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 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.
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.