This funding solution, provided by ABN AMRO and the European Investment Bank, responds to a specific need among the farming community and helps to reduce CO2 emissions.
Photo of Robert Kuik and David Tillmanns, Royal FrieslandCampina.
Amersfoort, The Netherlands
Royal FrieslandCampina is one of the largest dairy cooperatives in the world, with an annual turnover of €12bn and 18,000 member farmers.
Manure mono-fermentation reduces the greenhouse gas emissions from farms and produces heat and biogas which can be converted into green gas and sold to the natural gas grid system.
When setting up a system, the technology used is still new and therefore expensive. The financial position of farmers using this equipment, in terms of their debt capacity, is not necessarily credible under such circumstances. As such, it is basically impossible for them to attract standardised and regular funding for this kind of investment on their own.
Royal FrieslandCampina and its farming community have a common goal of reducing their carbon footprint; a project called Jumpstart was initiated to help achieve this aim. The main goal was to implement these systems with 1,000 farmers. Over a period of eight years it is expected to reduce their CO2 output by 500,000 tons annually. “This is equal to removing 250,000 cars from the road,” explains David Tillmanns, Deputy Treasurer.
Royal FrieslandCampina’s corporate treasury was asked to come up with a tailor-made funding solution for 1,000 installations, with a total investment of €250m. “Because it is not possible for an individual farmer to obtain financing for such an investment, it was clear that this project would only succeed if the resources of Royal FrieslandCampina were used, and the risks shared between the participating farmers, Royal FrieslandCampina and a financial institution,” adds Tillmanns.
David Tillmanns, Deputy Treasurer, Royal FrieslandCampina:
In our view, this funding solution is the result of a best practice approach in which working closely together in a multi-disciplinary team leads to a successful end result for our farmers. This team consists of farmers, R&D, technology suppliers, procurement, sales and marketing and communication. The fact that this approach is recognised by the Treasury Today team and results in an Adam Smith Award is something of which FrieslandCampina is extremely proud. It proves that we are taking the right approach in improving our corporate treasury role within the company.
Several banks were invited to assist Royal FrieslandCampina to find a solution. This was ultimately provided by ABN AMRO, as follows:
The bank provides a scalable financing solution which translates into a 12-year lease to the farmers for the purchase of the installation.
The bank receives a guarantee of 15% of the total investment from a newly established cooperation called “Jumpstart”.
The 15% guarantee (Riskpool) is funded with 50% cash from the farmers and a 50% guarantee by Royal FrieslandCampina and other milk processing companies. Royal FrieslandCampina will buy (gas) energy from participating member dairy farmers and has agreed to pay each participating member €10 per ton reduction of CO2.
The bank receives funding from the European Investment Bank (EIB) for this project. The discount which ABN AMRO receives from the EIB is passed onto the farmers.
Fixed interest cost for this 12-year lease arrangement is just over 2%.
After the lease period, ownership will transfer to the farmers, the remaining lifetime of the manure mono-fermentation systems being approximately eight years.
In January 2018, the first lease contracts were signed between a farmer and the bank. The ultimate goal is to have 1,000 installations on farms by 2026.
Best practice and innovation
Innovation is demonstrated by Royal FrieslandCampina’s ability to provide a financing solution to individual farmers in the different stages of the process, enabling the risk to be shared between the farmers, Royal FrieslandCampina and their bank.
Furthermore, the bank is able to secure EIB funding, thereby lowering the cost of funding for the farmer significantly (25-35bps reduction).
The farmers also receive financial help from the government for this project. So far, over €100m of subsidies has been obtained for the first tranche of 100 installations.
Provided affordable funding to farmers who would otherwise have found it extremely difficult.
Results in positive impact for the environment through reduction in carbon footprint.
Lowered cost of funding for farmers.
Key learning points
Building up strategic partnerships with banks like ABN AMRO and EIB are key to the success. These partners truly understand the company and therefore are able to come up with tailor-made solutions.
Alignment of the corporate treasury strategy with the strategy of the company. FrieslandCampina has a clear sustainability agenda, which is also an integral part of corporate treasury.
David Tillmanns is a Senior Treasury Manager at Royal FrieslandCampina. He graduated from Nyenrode University in 2001 with an MSc in Financial Management. In 2001 he started as a management trainee for ABN AMRO and has fulfilled several positions. In 2009 he transferred to Royal FrieslandCampina where he worked for the Operating Company Domo for five years before moving to the treasury department.