Thursday, 23 September 2021 09:21

Key changes to Fonterra capital structure

Written by  Sudesh Kissun
Fonterra has presented a revised capital structure proposal. Fonterra has presented a revised capital structure proposal.

Fonterra’s board has presented a revised capital structure proposal, containing key changes sought by farmer shareholders.

The proposal will be discussed with farmers in the coming weeks before the board decides whether to proceed to a shareholder vote.

Key changes include setting minimum shareholding at 33% of milk supply – around 1 share for every 3kgMS compared to current compulsory 1 share for 1kgMS.

The co-op says this is intended to strike a balance between providing a meaningful level of flexibility for those who need it, which is critical to maintaining a sustainable milk supply, while ensuring all farmers having some capital-backed supply

Another change is around maximum shareholding requirement: proposal is to set it at 4x milk supply, compared to the current 2x milk supply. This is intended to strike a balance between supporting liquidity in the farmer-only market – by ensuring more capacity for farmers to buy shares from those who want to sell – while avoiding significant concentration of ownership.

Fonterra’s ownership will be available for more farmers including sharemilkers, contract milkers and farm lessors.

The co-op says this is intended to recognise their connection to Fonterra, provide a pathway for future farmer owners and increase the number of potential participants in the farmer-only market by around 4,000 to support liquidity.

Exit provisions would be extended and entry provisions would be eased. Existing shareholders would have up to 15 seasons initially to exit, reducing annually to 10 seasons, which would also support liquidity and give these farmers greater choice about how long they retain an investment in the Co-operative. Meanwhile any new entrants would have up to six seasons to achieve the 33% minimum shareholding requirement. This compares to a standard three seasons for both entry and exit under the current structure.

Fonterra chairman Peter McBride says changing the co-operative’s capital structure is a critical decision and not something the Board and senior management are taking lightly.

“We are confident that this proposal would support the sustainable supply of New Zealand milk that our long-term strategy relies on.

“One enables the other, and together they give our Co-operative the potential to deliver the competitive returns that will continue to support our families’ livelihoods from this generation to the next.

“Our future success relies on our ability to maintain a sustainable milk supply in an increasingly competitive environment, and one that is rapidly changing due to factors such as environmental pressures, new regulations and alternative land uses.

“We see total New Zealand milk supply as likely to decline, and flat at best. Our share of that decline depends on the actions we take with our capital structure, performance, productivity and sustainability.  

“If we do nothing, we are likely to see around 12-20% decline by 2030 based on the scenarios we have modelled.”

More like this

Cynical politics

OPINION: There is zero chance that someone who joined Fonterra as a lobbyist, then served as a general manager of Fonterra's nutrient management programme, and sat on the board of Export NZ, a division of lobbyist group Business New Zealand, doesn't understand that local butter (and milk and cheese) prices are set by the international commodity price.

Why is butter so expensive in New Zealand? Fonterra explains

Kiwis love their butter, and that's great because New Zealand produces some of the best butter in the world. But when the price of butter goes up, it's tough for some, particularly when many other grocery staples have also gone up and the heat goes on co-operative Fonterra, the country's main butter maker. Here the co-op explains why butter prices are so high right now.

Featured

T&G Global returns to profitability

Fresh produce grower and exporter T&G Global has overturned last year’s dismal performance by reporting a half year net profit of $1.7 million.

Rural backlash over plan to cut police staffing

Federated Farmers North Canterbury president Bex Green says two public meetings held this week should have made it loud and clear that rural families and businesses are concerned about proposed staffing changes at NZ Police.

DairyNZ thanks farm staff

August 6 marks Farm Worker Appreciation Day, a moment to recognise the dedication and hard mahi of dairy farm workers across Aotearoa - and DairyNZ is taking the opportunity to celebrate the skilled teams working on its two research farms.

Editorial: Getting RMA settings right

OPINION: The Government has been seeking industry feedback on its proposed amendments to a range of Resource Management Act (RMA) national direction instruments.

National

Machinery & Products

» Latest Print Issues Online

Milking It

Fatberg

OPINION: Sydney has a $12 million milk disposal problem.

Synlait snag

OPINION: Canterbury milk processor Synlait's recovery seems to have hit another snag.

» Connect with Dairy News

» eNewsletter

Subscribe to our weekly newsletter