4.3 Calculation of the Capitalization Rate Using Bond
Yields Plus Risk Premium
This method, presented in part 3.3, estimates the capitalization
or actualization rate through this equation:
A: Actualization rate Rf: Risk free rate
â: Beta
Rp: Risk premium for the French market. It has to be increased
for the micro-capitalization premium
The risk-free rate of the 10 years Governments bonds average
is 3.00% (Source French central bank, average of monthly
average from July 2011 to June 2012). It is interesting to notice that this
rate reached an average of 2.569 % in June 2012, and it has never been so low
(Dobson, 2012). The 12 month average will surely decrease in the following
months, but on the long term it cannot be considered that this rate will remain
at this low level.
Regarding the Beta, the tax authority recommends 0.8
to 1.1 for the food-processing and agricultural sector (Direction
Générale des Impots, 2006). On their side, Fama & Fench
(Laur, 2010) consider that the beta for the agricultural sector is 0.81
(time frame 1929-2009). For shorter periods of time, the agricultural
sector beta remains around 0.70 to 0.91 (Laur, 2010). In our calculation the
value of 0.8 was retained because it both answers to the
necessity to cope with the recommendation of the tax authority and the
necessity to be easy to used for consultants (these information are easy to
access).
The Risk premium is composed with two elements:
- The risk premium for the French market: from the literature
review, we found a range of [3.8% : 5.0%] (see part 2.1.2)
- The small or micro-cap premium: from the literature review, we
found a range of [4.12% : 7.74%] (see part 2.2.2).
Therefore the actualization rate has to be contained in
the following range:
The results obtained with this method are really higher than
what consultants use normally. The benefit of this fact is the
following: consultants are not exposed to tax adjustment, because the
administration cannot consider their results as hidden donation. The
administration itself would retain a lower tax base for its calculations (as
the overall price of the company is reduced by a higher actualization rate).
However, this method is only an approach based on secondary data, and need to
be compared with other approaches such as the WACC.
4.4 Approach of the WACC for Farming in Isère
4.4.1 Calculation of the Betas
Table 23 presents the results of the calculation of the betas
for the grain farming specialization. Over the 24 companies concerned, the
average beta obtained is 0.804, really close to the 0.8 to 1.1 proposed by the
tax authorities. However, it is important to notice that this beta is a
weighted average for the companies operating in grain and oilseed, with an
average market capitalization of 843 M$ (around 693 M€ for 2012). The
average total assets of the farms concerned in our study is 279 000 €.
Another element is worth noticing: the company size. The Average
grain company in Western Europe has a market capitalization of 714 M$, compared
to 1 997 M$ for North America.
|
Member Name
|
Total Mkt Cap ($)
|
adjusted beta
|
R2
|
SE beta
|
â weigthed average
|
|
SOCFIN
|
440 363 745
|
1.106
|
0.425
|
0.134
|
|
|
ODET
|
1 990 689 644
|
0.622
|
0.176
|
0.093
|
|
|
SIPEF NV
|
550 707 800
|
0.729
|
0.152
|
0.139
|
|
|
SOCFINASIA
|
598 033 371
|
0.419
|
0.010
|
0.126
|
|
|
ANGLO-EAST PLNTS
|
395 519 023
|
0.574
|
0.056
|
0.147
|
|
|
SOCFINAF
|
383 174 522
|
0.626
|
0.100
|
0.131
|
|
|
REA HOLDINGS
|
224 078 524
|
0.641
|
0.054
|
0.191
|
|
|
ADECOAGRO SA
|
834 190 505
|
1.220
|
0.246
|
0.289
|
|
|
M P EVANS GROUP
|
331 529 995
|
0.517
|
0.048
|
0.123
|
|
|
CONTINENTAL FARM
|
47 960 000
|
0.289
|
0.003
|
0.173
|
|
|
NARBOROUGH PLTNS
|
14 030 701
|
0.352
|
0.000
|
0.137
|
|
|
5 810 277 829
|
|
|
0.144*
|
0,722
|
|
ADECOAGRO SA
|
834 190 505
|
1.220
|
0.246
|
0.289
|
|
|
TRIGON AGRI A/S
|
106 214 029
|
0.870
|
0.175
|
0.174
|
|
|
BLACK EARTH-SDR
|
129 321 577
|
1.017
|
0.217
|
0.194
|
|
|
SOCFINASIA
|
598 033 371
|
0.419
|
0.010
|
0.126
|
|
|
SOCFIN
|
440 363 745
|
0.499
|
0.020
|
0.182
|
|
|
BONIFICA FERR
|
190 783 713
|
0.574
|
0.010
|
0.353
|
|
|
CONTINENTAL FARM
|
47 960 000
|
0.289
|
0.003
|
0.173
|
|
|
AGRICOLE DE CRAU
|
29 847 642
|
-0.166
|
0.008
|
1.226
|
|
|
BOLLORE
|
4 053 210 291
|
0.785
|
0.344
|
0.093
|
|
|
6 429 924 873
|
|
|
0.145*
|
0,780
|
|
ANDERSONS INC
|
663 031 853
|
1.132
|
0.377
|
0.153
|
|
|
VITERRA INC
|
4 573 354 378
|
0.834
|
0.142
|
0.184
|
|
|
SANDERSON FARMS
|
928 292 250
|
0.501
|
0.023
|
0.162
|
|
|
SEABOARD CORP
|
1 826 143 352
|
1.106
|
0.425
|
0.134
|
|
|
7 990 821 833
|
|
|
0.167*
|
0.882
|
|
20 231 024 535
|
|
|
0.154*
|
0.804
|
industry
oilseed farming in w europe
oilseed farming in w europe
oilseed farming in w europe
oilseed farming in w europe
oilseed farming in w europe
oilseed farming in w europe
oilseed farming in w europe
oilseed farming in w europe
oilseed farming in w europe
oilseed farming in w europe
oilseed farming in w europe
Total oilseed farming in WE
grain western europe
grain western europe
grain western europe
grain western europe
grain western europe
grain western europe
grain western europe
grain western europe
grain western europe
Total grain western europe
grain north america
grain north america
grain north america
grain north america
Total grain north america
TOTAL grain & Oilseed
Table 23: Calculation of the Beta for the grain
specialization (oilseed is considered as grain farming in France). Source:
Bloomberg
*weighted average of the SE for each company
For the cattle ranching, presented in Table 24, we see that
there is more difference between Europe and North America. The average beta is
really higher for the four European companies, with a beta close to 1. Once
more, the range of references proposed by the Tax authorities corresponds to
what is observed in Bloomberg. It is worth noticing the difference of the size
of the companies between the two continents, but in the opposite direction with
the grain specialization. European companies are more important, with an
average market capitalization of 319 M$ compared with an average of 68 M$ for
North America. However, the market capitalization of the listed companies
operating in cattle ranching and farming is smaller than the companies
operating in grain.
|
Member Name
|
Total Mkt Cap ($)
|
adjusted beta
|
R2
|
SE beta
|
â weigthed average
|
|
YASHENG GROUP
|
71 968 101
|
0.517
|
0.007
|
0.331
|
|
|
ALICO INC
|
133 115 937
|
0.929
|
0.259
|
0.150
|
|
|
CANAL CAPITAL CO
|
39 135
|
-2.083
|
0.018
|
3.955
|
|
|
205 123 173
|
|
|
0.214*
|
0.784
|
|
NATIONAL MILK
|
3 871 194
|
0.274
|
0.011
|
0.085
|
|
|
ADECOAGRO SA
|
834 190 504
|
1.222
|
0.246
|
0.289
|
|
|
TRIGON AGRI A/S
|
106 214 028
|
0.870
|
0.175
|
0.174
|
|
|
M P EVANS GROUP
|
331 529 994
|
0.517
|
0.048
|
0.123
|
|
|
1 275 805 720
|
|
|
0.236*
|
1.007
|
|
1 480 928 893
|
|
|
0.233*
|
0.976
|
industry
cattle ranching and farming NA
cattle ranching and farming
NA
cattle ranching and farming NA
Total cattle ranching and farming NA
cattle ranching and farming WE cattle ranching and farming WE
cattle ranching and farming WE cattle ranching and farming WE
Total cattle ranching and farming WE
TOTAL cattle ranching
Table 24: Calculation of the beta for the cattle ranching
and farming specialization. Source: Bloomberg
*weighted average of the SE of each companies
Table 25 presents the companies specialized in poultry and
fruits and vegetables. These
specializations are not studied in this paper,
because the number of farms concerned is lower in
Isère. However, some regions are more concerned with these
types of farms, and some consultants will find useful to work on these beta.
|
Member Name
|
Total Mkt Cap ($)
|
adjusted beta
|
R2
|
SE beta
|
â weigthed average
|
|
CAL-MAINE FOODS
|
|
715 100 119
|
0.814
|
0.238
|
0.128
|
|
|
SANDERSON FARMS
|
|
928 292 250
|
0.501
|
0.023
|
0.162
|
|
|
1
|
643 392 369
|
|
|
0.147*
|
0.637
|
|
LDC
|
|
677 446 072
|
0.512
|
0.083
|
0.088
|
|
|
|
677 446 072
|
|
|
0.088*
|
0.512
|
|
DOLE FOOD CO INC
|
|
633 782 418
|
1.081
|
0.254
|
0.191
|
|
|
VILLAGE FARMS IN
|
|
27 137 995
|
0.479
|
0.014
|
0.182
|
|
|
FRESH DEL MONTE
|
1
|
106 613 718
|
0.881
|
0.401
|
0.100
|
|
|
ALICO INC
|
|
133 115 937
|
0.929
|
0.259
|
0.150
|
|
|
1
|
900 650 068
|
|
|
0.135*
|
0.945
|
|
CAMPOSOL HOLDING
|
|
84 172 880
|
0.558
|
0.043
|
0.159
|
|
|
CONTINENTAL FARM
|
|
47 960 000
|
0.289
|
0.003
|
0.173
|
|
|
BONIFICA FERR
|
|
190 783 713
|
0.574
|
0.010
|
0.353
|
|
|
|
322 916 593
|
|
|
0.276*
|
0.528
|
industry
poultry north america
poultry north america
Total poultry north america
poultry western europe
Total poultry western europe
fruits&vegetables NA fruits&vegetables NA
fruits&vegetables NA fruits&vegetables NA
Total fruits&vegetables NA
fruits&vegetables WE
fruits&vegetables
WE
fruits&vegetables WE
Total fruits&vegetables WE
Table 25: Calculation of the beta for poultry and fruits
& vegetables Source: Bloomberg
* weighted average of the SE of each company
Table 26 presents a summary of the beta for the companies
specialized in agriculture for each specialization. It is interesting to notice
that the average market capitalization of North American companies is bigger
than the Western European ones, but their beta is higher. This element is not
consistent with what can be found in the literature about the relationship
between the market size of a company and its beta. Therefore, we can conclude
that the risk must be lower for farming in Western Europe than in North
America.
|
industry
|
|
|
# of companies Average Mkt
Cap ($)
|
SE beta* â weigthed
average
|
TOTAL grain & Oilseed western Europe and North
America
TOTAL cattle ranching western Europe and North
America
TOTAL Western Europe
Total oilseed farming in WE Total grain western europe Total
grain north america
Total poultry North America
Total poultry Western Europe
Total fruits&vegetables North America Total
fruits&vegetables Western Europe
|
11
9
4
24
3
4
7
2
1
4
3
28
|
1
|
528 714 997 842
68 318 211
821 677 475 107
518
|
207 436 705 959
374
951
561
696 446 162 638
441
|
075 097 458 356
391
430
270
185 072 517 864
825
|
0.144 0.145 0.167 0.154
0.214
0.236
0.169
0.147 0.088 0.135 0.276
0.153
|
Total cattle ranching and farming NA
Total cattle
ranching and farming WE
0.722
0.780
0.882
0.804
0.784
1.007
0.976
0.637
0.512
0.945
0.528
0.758
13 903 075 957 0.160 0.856
41 804 179 869 0.156 0.802
TOTAL North America
TOTAL North America + Western Europe
Table 26: Summary of the beta for the different
specialization and regions Source: Bloomberg
* weighted average of the SE of each company
| 
