Fonterra: an unexpected journey

Fonterra Cooperative Group’s Trading Among Farmers could be the start of a highly innovative and exciting chapter in its history.

“Cash is king as they say and I suspect more than a few bank managers will be starting their countdown timers,” says Willy Leferink, Federated Farmers Dairy chairperson.

“Given debt pressures facing some farmers, selling down a percentage of their economic interest in Fonterra, no more than seven percent, could be attractive.  It is an option that has never existed before and I think some farmers will take it up.

“Kiwis will be able to share the success of the dairy industry, albeit indirectly through NZX listed funds.  This could build an understanding of what we do and investors may be pleasantly surprised at just how ‘environmental’ dairy farmers truly are.

“The number of external unit holders of course depends on the take-up of farmer-suppliers.  If each farmer-supplier invested $50,000 that hits the $525 million upper limit set for the fund.

“That won’t happen but we can depend on an exceptionally high level of industry interest.  It is why I see potential for the greater use of ‘friendly capital’ from retired farmers, sharemilkers and even Fonterra’s own staff.

“This ‘Friends of Fonterra’ could enhance pathways into the industry.  Many sharemilkers will be thrilled at the prospect of buying Fund units because units are convertible to shares, should a unit holder go farming in their own right.

“It is an innovative means to build and broaden someone’s capital towards the ultimate goal of farm ownership.

“For farmer-suppliers, a positive is removing that annual financial black hole we know as ‘sharing up’.  While shares are still based on production, it becomes spread over three-seasons with shares being purchased from the farmer-shareholder market.

“In life, however, it is not necessarily where you start but where you end up.  Trading Among Farmers changes the focus towards dividend performance.  I am not saying that is a bad thing but it will mean different drivers.

“It puts real acid on the Board, management and Shareholders Council to deliver what we have been promised from Fonterra’s strategy refresh.  Of which, I have to say, Trading Among Farmers is the centrepiece.

“Being the ‘union’ I suppose you can say, our role in this world-first is to watch out for how this benefits our members individually.  I am optimistic but as we start out on this journey we must ensure it doesn’t lead somewhere unexpected,” Mr Leferink concluded.