European grain and oilseed cooperatives will need to increase scale and control costs to meet future challenges and profit from new opportunities, according to a Rabobank report on 18 November.

Historically, cooperatives had played a strong role in the European grain and oilseed industry, the report said.

However, they needed to undergo key changes in order to keep performing at the same level, according to the report.

Rabobank said there would be a number of challenges in the next decade that were likely to have an impact on how farmers operated and also how they purchased inputs and produced outputs, which would then affect grain and oilseed cooperatives.

“To begin with, the European Union’s farm-to-fork strategy and Green Deal will pose challenges, but also weather and climate volatility will have an effect on grain and oilseed yields and, consequently, on harvest volumes,” Vito Martielli, senior analyst, grains & oilseeds, at Rabobank, said.

“And the growing competition and pressure in the supply chain will force cooperatives to take new and/or stronger strategic directions.”

Future opportunities included the growth potential for grain exports to Africa and the rising demand for grain and oilseeds as an ingredient for alternative proteins, the report said.

Rabobank said its analysis showed that cooperatives were often “highly leveraged” and did not generate sufficient cash flow to execute major transactions, such as large acquisitions.

“Mergers are one likely option that allows cooperatives to grow in size, to continue the consolidation process without necessarily taking on more debt and, at the same time, to realise synergy by cutting costs as well as investing in digitalisation and sustainability,” Martielli said.

To overcome financial challenges, cooperatives would need to find ways to open up to external investors but this would, in some cases, require a change in their legal structure, Rabobank said.

The report also said most cooperatives would need to further modernise their governance structures.

“They can do this by introducing member councils… to streamline the decision-making process and by increasing gender inclusion and the number of professionals who can help to set new strategic directions, improve digitalisation, and/or implement organisational changes in the supply chain,” Martielli said.