Mega deal limits shares to farmers

By Philippa Stevenson

The compromise dairy industry ownership deal thrashed out at last weekend's Big Three company summit proposes that farmers alone will hold the two classes of shares in the mega co-op - for now.

Mega co-op establishment board chairman Graham Calvert said yesterday the shares, whose values would fairly reflect farmers' investment in factories and marketing, would be tied to milk supply.

One share would be in the manufacturing and ingredient, or commodity, business and would not pay a dividend.

The other would be in the high-risk consumer products business, which is predicted to grow rapidly and have the most chance of raising industry returns. It would pay a dividend.

In the Dairy Board's original proposal in May, it was proposed that the consumer business shares could be sold to outside investors.

The deal brokered between the Dairy Group, Kiwi and Northland companies has ruled that out in the short term.

But Mr Calvert said the structure would be reviewed in two to three years.

"At the moment there is no necessity for outside capital but that could well change depending on business developments, and so it will be reviewed then to see whether it will be tradeable or not."

Mr Calvert said working out the detail of the proposal, including share values, would take about six weeks. It would then be unveiled to farmers, along with the rest of the proposed constitution of the mega co-op, at a series of meetings.

The higher share value will be a significant barrier to new industry entrants, particularly sharemilkers, but having two different shares was expected to address that in part, said Mr Calvert.

"You can actually have a time payment system to come in or go out. They don't have to be locked in to be exactly the same. That will ease that problem a great deal."

The mega co-op proposal requires 75 per cent farmer support and Commerce Commission approval.

Mr Calvert felt sure "the Commerce Commission's main concern will be fair value; so we'll have to ensure we have that as a robust system."

The industry expects to re-submit an application to the commission in December, and get a response in March or April.

Presently, farmers have nominally valued shares in their company - usually worth about $2 - and the rest of their off-farm investment, which includes the Dairy Board, is capitalised into their properties.

When farmers sell their farm, or stop supplying milk, the shares are resumed by their company over about three years. Newcomers buy shares from the company if and when it accepts new supply.