As dairy farmers prepare for the critical decision they have to make on the capital shape of the big co-operative Fonterra, they will be buoyed by the strong markets across the globe for dairy products — so strong that economists are revising their forecasts for this season’s payout.
Fonterra itself has already revised upwards its original forecast range from $7.90 – $8.90kgMS, from $7.25 – $8.75 kgMS.
The Advance Rate which Fonterra pays its farmer owners will be set off the mid-point of the range. This has increased from $8kgMS to $8.40kgMS.
ANZ Bank economists have raised their forecast to $8.80 while others, citing the futures market, see it breaking $9.
Meanwhile farmer-shareholders of Fonterra have to get to grips with the decision on the capital structure, knowing that Agriculture Minister Damien O’Connor is leery of it.
But Fonterra chairman Peter McBride says the board and senior management are united in the view that what they are recommending is in the best interests of the co-operative. He says:
“There is no perfect answer, but we are confident that the flexible shareholding structure will support the sustainable supply of New Zealand milk that our long-term strategy relies on. One enables the other, and together they give our Co-op the potential to deliver the competitive returns that will continue to support our families’ livelihoods from this generation to the next”.
McBride says having already obtained the support of 92% of the co-op’s councillors, the recommended changes now require a minimum 75% support of voting farmers.
“This is one of the most profound decisions we will make as farmers. I strongly encourage you to use your vote”, he urges farmers
A successful farmer vote would not take effect until the board is satisfied that any steps necessary for implementation have been (or will be) completed.
As for the government’s concern, McBride says they are continuing to work with the government on what the changes might mean under the Dairy Industry Restructuring Act (DIRA). He says:
“In the interests of transparency, in our notice of special meeting we have included a letter from the Minister of Agriculture outlining the government’s position.
“I believe we are philosophically aligned with the government. We both want to see Fonterra continue to thrive as a NZ co-operative and deliver increasing value for the economy and for farmers. The government is not at this stage in a position to support DIRA changes to facilitate our proposal. We understand the government is looking for further assurance that our proposal supports contestability, drives performance and innovation, and protects alignment of shareholder interests.
“I have spoken to the minister since receiving his letter and remain confident that we can provide the government with the necessary assurances and work together to find a regulatory framework that supports the Flexible Shareholding structure. One of the considerations will be a strong mandate for change from the Co-op’s farmers, so please exercise your ownership and control rights by voting.”
Point of Order has no way of gauging how farmers will vote come December 9 but given how vital the dairy industry is proving to how the overall economy is performing, we believe farmers have a critical decision to make. Let’s hope they come to the right one.