KEY POINTS:
In May, The Business investigated whether dairy exporter Fonterra, New Zealand's biggest company, had delivered on the promises its architects made five years earlier to the economy and dairy farmers.
We concluded the jury was still out. Fonterra had hit housekeeping targets but bombed out over trumpeted potential gains in added-value product earnings. Some overseas investments had crashed and burned.
Today, the jury is back. The verdict from the grassroots is that Fonterra is not performing.
Why should New Zealanders be concerned? Because Fonterra is the $13 billion annual big cheese in the domestic economy. It was spawned from a 2001 industry mega-merger which had Government blessing.
It lords over an industry which claims to earn 20 per cent of our export earnings. The livelihoods of most of the country's 12,000 dairy farmers are chained to its performance until real domestic competition for milk supply arrives.
Since our May story, the Fonterra Shareholders Council, a Fonterra-funded watchdog of the farmer co-operative's performance, has been strongly critical in its 2006 annual report - the first time it has attacked Fonterra publicly.
Milk payout was unacceptable, debt had increased above the board's target upper limit, "meaningful" value-add returns continued to elude the company, and Fonterra too often appeared reactive and slow to act, the council said.
An insider at the council - which represents all but a handful of dairy farmers - says this is crunch year for chief executive Andrew Ferrier.
Another watchdog, Federated Farmers dairy wing chief Frank Brenmuhl, says Fonterra has failed to deliver promised milk payment improvements to farmers.
Hyped-up industry leaders in 2001 led farmers to believe if they voted for a world-conquering super dairy company, their annual milk payouts would start at $5 a kg of milksolids. No more $3 and $4 years.
Brenmuhl notes that the comparatively tiny Westland and Tatua co-ops which stayed out of the merger have also not delivered on their payout projections - "meaning that the information given back then was speculative rather than real".
On the plus side, Fonterra has since May reported that total revenue for 2005-06 increased to $13 billion from $12.3 billion the year before. In merger year 2001, it was nearly $14 billion.
In our May story, Fonterra payout for 2005-06 was $4.10. The forecast for 2006-07 is $4.05.
Farmers are grumpy. Before the 2001 merger, $4-plus payouts were not uncommon. As a farming leader says, given inflation, today's farmers should be getting $6-plus.
Another plus: since May Fonterra has made its payout more transparent. The $4.05 projection translates to $3.60 a kg payment for milk that goes into commodity products and 45c/kg for value-add products. (Last year's value-add contribution to payout was 25c.)
Today, Fonterra's non-market share price continues to look unsustainable. In May it was $6.56, the year before $4.69. Fonterra suppliers must buy one share for every kilogram of milk supplied.
The average farm production is 100,000kg. But this year directors have for the first time opted to hold the earlier value of $6.56 for 2007-08, despite being offered a range of $6.40 to $7.43 by independent valuer Duff and Phelps.
Brenmuhl: "It means for the first time the board is recognising the [share] for many farmers is a constraint to growth as opposed to something valuable."
