Sunday, February 20, 2005

City Dwellers Plow Money Into Farmland

According to the LA Times outside investors are buying farmland, hiring professional farm managers to manage the land, who in turn hire "farmers" to do the work. The "farmers" don't call the shots nor take the risk.

It's part of a larger trend, first seen in hybrid seed production (not sure when it started) for the risk to move away from the person getting his/her hands dirty. The seed companies had to prescribe very tight conditions to the growers to get quality seed, so in turn they assumed much of the risk. Poultry (beginning in the 50's) and now hogs are part of vertical integration, where a company contracts with a grower for x number of (birds/eggs/hogs). Part of this is reducing the number of decision makers in an industry so there's less of a free market and less volatility, therefore less risk. It's the rationalization of an industry, perhaps much like old John D. Rockefeller did with oil in the original Standard Oil trust.

The investment in land also reminds me of the land boom in the 1970's. As they said then, God isn't making any more land. But it's also true that the boom went bust in the 1980's with lots of heart ache for many people. It doesn't sound as if it's gotten to the bubble stage yet, but the professoriate does say that one of the effects of farm programs is to increase land value--land owners capitalize the programs I think is their terminology. It would be ironic if Bush in the next farm bill and the WTO negotiations achieves cuts that also trigger a severe drop in land prices.

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