Helyette Geman - Agricultural Finance: From Crops to Land, Water and Infrastructure

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This edition first published 2015

2015 Hlyette Geman

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Library of Congress Cataloging-in-Publication Data

Geman, Hlyette.

Agricultural finance : from crops to land, water and infrastructure/Hlyette Geman.

pages cm. (The Wiley finance series)

Includes bibliographical references and index.

ISBN 978-1-118-82738-3 (hardback)

1. Commodity exchanges. 2. Agricultural prices. 3. Agricultural industries. 4. Investments. I. Title.

HG6046.G457 2015

338.1'3dc23

2014036004

A catalogue record for this book is available from the British Library.

ISBN 978-1-118-82738-3 (hbk) ISBN 978-1-118-82737-6 (ebk)

ISBN 978-1-118-82736-9 (ebk) ISBN 978-1-118-82735-2 (ebk)

Cover Design: Wiley

Cover Image top: istock.com/jenjen42

Cover Image bottom: istock.com/77studio

To Arnaud, Laure and Nathanal

To the memory of my sister

First, I would like to extend my very warm thanks to my PhD students Bo Liu for his remarkably intelligent and merciless proofreading of the book all remaining typos or repetitions are my sole responsibility and Pedro Vergel and Tara Velez for their talent in building a number of price trajectories and forward curves. I would also like to thank Hugo Forget and Patrick Slama for their help in editing.

Second, I want to express my gratitude to my friends Hilary Till, from Premia Capital Management, and George Martin, from Wood Creek Capital Management, for the great discussions and reports exchanges we had over the years, some of them being reflected in this book.

Lastly, I am grateful to Javier Blas, editor at the Financial Times and other journalists at the FT, the Wall Street Journal, the Economist, the Business Times (Singapore), and other newspapers for their prompt and beautiful coverage of a number of new developments in the world of agricultural commodities; they allowed me to corroborate my own findings. I tried to trace and pay tribute to the first publication, sometimes a World Bank, USDA or another official organization valuable report.

On a side note, I wish to mention that I chose the article he throughout the book for ease of use and did not intend to place the male gender above any other gender.

Hlyette Geman is Director of the Commodity Finance Centre at Birkbeck, University of London and Research Professor at Johns Hopkins University. She is a graduate of Ecole Normale Suprieure in Mathematics and holds a Master's degree in Theoretical Physics as well as a PhD both in Probability from the University Pierre et Marie Curie and in Finance from the University Panthon-Sorbonne.

Professor Geman has been a scientific advisor to major financial institutions, energy and mining and commodity companies for the last 21 years, covering the spectrum of interest rates, electricity, crude oil and natural gas, metals, and agriculturals, including fertilizers and land. She was for four years Head of Research at Caisse des Dpts in Paris and has been a scientific advisor for Louis Dreyfus, EDF Trading, BHP Billiton, Bunge, Total, and many other commodity companies. Professor Geman has published more than 125 papers in top international finance journals. In 1994 she received the First Prize of the Merrill Lynch Awards for her work on exotic derivatives pricing and in 1995 the first AFIR (Actuarial Approach for Insurance Risk) prize for her work on catastrophic risk. She became in 1993 a Member of Honour of the French Society of Actuaries and was in 2000 the first President of the Bachelier Finance Society.

Professor Geman was named in the Hall of Fame of Energy Risk in 2004, and in 2008 she received the Alma Studiorum Prize of the University of Bologna for her contribution to the CGMY model, a pure jump Lvy process widely used in finance.

Her books include Insurance and Weather Derivatives published in 1999 by RISK books, and Commodities and Commodity Derivatives: Energy, Metals and Agriculturals published by Wiley Finance in 2005, which has become the reference on the subject.

In 2010 Professor Geman became a scientific advisor to the European Union on the subject of agricultural commodities. She has been since 2007 a member of the board of the UBSBloomberg Commodity Index and counts among her former PhD students Nassim Taleb, author of The Black Swan.

Hlyette Geman is presently on the Board of a green energy company and an active participant in a precision farming project involving 12,500 farmers in East Africa.

Agriculture has always been at the center of human life. It is today the intersection of challenging issues between growth of the world population, soil erosion, and arable land scarcity on the one hand and trade finance after the 2008 crisis, competition for land with the mining industry, new towns and cities in developing countries, competition for water with other industries such as shale gas fracking or oil sands, or between neighboring countries on the other. Small farmers try to stay competitive in the presence of big investors who can afford better machinery and infrastructure. Governments struggle to find the proper way to provide small farms with the right form of subsidies, be they fertilizers, seeds or minimal prices. International institutions like the World Bank face another type of choice: letting weak economies struggle to feed their population, or helping them and destroying the incentive of self-sufficiency. The same difficult dilemma holds for infrastructure such as water sanitation and distribution.