Dairy giant shelves equity trust idea

Fonterra farmers have to hold one Fonterra share for every kilogram of milksolids supplied each season. Photo / NZME.

Fonterra has put on hold plans to develop an Equity Partnership Trust that would have given its 10,500 farmer suppliers access to investor capital to help them with the compulsory purchase of Fonterra shares when they increase milk production.

Chief financial officer Lukas Paravicini said the decision to shelve the trust proposal was a consequence of UBS deciding to end the advisory role for reasons unrelated to the trust itself, as well as volatility in dairy and equity markets.

"These two factors mean that it is appropriate to hit the pause button," he said. "We will take the time needed to review the structure of the proposed trust and its implementation as market conditions unfold."

The world's biggest dairy exporter had sought feedback from 150 farmers in focus groups around the country on the idea, which was first mooted in September last year with the launch of its Farm Source brand. Fonterra said they were supportive of the idea and understood the reasons for it being put on hold.

Given the current dire prospects for a second season of low dairy payouts, there's likely to be a number of farmers looking for more equity to assist with the requirement to "share up", said Federated Farmers dairy chairman Andrew Hoggard. Fonterra farmers have to hold one Fonterra share for every kilogram of milksolids supplied each season, and there have been concerns growing milk production would mean some suppliers will have to borrow to meet their obligations.