Fonterra restructuring meets mixed response

Fonterra shareholders look set this week to approve the first two of three steps of its capital restructuring proposal, but resistance to the third stage, which will be considered next year, is already evident.

Farmer attention has already being drawn to that contentious third step, the trading of shares among farmers, which will not be debated at Wednesday's annual meeting in Ashburton.

Company and farming leaders appear confident the initial vote on the first two stages - strengthening the share structure and restricting the value of company shares - would get the required support of 75% of voters.

Some have questioned whether Fonterra would achieve its goal of attracting extra capital from shareholders, with farmers more likely to use income from higher milk prices to reduce debt and restore cashflow than buy extra shares.

Fonterra chairman Sir Henry van der Heyden said that at recent shareholder meetings farmer focus had been on the third stage of the plan, which he said he had not fully considered or was one he wanted to discuss until after Wednesday's meeting.

Sir Henry said Ashburton's meeting was "fundamental" in the life and development of the dairy co-operative.

"It's probably in the same ball park as when Fonterra was formed."

There has been plenty of discussion about reshaping Fonterra's capital structure and Sir Henry said he was pleased the issue was being addressed.

The announcement last week of a lift in the forecast payout from $5.20 kg milksolids to to $6.05 kg/ms had boosted farmer morale, he said, but the key was to translate that morale in to the required 75% support of voters, and he urged farmers to vote.

The increased milk price reflected market prices, he said, but also the volatility, given that just six months ago farmers were facing a $4.55kg/ms payout.

Federated Farmers Dairy section chairman Lachlan McKenzie said the lack of farmer debate on steps one and two indicated support, unlike step three which had attracted much more attention and would need revising if it was to be supported.

Mr McKenzie said farmers were concerned the share trading proposal, step three, shifted the risk from the company to farmers.

It could also make it easy for outside investors to own some of the company.

"Farmers are looking over the horizon and want to know what the company would look like to 10 to 20 years time," he said.

Others have said the vexed issue of trading shares also came with hooks, with demand and value likely to plummet in years of low payout.

Some questioned whether it adhered to the co-operative principle of fair entry and exit for shareholders.