The Government does not at this stage support amendments to the Dairy Industry Restructuring Act (DIRA) to facilitate the proposed changes to Fonterra’s share and capital structure.
Fonterra chair Peter McBride wants farmer-shareholders to vote at or before the special general meeting on December 9, to clearly show the Government they favour more flexible, sustainable shareholding.
He says the Government was not prepared to entertain DIRA changes before knowing the majority view of Fonterra farmers.
In a letter on November 3, Agriculture Minister Damien O’Connor raised a risk of changes that weaken performance incentives on the company.
“I am particularly concerned that the current proposals would create a higher risk of diverging shareholder interests inside the co-operative, between farmers with minimum shareholdings for supply only and those with larger shareholdings held for investment purposes,” O’Connor said.
O’Connor said he was prepared to consider an “alternative, more balanced proposal” from Fonterra.
He would also continue to work towards a “mutually acceptable outcome to this process”.
McBride says the Government is looking for further assurance that the proposal supports contestability, drives performance and innovation and protects alignment of shareholder interests.
“I am confident we can provide the Government with the necessary assurances and work together to find a framework that supports the flexible shareholding structure,” McBride said.
He subsequently met the minister and found “philosophical alignment” and the willingness to keep talking.
“He wants a successful, New Zealand-owned farmer co-operative – that’s the starting point we are all agreed on, in the interests of the country and the dairy industry,” he said.
Fonterra will push ahead with the special meeting of shareholders on December 9, seeking the required 75% approval from farmers, to strengthen its case to government.
“We need a successful vote first before they will consider DIRA changes,” he said.
“The minister’s letter doesn’t put me off going for the vote.
“It would be irresponsible to proceed any further without a mandate from shareholders.”
The Notice of Meeting is more than 80 pages, containing 60 pages of the constitution, and half of those pages have required amendments.
However, many of the amendments concern the change in name, form and functions for the Co-operative Council, formerly the Shareholders’ Council.
The far-reaching capital structural changes would result in what Fonterra is calling a flexible shareholding, including a minimum share requirement of one share for every three kilograms of milksolids produced, not one-for-one as presently.
A maximum shareholding limit of four times production would also be set.
Only farmers would be able to buy and sell supply shares and the Fonterra Shareholders’ Fund would be capped, removing the mechanism of swapping shares for fund units.
More types of farmers could hold shares, such as sharemilkers, contract milkers and farm lessors.
New farmers would have up to six seasons to share up to the minimum and exiting shareholders would have a decade or more to sell their shares.
The potential for a wide spread of shareholders, from one-third of milksolids through to four times, and for retiring farmers to keep their shares for long periods, clearly concerns O’Connor.
The Co-operative Council has taken advice on consolidation risk and Fonterra will make that work available to government officials.
McBride believes options for shareholding rather than compulsion will strengthen the relationship between the co-operative and its farmers.
The Government’s lack of enthusiasm so far should not endanger the special meeting outcome.
“Farmers are making their decision to support the proposal on principles – farmer ownership and control, financial sustainability and offering flexibility,” he said.
