Fonterra's choice of a long-term grassroots insider as interim chief executive is a very public statement that it is a farmer-owned business, says veteran sharemarket analyst Brian Gaynor.

But Fonterra should also remember that a "huge" amount of its funding and borrowing comes from the non-farming investment community and it should improve its communications with that sector accordingly, said the Milford Asset Management executive director.

Fonterra's appointment of 44-year-old Kiwi Miles Hurrell, who has worked for the company for 18 years in a range of New Zealand and international management jobs, has been welcomed by farmer-shareholders.

But the sharemarket community has yet to be convinced it will get Fonterra back on track to be the national champion it was created, and enabled, to be under special 2001 legislation.


Craigs Investment Partners' Mark Lister said while it looked "sensible to have a local in charge" whether it was enough "to turn the ship around is another story".

Hurrell will replace Dutchman Theo Spierings who exits on September 1.

The global search for a new chief executive has been halted.

Fonterra, a farmer-owned cooperative and New Zealand's biggest company, has non-voting, dividend-qualifying units listed on the NZX and ASX.

Under fire from the Beehive and its own shareholder base for its financial performance, capital investment decisions and losses, criticism of Fonterra was compounded last week for its surprise decision to claw back 5c/kg milksolids of its forecast 2017-2018 milk price payment to farmers and axe the prospect of a second half-year dividend.

The big cooperative has also been grappling with the almost simultaneous exit of its embattled chairman and chief executive.

Former chairman John Wilson has stepped down citing health reasons and Spierings' exit was signalled earlier this year after Fonterra's half-year financial results.

Federated Farmers vice-president Andrew Hoggard, a Fonterra dairy farmer, welcomed Hurrell as "a good bugger" who would connect well with farmers where Spierings had been "aloof".


Hoggard said Fonterra was "in a very confused space right now".

Gaynor said "most of us" had never heard of Hurrell which spoke volumes about Fonterra's lack of communication with the investor world and financial markets in the past four or so years.

"Fonterra has to recognise that a huge amount of its funding, particularly debt funding, comes from the non-farming community."

Gaynor said it was disappointing Fonterra had never achieved its potential performance heights, scoring 4 or 5 out of 10 in expectations instead of 8 or 9.

It had the opportunity to be a significant shareholder in sharemarket "darling" A2 Milk when its shares were only 40-60c but instead had opted to invest heavily in China.

Analysts have said Fonterra's capital investment losses in China top $1 billion.

Lister said the appointment of Hurrell shouldn't distract from the responsibility of the board in Fonterra's current woes.

"A lot of the poor decisions have rested with the board.

"There's still this governance issue hanging over Fonterra. It's probably not an issue for farmer-shareholders and [milk] suppliers but it just doesn't look right to have the milk payout propped up at the expense of the dividend and company earnings.

"We have all these other companies...available to invest in - why would I invest in one which has an oddball structure and isn't sure who it reports to? Does it report to farmers or answer to me as an investor who trusts it to make sensible decisions and use my money wisely?

"I'm still not convinced the structure [of Fonterra] lends itself to the right outcomes for investors and shareholders."

A Government review is under way of the New Zealand dairy industry and the law which governs it, which will examine Fonterra's statutorily-enabled dominant position in the domestic raw milk market.