Fonterra looks to the future

AUCKLAND: Dairy giant Fonterra has laid out a range of options to strengthen its financial structure, but remains committed to cooperative ownership.

The country's biggest company said the aim was to balance farmer ownership, milk supply, and secure its financial future.

Among the options put out were dual share structures to allow outside involvement, splitting the coop between supply and processing businesses, and different classes of shares.

Chairman Peter McBride said the capital structure review aimed to ensure the sustainability of the cooperative into the future.

``The coop's future financial sustainability relies heavily on our ability to maintain a sustainable New Zealand milk supply and protect farmer ownership and control.'' Capital structure options the coop is consulting on are. —

Dual share structures, which would move from the current single cooperative share to a compulsory supply share and a separate noncompulsory investment share.

Unshared supply structures. A traditional nominal share structure.

A split cooperative model. Mr McBride said to allow Fonterra's farmers to have open conversations and consider all options during consultation, it was temporarily capping the size of the Fonterra Shareholders' Fund by suspending shares in the Fonterra Shareholders' Market from being exchanged into units in the fund.

``The decisions we've already taken in response to the findings of the review, like temporarily capping the size of the fund, haven't been made lightly,'' he said.

Some of the options the cooperative was asking its farmers to consider included buying back the fund. If the temporary cap was not in place, anyone holding ``dry shares'' — those shares held in excess of the ``wet share'' requirement linked to milk production — would have been able to exchange them into units in the fund during consultation, Mr McBride said.

That could have more than doubled the size of the fund and made the option of buying it back unaffordable in the context of the cooperative's current balance sheet targets.

Fonterra said it believed the best option was to move to a structure that reduced the share standard, so farmers had greater flexibility, and either remove the fund or cap the fund from growing further to protect farmer ownership and control.

That would make it easier for new farmers to join the coop and give more flexibility to farmers who might want to free up capital or who were working through succession.

``A key outcome of this change is that shares would be bought and sold between farmers in a farmeronly market.

``These changes could impact the price at which shares . . . are traded, and there may not be as much liquidity in the market.

‘‘Ultimately, the price for farmers' shares would be determined by the performance of the coop and trading between farmers.’’ — RNZ