Why is Rabobank still facilitating companies with expansion plans?

Too many greenhouses, but still investments in new constructions?

There is an over supply in the greenhouse vegetable sector. Not just in the Netherlands, but also in other places in Europe. This was said by Cor Hendriks, sector manager of horticulture at the Rabobank. Companies are stopping and going into administration. If the prices don't improve, more companies will soon falter. So why is the bank facilitating companies with extension plans?

"There is just too much product," replies Cor Hendriks of the Rabobank when asked about the bad situation on the greenhouse vegetable market. "Not just in Holland, there is also oversupply in other places in Europe, and this is the main cause of the bad prices. The crops are not only well ahead of last year, when it was quite dark, in production, but are also ahead of the multiple year average." Yet the weather isn't the only cause: Holland has had strongly varying prices in the past few years. "Holland produces more than they can market. We are our own competitor and struggle with our sales structure. This situation isn't sustainable."
Too much product
Besides too much product, Hendriks says there are also too many sales parties. "Too many suppliers in the same assortment," clarifies the sector manager. "Why do you approach a market separately if you aren't distinctive? You have to have enough power with an earning model, based on distinctiveness to make a fair price. If you aren't distinctive in a supply market, you're each other's competitors. So why wouldn't you work together?" He wonders. Will there be a concentration of sales in the sector? "The primary sector has to be able to have more control over its own product. There is a need for a more limited amount of strong sales parties. There are countless entrepreneurs who can see that something has to be done. That there has to be collaboration." Because there is no doubt that the Dutch product has potential. "The Dutch product scores structurally higher than the Spanish product on markets abroad, like the UK and Germany. There is distinctive power. Try to use that. Gain control over your own product as a sector," he advises.

The bad situation in horticulture is the immediate cause for the changes needed. For instance, peppers went through their fourth year of loss in 2012 - 2013 has been the only exception. Companies have made such large losses that 1 positive year doesn't fix it. If the price is bad again this year, a number of them will be back in the danger zone."

The tomato market has had more variation in recent years: 2009, 2011 and 2013 were bad, 2010 and 2012 were reasonable. "There is a much larger segmentation in tomatoes and there are much bigger differences here. The distinctive power and the number of niche products is much higher than with pepper. The middle segment of loose and vine made a loss last year and the prices are bad at the moment too."

Cucumbers have been strolling a long for a few years. "The price seemed realistic last year, but you have to take into account that the energy costs were much higher." The turnover is also decided by the production level, not just the price. "The current low price is partially made up for by the higher production and the lower energy costs. The question is what will happen over the next few weeks. The lead in production will become relatively smaller."

What can growers themselves do in this situation? Look ahead, says Henriks. To over the border for instance. There are chances abroad, not just for suppliers, but also for growers. But growers only have a restricted presence there. "This is where there is a lot of need for knowledge. There are modern techniques, but not enough craftsmanship. Holland is strong in growing technical and technical innovations but weak in innovative market concepts."

There are also changes outside the borders of your own sector, Hendriks believes. "Take a look outside of the box. Look at other chains, outside of the agrarian sector. How do they work? How do they handle market innovations, new developments and initiatives? Can any of this be used in horticulture?" The Automotive sector for instance: a quick world with a high grade of automation. "Get knowledge from outside into it and look into other ways to make money." An example of what can be gained from outside your own sector: franchise chains. Henriks believes that the horticulture can learn a lot from those kinds of company models. "An example of intensive collaboration," he calls it - but businesses in horticulture see stumbling blocks. "Making collective decisions means giving up freedom. It isn't easy, but what's wrong with it if it makes you better collectively?" The franchise model gave Tasty Tom an opportunity to escape from the masses. "Not quite franchise, but with some of its characteristics says Hendriks. "Tasty Toms were innovative - but how do you keep that power? Snack tomatoes show this is difficult. Recently in a advert in the newspaper: 39 cents per cup. If the sector doesn't watch out, it will be worse than bulk, even though it's actually a niche c.q. and speciality."

Company endings
It's not just growers that have to play into the current situation, the Rabobank has to too. The bank is the main moneylender for the Dutch horticulture and regularly has to decide about the future of a company. "Companies with a good plan that's based on market orientation, that also perform above average and have enough braking distance, those are the ones we facilitate. Even when they have plans to extend." This is at the same time as there is a large reorganisation in the horticulture. "There are definitely companies in financial difficulties," recognises Henriks, "And for a number this will lead to the company ending. How many? That depends on the next season. If the prices remain at this level, countless other companies will get into trouble."

Extension plans
The bank indicates that there is too much product on the market and that more and more companies are getting into trouble. This seems contradictory to facilitating extension plans in the greenhouse cultivation sector. Yet this is what Rabobank is doing. "There discord in this," recognises Hendriks. "The sector is going through a difficult time. But the renewing cycle and innovation need to continue. This is where new ideas and new power for the sector comes from. The innovation power decides the competition power of a sector for a large part. It is a difficult decision, but the sector has to remain able to keep up innovations, modernisation and the level of knowledge."

Are there companies with investment plans? "A few," replies Hendriks. "The tomatoes made a loss last year, but there are companies who managed to realise a positive result then. It's a combination of factors: the segment concerned, energy and staff management, market focus, packaging activities, the diversity of your product and service," he sums up. "But the enthusiasm for investment is clearly lower than in the previous decade. In Holland there is around 10,000 hectares of greenhouses. If you presume a lifespan of 20 years, which is a long time, 500 hectares will have to be replaced every year. In the past three years barely 300 hectares has been built, when it should be 1500 to keep up the modernisation."

Subcontractors bankrupt
The low enthusiasm for investment has had its impact on the subcontractors. This year alone large companies like Arend-Sosef and Zwirs Worldwide went bankrupt. "The subcontracting turnover at the moment is mainly made abroad. The enthusiasm for investment domestically is low and we expect it to remain that way over the next few years." There has been a dip here since 2008. "The enthusiasm for investment has been declining, partially due to the decline in capital due to exploitation and the decrease in value of companies. This has its effects on the investment capacities of the sector and also the subcontractors." There is danger for Holland in the erosion of the Greenport function. "The Greenport function: the power of the entire horticulture complex from producer, supplier and chain with the knowledge that goes with it," Hendriks sums up. "The innovation has to come from that development and supply of outgoing material. We need to keep it going."

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