Rabobank: Agri co-ops should look to private capital

Agricultural co-operatives are craving capital amid growing global competition and the need to strengthen supply chains, according to a recent research report released by Rabobank New Zealand, a part of the international Rabobank Group.

In the report Agricultural cooperatives – quenching the thirst for capital, analysts at the agribusiness banking specialist wrote that “sourcing capital is on the agenda for almost every large agricultural co-operative, and is rapidly moving up the list of priorities for many”.

Co=operatives will need to approach new sources of investment capital such as hedge funds, pension funds or retail investors, according to the report.

Their traditional sources of investment capital – their member base and modest debt facilities – are no longer enough for them to compete in the increasingly dynamic global food and agribusiness market, according to Hayley Moynihan, director of dairy research, New Zealand and Asia, at Rabobank and the report’s author. An increasingly complex global supply chain is a further challenge, according to the report.

“For agricultural co-operatives seeking to capture value from the favorable global market environment, maintaining the status quo is not a strategy,” Moynihan wrote in a statement. “Confronting the issue of sourcing capital will be required, alongside tackling increased market complexity.”

“Co-operatives are under pressure to participate in these changes,” she added.

Financial instruments such as bonds, shares and capital notes could also make sense for the industry, according to the report.

But there are challenges associated with attracting external capital. “For large agricultural co-operatives, accessing external capital in the same way that a publicly-listed or private company would is not straightforward,” wrote Moynihan in the report. Unlike co-operatives, to whom “retention of ownership and control strikes at the very core of cooperative enterprises and is usually non-negotiable”, strategic and financial investors in general want “the capability to influence and control strategy and enjoy the benefits of ownership and full recourse in return for their risk-bearing capital”, she added.

“All solutions require compromise of risk. Co-operatives and their members should be aware of exactly what is being compromised and/or the risks entailed in any proposed capital strategy,” she added.