Wednesday, 08 December 2021 11:55

Editorial: It's decision time!

Written by  Staff Reporters
Fonterra shareholders will this week decide the future of the co-op. Fonterra shareholders will this week decide the future of the co-op.

OPINION: Fonterra shareholders will this week decide the future shape of their co-operative.

The message for shareholders is clear: ignore the looming challenges facing the co-operative at your own peril.

Fonterra is at a crossroads. Milk supply in New Zealand is declining or will remain flat at best, thanks to environmental pressures, new regulations and alternative land uses.

At the same time, competition for New Zealand is showing no signs of slowing. Two more independent milk plants are going up in the Waikato, the heart of New Zealand dairy country.

Fonterra has signalled a change in strategy – moving out of overseas milk pools and focusing on adding value to NZ milk. But it needs to change the way it does business with farmer shareholders or face around 12-20% milk decline by 2030, based on its own modelling.

The capital structure isn’t the only thing that needs to change. The co-operative has to lift its performance and increase farmer returns, both through the milk price and dividends.

At the same time, the environmental credentials of both the co-operative and its farmers must continue to improve.

For the past few weeks Fonterra farmers have been mulling over the proposed flexible shareholding.

An important issue for shareholders is the future performance of Fonterra. Management have laid their strategy on the table for 2030: a 40-50% increase in operating profit from FY21 and, with the reduced interest from having less debt, this should translate into an approximately 75% increase in earnings, steadily increasing dividends to around 40-45c/share.

Management are also promising a group return on capital of 9-10%, up from 6.6% in 2021.

Through planned divestments and improved earnings, they expect a return of about $1 billion to shareholders by FY24, and around $2 billion of additional capital available for a mix of investment in further growth and return to shareholders.

Fonterra’s strategy and ability to achieve these targets depends on a sustainable supply of New Zealand milk and in turn a capital structure that enables this.

Fonterra must be an attractive option to farmers, who have a choice on where their milk goes.

That’s why the proposed capital structure gives all farmers a level of flexible shareholding, which is critical to supporting farmers to join or stay with the co-op.

Fonterra farmers need to give a strong mandate to its board and management by approving the new capital structure this week.

A strong vote will also make it easier for Fonterra’s board to get the Government onside and pass the necessary regulatory changes.

More like this

Winston Peters questions Fonterra divestment plan

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.

Editorial: A new era for two co-ops

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.

Should co-op sell its consumer brands?

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.

Featured

'One more push' to eliminate FE

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.

Winston Peters questions Fonterra divestment plan

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.

National

Machinery & Products

New McHale terra drive axle option

Well-known for its Fusion baler wrapper combination, Irish manufacturer McHale has launched an interesting option at the recent Irish Ploughing…

Amazone unveils flagship spreader

With the price of fertiliser still significantly higher than 2024, there is an increased onus on ensuring its spread accurately at…

» Latest Print Issues Online

Milking It

Tough times

OPINION: Dairy industry players are also falling by the wayside as the economic downturn bites around the country.

MSA triumph

OPINION: Methane Science Accord, a farmer-led organisation advocating for zero tax on ruminant methane, will be quietly celebrating its first…

» Connect with Dairy News

» eNewsletter

Subscribe to our weekly newsletter