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.
“They’ve just got to stop spending for a while and consolidate a bit,” Murray Beach, Marlborough, told Dairy News. “I feel they’re doing a lot of spending while we’re not getting a lot of money.”
Beach says his remit isn’t a knee-jerk reaction to this year’s low forecast. Rather, it reflects two poor years, followed by one good, and now a “really bad year.”
“We should be getting more money from Fonterra than the other milk companies are paying their suppliers but we’re not.”
Beach’s remit, resolution 7 in Fonterra’s notice of annual meeting document, says overseas investment and New Zealand development spending should be put on hold when the payout is below $7/kgMS.
“They’ve got to think about the farms which aren’t going to make it. There are going to be a lot of farms sold up at the end of this season.”
And it’s not just farmers: staff and local economies are already feeling the hit, he adds. “We’ve already had to put one worker off.”
With 130 cows producing about 40,000kgMS off his farm at Havelock, $5/kgMS means “there’s not a lot of income” to meet ever-rising costs.
Beach says he’s not totally against Fonterra’s development plans, particularly those in New Zealand, but believes the cooperative should reduce debt (see sidebar) before embarking on more expansion which is effectively at farmers’ expense.
Asked if Fonterra is ‘living beyond its means’, he says: “That’s what the bank manager would tell us!”
Fonterra released its notice of annual meeting, including Beach’s resolution, to NZX on October 17. It includes a letter from chairman John Wilson which refers to all resolutions but Beach’s.
In the explanatory notes to resolutions, a statement that the “board unanimously does not support [Beach’s] proposal and recommends that you vote against it” is highlighted in bold, the only bold text used in the document other than headings and remuneration figures.
Beach says the board’s recommendation “isn’t cricket”. “Voters should be able to make up their own minds.”
He also says postal voting on such a resolution before the issue is debated at the annual meeting “doesn’t seem very democratic.” “I’ve been asked by [Fonterra] management if I want to go to speak at the meeting out of courtesy but by then 80% will have already voted.”
The notice also includes a shareholders council recommendation to vote against Beach’s proposal, saying the council debated the resolution at its September meeting and unanimously voted not to support it.
