But while the windfall will be welcomed, a local farming leader doesn’t think there will be a big spend-upto share the money around the local economy because of global uncertainty.
Fonterra’s farmer shareholders – that include almost 400 in Northland – will discover the fate of their investment in the co-op’s Consumer and related businesses when voting closes today.
Indications are that they will give a green light to the $4.2b sale to France’s Lactalis which, if it goes ahead, will be one of the biggest single transactions the market has seen in recent years.
Fonterra is targeting a tax-free capital return to farmers of $2 per share from the transaction, or about $392,000 in total for an average farmer.
The sale, which includes a long-term agreement for Fonterra to sell milk and ingredients to Lactalis, is expected to go through in the first half of next year. It involves the sale of some of Fonterra’s most recognised brands, including Anchor and Mainland.
Fonterra says the capital tied up in its consumer business, while profitable, is better directed to its Ingredients and Foodservice businesses, which offer better returns on the capital employed.
While $3.2b will be returned to farmers, Fonterra aims to retain about $1b to invest over the next three to four years in projects to generate further value through its remaining Ingredients and Foodservice businesses.
Northland dairy farmers are set to get a huge financial boost if the country’s Fonterra farmers vote agree to selling some of its most recognisable brands to French giant Lactalis for $4.2 billion
With almost 400 Northland dairy farmers, that could mean more than $152m poured into local farmers’ bank accounts. However, Northland Federated Farmers president Colin Hannah said global uncertainty meant spending sprees by farmers that would circulate the money into the wider regional economy was unlikely.
“I’d hope they would, as every $1 spent by a dairy farmer goes around the economy six times, as it is spent again and again in local businesses, but I just don’t think they will at this time.
“With all the global uncertainty at the moment, it’s not the right time to be splashing the cash,” Hannah said.
“The first priority for most will be to pay down debt, and we’re already seeing that.”
Hannah said many farmers were using the record $10 a kg of milk solids payout this year to mainly pay back the banks, with the uncertainty making it less likely they will spend more.
“Many of our farmers have deep pockets but short arms and they know that paying off debt or having the money in the bank is far better at the moment, given that uncertainty.”
Fonterra is selling its consumer businesses, including brands like Anchor, Mainland, and Kāpiti. Photo / Bloomberg via Getty Images
Hannah said in normal times, when farmers received big payouts, they would spend up large on equipment and machinery, boosting the local economy.
But in tough times belts were tightened across the region.
" ... Dairy farm spending is a big driver of our regional economy and employment, and both need help," Hannah said.
He did not have high hopes that the money would be spent.
“If you look at the Fielddays in June, there were a lot of farmers just tyre kicking rather than buying up, and the feeling is that there’s too much going on in the world right now and farmers, like all business, like certainty.”
ASB chief economist Nick Tuffley said Fonterra’s capital return would represent a meaningful financial uplift for dairy farmers, with the average return around $392,000.
The resolution requires a simple majority of over 50% and a result should be known today.
If the vote fails, the transaction will not proceed; a capital return will not be made; and Fonterra will continue to own the consumer and associated businesses.
