The Brutality Of Profit Maximisation

Reams have been written about corporate land acquisitions around the world - land grabs, if you will. The hard reality is that there is a sound business case to be made for commercial interests to aggressively attempt to control the very foundation of the food chain, the land itself. Through direct control of suitable land it is possible not only to control food production but also to manage whatever else happens on, around and with the land. This extends further than simply the corporate control of the primary industry of agriculture - and thus food production. It represents the creation and appropriation of an entire new asset class, with serious implications for equality, governance, food security and the underlying democratic process. 

This is not a new development but rather the logical extension of a well-established trend. The previous wave of plantations was a colonial construct. The new model is distinctly corporate driven, neo-colonial in nature and controlled by the plutocratic corporate-political nexus. The past half-century has seen accelerated corporate control over various aspects of the food chain. 

The major brokers of food commodities, the ABCD companies (Archer Daniels Midland, Bunge, Cargill and [Louis] Dreyfuss) now control between 75 and 90% of the world’s commodity crops like soy, maize and wheat, along with secondary crops such as sugar, coffee, palm oil and cocoa and their primary processed constituents such as ethanol, starch, corn syrup, oils and various animal feeds. In turn these are linked to the primary food processors; Nestle, PepsiCo, JBS & Tyson (the latter two meat processors) and hundreds of other transnational food corporations process these raw components into food for the retail markets. 

Without land this value chain becomes prone to risk. Out of this has emerged the increased focus on the control of land resources. Land and the farming component that goes with it was initially perceived by corporate interests as a messy, unpredictable and hence financially unattractive option. But the race to feed a growing global population along with risks like climate change, as well as political and economic uncertainty, makes control of land and agriculture a far more attractive investment opportunity today. Linking land to state of the art remote sensing and weather forecast systems has made farming more predictable. Couple this to high cost, energy intensive inputs – chemicals, fertilisers, hybrid and GM seeds, irrigation and supply chains – and a commercial package with measurable margins emerges. 

Of course investors are not just after any old land; the cheaper, the more suited to purpose, the more attractive and potentially profitable it becomes. Africa has been front and centre of many land grabs. Corporations have actively acquired land throughout sub-Saharan Africa, from Ethiopia to Liberia, right down to South Africa; everything inside this is in the triangle of opportunity. Land acquisition has become a major destination for private investment. This is not limited to Africa. Fertile agricultural destinations like Ukraine, Argentina, Brazil, even Australia have seen equally aggressive acquisitions by foreign capital.

 The brutality of profit maximisation sees important social issues such as land tenure for people with a claim to domicile as an investment impediment. People, even those with an established claim to tenure, are cast aside. This is how agricultural land has become a hard asset class. Combine the rigorous application of commercial principles and the utilitarian cynicism of market driven capital investment, externalise negative cost impairments like social and environmental impacts when and wherever possible and you have a recipe for profit generation. By following this model of land assetisation, agricultural land has become the single most attractive investment class, notably so in South Africa. Return on capital invested in agricultural land can run to nearly 25%, sharply outpacing returns on the JSE, on ordinary property investment and is less risky than international bonds. 

Researchers Antoine Ducastel and Ward Anseeuw explained at a recent BRICS and Agrarian Change in the Global South conference held by the Programme for Land and Agrarian Studies at the University of the Western Cape, how investment into farmland in South Africa has become, from a financial perspective, a sexy place to invest. They explained how the process of assetisation of agricultural resources follows three fundamental, business school 101 steps. 

Firstly, analyse the farm assets, the property titles, the water and biological value flows, and develop these into a portfolio of assets, usually held offshore (Mauritius is a common offshore destination for SA land assets). Farming is normally engaged at arms-length through contractors or managers. 

The second stage involves bundling these assets into corporate instruments, to maximise value creation through selection of suitable competitive strategies. Finally, all that is required is to produce and manage the farm as disembedded assets, divorcing the financial from the social and environmental realities and externalising these wherever possible. 

This model obviously raises concerns at several levels. First off is the policy level, where large, fertile farms are simply perceived to be a “good investment.” This has the potential to inflate the price of prime agricultural land, putting it further out of reach of developing farmers or restitution or redistributive budgets. Large commercial entities, backed by the likes of pension and insurance funds like Old Mutual and parastatals like the Industrial Development Corporation and the African Development Bank, with increasing numbers of other sometimes-rapacious offshore investors, consolidate landholdings through speculative purchases. 

These ‘assets,’ along with human and ecological value, are then threatened by asset stripping, extractive agro-commodity production and outsourced farm management, practicing by-the-book high input farming. Of course, from a commercial perspective this represents an undeniably positive narrative, ostensibly opening up agriculture to modernisation, increased credit lines, improved risk management and related corporate management tools. 

However from a social and ecological perspective there are real risks. Most healthy food we eat is grown by smallholders and family farms. Large industrial farms produce primarily commodity crops, typically dealt by the ABCD dealers. These, when turned into industrial food components, play havoc with our collective health. High carb, fat and sugar concoctions, fast foods, ingredients unrecognisable to anyone except a chemist become ‘food.’ 

Maize and soy are used as animal feed, making animals environmentally destructive but similarly profitable commodities. From a policy and governance perspective, equally serious issues arise. The embrace of the laissiez faire free market corporate model by South Africa has been instrumental in undermining and delaying land restitution and redistribution. We have become politically more focussed on market stability than social stability. So do we allow market forces to dictate social policy? 

We also live in an age of accelerating commodification. The unintended consequences are apparent everywhere – losses of rainforest, topsoil, biodiversity. We are pushing up hard against the planetary boundaries, significantly propelled by our agricultural exploitation of land, water and resources. Given these realities we must ask whether our human destiny is safe in the hands an unfettered free market that constantly seeks to maximise profit at any cost, including the earth that sustains us and the social structures that underpin our civilisation. Given the historical track record of corporate care of environmental resources, I would suggest that we need to carefully scrutinise how we manage democratic oversight over this relentless commodification of our natural resources.

by Glenn Ashton from here