Signals from the new board and management suggest they believe their first and only priority is supporting farmers and investors can have whatever is left over. Those leftovers are zero in the interim dividend with no guarantee of a final dividend this year. Fonterra has in the past manipulated the balance sheet and earnings to give farmers a more palatable milk price. There’s no reason why it won’t do so again.
It’s a mongrel because it is part co-operative and part company and is trying to please both classes of owners, whose interests directly oppose each other. It’s an impossible task. Those who worried about bringing in outside investors have been proved right.
Fonterra has tried to have the best of both worlds and ended up having an identity crisis. It brought in the non-farmer investors to remove the risk it faced in holding money for farmers redeeming shares and free up capital for investment. Given its track record Fonterra should not be contemplating big overseas investments and must now have enough stainless steel in New Zealand.
It needs to decide whether it wants to be a company or a co-op. It and its predecessors were set up to serve the interests of farmers, to take their milk and turn it into as much money as they could get for it. That’s still it’s raison d’etre.
It has two obvious options. It can buy back shares from outsiders and return to co-op principles. That will free it up to be more open with information for farmers. Sharemarket disclosure rules limit what it can tell them. The other option is to separate its activities. It can remain as a co-op to collect and process milk and make commodities. It can then set Fonterra Brands up as a separate company in which anyone can buy shares. The co-op, on behalf of farmers, can hold shares in the company. That way all shareholders get equal returns. The co-op can distribute its share of profits to its farmers.
Stephen Bell
