Both of those numbers are below an assessed benchmark of 6.9% to 7.7%, being the weighted average cost of capital.
The value-add business segment of Fonterra returned on average only 0.2% more than the ingredients business, well below the 1.3% premium needed to justify the increased risk.
For farmer-shareholders the average returns were 6.3% a year before tax, only two-thirds of the NZX50 sharemarket returns over that period.
These results came from an independent assessment of Fonterra’s performance commissioned by the Shareholders’ Council, done by Northington Partners, and released at the annual meeting last week.
Council chairman Duncan Coull said the advisers were not asked to identify potential explanations for the results or offer possible changes to improve the performance.
The report should provide a platform to discuss what could be done to ensure, at a minimum, that returns meet the opportunity cost of farmers’ investment in the co-operative.
“Fonterra has failed to deliver meaningful returns over and above the cost of capital since inception.
“Milk growth over the past 15 years has been an impediment but is now largely historical.
“It is critical that this be addressed to ensure continued supply of milk and capital,” Coull said.
Nevertheless milk price is the greatest driver of farm profitability and the Milk Price Manual continues to deliver transparency and efficiency.
The report also said land prices had risen by 6% a year since 2001 and half of that increase could be attributed to productivity gains.
The milk prices paid to farmers had also benefited by 51.8c/kg through adjustments made since the introduction of the Milk Price Manual in 2009, 28.3c attributable to improvements in Fonterra’s performance and 23.5c to wider market conditions, like interest rates.
