Wilson likely to keep job

Fonterra chairman John Wilson (left) with CEO Theo Spierings is expected to keep his job.

Result due before Fonterra AGM

FONTERRA'S chairman John Wilson will know by Monday whether he still has a job.

Voting by way of post or the internet started on October 30 and a result is expected well before the annual meeting is held on Wednesday.

The subterranean world of farm politics can be difficult to read, but Wilson is expected to be re-elected, although perhaps with a reduced majority over farmer discontent about low farmgate milk prices.

"I think that he will fly in, but there is a campaign against him, make no mistake about that," said one farming source.

"I'm guessing that John is going to suffer from how farmers are feeling, but he's still going to get in, but perhaps with a reduced majority."

Wilson has had a rollercoaster ride at the top of New Zealand's biggest company since he took over from Sir Henry van der Heyden late in 2012.

After less than a year at the helm, he was in the hotseat when news of the WPC80 contamination scare broke. Then it was boom and bust for dairy prices.

During Wilson's short tenure, the farmgate milk price - pumped up by demand from China - hit a record $8.40 a kg in 2013/14 before slumping to $4.40 a kg last season.

Fonterra's forecast for 2015/6 is only a little better - $4.60 a kg - well below the $5.30 estimated average cost of production.

The co-operative will review its forecast in early December, but the market signals - going on the last three GlobalDairyTrade auctions - point to more weakness.

Wilson this year has taken some flak for a poorer-than-expected first-half performance and increases in chief executive Theo Spierings' multi-million dollar salary.

The company has also faced challenges, over and above the extreme volatility in the commodities trade. Both the last two seasons have been record years for production.

This year, as low prices start to bite, production is expected to come off by at least 5 per cent.

Over the five years production had gone up by about 26 per cent - equivalent to the entire production of Belarus.

Under its enabling legislation, Fonterra can't turn away milk from its members. That has meant Fonterra has invested well over $2 billion in new plants - stainless steel - to cope with a tidal wave of milk coming through its gates. The extra capex has put some stress on the balance sheet.

Fonterra last year invested in more than 50 separate capital and enhancement projects around the country aimed at optimising collection, processing, transport and manufacturing.

With the extra capacity available this year, it has avoided these costs - estimated at between $50 and $70 million.

While milk prices look dismal, the company this week said business transformation plans are starting to gain traction and Wilson said the company was heading for its highest ever earnings before interest and tax in the current year.

Federated Farmers dairy chairman Andrew Hoggard said that while it was a concern to have had three drops in GDT prices in a row, Fonterra's update "does give a little morale booster".

An improved financial performance from Fonterra over the first quarter is serving to at least partly counterbalance a decline in global dairy prices, but it is the milk price that is uppermost in farmers' minds.

The farmgate milk price still looks bleak going on the latest GlobalDairyTrade auction.

"While it is tough on farm due to low global milk prices, farmers will welcome the ongoing improvement in Fonterra's performance delivering increased returns," Wilson said.

Forsyth Barr analyst James Bascand said Fonterra's update showed that the company had made inroads into lowering its capital expenditure. NZME