Saturday, March 30, 2024

McBride leads Fonterra with the heart

Avatar photo
Fonterra chair Peter McBride has jumped into the biggest job of his considerable co-operative governance life – changing the giant dairy processor’s capital structure to suit the times.
Reacting to criticism that the DIRA bill tilts the playing field in Fonterra’s favour, chair Peter McBride says the new structure will in fact help level the playing field with foreign-backed competitors and is in NZ’s best interests.
Reading Time: 2 minutes

“The issues raised through this review need to be addressed early,” McBride said.

“We have a misalignment of investor profiles and we have to avoid a slippery slope towards corporatisation.

“Waiting for the problem to be at our feet will limit our options and likely increase the cost of addressing them, at the expense of future opportunities for us.”

Declining milk production, due to land-use changes and environmental requirements, means redemption risk is set to reappear in a different form.

The numbers of dry shares will increase considerably and under the present rules those can be converted into Fonterra Shareholders’ Fund units, which could grow as big as 16% of total share capital.

That threat to farmer ownership and control of Fonterra is not acceptable, McBride says.

He admits that the big reduction in share standard and a farmer-only share market would trim the balance sheets of farmers in the short-term.

“But an unsustainable co-operative will affect their balance sheet a lot more,” he said.

“We have a choice to make – deal with this issue now or pay much more for it in the long run.”

Fonterra is asking farmers for feedback on all aspects of the possible changes in structure.

McBride says two valuable suggestions were received from farmers during the first consultation round and were included in the current proposal.

“No one owns a good idea,” he said.

He wants to achieve greater flexibility for all types of dairy farmers, young and starting out, through to those seeking to retire and extract their capital.

“A maximum share price and an inter-generational co-op just don’t go together,” he said.

“We are showing leadership by recommending a reduced share standard because we believe it aligns best with our co-operative principles.”

These changes could impact the price at which shares are traded and may reduce liquidity in the market.

“Ultimately the price for farmers’ shares would be determined by the performance of the company and trading among farmers,” he said.

“Our rigid compulsory capital makes it difficult for new farmers to join and is a key factor in decisions to leave.

“We will seek to cater for the diversity within the shareholder base, but we will all need to be pragmatic if we are to find a way forward together.”

McBride says farmers as investors had longer-term drivers, including farm succession.

To achieve a change in capital structure he needed to convince their hearts as well as their minds.

Total
0
Shares
People are also reading