South African managers as financial intermediaries

Agriculture as an asset class: (Re)‐shaping the South African farming sector

Antoine Ducastel & Ward Anseeuw

Paper for the international conference ‘Finance, Food and Farmland’, 25 January 2014 International Institute of Social Studies (ISS) & Centre for the Study of Transition and  Development (CESTRAD), The Hague, The Netherlands

• The (financial) rising of Africa (Vallée, 2011)

•

South Africa as a stepping stone toward the rest of the continent through:

o Its financial market and industries

o Its agribusiness firms and “commercial” farmers networks (Hall, 2012)

Investment funds/companies in (South) African agricultural value  chains

• Plurality of investors and management companies

• Diversity of funds’ structures and managements; but mostly private equity/venture capital funds/companies targeting farms and others agricultural value chains’ firms

Buxton et al, 2010

South African managers as financial intermediaries

• Market intermediaries’ roles (Bessy & Chauvin, 2013):

– Mediating the supply and demand – Translating capital and ressources

• An asset as a value recognized by financial markets:

– Financial beliefs (i.e. outperformed the average profit) – Financial devices (i.e. calculation devices)

• How such intermediaries (re)‐shape the South African farms as an investment opportunity for financial investors, i.e. as an asset class?

– 3 steps toward a profitable, tradable, predictable and liquid assets

1.  Unlocking the financial value

A farm as a bundle of independant assets: property deeds, water rights, a “biological asset” and a flow of commodities

• Market‐based risk management:

– Commodity futures market (e.g. South African Futures Exchange) – Contracting model and outsourcing

– Geographical diversification vs. natural risks (i.e. flood, drought)

– Bilateral double taxation agreements and South African capital flight legislations

• « Bundling/de‐bundling » strategies:

– Mergers and acquisitions

– « Opco‐propco » model (Burch & Lawrence, 2009)

• DFI’s multiform support^:

– Financial participation – Technical assistance – Institutional support

2. The production of an information flow: farms as a  standardized and benchmarked asset

• The corporate finance instruments (i.e.

Discounted Cash Flow model)

–

A set of « calculation devices » (Callon

2007)…

–

…framing the farm and the agricultural productions

• Standardized benchmarks (a common metric) for financial markets:

–

Decision making support

–

To compare and evaluate the assets’ profitability

and complementarity

3. Producing a « disembedded » farm

• Occupiers:

• The « assetization » process as an extraction from its political and social environment

• The « cross‐border regulation » attempts

• Limits and contraints of the translation process

Fund/company managers as « brokers in  financialisation »

• Setting up the instruments and cognitive framework of this “emergent” asset class

• Private equity vehicles as pionneers and

engineers of « assetisation »

Are investment funds/firms new instruments of public  policy for agricultural and rural development?

• Public capital through DFI’s and public pension fund involvment

• Public policies and instruments for the production of a (South) African agriculture asset (i.e. Futures commodity market, double taxation agreement, MIGA, etc.)

• Circulation of employees between public

institutions and South African agriculture fund

managers’ industry

Which model of agricultural development in (South)  Africa?

• Corporate agriculture vs. Family agriculture

• Financial bias in the investment projets selection

• Financial capital vs. « agrarian capital » and

« corporate capital » (Bernstein, 2013)

Thank you

Antoine Ducastel

antoine.ducastel@cirad.fr