By PHILIPPA STEVENSON
Fonterra has set its "fair value" shares in the giant dairy cooperative at $3.85 each for the 2002/03 season.
National Bank rural economist Kevin Wilson said the share value was close to the $4 most farmers and financiers had budgeted on.
As a result, the actual price would have
little influence on farm sales or the rate at which new dairy farms were being created, he said.
Traditionally, dairy company shares have had a nominal value of around $1 but "fair value shares" have been introduced with the new Fonterra and are designed to more accurately reflect farmers' investment in the company.
Farmers supplying Fonterra must hold one fair value share for every kilogram of milksolids they produce. They must also hold another capital instrument, peak notes, to cover fluctuating supply at the height of the season when expensive processing space is at a premium.
The initial share value is a preliminary estimate but, with the peak notes, gives Fonterra equity of $5.4 billion.
Standard and Poor's valued the company.
Under Fonterra's constitution, the value of shares must be set before June 1, the start of the dairy season, when most dairy farm and herd transactions occur. But to help farmers planning production levels and budgets for the season ahead, Fonterra has to advise its shareholders of an estimate of its fair value shares by December 15.
The Fonterra Shareholders' Council appoints a valuer, which then reports to the directors in early December with a preliminary valuation range, and in May with a final valuation range. Based on the advice, the board adopts the preliminary and final share value.
Fonterra's chief financial officer, Graham Stuart, said the Standard & Poor's valuation was the first time the industry had been subject to outside scrutiny of this kind.
The benefit of providing the preliminary estimate was that new entrants and existing shareholders who planned to increase production for the season ahead could set the purchase price of their new shares at the indicative valuation price.
