NZ: Fonterra chairman hails initial reform success

The chairman of New Zealand dairy giant Fonterra have praised the co-operative's members for "stepping up to the plate" and backing plans to restructure the business.

Fonterra's directors want to secure more funding from the co-operative's farmer-members and shore up the company's balance sheet.

On Wednesday (18 November), the farmers backed plans to allow them to hold shares up to 120% of their milk production.

The proposal was put forward to help reduce Fonterra's "redemption risk", which occurs because the co-op's share levels are related to milk production and the business is responsible for buying shares back off farmers when they want to redeem them.

After milk production fell during the 2007/08 drought, Fonterra had to pay out NZ$742m (US$536.7m) of equity to farmers via redemptions.

The second proposal passed at the vote on Wednesday was to change how the value of the company's shares is calculated.

Fonterra chairman Sir Henry van der Heyden said the high vote expressed "great confidence in the co-operative and our future".

"It is also a great comment on our farmer shareholders," he said. "They told us they wanted to retain 100% control and ownership of our co-operative. They said give us the opportunity to back our co-operative. Today they have stepped up to the plate in a big way to strengthen our co-op."

Under the plans, a third proposal - where farmers buy and sell shares among themselves, rather then transacting through the co-operative - could be discussed and voted on next year, with implementation possibly in 2011.

A previous move from Fonterra to restructure the business was rejected by farmers two years ago. The co-op's members resisted moves from Fonterra's management to divide the co-operative in two and float its business operations as a separate company.

However, Fonterra's current strategy has won plaudits from its members.

"I have never seen a more genuine consultation process undertaken. Shareholders' feedback has been listened to and act on," said Blue Read, chairman of the Fonterra shareholders council.

"The priority for council has been to ensure that shareholders have a good understanding of the issues, the options and the solutions proposed so they could cast an informed vote with conviction. It's evident that farmer feedback has shaped this proposal. And that has been very satisfying and encouraging for council."