Challenges faced by dairy producers wanting to expand are lack of affordable long term financing and fluctuating milk prices. The Glanbia MilkFlex Fund addresses these concerns and has just received a major innovation award.
Intensifying our efforts to help our clients and partners develop and scale innovations across the food value chain is at the core of Rabobank’s “Kickstart Food” programme. And with barriers to investment faced by dairy-producers being lack of affordable financing and fluctuating milk prices, an innovative fund that helps protect farm incomes from market volatility was set up in Ireland in 2016. Response to the Glanbia MilkFlex Fund has been extremely positive, and it has just received the association of European agri co-operatives (COGECA) Business Model Innovation Award.
Adjustable repayment terms
The Glanbia MilkFlex Fund is a co-operation between Rabobank, the Ireland Strategic Investment Fund, Finance Ireland and the Glanbia Co-Operative Society. Glanbia, one of the Irelands’s leading dairy companies is expanding its milk powder processing facility anticipating the need for high quality infant formula. The fund provides their milk suppliers with financing to invest in on-farm productive assets, including livestock, milking infrastructure and land improvements to meet the increased demand. The innovative feature of this loan product is that it has inbuilt ‘flex triggers’ that adjust the repayment terms in line with movements in Glanbia Ireland’s manufacturing milk price and seasonality, thereby providing farmers with cash flow relief when most needed.
Rabobank’s Global Client Solutions business was the mandated structurer and a senior lender to the Milkflex Fund.
Since its arrival on the market in May 2016, the Fund has received almost €90 million in loan applications. The interest rate charged on the loans is a variable rate, based on a fixed percentage above the monthly Euribor cost of funds (with a Euribor floor of zero).
Extension of the model
The MilkFlex Fund was originally set up as a pilot for the Irish dairy industry and an industry-wide roll out is currently being planned. Now that it is gaining momentum, could it be rolled out to dairy farmers in other countries? And what about to other sectors? Ruud Huirne, Rabobank’s Director of Food & Agri in the Netherlands comments “The MilkFlex product is very inspiring and components of this flex loan product are already available in the Netherlands. For instance in bridging facilities for dairy farms with liquidity problems, where repayments can be tailored. When it comes to other sectors, every market has its own dynamic when it comes to price volatility and this is a determining factor for whether a flex loan would be successful or not.”
Rabobank’s Global Client Solutions is now working on rolling out this model across sectors and geographies, where appropriate. For more information, please reach out to the Global Client Solutions teams in your region.