Milk price forecasts are being lifted ahead of critical vote on Fonterra’s capital structure

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.

2 thoughts on “Milk price forecasts are being lifted ahead of critical vote on Fonterra’s capital structure

  1. I would recommend that Fonterra be very wary of the present government. I would not trust their word.
    Look at their move on Rako. Three waters.


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