Innovative Finance – Taking a Dairy Public
Welcome to my first blog post! With this newfound platform, I can share some of the crazy ideas that bounce around my head while I’m on the road. So get ready for a year of weird thoughts which I hope can drive interesting discussions. First up: innovative finance. (Disclaimer: this article is not financial or investing advice.)
In college, I got hooked on retail investing using a new gamified trading platform called Robinhood. You may have heard of this platform in association with the great GameStop and AMC “meme stock” debacle during the midst of the pandemic. While paging through Robinhood, I began to wonder whether there were any publicly traded dairy farms. And once I wondered about it, I had to know. So, I did some quick research and identified exactly zero publicly traded dairy farms. In fact, I found very few production agriculture companies on the New York Stock Exchange at all. Now this led me to another question: why not?
It might be helpful to understand why a business would want to “go public” in the first place. Generally, a business would pursue an initial public offering (IPO) as a way to generate capital for business growth. Businesses do this by working with an investment bank to sell shares (ownership of the company) to investors and to list their stock to trade on an exchange.
Why would a dairy farm ever do this? For the same reason any other business would: to generate capital. If financing the business through debt (loans and bonds) are exhausted or are too expensive, generating capital from an IPO could theoretically be an option.
If it’s an option, why hasn’t it happened yet? I am still working to determine this. I do not have many connections with investment bankers, so I haven’t been able to ask the experts. However, I do have a few hypotheses. One reason may be that the dairy industry has been successful in using loans as a means to fund expansion. This is due in part to the farm credit system and the general maturity and controlled-risk nature of the industry. When you can get a loan for 5% why would you sell equity when shareholders will demand 8%? Another reason may be there are only a limited number of dairy businesses that would be of the size or growth rate necessary to appeal to the public. The general rule of thumb is that a business needs $100 million or more in annual revenue to even consider an IPO. Thirdly, most people, including investment bankers and institutional investors, have no idea what agriculture is about. People aren’t about to invest billions of dollars in an industry with which they are unfamiliar.
I argue, however, that a dairy will go public in the future. Perhaps to grow the size of the dairy. Perhaps to vertically integrate into feed manufacturing or milk processing. Perhaps to grow a closer connection with consumers and individual investors. I believe the industry must innovate how we view business growth and the financing behind this growth in order to compete with the larger food and protein companies in the world. If Oatly Group, the oat milk company with bad commercials, has a market capitalization of $4.14 billion, then we need dairy businesses to compete on the same scale.