KEY POINTS:
The proposed capital restructuring of Fonterra is a complicated beast.
Do farmers really want more investment choice, how real is the redemption risk, what is the best way to ensure capital for global growth and do farmers actually back the strategy?
Seven satellite-linked meetings in November unveiled Fonterra's
preferred structure - involving the creation of a new company to hold all the assets and listed on the stock market, potentially in 2010.
Since then the company has held a further 100 meetings to go over it again and last week bought time on Prime television to talk about ... you guessed it, capital restructure.
Glance up from the paper and out of the farmhouse window and chances are you'll see a blimp shaped like a cow floating by with the words, "redemption risk, investment choice, capital for growth" in flashing neon lights.
The debate seems fairly calm right now but the blue-touch paper won't be lit until February when Fonterra starts talking about milk pricing and the relationship farmers will have with the supply co-operative.
A whopping 50c boost to this season's forecast payout to $6.90, combined with an expected up to 2 per cent rise in production, could equate to a total payout of $8.8 billion, up from $5.6 billion last season.
Farmers will be feeling good and will enjoy the holiday season but don't expect them to go soft on the Fonterra board come the New Year.
FOOD FOR THOUGHT
Fonterra Shareholders' Council chairman Blue Read says the council does not yet have a formal view on the preferred structure.
"There is still more detail to come and a lot more questions that we need answered," Read says.
An expert on co-operative development, Professor Michael Cook from the University of Missouri's Department of Agricultural Economics, was in New Zealand last week to help the council form an opinion.
The council may not yet be supporting the proposal but a briefing given by Cook on Friday may give the Fonterra board the start of a warm feeling. Dynamic changes are occurring rapidly in the dairy sector. Five or 10 years ago the words global and dairy were not normally associated but changes in domestic agricultural and world trade policy had encouraged industries to look outwards and New Zealand has been at the forefront, Cook says.
Dairy firms throughout the world were facing increased volatility, opportunities and challenges.
Fonterra is faced with, and aware of, many opportunities much more so than almost any other co-operative in the world because it has such a widespread network already, Cook says.
"When you see all of these opportunities it's like Christmas Eve, you have to decide which package do you open first," he says.
"If the dairy sector's going to become global you have to make the decision on whether you're going to play in that game or remain a regional residual supplier where you have numerous factors ... raising the cost of your inputs."
Fonterra chief executive Andrew Ferrier believes major dairy companies will emerge in South America, potentially with a global market presence and he wants Fonterra to be right there.
Cook says Fonterra's listing proposal partially addresses the issues of redemption risk and investment choice.
However, an issue firmly stapled to the debate is control and how to ensure farmers are not left scratching their heads wondering why they no longer own Fonterra.
Fonterra's directors have been at pains to reassure that farmer control will be protected.
If the proposal is approved the supplier co-operative would start with a 65 per cent holding in the new listed entity, another 15 per cent would be given to farmers and 20 per cent issued to the wider public.
A bundle of protections for co-operative ownership include being the only entity allowed to own more than 10 per cent, not being able to own less than 50.1 per cent without a 75 per cent farmer vote, a minimum ownership of 35 per cent and only New Zealand dairy farmers being allowed to own the co-operative.
If they could have squeezed a clause in about tractor ownership they probably would have.
But despite the plethora of potential protections concern about losing control remains an important issue.
Cook says any shareholder that owns between 28 and 35 per cent of a listed company still has considerable control.
If this is the message Cook is giving the council then there's a good chance the same message may eventually be delivered to farmers.
Cook says the proposed restructure is in a sense a modification of the so-called Irish model used by a number of co-operatives in the mid 1980s.
Irish dairy company Kerry Group has over time become an investor-owned and controlled company but to say farmers have lost control is an oversimplification, Cook says.
"If the members had to vote 75 per cent to change there must have been an incentive, they must have gotten more from an investment benefit than from a patron benefit."
The future is in farmers' hands and good choices need good information so perhaps a fleet of cow-shaped Fonterra blimps is not such a bad idea.
BUY NZ GROWN
The opportunity for shoppers to choose home-grown produce has been given a boost with plans by Foodstuffs - with supermarkets Pak'N Save, New World and Four Square - to introduce country of origin labelling and signage on fresh fruit, vegetables, meat and seafood.
Foodstuffs New Zealand executive manager Melissa Hodd says the label will largely be in place by Christmas and was a response to customer demand.
"There are a surprising number of countries that we purchase goods from," Hodd said. "That [labelling] will enable our customers to distinguish locally grown product from imported product."
The retailer has also joined the Buy New Zealand Made Campaign and will use the kiwi in a triangle branding on its store frontage.
"The extent to which consumers see that logo on packaged goods will depend on the degree to which local manufacturers pick up the campaign," Hodd said.
Business logic suggests that if a New Zealand label adds more sales value than it costs then manufacturers will do it. So the clincher could be how much shoppers actually tailor their trolley habits when they can see exactly where their food comes from.
PPCS GOES M&S
Meat processor PPCS has launched a new forward supply agreement to provide premium chilled lamb for UK retailer Marks & Spencer.
Chief executive Keith Cooper says the agreement is part of a strategy to form partnerships with key customers.
The agreements are based on weight, quality, environmental and genetic criteria, with lambs of Primera or Highlander progeny verified by Rissington Breedline to be from genetics released during the last three years.
Rissington Breedline will manage the agreements with suppliers required to obtain PPCS supplier investment shares.
PPCS announced in October a plan to match plant capacity to livestock and said it wanted to get more long-term supply volumes agreed by farmers, after posting a $40 million annual loss.
Long-term agreements would enable the meat processor to more accurately draw up plans, while linking directly to the retailer and consumer provides security about value and desirability.
If PPCS can prove the benefits of long-term agreements to farmers then the concept will likely gain momentum because certainty about availability, quality, demand and price is good for the whole supply chain - farmer, processor, retailer and shopper.
ALL CHANGE
Farmer shareholders at co-operative meat processor Alliance Group have voted chairman John Turner and director Murray Taggart off the board.
Turner, who had been on the board for 20 years and served as chairman for the last 10 years, polled 16.8 million votes - not enough to beat new newcomers Mark Crawford and Jason Miller who both won more than 18 million votes.
Crawford said the vote was not a reaction to a failed merger proposal with PPCS - wanted by PPCS but not Alliance.
"I think it was more the desperation that farmers found themselves in with low returns for their stock," Crawford said. "It wasn't a personal thing against Murray and John."
