Agriculture: “The New Economy” of the 21st century?

momagri | Paris, 2 August 2011

Agriculture: “The New Economy” of the 21st century?

Dominique Lasserre,
expert of momagri

Who has not recently heard a radio advertisement from one investment fund or another extolling the virtues of agricultural investments in Argentina or the Ukraine? In luxury hotels across the globe, increasing numbers of seminars and presentations are being held inviting investors to put money on “green gold”. And the recent statements by the G20 for Agriculture, calling for investment in agriculture to increase production only speed up this effect.

A few days ago, the AgroGeneration company achieved widely publicised fundraising and announced their willingness to increase their control of agricultural land from 50 000 to 100 000 hectares.

Recently, the German company Aquila Capital announced the creation of a new fund, “AgrarInvest Fund IV[1],” specializing in cattle and sheep in Australia and New Zealand, with a promise of return of 168% over 7.5 years.

These two European examples are only a drop in a wider movement that is reminiscent of the phenomenon of the “New Economy of the late 1990s,” which embodied rapid growth and profit. While at the time, new information and communication technologies (NICT) symbolized the El Dorado of financial investments; agricultural land now kindles all desires.

Note that according to Barclays Capital[2], some 320 billion dollars of institutional funds have been invested in commodities, against only 6 billion ten years ago. Hedge funds represent between 60 and 100 billion dollars. These figures are expected to double in the coming years.

These funds, which are looking to invest in production and not to speculate, partly answer the call of the G20. Only partly, because this type of investment that allows faster disinvestments than traditional investments, may destabilize markets in the event of hasty retraction. Moreover, although these investments are directed at production, they are mainly directed at export crops and can cause instability. Indeed, on the narrow international agricultural market (average 5-7% of world production), these products can quickly reach volumes that influence world prices and contribute, by playing also on financial markets, to increasing price volatility.

Paradoxically, this movement to invest in land and agricultural sectors, while necessary for the development of agriculture, particularly in the poorest countries, could significantly weaken food security and not without consequences:
  • for the evolution of farm structures: a sudden acceleration in the dynamics of the progressive disappearance of subsistence farming already underway, would have dramatic social consequences.
  • for the geographic concentration of world agricultural production: it is the areas where labour costs and environmental constraints are the lowest that investment in agriculture is concentrated, posing a risk to agricultural biodiversity, as well as quality standards.
  • for the regularity of global agricultural production: some of these new players in agriculture will have the financial strength and sufficient areas of agricultural land to vary the volumes produced from year to year, thus causing instability ...
Although some NGOs have addressed these issues, the analysis of the medium-term impact remains inadequate, presumably because the priority is to increase world agricultural production to meet the problem of world hunger and food security.

Momagri calls for awareness about the risk of excessively financialized agriculture, which, with investments being relocated according to financial opportunities, would endanger the planet’s agricultural production capacity, including that of the European Union.

Do we need reminding of the fatal outcome of the prosperous period of the New Economy when the Internet bubble burst in the late 1990s? All the signs for an agricultural bubble are there and a growing list of public figures are alerting the authorities to this phenomenon from Olivier de Schutter, UN Special Rapporteur for the Right to Food, to Jean-Pierre Jouyet, president of the AMF (French financial regulatory agency).

For these reasons, momagri suggests that policy-makers assimilate the CAP reform with the necessity for maintaining an agricultural mix, on the same principles as the energy mix, to ensure the co-existence of different forms of agriculture the name of food security.

[1] Source: Letter of Information France-Europe-Germany
[2] Cited in a study by the NGO GRAIN, entitled « Pension funds: key players in the global agricultural land grab »

momagri, movement for a world agricultural organization, is a think tank chaired by Pierre Pagesse, President of Limagrain. It brings together, managers from the agricultural world and important people from external perspectives, such as health, development, strategy and defense. Its objective is to promote regulation of agricultural markets by creating new evaluation tools, such as economic models and indicators, and by drawing up proposals for an agricultural and international food policy.

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