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FARMERS WEEKLY – farmersweekly.co.nz – December 13, 2021
Farmers back Fonterra restructure Hugh Stringleman & Gerald Piddock FONTERRA’S new flexible shareholding proposal has received 85% approval from farmers who voted before and at the special general meeting. The board received a strong mandate for change when 85.16% of votes were in favour and 82.65% of eligible votes were cast. With that clear mandate, Fonterra would work with the Government on how to give effect to the changes through the Dairy Industry Restructuring Act. Chair Peter McBride believed that the co-operative and the Government were philosophically aligned and that a regulatory framework would be found. During the short special meeting no farmers spoke for or against the proposal after the motion was put, except one in the room in Invercargill who congratulated the company on its widespread consultation. In essence, Fonterra’s farmers had to decide whether they are a co-operative or corporate and the current model, with a foot in
NEXT STEP: With a clear mandate, Fonterra will now consult the Government on how to give effect to the changes through the Dairy Industry Restructuring Act and chair Peter McBride is confident that common ground will be found.
both camps, was not sustainable, McBride said. “If we are only interested in the value of our shares, then we should fully corporatise right now,” he said before the special vote was finalised. “But if we want to be a strong
and enduring co-operative, we believe the capital structure changes we are recommending are the best course of action available.” Fonterra has not always lived up to its promise, but the capital structure discussion was not
about the past mistakes. It was about enabling the future and taking a long-term view. Where farmers decide to commit their capital, buy and sell shares between them, set benchmarks for milk quality, ethical and environmental practices and attract the smartest minds to work on farmers’ behalf. Agriculture Minister Damien O’Connor said it was a great result for Fonterra and the high percentage who voted yes was an endorsement of the board’s effort to regain the confidence of farmers after a period where it was a “muddled co-operative”. O’Connor said he had been in discussions with McBride prior to the vote and said they were aligned in wanting the best for Fonterra over the long-term. “There are obviously issues around competition law, the rights of minority shareholders and obligations that government has when overseeing legislation,” O’Connor said. “The proposal they put to farmers and then adjusted that has been brought to us – for the most part we support what they
That’s really important and that the changes support not just Fonterra and its shareholders, but also the opportunities for future generations of the dairy industry. Damien O’Connor Agriculture Minister have put down – but there may be some minor amendments to some of the issues that colleagues have raised.” Those issues include competition within the industry and that the rights of minority shareholders are maintained, he said. “That’s really important and that the changes support not just Fonterra and its shareholders, but also the opportunities for future generations of the dairy industry,” he said.
Good milk price and earnings: Hurrell Hugh Stringleman hugh.stringleman@globalhq.co.nz FONTERRA is demonstrating that it can generate solid earnings alongside a decent milk price, chief executive Miles Hurrell told the 2021 annual meeting in Invercargill and online. But because of the recent downward revision of the FY22 earning guidance, Hurrell added a qualifier phrase “to a point”. The recent increase in the farm gate milk price forecast to $8.40 to $9/kg milksolids was accompanied by a revised guidance of 25c to 35c, down 5c, as trading margins come under pressure. High milk prices, paid to farmers via the milk price model, make it harder for Fonterra to make value-add profits and pay
higher dividends on the share capital. Hurrell repeated the value targets for 2030, first published in mid-November, which include a steady increase in annual dividends to 40-45c a share by 2030. He also foreshadowed a potential return of capital to shareholders and unitholders of 60c by FY24, being a total payment of $1 billion. “We are also intending to make available around $2b for a mix of investment in further growth and potential returns to shareholders,” Hurrell said. Fonterra expects to deliver these improved results by emphasising the nutritional components of milk, especially grass-fed New Zealand milk, which has a carbon
footprint around 70% lower than the global average. Co-operative Council chair James Barron said that Fonterra had more work to do to meet the return on capital target of 9-10%, compared with the FY21 result of 6.6%. Hurrell says that his FY22 priorities included shifting from reset to growth, divesting in Chile and capital restructuring in Australia, and to narrow down and prioritise the nutrition science solutions. Board chair Peter McBride made reference to the environmental and carbon policies of the cooperative in response to changing consumer requirements. “Coordinated change at a national level is necessary if we want to keep the commercial
competitive advantage that comes with being the world’s most carbon efficient dairy farmers,” McBride said. With a science-backed approach and nationally coordinated investment, industry and government can solve the significant challenges of methane and water quality. McBride says the dairy industry can continue to export earnings at a sustainable pace. Nine procedural resolutions at the annual meeting were passed by votes in the 80 and 90 percentages. They included 86% approval for increases in remuneration for directors, the first since 2017, and 96% for the appointment of another member to the Milk Price Panel.
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GROWTH: Fonterra chief executive Miles Hurrell says his FY22 priorities included shifting from reset to growth, divesting in Chile and capital restructuring in Australia.
