Agricultural Finance From Crops to Land Water and Infrastructure
- Mã sản phẩm: AGR082841
- Tình trạng: 2
Agriculture has always been at the center of human life. It is today the intersection of challenging issues between growth of the world population, soil erosion, and arable land scarcity on the one hand and trade finance after the 2008 crisis, competition for land with the mining industry, new towns and cities in developing countries, competition for water with other industries such as shale gas fracking or oil sands, or between neighboring countries on the other. Small farmers try to stay competitive in the presence of big investors who can afford better machinery and infrastructure. Governments struggle to find the proper way to provide small farms with the right form of subsidies, be they fertilizers, seeds or minimal prices. International institutions like the World Bank face another type of choice: letting weak economies struggle to feed their population, or helping them and destroying the incentive of self-sufficiency. The same difficult dilemma holds for infrastructure such as water sanitation and distribution. In this complex picture, commodity trading houses – some of which have existed for more than 160 years – continue to be active in their role of ‘origination’ with local farmers around the world while financial players or ‘speculators’ provide liquidity to producers and agrifood companies needing to hedge their price exposure. In contrast, we have seen over the last decade the arrival (and partial departure) of new players in ‘agricultural finance.’ The well-rehearsed speech on financial speculators driving food prices to very high levels has been defeated by a number of respected academic studies. As we shall depict throughout the book, weather risk and country risk are the two main drivers of price spikes – obviously, these may be made worse by actions that regulators ought to monitor properly. At the same time, confusion between high prices and high volatility – both undesirable, but the former being toxic for the many populations – keeps the picture blurry for the public at large. In some developing countries, agricultural prices pushed higher by governments trying to secure farmers' votes are harmful to the country and to a proper formation of prices in general. In developed countries, the lackadaisical attitude of regulators about the ownership of physical assets, such as power plants, large metal warehouses or grain storage facilities by financial players who were shareholders of the relevant exchanges as well as ‘primary actors’ on these exchanges, proved its damaging effects. After eight to ten years of significant synchronicity of commodity price moves with equity markets, commodities are decorrelating from these; commodity correlations with equities computed for example on 90-day rolling windows were in the second quarter of 2014 at their lowest since the financial crisis – agricultural commodities, because of their unique specificities, were mildly part of this ‘financialization.’ Regarding the global space of commodities, we are back to the situation that prevailed before 2004, with price dynamics specific to each subclass – metals, energy, and agriculturals – and to each commodity within a class in its own right: in 2013, corn and silver prices collapsed by 40%; gold, coffee, and soy oil decreased by more than 20%; cocoa prices rose by 20%; and palm oil and cotton rose by 10%. In 2014, fundamentals, namely supply/demand, weather risk, and country risk for agricultural commodities, are returning as the main factors of price levels, and drought in Brazil was the main reason for the recent extraordinary rise in coffee prices. Not only has ‘financialization’ greatly receded in all commodity classes – including because of the departure of a number of financial players – but commodity index investing, at least in its previous form(s), is less popular and has to reflect the importance of fundamentals. On the front of agricultural commodities, China has recognized that, in contrast to the view it had a few years ago, the farming, processing, and safety skills required all along the food supply chain were too demanding and has decided ‘to buy rather than produce.’ China owns one-tenth of world arable land but its food consumption is twice as large compared to available land. After metals and coal, China has turned aggressively to the problem of agricultural commodities, signing loans for crops barter agreements with Ukraine and acting through its gigantic state-owned company COFCO to buy originating and processing companies around the world to properly feed its population. The Chinese sovereign fund has in parallel identified agriculture as a strategic sector and is massively investing in agricultural production worldwide. Raw materials, be they phosphate rock transformed into fertilizer or soybean crushed into soy oil, remain the center of value. And land is the ultimate source of all of them – a gigantic receptacle of substitutability between mining, crops, and farmland and a reservoir of optionalities/convexities and ‘anti-fragility.’ The ownership of land should ultimately remain in the hands of the nation, and not be acquired from poorer countries by wealthier ones wishing to solve their problem of farmland scarcity by means of ephemeral paper money. The importance of scarcity, one of my recurrent concerns when analyzing agricultural commodities, was highlighted by the flamboyant economist John Law (1671–1729), author of The Scarcity Theory of Value. Analyzing the famous ‘water/diamond’ paradox, namely that useless diamonds are more highly valued than the more useful water, Law regarded the relative scarcity of goods as the origin of the value of a good in society and any changes in this value were due to variations of demand and supply, the central theme I will also modestly emphasize. At the end of this preamble, I would like to recognize that agricultural finance is not only a technical subject. It also raises a whole host of moral and ethical issues, which are not discussed in this book. Malthus would be horrified to hear the projections of the World Bank on a population exceeding 9.6 billion on the planet by 2050. At the same time, the rate of increase of the number of obese people (often because of poverty and low quality food) is sadly growing faster than the rate of decline of skinny and underfed human beings – both being terrible news. Some struggle with ‘food safety’ while others suffer from ‘food insecurity.’ Food waste and food needs are not even brought together at the level of a city, let alone at the level of a country or beyond. Besides land erosion, the move of young people to better-paid jobs in cities contributes to the decline of cultivated land in regions where agricultural production is so necessary. At the same time, agricultural price subsidies by governments are wrong, in my view, as they take place at the very beginning of the production chain and distort world prices: there is always a poorer country that won't receive the same subsidies and will be disadvantaged. Directly subsidizing poor people is a better solution. I will conclude on a scientific note and observe that time and space*, the first state variables in all sciences, are particularly crucial in the agricultural commodities universe: time is the harvest or the news on the harvest – not necessarily calendar time. Space is transportation, infrastructure, and the shipping of spices and raw materials to distant destinations – all large sources of risks that were already depicted centuries ago in Shakespeare's Merchant of Venice.