Farming as Financial Asset. Stefan Ouma
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the financial and food price crises of 2007/8, the world has seen a stark rise in financial investments in farmland and agricultural production by investment banks, sovereign wealth funds, pension funds, private equity funds, insurance companies, family offices, endowment funds and high-net-worth individuals (HNWIs). Indeed, finance has been identified as one of the main drivers of the so-called “global land rush” (Grain 2008; McMichael 2012; Fairbairn 2014; Ouma 2014), in which non-financial entities, such as state-run or parastatal companies or other types of corporate entities, also play a central role. As a result of declining or negative returns on mainstream assets in the wake of the global economic meltdown, a fear of rising levels of inflation caused by counter-cyclical interventions, money printing and quantitative easing in “core countries” such as the United States, low returns on savings and a rise in general distrust in complex financial products, investors searched for new “alternatives” within their “investment universe”. What was suddenly in demand was less “financial engineering” and more “real things”. Farming seemed a perfect match, with parts of the financial industry starting to make a strong case for the sector as an “alternative asset class” that was sustained by a set of strong market fundamentals. A growing world population (passing 7 billion people by the end of 2011); changing dietary preferences towards meat and protein in emerging markets such as China and Indonesia; a rising demand for agrofuels (and carbon sinks) in the light of peak oil and climate change; the limited availability of agricultural land (“peak soil”); and stagnant, or even decreasing, productivity levels in core production regions and climate-change-induced crop failures all seemed to make farming a safe financial bet. The financial industry quickly determined that these factors would shape future demand–supply dynamics along the agri-food chain in crucial ways.
In light of these dynamics, a standard narrative has evolved, which emphasizes that investments in agricultural operations and the underlying farmland should guarantee stable returns on capital invested. In addition, their “value” is likely to appreciate when growing demand meets growing resource scarcity. Unlike gold, a favourite during times of financial crisis, agricultural production and the underlying land store and produce capital. Additionally, investments in farmland and agriculture are said to enhance portfolio diversification and efficiency, thereby increasing the robustness of investment portfolios with regard to external shocks. These promises, which go hand in hand with the relatively low complexity of farmland investment instruments and the tax allowances granted on farmland investments in many countries, have made agriculture a space of “other investment”, rendered as exceptionally secure in a turbulent world. As The Economist puts it, “No matter how bad things get, people still have to eat” (The Economist 2009). Accordingly, between 2005 and mid-2018 the number of investment funds specializing in food and agriculture assets skyrocketed from 38 to 523, with assets under management (AuM) surpassing US$83 billion, excluding timber (Valoral Advisors 2018a). During the same period institutional investors, such as sovereign wealth funds, pension funds, insurance companies, asset management companies, investment banks, family offices, endowment funds and HNWIs, have significantly increased their exposure to food and agriculture (Lapérouse 2016: 1). This surge in agri-investments has led to the proliferation of new investment vehicles, relations and practices. Although these numbers seem tiny compared to other “asset classes” – investors had channelled US$533 billion into natural resources globally as of June 2017 (Preqin 2018a: 56) – one cannot deny that something has happened in the “AG space” (to use the industry vernacular) over the past ten years. Shiny investment brochures, high-profile conferences dedicated to the agricultural investment space and the rise of an agri-focused investment media are further testament to this.
Placing this book’s approach
The global run on farmland and agricultural production by financial actors has sparked a lively debate in the media, among scholars and in activist circles. The overall tone of these debates is an alarming one, as financiers are blamed for rising land prices, corporate enclosures, the dispossession of smallholder farmers and the expansion of large-scale industrial agriculture around the world. Although this book acknowledges the concerns voiced in these debates, it takes a broader and deeper view on the transformation of farmland, agricultural production and food chains into objects of financial desire. It proposes a middle ground between work that is engaged with theorizing the systemic dynamics of financialized capitalism and its extension into the world of farmland and agriculture (Russi 2013; Schmidt 2016; Clapp & Isakson 2018) and more practice-oriented approaches to the world of finance. It does so by providing critical entry points for moving in between M–M’ (in analogy to Karl Marx’s schematization of the circulation of money, which – when invested – becomes more money). This implies studying the practicalities of agricultural investment chains in their wider historical and systemic context. Investigating the conditions that mediate and limit attempts at financializing land and the commodities it produces, the approach proposed here treats the realization of M’ as an operation that cannot simply be taken for granted. The particular gist of the approach proposed in this book is that it invites us to trace the formation of agri-finance capital across a number of interlinked sites (Schatzki 2016), rather than assuming that it readily hops from place to place. Eventually, such a perspective allows us to develop a “microfounded political economy of the investment chain” (Braun 2016: 6) at a moment when ever more domains of the social and natural world have become captured and transformed through such far-flung relations, as well as the practices of asset and wealth management that underpin them.
The book will unravel and engage these processes in eight chapters and an epilogue. In each, I will first engage with an analytical or empirical problem that we encounter in the existing debates on the global land rush and the role of finance therein. Many of these problems stem from the particular way in which the notion of financialization – the preferred analytical optic of many scholars on the finance-driven land rush – has been mobilized; others are related to certain practical problems that researchers often encounter when trying to uncover the geographies and operations of global finance.
This pedagogical strategy allows for the debunking of some widely held assumptions in the existing debate on finance-gone-farming, and, indeed, the workings of global financial markets more generally.
Institutional landscapes and the financial asset character of agriculture
The connecting tissue of this book is the notion of institutional landscapes. Inspired by a report published back in 1979 on the rise of institutional land ownership in the United Kingdom, titled The Landscapes of Institutional Landowners (Worthington 1979), as well as more recent takes on the notion of landscape in critical human geography (Mitchell 2000), institutional landscapes are those parts of the human and non-human world that have become transformed into a financial asset, a property that yields an income stream and that can be resold in the future, as part of portfolio considerations of institutional investors. These, in turn, serve the needs of the more privileged ones of “us”.
The term “institutional investor” does not have a common standard definition. One feature often mentioned is that these are “not physical persons” but “are organised as legal entities” (Çelik & Isaksson 2014: 95–6), and that they can assume a wide variety of legal forms, from closed-end investment companies to private-equity-like limited partnerships to sovereign wealth funds. They “may act independently or be part of a larger company group or conglomerate” (ibid.: 96), such as mutual funds, which are often