Chinese strategy
OPINION: Fonterra may have sold its dairy farms in China but the appetite for collaboration with the country remains strong.
FONTERRA'S PROPOSED 'shareholders fund' will control up to 8% of Fonterra worth up to $500 million. The fund is a solution to a hole in Fonterra's balance sheet caused by redemption risk.
When a farmer leaves Fonterra, they redeem their equity in the cooperative and that sum must follow within 30 working days of the season ending. This hole is why two years ago, some 90% of Fonterra's shareholder-suppliers voted to change the cooperative's capital structure. While the proposed shareholders fund was light on detail at the time, it was proposed as a balance sheet 'shock absorber'. The idea is the fund will buy shares off farmers, with the dividend income enticing 'mum and dad' investors to buy 'units' in the fund. Fonterra gets a $500m buffer and unit holders get a safe investment.
Two years on and Federated Farmers Dairy council has asked Fonterra's board to consider a second vote. This request wasn't made lightly, but if, as we're told, there's overwhelming shareholder support for the proposal, a second vote will deliver a strong endorsement.
Two-years after the 2010 vote, farmers contacting me are uneasy that details about the fund remain sketchy. Comments from the Prime Minister on how he'd like to see our cooperative on the stock exchange doesn't help things. This is our company and Fonterra's future must only be decided by those who own it.
As my extended family is in Holland, their experience is relevant; the old Friesland/Coberco in what is now RoyalFrieslandCampina started down a similar path but stopped. It stopped because ex-farming 'dry' shareholders started to dominate decision-making.
It seems the investment outlook of ex-farmers changes when they exchange the farm for a dividend.
As proposed, the unit holders in Fonterra's shareholder fund won't get a say in Fonterra in exchange for their cash. However, it's a brave person who'll place hand on heart and say the fund will only ever be 8% of Fonterra. For two seasons in the past decade, dairy farmers have done it tough financially.
Imagine during a tough season, like 2008-9 and with creditors knocking at their door, a 'white knight' fund offered to buy shares from farmers. It would be hard to resist. When times are tough, constitutional blockages can be overcome even if the fund's expansion came with strings attached. While Fonterra can promise safeguards to protect its 'wet' farmer-shareholders, time and economic circumstance could erode that. Then of course, someone may take a legal challenge throwing everything up in the air.
Some say the shareholders fund will help turn urban investors into farming cheerleaders. Pragmatists argue the number of individual investors in the fund will be tiny. Those investment types in print and on radio after all say the fund would be good news for KiwiSaver and the New Zealand Super Fund.
Compared to the number of corporate train wrecks littering New Zealand's history, Fonterra hasn't done too bad being owned by farmers. That's why we want the proposed shareholders fund put
to farmers.
Much in TAF makes sense, but the fund stands out like the proverbial on a bull. The current review of the Dairy Industry Restructuring Act actually hangs on Fonterra having a shareholders fund. The best course is to decouple the proposed fund from TAF and have an open discussion with farmer-shareholders. Relying on a 2010 vote for what was conceptual at best, belies the fact Fonterra is in good financial health. Time is on our side and we advise Fonterra's board to take it.
• Willy Leferink is Federated Farmers Dairy chairman.
A governance group has been formed, following extensive sector consultation, to implement the recommendations from the Industry Working Group's (IWG) final report and is said to be forming a 'road map' for improving New Zealand's animal genetic gain system.
Free workshops focused on managing risk in sharefarming got underway last week.
Annual farmer gathering, the South Island Dairy Event (SIDE), is set to make history as it heads to Timaru for the first time.
Installing 400 solar panels at their Taranaki piggery and cropping operation will have significant environmental, financial and animal welfare benefits for the Stanley family.
WoolWorks, New Zealand’s largest wool-scouring company, has partnered with the Lions Club of Riverton to help raise money for much-needed repairs to the Southland town’s swimming pool.
OPINION: The dairy industry will be a major beneficiary of a new free trade deal between NZ and the Gulf Co-operation Council (GCC).
OPINION: Fonterra may have sold its dairy farms in China but the appetite for collaboration with the country remains strong.
OPINION: The Listener's latest piece on winter grazing among Southland dairy farmers leaves much to be desired.