Debate

Risky Returns: The Implications of Financialization

in the Food System

Jennifer Clapp and S. Ryan Isakson

ABSTRACT

This article examines the rise of financialization in the agrifood sector and
maps out both the way it has unfolded as well as its implications. The
article argues that financialization has opened up new arenas for capital
accumulation in the agrifood sector; reshaped the agrifood firms in ways
that respond to demands of shareholders; and transformed everyday prac-
tices of food and social provisioning. The authors make the case that these
three broad processes, while each important in their own right, are inter-
connected and mutually reinforcing. The article also argues that the complex
iteration of financialization in the agrifood sector carries three important im-
plications for the long-term social and ecological sustainability of food and
agricultural provisioning: it exacerbates the existing imbalances of power
and wealth in the food system; it increases economic and ecological vulner-
abilities within agrifood systems; and it has evolved in ways that impede
and dampen collective demands for change and resistance. Taken together,
these wider implications of financialization in the agrifood sector present a
direct challenge to the ability of food systems to provide livelihoods and food
security over the long term.

INTRODUCTION

The process of financialization has profoundly affected food systems in

recent decades, as financial actors, markets and motivations have taken a
larger role in society, and across all sectors in the economy (Epstein, 2005).
The links between food, agriculture and finance date back centuries to early
commodity exchanges, but the contemporary process of financialization

We would like to thank Servaas Storm and the anonymous reviewers of this article for helpful
feedback and suggestions. We are also grateful to Phoebe Stephens and Eric Helleiner for
comments on earlier drafts and Rachel McQuail and the editorial team at Development and
Change for editorial support.

Development and Change 49(2): 437–460. DOI: 10.1111/dech.12376

⃝
C 2018 International Institute of Social Studies.
438 Jennifer Clapp and S. Ryan Isakson

has subtly, yet dramatically, transformed agriculture and food provisioning

in important ways, with wide-ranging implications (Clapp, 2014; Isakson,
2014). This transformation has occurred all along agrifood supply chains,
including input provisioning, land ownership, planting decisions, commodity
trading, food processing and retail. While it is difficult to put a hard number
on the impact of financialization on the sector due to the different ways in
which this process has unfolded, it is possible to document its presence and
provide a preliminary assessment of its effects.
Our contribution to the 2018 Forum Debate on ‘Financialization and Eco-
nomic Development’ examines the rise of financialization in the agrifood
sector and, in doing so, advances two main arguments. First, in the food
system as elsewhere in the economy, the way that financialization has un-
folded has taken three distinct — yet, we argue, interrelated — forms (see
van der Zwan, 2014): as a process that opens up new arenas for capital
accumulation (Harvey, 2010; Krippner, 2011); as the increasing prioritiza-
tion of returns to shareholders over other values in corporate management
(Froud et al., 2006); and as the permeation of financial values and activities
into the everyday practices of social provisioning (Aitken, 2007; Langley,
2008; Martin, 2002). It is possible to identify each of these processes tak-
ing hold within the food and agriculture sector, which we map out. While
these three broad processes are certainly noteworthy in their own right,
we maintain that they are not distinct from one another. Rather, with re-
spect to food and agriculture, these trends are interconnected and mutually
reinforcing.
An analysis of how the three overlapping and synergistic dimensions of
financialization contour agrifood provisioning gives rise to our second argu-
ment. Specifically, we maintain that the complex iteration of financialization
in the agrifood sector carries important implications for the long-term social
and ecological sustainability of food and agriculture. First, it contributes
to the concentration of power and wealth in ways that exacerbate existing
inequalities in food systems; second, it increases economic and ecological
vulnerabilities within agrifood systems, which work to undermine the sec-
tor’s resilience; and third, it has evolved in ways that impede and dampen
collective demands for change and resistance, making policy change and
regulation to tame the effects of financialization especially difficult. Taken
together, these wider implications of financialization in the agrifood sector
present a direct challenge to the ability of food systems to provide liveli-
hoods and food security over the long term. These effects are felt unevenly.
While big agribusiness firms and financial investors largely benefit from the
transformations as their power and wealth increase, the majority of farm-
ers and consumers, as well as the planet, have borne the bulk of the costs
associated with the changes. At the same time, within these broad cate-
gories of ‘winners’ and ‘losers’, some actors have fared better than others
with the distribution of costs and benefits, often reinforcing existing lines of
stratification.
Debate: Financialization in the Food System 439

FORMS OF FINANCIALIZATION

Opening New Arenas for Accumulation in the Agricultural Sector

Food and agriculture have become increasingly attractive to investors as sites

for financial accumulation in recent decades. Facilitated by important regu-
latory changes in countries throughout the world, financiers have developed
a wide array of novel products linked to food and agriculture that generate
purely financial profits for investors. To achieve this, these new investment
vehicles effectively abstract the cultural and physical qualities of food and
farmland into financial values, privileging metrics like risk and return on
investment while occluding other social concerns. The proliferation of such
investment opportunities has opened up new arenas for capital accumulation
at different points along agrifood supply chains.
Markets for agricultural commodities are one of several arenas that have
been reconfigured for the generation of financial profits in recent decades,
as financial investors have sought to diversify their portfolios by including
commodity-linked investments. This is particularly evident in the market
for commodity futures contracts, which entitle holders to a specified quan-
tity of a given agricultural commodity at a specified price at a future date,
and are often traded among financial actors who speculate on what actual
market prices will be when the contract expires. Financial actors have par-
ticipated in the agricultural commodities trade for centuries and were a key
force in the early development of financial derivatives such as futures, for-
wards, swaps and options associated with traded commodities. Commodity
exchanges emerged in The Netherlands, Japan and England in the 16th and
17th centuries, and in the USA in the 18th and 19th centuries (Berg, 2011).
There has long been suspicion that speculation on these markets drives up
prices, and although at times speculators’ activities have been subject to
regulation, rules governing these markets have been spotty and inconsistent.
Regulation became stricter when the United States, home to the world’s
largest commodity futures markets, enacted rules in the 1920s and 1930s to
prevent ‘excessive speculation’ by financial traders, thereby reducing dra-
matic swings in commodity prices. For more than half a century, the rules
required futures trades to take place on approved exchanges and imposed
limits on the number of contracts that could be held by financial speculators.
But this era of tight regulation did not last. Starting in the 1980s, under pres-
sure from major financial investors like Goldman Sachs and Deutsche Bank,
a new era of deregulated commodity markets was unleashed when the US
government, responding to the demands of neoliberalism, began progres-
sively deregulating the country’s commodity futures markets. The relaxed
approach to regulation was formally codified with the passage of the US
Commodity Futures Modernization Act in 2000 (Clapp and Helleiner, 2012).
This new regulatory environment opened the door to the development of
new financial investment tools linked to food and agriculture. Banks and
440 Jennifer Clapp and S. Ryan Isakson

other financial institutions, including the financial arms of large commod-

ity trading firms like Cargill, began to offer products such as commodity
index funds (CIFs) that tracked the collective performance of a bundle of
commodity futures. These types of investment products enabled investors
to gain exposure to commodities without having to directly purchase com-
modity futures contracts (De Schutter, 2010; Murphy et al., 2012). As such,
they were especially attractive to large-scale institutional investors, such
as pension funds, hedge funds and university endowment funds, whose
managers are not generally experts in agricultural markets and who are
typically passive in their investment strategies. These funds have enabled
investors to diversify their portfolios with exposure to commodities in ways
that were not previously possible. Although investors in CIFs do not pur-
chase actual commodity futures contracts, the financial institutions that sell
the index fund products hedge their risks by purchasing massive quan-
tities of offsetting contracts in the futures market (Clapp and Helleiner,
2012).
These developments deepened the role of financial actors in agricultural
commodity markets, and enabled a larger number of investors to speculate
on food and agricultural commodity prices. Investment in these types of
commodity index investment products ballooned after 2000, with profound
implications for the agricultural sector. Speculative investment in agricul-
tural commodities nearly doubled between 2006 and 2011, increasing from
US$ 65 billion to US$ 126 billion (Worthy, 2011). The increased speculation
in commodity markets, in turn, has been widely implicated in the height-
ened price volatility experienced in the 2006–11 period (Ghosh et al., 2012).
Indeed, as money began to flood into commodity investments after 2000,
food prices began to rise. By 2008, world prices for rice had increased by
over 200 per cent, and wheat, maize and soy had increased by more than 100
per cent over their 2000 levels (WIR and A.T. Kearney, 2008). Higher food
prices largely resulted from a spike in demand for commodity investment
products, which was self-reinforcing, as investors moved en masse into the
sector to capitalize on rising prices. Although many investors simply held
index products, rather than physical stocks of commodities, their holdings
amounted to ‘virtual hoarding’, which undermines the ability of futures mar-
kets to accurately determine prices based on supply and demand (Masters,
2008; UNCTAD, 2011).
Capital has also rushed into the agricultural real estate market, as investors
seek to capitalize on soaring farmland prices around the world (Desmarais
et al., 2017; Fairbairn, 2014; Magnan, 2015). In the wake of the 2008 food
crisis, as food prices became higher and more volatile, agricultural real
estate prices boomed as financial investors sought to gain from exposure
to farmland as an asset class. By 2010, investors had poured some US$ 10
to 25 billion into farmland investments, and this amount increased to US$
30 to 40 billion by 2012 (HighQuest Partners, 2010; Wheaton and Kiernan,
2012).
Debate: Financialization in the Food System 441

Although speculation has always played a part in the real estate sector,
recent decades have seen an increase in the number and type of financial
actors that participate in agricultural land markets. Hedge funds, pension
funds, private wealth management companies, private equity and wealthy
individuals have all been key participants in the rush for agricultural farmland
(Knuth, 2015). These various actors have been drawn to what they see as
safe opportunities for profit accumulation. Real estate has long been viewed
as a secure investment that tends to retain its value over time, and thus is
attractive to investors with a low tolerance for risk. It is also widely viewed
as a good hedge against inflation, as real estate prices typically rise in step
with the overall price index (Pickford, 2015). Farmland has an additional
benefit, in that its productive capacity provides an income stream through
either rent or production. Referring to farmland’s dual quality as both a store
of value and a productive asset, many investors have likened it to ‘gold with
yield’ (Fairbairn, 2014).
While some financial actors have purchased farmland directly, others have
been put off by its ‘illiquidity’ — the fact that it cannot always be easily
converted into cash because of the peculiar challenges of buying and selling
land-based assets. Farmland is fixed in place, can vary substantially in size
and quality, and the rights over its control are overlapping and rooted in spe-
cific cultural and political histories. To improve the liquidity of farmland,
proponents of financial investment have devised metrics and standards that
work to occlude contestations over land rights and meanings while abstract-
ing the qualitative differences that characterize any given plot into measures
that are legible to financial investors (Ducastel and Anseeuw, 2017; Li,
2014; Visser, 2017). These practices have enabled the emergence of a range
of financial investment products that offer investors exposure to farmland
without requiring them to make actual land purchases. Products such as Real
Estate Investment Trusts (REITs), for example, deliver a relatively liquid
financial investment vehicle for investors seeking exposure to the benefits of
farmland investments (Fairbairn, 2014). Functioning much like mutual funds
that hold conventional financial assets like stocks and bonds, these products
compile multiple properties (or simply mortgages on those properties) into a
single holding and sell shares of the associated income streams to investors.
REITs have become a popular means for investing in agricultural land in
the USA, as evidenced by the recent emergence of REITs that focus on
farmland, such as Gladstone Land (established in 2013), Farmland Partners
(established in 2014), and the American Farmland Company (established in
2015). The latter two were merged in 2017; their combined holdings total
nearly 150,000 acres of farmland across 16 US states (Farmland Partners,
2017).
As with other types of financial acquisitions, REITs often acquire farmland
from agricultural producers who, for a variety of reasons including rising
debt and other forms of financial hardship, are unable to make the invest-
ments necessary to remain competitive. As the Chief Executive of Farmland
442 Jennifer Clapp and S. Ryan Isakson

Partners noted, ‘A little bit of pain in farm country makes our job easier’
(Kesmodel and Newman, 2015). Returns from such sales enable farmers to
make capital improvements and continue working the land, albeit as renters
instead of owners (Potter, 2017; Sippel et al., 2017). Meanwhile, financial
actors’ growing acquisitions of agricultural real estate have been linked to
rising farmland prices. While this appreciation of land values may benefit
farmers who wish to exit agriculture, they also preclude aspiring farmers
from purchasing farmland and prevent existing farmers from expanding the
scale of their holdings (Desmarais et al., 2017; Duffy, 2011), likely driving
many of them into rental markets. Farmers who rent land from REITs are of-
ten required to do so on a ‘triple net basis’, meaning that they are responsible
for paying property-related expenses including taxes, water usage, mainte-
nance and insurance. In this way, these funds ensure that the costs and risks
of agricultural production are borne by farmers, while investors reap any
benefits from appreciating land values.
In another arena for financial accumulation, investors have shown a grow-
ing interest in equity shares in food and agriculture companies. Hundreds
of equity-based funds have emerged in recent years, providing investors
with exposure to food and agriculture by exchanging shares in related firms
traded on stock exchanges and offering index funds that track the value of
shares in agribusiness corporations. Though such funds have received much
less attention than commodities and farmland, approximately one-third of
financial investment in the agrifood sector is in listed equities. According to
one investment advising company, total assets under management in these
funds amounted to approximately US$ 45 billion in 2014 (Valoral Advi-
sors, 2015). Large-scale institutional investors in particular have flocked to
these new financial instruments. They have poured funds into agribusinesses
via a number of equity investment products, such as food and agriculture
exchange traded funds (ETFs), and over-the-counter (OTC) index products
such as agriculture-focused mutual funds.
Equity-based index funds in particular have become popular investment
tools, including the funds that index shares of firms across the agrifood
supply chain. These products include ETFs with ticker symbols like MOO,
COW, SOIL, and PBJ, which track shares in firms across the value chain.
MOO, for example, manages around US$ 800 million, and tracks shares in
agribusiness firms that sell agricultural seeds and chemicals, farm equip-
ment, commodities, fertilizers and animal health products (VanEck, 2017).
Other funds, like PBJ, track firms in the fast food, processed food and
food retail industries (Invesco, 2017). Focusing upon the large agribusiness
companies that dominate the agrifood supply chain, these equity-based in-
vestment vehicles channel funds into already powerful firms. Among their
holdings are input companies Monsanto and Syngenta, equipment compa-
nies Deere and Toro, commodity traders ADM and Bunge, Big Food firms
PepsiCo and Kellogg, fast food firms Wendy’s and Domino’s, and retail-
ers Kroger and Sysco. Thus, in addition to fuelling the trend of corporate
Debate: Financialization in the Food System 443

concentration that we discuss below, these funds also reinforce the industrial
model of agriculture by locking most of the investment capital in the sector
into high-tech inputs, large-scale trading operations, processed food, and
large fast food chains and food retailers.
In addition to new equity funds, farmland, and commodity-based invest-
ment vehicles, financial institutions have also introduced new types of deriva-
tives that they peddle to farmers on the pretext of securing them against
adverse price movements and environmental hazards. As discussed below,
this includes the development of creative mechanisms for linking medium-
and small-scale farmers from the global South into existing derivatives
markets, a dramatic expansion of agricultural commodity exchanges and
derivatives trading in ‘emerging’ economies, and the widespread promotion
of weather-based derivatives that are increasingly marketed to small-scale
agricultural producers as a means of hedging against environmental risks.
Unlike the assurances of state-based institutions, which were rolled back
under neoliberal restructuring, these financial products have the effect of
offloading risk onto agricultural producers because they are speculative in-
struments that do not guarantee security. The ability to capitalize on this
partial security is generally biased towards wealthier farmers who control
the resources necessary to successfully speculate on derivatives-based in-
surance (Breger Bush, 2012; Isakson, 2015; Taylor, 2016).

The Prioritization of Shareholder Value: Reshaping Agrifood Firms

Like corporations elsewhere in the economy, agribusinesses have adopted

the stance that the primary function of firms is to generate profit for share-
holders, prioritizing this function ahead of all societal goals, such as provid-
ing nutritious food and decent livelihoods (Baud and Durand, 2012; Jones
and Nesbit, 2011). Increasingly, the dominant shareholders of agrifood cor-
porations are large asset management firms that manage funds for institu-
tional investors who seek to profit from growing equity values. In order to
satisfy the demands of powerful shareholders, the executives of agrifood
firms have pursued growth strategies that include financial activities as well
as mergers and acquisitions, which can provide quick, if short-lived, boosts
to profits. But this grab for profits has come at the expense of investments in
product development, workplace safety, environmentally sustainable prac-
tices, and other activities that contribute to broader social well-being and the
long-term viability of agrifood enterprises (Cohn and Wardlaw, 2016; Jones
and Nesbit, 2011; Rossman, 2010).
The prioritization of shareholders across the agrifood sector has encour-
aged firms to narrow their focus almost exclusively to their financial returns.
As a result, firms in the sector are encouraged by their shareholders to
increase their financial activities as a means by which to improve their per-
formance. As enterprises along agrifood supply chains have increasingly
444 Jennifer Clapp and S. Ryan Isakson

engaged in financial activities as part of their business model, the sector has
changed in important ways. In the agricultural commodity-trading sector, for
example, the four large ABCD companies (Archer Daniels Midland, Bunge,
Cargill, and Louis Dreyfus) are all directly engaged in commodity futures
trading to hedge their own price and supply risks. Each of the ABCD firms
has also established financial subsidiaries that offer a variety of investment
products, including commodity index funds, asset management services, in-
surance, and opportunities to speculate on real estate (Murphy et al., 2012).
Louis Dreyfus, for example, operates a hedge fund — the Alpha fund —
that focuses on agricultural investments, including farmland. These financial
strategies have enabled these commodity traders to improve their profits to
the benefit of shareholders, both for the publicly held firms ADM and Bunge,
and for the privately owned Cargill and Louis Dreyfus.
Further up the supply chain, agricultural input companies are earning a
greater share of their revenues from financial activities as a means to enhance
performance to satisfy shareholders. Some are teaming up with financial
institutions to provide specialized credit cards and other forms of credit and
insurance to farmers. The Canadian banking and insurance firm Desjardins,
for example, has teamed up with DeKalb seeds to offer farmers an ‘AgriCard’
that enables them to obtain interest-free credit for over one year provided it
is used to purchase Dekalb brand seeds (Desjardins, 2017). Food processing
companies are also increasingly engaged in financial speculation on food
commodities that are important as ingredients for their products as a way to
cut costs and increase profits. For example, in 2011 food processing giant
Kraft was accused by US regulators of manipulating prices to its advantage
by purchasing a massive amount of wheat futures contracts, which drove
down cash wheat prices near its Ohio processing mill while simultaneously
driving up prices of wheat futures (Meyer, 2015; Sosland, 2015).
Food retail companies have similarly branched out into financial activities
as a means to improve profits and satisfy shareholders (Baud and Durand,
2012). A number of food retail companies have diversified into insurance,
banking and other financial activities (Burch and Lawrence, 2009), as dis-
cussed more fully below. Food retailers have also increasingly shifted costs
onto producers and suppliers in order to free up capital for shareholder
dividends (Burch and Lawrence, 2013).
Additionally, the prioritization of shareholder value has encouraged firms
to cut costs in order to secure higher profits to pay dividends to share-
holders. Firms in the sector have faced pressure to reallocate resources out
of productive activities, such as research and development, and into div-
idends (Isakson, 2014; Rossman, 2010). Part of the cost-cutting exercise
has included a growing number of mergers and acquisitions in the agrifood
sector. The recently announced mergers of Bayer and Monsanto, Syngenta
and ChemChina, and Dow and Dupont are part of this trend. As agricul-
tural commodity prices weakened in 2014 and 2015, each of these firms
saw sagging demand for their products, which translated into weaker share
Debate: Financialization in the Food System 445

prices compared to other firms in the stock market. In order to counteract

this effect, the mergers sought not only to increase market share for the
newly merged entities, but also to reduce costs through the elimination of
duplicated research and development costs (Clapp, 2017; IPES-Food, 2017).
Dow and Dupont, for example, were under pressure from individual ac-
tivist investors who purchased enough shares to pressure the management
of these firms to pursue the merger. Activist investor Nelson Peltz’s Trian
hedge fund purchased just under 3 per cent of the shares in DuPont in 2013,
and immediately began to push for a restructuring of the firm. Daniel Loeb’s
Third Point hedge fund acquired just over 2 per cent of Dow’s shares in 2014
and pursued a similar strategy with the firm. Although these share amounts
seem small, they are large enough for individual investors to demand change
in the firms whose shares they own. Both Loeb and Peltz pushed the lead-
ership at these firms to restructure in order to realize their full financial
potential (Crooks, 2015). In a similar development, activist hedge fund Jana
Partners played an instrumental role in facilitating Amazon’s acquisition of
Whole Foods in June 2017, a mere two months after acquiring a majority
share in the food retailer. Jana Partners subsequently sold its shares in Whole
Foods, earning a profit of US$ 300 million (Thomas, 2017).
In addition to encouraging activist investors, financialization in the agri-
food sector has also influenced corporate consolidation in the sector in other
ways. As saving through pension funds has become more institutionalized, a
large number of retirement savings funds are now managed by professional
asset managers, who are typically rewarded based on the kinds of returns
they can achieve for their clients. Although they are managing the money
of what are typically viewed as ‘passive’ investors, they often engage di-
rectly with the firms in which they invest, particularly if they are concerned
about their financial performance. Even if they do not apply direct pressure
regarding their returns, most firms understand the concerns of these asset
managers and are likely to make decisions that will benefit shareholders
first and foremost (Azar et al., 2017). As such, firms are under constant
pressure to generate more profits to feed into dividends for shareholders. In
this context, mergers are a common response because they offer a simple
and immediate strategy to boost returns to benefit shareholders, even though
they are not based on growth in production and sales (Spross, 2015).
It is not just individual firm performance that matters in this context,
but industry performance across an entire sector, including competitors.
This is because large institutional investors will often purchase shares in
a variety of corporations that offer similar products and services. In the
agricultural input industry, for example, the top asset management firms,
including Blackrock, Capital Group, Fidelity, The Vanguard Group, State
Street Global Advisors and Norges Bank Investment Management, each
own significant equity shares in the top six agricultural seed and chemical
companies (Clapp, 2017). These investor companies have an interest in all of
these agricultural input firms performing well, such that their clients receive
446 Jennifer Clapp and S. Ryan Isakson

the highest returns possible. Pressure from these major institutional investors
to increase profits was a key driver of the recently announced mergers in the
sector (IPES-Food, 2017).
Shareholder orientation also encourages firms to cut costs wherever they
can, leading to the externalization of social and environmental costs. Wages
within food and agriculture firms have stagnated in this context, and jobs in
the agrifood sector have become less secure (Baud and Durand, 2012; Burch
and Lawrence, 2013; Rossman, 2010). As wealth is redistributed within
food and agriculture firms, global supply chains have become even more
elongated as sourcing and processing is increasingly globalized to locations
where wages are typically lower and where environmental standards are less
stringent (Clapp, 2014). Certified supply chain governance initiatives have
tried to address some of the problems this brings, such as the ecological
costs of palm oil plantations in tropical countries, which supply some of the
biggest agrifood trading and processing companies. In the face of increas-
ing activism targeting specific brands, a growing number of big firms —
including Nestlé, Cargill, General Mills and Kellogg’s — are signing onto
these initiatives and committing to zero deforestation. But analysts warn that
these certification initiatives still cover less than a fifth of global palm oil
production and this patchy coverage, combined with weak rules and uneven
enforcement in developing countries, means that they remain weak and in-
effective in terms of their impact on the ground (Dauvergne, 2017; Fortin,
2013).

Financialization of Food Infiltrates Everyday Life

The financialization of everyday life — understood as the process wherein

the ordinary practices of social reproduction are increasingly governed by
financial motives, logics and products — is also permeating the agrifood
sector, making financial transactions a commonplace and mundane feature
of food provisioning. Throughout much of the 20th century, governments
from the global North and South provided important services to agricultural
producers such as price supports, agricultural insurance and credit provision
(Chang, 2009; Martin and Clapp, 2015). The latter was especially impor-
tant as conventional banks generally refused to provide loans to farmers
on account of the high uncertainty associated with agricultural production
due to weather variability, the perishable nature of crops, and the associated
production inconsistency and price volatility. In the late 19th and early 20th
centuries, a number of Western countries implemented a variety of agricul-
tural support policies, including targeted lending through state banks and
credit cooperatives, state-backed insurance programmes, marketing boards
and price supports. Similar policies were adopted in many African, Asian and
Latin American countries during their nationalist development campaigns
following World War II (Chang, 2009).
Debate: Financialization in the Food System 447

With the rise of neoliberal policies starting in the late 1970s, many states
began to roll back these supports, a process that effectively handed re-
sponsibility for these important functions to the private sector (ibid.). Price
supports and marketing boards came under fire in rich and poor countries
alike as governments increasingly embraced the idea of agricultural trade
liberalization (Margulis, 2017). In the global South, these policy shifts were
often part of conditions placed on structural adjustment loans. In Nicaragua
and Honduras, for example, concerns that government intervention in credit
markets ‘crowded out’ commercial providers were used to justify the roll-
back of agricultural extension services, the deregulation of interest rates,
and the closure and privatization of state-run rural development banks in the
1990s. While additional state incentives did indeed facilitate the expansion
of private banks into the countryside, the liberalization of financial markets
did not improve credit access for the majority of rural households. It was
decidedly biased against households with smaller landholdings even as it
improved credit access for relatively wealthier households (Boucher et al.,
2005).
It has now become normal for farmers in both rich and poor countries to
take credit from private lenders, rather than relying on state-backed credit
schemes. For many, this has meant greater exposure to wider trends in global
financial markets, which can heighten their vulnerability. By entering into
private lending arrangements, many agricultural borrowers are subject to
commercial rates, which contrast with the subsidized, concessional rates
that states previously financed, and which provided a buffer of protection
against risk (Coleman and Grant, 1998; Harper, 2012). In times of financial
turbulence, sources of borrowing typically dry up, while the ability to repay
loans can become difficult. Because farmers are already subject to wide
variability in their incomes due to the inherent risks in agriculture, they are
particularly vulnerable borrowers in private financial markets.
To a certain extent, the rapid expansion of microfinance in the early 2000s
helped to mitigate some of this financial polarization. Access, however, has
been uneven in rural areas. While relatively wealthier farmers are able to
apply loans to productive investments, their poorer counterparts are often
borrowing to satisfy basic consumption needs. The aggressive marketing of
high interest loan products by many commercial microfinance institutions
has contributed to the over-indebtedness of already marginalized agricultural
producers, a phenomenon that has been directly linked to the 2009 micro-
finance crisis in Nicaragua (Bédécarrats et al., 2012) and the 2010 crisis in
India (Taylor, 2011).
In addition to taking on more debt, farmers are also increasingly en-
couraged by private financial institutions, neoliberal states and international
organizations to purchase derivatives to hedge against price-based risks and
insure against weather-related losses. This individualization of responsibil-
ity has become normalized and it is now widely taken for granted that if
agricultural producers are not utilizing these tools, then it is their own fault
448 Jennifer Clapp and S. Ryan Isakson

if they suffer losses. Yet this trend is offloading significant time and cost
commitments onto farmers, not to mention stress due to their need to focus
not only on their own fields, but also on the wider financial markets. States
had previously reduced price variability by managing supply through buffer
stocks and international commodity agreements. But since the 1980s, these
practices have been phased out in favour of individualized market-based
tools (Martin, 2016).
While farmers in the global North have long managed price risks through
engagements with commodity futures markets, such practices are now in-
creasingly promoted for agricultural producers from the global South. Be-
ginning in the early 1990s, influential development actors like the World
Bank, the Food and Agriculture Organization (FAO), and the UN Con-
ference on Trade and Development (UNCTAD) have promoted the use of
forward, futures and options contracts as risk minimization tools (Martin,
2016). More than half of the world’s commodity exchanges are now
located in non-OECD countries, facilitating a dramatic increase in the trad-
ing of agricultural commodity derivatives since the early 2000s, especially
on Asian exchanges (Breger Bush, 2012).
New kinds of derivatives for managing environmental risks have also
emerged in recent years, including index-based agricultural insurance
(IBAI). The novelty of IBAI is that, rather than paying indemnity payments
based upon the value of actual losses that farmers suffer in their fields, it ties
compensation to an index of environmental measures that are correlated with
agricultural performance. Championed by a similar cast of development ac-
tors (e.g. the World Bank, FAO) and financial institutions like transnational
insurance giant Swiss Re, hundreds of IBAI products have been launched
since 2000, most of them in the global South (Greatrex et al., 2015; Jensen
et al., 2016). The promotion of IBAI is rooted in notions that the risks associ-
ated with agricultural production are also opportunities (World Bank, 2013).
According to this logic, farmers wishing to improve their economic position
must be willing to embrace risks and effectively manage them through, inter
alia, their savvy participation in financial markets (Taylor, 2016).
To the dismay of IBAI promoters, voluntary purchases of these products
have been low, rarely exceeding 30 per cent of the target population (Matul
et al., 2013). While weak demand is often attributed to the financial ‘illiter-
acy’ of agricultural producers and the lack of an ‘insurance culture’ (ibid.),
farmers often point to the limited security provided by index-based prod-
ucts. In India, for example, farmers maintain that IBAI products are more
akin to a lottery than insurance since payouts are often uncorrelated with
agricultural outcomes (Posada, 2016). To counter such reservations, the In-
dian state requires that farmers who borrow from state banks purchase IBAI
policies. In other contexts, insurance policies are increasingly bundled into
other ‘everyday’ transactions like the purchase of improved seeds, taking
out agricultural loans and entering contract farming agreements (Greatrex
et al., 2015; Isakson, 2015).
Debate: Financialization in the Food System 449

The financialization of everyday activities in the agrifood sector has also

affected consumers, as food retail companies have become major providers
of credit and other financial services to their cash-strapped and insecure cus-
tomers (Burch and Lawrence, 2009). Although local storeowners have long
issued credit to buyers based on trust relationships, credit from food retailers
is increasingly tied to the global financial system. Food retail chains in the
UK, Australia and Canada have established themselves as providers of credit
and banking services. In Canada, for example, the food retailer Loblaws’
own food brand, President’s Choice, offers credit cards in partnership with
the global credit firm MasterCard. The firm also offers chequing and savings
accounts, mortgage lending and mutual funds, as well as personal loans and
lines of credit, not to mention travel services. It encourages consumers to
benefit from loyalty points associated with its credit cards which they can
redeem for free food. The President’s Choice website instructs customers to
‘Shop, earn, redeem, repeat’.1 Linking food acquisition to the provision of
credit by the same provider locks in consumers and heightens their depen-
dence on these firms for both financial security and food security.
In the global South, the financialization of daily life is also instilled through
the provisioning of food assistance. In 2012, for example, the World Food
Programme (WFP) teamed up with MasterCard to develop debit cards for the
disbursement of national and international food assistance through approved
retail outlets (Fieser, 2014; WFP, 2017). The intention of this ‘digital food’
payment mechanism is to improve the efficiency of food delivery to refugees
and other vulnerable populations. But while this method of food assistance
can be delivered more quickly and at a lower cost than in-kind food aid, it
also raises some concerns. Recipients must obtain the food from retail outlets
that are linked into global financial markets. These types of outlets typically
sell foods that are grown using industrial farming methods and traded in
large volumes, rather than foods produced locally by small-scale farmers.
In pilot programmes of this type of distribution, weak financial and retail
infrastructure on the ground resulted in numerous difficulties in distributing
food to recipients, including delays and additional costs as recipients had to
travel to the approved retail outlets (Sandvik et al., 2014). The programme
will likely also influence future means of payment and food choices by food
assistance recipients once they are no longer in need of aid, thus providing
new customers to both financial institutions and financialized retail outlets.
Meanwhile in the North, the old-age security of ordinary citizens is in-
creasingly contingent upon financial investments in the agrifood sector.
The mass-marketing of mutual funds has ballooned in recent years as
responsibility for managing retirement savings has been increasingly di-
rected to individual savers (Harmes, 2001). Financial institutions market
their agriculture- and food-linked investment products as a means by which

1. See the PC Financial website: www.pcfinancial.ca (accessed 21 September 2017).

450 Jennifer Clapp and S. Ryan Isakson

individuals can diversify their investment portfolios (Fairbairn, 2014). Ma-

jor financial institutions such as Deutsche Bank, Barclays and Blackrock
offer index funds to retail investors that focus on various points of the
agrifood supply chain (Meyer, 2016). Individuals with employer-sponsored
pensions are also linked to agribusiness through their plan’s investment in
food and agriculture investment vehicles. Institutional ownership of shares
in agribusiness companies has grown in recent decades, as noted above, and
ordinary citizens are increasingly linked to this type of investment through
their retirement savings and other investments.

REINFORCING TRENDS AND BROADER IMPLICATIONS

The three modes of financialization in the food and agriculture sector out-
lined above — the opening of new arenas for capital accumulation, the
prioritization of shareholder value over other goals, and the infiltration of
finance into everyday activities of food producers and consumers — have
shaped agrifood systems in multiple ways. They have contributed to food
price volatility, land grabbing, corporate concentration, the individualiza-
tion of agricultural risk management, and to less secure employment and
livelihoods, as well as to the loss of autonomy on the part of both farmers
and consumers. For many, these phenomena may appear at first glance to
be separate from one another, yet they are deeply interlinked through pro-
cesses of financialization in the food system. Indeed, these three modes of
financialization interact with and reinforce one another in a variety of ways.
Creating new arenas for capital accumulation through financial invest-
ment mechanisms, for example, requires reformatting food and agricultural
activities according to financial metrics. This kind of abstraction also facil-
itates shareholders’ ability to evaluate agrifood firms in purely financial
terms. Furthermore, the reconfiguration of food and agriculture according to
financial rubrics also infiltrates everyday life, whereby the abstract financial
conceptualizations of agrifood that are embodied in many investments and
credit transactions have become normalized and unquestioned. The creation
of financial tools that enable novel forms of profit to be gained from the
food and agriculture sector, for example, encourages the valuation of food
and agriculture according to monetary returns. While the use of such metrics
makes it easier for shareholders, lenders and borrowers to evaluate and com-
pare their returns on investments in the sector, it discourages appreciation
for other values in agrifood economies, including agricultural sustainability
and access to food.
The interplay among the different dimensions of financialization is also
illustrated by the rollback of supply management practices like price supports
and buffer stocks for agricultural commodities. As farmers and other food
system actors assume the individualized responsibility for managing price
risks, their purchase of private insurance, derivatives and credit becomes
Debate: Financialization in the Food System 451

an everyday practice. This, in turn, opens new possibilities for financial

institutions to accumulate capital through the sale of novel products that
purportedly satisfy the growing need for economic security. Similarly, the
introduction of index-based agricultural insurance not only enables the pri-
vate insurers and other financial actors to profit from the inherent risks faced
by farmers; it is also illustrative of how farmers are forced to incorporate
these kinds of tools into their normal business transactions on a day-to-day
basis. Meanwhile, agribusinesses that respond to shareholder pressure to
improve corporate financial performance often cut back on employee bene-
fits such as retirement packages that represent a short-term cost to the firm.
Those workers are then forced to assume these responsibilities through their
individual purchase of financial products as part of their retirement plan-
ning, which, again, creates new channels for financial accumulation for the
financial industry.
As we have explained above, the unfolding of financialization within the
food system has had a number of specific effects, including food price volatil-
ity, corporate concentration, growing insecurity for farmers and consumers,
inter alia. While these particular effects are certainly noteworthy in their
own right, consideration of how the different dimensions of financialization
reinforce one another also contributes to an understanding of the broader
implications of financialization in the food system. Here we identify three:
the consolidation of wealth and power, a less resilient food system, and the
growing challenges of collective organization.

The Consolidation of Power and Wealth

As scholars have noted, the distribution of power and wealth within the food
system has become increasingly unequal under capitalism (e.g. Clapp and
Fuchs, 2009; Friedmann and McMichael, 1989). Most analysts view this
inequality as highly problematic because it favours a handful of generally
privileged actors at the expense of the majority of producers and consumers
(Allen and Wilson, 2008; McMichael, 2009). Heightened financialization
in recent decades has contributed to the consolidation of power and wealth
among elite financial actors working within the food system. It has done
this partly by creating new opportunities for accumulation by those elites
through novel financial instruments that serve as conduits for a redistribu-
tion of value, which favours wealthier and more powerful actors. It appears
that this process has intensified in recent years. The dramatic increase of
financial investment in agricultural commodity markets, for example, not
only generated direct and substantial returns for investors, but it also ex-
acerbated the volatility of food prices (Ghosh et al., 2012). Unstable food
prices, in turn, created further opportunities for financial gain, through new
instruments designed to speculate on changing food prices and appreciating
land values (Fairbairn, 2014).
452 Jennifer Clapp and S. Ryan Isakson

By prioritizing shareholder value, financialization has also encouraged

greater corporate concentration, a phenomenon that further accentuates the
inequality of power and wealth in the food system (Howard, 2016). As agri-
food corporations are restructured in order to meet investor demands for
higher returns, these unequal power and wealth dynamics are only intensi-
fied. The recent corporate mergers and acquisitions are likely to accelerate
job losses in the agrifood sector, and are poised to translate into even less
autonomy for producers by narrowing their choice of farm inputs. Corpo-
rate concentration is also likely to drive up prices for both inputs and food
(IPES-Food, 2017).
The power and wealth of elite financial actors have become even more
entrenched as ordinary individuals grow increasingly dependent on the fi-
nancial sector for their own risk management through insurance, credit and
retirement savings, all of which are not intertwined with the food system.
This trend has become evident as agrifood corporations have teamed up with
financial service providers to capitalize on the tenuous livelihoods of food
workers, consumers and agricultural producers by developing new financial
products, such as retail credit and insurance, as outlined above. Although
these financial instruments are pitched as vital tools in assisting vulnera-
ble populations to satisfy their immediate needs, they ultimately contribute
further to the concentration of wealth and power in the food system.

Undermining Resilience

Financialization in the food system has left it more fragile and less resilient.
New instruments of finance, such as commodity index funds and farmland-
based investment products, have rendered food systems more prone to in-
stability and more vulnerable to economic and environmental shocks. This
vulnerability was front and centre during the 2008 food and financial crises,
when food and farmland markets became highly unstable as prices in both
markets rose sharply and severely restricted the participation of producers as
well as consumers. The system has also become more vulnerable to ecologi-
cal shocks in connection with the rise of these new investment tools, as they
encourage production at all costs, typically utilizing an industrial agricul-
ture model that relies on monoculture production patterns which have been
associated with the loss of agricultural biodiversity and rising vulnerability
to pests, pathogens and climate change (Jarosz, 2009).
The prioritization of shareholder value has contributed to more fragile
livelihoods for many agricultural producers and encouraged more capital-
intensive and ecologically damaging industrial modes of agriculture that
undermine food system resilience (Weis, 2010). Financial pressures have
encouraged the onward march of high-tech industrial models of agricul-
ture and food system organization, which have further compromised the
resilience of the food system. Finance-driven corporate restructuring, for
Debate: Financialization in the Food System 453

example, has served to lock in reliance on genetically modified seeds and

their associated agrochemicals. This trend has led to a catastrophic loss
of diversity within food systems, including the erosion of agricultural bio-
diversity and its associated knowledge and practices (ETC Group, 2016). As
‘one-size-fits-all’ technologies have come to dominate agricultural produc-
tion, it becomes more vulnerable to ecological shocks such as drought and
other extreme weather events associated with climate change (Taylor, 2017).
As financial values are increasingly prioritized over social objectives, the
broader functions of agriculture have been downplayed. Traditionally, agri-
culture has been valued for its role in protecting and preserving biodiversity,
providing livelihoods and provisioning food. Increasingly, it is being valued
primarily for its ability to generate profits. Although new financial tools to
mitigate ecological and price risks have emerged to address the problems that
an overly financial outlook on agriculture can generate, these instruments do
not address the underlying causes of vulnerability. Rather, they are likely to
provide only limited compensation to help a small subset of actors cope with
the effects (Isakson, 2015). These kinds of instruments are largely geared
to wealthier and larger-scale agricultural producers, rather than to the most
vulnerable agricultural producers (Breger Bush, 2012; Taylor, 2016). Iron-
ically, these financial risk management tools themselves tend to encourage
the adoption of agricultural practices and economic activities that further
reduce resilience in the sector.

Impeding Collective Action

Finally, efforts to create more just and sustainable food systems face new
challenges because the process of financialization itself discourages collec-
tive efforts to cultivate more just and sustainable food systems. The high
degree of complexity of new tools for financial investment and accumulation
make them more opaque to civil society groups and policy makers seeking to
promote food system reform. Debates over commodity derivatives reform,
for example, have been rendered highly technical due to the complexity of
the instruments (Williams, 2015), which effectively excludes a number of
civil society groups and social movements from playing an active role in
financial policy deliberations (Clapp, 2014).
The prioritization of shareholder value, meanwhile, has contributed to the
creation of corporate giants through large-scale mergers and acquisitions
that are able to lobby for rules that shape food systems to their own benefit
(PAN Europe, 2016; UCS, 2013). The growth of corporate power in this
context has made it especially challenging for small-scale alternative food
movements to scale up and out (Howard, 2016).
As everyday life has become increasingly financialized, responsibility for
the management of agricultural and financial risks has been progressively
downloaded onto individuals. The growing emphasis on individualized risk
454 Jennifer Clapp and S. Ryan Isakson

management has deflected attention away from the need for broader sys-
temic change. The food system has become a largely ‘apolitical’ arena for
ordinary citizens, as finance and financial inclusion are framed as the solu-
tions to their needs. Food and livelihood security have become ever more
dependent upon the purchase of financial services — for example, invest-
ments in farmland and agricultural commodities become part of retirement
savings, the procurement of agribusiness-sponsored financial services be-
comes necessary for securing food and productive inputs, and the purchase
of derivatives becomes the most available means for mitigating risks. This
context has paradoxically obscured the role of financialization in laying the
groundwork for individuals’ own food and financial insecurity.

CONCLUSION

In this article, we have made the case that financialization has had a profound
impact on the food and agriculture sector. As financial markets, motives
and actors have increased in importance in the economy more broadly,
this process has expanded into the agrifood sector in three overlapping
ways. First, it has encouraged the development of new financial investment
tools and business opportunities that create and extend avenues for capital
accumulation in the sector. This process has enabled financial investors to
further extract profits at the expense of both producers and consumers of
food. Second, the sector has been deeply affected by the growing attention
of firms to maximizing shareholder value. This aspect of financialization has
encouraged corporate consolidation and cost-cutting across the sector. Third,
financial markets have increasingly penetrated into everyday activities in the
food and agriculture sector in ways that have downloaded responsibility for
mitigating risks and heightened individuals’ reliance on financial markets to
manage those very uncertainties.
Although the literature on financialization often discusses these aspects
as separate phenomena, in the agrifood sector, as we have shown, they are
deeply intertwined with one another. Each of these three dimensions of fi-
nancialization reinforces the others in complex ways that further lock-in
the dominance of financial market dynamics as a major force in shaping
outcomes in the food system. The specific effects of these various dynam-
ics, including agricultural land grabbing, food price volatility, livelihood
insecurity and corporate concentration, can thus be viewed as linked, rather
than distinct, phenomena that are encouraged and influenced by growing
financialization.
Taking a step back from the specific outcomes and taking stock of the
broader implications of financialization across these three processes as they
unfold in the sector, we can discern three broader ways in which financial-
ization feeds into, and further extends, problems already identified within
the global food system. First, the process of financialization in the agrifood
Debate: Financialization in the Food System 455

sector has contributed to growing inequalities in power and wealth within

the food system. This trend has been taking hold in recent decades, and
the process of financialization has exacerbated it by driving up food prices,
rendering food markets more volatile, reinforcing patterns of corporate con-
centration, and downloading risks and costs onto food workers, consumers
and agricultural producers. Second, it undermines resilience within the food
system. While the rise of industrial agriculture and its connection to ecolog-
ical problems such as biodiversity loss, climate change and water shortages
were already underway, the rise of financialization has contributed to these
dynamics. Financial markets, motives and actors have encouraged agricul-
tural production at all costs, which often discounts ecological dimensions,
and has encouraged an intensification of high-tech industrial agriculture
methods while downplaying the important ecological and social services
that agriculture can provide. Third, collective action to address these issues
is complicated by financialization, as it adds a heightened degree of com-
plexity and technical detail, which is used by its proponents to shut out
participation by food producers, consumers, civil society groups and social
movements in policy discussions of these issues.
Although the outlook from this analysis is not optimistic, it is an important
first step to understanding the ways in which financialization has infiltrated
the agrifood sector, driving outcomes and creating conditions that impede
efforts to address them. We firmly believe that alternative financial arrange-
ments are possible, and can be designed in ways that mitigate the effects
outlined in this article. There is a desperate need for further research on
this topic, which could include further investigation of smaller-scale credit
and other financial relationships at the grassroots level, the development
of dedicated social and impact investment vehicles to support sustainable
agriculture, and consideration of more stringent regulation at the national
and international levels. We encourage researchers to examine these poten-
tial avenues and hope that our analysis of the current situation provides the
context on which further studies can build.

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460 Jennifer Clapp and S. Ryan Isakson

Jennifer Clapp (corresponding author: jclapp@uwaterloo.ca) is a Canada

Research Chair in Global Food Security and Sustainability and Professor in
the School of Environment, Resources and Sustainability at the University
of Waterloo, Canada. She has published widely on themes related to the
global political economy of food. With S. Ryan Isakson, she is co-author
of the forthcoming book Speculative Harvests: Financialization, Food, and
Agriculture (Fernwood Publishing).

S. Ryan Isakson (ryan.isakson@utoronto.ca) is an Assistant Professor of

International Development Studies and Geography at the University of
Toronto. His research focuses upon the political economy of food and agrar-
ian change. With Jennifer Clapp, he is co-author of the forthcoming book
Speculative Harvests: Financialization, Food, and Agriculture (Fernwood
Publishing).