Saturday, 26 April 2008

Hedge Funds Target Farming (!!!)

(Image of Haiti following recent food riots)

From Yesterday's FT (25/04/08): Hedge funds and investment banks are swapping their Gucci for gumboots as they bet on rising food prices by buying farms. Billions of dollars are flowing into farmland across the world as investors gorge themselves on vast tracts of Australia, South America and eastern Europe. “Sell banks, buy cheese,” Crispin Odey, manager of London-based hedge fund Odey Asset Management who has started investing in farming companies, said recently. His recommendation is being followed by many hedge funds and a new type of farmland holding company – often backed by hedge funds – which believe the food boom will make farming highly profitable. Mr Odey, who has started investing in farming companies, told investors in a conference call this week: “What we wanted to do was get ourselves involved in making the recurring revenues that we felt that we could make from the price of wheat staying up.” Other hedge funds and investment banks are buying farms to give their commodity traders an edge from first-hand information about costs and prices. Ospraie Management, a New York commodity fund, for example, owns farms, while Morgan Stanley’s commodities business has several thousand acres of Ukraine. Most of the new breed of farm investors believe the world is entering an era of high food prices where farms will once again be profitable, after two decades of being starved of investment. “It is an unashamed bet on the continuing rise in the price of food stuffs and the rapid recovery of the farming industry,” said one hedge fund manager. This creates two opportunities: buy successful farms to profit from rising food prices and possible land price rises, or pick up cheap land in developing countries and bring it into production or improve it to raise yields. (...)Emergent Asset Management is even more ambitious, with the British hedge fund manager aiming to raise €1bn (£787m) over the next year to put into sub-Saharan African farmland. It has firm commitments of €100m for the first round, and investors have taken options to invest another €500m for the five-year closed-end fund, set up in partnership with local farming specialist Grainvest. “The cost of land is very, very low,” said Paul Christie, marketing director of Emergent. “We want to make the land more productive. It is industrial scale farming and it is going to make a big difference down there.”

JG comment. The likely result? Continuing high food prices (they are in this for maximum profit). Billions still starving. Destructive farming practices. The idea of hedge fund style speculation targeting the farming sector is both sadly inevitable (speculation in commodities must be partly responsible for the food price hike in the first place) and represents likely increases in throwing people off land, deforestation, soil erosion, mass use of chemical pesticides & so on. You have to vaguely wonder if a (Brent Spar scale) NGO response might be one of the only ways of diverting this? I really dont think we can afford to let the people who brought us the credit crunch loose on developing world food supplies?


Charles Frith said...

Agreed. The hedge fund hyenas will suck anything dry.

William Deed said...

This is too depressing.

John Grant said...

Interesting counterpoint to all this is the food sovereignty movement. The following from its wikipedia entry (& note it explicitly calls for regulations to protect from speculative capital):

Via Campesina's seven principles of food sovereignty:
1. Food: A Basic Human Right. Everyone must have access to safe, nutritious and culturally appropriate food in sufficient quantity and quality to sustain a healthy life with full human dignity. Each nation should declare that access to food is a constitutional right and guarantee the development of the primary sector to ensure the concrete realization of this fundamental right.
2. Agrarian Reform. A genuine agrarian reform is necessary which gives landless and farming people – especially women – ownership and control of the land they work and returns territories to indigenous peoples. The right to land must be free of discriminationon the basis of gender, religion, race, social class or ideology; the land belongs to those who work it.
3. Protecting Natural Resources. Food Sovereignty entails the sustainable care and use of natural resources, especially land, water, and seeds and livestock breeds. The people who work the land must have the right to practice sustainable management of natural resources and to conserve biodiversity free of restrictive intellectual property rights. This can only be done from a sound economic basis with security of tenure, healthy soils and reduced use of agro-chemicals.
4. Reorganizing Food Trade. Food is first and foremost a source of nutrition and only secondarily an item of trade. National agricultural policies must prioritize production for domestic consumption and food self-sufficiency. Food imports must not displace local production nor depress prices.
5. Ending the Globalization of Hunger. Food Sovereignty is undermined by multilateral institutions and by speculative capital. The growing control of multinational corporations over agricultural policies has been facilitated by the economic policies of multilateral organizations such as the WTO, World Bank and the IMF. Regulation and taxation of speculative capital and a strictly enforced Code of Conduct for TNCs is therefore needed.
6. Social Peace. Everyone has the right to be free from violence. Food must not be used as a weapon. Increasing levels of poverty and marginalization in the countryside, along with the growing oppression of ethnic minorities and indigenous populations, aggravate situations of injustice and hopelessness. The ongoing displacement, forced urbanization, repression and increasing incidence of racism of smallholder farmers cannot be tolerated.
7. Democratic control. Smallholder farmers must have direct input into formulating agricultural policies at all levels. The United Nations and related organizations will have to undergo a process of democratization to enable this to become a reality. Everyone has the right to honest, accurate information and open and democratic decision-making. These rights form the basis of good governance, accountability and equal participation in economic, political and social life, free from all forms of discrimination. Rural women, in particular, must be granted direct and active decisionmaking on food and rural issues.

Food sovereignty is increasingly being promoted as an alternative framework to the narrower concept of food security, which mostly focuses on the technical problem of providing adequate nutrition. For instance, a food security agenda that simply provides surplus grain to hungry people would probably be strongly criticised by food sovereignty advocates as just another form of commodity dumping, facilitating corporate penetration of foreign markets, undermining local food production, and possibly leading to irreversible biotech contamination of indigenous crops with patented varieties. U.S. taxpayer subsidized exports of Bt corn to Mexico since the passage of NAFTA is a case in point.

John Grant said...

I got put onto the food sovereignty concept by a new internationalist blog post ( which also had a useful analysis of the current food price hikes:

"World food prices rose by 39 percent between February 2007 - 2008. The real price of rice rose to a 19-year high in March - an increase of 50 per cent in two weeks alone - while the real price of wheat has hit a 28-year high, triggering an international crisis. Various causes for this crisis are being cited in policy circles, including increased demand from China, India and other emerging economies, rising fuel and fertilizer costs, climate change. World Economic Outlook (WEO) just released by the IMF, holds bio-fuels responsible for almost half the increase in the consumption of major food crops in 2006-07."

Freya said...

Hey there, Heard on the radio this morning that Cargill posted an 80% increase in profits for Q1. Meanwhile food riots continue apace. It is completely immoral; am trying to figure out what can be done...Any ideas?!

tty said...

The farmers wont see any extra income. Having spoke to many over the past few weeks they say the out look for them is not good either. Rising costs are the reason for the high prices, not just the short fall in crops across the world. A number of factors have caused this. Increased consumption in countries like China ( I heard the other day that Chinas meat intake has increased 2-3xin the last few years per capita) Of course its all down to supply and demand.

I want to take myself out of that crazy chain as much as possible. I have just started to grow my own veg and am getting some chicks for for eggs as soon as I build a coop. 5 chicks can be got here for €20, they will pay for themselves within weeks of laying eggs, guaranteed free range too!

I hope its something we all have to do. Imagine the savings on food miles alone! I know its not practical for everyone to do, but for those that have room its a waste not to do something. Even when I lived in the city, in a Victorian terraced house, 2 up 2 down jobby, I would have had room for a few chickens to run around. People need to realise where food comes from and take on some of the responsibility for producing it.

John Grant said...

really hard to know how to respond

the idea of growing our own food is one I want to do more of this year, it's as much to teach my son where stuff comes from, how it grows

there has to be some sort of political collision between:
- massive profiteering, speculative capital, intensive (soil and soul) destroying agriculture, exporting cash crops and importing food aid/dependency
- hungry and/or angry people

when I say there has to be, it must be quite imminent, I think i'd go on a march on this too - it doesn't get much more basic than the right to eat and speculative capital targeting the poorest regions of the world

I struggle to think what a 'green marketing' response would be, it's so remote?

John Grant said...

apposite recent letter to the Guardian from an academic:

Letter: Speculation fuels food price rises

11 April 2008

'The Guardian'
Over the past decade we have seen asset bubbles burst in the dotcom industry, developing country stock markets (the latest is China) and now a colossal housing bubble in the US and Europe (Credit crunch, April 10).

The victims have largely been the middle and working classes of the wealthier west. But the new victims of the unregulated flows of international capital will be the poorest households on earth.

Amartya Sen taught us that reduced purchasing power rather than a lack of food availability causes hunger and malnutrition. The recent terrifying increases in food prices (Report, April 9) means the poorest households in the developing world, surviving on tiny fixed incomes, will be hungry right now.

In a few months our TV screens will show the pot-bellies of children with kwashiorkor and the emaciated faces of mothers and children ravaged by malnutrition and infection. Many will die unnoticed.

Food price rises cannot simply be explained by crop yields or the expansion of the use of agricultural land for biofuels. Speculation in agricultural commodity markets runs in parallel with the rising costs of gold, oil and essential metals.

Gordon Brown is right to call for concerted action by the G8. Food commodities should be insulated from speculators and hedge funds who profit as prices rise, and again when they fall in a few months time.

Anyone profiting from this volatility will do so at the expense of the lives of thousands of mothers and children.

Anthony Costello
Director, UCL Institute for Global Health