Fonterra announced it’s capital restructuring plan. Now the farmers will get a chance, maybe if they are not too busy on their farms, to attend a meeting to discuss the plans. This process is one of the most important facing NZ in the near future, up there with ETS consideration. This is arguably our largest and only truly NZ private company. Its success is our success. In a low payout year with high debt levels already, Fonterra’s ability to raise capital internally could not be proposed at a worse time for many farmers. I hope they can but I have concerns that the ultimate outcome of the restructure is the inevitable float of Fonterra on the open market. Who then might get to control of our biggest company and second biggest export earner next to tourism??? Sir Henry Van der Hayden should have an inkling having served on the board of NZX until recently. I’m sure he can see the danger looming.
A suitable solution must be found for Fonterra to raise capital without control of our dairy industry ending up in the hand of an overseas corporate giant.
This also should apply to the likes of the Crafer farm. Sell this to a Chinese company! balance deleted Trevor
Floating any part of Fonterra, regardless of which ‘smoke and mirror’ mechanism is used, would be a disaster. Fortunately, diary farmers, the real kind not the Queen Street kind, are long term thinkers and will see the danger.
Capital restructuring is either done through debt or equity. Debt is virtually out of the question so the issue is who will pump money in as equity?
As Damien points out this could not have come at a worse time for farmers. Most will simply not be able to afford a capital injection. Maybe the NZ Super Fund could pump a billion or so in? Or maybe Michael Cullen could have offered to throw a billion at it instead of buying a derelict train set. That would have been a better investment.
What happens will be vital to our national position for the next 10-20 yrs so it will be an interesting development.
You are on a week off Jabba
Spent quite a bit of time looking at this issue in government because many of the proposed changes needed legislation.
There are enormous opportunities for Fonterra both in NZ and internationally. They have technical and experiential leadership that won’t last forever and it needs to be exploited.
At the same time farmers (and Damien) are worried about any investment that opens up the possibility of nonfarmers controlling Fonterra.
This looks like a pretty good compromise.
Really Trevor? This capital raising effort smells like the same old van der Hayden corporate takeover…
As Gooner said, capital comes from debt or equity. But this scheme allows corporate ‘farmers’ to increase their stake in Fonterra at a recessionary time when real farmers (actual humans on the grass) cannot easily afford to do so. That is, it allows corporate farmers to raise capital from investors, and pump it into more ownership of Fonterra. Simple really, and results in diminished ownership by Kiwi owner-operator farmers.
So, if Fonterra need more capital (and they have not clearly explained how much they need and why), why not just borrow it? If Fonterra’s business model is sound (=profitable) they should have no trouble; investors are looking for safer investments. And most importantly, Fonterra borrowing (fro NZ Super Fund or whoever) preserves the existing profile of farmer ownership of Fonterra, blocking the takeover efforts of the corporate farmers.
Side issues:
1) Many corporate farms are foreign owned, so greater Fonterra capital from them yields a bigger share of Fonterra profits back to these corporate farms, who pay the profits to their shareholders offshore. Result – worse balance of trade deficit, and possibly a lower reinvestment in the farm.
2) The reason many owner-operator farmers cannot afford to contribute more capital to Fonterra is because of the high debt levels. What caused this? Sometimes greed or poor farm management, but mostly the rapid farm price rises of the last 2 decades, caused by Labour & Nat’s opening up land ownership to foreign investors. We are going through the shift in family-to-corporate farm ownership that the USA went through in the 1920s-30s in the Great Depression. This creates massive income inequality, and creates a new class of farm workers who can never afford farm ownership.
bob – have a read of the proposal, have a look at the balance of ownership of NZ farms, then look at the number of farmers who are investing off farm and out of NZ. This is a great way to ensure NZ farmers get a much bigger share of international milk product profits rather than leaving it to much better capitalised overseas owned companies.
the proposal looks ok but we all have a responsibility to look beyond that.And look at what happened to other primary sectors beyond disciplined structures and marketing. i think we were led to believe the apple industry would florish and seize on new opportunities after deregulation. ask an orchardist about the real world.
Two words.
San Lu
The managment has to prove themselves with small segments of the market or certain countries . The salaries and bonuses are paid regardless of the value to the owners. See how Telecom does it that way for its senior executives
What is happening in NZ is the exposure of our farmland and milk supply expertise to buyers from Countries short of guaranteed food supply and long on dollars to invest.
Meanwhile local farmers here face pressures across the board, both financially and eviromentally to meet an increasingly tighter interpreted polution control mechanism, whilst remaining at the whim of zealous local goverment interpretation and policing.
The world is down to approximatetly 15 days food supply yet NZ, as an extremely efficient producer, remains competitive even after having to ship across the world to our markets.
If anything our produce should command a premium into markets, many of whom are clearly suspicious of international commodity markets abililty to guarnatee supply. Witness the huge Afican land grab funded by petro dollar sovereign funds, often in countries that at the same time are receiving food parcel international aid to feed their own population. These soveriegn funds are assured an export permit to send this local Afican grown food back to their homeland thereby bypassing exsiting world commodities markets.
Fonterra as our biggest company competes on these dairy commodity markets and itself is not unfamiliar with the enviromental and health compliance requirements, witness the residue from its San Lu investment where people died and many children remain seriously ill.
Thus a sense of surprise that Fonterra should comment so quickly about a local animal maltreatment matter when the washup of San Lu remains not yet fully accounted for inclusive of its damage to the NZ dairy industry as a whole. People died here not just a handfull of calves. Pehaps its time we as a country lifted our eyes to the BIG Picture. The World wants what we grow, and if we continue scoring own goals we will awake to our farmland being largely foreign owned and our surperb animal husbandry and grass growing skills retired and lost forever.