Sasha Breger: How Big Finance is Eating the World’s Lunch Agricultural Wealth

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By Sasha Breger, a lecturer at the Josef Korbel School of International Studies at the University of Denver and author of the recent book Derivatives and Development. Her research includes global finance, derivatives, social policy, food, and farming. Cross posted from Triple Crisis

If you hear a kind of whooshing, rushing noise, don’t worry—it’s not US jobs moving to China. Today’s great sucking sound is the sound of agricultural wealth being siphoned off into the global financial system. Dragging poverty and insecurity in its wake, this broad movement of wealth from agriculture into finance is enriching and empowering finance capital at the expense of farmers, traders, consumers, rural communities and the earth. In fact, that sucking sound is really the sound of injustice.

Finance capital globally deploys a huge variety of methods and techniques that generally serve to redistribute wealth from agriculture to finance. These include debt, farmland acquisition, commodity hoarding, and derivative and insurance markets. In the following posts, I outline the wealth transfer mechanism in each of these contexts, focusing largely on new data and evidence from the past several years.

Debt

Debt markets are one of the oldest meeting places for agriculturalists and financiers. Under the right conditions and in the correct amounts, debt can finance long-term, productive agricultural investments that improve the well-being of farmers, boost rural communities, and grow and diversify national economies. Unfortunately, lots of agricultural debt around the world is more odious in nature. At the national level, the governments of commodity dependent states frequently borrow too much and for the wrong purposes (for a whole host of interesting reasons). Agricultural wealth in the form of commodity export earnings and government revenues is then utilized to service sovereign debts to financial institutions (usually foreign), a practice which in turn reinforces commodity dependence and undermines public investment, among other harms that have long been noted by debt scholars like Susan George.

At the farm level, debts have been rising for several decades as governments closed up their rural development banks (which used to offer subsidized credit), crops failed, input prices soared and crop prices at the farm gate fell in real terms. In some of these cases, debt repayment works as a mechanism to siphon agricultural wealth off into the informal financial system; in others, debts result in a redistribution of wealth toward the formal financial system.

For example, as of late 2011 some 250,000 small farmers in India have killed themselves since the late 1990s in attempts to escape usurious debts that are usually owed to local, informal money lenders. According to one source, some of these loans carry interest rates of 5% per month or higher. Since the Great Recession began in 2007 farm level debts in the US have also soared, prompting pundits to discuss the prospect of a new farm crisis here at home.

If crop and farm land prices fall in 2014 as predicted (as prices tend to do after the formation of inflationary bubbles), farm debts and bankruptcy rates will skyrocket much as they did in the 1980s. Citing a recent report by Nathan Kaufman of the Federal Reserve Bank of Kansas City, Koba notes that, “In both cases [today and in the 1980s], we saw a rise in debt and farmers using their own wealth to finance themselves and buy tractors and other farm machinery or land. A heavy debt-to-asset ratio was a key indicator of the busts.” The USDA reports that non-real estate US farm debts are forecasted up more than 10% in 2013 relative to the previous year.

Farmland Acquisition

As has been fairly widely noted by this point, the financial system is also directly preying upon global agriculture by acquiring farmland. Foreign financial institutions are becoming big players in rural real estate markets worldwide, seeking speculative profits and rents (often from the farmers who the financiers purchased from in the first place) as rising food prices drive up land values. Appearing downright colonial in some cases and just plain feudal in others, such practices drive farmers off their land, create instability by inflating real estate prices well beyond levels justified by market fundamentals, and contribute to the growing insecurity of the urban and rural poor as higher land prices feed back into high food prices.

GRAIN’s recent report describing the people and firms behind these global land grabs notes, “They are mostly men, often with experience working with agribusiness companies or banks. Some of them sit at high–levels of government and intergovernmental agencies, and sometimes at the highest levels. They operate out of the big financial centres of the world and often get together at farmland investor meetings, whether in Singapore, Zanzibar or New York City.” The 2012 report identifies several of the biggest global financial players involved in these deals in Africa, including the US-based pension fund TIAA-CREF, UK-based private equity fund Chayton Capital, Canada-based Emergent Asset Management, Saudi-based mega-project financier Foras Investments, and the World Bank. Another similar report from 2011further identifies prominent Russian hedge fund Pharos Funds as well as US-based mutual fund Orbis Funds. In most of these cases, financial firms are collaborating with agribusiness to create gigantic irrigated monocropped farms planted to genetically modified crops using massive amounts of industrial pesticides and fertilizers. In many cases, the farmers that live and work the land are relocated (sometimes forcibly). Indeed, it is not only monetary wealth that the financial system is sucking out of African agriculture, but people, crops, water and soil as well.

And it’s not just Africa up for grabs by global finance. Just this past March, The New York Times reported that Swiss banking giant UBS had bought almost 10,000 acres in Wisconsin, while TIAA-CREF now owns 600 farms in the US (this land has long been planted to industrial monocrops, a practice that will continue under the new ownership). Moreover, and related to the rising levels of debt among US farmers, Reuters reports on the potential for financial firms to come into more US farm land in coming years. Farmers, whose land values are rising, are borrowing more against these inflated values, setting themselves up for default and foreclosure down the line (when crop prices are projected to fall, taking land values with them; many economist also predict rising interest rates). When this happens, lenders will seize the land.

In short, as farmers struggle and eaters go hungry, as governments borrow and the ecosystem grows desperate, the world’s largest financial institutions sit back and collect interest, land and crops. Please tune in for the next post in this series, where I’ll discuss how finance capital siphons wealth out of the global food and farming system via commodity hoarding, and derivatives and insurance markets.

This is part 1 of a multipart series.

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45 comments

    1. JGordon

      People have always found again and again through history just what kind of toxic effect money men have on society. And most societies up until just recently had a favored form of punishment for usurers, that being of course death (usury is defined in sane locales today as any amount of interest greater than 0%, and it is an evil right up there with pedophilia). I look forward to the time when those days return; humanity will be better for it.

      1. F. Beard

        Common stock as a private money form allows all necessary consolidation of capital for economies of scale without borrowing, much less usury. It is democratic (at least per share), decentralized and does not require government privilege as the current system does.

        And let’s not overreact wrt usury; the Bible does permit it from foreigners (Deuteronomy 23:19-20).

        1. They didn't leave me a choice

          You do know that the reason the bible allows foreigner interest is because debt mechanics are a good way of upkeeping a mafia-like extortion structure, makes all those colonized foreigners feel like they owe something.

          Quite frankly in this case the bible can go fuck itself.

          1. F. Beard

            Actually, the Old Testament was invaluable to me in coming to the conclusion that common stock is an (the?) ideal private money form since:

            1) In the Bible, profits are good but profit taking isn’t. This necessarily rules out usury (any positive interest rate) and dividends but neatly leaves the possibility of using common stock itself as a private money form.

            2) The Bible condemns theft, including theft by dilution, but with common stock as private money, new issuance is (at least in principle) under the control of the existing money holders.

            3) The Bible condemns oppression of the poor but common stock as private money “shares” wealth and power with all those who receive it.

            4) Common stock as private money requires no borrowing, much less borrowing at interest which is forbidden between fellow countrymen in Deuteronomy 23:19-20.

      2. Chris Engel

        And where should savings be allocated?

        Why shouldn’t a creditor be compensated for inflation? Or for opportunity costs? Or for default risk?

        1. F. Beard

          Why should a creditor have a government-provided legal tender lender of last resort or government-provided deposit insurance?

        2. F. Beard

          And where should savings be allocated? Chris Engel

          Common stock, as well as being a store of value, can serve as a medium of exchange too.

          1. Dirk77

            Thanks from Mexico for that link and everyone else for responding. My main thought was this: Say you have a speculator and producer – a banker and farmer for example. Both are of equal ability. Now you let them do their work in a “free” market. Will things end up where on average the producer is broke and the speculator has all the wealth? I mean the farmer must be focused on the day to day tasks of producing food. He can’t possibly keep up with the speculator in knowing events that effect the price of his crops. Or can he? Hopefully someone has looked at this in terms of game theory or something? Or maybe the issue is something completely different and even simpler, something to do with human nature? But the answer will determine if usury should truly be a hanging offense and why. Let me listen to that Keen talk.

          2. Chris Engel

            from Mexico,

            No, I’m not.

            Banks aren’t the only creditors out there.

            I was responding to somebody who claimed that any interest charged above 0% was “usury”, and was making the case for a creditor being compensated for lending money…

            Inflation still exists, default or repayment risk still exists, and opportunity costs are very real. People who lend money (whether it’s to a bank or to an individual) deserve compensation, especially in a perpetual-growth paradigm.

    2. nonclassical

      …”financialization” of U.S. and world economies…Satyajit Das-“Extreme Money”…over 40% of U.S. “profit$” now generated by “financial sector”-speculation…up from 19%, 2001…

      reading Kevin Phillips’ book, “American Dynasty”, we can track the movement of bushit family fortune, from (Herbert-Walker) munitions orientation, to James Baker financialization…

  1. F. Beard

    The Old Testament, a much neglected foundational document of Western civilization, commanded that agricultural land be returned to the original family owners no later than 49 years after it was “sold.” See Leviticus 25 for the details.

    BTW, Leviticus 25 is the source of the Sabbatical – every 7th year was to be a vacation for farmers!

    1. PhilJoMar

      @ F. Beard
      I’m sure you’re joking about farmers’ vacation but I think the point of the sabbatical was probably concerned with resting the fields just as much as resting any farmers.

      1. F. Beard

        Yes, the fields were to be rested but the farmers and farm animals too:

        ‘You shall thus observe My statutes and keep My judgments, so as to carry them out, that you may live securely on the land. Then the land will yield its produce, so that you can eat your fill and live securely on it. But if you say, “What are we going to eat on the seventh year if we do not sow or gather in our crops?” then I will so order My blessing for you in the sixth year that it will bring forth the crop for three years. When you are sowing the eighth year, you can still eat old things from the crop, eating the old until the ninth year when its crop comes in. Leviticus 25:18-22 New American Standard Bible (NASB)

        1. F. Beard

          The Hebrews, btw, had experience with manna gathering so they had reason to trust God’s provision for them.

          1. get crazy with the cheese whiz

            >> The Hebrews, btw, had experience with manna gathering

            “Manna”? Beard, are you confusing the Bible with WoW again?

            (I kid. I kid.)

            ;-)

          2. wunsacon

            OMG! Beard, are you referring to “Make Love, Not Warcraft”? :-) I positively love that episode. … just on par or maybe one notch under “Major Boobage” (which I watch in slo-mo purely to read the closed-captioning).

        2. charles sereno

          @ F. Beard
          A simple question I hope will get a simple answer: Do you have an official source(s) for your Biblical quotes? I notice you reference the New American Standard Bible (NASB) here. Many of us would enjoy looking up embarrassing little bits if we can all agree on a common reading. Related to the NC topic at hand, of course!

          1. F. Beard

            I use http://www.biblegateway.com/ for most stuff and you can pick from quite a few translations and languages besides English.

            I sometimes use http://www.biblecc.com/ for parallel translations.

            I like the NASB since it is supposedly a word-for-word translation; I can do my own thinking so I don’t trust thought-for-thought translations.

          2. F. Beard

            Many of us would enjoy looking up embarrassing little bits if we can all agree on a common reading. charles sereno

            Of course!

            But let me anticipate you with this verse:

            “A single witness shall not rise up against a man on account of any iniquity or any sin which he has committed; on the evidence of two or three witnesses a matter shall be confirmed… Deuteronomy 19:15

            In other words, if one kept his sex life private* he was in no danger of being stoned for sodomy.

            *Btw, I’ve heard of people throwing rocks at dogs engaged in public heterosexual sex.

          3. charles sereno

            F. Beard, thanks very much for your prompt and informative reply. BTW, I for one am not surprised by the sexiness of the Bible. Who knows, Hollywood moguls may be planning a Renaissance of Biblical epics as we speak. Vampires have had it.

  2. Skeptic

    All the QE and Bailout and Fraud money these criminals have been given and stolen must go to work somewhere since there are only so many mansions and political influence one can buy. So, any sector or activity that can generate cash flow is up for grabs and attack. Thus the Crime Wave accelerates without prosecution. That’s the Macro.

    For the Micro: i live in a rural, coastal, seasonal touristy area where one can personally observe the takeover of the natural fishery by corporations, government subsidies of the unnatural, industrial, biotech fishery, of corporate interests in hotels, tourist attractions, of clearcutting by pulp and paper companies, of marine shipbuilding interests, etc. In addition, go to your local hospital and see Big Medicine and Big Pharma cashing in on bad treatments and drugs also government subsidized. As for the schools……

    Look around locally and you can see it all at work. Taibbi has it right: “a great vampire squid wrapped around the face of humanity”

    Gotta go, there’s a tentacle coming in the window.

  3. AbyNormal

    SEEDS OF FREEDOM
    http://vimeo.com/43879272#at=0

    A landmark film narrated by Jeremy Irons. Find out more at seedsoffreedom.info

    The story of seed has become one of loss, control, dependence and debt.
    It’s been written by those who want to make vast profit from our food system, no matter what the true cost.
    It’s time to change the story.

    Produced by The Gaia Foundation and the African Biodiversity Network, in collaboration with MELCA Ethiopia, Navdanya International and GRAIN.

  4. Susan the other

    I appreciate Sasha Breger’s research and report here. Looking forward to the next installment. At some point it would be nice if she did an essay on the only sustainable agricultural model which is permaculture more or less. It’s good to understand the mess we are in and how we got here, but it’s better to know how to get out of it. One thing I kept thinking, all thru this post and Wolf Richter on Monsanto was that we are just watching another bubble. One of “gigantic irrigated monocropped farms”…using GMOs and pesticides liberally. And the big propaganda is that the world will starve without them. I think it is more likely that they themselves will be done in by their own overproduction, and hopefully made extremely ill by their own poisons.

  5. Timothy Gawne

    There are many interesting points here, indeed speculation is a problem, but it is not the main event.

    It has apparently been forgotten, but John Maynard Keynes always insisted that you could not do economics without also doing a physical analysis. This is because money, while a powerful motivator for human actions, is not real and cannot make physically impossible things happen.

    Our agriculture is tapped out. Maximum crop yields per acre have been flat for over a decade. We cannot just dump more fertilizers on the plants and get the same percentage yields that we used to: we are in the land of diminishing returns. GMO foods may make a lot of money for Monsanto but they have never demonstrated any real gains in food production. Topsoil and fresh water are likely going to be limiting. Meanwhile, due largely to specific policies aimed at maximizing population growth in order to keep wages low and profits high, we are adding a hundred million new mouths to feed each year. Reigning in speculation would be nice but it will not address the main problem.

    One is reminded that Keynes was a great fan of Malthus. Keynes was adamant that no amount of fiscal stimulus could overcome the effects of too-rapid population growth. The silence on issues of population is not because Keynes and Malthus were found to be incorrect in their views, but because powerful interests found such discussions inconvenient and used their influence to discourage it. Perhaps we should reconsider our self-imposed censoring of the effects of population growth while we still have the resources to act.

    1. Paul W

      Nice point. I do tire of the “bad guy” and “innocent victim” narrative which everyone is using. Yes those who used to make their heists in the middle of the night are now doing daylight robberies, with the politicians driving the getaway car and the press pretending no illegal activities are taking place. However this isn’t the real problem, just an immoral side effect. As with limited agriculture and over population being unsustainable, the global economy has run on credit too long and must now correct itself. What we’ve seen since 2008 is the powers that be putting off this correction. To be fair to them, average people don’t want to see it either. That’s why we see these endless fantasy arguments that we can actually fix things while suffering little pain. It doesn’t change the fact there will be a massive adjustment to come and it is going to be very painful.

  6. Massinissa

    There Is No Free Lunch… Unless youre a financial corporation, a hedge fund or a bank. Then society gets to pick up your tab.

  7. GeorgeK

    The first big financial land grab of the modern era came during the Reagan years when the administration called in all the farm loans, even if the farmers were current on their payments. Average farm sizes doubled as they did in the Dust Bowl era when banks kicked small farmers off their land allowing big farmers to buy the land cheap.
    The current investment boom is the result of the The Commodity Futures Modernization Act of 2000, which allowed speculators to hold more than 30% of open interest in any commodity contract. A hedge fund leveraged 40-150% had more power in the markets than a farmer or grain elevator operator. Most modern farmers have college degrees and are very savvy investors, they watch the commodity markets live time from the same satellite that is guiding their GPS tractor.
    Just like the equity markets the hedge funds & banks have their computers co-located at the commodity exchanges and with their higher leverage ratios can move markets way beyond the market fundamentals. Several years ago speculators created one the largest short squeezes in history, knowing that by law or bank loan contracts farmers and grain dealers had to remain 100% hedged, they simply ran the price of grains up so high that the cost of margin calls became more costly than the grain.
    Those that survived that massacre had gone on to make more money in farming commodity grains by not locking in prices in the commodity exchanges. The new modern land grab is, as the article states, akin to modern day colonialism with the support of economist such as Jeffery Sachs, who despite his new suit of progressivism, supports industrial farming in Africa with infrastructure improvements like modern roads from the interior to port cities where massive grain silos will store the GMO grain for the export feed market.

  8. Min

    To what extent is our current situation like the Long Depression of the late 19th century. Wasn’t it a time when farmers lost their farms to the banks?

    And even in ordinary times, there is a saying that the Mississippi Delta belongs to the Union Planters Bank in Memphis.

    1. Chris Engel

      Check out these books:

      The Long Depression: The Slump of 2008 to 2031 by Matthew Lynn

      Unequal Democracy: The Political Economy of the New Gilded Age by Larry M. Bartels

      The Rise of Big Business, 1860-1920 by Glenn Porter

      The Incorporation of America by Alan Trachtenberg

      Philip Pilkington also wrote a piece last year at NC that was an interesting reflection on this theme of a modern replay of the Long Depression/Gilded Age:

      http://www.nakedcapitalism.com/2012/09/philip-pilkington-the-19th-century-long-depression-how-it-fostered-oligopolistic-capitalism-and-serves-as-a-model-for-austerity.html

      To answer your question, though: it’s scary just how similar the time periods are, not just in the area of banking as you suggest, but the whole culture and societal “values” too!

      1. banger

        That time also spurred the growth of populism before it became toxic. Gradually reforms were instituted and we changed. Are we in a position to do that today? Probably not–we need a lot more misery before something like real populism will spring up.

    2. nonclassical

      min-there was actually a name (20 years ago) for farmers who have lost their farms, committing suicide..many, many extended families found only “social system” they could turn to, having lost farm, was military…win-win-win for
      manifest-destinyer neocons…and of course bushbama the house negro…

  9. Man Santo

    250,000 farmers kill themselves. Astonishing. People die in fabric mills, shocking. The machine grinds on out of sight, out of mind for most of the ‘Murican public.

    Debt “under the right conditions and in the correct amounts” is useful. Sounds romantically true about the good ol’ days, other then the dust bowl and the Great Depression. Things are so poorly arranged it’s hard to believe it hasn’t been better than a relentless push and pull through recorded time. Most of our food supply, from wine to tomatoes, basically depends on a vast number of underpaid slaves at the company store, blasted with pesticides. Thanks Cargill for feeding our family!

  10. allcoppedout

    My cat is currently eating his second sausage. The dog will finish his scraps. I may be interrupting the natural order of things, though ecosystems are complex. Why have we lost all sense of doing the right thing?
    Farmers are worth far more to us than bankers (usury should be a summary offence, punishment involving a lamp-post and length of rope). What they do is vastly more complex than banking.
    The world needs only so many farmers, far fewer than the numbers currently employed. The problem is we have no idea how to motivate ourselves to establish a fair way of organising work and wealth distribution. Most work is so bad we rush to leave on winning the lottery. Yet we persist with control fraud ideologies like work ethic. Much as we might like to revolutionise third world farming, resistance comes from multiple points, not least those who would be thrown on the starvation heap or no longer able to practice usury. Facts pile up against economics, politics and our ideologies but we exclude them. I doubt the sausage economy between my cat and dog would survive scarcity. We humans seem prepared to do nothing sensible about our economies, almost as if waiting to be driven by hunger to a new system after the collapse. Hunger protests don’t work as we see over and over.
    I’d like to know a lot more about the transactions involving our food, preferably without any double entry maths conventions from Steve Keen. Indeed, I’d like to see QE and the rest of bank charges explained as I would regard such in small company profit and loss – as a cost to be identified and minimised. The problem is we don’t have (they don’t allow) transparent accounting. This is a repeat of 19th century practices in banking fraud.
    I’ve done ISO quality work in which, say, a gearbox being fitted in Mexico carried with it a schedule of all the work done on it up the road from here. In principle we could have such a breakdown for all products showing all the costs, tax thieving, use of QE in buying properties and where this ends up after a bankruptcy looting.

    1. banger

      First, I want to state right here that most “work” sucks. The reason we live in a deeply dominance/submission world is that governments and corporations survive and thrive to the degree they spread fear and selfishness/narcissism. As someone once said “it’s that simple.” It really is. If there’s one job we can do and should do is to slay fear wherever we find it. Help other people–if you have stuff share it–not through giving it away to some NGO which may or may not spend it the way you think but in just helping people directly–even if it’s clumsy and embarrassing.

      We live in a world where, theoretically, we are on the cusp of cheap and abundant locally grown food, housing and other products that technology can supply. Much of the technology is here and underused for complicated reasons having to do with the virtual emergent intelligence of the system currently in place.

      1. Man Santo

        “Work” can be an outrage, big finance insisted that people just like you and me be required to pick 35 pounds of tomatoes for 50 cents!

  11. clarence swinney

    SOCIAL SECURITY SOLVENT
    A new surplus of $28B takes the trust fund to $2.8 Trillion.
    That is enough to meet obligations through 2033 without raising the cap.
    The Medicare solvency has been extended to 2026.
    If we require millionaires and billionaires to pay their Fair share the total benefits can be paid for 75 years or longer. The wealthiest can, easily, afford it.
    An income of $10 million pays an effective 1% and it declines as you climb the Wealth ladder.
    In the past 30 years the wage growth has gone to those at the top of the wage distribution.
    We do not need the “Chained CPI” in social security.
    Nothing is more important to the mass of retirees than Medicare and Social Security.
    Restaurants are filled with retirees. Nothing does more to protect that dignity .

    1. nonclassical

      not when fundamentalist neocons attempt to denigrate-destroy “the people’s representative government” in ways such as this-the U.S. Post Office:

      (“Since 2006, the Post Office has been legally required to pre-fund health benefits for future retirees (75 years into future) at a cost of around $5.5 billion a year. For the first time last year, it defaulted on its annual payment.”)

      Read more: http://business.time.com/2013/02/07/how-healthcare-expenses-cost-us-saturday-postal-delivery/#ixzz2V2bHEi3w

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