Financialization

The increasing significance of financial investment within the contemporary food system has been underscored by different authors (BURCH & LAWRENCE 2009;

ISAKSON 2013; MURPHY et al. 2013). The present process of financialization within global agriculture has both occurred within the dimension of future markets, as the investment is abstracted from its commodity form, but also within production itself, as part of which financial capital participates in related activities (MURPHY et al 2013, p.6). Within the productive sphere, engagement by financial actors materializes in the phases of land purchase, input provision, storage, trading, processing, and retailing (ISAKSON 2013, p.2; BURCH; LAWRENCE 2009, p.271). Easing of regulation on trade in agricultural derivatives took place in the United States in the course of the 1980s, as commodity trade gradually became still more deregulated (ISAKSON 2013, p.9-10). From the early 1990, the IMF, the World Bank and UNCTAD have also been recommending derivatives trade in order to mitigate risks of small farmers in developing countries, where agricultural derivatives trade has grown substantially since the turn of the millennium.

Latin American derivatives markets have become some of the fastest growing in the world (ISAKSON 2013, p.13). The ABCD agro-traders have also been closely engaged in various financial activities and have begun to offer different financial products. Louis Dreyfus has founded a land investment fund which specializes in the

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acquisition and conversion of land to fit it for commercial agriculture on behalf of financial investors (Ibid, p.15). Financial investments in developing countries have tended to be concentrated in multi-purpose bulk commodities such as soy, corn, and sugarcane, because of the possibility of converting these crops into industry inputs, which limits their price oscillation (Ibid, p.21). Financialization within agriculture thereby constitutes a mechanism which often works through an initial process of land commodification, by which rural production is inserted within the global market, that subsequently determines a reorientation of production activities towards commercial monoculture.

In Brazil, different voices began to argue in favor of the permission to introduce derivate mechanisms in the course of the 1990s. In 1992, the head of the Brazilian Commodities and Futures Exchange (Bolsa de Mercadorias e Futuros), Manoel Pires Costa, underlined the importance of developing futures for food products (COSTA 1992, p.20). Costa stressed the importance of national futures markets as a means for risk mitigation for agricultural exporters, and in this regard also emphasized the need for stable and transparent rules, investor guarantees, as well as the possibility for converting Brazilian Cruzeiros into hard currency, in order to attract foreign capital (Ibid, p.20-21).

In 1993, the governmental ambition to instate a system for direct sale of agricultural production on commodity and futures exchanges was officially expressed as part of a strategy to lessen the burden on public financial resources (RPA 1993, p.16). In 1996, voices inside the Ministry of Finance stressed the need to substitute governmental loans with derivative mechanisms as the basis for management of credit flows towards agricultural markets (BARROS & MIRANDA 1996, p.6). The Ministry of Agriculture also came to propose future options as part of agricultural policy reform, partly due to the incompatibility between existing policy frameworks and the newly assumed responsibilities below the WTO (PORTO 1996, p.7). Contract farming, whereby the agro-industry buys the farmers´ produce in advance and often also supplies the necessary production inputs, was therefore proposed within the Bill Draft Law 4.378 of 1998. The law provided an essential legal framework for the regulation of contract farming, and established a range of rights and obligations of both farmer and industry (WATANABE & ZYLBERSZTAJN 2014, p.474-475). Contract farming was thereby introduced as a mechanism to govern transactions within a vertical production chain, in order to synchronize interactions within its different stages (Ibid, p.461). This modality connects local production to international demand, and through the anticipated sales of

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agricultural produce and provision of production inputs, it strengthens the forwards and backwards linkages to the global agricultural commodity chains. In line with the models of contract farming that are widespread within meat processing in the United States, Brazilian pork and poultry industries have also adopted it in relation to its input supply, which determines a range of product and production specific criteria to which the individual farmer is bound (WELCH 2006, p.49).

A variety of different financial and other investment vehicles have become available within the Brazilian agricultural sector, spanning over direct investment in transportation, storage and harborage, contract farming, capital market investment in stack and investment funds, as well as partnerships and joint ventures (MAPA, 2010).

Banks in developed countries have also been engaged in financing Brazilian export crops, because of the much lower interest rates on international as opposed to domestic markets. The value of the produce is thereby provided as guarantee for the loans (DSC 2008, p.18). As whole soybeans, soybean oil, soybean meal, corn, cotton, sugar, lean hogs and live cattle are amongst the 18 key commodities traded in Chicago, London, and New York (BURCH & LAWRENCE 2009, p.273), they offer highly tradable futures. The proliferation of financialization within essential agricultural commodity sectors has hereby provided a large amount of credit for the growth of commercially oriented monoculture (MENDONÇA 2015, p.396), while it also has been pinpointed as something which weakens small-scale farming (ISAKSON 2013, p.12).

In relation to the process of financialization of agriculture, Brazil has converged with the general trend within the contemporary global food system to rely increasingly on private capital (FRIEDMANN & MCMICHAEL 1989, p.112). As highlighted by McMichael, financialization has been an absolutely central vector for the vertical integration of agriculture, which firmly re-embeds localized production within global networks of capital, material and technological inputs, and output management.

(MCMICHAEL 2005, p.270). In Brazil, financialization has thereby constituted a parallel dimension which works in conjunction with the verticalization of production structures, by stimulating the surge of capital intensive export-agriculture and in forging its links to global markets. These linkages have meant that the reproduction of capital within the productive stage has been more closely contingent on conditions within global markets, which has provided an incentive for Brazilian producers to influence events at this level.

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