Fonterra's plan aims to foil raiders

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The fear of overseas raiders preying on New Zealand's dairy industry is behind moves by Fonterra to reduce its exposure to dissatisfied shareholders.

The dairy giant has unveiled the third step of a plan to stop millions of dollars washing in and out of its books as farmer-shareholders buy and sell shares. Instead, those shares could be traded among shareholders daily, or the farmers could decide to leave it to Fonterra to buy or sell shares for them at the end of the season.

This would put an end to the so-called redemption risk that Fonterra says is holding it back.

Chairman Sir Henry van der Heyden said yesterday the fear of not being able to feed growing populations was forcing countries to buy large tracts of land in other nations to grow their own food. The New Zealand dairy industry with its efficient pasture-to-milk system had been targeted by these countries in the last four to five years.

He named Japan, Singapore and Russia and was clearly referring to China when he added that the risk was now heightened. "Fonterra is not uncomfortable with competition, but there has to be a level playing field," he said.

"Some of these entities are well-resourced, well capitalised and will take a long-term strategic view, even if it is unsustainable in the short-term. They will have the ability to pay the farmer a bloody good milk price."

However, what had been shown in other countries was that this would eventually be to the farmers' detriment, he said.

Sir Henry's statement came as Chinese firm Natural Dairy Holdings, which is bidding for 29 Crafar family dairy farms in receivership, hit out at "xenophobic" comments. Spokesman Bill Ralston revealed the firm intended to invest $1.5 billion on the farms, to spend more money buying other farms in both islands and a further $100b building a dairy plant.

He lashed out at "hysterical" media and a "concerted and well orchestrated campaign of denigration" since the company began exploring the prospect of buying in New Zealand.

Sir Henry said that Fonterra, which was funded by farmers based on the amount of milksolids they produced, would have to find the capital to redeem the shares of farmers who were leaving it.

The proposals, called "Trading Among Farmers", would reduce that risk by doing away with redemption, and allowing farmers to buy and sell shares among themselves.

A "shareholders fund" would be set up to help farmers buy new shares – or retain shares they would otherwise have to sell – by paying shareholders for the right to get dividends and the gains or losses from any change in value of those shares.

This would enable farmer-shareholders to free up cash. It would be particularly useful at times of hardship, such as a drought.

The fund would raise the money it needed to pay farmers by selling investment units to "friendly investors" such as sharemilkers and retired farmers, with investment institutions and the public also being able to participate.

Chief executive Andrew Ferrier was at pains to stress that the fund did not give any element of ownership in Fonterra to non-farmer investors. Farmers could buy back their dividend entitlements and any change in the share price when they wanted to, at the market price.

Outside investors would not have voting rights in Fonterra, and the number of shares in the co-operative would remain at 120 per cent of the number of kilograms of milksolids produced.

- © Fairfax NZ News