Food. The newest hot investment. The New York Times reports that big and small investors are pouring hundreds of billions of dollars into the food business, everything from grain and farm equipment to shipping equipment and farmland.
Makes sense. The basics will be what is most in demand: food and water. When millions of Americans can no longer afford vacations, second homes or gas guzzling vehicles they tend to downsize. But it’s not downsizing that worries (or intrigues) investors — consumers buying smaller cars, fewer luxury items, shorter vacations — it’s the total cessation of anything beyond life sustaining commodities. Many families are no longer able to put gas in their cars for any trips beyond commuting to and from work. More and more families face tough choices of putting food on the table or needed medicine.
But are investors going into agribusiness with intentions to seek profit or sustain needed infrastructure and improve distribution systems or develop new methods of farming? There’s a healthy debate about that:
Mark Lapolla, an adviser to institutional investors, is also a bit wary of the potential disruption this new money could cause. “It is important to ask whether these financial investors want to actually operate the means of production — or simply want to have a direct link into the physical supply of commodities and thereby reduce the risk of their speculation,” he said.
Others wonder how the huge amount of capital will affect the pricing balance of direct production versus financial derivatives (intended to smooth out the ups and downs of food supplies):
By owning land and other parts of the agricultural business, these new investors are freed from rules aimed at curbing the number of speculative bets that they and other financial investors can make in commodity markets. “I just wonder if they need some sheep’s clothing to put on,” Mr. Hainline said.
Further, will the infusion of massive amount of capital into this economic sector have unintended consequences? One is reminded of the parallel affect of capital that poured into the mortgage market — creating exotic and “cheap” mortgage products that fueled the housing market boom — and subsequent slump. The unintended consequences of that capital infusion on the other side (the housing slump), left consumers worse off — mortgages that are no longer affordable, fewer mortgage lenders to choose from, a real estate sector reeling with a massive shedding of jobs, and more “control” by would-be regulators over what were once reasonably affordable mortgages.
Will decisions on food crops and food prices be left to a few large institutional investors? Will food distribution choices be limited to a handful of mega-agribusiness conglomerates? Will government regulators be able to monitor the safety and efficacy of the last of our basic commodities?
Will we, as grassroots, be ever vigilant having been made wiser by other economic debacles?
