Farming as Financial Asset. Stefan Ouma
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target="_blank" rel="nofollow" href="#litres_trial_promo">1977: 31) towards agriculture and started to acquire farmland in England and Scotland. Combined with some macroeconomic drivers (discussed below), the preceding “transformation of land rights into financial assets and the development of the land market as a specialised investment sector” (Whatmore 1986: 117) created the necessary conditions for finance to take direct ownership of farms. This takeover “formed the basis for some of the more dramatic political debates in Britain during the 1970s” (Duncan & Anderson 1978: 249), and sparked a series of critical investigations into the workings of the “property machine” (Ambrose & Colenutt 1975). Two observers at the time noted that “[i]nvestment by financial institutions had been particularly obvious during the 1971–4 boom and again from 1976” (Duncan & Anderson 1978: 249). Drawing on a comprehensive survey of 40 funds that had a stake in farming properties, Richard Munton (1985) – probably the leading scholar on the assetization of farmland in the United Kingdom at that time – notes that, between 1966 and 1982, finance-driven investments in farmland saw a significant expansion (see Figure 3.2). By the end of 1984 financial institutions owned 286,517 hectares of lease land and a further of 48,341 hectares with vacant possession. This was “equivalent to 1.9 per cent of the total agricultural area and 3 per cent of the area of crops and grass in Great Britain” (Munton 1985: 160). Although this seems small, the large-scale properties controlled by these institutions commanded a much larger share of total food output, and often owned prime land in the targeted regions. “Financial landowners” (Massey & Catalano 1978: 122) were also thought to have a significant impact on land price volatility, as they could acquire and dispose of relatively large land holdings “overnight” (Munton 1985; Whatmore 1986). In addition, the dramatic shift that financial institutions were credited with driving lay less in their land market share and more in their creation of new land tenure arrangements. Most of the institutions opted for a sale/lease back model, whereby a farmer sells his or her land and then leases it back from the financial institution, which wants to benefit from both capital gains and rental income. Others worked with “manager-tenants” (Munton 1977: 35) through partnership agreements or took land “in hand” and managed it through a subsidiary farming company (Whatmore 1986: 119). Suffice it to say, we will encounter the former model again later, as it is one of the preferred models in the United States, the main investment destination of financial flows into farming today, while the latter two models have been reborn in some of the operational strategies we encounter in Aotearoa New Zealand and Australia.
Source: Redrawn from data provided in Munton (1985: 161).
Surprisingly, the drivers of the 1970s wave of finance-gone-farming in the United Kingdom were similar to those that would take precedence almost 40 years later: a fear of rising levels of inflation; ever-growing liabilities derived from the savings boom during this period; and the poor performance of traditional long-term investments, such as government bonds. Combined with government restrictions on overseas investments, and strong government support for the agricultural sector, this led to a rush on rural farming properties (Whatmore 1986: 118). Even though urban land acquisitions far outstripped the acquisitions of rural land, the latter were considered particularly controversial, with the then minister of agriculture admitting publicly that he was “‘scared as hell’” by what was going on (cited in Duncan & Anderson 1978: 251). This even led to the establishment of a commission, the so-called Northfield Commission, which presented its rather futile attempt (Leftwich 2010 [1983]: 212) to establish patterns of institutional land ownership in the United Kingdom in a report in 1979.
In retrospect, the boom in farmland investments in the United Kingdom would be over in less than two decades. When inflation declined, agricultural futures looked increasingly bleak, UK tenant laws proved to be too restrictive, restrictions on overseas investments were lifted and other asset classes looked more promising in the early 1980s, so fund managers started to placed their capital elsewhere. As we will see in Chapter 6, back then the same rule of investment applied as today: “Investment in farmland was a matter of comparative returns and the return from agricultural property would be continuously compared with returns from other assets” (Munton 1985: 159). Suddenly the city antipathy towards farmland was back. It would last until the late 2000s. Nevertheless, even though the boom in farmland investments in the United Kingdom seems short-lived, this relatively early financial economization of farmland formed an important antidote to the contemporary finance-driven land rush, and is still remembered by some industry veterans as a “first attempt”. It led Sarah Whatmore (1986: 113) to a conclusion that reads like an excerpt from a recent paper in the Journal of Peasant Studies (one of the leading outlets for “land grab debates”) but is backed up by research that is rarely discussed in these circles: “The social and economic relations of modern agricultural land ownership have thus become thoroughly enmeshed in the sphere of finance or banking capital in which fictitious capital circulates.”
Finance from farming
“Finance” is often positioned as antithetical to farming or other domains of the real economy, as if it had developed a life of its own completely delinked from it. Modern finance, with its high-speed mode of operation and lust for disruption, seems to be the complete opposite of the world of agriculture, which is often portrayed as conservative, slow-paced and unpretentious. Often, modern finance is also presented as a child of late, deregulated capitalism, a historical formation in which agriculture in many places (at least, in the Global North) seems to occupy only a marginal social and economic position. Indeed, as capitalism has advanced, the economic role of agriculture in many countries of the Global North, reflected by its changing share in GDP and the total labour force, has declined (see Roser n.d. for a current incarnation of this argument). Yet such binary positioning of finance and farming makes us forget the crucial role that agriculture has played in the development of modern finance and some of its practices. Indeed, these roots even transcend the age of “modern” capitalism and the age of “global finance” often associated with it, and have a pre-capitalist history:
It would seem that almost all elements of financial apparatus that we have come to associate with capitalism – central banks, bond markets, short selling, brokerage houses, speculative bubbles, securitization, annuities – came into being not only before the science of economics (which is perhaps not too surprising) but also before the rise of factories, and wage labour itself.
(Graeber 2011: 345)
A few snapshots may illustrate how modern finance evolved via a domain that is often placed far away from it.
•As already outlined in the Introduction, the notion of “asset” can be historically traced back to the idea of an estate that produces enough output to satisfy one’s obligations (e.g. debts, legacies). It soon passed into a general sense of “property” that