Simpler and more disciplined co-op

The South Canterbury farmer, a director from 2014 to 2017, wants Fonterra to recognise and allocate capital to its core strengths.

“Fonterra needs to cease trying to be what we are not,” she says.

Guiney also wants Fonterra to accurately assess the risks.

“Fonterra’s balance sheet is not in a strong position in an environment where we are losing milk.

“We will need courage in our decisionmaking to protect our cooperative that is absolutely worth protecting and strengthening.

“We need an attitude to stewardship of owners’ capital, and a direction that restores the trust of our farmer-owners and the New Zealand public while enhancing our still positive reputation offshore.”

Guiney believes this can and must be done for farmers and for the NZ economy. 

“The fact that all my income is dependent on milk provides an owners’ interest in the long term and a discipline with capital we need more, not less of, in Fonterra.”

She is calling for proven performance in business and good judgement by governors. Farmer shareholders should be the judges of that, she adds.

“It is their capital and their future income that is at risk.  With a farmer shareholder mandate I can be part of a shift in strategy they will be able to support. 

“Protecting and enhancing the jewel in our crown, which is our ingredients and to a degree our food service business, will underpin a competitive milk price long term.

“A supply cooperative is nothing without the backing and trust of its farmer-owners. Fonterra was formed to serve those farmers, not the other way around.”

Guiney says she is guided by why, and for whom, Fonterra exists.

“It was formed to protect the long-term investment in farming of people who produce a perishable product that must be immediately collected and processed or its worthless . 

“They need to know their product price will be prioritised, which is why they choose to own their own supply chain – or become price takers. 

“Much of Fonterra’s recent investment activity has not been core to delivering that end, and has actually weakened Fonterra’s ability to invest in our core strengths; it has also weakened the faith of co-op members . The first task is to restore their faith that their interests can and will be served by their cooperative.”

Guiney also expects the new leadership team to act on non-core assets. She was encouraged by presentations at a shareholder meeting in Ashburton recently by both Hurrell and chief financial officer Marc Rivers.

“I would expect action on non-core assets in the near term if they are to be able to strengthen our position to invest where we have advantages,” Guiney says.

The tone of the leadership’s intentions encouraged her, she says. 

“They talked about a complete stocktake of where our capital is allocated, how it is delivering and whether it can continue to.

“The test of that sentiment is whether they are prepared to depart from existing strategy and exit loss-making investments even if they are part of ‘integrated strategy’. I got the impression from Miles there was a preparedness to do that.”

Guiney believes the poor financial results have arisen from years of poor investment decisions.

“I remain concerned as to whether there is acceptance that this result is not just a consequence of management and dividend decisions from one year; that this is chickens coming home to roost after years of allocation of capital outside our capability.