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.
One thought on “O’Connor is confident the DIRA can be tweaked to give effect to farmer vote in favour of Fonterra’s capital restructuring”