American businessman Henry Ford is famous for founding Ford Motors, and for introducing the moving assembly line.
Perhaps less well-known is one of his failed projects: Fordlandia.
In the 1920s, Ford decided to build the ideal city based on Ford’s company values. So, he scooped up 5,625 square miles of land and started building.
Fordlandia had hospitals, schools, stores, a golf course, telephones, and, much like every other model US town, it even had a water tower with Ford’s logo.
But the most surprising thing about Fordlandia was that it wasn’t built in the US, but in the middle of the Amazon, in Brazil.
You see, Ford was worried about rubber supply for his automobile production.
At the time, Britain was one of the largest rubber producers in the world, through its Asian colonies. But after the First World War, demand for rubber had dropped, collapsing prices.
To bump up prices, the British decided to cut production through the ‘Stevenson Plan’.
So, in an effort to secure rubber supply for his automobiles, Ford thought of setting up a city in Brazil to grow his own rubber supply. Rubber produced in Fordlandia would be shipped to Ford’s factories in the US.
It made sense.
Brazil had a long history producing rubber.
In fact, the rubber tree, the hevea brasiliensis, was discovered in Brazil. For years, Brazil had controlled much of the world’s rubber production. That is, until Henry Wickam smuggled out some hevea seeds to England…
As I said, though, the plantation failed, mainly due to a combination of cultural differences with the locals, the fact that they weren’t able to produce much rubber from the plantation, and the rise of synthetic rubber.
Ford shut off the whole project in 1945. Although, some traces of the plantation still remain, as you can see below:
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| Source: BP Energy Outlook |
Although the project failed, one thing to understand is that Ford was a big fan of securing supply chains and vertical integration.
Ford had suffered through shortages and raw material price increases during the First World War.
That’s why Ford had gone to great efforts to buy railroads, coal mines, secure timber supply, and even bought a fleet of ships to carry iron ore.
He understood that supply chains, much like rubber bands, can break down when they are overstretched.
Shifting supply chains
Much like Henry Ford 100 years ago, countries have realised during the pandemic the importance of securing their supply chains.
And after a long period of globalisation and collaboration, we’re seeing a re-shift in supply chains.
We’ve talked plenty here about onshoring and nearshoring supply chains.
We’re especially seeing this in the energy transition and in critical materials. The Ukraine war has shown the importance of energy security.
Much of these supply chain disruptions have been blamed on the pandemic, but the pandemic seems to be over, and we’re still seeing plenty of product shortages.
As I mentioned recently, a bump in egg prices in the US has driven Americans to smuggle eggs from Mexico.
Here in Australia, you may have noticed chicken and pasta are becoming hard to find.
At the same time, these supply chain disruptions are causing inflation…
And central banks have been raising rates to try and kill demand…yet, much of today’s inflation is coming from the supply side, from high energy prices and supply chain disruptions.
Central banks could be making a big mistake…
Central banks are looking for the sweet spot. To raise rates enough that they don’t cause a recession and instead achieve a ‘soft landing’ for the economy.
But markets are in two minds as to whether central banks can achieve this.
Last night was no different.
If you follow the markets, you’d know the US released its latest instalment on inflation numbers just after midnight.
The latest consumer price report came in at 6.4%, lower than December’s 6.5%, which was within expectation.
But month to month, inflation was up 0.5%, much higher from the 0.1% increase it recorded in December. What’s more, core inflation — which excludes fuel and food — came in at 5.6% higher than the expected 5.5%.
Markets were mixed as a result.
My colleague Jim Rickards thinks that in their mission to tame inflation, central banks could make a big mistake, one that could take us deep into a recession.
That’s why he’s released his new book. In SOLD OUT!, Jim explains how we got here, how to protect yourself from the consequences of broken supply chains, and what’s to come.
To find out how to claim a digital copy of his book, click here.
Best,
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Selva Freigedo,
Editor, Money Morning
