Fonterra’s capital restructure and the enabling legislation will give the company a fair go at competing for a sustainable supply of New Zealand milk on more equal terms, the co-operative says.
Chair Peter McBride presented Fonterra’s submission to the Primary Production Committee of Parliament on the Dairy Industry Restructuring (Fonterra Capital Restructuring) Amendment (DIRA) Bill.
He said an internationally competitive, farmer-owned co-operative of scale is in the country’s best interests.
The new flexible shareholding capital structure will help to level the playing field with foreign-backed competitors in an environment of declining NZ milk production.
McBride said the reduced minimum required shareholding is intended to make it easier for new and young farmers to join the co-op, and for existing farmers to stay.
He pointed out that most of Fonterra’s competitors do not require their supplying farmers to own shares.
Flexible shareholding will put more emphasis on company performance and innovation, creating a structural tension to deliver both a competitive return on farmers’ invested capital and a sustainable milk price.
Fonterra claimed a strong mandate from its farmer shareholders to make the capital changes, knowing that there would be a significant impact on the value of shares.
The bill will amend the DIRA to remove the legal risk associated with capping the size of the Fonterra Shareholders’ Fund (FSF).
“The bill introduces additional measures to mitigate the perceived risks arising from our new capital structure,” McBride said.
“Many of the proposed DIRA amendments seem to address perceptions around the transparency and independence of the milk price regime.
“We object to inference that the co-op or any individuals involved are somehow gaming the system.
“In fact, Fonterra has been advocating for greater transparency of milk prices across the industry in all of our DIRA submissions.”
All dairy companies should be required to publish details of their milk prices to address the current imbalance of information available to farmers and support contestability in milk supply, he said.
Fonterra said that amendments to the majority independent Milk Price Panel and the Commerce Commission review process are unnecessary and should be removed from the bill.
McBride said farmers and unit holders are stuck between two capital structure regimes and he wants expedited legislation to see the DIRA amendments passed and in effect by the end of 2022.
