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.
This follows the passing of legislation in Parliament last night allowing changes to the co-operative’s constitution.
The new capital structure is intended to make it easier for new farmers to join the co-operative and for existing farmers to remain, by allowing greater flexibility in the level of investment required.
Chairman Peter McBride says flexible shareholding will support Fonterra’s strategy by helping to maintain a sustainable milk supply, protecting farmer ownership and control, and supporting a stable balance sheet.
“Our co-operative is already making good progress towards our 2030 strategic goals, and we believe moving to our Flexible Shareholding structure will help ensure that we stay on track,” says McBride.
He says the passing of the relevant legislation in Parliament provides farmer owners the clarity they have been wanting.
“This milestone gives us the confidence to put in place the transition to our flexible shareholding structure.
“We would like to take this opportunity to thank Minister O’Connor (Agriculture Minister Damien O’Connor) and the Government for passing the legislation through under urgency and giving the co-op’s shareholders this much needed certainty.”
The decision to implement flexible shareholding in late March was made based on a number of considerations.
“We believe late March is the best date for implementation because it avoids our share trading black-out period associated with the co-op’s interim results,” says McbRIDE.
“The black-out period would impact our ability to support liquidity in the market via the transitional buyback, which is part of the package of liquidity measures of up to $300 million that we have previously announced.
“It also gives shareholders time to fully digest the detailed information we will be sending through ahead of the implementation date, and to seek advice from their financial advisors. We are mindful that it’s a busy time on farm, and that advisors may not be available over the summer holidays.”
O’Connor says the changes approved by Parliament strikes a balance of supporting Fonterra’s shareholder mandate while also ensuring long-term sustainability, fair pricing in the market for farmers’ milk, and value creation in our dairy sector.
“This will set the right foundations for the overall long-term success of our dairy sector, the prosperity of our rural communities, and help strengthen New Zealand’s economic security at a time of global uncertainty.
“The past two decades have seen new entrants bring valuable innovation and healthy competition to the sector. These have led to the creation of new high-value products, initiatives to boost sustainability, and the creation of jobs throughout New Zealand, and we want to see this important work continue,” says O’Connor.
Key changes approved will:
- improve the transparency and robustness of Fonterra’s base milk price-setting arrangements by increasing the number of Ministerial nominees to Fonterra’s Milk Price Panel from one to two.
- require the Chair of Fonterra’s Milk Price Panel to be fully independent of Fonterra and appointed only with the approval of the Minister.
- give the Commerce Commission the power to issue binding directions to Fonterra on matters arising from its reviews of Fonterra’s Milk Price Manual and base milk price calculation.
- support liquidity and transparency in the trade of Fonterra shares in its restricted farmer-only market by, for example, requiring Fonterra to engage designated market maker(s) and make independent financial markets analysis of its performance accessible to farmers and unit holders.
- support Fonterra’s ability to access internal capital for investment in innovation, by requiring Fonterra to maintain and publish a dividend and retentions policy.
