Farmers wary of Fonterra share trading

Fonterra chairman Sir Henry van der Heyden. Photo / Paul Estcourt

Fonterra will start talking to farmers this week about allowing them to trade shares among themselves but an industry leader warns they are wary of any moves that could lead to a sharemarket listing.

The dairy giant will make a television broadcast tomorrow and hold meetings with farmers nationwide next week to discuss the concept of share trading among farmers.

The drive is part of a new plan to change Fonterra's capital structure, after farmers rejected a 2007 proposal which involved a partial public listing of Fonterra shares.

Federated Farmers dairy chairman Lachlan McKenzie said Fonterra would not be successful if farmers perceived it wanted to list the co-operative within 10 years.

"People will be looking at what is the long-term effect," McKenzie said.

"Is this the first step on a slope to having to list the company in the future?

"And if it is the second step on to the slide they'll want to take their foot off."

Share trading would allow farmers to buy or sell shares among themselves rather than buying or redeeming them through the co-operative.

Feedback from the consultations would be taken into account before any final proposal was put to farmers for a vote, the company said.

Farmers buy shares based on their production and this means capital moves in and out of the business as shares are bought and cashed in.

The movement of capital is exacerbated by issues such as drought, when farmers redeem shares as production drops.

Fonterra chairman Sir Henry van der Heyden said farmer share trading would remove redemption risk and provide a stable base of permanent share capital.

Speaking at a results briefing last month, van der Heyden stressed that the co-operative would remain owned and controlled by farmers and that any public listing was off the table.

"That is the position of the board, it remains the position of the board and it will remain the position of the board," van der Heyden said at the time.

However, Federated Farmers' Lachlan McKenzie said farmers had long memories.

The earlier capital restructuring plan was stopped before the first vote when it became clear farmers would not support the board's preferred model, which included creating a listed asset-holding company.

"Certainly by listening to farmers and taking their concerns on board, it's the only way the company's going to go forward," he said. "So they've learnt in that regard."

Share trading among farmers would shift the redemption risk from the co-operative back to the individual member, McKenzie said.

"[Fonterra] will then behave the same as a listed company in the regard that the risk of the shares going up and down is held within the market and the people that own the shares, not the company."

McKenzie said some farmers would like to see someone at Fonterra fall on their sword for the failed attempt at change in 2007.

"How strong that is will be determined by the vote."

The first two steps in the current capital change process allowed farmers to own more shares than required by their production and changed the way shares were valued to recognise the market was restricted to the co-operative's farmer owners.

The first two steps received nearly 90 per cent support from farmers in November and the move to farmer trading would need 75 per cent approval from shareholders.

Fonterra said the board and the Shareholders' Council had voted to support the concept of farmer share trading and agreed it should go to consultation.

Three steps

Fonterra outlined a revised three-step capital restructure plan in September last year.

Step 1

Enable suppliers to buy 20 per cent more shares in the company than required by their milk production.

Step 2

Revalue Fonterra shares to recognise they are trading in a restricted environment. Steps 1 and 2 were approved by farmers in November.

Step 3

Move to share trading between farmers. This will require 75 per cent approval from farmer shareholders.