Rumblings from within Fonterra's ranks will surprise some farmers, as strong dairy prices and further dairy conversions all point to an optimistic future.
But the very core and history of industry structure is the co-operative model, which some see as being watered down under the proposed Trading Among Farmer s model. Control by those that produce the product is what the hard core co-operative followers believe is the bottom line, and some see selling some shares to outside investors is the 'thin edge of the wedge' resulting in a loss of control to the prinicples that started this successful company.
To continue to grow this company with extra capital, and get security from capital flight when times are tough, is where these changes are directed, but at the cost of some shareholding control.
Do you share the concerns of some members of the Shareholders council as to the Trading Among Farmers scheme that will create "two masters" that have conflicting profit interests? Share your views on this issue.
Fonterra chairman Sir Henry van der Heyden says political opportunism is behind new shareholder questions threatening to destabilise the company's plan to introduce share trading among farmers with a restricted public listing reports Stuff.The giant dairy co-operative's 10,500 farmers last year voted overwhelmingly in support of Trading Among Farmers (TAF), which would offer listed dividend-carrying units in farmer shares to outside investors, while farmers retained control and ownership of the shares.
Meanwhile, several official inquiries have been launched into domestic milk markets and Fonterra's milk price setting in response to public and industry complaints about high dairy prices. Out of what Sir Henry calls "the vacuum" created by the delay have emerged fresh concerns about the security of continued farmer control of the $16 billion revenue company, particularly among South Island farmers. He is facing the possibility his second attempt to lead a major capital restructure of Fonterra may fail. While he attributed a looming election for a farmer director vacancy on the board, and the general election, for creating unrest, it is understood a proposed recent fundamental change to TAF by his board has fuelled it.
It is understood the board is proposing that the title to farmer-owned shares be given to TAF's proposed independent "custodian" body, rattling farmers who voted for TAF on the condition they retained 100 per cent control and ownership of the world's biggest dairy exporter.Infighting within shareholder watchdog the Shareholders' Council is also understood to be undermining TAF, with last year's council blamed for agreeing to a TAF deal which allowed the board to make changes.
Shareholders' Council chairman Simon Couper agreed some farmers had developed concerns since last year's vote, and that there were concerns within the council itself. But the company was in the middle of a process and final details of TAF had yet to be seen, so it was too early to make a judgment call, he said.Sir Henry said while critics claimed TAF would never work because Fonterra would have "two masters" – farmers wanting the highest possible milk price, and unit holders requiring a strong dividend – farmers would be the only master.
He said Government inquiries into Fonterra's milk price setting, whose transparency is pivotal to acceptance of TAF by farmers and investors, were driven by struggling rival processors."We are going to show good strong profits above the value of milk, while competitors have struggled to have a profit above the milk price."
3 Comments
No one had a problem with Dairy Equities acquiring dividend streams from shares. Are there not parallels with that model and TAF?
Any proposal that farmers do not own their shares will see the TAF proposal fail - that is sacrosant to shareholders. I'm not aware of the proposal alluded to in the article above so will have to read further in to it.
The most noise we hear on TAF seems to come from Fonterra's competitors. They seem to be terrified of Fonterra farmers being able to 'sell' their shares and still continue to supply Fonterra. Makes one wonder how robust the competitors business models are.
I know of farmers who are keen to buy additional shares but haven't met one yet that wants to sell. Though I am sure there will be those that do.
Hi CO good point about Dairy Equities. However with what I've been reading from respected and well intentioned farmers TAF, and weather it succeeds or fails will be critical to the future of Fonterra as a supplier co-operative. The time has come for Fonterra to make a definite choice on it's destiny, and I hope it returns to it's co-operative roots. The need for capital to grow offshore and guard against redemption is rhetorical spin straight out of short sighted, self serving financial institutions, which I fear has affected Fonterras governance. Dairy co-ops have survived for over 100 years, why change something that aint broke?
I have an open mind on TAF. The devil will be in the detail.
There are farmers who are being told by their banks to sell their Fonterra shares to reduce debt - even though they are currently in profit and cashflow positive. As almost none of the competitors are taking on new supply the farmer selling shares under distress, could potentially be screwed by the corporate contract.
There are non Fonterra shareholders effectively 'owning' shares as proposed under TAF, now. They have lent shareholders (usually family/friends) funds in order to buy dry shares and receive the dividends from such purchases.
I understand that there were some Dairy Equity 'shares' that were not taken back by the farmers. These shares are likely to be owned under a similar setup to Dairy Equities. I believe that Dairy Equities offered to assist the Fonterra Board in regards to TAF but it was declined.
The key issue I see for TAF is around the number of shares needing to be traded to make outside investors interested. Dairy Equities couldn't get enough farmers to 'sell' their shares - what is going to make it so different this time? Is the board being held to ransom by the pollies over this? It is no secret that NZ Inc would like a slice of the pie.
It would be better if it was brought in by stages - set up a trading platform for shareholders only and take it from there once all the bugs were ironed out, if more capital is needed.
Fonterra seems to be following a path of JVs off shore rather than outright ownership which reduces the need for capital to grow. IMO some current directors may have conflicts of interest in regards to Fonterra ownership of offshore farms - China excepted.
Will be interesting to see what, if any, change of direction the new CEO makes.
Outcomes from the raw milk review currently underway I believe will also be significant to Fonterra.
Dairy co-ops have survived for over 100 years, why change something that aint broke?
How long have you being farming Omnologo? Just curious as many co-ops were on the brink of failure in the 1990's. The formation of Fontera is what has fundamentally saved the co-operative nature of the dairy industry. The fact that around 90% of farmers choose to be part of it says something about where farmers see their future success. I can't see Fonterra suppliers giving that away now. :-)
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