Wednesday, June 04, 2008

Food is Gold...

This Nytimes article, Food Is Gold, and Investors Pour Billions Into Farming describes a trend that makes me a little uncomfortable. As you may know shortages in food are causing food prices to sky-rocket. The article talks about investment companies purchasing farms to take advantage of this financial growth.

Now I have nothing against trading and investment oriented firms. They're the ones who will hopefully let me retire in style.

But there seems to be a big misalignment in incentives. The purpose of these firms are high returns on their investment. With the situation of low supply and high demand of food, wouldn't these firms want to continue to keep the supply relatively low so they can continue to charge high prices?

The article also mentions that these firms have the cash to finance investments in new technology for more efficient food production. But food has an effect on people's health on a long-term scale. What incentive do these firms have in sticking around to see the long-term effect of their changes? As a more concrete example, do you think these firms would care if certain changes they implemented led to an increase in obesity that was observed 10 years later if it was more profitable now?

I, of course, do not have the full details of these deals, so it's possible that some of the players have good intentions. But I still would feel more comfortable if a firm with more riding on the final product of the farms, such as restauranteurs or food companies, invested in farms instead.

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