SOE Minister Shane Jones is questioning whether Fonterra has an auditing issue or a governance problem. Photo/Michael Cunningham
SOE Minister Shane Jones is questioning whether Fonterra has an auditing issue or a governance problem. Photo/Michael Cunningham
More signs are emerging of potential Beehive intervention in Fonterra with Cabinet Minister Shane Jones suggesting the embattled dairy company's legislation should require "robust governance".
Jones, who as a minister for Fonterra's second biggest shareholder, state-owned Landcorp, has called for a Treasury report on Fonterra's shock forecast of assetwritedowns of up to $860 million, said he is keen to talk to Agriculture Minister Damien O'Connor about the DIRA legislation after Fonterra's 2019 financial results next week.
Government changes to DIRA, the Dairy Industry Restructuring Act which enabled the creation of Fonterra from a 2001 industry mega-merger, are currently going through Parliament. DIRA does not address governance standards, nor do the proposed changes.
Jones wants to discuss his DIRA concerns with his NZ First caucus and Labour's O'Connor after Fonterra's financial results and once the Ministry for Primary Industries, working with Treasury, has provided O'Connor with a results analysis.
"I've asked to discuss with Damien O'Connor, in terms of the DIRA changes, are we confident that (Fonterra's) actual governance structure is fit for purpose for this huge organisation?.
"We need to remind ourselves Landcorp is the second biggest shareholder which makes the New Zealand public the second largest shareholder in Fonterra."
Government changes to the Dairy Industry Restructuring Act which enabled the creation of Fonterra from a 2001 industry mega-merger, are currently going through Parliament. Photo/Michael Craig
Jones questioned whether the dramatic forecast fall in the value of several Fonterra assets was an auditing issue or a governance problem.
He questioned if the pool of director talent Fonterra draws from was "too shallow", noting the company did not have an independent chairman and that its board included two former partners of its longtime auditor PwC.
Fonterra is a farmer-owned cooperative. It has up to seven farmer directors and four board appointed governors. Its chairman must be a farmer-shareholder.
Jones said the Fonterra Shareholders' Council, advocate for farmer-shareholders, had been "a cat's paw" for the Fonterra board. He noted councillors had graduated to the Fonterra board.
"It truly is a great puzzle to me as to why farmers have been so acquiescent and so willing to believe the board and suffer this sort of loss. There hasn't been a peep out of them."
It's not the first time Jones has given farmer governance quality a serve.
In July, during the controversial sale of the historic Westland dairy cooperative to Chinese giant Yili, he told the Herald changes to Overseas Investment Office rules were needed "to protect New Zealanders and their sovereign economic assets from the governance failures of farmers".
Westland was a distress sale. Jones said OIO rules needed to be changed so Fonterra "does not go the way of Westland".
Jones, who is also Associate Minister of Finance and Regional Economic Development Minister in the coalition Government, said as a senior politician and Landcorp representative minister "I have every right to express these views on behalf of the New Zealand public."
"Fonterra only exists because a government passed legislation giving it unrivalled commercial advantage. This needs farmers and politicians to discuss the need to improve the talents on the board for a more robust governance structure."
Competition watchdog, the Commerce Commission, rejected the proposal to create Fonterra from an industry merger in 1999. However it looked at the proposal only from a domestic market view, while industry leaders argued it would be a national export champion.
The National government went along with the commission's decision, but later that year a Labour coalition won the general election and Helen Clark's new government promoted new legislation to allow the merger without Commerce Commission scrutiny. In October 2001 Fonterra was formed.
Jones said the Treasury report on the Fonterra's asset writedowns and financial reporting was now awaiting Landcorp's formal response. It would go to the NZ First caucus and appropriate Government ministers who would decide if it should be published.
Agriculture Minister Damien O'Connor has been approached for comment.
Fonterra, which has forecast a loss of $590m-$675m, will report its FY19 financial results on September 12.
