Friday, March 29, 2024

BLOG: Fonterra fails fund investors

Avatar photo
The long-suffering Fonterra Shareholders’ Fund unit investors, of which I am one, received another blow from the company last week.
Reading Time: 2 minutes

Trading Among Farmers might have been a technical success, achieving most of the structural intentions, but the relationship of the company with the equities market has not been great.

The substantial earnings and dividend guidance downgrade confirmed investors’ fears that Fonterra can pay a high milk price or a good dividend, both not both in the same year.

In six years of TAF there have been three low dividends and three only adequate ones.

It is, after all, a farmers’ co-operative and the Milk Price Model runs on high octane, made from milk fat this year, leaving little for the poor unit investors.

If the company were to throttle back on the mixture or make sure its value-add strategy delivered more power, both farmer-shareholders and investors would benefit.

Low yields on the considerable capital that farmers have invested in supply shares incentivise flight from the co-op and constrain capital-raising. 

In the New Zealand operating environment of nil to low milk supply growth and successful competitors paying similar milk prices without the need for share capital Fonterra farmers are tempted to leave.

They had better hope the Fund is sufficiently liquid to pay them out. Fonterra is exposed to a downwards spiral that only farmers themselves can arrest, Shareholders’ Council chairman Duncan Coull recently warned.

In this context the men from the Ministry for Primary Industries will examine the Dairy Industry Restructuring Act. Best they find ways to take the brakes off Fonterra and encourage the mighty machine to go faster. We all want the dairy industry to do well because sustainably high milk prices flow right through the regional and national economies.

FSF investors believed they would get a good return from backing NZ’s largest industry in which we have world-leading influence and expertise. That has not been the outcome so far.

Hugh Stringleman

Total
0
Shares
People are also reading