Danish stock market investors recently had the chance to see first hand how their money is being used to create a milk-producing enterprise operating in centre/east Europe, with future plans to add feed manufacturing to its range of activities. This opportunity came on a visit organised for them to a dairy farm in Slovakia. These investors were told the present size of the milking herd controlled by the company was 1350 cows but this would be just the start. Their investment vehicle wants to build one of Europe's largest dairy herds by moving to a total of 3400 cows.

The story began almost three years ago in Denmark, when a group of Danish businessmen with farming experience launched FirstFarms to make the most of the new investment opportunities being presented in Eastern Europe. The fledgling venture's opening move during 2005 involved buying an agribusiness in Slovakia known as Agra M. Located at Malacky, north of Bratislava, its crop and livestock farm was therefore close to a populated and industrialized area parallel to the Austrian border.

Farm venture goes public

Within 18 months the founders were acquiring a second Slovakian operation close by, named Mast Stupava after a nearby town. They were now in control of about 6300 hectares of Slovakia's farmland. At the end 2006, they went public. FirstFarms became the first venture of its type in Denmark to have its shares offered to the general public through a listing on the Copenhagen Stock Exchange.

The listing attracted over 2,600 individuals to buy shares, raising a capitalization of some 433 million Danish kroner (about US$80 million). Total net capital increased to DKK500 million (US$92.5 million) with the shareholdings added by the directors. Loans then doubled this amount, so FirstFarms, from the beginning of this year, was ready to invest DKK1 billion, or around US$185 million, in its East European farming activities.

However, it aimed from the outset to follow some strict rules on the projects it would contemplate. Only existing farms would be bought, for example, not so-called green-field developments. None of the farms purchased would involve an investment of more than 200 million Danish kroner or US$37 million. FirstFarms itself would take up to 50 percent of the equity, leaving the rest to be financed externally.

At launch time, managing director Kim Stokholm had commented, "FirstFarms expects to invest in 5 to 10 large East European farming companies over the next few years." The strategy would be to buy farms for modernization using Danish or other Western know-how and technology for higher production and profitability.


Returns for shareholders

Prospective shareholders have been offered the prospect of attractive returns. Right from the outset, the investment vehicle's declared financial goal after three to five years, was to obtain at least a 20 percent rate of annual pre-tax return on its equity stake through earnings from farming together with any capital gains on land and fixed assets.

That objective remains unchanged, but there has been an adjustment of the farming mix and of the geographic focus since the early days of the stock market launch. At that time, FirstFarms spoke of both adding to its dairy activities in Slovakia and starting in pork production. An expansion of activities also was indicated into the Ukraine, Romania and Russia. Since then, however, an option to buy a Ukrainian pig unit has not been taken up. Russian opportunities also have been set aside for the moment in favor of concentrating on Slovakian milk production and making a start in Romania.

The basic strategy of the directors is still to diversify both in type of farming and geographically, provided that the business is farming and the territory is on the eastern side of the European continent. "FirstFarms is an investment trust with the concept of optimizing the management of East European farms," Kim Stokholm insists. "We wanted to change the situation in which only a few people previously had been able to invest in Eastern Europe, even though it was clearly an attractive area for investment. FirstFarms invests in farming companies in Eastern Europe, in which favorable conditions for cost, production and sales create a basis for an on-going operating income. Our practical experience in Slovakia has shown that the concept works."

Developing feed capabilities

A more integrated approach may yet materialize. A spokesperson for FirstFarms has told Feed International that feed manufacturing is a possible part of further development. "At the moment, we do not make the feeds for our dairy cows," he remarked. "This is because they receive silage that is blended to a compressed feeding stuff by adding crushed rape, soybeans, minerals and vitamins. The blending is done in a mobile feeding wagon that also distributes the feed directly to the cows.

"As we expand our livestock production and eventually also set up in pork, however, we expect that we will probably face a need to produce feeds in our own mills."