /DWLQ $PHULFD /DWLQ $PHULFDQ 3HUVSHFWLYHV f +DUULVRQ /RZHOO + DQG -DPHV & .ORWWHU $ 1HZ +LVWRU\ RI .HQWXFN\ /H[LQJWRQ 7KH 8QLYHUVLW\ 3UHVV RI .HQWXFN\ +DUYH\ &XUWLV ( &RDO LQ $SSDODFKLD $Q (FRQRPLF $QDO\VLV /H[LQJWRQ 7KH 8QLYHUVLW\ 3UHVV RI .HQWXFN\ .XHJHO 5RG DQG 'DQQ\ 0F.LQQH\ &RQWUDFWLQJ FRPSDQLHVn DLP LV WR HURGH WREDFFR SULFH VXSSRUWV /LFNLQJ 9DOOH\ &RXULHU S 6HSWHPEHU /DVOH\ 3DXO DQG & 3KLOOLS %DXPHO $ 0DWWHU RI 7UXVW 6RXQG &RRS %XVLQHVV (WKLFV &DQ (QKDQFH 0HPEHU /R\DOW\ 5XUDO &RRSHUDWLYHV 0D\-XQHf /HDFRFN (OHDQRU %XUNH ,QWURGXFWLRQ ,Q 7KH &XOWXUH RI 3RYHUW\ $ &ULWLTXH ( % /HDFRFN HG SS 1HZ
PAGE 209

/HHGV $QWKRQ\ 7KH &RQFHSW RI WKH &XOWXUH RI 3RYHUW\ &RQFHSWXDO /RJLFDO DQG (PSLULFDO 3UREOHPV ZLWK 3HUVSHFWLYHV IURP %UD]LO DQG 3HUX ,Q 7KH &XOWXUH RI 3RYHUW\ $ &ULWLTXH ( % /HDFRFN HG SS 1HZ
PAGE 210

0F.LQQH\ 'DQQ\ DQG 5RG .XHJHO %XUOH\ FRRS WR VWDQG IDVW RQ VXUSOXV SULFH /LFNLQJ 9DOOH\ &RXULHU S )HEUXDU\ 0LOOHU 'DYLG % $ 3DUWLDO 7HVW RI 2VFDU /HZLVnV &XOWXUH RI 3RYHUW\ LQ 5XUDO $PHULFD &XUUHQW $QWKURSRORJ\ f 0RRQH\ 3DWULFN + 7RZDUG D &ODVV $QDO\VLV RI 0LGZHVWHUQ $JULFXOWXUH 5XUDO 6RFLRORJ\ f 'HVSHUDWHO\ 6HHNLQJ 2QHGLPHQVLRQDO 0DQQ DQG 'LFNLQVRQ 5XUDO 6RFLRORJ\ f 1HWWLQJ 5REHUW 0F& 6PDOOKROGHUV +RXVHKROGHUV )UHHKROGHUV :K\ WKH )DPLO\ )DUP :RUNV :HOO :RUOGZLGH ,Q 7KH +RXVHKROG (FRQRP\ 5HFRQVLGHULQJ WKH 'RPHVWLF 0RGH RI 3URGXFWLRQ 5 5 :LON HG SS %RXOGHU &2 :HVWYLHZ 3UHVV 1RZDN 3HWHU $GRSWLRQ DQG 'LIIXVLRQ RI 6RLO DQG :DWHU &RQVHUYDWLRQ 3UDFWLFHV )XWXUH $JULFXOWXUDO 7HFKQRORJ\ DQG 5HVRXUFH &RQVHUYDWLRQ :DVKLQJWRQ '& 2$3 2IILFH RI $JULFXOWXUDO 3ROLF\f +LVWRU\ RI WKH 1DWLRQDO 7REDFFR *URZHUV 6HWWOHPHQW 7UXVW 9RO *RYHUQRUn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

PAGE 211

5HLQKDUGW “ROD DQG 3HJJ\ %DUOHWW )DPLO\ )DUP &RPSHWLWLYHQHVV LQ 8QLWHG 6WDWHV $JULFXOWXUH ,Q )RRG DQG )DUP &XUUHQW 'HEDWHV DQG 3ROLFLHV & *ODGZLQ DQG 7UXPDQ HGV SS 0RQRJUDSKV LQ (FRQRPLF $QWKURSRORJ\ 1R /DQKDP 0' 8QLYHUVLW\ 3UHVV RI $PHULFD 5RVHEHUU\ :LOOLDP $QWKURSRORJLHV DQG +LVWRULHV (VVD\V LQ &XOWXUH +LVWRU\ DQG 3ROLWLFDO (FRQRP\ 1HZ %UXQVZLFN 15XWJHUV 8QLYHUVLW\ 3UHVV 5RZHOO %UHQW HGf )UXLW DQG 9HJHWDEOH &URSV 5HVHDUFK 5HSRUW 9RO 'HSDUWPHQW RI +RUWLFXOWXUH 6DODPRQ 6RQ\D 3HUVLVWHQFH $PRQJ 0LGGOH5DQJH &RUQ %HOW )DUPHUV ,Q )RRG DQG )DUP &XUUHQW 'HEDWHV DQG 3ROLFLHV & *ODGZLQ DQG 7UXPDQ HGV SS 0RQRJUDSKV LQ (FRQRPLF $QWKURSRORJ\ 1R /DQKDP 0' 8QLYHUVLW\ 3UHVV RI $PHULFD 3UDLULH 3DWULPRQ\ )DPLO\ )DUPLQJ DQG &RPPXQLW\ LQ WKH 0LGZHVW &KDSHO +LOO 7KH 8QLYHUVLW\ RI 1RUWK &DUROLQD 3UHVV 6DOVWURP 3DXO 1HZHU $SSDODFKLD DV 2QH RI $PHULFDnV /DVW )URQWLHUV ,Q $SSDODFKLD LQ WKH 0DNLQJ 7KH 0RXQWDLQ 6RXWK LQ WKH WK &HQWXU\ 0 % 3XGXS %LOOLQJV DQG $ :DOOHU HGV SS &KDSHO +LOO 8QLYHUVLW\ RI 1RUWK &DUROLQD 3UHVV 6FKUHLQHU %UXFH )RXU ELJ FLJDUHWWH PDNHUV WR EX\ GLUHFWO\ IURP WREDFFR IDUPHUV /H[LQJWRQ +HUDOG/HDGHU S )HEUXDU\ 6FKURHGHU (PLO\ + )UHGHULFN & )OLHJHO DQG -& YDQ (V 0HDVXUHPHQW RI WKH /LIHVW\OH 'LPHQVLRQV RI )DUPLQJ IRU 6PDOO6FDOH )DUPHUV 5XUDO 6RFLRORJ\ f 6FKXOPDQ 0LFKDHO 3DWULFLD *DUUHWW DQG 5HJLQD /XJLQEXKO 'LPHQVLRQV RI WKH ,QWHUQDO 6WUDWLILFDWLRQ RI 6PDOOKROGHUV ,QVLJKWV IURP 1RUWK &DUROLQD 3LHGPRQW &RXQWLHV 5XUDO 6RFLRORJ\ f 6FRWW 6KDXQD / 7ZR 6LGHV WR (YHU\WKLQJ 7KH &XOWXUDO &RQVWUXFWLRQ RI &ODVV &RQVFLRXVQHVV LQ +DUODQ &RXQW\ .HQWXFN\ $OEDQ\ 1< 6WDWH 8QLYHUVLW\ RI 1HZ
PAGE 212

6QHOO :LOOLDP 0 7KH 86 7REDFFR 3URJUDP +RZ ,W :RUNV DQG :KR 3D\V )RU ,W SS /H[LQJWRQ 8QLYHUVLW\ RI .HQWXFN\ &RRSHUDWLYH ([WHQVLRQ 6HUYLFH .HQWXFN\ 7REDFFR 6HWWOHPHQW 7UXVWnV 3KDVH ,, 3ODQ IRU SS /H[LQJWRQ 'HSDUWPHQW RI $JULFXOWXUDO (FRQRPLFV 8QLYHUVLW\ RI .HQWXFN\ .HQWXFN\ 7REDFFR 6LWXDWLRQ DQG 2XWORRN 9RO $JULFXOWXUDO (FRQRPLFV 6QHOO :LOOLDP 0 DQG 2UODQGR &KDPEHUV %X\LQJ DQG 6HOOLQJ %XUOH\ 4XRWD :KDW )DFWRUV 6KRXOG )DUPHUV &RQVLGHU" /H[LQJWRQ 8QLYHUVLW\ RI .HQWXFN\ &RRSHUDWLYH ([WHQVLRQ 6HUYLFH 6QHOO :LOOLDP 0 DQG 6WHSKDQ *RHW] 2YHUYLHZ RI .HQWXFN\n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f 7LFNDP\HU $QQ 5 DQG &HFLO 7LFNDP\HU 3RYHUW\ LQ $SSDODFKLD /H[LQJWRQ 8QLYHUVLW\ RI .HQWXFN\ $SSDODFKLDQ &HQWHU 7ZHHWHQ /XWKHU DQG :LOOLDP $ $PSRQVDK $OWHUQDWLYHV IRU 6PDOO )DUP 6XUYLYDO *RYHUQPHQW 3ROLFLHV 9HUVXV WKH )UHH 0DUNHW -RXUQDO RI $JULFXOWXUDO DQG $SSOLHG (FRQRPLFV Of

PAGE 213

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
PAGE 214

:ROI (ULF (XURSH DQG WKH 3HRSOH :LWKRXW +LVWRU\ %HUNHOH\ 8QLYHULVW\ RI &DOLIRUQLD 3UHVV :ROIH &RXQW\ 1HZV %XUOH\ TXRWD UDLVHG b /LFNLQJ 9DOOH\ &RXULHU )HEUXDU\ :RRG /DZUHQFH ( DQG *UHJRU\ $ %LVFKDN 3URJUHVV DQG &KDOOHQJHV LQ 5HGXFLQJ (FRQRPLF 'LVWUHVV LQ $SSDODFKLD $Q $QDO\VLV RI 1DWLRQDO DQG 5HJLRQDO 7UHQGV 6LQFH :DVKLQJWRQ '& $SSDODFKLDQ 5HJLRQDO &RPPLVVLRQ =DEDZD 5REHUW 7KH 7UDQVIRUPDWLRQ RI )DUPLQJ LQ *DGVHQ &RXQW\ 1RUWK )ORULGD $ 0LFUR/HYHO ([DPSOH RI D 0DFUR/HYHO 3KHQRPHQRQ 1RUWKZHVWHUQ 8QLYHUVLW\ =LPPHUPDQ -XOLH 1 DQG 1LFROH %UHD]HDOH .HQWXFN\ %\ WKH 1XPEHUV 3RYHUW\ 8SGDWH /H[LQJWRQ 8QLYHUVLW\ RI .HQWXFN\

PAGE 215

%,2*5$3+,&$/ 6.(7&+ 0DUN 6ZDQVRQ ZDV ERP DQG UDLVHG LQ 'HV 0RLQHV ,RZD +H UHFHLYHG WKH %$ ZLWK KRQRUV LQ DQWKURSRORJ\ IURP WKH 8QLYHUVLW\ RI ,RZD LQ )ROORZLQJ D \HDU ZRUNLQJ RQ WKH 86 6HQDWH FDPSDLJQ RI 7RP +DUNLQ ',RZDf 6ZDQVRQ ZRUNHG DV D OHJLVODWLYH DVVLVWDQW LQ 6HQDWRU +DUNLQfV &DSLWRO +LOO RIILFH +H HQWHUHG JUDGXDWH VFKRRO DW WKH 8QLYHUVLW\ RI )ORULGD LQ DQG UHFHLYHG WKH 0$ LQ DQWKURSRORJ\ LQ $IWHU PRYLQJ WR .HQWXFN\ LQ KH WDXJKW DQWKURSRORJ\ DW /H[LQJWRQ &RPPXQLW\ &ROOHJH EHIRUH EHJLQQLQJ ILHOGZRUN IRU WKLV GLVVHUWDWLRQ LQ HDVWHUQ .HQWXFN\ LQ )HEUXDU\ +H FXUUHQWO\ UHVLGHV LQ /H[LQJWRQ .HQWXFN\ ZLWK KLV ZLIH 'U 1DQF\ 6FKRHQEHUJ DQG WKHLU WZR FKLOGUHQ 5DFKHO DQG %HQMDPLQ

PAGE 216

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

PAGE 217

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

PAGE 218

/' 2,f§ VP