Fonterra move puzzles

Fonterra's latest payout will help erase large chunks of debt for Marlborough dairy farmers, but many are puzzled by a reduced value return, which could deter farmers from backing the co-operative's proposed capital restructuring.

Marlborough Federated Farmers dairy chairman Bruce Richmond said a distributable profit or value return of 35 cents, down from 50c, due to low cheese and casein prices, meant extra shares offered by the capital restructuring were more affordable earlier this year when the price of milk solids was $4.52 per kilogram.

Step one of Fonterra's proposed three-step capital restructuring would allow farmers to hold shares representing up to 120 per cent of their milk production, an increase on the current limit of close to 100 per cent.

"If we bought those shares at $4.52 we were getting an 11 per cent return on investment, but now it's only 7 per cent."

Rai Valley dairy farmer Andrew Butler said he found the value return reduction "a bit strange".

"All of a sudden it's 35c ... If you had to borrow the money to buy the shares then you're only going to break even if you're lucky."

Mr Butler said Fonterra should retain 10 to 15 cents of the latest payout to reduce debt, rather than allowing "richer farmers" to purchase more shares.

"It's creating two classes of farmers."

Despite the reduced value-added portion of the payout, Mr Richmond said he was delighted with the forecast 95 cent increase to $6.05/kg of milksolids. Many farmers were nursing huge overdrafts and the increase could not have come at a better time.

"It's excellent news, really good. When you think of the doom and gloom of $4.55 six months ago it's a real turnaround."

Mr Richmond was confident the payout figure of $6.05 would stand for the 2009-2010 season.

- The Marlborough Express

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