Fonterra plans increase farmers' flexibility

Dairy giant Fonterra has provided the details of a five-point plan it says will give its farmer-shareholders more flexibility in managing their farm businesses.

Fonterra said the aim was to support and boost milk production to further the co-operative's growth strategy.

The plan's five points include a bonus issue of one additional Fonterra share or unit for every 40 held on April 12, 2013.

The bonus issue would automatically provide all shareholders and unit-holders with free additional shares and units on April 24.

"Based on current production levels, the bonus issue means around 95 per cent of farmer shareholders will not need to buy additional shares next season to match any increase in production," Fonterra chairman John Wilson said.

Also, there would be a further supply offer enabling shareholders to sell the economic rights of some of their shares into the Fonterra Shareholders' Fund.

There would also be a dividend reinvestment plan enabling shareholders and unit-holders to elect to receive dividends in the form of shares or units.

There would be flexible contracts to give new farmers and farmers in expansion mode more time and options to fully back their milk production with Fonterra shares. And there would be new opportunities for winter milk supply contracts in the upper North Island to fuel Fonterra's new long-life (ultra-heat-treated) milk processing plant to be built at Waitoa in the Waikato.

Wilson said the co-operative was committed to providing flexibility to help farmers manage their shareholdings. "Milk is the life-blood of the co-operative. For Fonterra to grow, we need our farmers to grow.

"With a stable capital base [from Trading Among Farmers], we now have certainty and can offer farmers more ways to grow milk supply and give them more time to share up."

Chief executive Theo Spierings said the initiatives would benefit existing farmer-shareholders, make life easier for those lifting production, and encourage new entrants to join the co-operative.

"Unit-holders who have chosen to invest in Fonterra's continuing performance will also benefit, not only through the bonus issue but also the effort we are making to keep driving forward on our business strategy."

Spierings said the initiatives were planned before the launch of the Fonterra Shareholders' Market and Fonterra Shareholders' Fund, and were referred to in the offer documents.

"Now is the right time to implement them," he said.

In a separate announcement, Fonterra confirmed its forecast farm-gate milk price for the current season of $5.50 per kilogram of milksolids.

The payout forecast range for the 2012-2013 season is confirmed at $5.90 to $6 before retentions for a fully shared-up farmer, with the forecast earnings per share range remaining at 40 to 50 cents.

Spierings said the forecast took into account the slowing effect of dry weather on milk production, anticipation that global dairy prices would move higher in the second half of the season, and the exchange rate. However, further significant strengthening of the kiwi against the United States dollar might hurt the payout, Spierings said.

Fairfax Media