This morning’s perusal of articles posted by those I follow on Twitter yields this bit of potentially frightening news (and a hat tip to @CathyAtThe Fund for sharing).
In a post dated just yesterday, Chris Nelder at Energy & Capital asks, “Is Farmland the Trade of the Century?”
Legendary investor Jim Rogers has been all over the investing press this year, saying that farmland is his preferred vehicle. “If I’m right, agriculture is going to be one of the greatest industries in the next 20 years, 30 years,” he said in a March interview with CNBC. He is now the director of two funds which are developing new farmland in Brazil and Canada.
Major investors who have caught the farmland fever include George Soros and Richard Rainwater. A host investing houses like TIAA-CREF and BlackRock Investment Management have plowed serious cash into the sector as well.
Most recently, Qatar, Abu Dhabi, Saudi Arabia, United Arab Emirates, China, South Korea, and Egypt have all made the investing press for taking multi-billion dollar stakes in large tracts of farmland in relatively unexploited areas of the world, primarily in Africa and Asia. Not just because they like the investment outlook, but because they are worried about securing enough food to feed their own populations.
There are several serious problems with investors going after farmland as a great long-term investment–chief among which is that big influxes of cash into specific sectors drives up the price of the commodity–and it’s already hard enough for farmers to buy land.
Occasionally you can get an older farmer willing to help out a beginning one by offering a reasonable deal (contract for deed or the like)–but with wealthy investors waiting to plunk down large sums of cash–how is a young farmer going to compete–especially when retiring farmers want some comfort after their long years of toil?
Too, driving up the price of land tends to drive out the existing farmers–either by raising taxes (and our state has done some work on mitigating this through a tax on production value rather than land value) or by boxing in producers, so they can’t expand.
On our recent trip West River, my fellow farmer and I spoke to a woman at the Ghost Town and Rock Shop in Okaton, South Dakota. A little Wiki: “As of the 2000 census, the population was 29. Okaton has a closed school, a tourist ghost town, a gas station, and a crumbling grain elevator on the nearby abandoned train tracks.”
During our conversation with the woman, who helps run the little tourist spot, she mentioned that her family has a ranch nearby, and she also has four sons. But the ranch isn’t big enough for all four of them to make a living there with their families. They’d like to expand, but Ted Turner has bought up so much land there it has boxed them in and driven up land prices throughout the region.
MULLEN, Neb. — Ted Turner’s men didn’t flinch. As the price climbed past $8 million, $9 million, $9.5 million, they continued bidding at a rapid-fire pace.
When the auction was over, they walked away with what they came for: 26,300 acres of prime ranch land, at a cost of nearly $10 million.
“It hasn’t taken long to find out he’s serious,” said Duane Kime, a rancher and Turner neighbor who was outbid by about $100,000 by the CNN founder.
But what exactly is Turner serious about?
The question gnaws at folks here and in other rural areas of the country where people once thought the billionaire just wanted to play cowboy.
Turner has amassed 2 million acres over the past two decades to become the largest private landowner in the country. He owns land in at least nine states, with most of his holdings in New Mexico, Nebraska, Montana and South Dakota, and is restoring buffalo, cutthroat trout, wolves, black-footed ferrets and other flora and fauna that filled the Plains before the West was won.
His front men say their boss doesn’t have a secret agenda — he just wants to be a rancher. But each big buy only heightens the anxiety and gives rise to conspiracy theories, the most ominous of which hold that the swashbuckling Atlanta executive is bent on putting Nebraska ranchers and farmers out of business. [AP via Fox News. “Ted Turner’s Land Purchases Generate Suspicion.” 28 November 2007].
Turner’s buy-ups aren’t new, but they do give a pretty good idea of what happens when big money interests start grabbing up our most precious resource. While Ted may be doing some good work for the environment, ranchers who own the land they ranch (and farmers who own the land they farm) are by and large the best stewards of that land. And when big money gets involved, farmers and ranchers can’t compete.
On a global scale, I can’t help but think about what happens if there are food shortages in the countries that are snatching up farmland in other countries–and what happens if there are food shortages in the countries where much of the prime farmland is owned by other countries or outside interests.
Let me give an example: Say the mythical country of A buys up a lot of prime farmland in mythical country B and starts growing food on B’s soil to export to and feed the citizens of A. What happens if there’s a food shortage in B (especially likely due to a lack of prime farmland, which has been bought up by A)? Do you think B’s residents are going to respect A’s fence around property in B’s country when they are starving?
And what about security in a time of need? Will B allow A to import military forces, or even private security, to protect A’s crops from B’s starving people? And what would that do to the political stability of B if that was allowed?
I think it’s pretty easy to project the violence and instability this new colonialism will cause, nevermind the most important bit about a country using its own land to feed its own people. Or are we so beyond that simple concept in a global economy? Try telling that to the starving masses.
Some final thoughts on the farmland buy-up. Investors think in terms of returns, and in most cases, investors are thinking about fairly quick returns–not fairly low but sustainable-over-the-long-haul returns. Farming that stresses quick returns is farming that depletes resources and destroys land.
Too, if investors think that they can simply buy up land, displacing the farmers and ranchers who live and work there, and then hire them back as wage slaves, they don’t know farmers very well at all. Those who have stuck it out can be a seriously ornery and independent folk, and they consider themselves learned professionals, not hired lackeys.
The managers and workers who get hired on to replace real farmers aren’t going to give a damn about the long-term health of the soil or the land, nor are they likely to care that much about the nutritional value and safety of the crops grown on that land. They’re going to simply try to make the boss happy by producing as much as they can to maximize profits.
In the end, there are a couple things that might save us from the nightmare this farmland grab could easily become. The first is that farming is a risky business–and investors are used to “managed” risk. But, how do you adequately manage risk in an environment and climate that is increasingly unstable and unpredictable?
And yes, you can insure–but what good does insurance do you if what you really need is food? Let me cite my favorite of all Wendell Berry quotes here: “What could be more superstitious than the idea that money brings forth food?”
Because of the inherent nature of massive speculation (that is, it forms a price bubble, which eventually bursts), it also could be that after a few years of outrageously high prices, the price crashes back down below where it is now–offering an even better opportunity for young farmers to get onto the land.
But given global climate change and its projected impact on the global food supply–to sit back and hope that in a few years this will all blow over, and we can get back to the business of recruiting young farmers and producing decent food seems more risky to ALL of us than a credit default swap could EVER be.