Everything is awesome, or so it seemed listening to Fonterra's slick interim result briefing yesterday.

Profits and dividends have doubled and the company has even started paying down debt.
But with global milk prices so low that most farmers are struggling to break even, things won't be feeling so awesome for Fonterra's shareholders.

It is the nature of the Fonterra's unique corporate structure that bad times for commodities mean good times for the brands business. Low-cost ingredients mean bigger margins on yoghurt, flavoured milk drinks - all those value-added consumer products we keep saying we need to be making more of.

The best case for most farmers is that they will tread water through at least two tough seasons. Those who are heavily indebted face bigger problems, with the Reserve Bank warning farm prices may plunge and banks might write off up to 15 per cent of dairy lending. That's a lot of farmers potentially losing their livelihood. It would be a crisis for rural communities. So why the disconnect with the result?


A simple but popular narrative is that Fonterra failed to move fast enough to shift the focus of its business. It rode on the big commodity boom and failed to use the good times to prepare for the inevitable slump.

Chief executive Theo Spierings rejects this outright. Yesterday's result shows Fonterra's brands business has grown by 10 per cent since the same period last year. The co-operative has shifted nearly a billion litres of milk to high-value products in the past 18 months. By any measure that is very rapid growth, he says.

But what then is the solution? Is it time to take another look at Fonterra's capital structure?

In 2007, farmers toyed with splitting the company and floating the brands business on the stockmarket with 51 per cent farmer control. Despite support from then-chairman Sir Henry van der Heyden, farmers rejected that model.

A listed brands business would have had the capital and focus to grow to rival the likes of Nestle and Danone. For many farmers it just meant giving up too much control. It is their co-operative and their choice. But if they are not prepared to look at fundamental change then they are going to have to accept that surviving commodity slumps like this one is a fact of life.