A word from shareholders
Fonterra Shareholders’ Council chairman Duncan Coull agrees it has taken “too long” to recognise that value-creation, aside from in the ingredients business, “has been a struggle”.
“It’s been masked for the first seven or eight years of Fonterra’s life by the absence of a transparent milk price. Effectively we didn’t know what we didn’t know ...”
Coull, who prefers to think of the council as a cornerstone shareholder of
Fonterra than a watchdog, says with Fonterra considering divesting assets, care must be taken to decide if the issue with the asset is strategic or one of execution.
“One of the issues of being a cooperative is being agile enough to move with the market.
“We are a slow-moving beast and that has to change going forward — or it [this] will happen again. We are more slow to react because we lack belief in ourselves as a co-op and in each other. That’s part of the problem.
“Sometimes our governors are trying to second guess the appetite for some things in the shareholder base as opposed to trying to do the right thing long-term and acting in the best interests of the co-op. To some extent it gets in the way of good governance.”
Does he see the Westland cooperative sale as a sign the business model is becoming redundant?
“No, there are too many farmers out there that think similarly to me. We understand the strength of the coop model and we are keen to continue.
“Fonterra needs to do its bit in terms of ensuring its returns reward those who have invested.” Coull suggests the weak performance of shares in the Fonterra Shareholders’ Fund, which gives outside investors access to the company’s added value activities through dividend-carrying, nonvoting units, indicates there’s not a lot of support for a separate investment vehicle. “I don’t hear that. But I do think we need to adapt and evolve,” he says.
“My personal view on the valueadded business is no wonder it hasn’t performed … given we as investors in the business expect that most, if not all of the profits are paid out every year. How can you grow a value-added business when you starve it of capital?”
Coull says the planned review of capital structure will be an opportunity to broaden the debate to how farmers are paid for their milk and how milk is collected.
“We need to simplify the way we pay for milk. Fonterra farmers don’t get the full price of a season’s milk supply until the end of the dairy year, receiving instead advance payments against the season’s forecast milk price. The other thing we need to address is we have [manufacturing] competition coming to some of the most dairying-intensive areas of New Zealand. I worry we may become the most inefficient collectors of milk in New Zealand if in we are left with milk supply around the periphery.”
Coull says there’s a more positive mood in the shareholder base with the culture change ushered in by Monaghan and Hurrell.
“The fact that Fonterra is allowing itself to be a little vulnerable in terms of accepting it’s made mistakes and things need to change has been widely favourably viewed. But the proof will be in the pudding.”