Fonterra, New Zealand's most successful international trader, our only truly multi-national enterprise, a world leader in dairy exports, has been trying for years to become more like a normal company. It will try again today when many thousands of its farmer-owners meet to vote on a share trading scheme to give the company a more stable capital base.
On the face of it, there can be no argument that the "trading among farmers" (TAF) scheme is necessary to secure the company's capital against sudden heavy payouts to farmers who want to redeem their shares, as happened after the 2008 drought and global financial crisis when farmers pulled $600 million out of the company.
Nor, on the face of it, does the TAF appear to threaten to dilute farmer ownership of the co-operative since the stock that non-farmers might hold are derivatives without voting rights. But many farmers have not been convinced on this score.
The finer points of the scheme look fiendishly complicated. Two markets will be set up, one for trading of shares between farmers, the latter a fund that will receive dividends but not ownership rights of shares sold into it. The fund will be listed on the stock exchange and units can be bought by the investing public.
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Farmers might reasonably wonder why they need to provide the fund since the TAF appears to remove Fonterra's redemption risk. But the secondary market would seem to be in their interest because it would offer them an alternative when their share price drops, as it would in hard times with more of them wanting to sell.
The scheme has set a ceiling on the fund of 20 per cent of the company's total share issue and a registered volume provider, or "market maker", will be able to trade between the closed and open markets to maintain the scheme's twin purposes: continued farmer control of the company and ample stock for trading.
Fonterra wants access to equity capital wherever it can raise it so that it can take new opportunities and retain its competitive position. But its attempt to set up a separate listed trading company in 2007 was eventually defeated by farmer votes. The latest scheme appears to pose no threat to farmers' co-operative control. Fonterra's good faith in this respect is the reason they are having a vote today. It is the second they have been given on the scheme. The first, in mid-2010, produced an 89 per cent majority in favour but Fonterra decided not to proceed in the face of subsequent concerns and has lowered the ceiling on the fund.
Farmers have had a month to contemplate today's vote. They are also contemplating lower international prices and reduced payout forecasts, the sort of conditions that can cause farmers to reduce milk production and require the co-operative to pay them out from its capital reserves. This money is more like a loan to Fonterra than the secure equity every company needs.
Fonterra's board is looking for much more than a bare majority of the vote for the TAF scheme, indeed it has said it will not proceed unless the scheme receives much more support than that. A 75 per cent majority may be wanted here, too.
The farmers' dilemma is well understood by the rest of the country. It is the same conflict between security and aspiration that arises when public assets are sold or a company goes into foreign ownership. Should we protect what we have or be open to larger possibilities? Fonterra is already a global success, though not as a retail brand where our food products should be.
But it is highly successful as a supplier to brands and does not want to compete with them. It knows its business and believes it needs a broader capital base. Farmers should trust their company and vote for this scheme.