Aligning agribanking strategies with trends of the future: Swedbank 14 September 2021

Erik Engelbrekts, an Agriculture and Forestry analyst at Swedbank, spoke with Efma’s Lukas Dzuroska about how the bank’s proximity to their agricultural customers means they are at the forefront of financing new technology and production processes. 
Agricultural banking provides crucial capital and services to the sector that underpins our economies. Farms and businesses face growing challenges keeping people fed, incorporating the newest technologies, and adapting to our changing climate. Banks are playing an important role in these efforts. For this interview series, we spoke with agricultural banking experts from around the globe to get their perspective on the main issues and more.

In your opinion, what role can banks play in the sustainable agriculture movement?
Transforming into more sustainable food and agricultural production will require investments, both in terms of capital and in terms of knowledge and competence. Banks with high competence in sustainable agriculture should be able to contribute on both fronts. Society will expect food production to move towards more sustainable production and pressure will come from both customers, national authorities, and the EU. New technology will enter the market to enable this, while new business models and management processes will also support this transition. 
The way banks lend money has to be aligned with this. Our way of assessing risk, evaluating cash flow, and assessing asset values needs to be aligned to make sure that capital is allocated in the right way to the right customers and the right projects. This is important to assure the transition to more sustainable food production and to assure that we have profitable customers in the future. In addition, it will be important to bank profitability and overall risk exposure. The transition pressure from society and authorities will also be on the financial sector and banks to maintain a lending portfolio that is sustainable. 

Can you briefly give us a picture of agricultural banking’s place in your structure/strategy?

Agriculture banking belongs to the corporate management segment at Swedbank. Together with the Savings Banks, 205 specialists with a local presence serve our customers on a daily basis. As the market leader, Swedbank will continue to grow with the market. To maintain a low risk profile, Swedbank will grow with financially sound customers and projects and with a focus on sustainable investments from an economic, social, and climate/environmental perspective.

Agriculture is made up of so much more than just farms. How does your bank approach the ag supply chain and ag tech companies (digital agriculture ecosystem)?

At Swedbank we are close to our customers and customer needs and that includes customers throughout the complete value chain for food, from farm to fork. Today, we have an organization that works with start-ups which also includes ag tech companies. This part of the organization has the competence to make an early judgement and evaluate business ideas from a growth potential and sustainable perspective. There are also sector specialists involved in the process. Just like many other tasks this is a never-ending learning process, and we develop this process constantly.   

Could you briefly describe your top best practices/projects in agri banking amid technological revolution (digitization, AI, data)?

Working closely with customers provides a good understanding about the customer and the project itself. Our top customers that are at the forefront of the industry give us an opportunity to learn about new technology and production processes. 

One example is manure management. Manure has a dry matter content of typically 5-10%. Hence, separating nutrients and dry matter from water reduces the need for storage capacity, the amount of transportation is reduced, and the farmer will simultaneously save on costs and help the climate. In addition, nutrients can be applied with more accuracy to the growing crop which increases efficiency and reduces risk for leakage. This is a technology already available, often used by municipals and cities for cleaning wastewater. However, it has not been used on farms in Sweden before and it is generally most applicable for large scale farmers given the size of the investment. This is a project where we gained a lot of new knowledge and where we have been able to contribute to a sustainable and profitable investment for our customer.

Technology development in agriculture is fast and becoming more and more advanced. Together with already available biological information, new technology creates large amounts of data that can be used for improved profitability, enhanced sustainability, animal welfare, and more. Together with the farming industry, Swedbank wants to contribute to this development. Through knowledge and information sharing we can contribute with valuable insight regarding financials, sustainability, and more. In a big data infrastructure using AI we can get valuable information in an efficient way about our customers which enable us to assess risk, monitor development in terms of production, and more.  

Swedish agriculture has taken large steps in automation and digitalization using new technology like GPS steering on field machinery, sensors for precision agriculture and robots to replace manual work like milking and cleaning. This fuel additional data collection in to the previous described project and, if used correctly, the additional potential from these kinds of technology is still very large.

What are the key priorities in your agriculture value proposition in the upcoming 2-3 years? 

To be relevant to our customers we will have to continue to learn. The industry is developing fast and as farms gets bigger and more advanced, their financial needs grow and become more complex. Adapting production to a changed climate and adapting to more sustainable production will be key drivers for the industry going forward. Our priority is to be the most educated bank regarding sustainable investments in agriculture, both to support and educate our customers and society in the transition but also to reduce our own risk. 

If you want to join the Efma Digital Transformation community, you can reach out to the community manager, Dorota Valkova at dorota@efma.com.