Editorial: Fonterra's good vibrations

OPINION: It wasn't exactly Woodstock, but there were definitely a lot of good vibes doing the rounds at Fonterra's annual meeting in Ashburton this week.

Some of the good cheer is due to the 33 per cent rise in the forecast milk payout to $6.05 per kg of milksolids. But most of the good feeling could be put down to the approval of Fonterra's revised plan to revamp its capital structure and ease funding pressures.

Close to 90 per cent of Fonterra's 10,500 farmer shareholders approved the first stage of the plan which will allow them to to buy extra shares in the company.

The change will allow Fonterra to raise up to an extra $900 million to fund its expansion.

The approval is a tremendous result for Fonterra's board and management whose 2007 proposal to float a portion of the company on the sharemarket – allowing outside investors in for the first time – was resoundingly knocked back.

The yes vote, at almost 90 per cent of shareholders, was as emphatic as the no vote last time round.

Fonterra's board and management team should take a bow. They got beaten up last time but took the rejection in their stride. They went back to the drawing board to find a workable alternative and all the signs are that the company has solved its problems.

It is a triumph of consultation and co-operation, which are the founding principles of a co-operative.

Fonterra's problem had been that its cooperative structure – which limits shareholdings to farmers who produce its milk – was holding its growth back.

When a conventional listed company needs extra capital it can go to the sharemarket. This option is out for Fonterra because its co-operative shareholders don't want to share by letting others in.

They cannot be blamed for this. Fonterra's phenomenal expansion has been funded by those farmer shareholders whose sacrifices over the years have built the company into a world beater.

The board had the challenge of balancing its need for new investment with keeping those farmers happy. The change to allow farmers to invest more won't drag in the large amount of money a sharemarket float would, and will largely depend on where the commodity cycle is at. But it is a start. The losers in the revamp are all the investors who would have been queueing up to invest in the country's biggest company.

The message from Fonterra's farmers is that they are having a great party, but it is invitations only. Gatecrashers need not bother.

The door is never entirely shut. If those investors can save enough to buy a share in a dairy farm, they can join the fun crowd at Fonterra.

- © Fairfax NZ News