Pete Lewis:
Welcome to Co-operative Conversation, the livestream series where we connect you to the real stories of Australian primary producers who are working and growing together in co-operatives. Hi, my name’s Pete Lewis, and one way or another I’ve been helping Australian farmers tell the great stories of Australian food and fiber over the past 25 to 30 years. Tonight, we’re tackling the capital conundrum. In other words, show me the money. And to help us to get through that and find out where the money is and how to access it, five agribusiness leaders from throughout the world with particular experience in working with co-operatives, and that co-operative farming model and financing agribusiness.
Pete Lewis:
With primary production seen as crucial in helping the economy and Australian communities recover from pandemics and other challenges, weather and commodity related, there’s increasing focus on getting the right investment to grow agricultural business, especially those that are involved in evaluating. I think this is going to be a fascinating discussion. I’m sure you’ll all enjoy it. And I want you to introduce you to tonight’s panel. We have with us, Simon Lane is coming with us today from Adelaide, formerly the chair of Almondco. A vastly experienced, mostly in the co-operative space. As Simon is now one of the Co-operatives Farming envoys. Great to see you again, Simon.
Pete Lewis:
Robyn Donnelly is coming to us from the spectacular town of Beechworth, in Victoria. Currently locked down, but when it’s up and it’s one of the great places in this country. Robyn is one of Australia’s foremost co-operative experts. And she’s been working very hard over lockdown over the past few months on a very special project, which she’ll tell us about in a moment. Coming from Sydney, Marcel van Doremaele from Rabobank. Great to have you with us, Marcel. He’s the Group Executive for Country Banking with Rabobank. And if you’re not familiar with Rabobank’s co-operative credentials, you will be at the end of this discussion. Peter Hunt is joining us all the way from London. And thank you very much for rearranging your schedule and your life for us so that you had to be part of this.
Pete Lewis:
He was the founder of Mutuo, and a global mutual and co-operative advisor. Including to the Bureau… To The Business Council of Co-operatives and Mutuals, which has basically set up Co-operative Farming and this Conversations series. Great to have you with us, Peter. And last but not least, Ivan Giuricich. Ivan’s in Brisbane at the moment. He’s the Chief Financial Officer for Marquis Macadamias. We did learn a little about the Marquis story a little earlier in this series. It’s great to close the loop and have Ivan join us tonight. This is a very special co-operative conversations, round table. As I said, welcome one, welcome all. Thank you for giving up your time for this. And we look forward to your contribution.
Pete Lewis:
But before we get underway, if you have a burning question as a result of tonight’s topic, and boy everybody has a question about money, ask away with our online team via our chat box, which is located on the right hand side of this steam. Don’t you forget, you can also vote for the question that particularly tickles your fancy by the vote button. We will try to get to as many of those questions as we can. Now, since we’re talking agribusiness finance, in particular how farming co-operatives get financed, there’s no better place to start than with the world’s biggest agricultural bank, which also happens to be a co-operative started by Dutch farmers. Marcel, you lead country banking at Rabo here in Australia, which means you now helping the bank, and lend Australian farmers, but it all started in the Netherlands.
Marcel van Doremaele:
That’s right. It started in 1898, basically from a group of farmers inspired by a German model, Raiffeisen, that got together and arranged a bundled their excess. Basically the deposits that they had, and made that available in particularly pre harvest financing to farmers who were in need of cash. Farmers with an excess of cash lend that money to farmers with a shortage of cash to get to a successful harvest. And this model, that co-operative banking model took off like a bushfire. Because, at that time there was not such an financial institution that did that.
Marcel van Doremaele:
And in the first decades that’s actually the point where Rabobank grew the fastest in its existence. We had a few thousands of these co-operatives within a few decades, really supporting the farmers and enabling at a reasonable pricing. Because, that was the key thing. There was a lot of loan sharks out there who were charging farmers excessive rates. And if then there was a default, farmers could lose basically their livelihoods. And the co-operative banking model that was introduced, had typical interest rates around four or five percent. Farmers had affordable access to financing. That went really very well.
Pete Lewis:
Now, the company has enjoyed a spectacular growth since those very early days. Give us a bit of a feel for what it looks like now, and your reach, because it’s certainly reached far and wide beyond the Netherlands.
Marcel van Doremaele:
Yes. Thank you for that question. We are represented in more than 40 countries. Our mission is really to contribute to feeding the world in a sustainable manner. We are represented at the farm grade level in these countries. We are represented through traders and further downstream towards, let’s say manufacturers and all that. Everything within that food and agri-space. It is imperative that farming across the globe is more and more real through global business. We’ve seen that very much with China, for instance, coming up through the years and being now a very, very prominent player in importing beans, animal protein, everything. There’s a big need out there for a focused approach to support farming and also with an eye on intergenerational support to these families.
Marcel van Doremaele:
Because a lot of families find themselves building up the farm and then subsequently growing that out, needing a lot of supports. For instance, from the lenders point of view, to keep that growing. Because farming is after all in many countries, a cost price scale driven business. Said that, we are active in countries as well, where there are a lot of subsistence, so small farms, and we help them through projects and through set ups that are not necessarily having an eye on a commercial business right away, but really trying to help them to create livelihoods. And that’s happening a lot in, for instance, India and in the countries in Africa where we are active.
Pete Lewis:
What’s the trick, as the company becomes more complex and more globally focused, what’s the secret to staying connected with farmers right at the ground level, and understanding, as you said, the particular that affect farmers from subsistence level right up to massive corporates?
Marcel van Doremaele:
Now, thank you for that question. First and foremost, and that’s very much the case in Australia, you need to be there. You need to be on the ground. You need to be with the farmers. We need to have a presence in the country. In this case in Australia, through our 61 branches. You can’t run this from one city or from the capital cities around. I think that is one of the most important things, we need to listen to what’s going on. We need to really understand or what the farming business models look like. And then, only then you can be effective in supporting our farmers.
Pete Lewis:
Simon, you ran and shared a very large agricultural co-operative, one of Australia’s largest exporter of almonds. You’d have considerable experience with dealing with banks. Obviously an important part of the ability for a co-op to grow is to access capital. From your point of view, what’s the biggest misconception about a co-op farm business when it comes to raising capital?
Simon Lane:
Well Peter, as silly as it might sound, I think the biggest misconception is that co-ops can’t raise capital. And you hear from time to time, such and such co-op failed because it couldn’t raise capital. That’s clearly not the position and Marcel as well surely had laid the groundwork for establishing how it can be. That in my opinion is the biggest misconception.
Pete Lewis:
How do they go about it?
Simon Lane:
Well, they’ve got several alternatives. They have the, what you might call the traditional method. And Marcel’s touched on that already, the normal method of borrowing from a bank, providing security to the bank, and servicing the loan. And often that of course is the best way to go. There are, of course in some co-operatives depending on how they’re structured, there’s a capacity to raise money through members of the co-operative. By way of an example, you could have an issue of shares. But I was interested in what Marcel said indirectly on that topic. The great risk is ending up with deal stakeholders.
Simon Lane:
At the end of the day you must always remember in my opinion, as a co-op, that you’re there for your growers or your farmers or your client, whatever they might be. And if you have a significant shareholding influence, they are looking for dividends. Growers are looking, farmers are looking for returns. And that competition between the two is, in my opinion, a good reason to steer clear rising capital through your members and the issuing of shares. There’s been a recent development in the area of the CCUs. It’s not an area where I’ve personally had experienced, but others may be able to elaborate on how they work, but it’s a relatively recent innovation.
Simon Lane:
But the one that we used very successfully at Almondco with two major projects, both in the South Australian Riverland and the Riverina in New South Wales, it was through loans from governments. We borrowed both from South Australian government and also the New South Wales government. And we were able to utilise the provisions in the Commonwealth Tax Legislation, which enabled us having borrowed that money to claim legitimately as deductions. Not only interest, which is the traditional deduction, but principle as well. And it’s not a technique which is widely known, nor widely utilised. But it has immense benefits if you can structure the loan in that way.
Pete Lewis:
Very interesting. Ivan, across Australia there are around 230 agribusiness co-operatives. Marquis Macadamias is our largest exporter and processor of macadamias. In fact, one of the largest in the world. What are you raising capital for in a business of your scale?
Ivan Giuricich:
Thanks Peter. There’s two parts to our business that require capital. The first part is the day to day running of the business, which includes all of our costs of running the factories. But probably the largest, definitely the largest part of that is actually purchasing the crop every season. The macadamia industry is expecting unprecedented growth. One of the things that keep us up at night is how are we actually going to be able to afford all the expected crop and plantings that are coming online in the next couple of years. The second part of the business that does require a lot of capital is our future expansion. As I mentioned, there’s a lot of expected crop coming online. We have sufficient capacity currently to manage what is currently being produced. But we always look into the future to work out how are we going to manage this expected crop coming in.
Pete Lewis:
Now, from your point of view, what’s the big difference between co-ops and other business structures when it comes to raising capital?
Ivan Giuricich:
I can speak for our business. The co-op model was the model that definitely suited our needs. We started off in 1983, and it was a few macadamia farmers who had pulled together to control their product from start to finish. The most important thing was we needed guaranteed supply in order to achieve the visions of the future. The most important thing for us is our growers and our shareholders. By choosing the co-operative model, we were able to not only get hold of that guaranteed supply, but number two, we were able to develop quite a strong following and quite a loyal supply base.
Pete Lewis:
Do you sense there’s a growing literacy among financial community about the way co-ops operate and the capacity for them to borrow and to grow and to be sustainable businesses.
Ivan Giuricich:
Certainly Peter, there’s definitely an increased interest in co-operatives. The benefits of co-operatives and the pooling of resources is definitely something that I think a lot of growers are taking note of. There’s many, many examples of successful co-operatives and I’ll guess before I have highlighted some of those success stories. I think as the world becomes more… I guess as we move more and more into the global village, it becomes more evident that co-operatives are definitely an avenue to grow not only an individual’s business, but also the greater industry at large.
Pete Lewis:
From Brisbane, we whisk off to London now to speak to Peter. Peter, you’ve been at the forefront of some very exciting changes for how co-operatives and mutuals can access capital in this country. You helped change the law in fact. Tell us a little bit about what those changes mean for co-ops’ ability to raise capital.
Peter Hunt:
Hello, Peter. Yeah. Well, the first thing to say is that the law changes for federally registered co-operatives and mutuals. It mirrors in many ways what was already in place for a state registered co-ops. And now we have these two instruments available. Two types of shares, one which is called a Mutual Capital Instrument for the federally registered businesses, and one which is called the Co-op Capital Unit for the state registered businesses. And really what they’re trying to do is to address this capital conundrum.
Peter Hunt:
And some of the speakers have already raised some of the questions around this. But in a nutshell it’s this, traditionally it’s very difficult for a co-operative business to raise external investment without losing control. Because, in the past people have expected proportional votes to go along with any shares that they buy. And what this new initiative does is that it limits the participation rights of the people who purchased the shares. They are a new stakeholder, but they are not a proportionate shareholder. The control remains in the hands of the original members. Now it has to be handled with care.
Peter Hunt:
But it means that there is a new tool in the box. And we see this as one of the developments, alongside the other industries that co-ops and mutuals operate in, in Australia. Where alongside loans, alongside capital raised through retained earnings, and alongside grants that may be possible from state governments. You’ve got a suite of choices. And this type of capital can sit within all of that. But we can talk about how you would use it, and where it would potentially fit in and what type of situation it would be most useful for.
Pete Lewis:
As you scan the co-operative world, how does Australia compare with the other parts of the world, when it comes to this really crucially important part of their operations?
Peter Hunt:
Well, let’s say you’ve had a good season. You’ve gone from being fairly low in the league, right to the top. And in fairly short order as well. The way that I would judge the success on this is just how many choices different co-ops and mutuals have in terms of raising capital. And these instruments are not available everywhere. They are designed for the Australian situation, but they borrow knowledge that’s been built over a number of years in lots of other jurisdictions, including the Netherlands.
Peter Hunt:
Rabobank was one of the inspiring co-operative businesses that raises capital in this way. And across Canada and some parts of the United Kingdom, but certainly not all of the different types of co-operatives. We still have very archaic legislation. I’d say Australia is pretty well placed to start to develop some very interesting and innovative ways of financing their co-ops and mutuals.
Pete Lewis:
And look, we’re lucky tonight to have one of the architects of that sort of structure in Robyn Donnelly. Robyn, you’ve been advising co-operatives, not only farming ones, about how to raise capital for members for many, many years. And you also help with those laws that Peter spoke about that govern co-operatives, including capital raising options. What is that law, and what are the options for raising capital under the Co-operatives National Law?
Robyn Donnelly:
Yes, Peter. I can’t claim to be the architect of the Co-operative Capital Unit provisions. I’ll have to give that honor to earlier advisors. But my role was to be on the Inter-jurisdictional Committee to develop what we now call the Co-operatives National Law. That delivered two things for Australian state-based co-operatives. And the first thing that it delivered was that it made the law actually national, so that prior to the co-operatives national law, state based co-operatives had trouble raising capital across a state border. There were problems because you were dealing with a different legal structure and legal regulation from state to state. And you had the overarching control from the Australian Securities and Investments Commission.
Robyn Donnelly:
For some co-operatives wanting to offer securities across a state border, they suffered under dual regulatory processes and costs. The Co-operatives National Law, through what we call mutual recognition, made it that state based co-operatives could carry on their business, including fundraising across the state border. Under the single system, which is managed through their local registrar. It imposes a disclosure regime for offering securities that matches company disclosure laws. And then it also introduced these new instruments called Co-operative Capital Units. And Co-operative Capital Units or CCUs as we call them, do come with great potential for fundraising for co-operatives. But as Simon has pointed out, there’s risk in that.
Robyn Donnelly:
And there’s a need to truly understand how it is that they are to be issued. The legislation does contain some checks and balances, so that there’s an additional approval process before a Co-operative Capital Unit, too, can occur. To make sure that the instrument and it’s terms of issue still consistent with co-operative principles, and that the members of the co-operative before they’re issued are aware of the terms of issue. But there are great things. There’s great potential for this instrument, not just for raising capital from external investors, but also for raising capital in a different way from the co-operatives own members. One of the issues facing co-operatives is accounting standards. Because member shares in a co-operative are classed as a liability, because they’re repayable when a member leaves the co-operative.
Robyn Donnelly:
And I think in the early days in New South Wales, in my experience, there was Rabobank who actually raised this problem, Marcel. And with a co-operative wanting to borrow money. And the balance sheet looked very poor indeed, because member share capital is on the wrong side of the balance sheet, whereas CCUs can be structured to look like permanent capital to mimic shares. Some local co-operatives in New South Wales, some grain co-operatives issued Co-operative Capital Units, which were then classed as equity. And made that balance sheet look a whole lot more comfortable for a bank to be able to lend to them. They can help build up a balance sheet through member rating, as well as provide access to external investment.
Pete Lewis:
Robyn, for some, the pandemic has been a pause button, but for you it gave you quality thinking time. And you’ve been putting that to good purpose with the regulatory technology, the capital builder that you’re about to launch as part of the co-operative farming project. Tell us a little bit about that.
Robyn Donnelly:
Well yes, the capital builder has taken a while to come to fruition, but it’s hopefully a resource that does two things. The first thing is to improve, if you like financial literacy. To show co-operatives, state based co-operatives, the tools that they have already at their disposal for raising capital. It goes through explaining different sources of capital. From borrowing from a financial institution and what that would involve, to raising shares from your members. And also to issuing debt instruments like debentures or notes, either to your members or to external investors. And also explains the nature of a CCU. It then, for users of the resource, they then go through to a process about how you work out which is the most appropriate source of capital for your project.
Robyn Donnelly:
Through running your board or your management personnel through the process of developing a business case for fundraising. Trying to set the building blocks for how it is that you work out which is the best source of capital, what the costs are, how you test the market and those kinds of things. And for co-operatives then who decided to go on a further step, and because they see issuing instruments either to members or to the public as their best option, it takes you through the regulatory processes and helps you draft your disclosure statement for an offer of security. You come out at the end, if you go through all of those steps, potentially with the basis of a disclosure document, which would then go through to the relevant state registrar for lodgement.
Pete Lewis:
Peter, what sort of basic information do farmers need to put out there to the market to raise capital from external sources?
Peter Hunt:
This is really an important part of the learning process. I know that there’s not been many CCUs issued in the last few years, and actually some haven’t succeeded. And one of the reasons they’ve not succeeded is because they don’t appear to have sufficiently articulated what it was that the business wanted to do with the money, what the business was about, and finding the right kind of investors for that type of investment. This is not a small task. And it’s important that businesses are able to have a good and honest understanding of why they need the money.
Peter Hunt:
And in many ways I would say that if you’re going to raise external capital beyond your normal borrowings, then you need to have a very good reason to do this. And you need to have an idea that is ideally transformational to your business. And this capital can then be extremely useful in assisting that process, whether it’s an acquisition, whether it’s a new business line to get involved in. But you’ve got to have a prospectus. You’ve got to have a good description. You’ve got to take advice on all these things. It’s something to think about very carefully, but also to see the potential of whilst doing that.
Pete Lewis:
Marcel, from Rabobank’s point of view, what are the common mistakes farmers make when they approach banks for lending, and how can they better present their cases as Peter’s indicated?
Marcel van Doremaele:
I think what Peter mentioned just now commenting on that as well is it’s a very important one. For a farmer or a co-operative, and I’ve seen quite a few over the years that I’ve worked with Rabobank since ’96, succeeding and failing. It’s extremely important to have that purpose right, and to have that strategic direction, therefore right. Capital is nothing else than just an accelerator to make your idea happen. That’s one element that’s super important for a co-operative or for a farmer, it doesn’t really matter. With that, the second element comes, a good governance. Good governance means financial discipline.
Marcel van Doremaele:
Good governance means ensuring that the plans all lived up to. Good governance means that the right management is deployed and the right controls are deployed, so there is no cash leakage, or there is no slack or too much overhead being built. Which are, of course dangerous for any enterprise, including co-operatives. And another element that I’d like to stress here is that, when you want more capital, you’ve got a great strategic direction. Your purpose is clear. Investors are potentially very excited and that with investors of course, I mean your own farmer base as well. Everything seems to be green.
Marcel van Doremaele:
However, your investor base needs to understand the nature of the co-operative. For example, in agri there are seasons that can be… We have droughts, we have fires, we’ve got great seasons, like the one hopefully that’s coming. And investors in many cases are not always fully in an understanding of what that means. The ups and downs of agri, that’s all different based towards investors as compared to a normal, fast moving consumer good companies, or utilities company. The risk profile is very different. Alienating your investor base with something that is not clear enough, to Peter’s point again, that’s a very tricky point. And that can cost a co-operative or a farmer, a lot of money. Because, once you alienate your investor base, they won’t come back to you.
Marcel van Doremaele:
Especially when you need them. What I would propagate as well, as part of that good governance, that there is a healthy profit retention in the co-operative. A reasonable part of the profit is kept, rather than distributed back to the members. That’s part of that good governance. And that’s for farmers as well as a co-operative. You need to have a good plan with good direction, a good governance that builds resilience and discipline. And then understanding who the investor base is. Yeah. It’s imperative of course, that’s the key source of capital to a farmer or to a co-operative should be from the farmers themselves. Because, like nobody else, they know the seasons, they know the intricacies of the volatility of earnings, et cetera.
Pete Lewis:
Co-operatives comprise many individual, ruggedly individual farmers. And I guess along the way, there are a whole range of competing interests for all those issues that you all just spoken about. Simon Lane, how important is it to be able to manage those sometimes convenient expectations? And how important is it to have a co-operative that’s run with people with a whole lots of different skill sets and in some sense, an independent perspective to drive the business forward sustainably?
Simon Lane:
I think it’s absolutely fundamental. And several of the other speakers have indirectly touched upon this. Growers, farmers, or whatever constitute the membership base of co-operatives are invariably very, very good at their business. But they haven’t necessarily had either the education or business experience of the world outside their particular interests, be it growing almonds, or milking cows, or whatever. And I think as we all know, many co-operatives failed in the 80s and early 90s for a whole range of reasons. But I think one of the major reasons was that often the poor quality of corporate governance, which has been mentioned.
Simon Lane:
I think the structure of a co-operative board is fundamental to its success. I think striking a balance between having independent directors, and grow a farmer directors is really, really important. At Almondco, we had a structure where we had four grower directors who were elected by growers, and we had two independent directors. Fully independent in the sense that neither I nor my fellow independent director owned a share or an almond tree. I and my fellow director knew absolutely nothing about almonds when we became involved. But what we were both able to bring was an experience of a world outside almonds.
Simon Lane:
And I think that independence is so important. Because very often, if one’s had experience in the wider world you bring instincts that are important. You’d perhaps have a confidence to ask questions, which might on the face of them look a bit silly. But they might actually trigger a discussion which those who have remained within the industry have never thought about. And overridingly of course, another risk within co-operatives is this potential conflict between the interests of individual directors on the one hand and the interests of the members on the other.
Simon Lane:
And an extension of what I’m saying is it’s so crucially important to not only have the independent directors, but those who are member directors, member elected directors, must retain at all times the overriding interest of the members, as opposed to their own personal interests. Now, I know that’s just stating fundamental company law principles. But within a co-operative that manifests itself often more than in other situations. Independence in no connection, independence in the sense of having different skills and different experience, and a willingness to probe and test from that external perspective rather than the internal perspective, I think in fundamental.
Pete Lewis:
Look, just a reminder, we are running a poll with tonight’s Co-operative Conversation. And the poll question is, as a farming business, when would you seek to raise capital? Tell us what you think co-ops need money to help with. Some good choices there to consider, include innovating and investment, or machinery upgrades, or expansion in infrastructure, and even human resources. There are quite a few options, so have a look, have a go. Click on the poll on the live chat, to the right hand side of this stream and select your answer. Ivan, Marquis Macadamias has a longterm capital management strategy and is also accessed co-op loans for expansion. What are co-op loans and can you talk about how the tax breaks for farming co-ops work?
Ivan Giuricich:
Peter, the co-operative loans that we use is approaching either state or federal governments to provide funding for capital expansion. Certainly the benefit to us is, as Marquis Macadamias, is that we’re able to raise that funding at a much cheaper rate than approaching your commercial banks. The second thing is, generally the conditions around that loan are much looser than if you were to approach a commercial bank. Rather than having to provide securities, mortgages over property and equipment, all we really need to give is a bank guarantee.
Ivan Giuricich:
And the third thing is, as you mentioned, is there are significant tax benefits to those co-operative loans. Whenever we repay a co-operative loan, that capital repayment is allowed as a tax deduction directly to your tax book. Over and above getting your normal deductions for the plants and equipment that you’ve purchased, the capital repayments that you make are also tax deductible. It certainly assists the co-operative quite significantly that where most of your purchases, if you do, do it through a loan from federal or state government, you get an extra 30% off, so to speak.
Pete Lewis:
Marcel, in terms of good capital management within an agribusiness, what should farm businesses large or small be planning for?
Marcel van Doremaele:
Have a plan. Have a strategy, have a plan. And we call that usually the big dollar plan. And in many cases that has to touch upon succession that will touch upon growth. And articulating such a plan is giving clarity, first and foremost as a direction for the farm family. But also it gives a lot of insights for a lender or a capital provider into that farm, basically what they’re up to in terms of planning. And that kind of transparency is I think the fundamental lever for a successful debt or capital raising. If that’s correct, the farm can move forward.
Marcel van Doremaele:
What’s also important in that plan then, and I quote now one of our very good farming clients, and what they say is, they are graziers and they say, “We plan for a drought, so whenever there’s rain, it’s a good plan buggers.” In other words, they keep adversities in sight, and when they don’t happen, they will have an enormous good year. And when it happens, it’s all part of the show. They don’t get surprised. They don’t get tripped over if there’s one or two years of adversities.
Pete Lewis:
Well, 2020 has certainly thrown up a surprise or two from a global perspective. How is Australian farming, how is Australian agribusiness traveling from the analysis that Rabobank has done?
Marcel van Doremaele:
In general across the categories, be it dairy, beef, grains, sugar, cotton, sheep, in general very good. Yes wool prices, the prices are a bit lower. Cotton prices are a bit lower. But cotton is profitable. Wool prices are in itself profitable, but also wool enterprises are often mixed enterprises with grain. Grain prices in itself are reasonably well. A lot of farmers have hatched prices in at above a 315 to 325 in the commodities, hedging space, or had forward sold at good prices. Cattle are very strong. The veggie growers have had a reasonably good year on the back of COVID with a lot more cooking at home.
Marcel van Doremaele:
And that all shot up by pretty good weather conditions across. And I really have to say that some of the areas in Australia haven’t had enough rain, but they are in the minority at the moment. Certainly the Eastern seaboard, the rain was very welcome. It’s recovering moisture profiles in the soils, of course, that needed that very much. And it’s not yet to normal levels, but there’s a good crop now. And see, and the conditions are pretty good also towards summer cropping. I think ag Australia will have a, as they say it a cracker of a year in general.
Pete Lewis:
Robyn, I imagine that in addition to existing agribusiness co-operatives in Australia, there would be farmers across the country who are looking to create perhaps, and get together and create their own co-operatives. The nuts and bolts of that is obviously mainly to share capital. How much do members need to put in to kick one of these off, and how do I access it? How do they get it back if they choose to leave the co-op? Talk us through that, because I imagine there would be a lot of farmers in that situation now, who can see strength in numbers.
Robyn Donnelly:
Yes. Look, the process for forming a new co-operative does rely very, very heavily on creating a really robust business plan. And the business plan, the key components of it then are reflected in the co-operative’s constitution, and in its disclosure statement. To form a co-operative of farmers, you would likely need to have a set of rules, or a constitution, and a disclosure statement. And then the disclosure statement is a little bit like a share prospectus, but it does a bit more. It actually discloses or sets out what the rights and obligations are of the farmers as members of the co-operative.
Robyn Donnelly:
And then it also sets out the terms of issue and obligations in relation to capital contributions, which are your share capital. The business plan, like any other business plan, looks at what are our costs going to be of setting up this business for the first year, and beyond what capital are we going to need? And there’s also a need within that plan to look at how many farmers you think you’re going to be able to join this co-operative. Because amongst the farmers, across that group of farmers, you have to have them fully engaged in what it is that they want their co-operative to do, and spread the cost of the setup across those members.
Robyn Donnelly:
Some members may be prepared to put in more. And that can be dealt with by way of loans that the co-operative will owe back to those farmers, or they may actually buy more shares at startup. But for each of those capital contributions that’s how they raise their core capital to begin working. Farmers that then want to leave the co-operative are able to get their share capital back. Share capital in a co-operative does have a fixed price. If they’re a dollar a share when they buy them, when they leave there’ll be a dollar a share when they’re paid out by the co-operative. In that sense, the co-operatives liabilities back to members are relatively fixed over the period of its life.
Robyn Donnelly:
Sometimes farmers are a bit disappointed that they still only get a dollar back on their share. But they have to remember that the benefits that they’ve got, the benefits of having been on the co-operative ride, if you like. They’ve had someone to buy their grain or their vegetables or their milk, at the price that the co-operative has been able to deliver for them. That’s how they get their start up capital, if you like. But it all comes down to having a carefully worked out business plan, which then identifies the capital that they need, whether they can get it from the members they’re expecting, or whether they have to borrow it from somewhere else for startup.
Pete Lewis:
Peter, can you rise external investment capital without giving up your ownership in a farm co-op?
Peter Hunt:
You can, and it’s not straightforward, but it’s legally possible. As others have said so far, to be able to attract an investor, you need to have a good story. You need to be able to have a business plan, strong governance, and a good reason for raising the money. This is quite an exciting time for Australian co-ops and mutuals. There’s been legislative changes, there’s this program, and other programs which are trying to galvanise the sector together. And one of the benefits of that is that it’s attracting the interest of potential investment partners who could go the journey with businesses within the sector.
Peter Hunt:
I’m talking about, potentially super funds. I’m talking about impact investors, who understand the challenges and the potential benefits of working with co-operative businesses. And in many ways, this is the piece of the jigsaw that’s been missing. And one of the exciting projects that the BCCM is working on at the moment is, with Monash University to develop Mutual Value Measurement, which, if it’s applied in every individual co-op, gives businesses the opportunity to examine themselves, and then better explain to others outside what it is that’s good about their co-op, and what it is that is good about the purpose of their business.
Peter Hunt:
And that’s going to make this whole thing stick together much more effectively. So that if a business chooses to go down the routes of issuing CCU or MCIs, it can look for investors who are at least sharing the objectives of that business. It’s not just a financial transaction they’re looking for, it’s partners and partnerships. And there’s a prospect that, that could actually open up in the future.
Pete Lewis:
We’re swinging into the home stretch for this conversation. It has quite literally flown by. But I do want to get a little response from all just generally by wrapping up about what efforts are being made to overcome some of these myths and misconceptions about co-ops and their finance. Marcel, from your perspective, what’s the most important thing people watching and listening to this need to understand about how you go about what you do?
Marcel van Doremaele:
Have a good purpose, have a plan, have the dedication, and they are a chance that you will succeed.
Pete Lewis:
How about you Iven?
Ivan Giuricich:
Certainly our primary target is building a sense of community. Having people buy into the brand, buy into the idea, buy into what we are trying to achieve for the industry as a whole.
Pete Lewis:
And Peter?
Peter Hunt:
I would say work with like minded businesses, you will find there’s lots of fellow travelers all across regional Australia. And use the BCCM as a way to keep in touch with all of those different businesses. And also think beyond agriculture. There are some very supportive co-operatives and mutuals across Australia, who are not in the same business, but have many of the same issues, which you can share with them.
Pete Lewis:
Simon, as one of the Co-operative Farming envoys, one of the things that has certainly struck us over the course of this series, is how generous other co-operatives are about helping startups and people new to the sector. In terms of the myths and misconceptions about capital, that’s probably one of the most important questions you get asked.
Simon Lane:
I think Peter, one of the most important pieces of advice you can give a co-operative is, ensure that you’re not growing for the sake of growth, but you are growing because you can either maintain and or enhance the best interest of your existing and future growers. And I think just one other point if I might say, in further as to what Ivan was saying earlier in terms of the tax effective mechanisms available, it’s very important. I know they come at an expense, but it is very important that potential co-ops and existing co-ops get legal and accounting advice as to the terms in their constitution. That there are requirements in the tax legislation as to what at constitution must contain. And its vitally important that, that legal and accounting advice be obtained.
Pete Lewis:
And Robyn, we’ll give you the last word.
Robyn Donnelly:
I think that probably for me, co-operatives need to be super reflective on what it is they do and continually review their purpose, and also continually review how it is that they engage with their members. Because if you’re looking at matters like raising finance or capital, I think you should look at members first. Not only does it mean that you are talking to people who understand the co-operative model, it also provides greater opportunity for them to invest and feel more part of the growth of their own co-operative by bringing their own funding to it and enjoying whatever financial benefit, as well as growth benefit that they can get from their own co-operative.
Robyn Donnelly:
Going beyond the members, I think really you have to recognise that co-operatives do have an obligation to look after their communities. And if you’re going to go to external investors, there’s a community already there. They may be partners as Peter Hunt has said, but they could also be your local community. Because quite often you’ll find that co-operative is a great service provider, not just for members, but for their local community. And that is really important for any regional or rural community resilience overall. And I think that’s a great value that comes from that co-operative model.
Pete Lewis:
Thanks so much. Is that a good note to wrap things up. Thank you. Thank you, Robyn. Thank you to all our guests who’ve taken part in tonight’s discussion. Iven, Marcel, Simon, and Peter, thank you. Thank you all very much for being part of this. This live stream co-operative conversations is part of co-operative farming, the new online educating resource for farmers, fishers, and foresters. I’m pleased to say that a new online course on capital-raising for co-ops will be available fairly soon just visit www.coopfarming.coop. And also through co-operative farming at foresters, fishers, and farmers, can as well as members of co-operatives for that matter, can access educational bursaries to cover up to 90% of course costs for relevant co-operative education programs.
Pete Lewis:
You can jump online at coopfarming.coop to learn more about that, or email at coopfarming@BCCM.coop. That’s it for The Co-operative Conversations series. It’s been a pleasure to host ten of these incredibly interesting conversations over the past few months. All aspects to picking up, running and sustaining successful farming co-operatives right across Australia. Over the series we’ve learned obviously more about the co-operative business model and why it delivers value to farmers, fishers, and foresters. And how it helps sustain healthy farm grade operation, so that Australian agricultural primary producers can not only survive, but thrive. Every episode of this live stream series is now available online and on demand from the co-op conversations website. If you have missed any of them, and you really shouldn’t have, you can catch up as we say on demand.
Pete Lewis:
I urge you to grab a cup of coffee, settle in for some entertaining chats from people on farming’s front line. For details of all these episodes head to conversations.coopfarming.coop. And remember all 10 of those episodes are available, both now and on demand. And you can learn more about agricultural co-operatives, and incidentally hear more from me in the writing six online modules made for this co-op farming program. You can enjoy your own self paced learning journey on co-op farming. Thank you very much for joining me for this series. We might see you online in that education series very soon. But once again, a big thank you to everybody who joined us tonight. Enjoy your evening.
