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Agriculture as an asset class: reshaping the South African farming sector

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Abstract

According to portfolio managers, agriculture in general, and farmland in particular, can be considered an emerging asset class. Specialized financial vehicles, such as private equity and mutual funds, are emerging and competing to attract potential investment in this asset class. In recent years, there has been significant development of such vehicles targeting South Africa’s farming sector. These innovations are led by a group of market intermediaries (e.g. asset managers or consultants) who endeavour to “re-shape” South African farmland as an opportunity for institutional investors. These “pioneers” engage in a multifaceted mediation process between global financial investors on one hand, and the South African agricultural sector on the other. Drawing upon an empirical study of such intermediaries in South Africa, this paper analyses the concrete mechanisms that facilitate this particular form of commodification. The paper presents and compares the intermediaries, giving particular attention to their structure, governance mechanisms and asset allocations within this “market in the making”. It describes how intermediaries develop different paths of asset valorization to unlock the “financial value” of South African farmlands (i.e. “liquifying”, standardizing, neutralizing, and depoliticizing agriculture as an asset). But, it also highlights some of the difficulties faced in the process of translating between international investors and local managers, questioning the “land-asset fiction” that is materializing through the subordination of farmland to the needs of financial society.

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Notes

  1. See, inter alia, “Farmland: Yield-starved investors go back to the land”, Euromoney, January 13, 2014.

  2. Based on macro-economic data (i.e. growing world population, rising incomes in the developing world, etc.).

  3. These qualities of financial assets are described in further detail in “Investment funds in South African agriculture and agro-industries: the establishment of new financial channels” section of this paper.

  4. In its presentation, an investment fund specialized in South African agriculture states that “The objective remains to not only become the most successful food producer in SA, but almost more importantly, the most valued food producer”.

  5. See for instance Godechot (2001), Bessy and Chauvin (2013).

  6. See Chambost (2013), Chiapello (2005).

  7. One of the conditions for the authors’ direct observation is to preserve the anonymity of the actors engaged in these funds.

  8. This is an agreement between the fund manager and an investor that outlines different terms that will apply to the investor’s investment in the fund, giving the investor some flexibility to go outside the terms of the fund’s legal document.

  9. The manager’s remuneration standards in the private equity industry are usually referred as 20/80/20: 20 % of the asset value under control as management fee; a hurdle internal rate of return fixed at 80 %; and 20 % of benefits as profit sharing.

  10. Translation by the authors.

  11. Mauritius and South Africa are bound by a bilateral double taxation agreement, signed on the 20th July 1996.

  12. For instance, Fund A chooses the South African R157 government bond as the risk-free benchmark for their calculation, which is only one option among other government bonds with different rates.

  13. RSA (Republic of South Africa). Extension of Security of Tenure Act 62 of 1997. Pretoria. Government Printers.

  14. Most of the farmers in the eastern part of South Africa have to deal with these occupiers’ issues.

  15. These occupiers own cattle which graze on the farm and managers have accused them of putting the cattle on their grazing land, threatening their own cattle with disease contamination. Furthermore, the access to their family graves, situated outside of their area, has become a source of tension when a manager endeavours to control and regulate this access.

  16. Oakland Institute, Vanderbilt University Divests from "Land Grab" in Africa, 13th of February 2013. http://www.oaklandinstitute.org/vanderbilt-university-divests-land-grab-africa.

  17. Thereby, the financial markets’ notion of “public” challenges the notion of “public good” as a use by those who live or work on it.

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Acknowledgments

The authors thank Ryan Isakson and two anonymous reviewers for their comments and suggestions on an earlier version of the paper. The opinions expressed and any errors are solely those of the authors.

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Authors and Affiliations

  1. UMR Art-Dev, CIRAD, 45 bis avenue de la Belle Gabrielle, 94130, Nogent sur Marne, France

    Antoine Ducastel & Ward Anseeuw

  2. Agricultural Economics Department, University of Pretoria, Pretoria, South Africa

    Antoine Ducastel

  3. GovInn & Post-Graduate School of Agriculture and Rural Development, University of Pretoria, Pretoria, 0002, South Africa

    Ward Anseeuw

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  1. Antoine Ducastel
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Correspondence to Antoine Ducastel.

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Ducastel, A., Anseeuw, W. Agriculture as an asset class: reshaping the South African farming sector. Agric Hum Values 34, 199–209 (2017). https://doi.org/10.1007/s10460-016-9683-6

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