Farming as Financial Asset. Stefan Ouma
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it becomes clear why an asset in the craft of modern portfolio management is not only something of value to someone but also something that allows potential obligations to others to be satisfied.
•The efficiency-seeking and highly calculative approach of management that private-equity-minded financiers like to instil into acquired companies in and beyond agriculture was first developed on slave plantations in the Caribbean and the antebellum South – prior to the rise of “scientific” management principles in the factories of the American Northeast. Benchmarking productivity levels across different farm units was a crucial part of this calculative regime (Rosenthal 2018). Ever since then benchmarking has become a crucial tool of firms and investors to assess the performance of subsidiaries, branches or portfolio companies.
•Slave plantations in the Caribbean and the American South were also among the first sites where separation between the management and the distant ownership of an asset – a very important model of operation in contemporary capital placements in agriculture – was first established. For some historians, separation of the ownership and the management of an asset represented a “‘landmark in the history of capitalism’” (Caitlin Rosenthal; cited in Johnston 2013).
•The development of future contracts and options, now widely used financial tools, as well as the development of early stock exchanges, such as the Amsterdam Stock Exchange in 1602 and the Chicago Board of Trade in 1865, can be historically linked to trade in agriculture (Clapp 2011; Bernstein 1998). As the historian William Cronon (1992) has shown, hedging has firm agricultural roots.
•The discounted cash flow (DCF) model, now a widespread tool for asset valuation in the financial industry, was first developed in forestry. Estimating the current value of an asset by estimating its future income-generating capacity, “discounted by a certain factor based on length of time and, if applicable, the uncertainty of their occurrence and size” (Muniesa et al. 2017: 37), the DCF model allows one to establish how much one should pay for an asset at the point of sale, and allows one to structure investment among “several scenarios involving different types of … [assets]” (ibid.: 43).
•Even the idea of “capital value”, which underlies the notion of “asset” as a property whose value is underpinned by its future income earning capacity, has firm agrarian roots. Economist Irving Fisher was instrumental in shifting the prevalent thought of the time. For him, “[t]he orchard produces the apples; but the value of the apples produces the value of the orchard … We see, then, that present capital wealth produces future income-services, but that future income-value produces present capital-value” (Fisher 1907: 13–14, emphasis in original).
But Fisher was not the first to underline that agricultural land is a very special “asset” that possesses both a capital and an income-generating value, from which financial gains can be derived:
Years before he wrecked the French economy with his scheme to colonize and monetize the Mississippi territories, notorious gambler and financier John Law captured the allure of financialized land in his 1705 pitch for a land mint, where he contended that “land conveyed by paper” loses nothing of its natural qualities, but rather, because it “serves the uses of money and produces at the same time,” it “will receive an additional value from its being applied to the uses of money.” … The obvious, “real” productivity of land makes the productivity of notes (or securities) based on it equally obvious and real.
(Yates 2018)
Conclusion
This chapter has shown that agriculture as socially “produced nature” in many corners of the world cannot be thought of without taking the transformative, and often state-backed, powers of globalized financial relations into account. The production of settler-colonial agrarian landscapes in contemporary land rush frontiers such as Aotearoa New Zealand cannot be discussed without considering the far-flung financial networks that linked “the city” (metropoles such as London) and “the countryside”. If space permitted it, similar accounts could be provided for places such as the United States, Australia, Brazil, Canada, Uruguay or South Africa, where “within three generations, during the nineteenth century, some of the best lands [were] secured, surveyed, apportioned, registered and drawn into finance capitalism” (Weaver 2003: 89). Russian economist Alexander Chayanov came to a similar conclusion as early as 1925 when comparing different regional pathways of capitalist transitions in agriculture:
If to this we add in the most developed capitalist countries, such as those in North America … widely developed mortgage credit, the financing of farm circulating capital, and the dominant part played by capital invested in transport, elevator, irrigation and other undertakings, then we have before us new ways in which capitalism penetrates agriculture. […] They convert agriculture, despite the evident scarred and independent nature of the small commodity producers, into an economic system concentrated in a series of the largest undertakings and, through them, entering the sphere controlled by the most advanced forms of finance capitalism.
(Chayanov 1966 [1925]: 262)
The places where finance helped transform nature into landed property, people into (enslaved) labouring subjects, and animals into livestock were often “global countrysides” (Woods 2007) from the very onset of colonial encounters. In these places, finance had its own ways of extracting surplus from farming. Although stock-listed or shareholder-based private enterprises were crucial drivers of colonization, generating both dividends and rent for shareholders (e.g. by leasing it out to settlers), the provision of credit was an equally crucial element in the “terraforming” of the planet. Although, in the age of nation states, credit was often provided by national governments, even these would often borrow from international markets or financial institutions to provide agriculture credit. The owner-occupation of farms first established during colonial times, and later flourishing in many state-backed credit agricultural economies across the globe, veiled the fact that such credit relations – at the very core – would often qualify as rent relations (Whatmore 1986) as much as contemporary institutional investments in farming (see also Chapter 9), even though the mode of rent production from agriculture has profoundly changed. As we shall see later, paradoxically, the ongoing expansion of credit in a country such as Aotearoa New Zealand over the past 130 years or so not only transformed agricultural landscapes but also created an opportunity for new forms of capital to enter farming, as a result of increasing debt levels among local farmers. In contrast, in Tanzania it has been precisely the absence of credit for smallholder farmers – a condition with firm roots in the colonial era – that has justified the search for new forms of financing agricultural transformation.
This chapter has also shown that “modern finance” has, in part, firm agricultural roots. Many of the practices and organizational forms now taken for granted in financial markets have origins in agricultural production and trade. This improbable history needs to be acknowledged. My detailed historical account of the finance–farming nexus does not deny that something is new about the contemporary finance-driven land rush, however. The unparalleled financial power of institutional investors such as pension and insurance companies, the more general acceptance of financial practices and rationalities, the emergence of an unseen globality of finance because of regulatory convergence, the “massification of finance” (French et al. 2011: 801) in many countries of the Global North, the proliferation of investment standards, the crises of established asset classes such as stocks and bonds and the increased demand for food, agrofuels and carbon sinks are all new developments shaping the context for agricultural investments. Financiers increasingly extract