NZ dairy giant Fonterra expects to have its new capital structure in place by March after Parliament gave a final reading this week to the Dairy Industry Restructuring Amendment Bill. It had the support of Labour, National, and Act, with the Greens and Te Pati Maori voting against it, as they did during the first two readings.
It marks a new chapter for the big co-op at a time when the industry has been hit by soaring inflation-driven farm costs and the Ardern government’s move to tax farm methane emissions.
Fonterra as a key element of the dairy industry has made significant progress with its turnaround 2030 business strategy; and the proposed capital restructure is designed to ensure its many processing sites remain full in flatlining, and predicted to decline, national milk production.
The restructure needed Parliament’s approval because Fonterra was created by enabling legislation in 2001, and because a feature of it, delinking the farmer share market and the unit market, could have faced legal challenges.
Even though the DIRA amending legislation attracted criticism in the Select Committee hearings that it would weaken competition in the industry, Agriculture Minister Damien O’Connor pushed it through Parliament. In the process, he took the opportunity as he saw it to improve the transparency and robustness of the governance and operation of the current base milk price-setting regime.
Meanwhile Fonterra is moving ahead with investment targets for sustainability, higher value products and research and development. Its milk payment for last season totalled $13.7bn and after the sale of its Chilean asset Soprole, plans a return of capital to shareholders and unit holders.
As CEO Miles Hurrell told the company’s annual meeting, the last financial year was a year like no other.
Now, there is a new challenge looming. Fonterra has indicated it may set itself a target for scope 3 carbon emissions. Scope 3 encompasses carbon emissions not produced by the company itself,but by those it is indirectly responsible for, including farmers.
Chairman Peter McBride points out that in setting a scope 3 target Fonterra can help itself to maintain competitive access to key international markets. “For example, the EU has proposed a carbon border adjustment tax on certain carbon-intensive goods. They are subject to a carbon-emissions price via the EU’s Emissions Trading Scheme. Agriculture is not currently in scope but it is possible it will be brought into the scheme”.
McBride expects such barriers to become more frequent as governments respond to their own climate commitments.
(With acknowledgement to Andrea Fox of the NZ Herald for material in this comment).
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