Fonterra share changes get green light
Cabinet has agreed to support changes to Fonterra’s structure that will make it easier for farmers to join the country’s dominant dairy company in an environment of declining milk supply.
Fonterra’s farmer shareholders voted in support of the changes in December last year, which would see it adopt a more flexible shareholding structure, allowing farmers to hold fewer shares and widening the pool to include sharemilkers, contract milkers and farm lessors as associated shareholders.
The co-operative hopes the changes will make it more competitive with rival processors who don’t require farmers to outlay cash for shares to supply milk, and who have been gaining market share.
If the changes aren’t made, Fonterra is concerned it would become a smaller, less efficient business that would continue to lose milk supply, and would be forced to close factories and end up paying farmers less for their milk.
‘‘The proposed capital restructure will lower the cost of entry for farmers wishing to join the co-operative and supply milk to Fonterra, thus enabling Fonterra to retain and attract milk supply in the face of forecast plateauing or declining milk production in New Zealand,’’ according to a Ministry for Primary Industries discussion paper released yesterday.
That would enable Fonterra to remain a large-scale, farmerowned co-operative which can invest in innovation and sustainability while also freeing up cash for farmers to repay debt or invest, the paper said.
A well-functioning dairy industry was of ‘‘significant national interest’’, particularly while the economy recovered from the impacts of Covid-19 and wider economic and geopolitical disruption, the paper said.
The industry brings in export revenue of about $19.1 billion a year and accounts for about 3.1% of GDP.
‘‘A sustainable, high-performing Fonterra underpins a well-functioning dairy industry,’’ the paper said, noting it was New Zealand’s largest company with significant global scale and reach, collecting 79% of the country’s milk and exporting to more than 130 countries.
‘‘Given its size, Fonterra’s successes and any opportunity costs of unrealised potential are not only borne by its farmershareholders, but also by rural communities and the wider New Zealand economy,’’ the paper said.
Still, the restructuring could lessen competition, lower the price of Fonterra’s shares and units, and push up local milk prices for consumers, the paper said.
To mitigate those risks, Cabinet agreed to strengthen provisions in the Dairy Industry Restructuring Act (DIRA), which enabled the formation of Fonterra in 2001.