Genevieve_NGUYEN___Fanny_LEPAGE___Francois_PURSEIGLE

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Genevieve_NGUYEN___Fanny_LEPAGE___Francois_PURSEIGLE

EXTERNAL EQUITY CAPITAL AND THEEVOLUTION OF FARMING STRUCTURES Fanny Lepage, Research, University of Lavalfanny.lepage.1@ulaval.caGeneviève Nguyen, Associate Professor in Economics, INP-ENSA Toulousenguyen@ensat.frFrançois Purseigle, Professor in Sociology, INP-ENSA Toulousepurseigl@ensat.frDECEMBER 2015


OUTLINE 1. Context and current issues related to farm funding 2. Objectives of the study on external equity capital(EEC) 3. Result 1- EEC funding schemes4. Result 2 – Ideal-types of financial governance 5. Result 3 – Understanding the emergence of EEC 6. Conclusion Capitaux externes en agriculture – Lepage, Nguyen et Purseigle 2


Research questions Ø Hierarchy of funding options • 1. Own equity ; 2. Debt ; 3. External equity capital (EEC)Ø Definition of EEC :1.• At the difference of OE, EEC involve shareholders who are not farmersnor their family members, but investors who are « external » to thefarm Ø Questions : • How can we caracterize and explain the entrance of EEC in the Frenchfarms capital?ó Any relationship between new forms of fundings andnew forms of farming structures? Capitaux externes en agriculture – Lepage, Nguyen et Purseigle4


About the study on External Equity Capital (EEC) 2.• Objectives of the study • Identification of the suppliers (investors) / beneficiaries • Caracterization of the different schemes of farm funding by EEC • Construction of ideal-types of financial governance • Analysis of the determinants of the entrance of EEC in the farms’ capital andof its impact on the farms’ structures & governance • Conceptual framework • Agency theory and Transaction Cost theory ó Study of control mechanisms andincentive systems adapted to farm funding by EEC • Methodology of data collection and analysis (new phenomena) • 20 in-depth interview of financial actors • 80 interviews of farmers, among whom 20 have relied on EEC Capitaux externes en agriculture – Lepage, Nguyen et Purseigle5


3.Result 1Characterization of EEC funding schemes


Criteria used to characterize 3 types of EEC schemes Sources Objectives SourcesLegalstatus3.Family andfriendsEthicalinvestmentLendingLeasingIndividual farmsGAEC(mostly land)Local & knowninvestorsFamilyassetsSCEA and othercorporatestatusNon local &unknowninvestorsReturn onequityEquityShareholdingMinority (50%)Full ownershipComplexHoldingcorporatestatus (SCEA +SARL + GFA)Capitaux externes en agriculture – Lepage, Nguyen et Purseigle7


SCHEME A. EEC Solidarity Finance TERRE DE LIENS, businessangels, other crowfunding…Sources Objectives SourcesLegalstatusOrganic farms 3.Family andfriendsEthicalinvestmentLendingLeasingIndividual farmsGAEC(mostly land)Local & knowninvestorsFamilyassetsSCEA and othercorporatestatusNon local &unknowninvestorsReturn onequityEquityShareholdingMinority (50%)Full ownershipComplexHoldingcorporatestatus (SCEA +SARL + GFA)Capitaux externes en agriculture – Lepage, Nguyen et Purseigle8


SCHEME B. EEC funding by local actors Farmers, local publicstructures, cooperativesSources Objectives SourcesLegalstatus3.Family andfriendsEthicalinvestmentLendingLeasingIndividual farmsGAEC(mostly land)Local & knowninvestorsNon local &unknowninvestorsFamilyassetsReturn onequityEquityShareholdingMinority (50%)Full ownershipSCEA and othercorporatestatusGrain / Wine / Animal breeding farms ComplexHoldingcorporatestatus (SCEA +SARL + GFA)Capitaux externes en agriculture – Lepage, Nguyen et Purseigle9


SCHEME C. EEC funding by non local actors Food multinational Cie.(Euricom,…), investment funds(Sodica, Labeliance Invest)Investment funds(OFPFRANCETERR’AGRI)Sources Objectives SourcesLegalstatusGrain farms 3.Family andfriendsEthicalinvestmentLendingLeasingIndividual farmsGAECLocal & knowninvestorsNon local &unknowninvestorsFamilyassetsReturn onequityCapitaux externes en agriculture – Lepage, Nguyen et Purseigle(mostly land)EquityShareholdingMinority (50%)Full ownershipSCEA and othercorporatestatusGrain / Wine / Vegetables under green house / Chicken & pig farms ComplexHoldingcorporatestatus (SCEA +SARL + GFA)10


EEC Funding Chain Start-upcapitalTake-off capital Risk Capital Development capital3.SIZENo supplyNo supplyStart of the business Profitable business TIMECapitaux externes en agriculture – Lepage, Nguyen et Purseigle11


Result 2In relation to EEC funding schemes B & C,three ideal-types of financial governance,associated with « firm » agriculture 4.Capitaux externes en agriculture – Lepage, Nguyen et Purseigle12


How to manage risks ? Building up control& incentive mechanisms within thegovernance scheme Max level ofbanking debtsEquity shareholding :4.Complexity ofthe structureRISKS :Moral hazard,economicuncertainty…ó Selection of partnersó Participation to thegovernance (technical,financial, economic)Innovativecharacteristicsof projectsHigh level ofinvestmentó Specific risk sharingrules (return oninvestment, exitconditions…) &management strategies(ex-ante / ex-post)Capitaux externes en agriculture – Lepage, Nguyen et Purseigle13


IDEAL-TYPE 1. FAMILY CAPITALISM TYPE OF EQUITY SHAREHOLDINGGOVERNANCE Holding with 29 shareholders (mostly family members)GIE approvisionnement (input supplyenterprise)SA matériel agricole(machinery Ltd Cie)4.Groupementd’employeurs(labor collectivestructure)Corporate structure with 2 * 3 “family” farms/SCEA1GFA(1) /SCEA2/SCEA3/SCEA4GFA(2) /SCEA5/SCEA6SARL conditionnement et commercialisation de légumes4 ème gamme (Limited Cie for packaging and marketingready-to-eat vegetables)N.B. « Holding » companies represent 29 % of French farms in 2010,among which 90% are « family » farms.Capitaux externes en agriculture – Lepage, Nguyen et Purseigle14


IDEAL-TYPE 2a. ENTREPREURIAL TYPE OF EQUITY SHAREHOLDINGGOVERNANCE 4.Investor AInvestor BMixed cereal-cowfarm ASociété de commanditepar actionsInvestor CInvestor DEquity shareholdingReturn on equity (2,5%)Capitaux externes en agriculture – Lepage, Nguyen et Purseigle15


IDEAL-TYPE 2b. ENTREPRENEURIAL TYPE OF EQUITYSHAREHOLDING GOVERNANCE Farm ACereal farm DFarm C4.Farm BFarm work operatorFarm DComplete delegation of the farm management to an operatorEquity shareholding (from minority to majority shareholding)Capitaux externes en agriculture – Lepage, Nguyen et Purseigle16


IDEAL-TYPE 3. EQUITY SHAREHOLDING GOVERNANCE WITH PUREFINANCIAL RATIONALITY 4.S.A. Limited Cie Xspecialized in theproduction of fertilizersJoint-venturepartnership withinput suppliers(research andmarketing)EquityshareholdingS.A.R.L.Limited Cie Yproducer oforganicfertilizerGroupementfoncier A(land collectiveownership structure)Corporate dairyfarm A (S.C.E.A)Holding CieGroupementfoncier BCorporate dairyfarm B (S.C.E.A)Groupement d’employeurs(labor collective structure)Capitaux externes en agriculture – Lepage, Nguyen et Purseigle17


Result 3. Understanding the emergence anddevelopment of EEC: some hypotheses5.Capitaux externes en agriculture – Lepage, Nguyen et Purseigle18


Exogenous determinants:Δ demography of farmersΔ pubic policies (more quality and environmental norms)Δ financial marketΔ relative price of land5.Endogenous processes:Disappearance of the informal institutions (family)Evolution of individual preferences andrelationships to strategic assetsDisconnection between the propertyof strategic assets and theirmanagementNew forms offarmgovernancethat allow fornew forms offinancialgovernanceCapitaux externes en agriculture – Lepage, Nguyen et Purseigle19

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