Banks recently reported that they are putting more emphasis on liquidity and corporate vision when financing farms.
Very interesting.
Why right now?
The Basel IV guidelines play a role in this, they indicate. They give the banks less leeway to grant loans based on collateral such as real estate and more on profitability and liquidity.
The banks indicate that the government makes investing with a longer-term horizon virtually impossible for agricultural entrepreneurs.
Question 1 is; for whom it is disadvantageous.
It may very well be that this is given; that financing should be based on yield and not on collateral, is actually good for the farmers and less good for the banks.
The bank is simply a commercial company that makes a profit by selling debt. We, on the other hand, call it a mortgage or loan.
Land, the main collateral of the agricultural sector, can only go one way in value and that is upwards and has increased from 34K/ha in 2002 to 62K/ha in 2019. https://www.nvm.nl/agrarisch-landelijk/agrarische-grondprijzen/
So how easy is it to finance an agricultural business in the Netherlands? Regardless of what the mortgage borrower does with his purchase, the value of the collateral increases on average around 7% per year, a return that makes many savers salivate.
Realise that dairy farmers land, which increases in value every year, as collateral to the bank, to get a LOAN for it, with which they finance buildings, machines or installations, THAT DECREASE IN VALUE FROM DAY 1!!
With this, farmers keep the Netherlands running, at the expense of their own family assets!
Question 2 is; what can the agricultural entrepreneur do about it.
Reinvent your business.
Last year I was abroad with a relation and I asked the accountant whether there were equal thoughts about financing in the agricultural sector compared to other sectors.
Not at all, was the answer. The agricultural sector builds much more expensively and depreciates much less quickly. In other sectors they build in such a way that depreciation takes place in 2 to 5 years.
Speed of depreciation says something about return. Write off quickly, the return is high. We have known for a long time that politics is unreliable. It is not without reason that they are in the same list as the prices and the weather.
If you are working on this as an entrepreneur, you think reactively. It's about being active, having a strategy.
You're smart, you know where it's going. Deep in your heart you know the long-term GOALS. More nature, less input, more liquidity (more money in the account). Then get started! And what politics then ends up in their scheming between the parties is up to them.
Interested in how you can make more profit from your business?
Dairy farmers who apply PG NxT-STEP© increase their returns, have fewer working hours and lower investment pressure. In addition, the share of gross turnover for family income is increasing. (WUR calculated an increase of 58%)
PG NxT-STEP© is now available as an Online Course, and consists of 36 lessons to make your business more profitable and switch to a nature-inclusive businessmodel
Prepare your company for the future!
Ado Bloemendal
Pure Graze
