Half of Fonterra's farmers should buy new shares

Half of farmers won't be able to afford to buy the additional shares being offered by Fonterra from today, farmer lobby group Federated Farmers says.

Fonterra's farmer owners voted in favour of allowing themselves to take up an extra 20 per cent in the co-operative last month as part of a three-stage capital restructure of the business.

Fonterra needs more capital to address the risk to its balance sheet of its farmers cashing in their redeemable shares, and to fund global and domestic growth ambitions.

At the moment its 11,000 farmers must buy one share for every kilogram of milk solids they produce but the change allows them to take up an extra 20 per cent of "dry" shares which don't have voting rights but will be eligible for a value-add dividend payment.

Federated Farmers dairy chairman Lachlan McKenzie said he didn't expect farmers to be rushing to buy the shares straight away because many had yet to receive all the information.

"The prospectus will only be out this week."

Farmers would also be waiting to see what the milk forecast for next year would be before making up their minds.

They have until January 21 to make a decision and have to pay by February. Those who don't take part in the first offer will be given a second chance later in the year.

McKenzie said there were a lot of farmers who were keen to have a look at it and do the number crunching.

But he estimated 50 per cent would not have the financial capability to buy extra shares.

McKenzie said farmers always had things on their own property that needed investment.

Westpac chief economist Doug Steel said it was hard to know how much take-up there would be.

"We will be watching that very closely. It's a watch-and-wait situation."

Steel said while dairy farmers were feeling more optimistic about next year they were still in a tough place.

Fonterra chairman Sir Henry van der Heyden said it was up to individuals to decide whether to buy more shares.

"We recognise that even with the recent increase in this season's milk price forecast, cashflows are tight for many farmers."

Fonterra has said it will start consultation on the next stage of its capital restructure in the first quarter of next year to see if farmers will be keen to begin trading shares between themselves.

McKenzie said it was a major decision that would need to be thought through. "Having different drivers, for example dividends versus milk prices, could cause huge tensions in the company." he warned.

The demutualisation of the insurance company market had shown that could cause businesses to self-destruct.

"At the moment as a co-operative all shareholders have equal pay and benefits in proportion to their milk supply. That mould has been smashed."

McKenzie said he did not believe a vote on trading would pass but said farmers had yet to think it through.