Why Fonterra accepted defeat in the dairy aisle
OPINION: Fonterra's sale of its consumer dairy business to Lactalis is a clear sign of the co-operative’s failure to compete in the branded consumer market.
So says Labour's Primary Industry spokesperson Damien O'Connor.
"The capital restructure of Fonterra which established Trading Among Farmers created an inevitable tension between the milk price and dividend payout," says O'Connor.
Outside investors have been demanding a better return on their unit investments, he says.
"While analysts and investors may praise the outcome, farmers are waking up to the long term consequences of the new structure in tight times.
"Most will still be entitled to the dividend stream from their co-operative shares but the pressure on many to sell the shares and keep their farm viable will lead to larger differentials over time in returns to suppliers of milk to Fonterra."
Increasing the value of the dividend is also unlikely to be of benefit to the nearly 4000 sharemilkers, who will also miss out on the payment, says O'Connor.
"Moving more product into value added income streams should be increasingly beneficial for the company but should not come at the expense of lower milk payments to supplying shareholders.
"Milk production for Fonterra was down 4% last year. There's concern that over time Fonterra will face a supply risk and struggle to fill the huge processing facilities it has built. If growth in milk production coincides with ongoing competitive foreign investment in farms and processing plants, the dairy industry will end up in an unprofitable meat industry conundrum."
O'Connor says the half year results may be hailed as a success by Fonterra but many dairy farmers will struggle to share the celebration.
