Australia's largest dairy cooperative Murray Goulburn (MG) looks set to follow Fonterra in adopting a specialised financial instrument to expand its capital base while retaining exclusive farmer ownership and control.

MG said in September that it had started a funding review to investigate the most effective and efficient capital structure for the co-op - which is Australia's biggest dairy company.

Managing director Gary Helou told Friday's annual meeting the coop had had undertaken a review of its capital structure in light of "significant" growth opportunities emerging, particularly from its export markets.

"In pursuing growth for MG, our core objective is to significantly increase underlying farmgate returns," he said. "We believe increasing the underlying farmgate returns by A$1 per kilogram milk solids by 2017 will deliver the level of return MG supplier/shareholders require to have confidence to invest in their farm businesses and grow milk production," he said.


Helou said management was not proposing any change to Murray Goulburn's co-operative structure and farmer control.

"We believe the co-operative structure is at the heart of our success and we want to reassure all supplier/shareholders that we are not proposing any change to it," Helou said in speech notes to Friday's meeting.

"We are considering a funding model that maintains 100 per cent farmer control, but allows external investors to invest into MG - a model similar to the one recently implemented by New Zealand's national dairy co-operative, Fonterra," he said.

Units in the Fonterra Shareholders Fund listed on the NZX and ASX one year ago. The fund is a non-voting unit trust, which enables external investors to gain access to Fonterra's dividend flow.

"We believe this is a more effective and efficient capital structure for MG to pursue because it diversifies MG's funding mix away from traditional bank debt, which has historically been the co-operative's primary source of funding," Helou said. "This structure also provides a market value for MG shareholder equity, while still maintaining 100 per cent farmer-control," he said. Murray Goulburn has appointed advisers to develop an MG tailored structure.

Helou said the proposal was not connected with its current A$9.00 a share current battle for control of Warrnambool Cheese and Butter.

He said MG has said it intended to fund this acquisition with financing facilities available from our existing lenders, NAB, ANZ and Westpac.

MG shareholders, after a series of explanatory meetings , will vote on the capital structure proposal in May 2014, with a view to a July 1 ASX, 2014 listing date.

MG, the second-biggest shareholder in Warrnambool, is battling with Bega Cheese Ltd and Canada's Saputo Inc for control of the company.

On November 1, Fonterra said it had entered the fray by acquiring a acquired a 6 per cent holding in Bega Cheese.

Fonterra's units last traded on the NZX at $6.54, down 2c.