Rabobank supports entrepreneurs affected by the Russian boycott
25 August 2014 - The consequences of the Russian trade boycott for the agriculture and food sector and for Rabobank customers operating within these sectors are gradually becoming clearer, internationally. In the Netherlands, the boycott is causing an immediate and severe liquidity effect for businesses in the horticultural industry in particular. Within the existing banking policy, Rabobank is providing these customers with support as necessary in order to bridge this difficult period.
‘As a cooperative bank we want to prevent businesses that are essentially sound from running into difficulties as a result of this trade boycott,’ says Paul Dirken. At Rabobank he is Director of Business Banking in the Netherlands. ‘The majority of the businesses being impacted by the boycott have been Rabobank customers for years or even generations. This boycott exceeds the normal business risk. We feel a responsibility to help our customers, eventually with bridging financing and access to knowledge and networks. It will give businesses the required latitude and space to address the new situation.’
This is in line with the market and price analyses carried out by analysts from Rabobank Food and Agribusiness Research, which performs a supportive role vis-à-vis Rabobank’s activities in the Netherlands and abroad. The Rabobank economists distinguish three phases:
- Immediate effect: this is the current phase, with sharp price decreases for primarily fresh produce, which can last from several weeks to months.
- Intermediate phase, characterised by a start-stop price recovery resulting from the uneven access to new markets and modification of production.
- Structural phase, during this phase providers have established ongoing structural sales in new markets and trade flows have been adjusted.
Other unexpected factors can also influence prices. For some vegetables the dark and rainy weather in August in the Netherlands caused lower supply and higher prices in recent days.
Severe temporary liquidity shortage
The effects of the boycott in the Netherlands are severely noticeable in the greenhouse horticulture and fruit growing sectors in particular. Ruud Huirne, Rabobank’s Director of Food & Agri in the Netherlands: ‘Our market share in food and agri in the Netherlands stands at 85%. The Dutch agriculture and food sector’s exports to Russia totalled around 1.5 billion euros in 2013, of which a substantial part is affected by the ban. We are consequently speaking extensively with customers about the consequences that the Russian sanctions are having on them. As a bank we have customers within our customer base that are sound businesses facing a severe temporary liquidity shortage that is demonstrably attributable to the trade boycott. This not only involves businesses that export products to Russia, but also businesses that are being affected by indirect consequences, such as the low prices ensuing from overcrowded markets.’
Local Rabobanks in the Netherlands and Rabobank branches outside the Netherlands may offer tailor-made solutions to businesses that are essentially sound as a means of bridging this difficult period. In consultation with affected customers, one or more of the following possibilities can be chosen:
- Utilise existing latitude in loans.
- Postponement of repayment of seasonal financing or harvest loans. Customers use these forms of financing to finance the cultivation of crops until they are placed on the market.
- Postponement of repayment of the total bank financing, with possibly an extension of the term. In the case of green loans, it will be possible for customers to postpone repayment of these loans, although it will not be possible to extend the term.
- A bridge loan at the market interest rate.
If and in what way the measures will apply will depend on the customer’s situation and that of the related local Rabobank. An assessment process that is as straightforward and fast as possible will apply with respect to supplementary financing for these businesses on a Rabobank-wide basis. The stronger the customer’s financial position is, the more streamlined the process will be.
Clearer picture of trade flows and the international effects of the boycott
A clearer picture of the effects that the Russian trade boycott is having on the agriculture and food sector is emerging internationally. The boycott of a large number of agricultural and horticultural products from the European Union, Norway, the United States, Canada and Australia took effect on 7 August 2014. On 20 August the Russian government has lifted the ban for a limited number of these products.
Analyses carried out by Rabobank Food and Agribusiness Research show that the agriculture and food sector in Poland and Norway exported the greatest amount to Russia that is affected by the ban, followed by the Netherlands, the United States, Spain, Ukraine, Germany and Denmark. The fruit and vegetable sector in Poland and the Netherlands and the fish sector in Norway have been hit relatively badly. In contrast, the United States is relatively less affected by the boycott with exports to Russian accounting for less than 1% of total US exports of food and agricultural products.
Rabobank economists’ analyses reveal that the boycott also has consequences for Russia itself. The European Union accounted for a large amount of Russian imports, with 24 to 39% of the Russian fruit and vegetable imports and over 50% of cheese imports coming from the European Union. Taking into account all the countries affected by the boycott, the boycott affects more than 70% of Russian imports of pork and poultry meat.
Rabobank and the food and agri sector
Rabobank was founded more than 100 years ago as an agricultural cooperative bank. Today Rabobank has 88.5 billion euros in outstanding loans to businesses in the agriculture and food chain, with loans to businesses in the Netherlands accounting for 31.8 billion of this amount.