As a new age of investment funding options dawns to offer everything from crowdfunding to disruptive bank-free loans on the internet, farm sector lender Rabobank is testing a few disruptive financing ideas of its own.
Agriculture needs much more capital than banks are likely to be able to afford to lend, says Rabobank Group executive board member, Berry Marttin.
“The industry is experiencing a lot of new global demand for food which means it must grow so much faster than we’ve experienced before,” he said.
“Farming will need to find different ways to source capital.”
The Netherlands-based co-operative banking group – one of the world’s 30 biggest lenders – is “actively looking at different options”, including financing partnerships with co-investors.
Its new Rabo and Co model, being trialled in the Netherlands, involves funding part of a customer’s borrowing needs with a traditional-style loan, but signing up other private banking clients to contribute funds to the venture, too.
“A farmer might need $10 million, so Rabo provides a $5m loan and the rest is raised from private investors,” Mr Marttin said.
“Farmers don’t necessarily want to have more debt on the line, and in many cases there is strong interest from others to put money into agriculture – private money which wants to reach farmers.
“As a bank, we also need to think how we can be more proactive about sharing the capital risks.”
Another trial in Ireland has seen Rabobank adapt loan repayment mechanisms to flex with dairy income streams.
In partnership with two other financiers, it has backed a $140m MilkFlex Fund to offer competitive loans to Glanbia Co-operative milk suppliers whose repayments then vary with milk price movements.
Mr Marttin said the bank generally wanted to make lending options more flexible and responsive to farming’s rapidly changing prospects.
Apart from agriculture’s need for more capital, he said traditional banking environments were also changing as regulatory controls grew tougher.
In the wake of the global financial crisis and successive bank liquidity shocks in the US and Europe, new international capital adequacy and loan risk rules have forced lenders everywhere to hold more funds in kitty and keep a tighter rein on their lending programs.
“The bank business model is not going to make as much money from transactional banking as it used to,” he said.
“Just going to the bank manager for a loan is probably not going to work the way it has in the past.
“I think the banking industry will have an increasingly broader role, orchestrating others to get involved and providing a network of support, including knowledge sharing.
“Financial products are not the only solutions farmers need to help them grow and become more productive.”
He said social media was also revolutionising ways farmers could attract interest from potential investors or crowdfunding campaigns, simply by telling their farm story and presenting their goals.
Until recently individual farm businesses had few chances to get their story out and engage with urban consumers or investors.
Many farmers were now connecting so well with their audience, a host of new markets and support bases were emerging.
Mr Marttin noted the case of fourth generation Dutch farmer Djuke van der Maat, a speaker at last week’s Farm2Fork event in Sydney, whose efforts to be a pioneer Kiwifruit grower in Holland triggered a huge social media following years before the first crop matured.
The social media attention subsequently generated demand beyond her capacity to supply when her first harvest finally arrived.
He said Rabobank’s evolving attitude towards financial support for the sector fitted strongly with the co-op lender’s founding philosophies.
The bank grew as a network of regional lenders finding money within their community to give farmers access to much-needed capital and growth options.