Agriculture Minister Damien O'Connor says he's not concerned about the fall in Fonterra share values in the aftermath of the company's capital restructure proposal, and as long as New Zealand's biggest business operates effectively, dairy farmers' assets will be maintained.
Speaking to the Herald from quarantine after his return from talks in the UK for a NZ-UK trade deal, O'Connor said the value of the farmer cooperative was as the processor and seller of its owners' milk and as long as it did that well, farmer assets would be maintained.
Twenty years on from its creation from an industry mega-merger, Fonterra still collects around 80 per cent of the country's raw milk. Its formation, promoted as creating a "national export champion", was enabled by special legislation which it still operates under today, hence O'Connor's interest.
Any capital restructure will require government support to amend the legislation, the Dairy Restructuring Act 2001, as well as votes of support from farmer and sharemarket stakeholders.
"I've seen what's happened to the share price but in my view I'm not concerned about that at all," said O'Connor.
"The value of Fonterra is as the processor and marketer of the cooperative owners' milk and as long as it continues to do that in an efficient and effective way, then the billions of dollars of assets of farmers across New Zealand will be well-maintained.
"The share value was an attempt to reflect the value of the entity but in the end it's the value of the wider dairy industry that's important."
O'Connor was an outspoken critic of Fonterra's last capital restructure in 2012, which created a hybrid of a farmers-only share trading market and a listed, public investment vehicle of non-voting, dividend-carrying units in farmer shares.
Both share prices have fallen sharply since the Fonterra board announced a capital structure proposal on May 6.
While Fonterra leaders consult with farmer-shareholders - a process scheduled to continue until later this year - they imposed a temporary cap on the size of the unit fund, the Fonterra Shareholders' Fund, by suspending farmer shares from being exchanged into units.
The move restricts farmer share trading and sentiment has reflected this, while non-farmer interest in the units dried up.
The capital restructure proposes Fonterra buy back the fund, currently valued at around $400 million, or permanently cap it, as well as a significant relaxation of the company's share standard to make it less onerous for farmers to buy supply shares and exit with capital.
The main thrust of the proposal is to ensure Fonterra has a sustainable milk supply in a landscape of declining milk production, and to ensure continued farmer ownership and control.
With Fonterra's financial performance looking to improve under a new business strategy, the board's concern is that the unit fund would outgrow its present constitutional limits, requiring either a buy back that could threaten the balance sheet and strategy, or force the company to allow more outside investors.
Meanwhile, a large farming group shareholder, claiming the proposal's impact on the share prices has wiped nearly $3 billion off farmers' asset values, intends to try forcing a special shareholders' meeting calling to demand director resignations, and said it would lodge a complaint this week with the Financial Markets Authority.
Fonterra chairman Peter McBride warned when the restructure proposal was announced that it could have a temporary impact on shares, which he believed would be corrected by Fonterra's improving financial performance.
O'Connor said he had been against the hybrid structure which had resulted in "the board riding two horses" and resulting tensions between types of shareholders. Farmers want the board to focus first on paying a strong milk price, while unit holders are focused on dividends.
"(In my view) that can't be sustained and the board has rightfully proposed to make changes to that.
"Ultimately the decision is in the hands of farmers' but share value is far less significant than effectiveness of the company and the stability of the wider dairy industry."
Asked what shape a restructure would have to take to get his and Cabinet support for changes to Dira, O'Connor said no decision on that had been taken.
"It's great news there has been good farmer engagement in the consultation.
"We will look at what the board finally proposes and make a judgment then.
"But I indicated from the start we are prepared to make changes the board thinks necessary to secure the long-term success of Fonterra, which is our biggest and best company."
During the current first round of shareholder consultation, farmers have reportedly said they would like to see further, steady improvements in performance before adopting such a proposal.
O'Connor has also been a critic of Fonterra's disappointing financial performance - its farmers' lost $4b of capital value due to net losses in 2018 and 2019.
Asked if he was confident it had turned a corner under the new business strategy which puts a premium and focus on the provenance of New Zealand milk, he said: "It's clear the old one didn't (work) and indications, through the milk price and support by farmers for its new approach, are that it's on a far better track."