Economist Paul Collier, who gave a riveting talk at this year's TED conference, has an unsurprisingly clear-eyed take on one cure for the current escalation in global food prices: Broadened large-scale commercial agriculture. While that might seem obvious, it is far from the favored solution in many countries.

The remedy to high food prices is to increase food supply, something that is entirely feasible. The most realistic way to raise global supply is to replicate the Brazilian model of large, technologically sophisticated agro-companies supplying for the world market. To give one remarkable example, the time between harvesting one crop and planting the next, in effect the downtime for land, has been reduced an astounding thirty minutes. There are still many areas of the world that have good land which could be used far more productively if it was properly managed by large companies. For example, almost 90% of Mozambique’s land, an enormous area, is idle.

Unfortunately, large-scale commercial agriculture is unromantic. We laud the production style of the peasant: environmentally sustainable and human in scale. In respect of manufacturing and services we grew out of this fantasy years ago, but in agriculture it continues to contaminate our policies. In Europe and Japan huge public resources have been devoted to propping up small farms. The best that can be said for these policies is that we can afford them. In Africa, which cannot afford them, development agencies have oriented their entire efforts on agricultural development to peasant style production. As a result, Africa has less large-scale commercial agriculture than it had fifty years ago. Unfortunately, peasant farming is generally not well-suited to innovation and investment: the result has been that African agriculture has fallen further and further behind the advancing productivity frontier of the globalized commercial model.

[via FT]

We examine the impact of two post-9/11 airport security measures—baggage screening and federalization of passenger screening—on demand for air travel in the United States. Exploiting the phased introduction of security measures across airports, we find that baggage screening reduced passenger volume by about 6 percent on all flights and by about 9 percent on flights departing from the nation’s 50 busiest airports. In contrast, federalizing passenger screening had little effect on passenger volume. We provide evidence that the reduction in demand was an unintended consequence of baggage screening and not the result of contemporaneous price changes, airport-specific shocks, schedule changes, or other factors. This decline in air travel had a substantial cost. Back-of-the-envelope calculations indicate that the airline industry lost about $1.1 billion because of the decline, which is 11 percent of the loss attributed directly to 9/11.

Microsoft is walking, it says, from its Yahoo bid. Not a surprise given the history and given Ballmer's confused approach, but it is an open questions whether this is mere stratagem, a "for keeps" move away from the entire transaction , or presages an eventual hostile follow-up.

The full release and letter are here. What a mess, one that reflects horribly on both firms -- and will likely eventually cost both CEOs their jobs.

[Update] Near as I can tell, Kara was among the first to have this, so credit to where credit is due.

Here is the full press and "Dear Jerry" letter from Microsoft's Ballmer on calling it quits on the Yahoo acquisition. Via PR Newswire:

Microsoft Withdraws Proposal to Acquire Yahoo!

REDMOND, Wash., May 3 /PRNewswire-FirstCall/ -- Microsoft Corp. (Nasdaq: MSFT) today announced that it has withdrawn its proposal to acquire Yahoo! Inc. (Nasdaq: YHOO).

"We continue to believe that our proposed acquisition made sense for Microsoft, Yahoo! and the market as a whole. Our goal in pursuing a combination with Yahoo! was to provide greater choice and innovation in the marketplace and create real value for our respective stockholders and employees," said Steve Ballmer, chief executive officer of Microsoft.

"Despite our best efforts, including raising our bid by roughly $5 billion, Yahoo! has not moved toward accepting our offer. After careful consideration, we believe the economics demanded by Yahoo! do not make sense for us, and it is in the best interests of Microsoft stockholders, employees and other stakeholders to withdraw our proposal," said Ballmer.

"We have a talented team in place and a compelling plan to grow our business through innovative new services and strategic transactions with other business partners. While Yahoo! would have accelerated our strategy, I am confident that we can continue to move forward toward our goals," Ballmer said.

"We are investing heavily in new tools and Web experiences, we have dramatically improved our search performance and advertiser satisfaction, and we will continue to build our scale through organic growth and partnerships," said Kevin Johnson, Microsoft president for platforms and services.

Below is the text of the letter from Microsoft CEO Steve Ballmer to Yahoo! CEO Jerry Yang.

May 3, 2008

Mr. Jerry Yang
CEO and Chief Yahoo
Yahoo! Inc.
701 First Avenue
Sunnyvale, CA 94089

Dear Jerry:
After over three months, we have reached the conclusion of the process regarding a possible combination of Microsoft and Yahoo!.

I first want to convey my personal thanks to you, your management team, and Yahoo!'s Board of Directors for your consideration of our proposal. I appreciate the time and attention all of you have given to this matter, and I especially appreciate the time that you have invested personally. I feel that our discussions this week have been particularly useful, providing me for the first time with real clarity on what is and is not possible.

I am disappointed that Yahoo! has not moved towards accepting our offer. I first called you with our offer on January 31 because I believed that a combination of our two companies would have created real value for our respective shareholders and would have provided consumers, publishers, and advertisers with greater innovation and choice in the marketplace. Our decision to offer a 62 percent premium at that time reflected the strength of these convictions.

In our conversations this week, we conveyed our willingness to raise our offer to $33.00 per share, reflecting again our belief in this collective opportunity. This increase would have added approximately another $5 billion of value to your shareholders, compared to the current value of our initial offer. It also would have reflected a premium of over 70 percent compared to the price at which your stock closed on January 31. Yet it has proven insufficient, as your final position insisted on Microsoft paying yet another $5 billion or more, or at least another $4 per share above our $33.00 offer.

Also, after giving this week's conversations further thought, it is clear to me that it is not sensible for Microsoft to take our offer directly to your shareholders. This approach would necessarily involve a protracted proxy contest and eventually an exchange offer. Our discussions with you have led us to conclude that, in the interim, you would take steps that would make Yahoo! undesirable as an acquisition for Microsoft.

We regard with particular concern your apparent planning to respond to a "hostile" bid by pursuing a new arrangement that would involve or lead to the outsourcing to Google of key paid Internet search terms offered by Yahoo! today. In our view, such an arrangement with the dominant search provider would make an acquisition of Yahoo! undesirable to us for a number of reasons:

-- First, it would fundamentally undermine Yahoo!'s own strategy and long-term viability by encouraging advertisers to use Google as opposed to your Panama paid search system. This would also fragment your search advertising and display advertising strategies and the ecosystem surrounding them. This would undermine the reliance on your display advertising business to fuel future growth.

-- Given this, it would impair Yahoo's ability to retain the talented engineers working on advertising systems that are important to our interest in a combination of our companies.

-- In addition, it would raise a host of regulatory and legal problems that no acquirer, including Microsoft, would want to inherit. Among other things, this would consolidate market share with the already-dominant paid search provider in a manner that would reduce competition and choice in the marketplace.

-- This would also effectively enable Google to set the prices for key search terms on both their and your search platforms and, in the process, raise prices charged to advertisers on Yahoo. In addition to whatever resulting legal problems, this seems unwise from a business perspective unless in fact one simply wishes to use this as a vehicle to exit the paid search business in favor of Google.

-- It could foreclose any chance of a combination with any other search provider that is not already relying on Google's search services.

Accordingly, your apparent plan to pursue such an arrangement in the event of a proxy contest or exchange offer leads me to the firm decision not to pursue such a path. Instead, I hereby formally withdraw Microsoft's proposal to acquire Yahoo!.

We will move forward and will continue to innovate and grow our business at Microsoft with the talented team we have in place and potentially through strategic transactions with other business partners.

I still believe even today that our offer remains the only alternative put forward that provides your stockholders full and fair value for their shares. By failing to reach an agreement with us, you and your stockholders have left significant value on the table.

But clearly a deal is not to be.

Thank you again for the time we have spent together discussing this.

Sincerely yours,
/s/ Steven A. Ballmer

Steven A. Ballmer
Chief Executive Officer
Microsoft Corporation<

Here is my first-cut analysis of what has happened here:

• On the friendly front, Yahoo drew a hard line at $37 per share, well above the $33 that Microsoft now says it told Yahoo this week it was willing to go
• On the hostile front, Yahoo apparently told Microsoft -- as I surmised and said early on -- that it was prepared to take steps to mess itself up to prevent a hostile acquisition or proxy battle. In particular, Yahoo was prepared to outsource key search terms to Google, which is, in my mind, goofy, mischievous, and unlikely to stand up to regulatory or legal scrutiny.

As a result, when faced with too high of a spread to the acquisition price on a friendly basis, and a company prepared to gut itself, with Google's help, to prevent a hostile action, Microsoft is saying it will walk away.

Now, will it stay away? Good question. Anything can happen in these things, and a lot will depend on what happens to Microsoft and Yahoo stock in the first few days of next week. Yahoo could see a fusillade of lawsuits if its stock falls to the teens, especially given the length it is apparently willing to go to prevent a hostile offer from going through. In other words, we could see Microsoft back again.

Bottom-line for me: This has a been a risky and poorly managed affair from end-to-end. Both CEOs deserve immense blame -- Ballmer for vacillating; Yang for running a public company without the foremost regard for shareholders -- and they are likely to be the two people who suffer the most indignities (including possible termination) over the coming weeks and months.

Other collateral damage: Major shareholders who built up positions in anticipation of this, especially Bill Miller at Legg Mason, who was beginning to see his year turn around after two nasty years of lagging the market. Also a host of M&A arbs, most of whom thought that Microsoft had no choice but to go hostile, and are now going to see even that premium come out of the stock, at least until the legal actions start up.

[Update] The more I think about it, the more Yahoo (and maybe Microsoft too) reminds me of that crack suicide squad in Monty Python's Life of Brian.

OTTO:

Ve are the Judean People's Front. Crack suicide squad. Suicide squad! Attack!

[drum roll]

J.P.F.:

Uh! Ugh. Aggh...

OTTO:

That showed 'em, huh? Oooh.

[whump]

BRIAN:

You silly sods.

This is rapidly turning into two post-tryst teens texting one another hate messages -- u suck! no, u suck! -- but Yahoo is now out with a response to Microsoft's response about its decision to terminate its takeover offer for Yahoo. Here is the release in its entirety:

Yahoo! Issues Statement in Response to Microsoft

SUNNYVALE, Calif., May 03, 2008 (BUSINESS WIRE) -- Roy Bostock, Chairman of Yahoo! Inc. (Nasdaq:YHOO), a leading global Internet company issued the following statement today in response to Microsoft Corporation's announcement that it has withdrawn its proposal to acquire Yahoo!:

"We remain focused on maximizing shareholder value and pursuing strategic opportunities that position Yahoo! for success and leadership in its markets. From the beginning of this process, our independent board and our management have been steadfast in our belief that Microsoft's offer undervalued the company and we are pleased that so many of our shareholders joined us in expressing that view. Yahoo! is profitable, growing, and executing well on its strategic plan to capture the large opportunities in the relatively young online advertising market. Our solid results for the first quarter of 2008 and increased full year 2008 operating cash flow outlook reflect the progress the company is making. Today, Yahoo! has:

-- a refined strategic focus to drive enhanced volume and yield;

-- reorganized to focus its efforts on its most promising products and services;

-- invested in innovations designed to revolutionize display advertising and facilitate closing the competitive gap in search; and

-- enhanced expense and resource management to support improved profitability."

Jerry Yang, co-founder and chief executive officer, Yahoo! Inc. added, "I am incredibly proud of the way our team has come together over the last three months. This process has underscored our unique and valuable strategic position. With the distraction of Microsoft's unsolicited proposal now behind us, we will be able to focus all of our energies on executing the most important transition in our history so that we can maximize our potential to the benefit of our shareholders, employees, partners and users."

Sure, shareholders thought they could get more money out of Microsoft, but did a quorum really believe they could get $37 a share, after Microsoft already offered its sizable original premium and offered to up the bid to $33-ish?

All in all, this strikes me as a fairly unsubtle example of whistling past the graveyard. Come on, the quarter was no hell, and promising a better 2008 is a lovely fantasy, but not exactly grounded in the real world. The rest of the "progress" cited in this note gives the word "vague" a bad name.

So, what happens next? Microsoft has walked away from Yahoo, or at least from its current takeover offer, and is saying it will move forward organically  -- and said word with its reek of cattle feces is appropriate here. Yahoo, for its part, cites -- with less specifics than my six-year-old gives at day-end when claiming "good behavior" -- the many golden wonders ahead of it in its post-Microsoft future.

I don't buy either argument. Here is why, in two parts:

• If Microsoft could have solved its advertising and content problems organically, it wouldn't have been forced to make an outsize and humbling bid of former web wunderkind Yahoo. It's not exactly short of cash, people or need. To say that it now has the magic solution is, let's just say, the triumph of hope over recent experience.
• If Yahoo really had in place the pieces to make a run at being ... something, we wouldn't be seeing the key employee attrition and weak revenue/traffic growth that we currently see. After all, the only thing that saved Yahoo's earnings bacon in the just-completed quarter was money gifted from Alibaba gains. It wasn't a changed company that did it, and wasn't the magic of Jerry Yang.

I think what has largely happened here is we have bought time and lawsuits. If I was a Yahoo shareholder I'd be seriously pissed. Microsoft pulled us out of our recent share price slump, but management was too cutesy and territorial to take the money and run. My guess is that Yahoo's share price falls quickly on Monday, and then finds support in the low-$20, a price reflecting a belief that this is not yet over. Only then, once some key shareholders pipe up and once Yahoo has to defend itself against the inevitable lawsuits, will we know how likely it is that its brazen move sticks.

Other thoughts? Bring 'em on.

Kara Swisher remains waaaay plugged-in on this Yahoo/Microsoft deal. Beating Monday's papers (and her WSJ compatriots' inevitable Monday piece) by ... oh, 36 hours or so, she has up the first credible tick-tock of how the Yahoo/Microsoft deal devolved to this.

Read it and see how Jerry Yang and Steve Ballmer make Felix Unger and Oscar Madison seem like French-kissing soulmates.