increase font size
Fonterra Co-operative Council chairman James Barron says the report should assure farmers that the proposal is in the long term best interest of both the co-op and its suppliers.
Fonterra's proposed capital structure will allow the co-operative to compete with other processors based on its milk price and overall performance.
That's according to a report from financial advisers Northington Partners, commissioned by the Fonterra Co-operative Council.
Fonterra is facing declining milk supply and competition for milk is rising with new processing plants in the pipeline.
The report says declining milk supply on Fonterra's long-term performance do not appear to be major.
However, if no changes are made to the current capital structure there will need to be meaningful changes to the strategy and scale of the co-op.
"Maintaining a sustainable milk supply and avoiding these negative consequences would clearly be beneficial for Fonterra and its suppliers," it says.
The report also states that maintaining a sustainable milk supply will also depend on several other key drivers, including the impact of increasing environmental restrictions on total production from the sector.
There are some downsides to the proposed solution.
Capping the size of the Fonterra Shareholders' Fund (FSF) and delinking the FSF from the Fonterra Shareholders' Market will likely have a negative impact on the pricing and liquidity of Fonterra shares.
Farmers looking to exit the co-operative and realise their investment in Fonterra shares in the short-medium term are most exposed to these potential issues, the report says.
"All else being equal, the exit price is also likely to be lower than would be possible under the status quo."
Council chairman James Barron says the report has been sent to farmer shareholders who will vote on the new capital structure on December 9.
"Northington's comments should provide a level of reassurance to farmers that this proposal is in the long term best interest of both the co-op and its suppliers," Barron told Dairy News.
Fonterra's board sent out the proposed flexible shareholding capital structure to its farmer shareholders this month. The proposal needs 75% support to pass.
It also requires the Government to approve changes to the Dairy Industry Restructuring Act (DIRA).
Agriculture Minister Damien O'Connor says the proposal cannot be approved by the Government in its current state.
But Fonterra chairman Peter McBride is confident that an agreement can be reached with the Government once the proposal is passed by shareholders.
He says doing nothing to arrest the slide in Fonterra milk supply is not an option.
McBride says Fonterra's supply depends on the actions it takes with the capital structure, performance, productivity and sustainability.
"If we do nothing, we are likely to see around a 12-20% decline by 2030 based on the milk supply scenarios we have modelled.
"Protecting a strong New Zealand farmer-owned co-operative of scale is in all our interests."
He notes that being a strong co-op ensures it pays the highest sustainable milk price.
Foreign Affairs Minister Winston Peters has joined the debate around the proposed sale of Fonterra’s consumer and related businesses, demanding answers from the co-operative around its milk supply deal with the buyer, Lactalis.
OPINION: Farmer shareholders of two of New Zealand's largest co-operatives have an important decision to make this month and what they decide could change the landscape of the dairy and meat sectors in New Zealand.
OPINION: As CEO of the Dairy Board in the 1980s I was fortunate to work with a team of experienced and capable executives who made most of the brand investments that created the international consumer business Fonterra inherited. Soprole in Chile was the largest, but there were more than 20 countries where consumer marketing companies were established and Anchor and other brands were successfully launched.
Fonterra has delivered a fifth straight year of record organic milk price for farmer suppliers.
Fonterra says favourable weather conditions supporting pasture growth is boosting milk production.
Like many manufacturers around the world, European agricultural machinery and tractor manufacturers are currently operating in a difficult market environment. But they are heading to the world’s largest agricultural machinery event in Hanover next month with a degree of cautious optimism.
Established in 2021, the John Deere Technician of the Year Awards champion the important contribution parts and service technicians make to the Australian and New Zealand agriculture, construction and forestry industries.
Beef + Lamb New Zealand (B+LNZ) is calling on farmers from all regions to take part in the final season of the Sheep Poo Study aiming to build a clearer picture of how facial eczema (FE) affects farms across New Zealand.
New Zealand is closer to eradicating bovine TB than ever before, but possums remain a threat, says Beef + Lamb New Zealand.
Foreign Affairs Minister Winston Peters has joined the debate around the proposed sale of Fonterra’s consumer and related businesses, demanding answers from the co-operative around its milk supply deal with the buyer, Lactalis.
The ACT Party says media reports that global dairy giant Nestle has withdrawn from the Dairy Methane Action Alliance shows why New Zealand needs to rethink its approach to climate.
