Rabobank classifies dairy farming as a vulnerable sector

Rabobank ranks Dutch milk production among the vulnerable sectors and has reserved an additional amount of 76 million euros to absorb setbacks in this sector. The bank has decided this because the government’s nitrogen policy for this sector causes great uncertainty.

Finance manager Bas Brouwers says that labeling the loans for livestock farming as ‘vulnerable’ has mainly been done out of prudence. ‘We hope that during the year there will be more clarity about the cabinet’s approach. Then we can apply a more detailed approach to the sector.’ Other agricultural sectors that have already been (sometimes partially) described as vulnerable are pig farming and floriculture.

Rabobank CEO Wiebe Draijer emphasizes that this is primarily a technical generic buffer, where the bank sets aside money to absorb unforeseen setbacks. “There are no specific business assumptions in it. We simply cannot foresee what consequences the package of measures will have for the sector as a whole or for the companies individually.’

Consequences at the business level

Strictly speaking, that reservation does not mean anything for the milk producers for the time being, says Draijer. “However, we are reluctant to finance the expansion of farmers near nature reserves. What farmers need is clarity over the whole package, so it is clear what we can do to support specific businesses. Let’s not forget that it is possible to invest in companies that are not located in nature reserves.’

In the longer term, the uncertainty has a negative effect on the sector, says the managing director. “We expect that uncertainty will put a pause on the productivity gains we are experiencing year-on-year through targeted innovative industry improvement. Such a break is not conducive to farmers’ raison d’être and revenue model.’

The nitrogen problem is infestation

Draijer calls the nitrogen problem a ‘huge attack on the farm, on the individual farmer’. He is critical of the nitrogen map, where areas are linked to emission reduction percentages. “There is fundamental uncertainty about whether the farmers can continue. It creates a feeling of injustice’, he states.

‘We have to move into a phase where we jointly seek a solution, where an integrated approach is chosen to solve problems,’ says the chairman of the board. This integrated approach must also look at water quality, climate and government plans for other sectors to contribute.

‘The focus must not only be on quitting, but on creating a promising future for farmers who can continue sustainably,’ says the Rabobank boss. “These farmers must have a place. This will be accompanied by the search for optimization in the region. I am thinking of some kind of land consolidation and Rabobank would like to play a role in that.’ Rabobank therefore accepts Johan Remkes’ invitation to discuss the nitrogen approach.

Innovation important

Innovation plays an important role in the solution, Draijer believes. ‘Innovation should help farmers to independently reduce emissions. The nitrogen problem cannot be solved without innovation, but it cannot come from innovation alone. It’s all about the mix,’ he says.

“There must also be a good scheme to help farmers who do not have a successor, or who want to stop, to wind up their business. It requires reasonable compensation for the farmer, so that there is an incentive for the farmer to take that step’, continues the chairman of the board.

Paying for sustainability

Draijer also argues that more must be paid for sustainable agriculture. According to him, this means that consumers have to pay more for agricultural products. Agreements could also be made on this, so that the farmers get a financial incentive to innovate further.

Rabobank has recently been criticized for its role in financing agriculture. Different political parties want the bank to contribute to solving the nitrogen crisis. The bank recently said it also looked back with mixed feelings on the scale-up agricultural policy pursued by the Netherlands, which was largely financed by Rabobank.

Good half-year figures

Draijer made these statements at the presentation of Rabobank’s half-year results. The bank’s net profit for the first half of 2022 amounted to EUR 1,571 million. It was 2,160 million euros in 2021. The bank speaks of a good performance in a turbulent six months when the bank decided to withdraw from Russia.

In an analysis, the bank lists the developments that affect these results. For example, the effects of the Russian war in Ukraine, problems with global supply chains and the long-term effect of corona have had a big impact on the economy. These caused rising food and energy prices worldwide, a sharp rise in inflation and long-term interest rate hikes by central banks.

Rabobank’s loan portfolio increased by EUR 15.4 billion to EUR 432.6 billion, partly due to currency effects. The Food & Agri portfolio increased by 10 percent to 113.2 billion euros. The Dutch part of amounts to 39.3 billion euros. Brouwers states that this part has grown due to increased credit to the food sector. Lending to the agricultural sector remained stable.

LTO critical

LTO Nederland is critical of Rabobank’s position. ‘Change and conflicting laws and regulations are today the biggest risk factor for farmers’ and gardeners’ business operations and future. This uncertainty is even greater if the banks anticipate government plans which have not yet been enshrined in law at all and, as far as we are concerned, will never be adopted in this form, says a spokesman.

“This makes it even more difficult for our entrepreneurs to continue producing good food and at the same time go through a transition. A bank should deliver tailored solutions in close consultation with the entrepreneurs themselves’, concludes the spokesman.

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