TAF passes political hurdle but more jumps yet to come

The Dairy Industry Restructuring Act Amendment Bill, embodying changes to legislation needed to facilitate TAF (trading among farmers), last week passed its final reading in Parliament.

Fonterra chairman Henry van der Heyden says the enactment of DIRA changes is another milestone as the co-op moves towards TAF. The Fonterra board is still working towards a November launch, dependent on market conditions.

 “While the decision to implement TAF was always one for our farmer shareholders, we appreciate the Government’s ongoing support for Fonterra and the role it has played in enabling the evolution of our capital structure,” he says.

But Federated Farmers Dairy chairman Willy Leferink says the Government failing to put Fonterra’s preferred constitutional safeguards into statute leaves a sour taste.

“It would have shown bipartisanship to have worked with the Opposition to place statutory limits on the size of the shareholders fund, the number of units any farmer can place in the fund and the number of dividends any one investor can hold. 

“Given the Government is bending over backwards over its mixed-ownership model for state assets, I would have thought this a wise step.”

The fund, which is part of the TAF plan, would allow outside investors to buy the dividend rights of shares deposited by farmers.

Fonterra itself has proposed limiting the size of that fund to 20% (from 25%) of the co-op’s share value but the motion fell just short of the minimum 75% required at its special meeting in June. The motion will be tabled again in December at Fonterra’s annual meeting.

The Labour Party tried to put the restriction on fund size to into legislation in a bid to protect farmer control of the co-op. Labour’s agriculture spokesman Damien O’Connor proposed a 23% cap on the fund but this was rejected by the Government.

Leferink believes the Government missed an opportunity to ease the concerns of a large chunk of Fonterra’s shareholding.

 “As it stands, we are seemingly in a holding pattern until Fonterra’s annual meeting and constitutional vote.  But if farmers go to sleep now, they really risk invoking the 2010 ‘B’ constitution.  This ‘B’ constitution sits there like some ghost of Christmases past and if it is ever implemented, it could open up Fonterra like a tin of sardines.”

Leferink says the annual meeting vote on the fund size “needs a massive turnout to smash the 75% barrier needed”.

Carter says there has been considerable debate among Fonterra shareholders on the merits of TAF. But after the shareholder vote and DIRA amendments approved by Parliament, it’s time to move forward, he says.

“Under the legislation, farmers will retain the ability to freely enter Fonterra or exit to competing dairy processors and be assured of receiving a fair value for their shares,” Carter says.