Fonterra's capital restructure will cause share devaluation pain but there's no way to sweeten the deal because "the cupboard is bare", says former deputy chairman Greg Gent.
"Most capital restructures in the dairy industry through the generations have been done with a bit of a sweetener to get there. This one can't be. The balance sheet can't stand it," said Gent, one of Fonterra's 10,000 farmer-shareholders.
"When this lot arrived (the current board) the cupboard was bare. They've inherited that, it's not of their making."
Gent believed the capital restructure proposal was the right one for the world Fonterra now worked in.
"What farmers don't like is the pain of getting to it with a devalued share. But there's no way to sweeten that."
Prices for Fonterra's two listed securities dropped sharply after the restructure proposal was announced on May 6 but have rallied recently as the farmer-owned co-operative's nationwide consultations on it have progressed.
The falls reflected uncertainty over the company's proposal to restrict share trading to a farmer-only market, by abolishing or capping the listed Fonterra Shareholders' Fund, which offers the public dividend-carrying, non-voting dividends in farmer "dry" shares.
These are shares held by farmers that are not required to cover their milk supply. Only farmers can own Fonterra shares. They can divest dry shares into the fund as well as trading "wet" or milk supply shares in their own Fonterra Farmers' Market.
Gent said the current capital structure, introduced in 2012, was "totally appropriate" when there was a growing flood of milk.
"We were having to build stainless steel (to process it) - we had to fund that.
"But I'm one who believes milk is going to shrink. There's no way through it. We will have less milk supply and we need a different capital structure."
He supported the proposal for the fund.
"Once again, the fund made sense when milk was growing. We are now in a different world.
"I think farmers are going to have to take a big swallow and think that in the longer term for the business, it's the right thing to do - as much as they can, shut out the short term effect, which isn't pretty."
Asked if he believed a farmer-only market share price would improve if Fonterra's performance did, Gent said the company "feels like a different place".
It "felt" better than it ever had since its formation in 2001, which hopefully would translate into financial results.
Fonterra's board on Monday said it was considering some changes to the original proposal after farmer feedback. And, in response to farmer requests for more information on the new business strategy, it would provide performance and investment forecasts.
Farmers have invested $8 billion in the company in the past decade for disappointing returns. The previous business strategy culminated in huge losses in 2018 and 2019. This prompted adoption of a new direction under new management and a largely new board.
Gent said the proposed changes being considered were "at the margin".
"Fundamentally the thing hasn't changed. But I don't think it can."
He said the business strategy change had seen Fonterra's consumer product branding on supermarket shelves "subtly changed" to speciality ingredients.
"Frankly I think that's their core capability. It's more IP-intensive and less capital-intensive. It means more capability out of Palmerston North (Fonterra's research centre) than it does heavy capital.
"That is way better in a co-operative model."