Fonterra urged to bring in investors

Fonterra is being called on to open investment opportunities to institutional investors after only a third of its 10,500 shareholders responded to a call to buy extra shares.

The low turnout has been put down to cash-strapped farmers and is another knock-back to Fonterra's effort to raise capital for expansion while keeping control of the country's largest exporter in farmer hands.

Of the 10,500 shareholders, around 4000 of which farm in the Waikato, 3461 bought extra shares and raised $270.7 million for the dairy co-operative's growth strategy. Only 59 farmers cashed in surplus shares as a result of a drop in milk production caused by dry weather in the North Island.

Morrinsville farmer Lloyd Downing called for the co-operative's constitution to be modified to allow external investment from the likes of the New Zealand Superannuation Fund and ACC.

"Farmers retain control as long as the voting is on supply and not shares," said Mr Downing, who used a recent boost in the milksolids payout to $6.05 per kg of milk solids to shore up his ballance sheet. He did not buy any extra shares.

"I can understand why farmers have not invested. If you go back to the beginning of the year $4.50 per kg of milksolids put the fear of God into farmers who thought they would pay off their overdrafts and consolidate."

Mr Downing's call comes nearly two years after Fonterra abandoned a controversial plan to list a newly created entity on the sharemarket, 80 per cent of which would be farmer owned, after "pushback" from farmers.

Stuart Locke, chairman of the finance department at Waikato University's Management School, said Fonterra needed to look to external investors after such a response.

Commentators had predicted a 50 per cent take up among farmers.

However, Fonterra chairman Sir Henry van der Heyden said Fonterra had not set any expectations on the offer and was happy with the response. Commentators were picking numbers out of the air, he said.

"Right now we have got a good number of farmers that are having a tough season around the North Island. We just can't expect these farmers to put their hands in their pockets because the cash flows are tight."

- © Fairfax NZ News