“We’ve seen that already with last season’s drought and the fact TAF meant capital didn’t move out of the cooperative’s balance sheet,” he said.
“And we’ve got more options for new farmers converting or farmers increasing production to share up and still achieve our overarching aim to have them fully shared up eventually.”
The high share price could be seen as a hurdle to entry by some but improvements in flexibility in sharing up had to be used so the share price wasn’t a disincentive to supply Fonterra.
“There’s a complex set of interactions going on but we have to have ways to address them.”
While farmers could turn to other processors in some regions it was important for the co-op to always balance fairness and equity for all shareholders in Fonterra. Competition was to some extent a good thing for Fonterra.
One of the big benefits of TAF was a much greater level of transparency in Fonterra’s business and activities which meant a lot of dialogue and reporting between the board and council.
“We’re getting information in plenty of time so we can work through it and ask the right questions.”
The fund risk management policy was working well and had been triggered when the potential fund size breached its first limit earlier this year. Brown said there was a very formal protocol to be followed by both the board and council. An initial meeting was held when the breach occurred and a plan was put to council by the board detailing its approach to reducing it again.
Council monitors the report monthly and board chairman John Wilson meets regularly with Brown to discuss it. The expectation is it will reduce as production returns to normal because drought had created the situation.
Brown said the council had plenty of clout and power but with that comes the requirement to use it responsibly. That was evident with the board signalling it had the option to use its balance sheet to support this season’s dividend if it felt it necessary later in the season. There was good discussion by council over that with a range of views expressed
Having analysts running the ruler over Fonterra now was also helpful. Council used their reports too and at the annual results announcement a councillor was sent along to the analysts’ briefing to see what questions they were asking.
