Thursday, July 7, 2022

Market rules stifle farmer debate

Has the advent of Trading Among Farmers changed the role the Fonterra Shareholders’ Council can and should play in the co-op’s future. Experienced councillor Mark Croucher thinks so and he tells Hugh Stringleman why.

A former councillor says the Fonterra Shareholders’ Council (FSC) can’t fulfil part of its constitutional role because councillors have become insiders under sharemarket rules.

“I think FSC could appear to become irrelevant to shareholders,” Mark Croucher, who was a councillor for a Northland ward for 10 years to last December, said.

He sent an email to FSC chairman Ian Brown and the northern replacement councillor Alex Wright suggesting a review the council’s position, which should begin with the councillors themselves.

In response Brown said he believed there had been no change to the council’s ability to carry out its functions or communicate with farmers since the implementation of Trading Among Farmers (TAF).

“Its ability to access information to carry out its duties hasn’t been impeded and there is no issue with effective communication with farmers,” he said after a three-day meeting of the council recently, where it is presumed the email was discussed.

Croucher said the change in rules had the potential to threaten the co-operative base.

“The market rules can effectively over-rule the constitution,” he said.

“For example, if the FSC is unhappy with some aspects of the company’s performance, it must inform the market at the same time as discussing the issue with shareholders.

“From past experience I don’t think this will occur until problems are insurmountable or irretrievable.”

Just to get action within the FSC more than 50% majority is required of 35 councillors and to haul the board over the coals a 75% majority is needed – and both thresholds are hard to get.

“The deeper councillors get into the financials the less they are able to say, even to their neighbouring farmers.

“I can’t see how councillors can have meaningful discussions with the farmers they represent.”

During his time on the FSC there was some debate in the run-up to TAF about being market insiders or outsiders but the council didn’t go into all the ramifications.

“We need to have the discussion as to whether we want the FSC inside or outside and it is my view we would be better to have it outside, making comment from a knowledgeable and responsible point of view.”

The FSC was set up to bring the views of shareholders from all the regions to the board and the management in a constructive manner.

“It was also set up to keep issues in house but now it can’t really do that.”

There are potential areas of conflict between individual farmers and Fonterra and if the FSC wasn’t there something else would fill that gap.

“You can be negative to a certain degree behind closed doors but you still want to be positive to the outside world.”

Croucher said he discerned a vacuum in the shareholder base and the absence of robust and thorough debate on some issues.

Since TAF began, most comment on Fonterra’s path and achievements has come from analysts and economists with very little from farmers.

“Our views are getting pushed to one side and are not being heard.

“For instance, is the high share price appropriate for farmers or is it going to tempt farmers to sell economic rights and/or quit the co-operative and would that be an invitation for too much stainless steel to be built in future?

“As a result of the latest supply offer Fonterra is going to pay a premium to buy back its own rights and shares but there has been no debate on that. What does that do the balance sheet?

“There have been no traditional shed meetings of farmers for pre-emptive consultation.

“The management is probably having more meetings with investor groups than its own shareholders.”

Croucher said he went to the half-year results presentation in Whangarei and farmers were able to ask some questions but that was well after the fact.

“We don’t seem to be having in-depth discussions about things behind the farmgate and the co-operative itself.

“Farmers have been very protective of the co-operative in the past but can that be relied upon in the future? I don’t want to see us inadvertently lose the co-operative,” Croucher said.

Among the FSC’s roles is analysis of the performance of the co-operative for the benefit of shareholders.

It is also the guardian of the milk price.

It has the very important role of educating shareholders about the co-operative because many shareholders do not fully understand what the co-operative is and does.

“We have to do that if we want to retain a co-operative.”

Croucher said the FSC ideally represented shareholders’ interests.

Fonterra was coming behind the farmgate and impacting on farmers’ relationships with regional councils.

Fonterra needed to talk to farmers before making agreements which affected farm management and profitability, he said.

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