KEY POINTS:
Dairy giant Fonterra is facing a possible class action from out-of-pocket farmers after a drop in the co-operative's fair value share.
Southland dairy farmer Greg Roberts said he decided to sell his 400-cow farm and spoke to a Fonterra representative about cashing in his shares.
"[I asked] should we take the default price or the June price and he said 'Take the June price because the shares are going up'."
However, Fonterra last month set the fair value share for the coming season at $5.57, down on both the $6.79 price the previous season and an interim valuation for the coming season of $7.01 made in December.
Fair value shares are purchased by farmers based on the amount of milksolids they supply. They represent the farmer's stake in the Fonterra co-operative.
Fonterra has said farmers enjoyed good returns as suppliers to the co-operative with the forecast payout a record $7.90 a kilogram of milksolids but unstable global financial markets, high commodity prices cutting into ingredients margins and the higher milk price had impacted on their investment.
Roberts said if the fair value share had been $7.01, he would be $200,000 better off than he is now. "We had no idea the fair value share was going down and were led to believe it was at $7 and rising," he said.
Roberts sold his farm for a change of direction.
"We've just had enough of farming and with the peak prices everywhere and everything just getting a little bit crazy we thought now's a good time to exit," he said.
"But if I had of known I was going to get screwed for 200 grand I wouldn't of, I would have bloody stayed there."
Pieter Brits, a solicitor at Dunedin law firm Rodgers Law, said the firm was investigating the possibility of a class action and whether advice given by Fonterra was actionable.
The action could cover any farmer who had decided to sell shares and believes they may have received misleading information from Fonterra.
"A lot of our clients are unhappy and we're definitely going to investigate it and there maybe more than just our clients that are unhappy and that have the same set of facts happen to them and we certainly think it warrants further investigation."
Brits said he could know within the next few days whether an action might proceed.
"What we will do is get an opinion done on what the extent of the misrepresentations may be that are actionable and then just look at that and advise our clients as to whether we think it's something that they should take further or not."
It was hard to say how big any potential action could be and the law firm had not yet spoken to Fonterra.
Fonterra yesterday said it was not appropriate to discuss individual shareholder matters through the media. "When we're advised of the matter through the proper channels we will consider it under the usual processes," a spokeswoman said.
When Fonterra set the interim fair value share for the coming season at $7.01 in December it chose the mid-point of a valuation range of $6.49 to $7.54 by independent valuers Duff & Phelps.
Chairman Henry van der Heyden said in December the valuer had recognised that compression of ingredients margins had been more than made up for by improvements in Australian operations and the Soprole investment in Chile.
The valuer had also recognised additional business efficiencies and cost savings initiatives.
However, in May the fair value share was set at a lower $5.57 for 2008-09, 11c below the mid-point of another Duff & Phelps valuation range of between $5.26 to $6.11 a share.
Fonterra increased the forecast payout to dairy farmer by 60c to $7.90 a kilogram of milksolids, while also setting a record opening forecast of $7 for the new season.
The fair value share drop was said to be broadly comparable with the year's drop in share price in New Zealand.
FAIR VALUE SHARE
* Purchased by Fonterra farmers based on the milksolids they supply.
* New season valuation down 18 per cent on last year.
* The credit crunch, high commodity prices and higher milk price have hit share value.
