Farmers back new structure

Manawatu-Rangitikei Federated Farmers says the vote in favour of Fonterra's new capital structure was very clear-cut, which is an excellent recommendation from farmers.

At just under 90 per cent, it was a decisive statement for the future of Fonterra, said vice-president Andrew Hoggard.

He is a dairy farmer at Kiwitea, in northern Manawatu.

Fonterra needed 75 per cent of its farmer shareholders to vote in favour of its proposal to allow shareholders to hold shares up to 120 per cent of their milk production.

As a result, it can offer its 10,500 shareholders the opportunity from next month to buy 20 per cent more shares not linked to milk production, opening Fonterra's capital-starved coffers for a potential injection of up to $900 million a year.

Approval for step two means Fonterra shares, now valued as though they are market-tradeable, can be independently revalued to properly reflect their restricted status. For the market, these are simply housekeeping matters.

Mr Hoggard said the initial two steps would help with redemption.

Fonterra said millions of dollars washed in and out of the cooperative as farmers left or milk production was reduced and shares were sold back (redeemed).

"There is now an incentive to leave your money in the co-op if your production drops one year. Previously, you only got the dividend paid on your production."

Mr Hoggard said the reality was that there should always have been a payout based on each farmer's investment in Fonterra.

Fonterra has proposed four steps, and stages one and two have been passed. Stage three of the proposed restructuring is for share trading among farmers. This will tackle the risk to Fonterra's balance sheet of having a redeemable share structure linked to milk supply.

Mr Hoggard said he believed that although the first two steps were a start to fixing the redemption risk, step three would definitely sort it out. For a number of farmers, it could pose some questions and concerns.

"Gaining some extra hypothetical value from our investment in Fonterra will always be a distant second to the real, tangible benefit of having complete control of the collection of milk from our farms."

Discussion on stage three is expected to happen in the next year.

Federated Farmers dairy vice-chairperson Willy Leferink said farmers were canny businesspeople who saw the co-operative model as the way to go.

"Fonterra has been built into the world's largest dairy exporter as a co-operative and will grow much larger."