and forestry for centuries, so why should they not do so as well?
From individual to institutional asset: the rise of farmland investment thinking in the United States and United Kingdom
The rise of modern forms of farmland investment thinking dates back to the United States of the 1960s. It evolved against the backdrop of increasing land consolidation (reaching a scale interesting to financial investors), such that average farm sizes “ballooned between 1910 and 1970, from 138 to 390 acres” (Axelrad 2014: 6; see also Weis 2007: 83), as well as the increasing influence that financial institutions had gained in agricultural lending and mortgages. The first attempts to make a case for farmland investments were made by a number of economists working at the land grant universities of the Midwest in the mid-1960s (Barry 1980; Kaplan 1985; Kost 1968). Based on these thoughts, Merrill Lynch and the Continental Bank of Illinois tried to set up a farmland fund in the late 1970s, which did not materialize because resistance from “an unusual alliance of government, Congressional, labor, farm, consumer and religious forces had denounced the plan as likely to lead to domination of agriculture by huge tax-exempt investors and to threaten the future of family farming” (New York Times 1977; see also Chapter 6). What instead took off without much resistance was institutional investment into timberland (Gunnoe & Gellert 2011), as “[v]ertically integrated US timber companies, facing increasing market pressure, began to view their land holdings as deadweight on their balance sheets” (Fairbairn 2014: 788). Their lands were either bundled in real estate investment trusts (REITs) or managed on their behalf by a timberland investment management organization (TIMO). The full-blown entry of institutional investors into farmland was sparked one decade later by the great farming crisis that ensued in the 1980s, which left many owner-operated farms bankrupt and saw some formerly solely insurance companies, such as Prudential Travellers and John Hancock, take direct ownership of indebted farms. These and other institutional investors moved beyond timberland interests, with the TIMO serving as an important template for the newly emerging farmland investment management organizations (FIMOs) (Gunnoe 2014; Fairbairn 2014). In the mid-1980s the most important players owned almost 3.5 million acres of farmland across the United States (Green 1987: 74). Today Hancock, now as Hancock Agricultural Investment Group, and Prudential, now as Prudential Agricultural Investments, are still important players in the agricultural investment industry.
Interestingly, by the early 1980s the United Kingdom had already experienced two decades of institutional farmland investing, a boom that ended when the one in the United States was about to start. Albeit less explicitly guided by the principles of modern portfolio management, this was a significant moment of financial expansion. Although insurance companies already held by 1875 “‘between two-thirds and three-quarters of the long-term debts secured on landed estates’” (Northfield Committee Report; cited in Munton 1985: 157), and had supported the colonial enterprise, up to the 1960s these players had not invested in domestic farmland “because private owners were prepared to pay 45 per cent on borrowed capital with rental yields at only about 21 per cent” (ibid.: 158). After government policies such as the promotion of credit and mortgage expansion and support for owner-occupier farming had led to the increasing commodification of land rights between the First World War and the 1960s (Whatmore 1986), pension funds, insurance companies and property unit trusts overcame the traditional “city antipathy” (Munton 1977: 31) towards agriculture and started to acquire farmland in England and Scotland. Combined with some macroeconomic drivers (discussed below), the preceding “transformation of land rights into financial assets and the development of the land market as a specialised investment sector” (Whatmore 1986: 117) created the necessary conditions for finance to take direct ownership of farms. This takeover “formed the basis for some of the more dramatic political debates in Britain during the 1970s” (Duncan & Anderson 1978: 249), and sparked a series of critical investigations into the workings of the “property machine” (Ambrose & Colenutt 1975). Two observers at the time noted that “[i]nvestment by financial institutions had been particularly obvious during the 1971–4 boom and again from 1976” (Duncan & Anderson 1978: 249). Drawing on a comprehensive survey of 40 funds that had a stake in farming properties, Richard Munton (1985) – probably the leading scholar on the assetization of farmland in the United Kingdom at that time – notes that, between 1966 and 1982, finance-driven investments in farmland saw a significant expansion (see Figure 3.2). By the end of 1984 financial institutions owned 286,517 hectares of lease land and a further of 48,341 hectares with vacant possession. This was “equivalent to 1.9 per cent of the total agricultural area and 3 per cent of the area of crops and grass in Great Britain” (Munton 1985: 160). Although this seems small, the large-scale properties controlled by these institutions commanded a much larger share of total food output, and often owned prime land in the targeted regions. “Financial landowners” (Massey & Catalano 1978: 122) were also thought to have a significant impact on land price volatility, as they could acquire and dispose of relatively large land holdings “overnight” (Munton 1985; Whatmore 1986). In addition, the dramatic shift that financial institutions were credited with driving lay less in their land market share and more in their creation of new land tenure arrangements. Most of the institutions opted for a sale/lease back model, whereby a farmer sells his or her land and then leases it back from the financial institution, which wants to benefit from both capital gains and rental income. Others worked with “manager-tenants” (Munton 1977: 35) through partnership agreements or took land “in hand” and managed it through a subsidiary farming company (Whatmore 1986: 119). Suffice it to say, we will encounter the former model again later, as it is one of the preferred models in the United States, the main investment destination of financial flows into farming today, while the latter two models have been reborn in some of the operational strategies we encounter in Aotearoa New Zealand and Australia.
Source: Redrawn from data provided in Munton (1985: 161).
Surprisingly, the drivers of the 1970s wave of finance-gone-farming in the United Kingdom were similar to those that would take precedence almost 40 years later: a fear of rising levels of inflation; ever-growing liabilities derived from the savings boom during this period; and the poor performance of traditional long-term investments, such as government bonds. Combined with government restrictions on overseas
