Agricultural Weapons of Mass Destruction?

Genetic modification of foods is to global agriculture what derivatives have been to the global financial system - recalling Warren Buffett's memorable phrase, a weapon of mass destruction just waiting its chance to go off.

This thought occurred to me as I pondered the line-up of senior Goldman executives at the Senate committee hearing this week on Fab Fabrice and the Abacus CDOs: a strange irony indeed that "Mr Fundamentals" himself should have been one of the white knights who rescued Goldman when the very "financial weapons of mass destruction" he had so presciently warned against had gone off and the bank, along with all the others, was about to collapse amid the poison and nuclear clouds.


For non-experts in finance, I should perhaps explain derivatives. These are secondary products which are derived from primary products such as home or small business loans, or which act as a proxy for the performance of such products. The main examples are “securitisation” (packaging of portfolios of  loans so that they can be sold on to people other than the originators) and swaps, where you either exchange one risk for another, or buy insurance against risk.

Now there is nothing essentially “unsound” (as Mr Kurtz might have said) about securitisation as a tool for sharing risk and expanding the availability of credit – provided it is transparent. If you buy a bond that represents a share in a portfolio of loans to, say, a number of specified companies, you can investigate those companies and assess their quality and risk.

This is where securitisation started out in the mid-90’s, but by 2007, the products on offer – the kind of deals Mr Fab Fabrice was cooking up - securitizations of securitizations, the so-called "CDO-squareds" or even "CDO-cubeds" – had departed so far from this necessary transparency that not even super-sophisticated computer programmes written by super-sized banking brains could any longer comprehend them. And if you can’t understand something you can’t manage the risk of it effectively - though of course the rating agencies and bankers claimed to be doing both.

Similarly, with swaps, there are many entirely legitimate commercial reasons to insure your risks - indeed they are a vital financial product.  The problems arise when swaps are piled on swaps, and bought and sold not for commercial reasons but for speculation.  And the swap market too was eventually brought low by lack of transparency:  there was no formal exchange, anyone could sell and buy them, so no one had any idea what was out there until they started to unravel.  Indeed, we still don't really know what's out there, more than three years later.


So why the analogy with GM?

Well, first there's the similarity of the apparent promise:   just as anyone via the miracle of the markets could have pretty much any amount of credit even if they didn't have any money to pay for it, so via the miracle of GM the world will mysteriously go from mass hunger to abundant plenty more or less overnight.

Next, there's the whole raft of conflicts of interest between clients and agents that lie at the heart of the Goldman issues the Senate started to investigate this week, and which are also present in the GM value chain.  The biggest of these is the creation of tied users; that is, farmers who, once they start to use GM seeds, become dependent on the products of what is effectively a monopoly, with all the attendant potential for abuse.

Mainly though, it's because the two main elements that constituted the toxicity of derivatives to the global financial system – their lack of transparency and the impatience they manifested with traditional, careful banking practice - are present in the GM value chain and technology too. 


So we might "know" that GM seed A is resistant to drought – just as we "knew" that securitisation A was rated AAA. But, just as with a "CDO-squared", neither we nor the GM producer has any way of knowing what else might turn out to be included in the deal. What are the effects on soil and wildlife? What happens when the GM plant crosses with a native? What happens if a resistant strain appears and spreads?

Likewise the impatience with the fundamentals of good, sustainable agricultural practice that GM represents. Modification has always been a part of agriculture and livestock rearing - and indeed one that's essential to progress in productivity and resistance to disease.  But there's a difference between crosses that take several generations, where harmful effects can be observed and corrected, and the introduction of modifications which go from point A to point Z in one step, without any opportunity for such observations or corrections.

And do we need this kind of high-tech approach anyway?  Anyone who has ever raised a crop knows that more or less everything comes back to the quality and health of the soil. As I’ve travelled around Africa and Asia, in some of the poorest countries in the world, what I’ve seen is the need for very basic improvements, not highly sophisticated engineering. Improved (unmodified) seeds, basic principles of organic farming (for example composting animal and even human waste to provide fertilizer) and simple water management measures could enable massive improvements in productivity and local food security.  So, indeed, would just bringing idle land into production for local consumption - a whole subject in itself, with some extremely worrying developments in terms of the acquisition of land for the production of food exports to the Gulf, China and elsewhere.

I’ve no doubt there is a place for GM in agriculture - just as there’s a place for transparent securitisations and currency hedges in the financial markets - but it needs to be used for proper purposes and closely regulated.

Otherwise for GM read "agricultural WMD", and for Lehman, RBS and Greece read financial exploitation,  pollution and ever more starvation...