Friday, April 12, 2024

Fonterra’s an example to co-ops and corporations alike

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Dairy giant could teach levy bodies and thing or two, says Alan Emerson.
Alan Emerson praises Fonterra directors such as Leonie Guiney for being ‘business focused and without ego’.
Reading Time: 3 minutes

The Fonterra AGM has been and gone. It was a quiet affair compared with many of its previous annual meetings and, inevitably, infinitely more genteel than the current coalition negotiations.

The dairy industry has come a long way in a short time.

It’s not that long ago that we had many co-operative dairy companies in New Zealand all operating with the NZ Dairy Board. Those many dairy companies reduced to two and then one, Fonterra, which currently processes around 80% of NZ milk. The second largest player is Open Country with 7.4% followed by Westland and Synlait with 3.4% each.

I can remember the Fonterra legislation progressing through the House, shepherded by then Labour minister of agriculture, Jim Sutton, ably assisted by National’s Shane Ardern. The fact bipartisan support was achieved was a massive rarity in Parliament and a colossal credit to those involved.

What that bipartisan legislation has meant is that Fonterra has stayed stable over several different governments.

It was just 22 years ago that 84% of farmers in the two mega co-ops voted to become one.

I’ve had my battles with the co-op over the years but I do believe that Fonterra today is the best it’s ever been. 

It’s also quite different from the co-op of 20 or even 10 years ago. Back then it was dominated by the egos of some of the past chairs, their failure to accept criticism and the crazy routes they encouraged the co-op to travel.

I no longer receive gratuitous statements from Fonterra telling me how good the mega co-op is doing in a harsh marketplace or how great the board’s performance has been. 

The company has also ditched the dog that was Beingmate. Beingmate was never going to add value to Fonterra shareholders and it didn’t. The misplaced China Farms operation is out the door and good riddance, and more recently Soprole in Chile and Dairy Partners Americas in Brazil have been divested.

The current chair gives the impression of being business focused and without ego, and I’m pleased Leonie Guiney is back as a director. She has a similar focus as the chair.

Some years ago many believed Fonterra was drifting. A group of farmers decided change was needed and organised that to happen. It started with the election of Peter McBride and Guiney, and has continued to this day.

Those dairy farmers are to be congratulated for reforming what was, in my view, a moribund co-operative.

That’s all really positive for the mega co-op, which last year had a turnover of $24 billion. It made a $1.6bn profit, which was up 170%, and a return on capital of 12.4%, up from 6.8%. The final farmgate milk price was $8.22 per kgMS, which is most impressive considering the international conditions.

I’m unaware of any NZ company performing better.

Fonterra isn’t only NZ’s biggest company, it is also a cornerstone of our economy. If Fonterra does well, the country does well.

Fonterra was reformed because of farmer involvement and commitment. That involvement and commitment needs to happen with other farming organisations. One can only assume that Fonterra shareholders are happy as the two directors up for re-election were elected unopposed.

While dairy farmers seem happy with Fonterra and its directors, it seems that they are anything but with DairyNZ. No fewer than 13 candidates stood for just two positions on the DairyNZ board.

The number of candidates showed there was considerable interest in the direction of DairyNZ but the voter turnout belied that interest. Just 18.3% of eligible voters actually bothered to vote. Less than one dairy farmer in five turned up to tick the ballot paper. That’s criminal.

DairyNZ collects $67 million from dairy farmers and that’s $6000 for every herd each year. The election turnout tells me that dairy farmers are happy giving DairyNZ $6000 annually with little involvement in the organisation.

They’re obviously also happy with the performance of the chair, who they re-elected for the fourth time. 

The same problem exists in beef and sheep farming. In the recent Beef + Lamb NZ (BLNZ) director vote, just 36% of those eligible to vote actually bothered to do so. The election was contentious, yet only one in three farmers bothered to vote.

The recent levy vote showed even less enthusiasm, with just 34.9% bothering to vote, with 68% of those voting wanting a continuation of the levy. The Yes figure is about as impressive as the DairyNZ director turnout.

The BLNZ levy is $30m, which, combined with the DairyNZ levy, is $100 million taken out of the sector every year.

That’s fine if farmers are convinced they’re getting a return on their investment but the degree of apathy would suggest they neither know nor care.

Fortunately for all of us, Fonterra shareholders didn’t show that same apathy a decade or so ago.

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