Visiting Economic Consultant Calls Offer for Farm Credit Bank a Wake-Up Call
BY CHRIS CLAYTON | WORLD-HERALD STAFF WRITER
Printed in the Omaha World Herald Business Section on October 14, 2003
COUNCIL BLUFFS - Executives at Farm Credit Services of America have kept mum about
many of the details surrounding the ag lender's sale to Rabobank, but the management
team brought in economics professor David Kohl three weeks ago to talk about the deal.
Kohl, a professor emeritus at Virginia Tech, lectures at seminars around North
America, including a lending technology conference Wednesday in Council Bluffs
sponsored by software company ECI. Lately, one of Kohl's topics has been "Rabobank:
the 10,000 pound gorilla."
"Folks, it can be your worst nightmare or your best opportunity," Kohl told about 120
agriculture bankers.
Kohl informally polled those attending the conference, which indicated 34 percent of
the bankers supported the sale while 46 percent did not. Twenty percent were
undecided.
Responding to another question, even fewer bankers - 24 percent - supported Farm
Credit Services of America teaming up with AgStar of Minneapolis, which would create
the single largest lender in the Farm Credit System.
Kohl said he learned in a three-hour discussion with Jack Webster, president of Farm
Credit Services of America, that it initiated talks with Rabobank after a long-term
planning session that concluded it needed to be better positioned to take advantage of
the globalization of agriculture.
"This is the first of many shots that will be fired at U.S. financial and agricultural
lending over the next several years," Kohl said of the deal.
Just as U.S. agriculture companies established a presence overseas, more foreign
competitors will look to come here, Kohl said. The sale is a marriage between Webster,
who has been a leader in technology in the Farm Credit System, and Rabobank, which
likes technology and is a fierce competitor, Kohl said.
Webster and his board probably will be ostracized by others in the Farm Credit system,
but they were only looking to the future of U.S. agriculture with their decision, Kohl
said.
"That is one of the risks Jack and his management team had to take, and sometimes when
you get out there ahead of the game, you get shot at."
The Rabobank bid should be a wake-up call to agriculture that producers and banks need
to confront global competition, he said.
Although Rabobank has been in the United States for two decades, buying FCSA puts
Rabobank at the center of agriculture lending for states that account for the nation's
largest volume of hog production, red meat slaughter, corn and soybeans, all major
export commodities.
Regardless whether the sale goes through, Rabobank will become a growing player in
U.S. agriculture lending, Kohl said.
"This transaction gives them a platform to do that and in the breadbasket of America,"
Kohl said of the Farm Credit Service purchase. "Don't be surprised if they come after
some other large and midtier banks."
Kohl said he doesn't think the majority of FCSA's 59,000 or so customers are
Rabobank's true target audience. Rabobank is more interested in bigger producers
looking to broaden their operations into other states or countries, he said.
Community banks and other ag lenders are wise to worry about Rabobank swooping in and
stealing customers, Kohl said, and it may lure away loan officers and other key
employees, as well.
Rabobank pays well and rewards productive loan officers, he said. "And they are going
to come in and raid your employees."
If Rabobank is successful, other large banks probably will look to other key pieces of
the Farm Credit System as takeover fodder, he said.
Although Rabobank has cited its willingness to stick it out in Australia during four
recent years of drought, Kohl notes that Australia's agricultural output doesn't come
anywhere near that of FCSA's four-territory states of Iowa, Nebraska, South Dakota and
Wyoming.
"Will this bank or any international bank that comes in stay in there through thick
and thin? That's one of the questions that ought to be asked," he said. "What if the
worst happens?"
In the past several weeks, Kohl said, people on both sides have tried to get him to
take a side, but he refused to do so Wednesday.
"I can see the benefit of either way: if it goes through, or if AgStar comes in," Kohl
said. "The one thing that I will say is it will not stay the same."
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