After the 2007-08 drought, Fonterra paid out $600 million in net equity to its shareholders, showing just how vulnerable the dairy co-operative's model was to production fluctuations.
Equally, there could be further redemptions this year: new season's milk production is slow after a wet, cold winter and lower farm inputs.
Fonterra has reported daily flows were 6% below last year, which could mean farmers having shares that could be redeemed exceeding their production.
Fonterra suppliers must own one share for every kilogram of milk solids produced, but their required shareholding can fluctuate in line with their production.
The commercial manager with Fonterra's trade and operations, Jason Minkhorst, said share redemption from such fluctuating production posed a major risk to Fonterra and was part of the thinking behind a review of its capital restructuring.
"The problem we have got is creating permanent equity and a structure where shareholders want to retain equity in the co-op," he said.
But during drought or periods of low milk price, when shareholding exceeded milk produced, farmers wanted the cash in their pockets.
Mr Minkhorst said net equity at May 2007 was $4.8 billion, but it fell to $4.2 billion by July 31 last year.
By the end of July 2009, it was expected to have improved by $270 million.
Fonterra had started addressing its capital base by ending unshared milk supply (accepting milk without the required shares), a move he said was hard on shareholders but necessary for the company's balance sheet.
Chief financial officer Jonathan Mason said the co-operative's ethos of paying out most or all of its earnings was telling when drought hit or shareholders wished to exit.
Fonterra was considering projects that required substantial up-front investment but had a healthy payback, but there was a mismatch between those investments and the company's goal of maximising the milk price through added-value activities.
Mr Mason said that in the past year, companies such as Fonterra, with its AA- and A+ credit ratings, were struggling to get debt finance.
"To enhance and maximise the value of New Zealand milk, it would be nice to have more permanent capital; not outside capital, necessarily."
