Support for TAF from southern councillors

Fonterra Shareholders Council's three southernrepresentatives have expressed their support for Trading Among Farmers and urged shareholders to become fullyinformed before voting on the controversial scheme.

Grant Scott (Otago), Lloyd McCallum (Eastern Southland) and Philip van der Bijl (Western Southland) were among the majority of councillors who resolved to support the introduction of Trading AmongFarmers (TAF) "subject to the few outstanding issues being delivered on".

In a statement yesterday, the trio acknowledged shareholders would be seeking their assurances that TAF would protect and serve their interests, before the special meeting on June 25.

Mr Scott identified 100% farmer control and ownership, and the integrity of the farm-gate milk price as "non-negotiables" and defining foundations of the council's TAF philosophy.

"I had some quite large reservations about the initial TAF proposals and as a Fonterra shareholder and supplier I, along with Lloyd and Philip, was quite vocal in the fact that I had reservations about some of the details.

"At that time it was unclear to me as to how the fund size could be managed so that it would be maintained within a tight range.

"The fund is only there to enhance price discovery and, therefore, it never ever needs to be allowed to grow beyond a size that achieves this.

"The board has proposed a change to the constitution to lower the number of dry shares and lower the limit of the fund size and this has gone a long way to provide the comfort that I required to convince me that TAF can work to our advantage," he said.

Ensuring the integrity of the milk price and providing the council with powers in the event the Shareholders' Fund went above various thresholds would better enable the council to oversee TAF from farmer shareholders' perspectives, he believed.

"This additional council control will act as shareholders' ultimate protection," he said.

Mr Scott told the Otago Daily Times there were a lot of people who were "a bit annoyed" about the TAF process and he was concerned they were letting that issue get in the way of looking at the scheme "a little bit dispassionately".

One or two people had said they were not going to support it because of the way it had been handled and that concerned him.

"To me, that's getting very close to cutting off your nose to spite your face."

While he could understand why some shareholders were feeling aggrieved - "I think it probably hasn't been handled with a whole heap of sensibility" - and he personally shared concerns about how it had been done, Mr Scott said he was trying to put that issue to one side.

There were also still "quite a number of shareholders" who believed the scheme was a capital raising "when it's actually not that at all".

While Mr Scott said he was not telling shareholders how to vote, they needed to understand TAF and be "getting their questions on the table".

There was a "total focus" from the council on communicating with farmers to make sure they "absolutely understand what TAF is and what they are being asked to vote on".

Mr McCallum said the decision to support TAF was made after an extensive review, during which time his uncertainty over the new capital structure faded away.

"When the first TAF proposal was put to the council most of us were unconvinced that it would do what it was advertised - remove redemption risk to the co-op while also providing the required level of protection to farmer shareholders.

"But as we reviewed the different incarnations of TAF with the council's legal advisers and our suggested changes to improve farmer protections within TAF were implemented, the council became more comfortable with the structure to the point where we were confident to back its introduction."

With comfort around ownership and control established, Mr van der Bijl was keen to see what Fonterra could achieve moving forward with a stable capital base.

"People speak of risk but there is risk in anything, especially standing still when the business world in which you operate is constantly changing."

Many shareholders had concerns about the introduction of the GlobalDairyTrade online auction and, in many respects, TAF was similar.

"There were grave predictions that its introduction would lower our returns and generally work to our disadvantage.

"The reality two years on has been that these fears were unfounded. However, it was very hard to prove the value of GDT before it was implemented," he said.

It was important shareholders were aware the council still maintained its constitutional right to a final decision on TAF and there were "still a few rivers to be crossed", Mr McCallum said.

Councillors will meet shareholders throughout their wards before the final vote to provide details on the council's position and attempt to provide more clarity on TAF, where required.

sally.rae@odt.co.nz

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