Avebe, the leading potato starch company in the Netherlands and largest industrial employer in the north of the country, again finds itself in difficult circumstances. Following several reorganisations aimed at controlling dwindling revenues, the company’s account currently holds insufficient funds to pay the potato suppliers. The farmers, who are also shareholders of the company, finally agreed to a rescue plan involving a measure of financial risk on their part.
Avebe is the leading potato starch company in the Netherlands and the biggest industrial employer in the north of the country. Once again, the company finds itself in challenging circumstances: in autumn 2005, some 400 jobs were at risk (NL0510102N); today, the company is facing acute financial difficulties.
The current account holds insufficient funds to pay the potato suppliers, with only 25 million euro of the 45 million euro needed. Fearing bankruptcy, the potato suppliers acted en masse after the October 2005 crisis and withdrew monies allocated to them. However, they have now agreed to suspend the payments due to them and are even willing to pay for their shares.
Financial rescue plan
At the general meeting in March 2006, the potato suppliers approved a financial rescue plan for the company. The farmers, who are also shareholders of Avebe, agreed to an arrangement whereby they will not be paid in full as suppliers but will instead accept four instalments or part payments over the year. Additionally, the farmers will be obliged to pay an extra contribution.
The suppliers accepted this rescue plan because Avebe reached an agreement with Rabobank under which the bank will advance payment for part of the company’s financial needs. The bank, in turn, has linked the agreement to the shareholders’ approval of the plan as a whole. Due to the bank’s involvement, the farmers – as shareholders – each have to pay an extra 50 euro for each share they own, which will be deposited in a high yield savings account. In addition, Avebe calculates its own interest rate on voluntary contributions.
Long-term investment
Nevertheless, the total amount needed of 40 million euro, which represents 400 euro per share, will take until 2009 to accumulate. Avebe will then have access to these funds in 2010. In fact, this means that many farmers will have to borrow money in order to meet their commitments as shareholders. As a result, the farmers involved will have to take a financial risk; however, they are confident that, if Rabobank requires such a financial effort of the company’s shareholders, it will not break their trust in the future.
Against this background of financial concession on the part of the shareholders, greater commitment to the company has been shown on the part of the employees. The central works council has committed itself to future reorganisations that are required to cut costs. The first step to achieve this involves a plan to cut 200 jobs, for which the works council has voted in favour. The shareholders consider this a positive gesture. The shared vision of the company’s future is based on both suppliers and staff working closely together.
New management board
The shareholders also feel positive about the new management board, which appears to be able to tackle efficiently the company’s current crisis. Conversely, previous boards tended to cover up the company’s financial troubles and were thus monitored closely by the banks. Although the current management board has a difficult task, its approach is clear for everybody involved.
Commentary
In the final analysis, since Avebe represents the only channel to offload their starch potatoes, the farmers as both suppliers and shareholders are only too aware that there are no other alternatives for them.
Marianne Grünell, Hugo Sinzheimer Institute (HSI)