The Rabobank is not the largest bank in the world, but it is one of the few financial institutes to have the ‘Triple A-status’. This status indicates the financial stability of the bank. The more A's, the better and three is the maximum. A three star bank like that surely cannot collapse.
It is not only land, which is about 80% of The Netherlands, which makes the Rabobank so solid. The financings by the bank in the agricultural sector, which involve an amount of more than 15 billion Euros, are almost risk free. The risks of lending to farmers are eliminated by the bank via the European agricultural policy. The farmer gets a set minimum price for his products. The prefix 'minimum' is somewhat misleading here, however. These are prices, which on average are about 30% higher than the world market prices. In other words: a European farmer has a guaranteed income which is about 30% higher than that of the non-European counterpart. To protect him against the much cheaper producing competition, import taxes are imposed at the Dutch borders. Producers from outside of Europe wishing to bring their products to the European market are charged extra for this. Those prices are so high per unit of production, that there is no chance of making a profit. This is why, relatively speaking, so few products produced outside of Europe are to be found on the supermarket shelves.
Those products produced outside of Europe that we do find in the supermarkets, are products which we cannot produce ourselves in The Netherlands. Sometimes products from outside Europe are allowed in without import taxes, but only in certain periods of the year. These are the periods in which it is expensive to produce the items here. Think of beans from Egypt, Senegal, or India or tomatoes from Morocco during the winter months.
This protective construction for farmers enables the agricultural sector to be a very interesting market for banks. Interest and repayments are, after all guaranteed by Brussels, or the European tax payer. This financial certainty is the driving force behind the unstoppable growth in agricultural products after the Second World War. Riskless farming and riskless financing, with the European subsidy reserves as safety net, allow for a growth in products in regions to which, from a climatic point of view, are actually not so suited.
As a farmer in Europe, you would need to be a very poor “entrepreneur” indeed to go bankrupt. Even better: it is impossible for European farmers to go bankrupt. The bank sees to this. As soon as a farmer develops financial difficulties, the management of the local Rabobank visits him for a good talk. An offer is made to the farmer concerned that he cannot refuse. He can choose between stopping and retaining a nice sum of money in order to start something else. In the former case, this is voluntary, in the latter case it is not voluntary and the bank helps him along.
An entrepreneur on the brink of bankruptcy is often ignored by his environment. This is not so in the farming world. There, a neighbor who is forced to stop is a gift from the heavens because he forms practically the sole possibility for growth. The Dutch agricultural sector has seized up. A production limitation has been introduced in order to keep the agricultural policy under control. A system of permits has been set up, whereby the amounts a farmer may produce of a certain product have been determined. A farmer wishing to expand does not in the first place need land or cows, but a permit to produce. In dairy farming that is known as a quota and those production rights are worth a lot of money. For the right to produce a kilo of milk, depending on the demand and supply, will cost between 1,5 and 2 Euros. On average, the Dutch dairy farmer has a quota of about 600,000 kilo. This production right, acquired free of charge in 1984, represents a value of 1,2 million Euros per farmer against the current applicable prices. In this way, the majority of dairy farmers are millionaires on paper.
The capital of Europe is alternatively Brussels and Strasbourg. But whilst the European Parliament and the European Commission travel back and forth between the two cities in order to manage Europe, the actual decisions are taken in an entirely different place: there where the head offices of the European agricultural banks are located. In The Netherlands that is Utrecht, where the head office of the Rabobank is situated, nearby the Central Station.
More than half of the money to be distributed in Europe goes to agriculture. The Treaty of Rome, the legal basis for the current European Union, guarantees that farmers must have an income which can compete with other economic sectors. This cannot be disputed, unless the basis for the European Union once again becomes the subject of discussion. At the time it seemed a good idea. Now half of the European budget is frozen, because nobody can touch it, not even in the newly written Treaty, which can hardly be called a European Constitution. During the negotiations on the new Treaty the member states carefully avoided the area of agriculture.
Europe, or the national governments may make as many plans for agriculture as they like, the final decision as to whether they can be enforced is not taken in the European Parliament nor in the national parliaments. This is done in the offices of higher management of the agricultural banks.
Although the Dutch Government’s plans to reduce pig herds have failed to go through court for the time being, very many pig farmers have been forced to stop. This process is not the result of democratic decision-making in Parliament, but is steered by the accountants at the Rabobank. Their prognoses, of course guided by the interests of the bank - there is nothing wrong with that - show that there is no future for the “small farmer” in The Netherlands. And so the bank pushes the sector in the direction of further expansion. The smaller farmers are gently forced to stop, and the larger farmers are equally gently forced to expand. This increase in scale makes it possible to further industralise the agricultural process than it is already and this leads to mega businesses. Pig “flats”, according to researchers at the agricultural university of Wageningen, are far more animal friendly and thus better than the present stalls.
To govern is to look ahead, but in the case of the agricultural sector the authorities can do little more than with hindsight affirm that parts of the sector again, encouraged by the Rabobanks of this world, have evolved in an undesirable direction. Reversing this process is a difficult task that, even if it is feasible, will cost hundreds of millions in compensation claims. At least, this is what the farmers think.