Farmer concerns easing on structural change: Fonterra

Henry van der Heyden. Photo / Kenny Rodger

A series of meetings by dairy co-operative Fonterra has eased some fears among farmers about capital structure changes, says Federated Farmers Dairy vice-chairman Andrew Hoggard.

The farmer co-operative is planning a capital structure change - last year given 89.85 per cent support by farmers - aimed at removing redemption risk and providing permanent share capital, with farmers buying and selling shares among themselves rather than with the company.

Fonterra said farmers would be able to place shares with the Fonterra Shareholders' Fund, and be paid the share value for the rights to dividends and any change in market value, while retaining voting rights.

When a farmer wanted to place shares with the fund they would place a sell order on the fund market and once a trade was matched with a unit investor the farmer would transfer the share to the custodian, which would hold the legal title.

To regain the economic interest of shares, farmers would need to buy new shares or units, which could be converted back into shares by applying to take them out of the custodian's "locked box".

About 50 meetings were held nationwide. "I think it's gone some way to putting some farmers at ease," Hoggard said. "I would still say there's probably a good number out there that still have concerns and will be wanting more information, more clarification."

There were concerns about the transfer of shares to the custodian. "That's where guys have the concern around who's going to run it, who's in charge of it, who are they representing, whose interests have they got at heart, can they make a mess of things, can they influence it so there's a higher dividend price than a milk price. From what I've heard people saying, that's the crux of what the concerns are."

There had been concerns about voting rights before the meetings which Fonterra had put to rest, Hoggard said. "I think that redemption risk's still there and it still needs to be dealt to."

Fonterra chairman Sir Henry van der Heyden said a lot of the questions were around the details, particularly the custodian and whether it threatened 100 per cent ownership and control.

The custodian was a fully owned subsidiary of Fonterra, he said. "We've made it very clear to everybody around 100 per cent control and ownership but ... we were listening and taking farmers' concerns on board too.

"Anything that threatens 100 per cent [farmer] ownership and control we will not go there, that's our bottom line."

It was too early to say if the meetings would result in any changes to the proposal, which needed legislation and Fonterra Shareholders' Council support.

Fonterra was working towards going live with the changes later next year. Van der Heyden said: "We've got a high degree of confidence that we can deliver what farmers actually voted on."