O’Connor is confident the DIRA can be tweaked to give effect to farmer vote in favour of Fonterra’s capital restructuring

Farmers    have  voted overwhelmingly  in  favour  of  a  capital  restructure  for Fonterra—- and Agriculture Minister Damien O’Connor,   who   previously  raised   concerns about the  plan,  now  says  he  is  confident the  government can  work   with the  board   to  get  the change   across the  line.

Fonterra chair Peter McBride last  week  told  Fonterra’s  meeting:

“Either we’re a corporate or we’re a co-operative. The current model, where we’re trying to have a foot in each camp, is not sustainable”.

Farmer-shareholders  made  it  plain  they  wanted  the  “pure”  co-op rather  than the corporate model

Now  it is  over  to  the  board   to  negotiate  the  “tweaks”  which O’Connor  says  he  believes  are  necessary in amending the Dairy Industry Restructuring Act.

O’Connor  accepts the  vote last week is  “a very clear result”.

“I’m pleased for Fonterra. It was really important that they get a clear mandate for change and there’s an indication that the farmers are behind the board.There’s been a shift in focus for both the board and management over the last couple of years. This is an endorsement of the direction of travel.”

O’Connor acknowledged there were concerns around the possible consolidation of votes or the influence some shareholders might wield.

He said it was important it became easier for new farmers to get involved and the proposed change did this to some extent, but the company must work in farmers’ long-term interests and future generations as well.

“Making sure the milk price settings are right to ensure there’s no gaming – that’s been one of the criticisms made by independent companies.”

There were always issues around competition policy and law in New Zealand, making sure that a dominant player in any industry is not able to utilise excessive market power, O’Connor said.

Those issues had to be worked through.

“In my perspective, I need to know that the people who are minority shareholders, they may only own a third of the shares that they’re entitled to are being looked after, and that those who own four times the shares that they might be entitled to that they aren’t dominating the proceedings at the board table.”

O’Connor said there would not be drastic changes but if legislation was necessary, it must be done  correctly.

“We’ve committed to work with the board, this is our biggest and best company. We’ve got to make sure that it’s in the best position to capitalise on the opportunities into the  future”.

Fonterra farmer- shareholders compiled  one  of  the  biggest votes in the co-operative’s history in  supporting  the  new  capital structure.

In effect, they accepted the  board’s  view that as milk production falls, more farmers will look to sell their surplus shares to non-farmers in its associated shareholders’ fund.

The new structure put to the vote makes it cheaper to join the company and preserves farmer ownership by reducing the number of shares they must hold.

At least 75% of the 10,000 farmer shareholders had to approve the proposal, and just over 85% have done so.

McBride said the board and management were united in the belief that the flexible shareholding structure was the best course of action for the co-operative.

“Changing our capital structure is the most important decision we as farmers have made in almost a decade,” he said.  

“The results of this year’s resolutions were all above 80%, which shows farmers are united in their support for the direction of the co-op. Our full focus is now on delivering the strategic commitments we have made.

“I believe we are philosophically aligned with the government and remain confident that we can find a regulatory framework that supports the Flexible Shareholding structure.”  

The co-op is aiming to implement the changes as soon as possible from the beginning of next season.

Share compliance obligations will remain on hold until at least six months after the new structure is effective.

The current cap on the Fonterra Shareholders’ Fund will remain in place.

When Fonterra was formed in 2001, special legislation – the Dairy Industry Restructuring Act – was passed to allow the country’s two biggest co-operatives at the time, New Zealand Dairy Group and Kiwi Co-operative Dairies, along with marketing and export agent the New Zealand Dairy Board, to merge.

Without the changes now  approved,  Fonterra has  been concerned it would continue to lose market share, with its milk supply potentially falling by as much as 20% by 2030, making it less efficient and unable to pay farmers as high a price for their milk, or invest back in the business.

Now  it  is  over  to  McBride,  the  board   and  management  to  show  they  can  make  Fonterra    a  much  more  successful  business. CEO  Miles Hurrell  has made  significant  changes   since  he  took  over from  the previous  CEO Theo Spierings,  who  pursued  a  policy of global  domination that was  judged  a  failure.

Fonterra  now has  a  new  focus, looking  to  increase  its  product range  with  more  added  value,  and  in the long run lifting  profitability.

Fonterra  has  yet  to become  the   national  champion its  founders believed it  would be —  but  as a  company pumping  over  $13bn annually  into the rural  regions,  it’s  well on the  way.