Barbarians at the barn

29.09.2020
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Claudia Stürzinger und Silva Lieberherr work at Breat for all in the area of agriculture.

Everything for profit

“We see Africa as a long-term attractive investment destination… the potential is astounding,” said the manager of the private equity fund “KKR” when his fund bought into rose producer Afriflora Sher for $200 million. Just three years later, KKR sold the Ethiopian company and withdrew from Africa. The reason: they had not found enough big companies to buy.

Private equity is all about buying companies. It is called “private” because the funds buy into private companies that are not listed on the stock exchange. To enter such a fund, you must be able to invest millions of Swiss francs for several years. The funds usually take on high levels of debt to finance the takeover of the companies – debt which the acquired companies are then left with. After the takeover, the managers of the private equity fund actively intervene in the companies, attempt to make them “more profitable” and sell them on after a few years.

Private equity funds are feared by companies and workers because “making a profit” usually means laying off people or selling off large parts of the company. Thirty years ago, there was even a book dedicated to the KKR fund and its takeover and dismemberment of the RJR Nabisco company, carrying the meaningful title “Barbarians at the Gate”. For good reason, private equity funds have not been able to get rid of this label until today.

Who benefits

GRAIN – a partner organisation of Bread for All – has published a report on private equity in agriculture on 29 September 2020, which shows that the funds are only interested in making as much profit as possible from the companies taken over in the agricultural and food sector. The fund managers usually have no connection to local agriculture. They sit in meeting rooms far away from the fields, where only dividends and interest are of concern and not agriculture. This relentless pursuit of profit leads to small companies and producers being taken over, land being bought up and power being concentrated in the hands of a few. Agriculture becomes agrobusiness. GRAIN uses ten examples to show how private equity deals in agriculture work and what the consequences are for the companies taken over and the workers or farmers affected. It is they who pay for the horrendous interest on the newly accumulated debts and for the dividends paid to the investors. In contrast to the fund managers, who – whether successful or not – receive a management fee of 2 percent of the invested million-dollar assets, and typically still receive 20 percent of the profit when the funds are resold. In short: the risk is borne by the local population, while profits accrue to investors’ account.

What does Switzerland have to do with this?

It is particularly distressing that the main investors in private equity in agriculture are pension funds and development banks. So both invest money from employees and taxpayers in such destructive takeovers – often even in the name of so-called development.

As a member of a number of multilateral development banks, UN agencies and global funds, Switzerland has significant influence on global private equity deals. These include the Inter-American Development Bank and the International Finance Corporation (which, together with KKR, invested in the rose producer Afriflora Sher). A key player in Switzerland, which invests in developing and emerging countries through private equity deals, is the Swiss Investment Fund for Emerging Markets (SIFEM). An example of its activities and what this has to do with the dairy industry in India can be found in the next blog.