Irrigation (Opinion by Francisco Palma): The financialization of agriculture, the case of Alqueva.
Alqueva looks like it was more a requirement of public works companies to do more work at a cost of 2,5 billion, and use of European funds, than a requirement of the Alentejo in change and believe that the development of the natural resource water would bring to the Alentejo.
Francisco Palma
President of the Farmers Association of Baixo Alentejo
After closing the alqueva dam gates in 2001, and the launch of the works for the first irrigation blocks Purpose Enterprise Multiple Alqueva (EFMA), some concerns began to be felt by farmers in the region, namely how I would get funding needed to turn the upland properties in irrigation?, what would be the most profitable crops to pay for investments?. While farmers were struggling with these questions, with a steady decline in the profitability of rainfed agriculture, He began to demand from foreigners, namely Spanish, property in the area EFMA. Many properties quickly began to be sold not only for the reasons I mentioned above, but also because agriculture was undercapitalised and indebted after the occupations of land reform, integration into the European community the CAP reforms, and a succession of bad harvests in the late 90 the last century.
The perception by the financial sector that the land is the basis of the entire food chain- "Landless there is no food" and the earth join the natural resource water, we have the binomial which is already and will be increasingly important for sustainable development of our civilization.
When we talk about financial speculation in agriculture we think of what happened in 2008 and 2009 with the speculative bubble on the prices of agricultural raw materials (in particular cereals) which derived from a global food crisis with greater impact on poor countries, but increased the incomes of agricultural holdings of cereals as they recorded valuation of more than 80 percent.
It can be said today that the connection of the financial sector to agriculture is deeper and reaches the roots of the food chain.
The financerization can be of various shapes, as are the private equity, the hedje funds, pension funds, sovereign Wealth funds, retail banking, private funds. All these forms of capital has long chosen the land capital as a safe haven for their investments and remunerate the capital of its shareholders. The intervention of these forms of capital in Alqueva is leading to a concentration of large areas of land, dominated by companies that are verticalise entire production process. This trend in Alqueva has led to a wave of speculation in land prices both for sale, want to rent. In the absence of official data can tell, by my knowledge of the region, that more than 60% land within the EFMA changed hands since 2001.
Permanent crops were crucial and very important for occupying large infrastructured agricultural areas with water Alqueva, that due to its topography, geometric configuration and soil quality, It would not have been possible to take with annual crops watered. The risk associated with permanent crops is, first of all, the fact remain for many years (20 a 25 years on earth), what a risk analysis means that we have to consider the market risks, phytosanitary risks, climate risks, technological and industrial risks. Any agricultural region becomes more vulnerable as lower diversification and complementarity of their cultures. Alqueva is a huge area of ​​irrigated land on the scale of a small country like Portugal, and a small region watered on a global scale. So the EFMA should have a strategic plan for development and irrigation of land with an overview, but a national framework.
Alqueva looks like it was more a requirement of public works companies to do more work at a cost of 2,5 billion, and use of European funds, than a requirement of the Alentejo in change and believe that the development of the natural resource water would bring to the Alentejo.
Today, those who have always believed that the development of irrigation should be done through the diversity of crops with cereals, came , olive grove, livestock , Industrial-garden, or fruit production, They are being completely overtaken by large investors funded by existing excess capital phenomenon in the market with reference interest rate of the European Central Bank next of zero percent. This causes the domain in EFMA permanent crops, with emphasis on olive grove with over 60 hectares, and almond over 10 hectares, live a market environment, of production, and technological advances never before recorded. This trend has led to an increase in large agro-industrial areas explored by groups, funded by capital from the financial industry and that leave little room for the farm family roots, can make the conversion from dryland to irrigated, is a succession of problems, for lack of a business strategy, by capitalization of farming ... All these facts make the financial industry to support new agricultural investors supplant the financing capacity of farmers in the region, which combined with slow processes and constant change in the rules to access the RDP funds 2020, with ever more red tape and demand for more archaeological advice, camarários opinions, Opinions of the CCDR, etc, determines a scenario where the few survivors farmers quickly decide to sell or rent their land to these new agribusiness entrepreneurs. The caricature is that all this is required after areas infrastructured to water have been subject to rigorous environmental studies, geological, archaeological that cost millions of euros.
The truth is that this dynamic of capital in agriculture in Portugal has to leave, long and always with the support of our visionary leaders and banking, a trail of bankruptcies and bad debts that takes in some cases stratospheric values ​​for what is the profitability and the reality of our agriculture.
There seems to be a mistake for investors about the value of land capital, and the yield of the land capital, there is no direct correlation between the value of the earth and the land yield.
Today the volatility that exists in financial markets, nas commodities, or risk and lack of remuneration is to have liquidity in commercial banking makes the demand for the purchase of agricultural land has been experiencing an increasing demand and appreciation. This is what happens in the normal functioning of a liberal economy. The problem happens when the capital that is being used is obtained through funding, wherein the reference rate of interest is the ECB, and by the fact that it is so low it makes investments are viáveis.Isto if interest rates and the profitability of production do not suffer large variations to maturity of loans.
Agriculture as any other business can and should do your business plan, but agriculture deals poorly with Excel tables for the fact that all production is done in the open it is subject to all kinds of weather events which are becoming more frequent and more intense. To further shuffling of the accounts excels there are still other variables that hardly any algorithm can be quantified as the behavior of markets, the appearance of pests and diseases, the CAP, international trade agreements, national policies, technological and scientific developments. The agricultural business is not easy not comparable to any other, I am glad that today the bank recognizes agriculture as a business, that there are funds for business development, but in agriculture investments can only succeed in the long term following an improvement strategy efficiency of the production process and technical improvement, with a commitment and a passion for agriculture.
Text and photo: Agroportal
