No decision has been made on whether the trust will go ahead but consultations have been carried out with possible stakeholders including farmers on both sides of the Tasman.
UBS has been retained as an adviser and is doing most of the work, Paravicini said.
Once established, and if it were to go ahead, Fonterra would position itself at arm’s length from the day-to-day operation of the fund, which would aim to attract long-term, patient equity funding from global sources such as sovereign pension funds.
Fonterra was incurring some of the cost of facilitating the investigation into and possible set-up of the fund but if it went ahead costs would be borne by those involved.
Based on a proposal released to farmers late last year, the trust would invest
equity into the land and fixtures of the farming business and together the farmer and trust would set up a farm-owning entity.
The farmer would retain ownership of the herd, machinery and other operating assets as well as Fonterra shares through a farm-operating entity.
The farm-operating entity would earn the revenue and incur the farm operating costs and then make payments to the trust and farmer through the farm-owning entity based on each one’s share of equity of the farm-owning entity.
The fund could be expected to act as a prudent equity investor and would only be interested in investing in proven businesses and operators.
Farmers wanting to grow their businesses without incurring further debt, or to reduce debt levels, might view having the fund as an equity partner as a positive option.
Paravicini said despite volatility in global dairy commodity markets there
was genuine interest in the trust from farmers and investors in NZ and Australia.
But that interest comes as Fonterra’s half-year performance has been roundly criticised by its shareholders and investors in the co-op’s Fonterra Shareholders’ Fund with the company failing to boost dividend returns despite a low milk price.
