Becoming a Market Society 9its shares in Shuanghui were revealed. For Goldman Sachs’s president,
potential conflicts in the securities business were a fact of life, one he
believed the firm managed effectively. To the bank, food was just another
sector in which to rake in profits.
For investors of the past, producing food had been fraught with
uncertainty and low returns. This alone explained why the govern-
ment’s role has been crucial in providing or insuring financing on the
front end for operating loans, buying farm machinery, and land. On the
back end, farmers depended on the government for shoring up farm in-
come through price supports and insurance. And throughout the food-
production process, governmental support has been critical for funding
research to advance knowledge and spur innovation.
But as farming cut back on labor, bought more-sophisticated ma-
chinery, and incurred more debt, private banks provided more loans.
As larger agribusinesses and food companies began to dominate the
modern food system, a host of financial institutions and markets, private
equity consortia, asset-management firms, pension, and hedge funds
climbed onboard.
Over time, putting financial capital toward food production became
another category in a diversified portfolio that investors and bankers
tweaked to balance short-term profits with long-term growth. Positive
trends—from population growth, increasing trade, rising land values,
and people eating more-expensive meat-based diets—suggested greater
returns, which could go even higher by exploiting the agricultural
commodities “futures markets.”
Established in London in the 700 s and the United States in the
850 s, agricultural futures markets initially attracted little interest from
mainstream investors and banks. Futures markets trade in contracts—
binding agreements to sell or buy commodities like wheat at an agreed-
to price and future date. For a farmer growing wheat, a futures contract is
protection against low prices at the time of harvest, should a nationwide
bumper crop cause wheat prices to fall. For a baker, worried about having
sufficient wheat, a futures contract assures availability should a drought
cause wheat harvests to plummet and prices to skyrocket. Farmers and
bakers are called hedgers; they are physically tied to wheat and want a
practical way to hedge risk.