Allegrini 2018

Agriculture and wine, the interest of banks and finance for wine&food supply chains is growing again

At WineNews the vision on the sector of leading banks, such as Intesa San Paolo, UniCredit and Crédit Agricole

Agriculture has always been an anti-cyclical sector. It is the basis of life and nutrition, a treasure chest of knowledge and ancient flavors, but also a “breeding ground” for innovation throughout the ages. An activity that is at the same time production but also custody of the territories, industry and sustainability. It is a sector made up of many types of agriculture and many agri-food chains, from those with the highest added value, such as the one that gives rise to wine, or the equally valuable one of livestock farming, to other less famous but equally fundamental sectors such as fruit and vegetables and cereals, for example. Wine, in particular, especially in its most renowned territories, is the one that attracts investments and registers many initiatives that link agriculture and finance (from the many banks that, together with certifying bodies such as Valoritalia, have made agreements for the revolving pledge that puts wine as a guarantee for credit, with consortia such as those of Barolo and Barbaresco, Brunello di Montalcino, Chianti Classico, Nobile di Montepulciano, Morellino di Scansano or Oltrepò Pavese, to investments such as those of Cassa Depositi e Prestiti which, in partnership with Unicredit, has started to invest in this sector), in partnership with Unicredit, started from wine and leading wineries such as Pasqua, Feudi San Gregorio and Masi to launch the “Basket Bond di Filiera”, with a total of 21 million euros in minibonds issued by the companies, while with Sace it subscribed to 25 million euros of Italian Wine Brand bonds, passing through the activities of Renzo Rosso, patron of Diesel, who is already a producer on his own with Diesel Farm, has risen to 7.5% of the capital of Masi itself, or for the fund Clessidra, which has acquired the majority of Botter Spa, just to stay at the most recent news, ed.)
But it is agriculture as a whole, also thanks to stable land values (also because cultivable land is decreasing) or with important increases over the years, especially in the most successful wine-producing areas, and on the basis of agri-food Made in Italy that, in 2020 of the pandemic, touched its export record, at 46, 1 billion euros, according to ISTAT, and with a food industry that generated an added value of 64.1 billion euros, according to The European House - Ambrosetti, to have returned to the center of interest of the big banks, as told by the heads of the “agricultural” sectors of leading companies such as Intesa San Paolo, UniCredit and Credit Agricole.
“Agribusiness is undoubtedly a strategic sector for Italy - comments Renzo Simonato, Head of Agribusiness Management at Intesa Sanpaolo, the leading Italian bank in terms of capitalization - it represents 11% of our GDP and employs 1.5 million people. It has demonstrated that it is able to grow even in times of crisis, thanks to the same structural characteristics that have determined its success on world markets. With the highest number of PDO and PGI products, it is at the top of the international ranking for market share in the top range. Another element of strength is given by our supply chains where important realities of the agri-food industry want to maintain control of quality through the supply of small producers in the area. Intesa Sanpaolo's commitment to support the world of agriculture and agribusiness is rooted in the Group and in the banks that have gradually merged into it. The new Agribusiness Department, created following the strengthening of the Banca dei Territori, is a center of excellence that aims to seize the enormous opportunities of this sector. It is based in Pavia and can count on 1,000 specialists at the service of 80,000 clients and 250 operating points, of which 85 are branches, concentrated in particular in the areas with the greatest agricultural vocation in the country in order to enhance their peculiarities and excellence. The pandemic has induced many changes, from attention to sustainability to digitalization. I'm thinking of the enormous growth of online commerce, which imposes very precise strategic choices, and I'm also referring to the importance for companies of making sustainable investments from an ESG (environmental, social and corporate governance) perspective. Our role is also to facilitate these steps through professional advice and ad hoc credit. Just one example, we have s-loan financing for sustainable investments for companies that adopt actions and practices that improve the environment, society and good corporate governance. These are the decisive years for the green and digital transition”.
“Agriculture is notoriously a countercyclical sector with respect to economic crises. The goods produced and processed - underlines Emanuele Fontana, Head of the Agri Agro Service of Crédit Agricole Italia - are mostly commodities, which cannot be ignored. Since 1993, after the despecialization envisaged by the Consolidated Banking Law (Testo Unico Bancario), sensitivity to the agricultural sector has decreased. The logic of evaluating creditworthiness, mostly unstructured, is not always fully effective, sometimes making access to credit less easy and complicating the issue of pricing. Banks cyclically return to the subject of agriculture, attracted by the stability and continuity of the sector, the least exposed to default. In terms of profitability, however, this may not be as attractive, since it is essentially based on medium-term interventions; on the contrary, in the short term, the sector sees circulating cycles that are not particularly efficient. Crédit Agricole Italia has in its DNA a deep interest in agriculture, placing it at the center of its development plans. This is demonstrated by our credit rating system, specific to the sector, with credit policies that provide for bonuses in relation to the presence of risk mitigation tools on the crop, such as insurance compared to production. The credit risk management logic developed by Crédit Agricole Italia is undoubtedly a model for the sector”.
“I wouldn’t speak of a “return” of interest in agriculture, because as a bank - adds Fabio Mucci, Head of Small Business & Financing Products at UniCredit - we have looked at the sector with extreme interest, as well as all other sectors. Of course, agriculture is a particular sector that requires skills and knowledge. UniCredit has followed the sector over time, also by virtue of the bank's transformation processes and various acquisitions, and since 2017 there has also been a specialized section on the sector, with a dedicated central structure and territorial agribusiness specialists, 140 managers throughout the country. This is not only for financial support but also to give advice to a sector that needs in-depth expertise. It is a fundamental sector for the economy, with segments that make us proud in the world, such as wine”.
And wine, but not only, is considered one of the most interesting agricultural sectors in the medium term.
“Rather than sectors - observes Simonato of Intesa San Paolo - I would speak of trends that will characterize agriculture in the next 5-10 years. The past year has shown, on the one hand, an acceleration of processes already in place, on the other hand, new trends imposed by the restrictions: consumers are coming out of the pandemic crisis more attentive to the issues of Made in Italy products, the typicality of the territory, health, environmental protection. The Italian agri-food chain is among the first in the world for quality and food safety, and entrepreneurs have long since started a path marked by sustainability, but there are margins to make our productions even greener in a circular perspective, through the rational use of natural resources and energy production on the farm. Precision agriculture can play a very important role in improving the yield and quality of agricultural production by using fewer inputs (water, energy, fertilizers), and improving the traceability of the process and therefore productivity. E-commerce will play an important role in the future: in a context in which the online sale of food products is destined to grow, this channel will play a central role in the development of the typical/local market, as long as it is accompanied by investments in infrastructure and digital”.
“The sectors with the greatest potential - adds Fontana from Credit Agricole - are wine, dairy (with the big DOPs) and meat breeding. On the contrary, in a medium-long term perspective, the cereals and fruit sectors are more delicate, since, due to marginality, they struggle to have competitive prices. A transversal theme is that of precision agriculture, which will make it possible to optimize production and restore margins to less performing sectors. Crédit Agricole Italia supports all market segments, with particular attention to organic and precision agriculture, including water regulation and water issues. Our activities are part of an ESG perspective, ensuring that the products and services offered on the market are concretely in line with the values of environmental, social and economic sustainability”.
“It is the entire agri-food chain that is interesting - explains Mucci of UniCredit - then there are excellences such as wine, but also the dairy, cereal, fruit and vegetable chains that have products that connote Made in Italy in the world. With great prospects, because there are many challenges to face: on the new CAP, on process and product innovation, on raising quality standards, and also in this there are many ad hoc financing tools”.
That the agricultural and agri-food sector is at the center of attention, therefore, there can be no doubt, as evidenced by the renewed specialization in this field of the large banks. But the question arises as to whether a sector often made up of small, family-run businesses has the tools and skills needed today to relate to the world of finance. “The bank-business relationship must be oriented towards transparency, dialogue - underlines Simonato - and continuous comparison, only in this way can companies face important moments in their business history with confidence. We see even small companies prepared and open to face important operations, such as aggregations, managerial growth and generational changeover. With reference to the wine sector, we have recently launched the project of the revolving pledge for Doc and Docg, a way to finance wine companies that need to age wine for a rather long time, and therefore can pledge stocks in exchange for a credit. It is a simple and adequate financing format for the times, which we have developed and technically perfected. We have great potential in this sector, starting with the presence of fully traceable supply chains, quality certifications and the great reputation of our products. We firmly believe in the skills of our producers and in the quality of our noble wines. Each company has its own business model and our role is to support them in reaching or consolidating what is the most suitable size for their market. Let's not forget that agribusiness is strongly integrated with tourism and culture that together represent a very important share of GDP”.
“The technical preparation of agricultural enterprises useful to access the various financial instruments is fundamental. However, these skills are sometimes lacking - observes Fontana - due to a lack of documentation dictated by legislation (farms do not have to produce a balance sheet), or limited strategic approach to management control. Agribusiness has a simplified or ordinary accounting; consequently, the lack is an issue linked to bio-economic processes. In the agricultural sector, there is no accounting monitoring system, which, when added to the limited specific technical skills, can generate a lack of demand for credit that is difficult to interpret. In light of this, on the one hand, there is an overabundant supply of credit from institutions, with numerous products, subsidized rates and all-in formulas, and on the other, an unclear demand from the agricultural sector, which is immature in terms of financial management. This is the reason why Crédit Agricole Italia is active in the sector with simple and specific products, and with an effective and maximally digital credit rating system. The Group has developed an App that detects the financial needs of producers and recreates a balance sheet with empirical information provided by them. This data is the starting point for granting credit and supporting the development of the sector”.
“In general - concludes Mucci - what we observe is that all companies are making a big effort to make a qualitative leap. It is essential that companies, also through our consultancy, have the tools to evaluate the various opportunities, and we have structured a path of assistance that accompanies both companies looking at international and domestic markets. Over time, the offer to the sector has become more sophisticated, the revolving pledge and the basket bond are clear signs, there are many ad hoc products, compared to the old agricultural credit methods”.

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