The Newest (and Scariest) Speculation: Farmland


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.

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7 responses to this post.

  1. Posted by kellyfuller on July 18, 2009 at 4:36 pm

    Investors from other continents buying up African farmland reminds me of the Irish tenant farmers who farmed land owned by English gentry – in Ireland. Immigration to the U.S. helped when the Irish potato famine hit, but I have a hard time imagining those doors would be open quite so wide again.

  2. […] This post was Twitted by WiddleFarm […]

  3. Posted by John on July 19, 2009 at 10:38 pm

    While we can agree with your general concern, using Ted Turner as a poster child is flawed. Tuner Ranches care about the land. The privately fund countless initiatives to restore over grazed pastures, re-introduce species that were in decline, etc. Turner Ranches support the local economy through buying supplies locally – when the buying power of the Turner Ranches could drive better bulk deals, they choose to support local merchants. Turner didn’t make the flawed rural economic model of bigger and bigger farms driving folks off the land, out of rural schools and towns – but he’s working to improve the quality of the range lands.

    On the other hand the “investors” who buy up farm and ranch lands for flipping a profit are a huge concern. They care little of the quality of the land but care for the quarterly profit reflected through land ownership or resale. This behavior helps no one and no community.

  4. Posted by flyingtomato on July 20, 2009 at 6:44 am

    Thank you for the input. I did note that Turner has demonstrated that he cares for the land (and I’m also glad he has supported the local economy through buying supplies locally); however, when his control over the land drives the price up and boxes in other ranchers, then it becomes a problem for the families who live there.

    I think the Turner model isn’t so much a “poster child” model, but an example of one of the problems inherent in big land investment–that it squeezes the local populace. That said, I do admire Turner’s dedication to restoring degraded grasslands–there is too little interest in the plains landscape, as the money generally flows to the more “majestic” wooded and mountainous areas. There is beauty in both.

    Thanks again for the comment.

  5. Posted by kellyfuller on July 21, 2009 at 5:24 am

    Does the commenter who identifies himself above as “John” work for Turner Ranches? His use of the word “we” in the first sentence and the tone and level of detail rest of his post make it sound like he does.

    Because he didn’t leave his last name, it makes it impossible to know who he is.

    If he is an employee or has some other financial relationship to Turner Ranches, there is nothing wrong with showing up to defend TR. However, I think I’m probably not your only reader who would have appreciated knowing if that’s who he is. If he is simply an unrelated admirer of the company, his comments have a completely different flavor.

    Hey Rebecca, not arguing here that you should make commenters fully identify themselves. Am arguing that people who make comments such as the ones above without giving us a way to really know who they are do a disservice to your community of readers.

    There is an army of PR flacks and other folks out there who track what is said about their employers.

  6. Posted by flyingtomato on July 21, 2009 at 7:15 am

    I can see the full name/e-mail address. Did a little search on the IP address, too (Denver). But yes, it did strike me that the level of detail might be indicative of a Turner employee–though the we/they language makes it a bit hard to tell.

    John–if you’re reading this–dish. Are you an employee of Ted Turner or Turner Ranches?

    –re.

  7. Posted by Paul Norland on July 23, 2009 at 6:51 pm

    Hello
    I have followed your blog for a short while and really enjoy the level of energy and integrity in your columns. Keep up the good work!
    I too have thought a lot about “What will agriculture look like in the future?” Who will be doing the farming? How will production be shifted to more sustainable methods? Do people in cities care where there food comes from and can they see how it harms them if it is produced in the most expedient methods rather than the most sustainable?
    Thanks for writing so succintly

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