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Rabobank Update Spring 2018

Growing interest of investment companies in horticulture

There is a generally positive sentiment in the Dutch horticultural sector. The 2017 price forming was good for most products in this sector. Dutch exports of fruit, vegetables and ornamental cultivation products also reached a record high. Yet, there is a feeling of uncertainty, mainly about what impact the Brexit negotiations may have on future sales.

Rabo Horticultural Barometer

In the first quarter of 2018, the Rabobank NL horticultural barometer showed a satisfactory score of 7.32. This figure is mainly related to price forming in many subsectors being comparable, or better, than in 2016. Cucumber, yellow bell peppers and Gerber prices were, however, under pressure. At the end of 2017, prices for Moth Orchids also suffered. Challenges in 2018 include rising labour costs, which is partly due to fewer labourers being available. Besides the increased cost of using payroll companies and employment agencies, the shortage on the labour market is the reason for increased labour costs.

According to Rabobank, it is important to be aware of and prepare for the possible Brexit consequences. They advise companies to map out how a hard Brexit will affect their companies, even if they only have indirect dealings with the United Kingdom. Can your company withstand a 10 - 15% drop in prices due to less demand? Or, are your customers able to develop markets in other places? See the Brexit step-by-step plan.

There is considerable consolidation occurring in the horticultural sector. This increase in scale is being driven by various market developments such as market growth, year-round supply, the shortening of the chain, reaching critical mass, and access to retail markets. Other reasons for this consolidation is the required investment in Research & Development, internationalisation opportunities, and personnel being offered development opportunities.

Notable is the increased number of investors. A recent example is the collaboration of two investment companies with Stoffels, the largest tomato company in Belgium. The growing interest of investment companies shows that the larger horticultural is becoming attractive to private investors from a profit point of view. For horticultural companies, this means opportunities for rapid growth of a way to ensure business succession.

Dümmen Orange X McHutchison
In late 2017, Dümmen Orange (an ornamental cultivation breeding company) took over two American companies (McHutchison en Vaughan's). These companies are active in the trading and distribution of starting material for ornamental cultivation.

Merger of Dutch vegetable plant cultivators
Three large Dutch vegetable plant cultivation companies (Leo Ammerlaan, Van der Lugt, Grow Groep) want to merge under the name 'Plantise'. This will result in one company with an area of 55 ha being used for starting material.

Special Orchids X Celine Colours
The Cymbidium nursery, Special Orchids, acquired Celine Colours. Now, Special Orchids can supply the large-leafed cymbidium, which are used for cut flowers, year-round.

Large-scale market opportunities
When it comes to soft fruit, BerryWorld (including UK) and Beekers Holding BV (Netherlands) recently amalgamated in order to make use of large-scale market opportunities for, among others, raspberries and blackberries.

Flamingo Horticulture X Butters Group
The British-African cut flower company, Flamingo Horticulture, has bought over the Butters Group. This will give them access to several large retailers in Great Britain.

Acquisition opens doors
Selecta One (German head office) acquired Topcolor Breeding's kalanchoe varieties. This gives a foothold in the potted plant chain.

Van den Bos Flowerbulbs X J.A. Stolze De Lier 
Van den Bos Flowerbulbs took over the preparation company, J.A. Stolze De Lier.

Horticulture is also having to content with higher sustainability demands, in foodstuffs horticulture as well as ornamental cultivation. The fact that consumers are finding sustainable products increasingly important is evident from the rapid growth of the organic sector.

Over the past five tears, the sales of organic foodstuffs have increased by an average of 10% annually. In contrast, the foodstuffs market, as a whole, has only grown by 1% per year. Rabobank expects the organic sector's market share to further increase in the coming years: from the current 3% to 7% in 2025. This is still small when compared to other countries. In Germany, this sector's market share is more than 
4% and in Denmark, it is more than 8%. 

'Milieukeur' makes its appearance
Midway between organic and conventional cultivation, you now find 'Milieukeur' (Environmental label) certification. The area used for covered fruit and vegetable cultivation has grown from 268 ha in December 2016 to 639 ha in December 2017. Since supermarkets are increasingly demanding that their suppliers give them 'Milieukeur' products, this acreage is rapidly increasing.

For 2018, Rabobank predicts a sharp rise in the acreage used for  'Milieukeur' or other similarly certified products. They say, "On the one hand, we support the objectives of such certification. It is starting a movement towards more sustainable farming. On the other hand, there is the danger that consumers will no longer see the forest for the trees."

Growing interest in geothermal energy
Rabobank gives top priority to sustainable companies with transparent, future-proof business models. As far as Rabobank is concerned, this includes geothermal energy. The 2015 natural gas saving, thanks to the use of geothermal sources (Doublets) amounted to about 77 million m3 of natural gas. The dependency of (greenhouse) horticulture on fossil fuels can, so, be reduced. This is even more important when taken in the context of recent discussions about reducing the use of Groningen's natural gas.

This is why Rabobank is involved, as a financier or source of knowledge, in almost every project pertaining to the use of geothermal energy in Dutch greenhouse horticulture. Besides the 14 doublets that are already operational, there are eight more in the preparation phase. Recently, Rabobank decided to make EUR20 million of risk capital, in the form of subordinated loans, available for projects aimed at reducing CO2 emissions and the dependence on fossil fuels. This was needed because although the government supports these goals, it is their increased regulations that are causing delays in various geothermal projects.

Source: Rabobank

Publication date: 3/1/2018



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