Farming as Financial Asset. Stefan Ouma
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some farming projects, the institutional and political features of the time limited foreign capital’s penetration of agriculture. The main transformative effort of the time was focused on rural collectivization, and rural farmers were serviced by national banking institutions, whose access to foreign private finance was restricted, however. This would change after the demise of socialism towards the end of the 1980s (Aminzade 2013). After Tanzanian subscribed to the structural adjustment plans of the World Bank and International Monetary Fund (IMF) in 1986, the financial sector and virtually all other domains of the economy were liberalized (Lwiza & Nwankwo 2002). In the 1990s this also led to the privatization of former state assets (Temu & Due 2000), including many agricultural enterprises (one of which we shall encounter later as a “financial asset”). As we shall see in Chapter 8, the privatization of former state farms, and the rise of associated market-oriented agricultural policies in the new millennium as an apex to the neoliberalization of the Tanzanian economy, would provide a window of opportunity for the entry of large-scale overseas investments (Chachage & Mbunda 2009). At the same time, the rural population’s overall access to credit did not improve and sometimes even got worse compared to the era of state-backed credit provision (Bee 2009).
The historically limited expansion of credit in earlier periods paired with the restrictions put on large-scale private farming during the socialist period (other than state farms and a few other plantations) would provide opportunities for the entry of global finance in the 2000s. On the one hand, friends of the market could argue that smallholders – still the majority of the country’s population – did not produce enough to feed the nation and posed no viable development future (Collier & Dercon 2014). On the other hand, the country, despite the fact that it still presented significant barriers to foreign investment in agriculture (e.g. a quite restrictive land tenure system), inherited a number of large-scale farming pockets that had the scale that institutional investment needed.
This brief account of imperial frontier making shows that finance, even structured transnational investments, had tight connections to the production of agricultural landscapes in many parts of the world. In certain geographical regions, such as modern-day Tanzania, a number of structural barriers prevented finance from penetrating agriculture more thoroughly, while in others it faced far fewer obstacles. In some contexts finance proceeded through genuine equity investments and direct ownership chains, but in the majority of cases it advanced through the provision of credit. Credit is central to the (re)production of capitalist relations and “facilitates structural change in agriculture” (Green 1987: 69) and, by itself, is a way of extracting surplus from production (ibid.: 62). Across the globe, for sustained periods of time, it was the vehicle of choice for money flowing into agriculture. Credit not only links savers and borrowers, who would use it in the creation of new “assets”, including agricultural ones, but also serves as “a mechanism for increasing the turnover rate of capital” (ibid.: 29). Depending on the context, however, the “terraforming” power of credit was limited or even restricted (such as in colonial and socialist Tanganyika/Tanzania), or at least heavily regulated, as part of a wider state-interventionist project of economy making (as was the case in Aotearoa New Zealand).
After the demise of empire, financial thinkers and practitioners soon discovered new ways of capitalizing on farming. By the mid-1960s attempts were made to reimagine agriculture as a genuine object of modern asset management. This manifested itself in the rise of institutional farmland investment thinking in the United States, and a first wave of institutional farmland investments in the United Kingdom in the 1960s. Although, in the United States, it would take until the farm crisis of the 1980s before finance could legitimately enter farming more directly, backed by finance-mathematical claims about how it could add value to an institutional investor’s portfolio, the flow of finance into farmland in the United Kingdom was born out of more practical considerations on the part of the institutional investment managers of the time. After all, the Crown, Church, aristocracy and gentry had put their monies into land and forestry for centuries, so why should they not do so as well?
From individual to institutional asset: the rise of farmland investment thinking in the United States and United Kingdom
The rise of modern forms of farmland investment thinking dates back to the United States of the 1960s. It evolved against the backdrop of increasing land consolidation (reaching a scale interesting to financial investors), such that average farm sizes “ballooned between 1910 and 1970, from 138 to 390 acres” (Axelrad 2014: 6; see also Weis 2007: 83), as well as the increasing influence that financial institutions had gained in agricultural lending and mortgages. The first attempts to make a case for farmland investments were made by a number of economists working at the land grant universities of the Midwest in the mid-1960s (Barry 1980; Kaplan 1985; Kost 1968). Based on these thoughts, Merrill Lynch and the Continental Bank of Illinois tried to set up a farmland fund in the late 1970s, which did not materialize because resistance from “an unusual alliance of government, Congressional, labor, farm, consumer and religious forces had denounced the plan as likely to lead to domination of agriculture by huge tax-exempt investors and to threaten the future of family farming” (New York Times 1977; see also Chapter 6). What instead took off without much resistance was institutional investment into timberland (Gunnoe & Gellert 2011), as “[v]ertically integrated US timber companies, facing increasing market pressure, began to view their land holdings as deadweight on their balance sheets” (Fairbairn 2014: 788). Their lands were either bundled in real estate investment trusts (REITs) or managed on their behalf by a timberland investment management organization (TIMO). The full-blown entry of institutional investors into farmland was sparked one decade later by the great farming crisis that ensued in the 1980s, which left many owner-operated farms bankrupt and saw some formerly solely insurance companies, such as Prudential Travellers and John Hancock, take direct ownership of indebted farms. These and other institutional investors moved beyond timberland interests, with the TIMO serving as an important template for the newly emerging farmland investment management organizations (FIMOs) (Gunnoe 2014; Fairbairn 2014). In the mid-1980s the most important players owned almost 3.5 million acres of farmland across the United States (Green 1987: 74). Today Hancock, now as Hancock Agricultural Investment Group, and Prudential, now as Prudential Agricultural Investments, are still important players in the agricultural investment industry.
Interestingly, by the early 1980s the United Kingdom had already experienced two decades of institutional farmland investing, a boom that ended when the one in the United States was about to start. Albeit less explicitly guided by the principles of modern portfolio management, this was a significant moment of financial expansion. Although insurance companies already held by 1875 “‘between two-thirds and three-quarters of the long-term debts secured on landed estates’” (Northfield Committee Report; cited in Munton 1985: 157), and had supported the colonial enterprise, up to the 1960s these players had not invested in domestic farmland “because private owners were prepared to pay 45 per cent on borrowed capital with rental yields at only about 21 per cent” (ibid.: 158). After government policies such as the promotion of credit and mortgage expansion and support for owner-occupier farming had led to the increasing commodification of land rights between the First World War and the 1960s (Whatmore 1986), pension funds,