He would be angry if asked to do so before he can see the co-op turn its financial performance around.
“We are all a bit gun shy at the moment.
“When we look at the situation the co-operative has got itself into it seems to be $2 billion poorer from investments with our money.
“Fonterra seems to have been good at taking quite good performing businesses and giving them the kiss of death in recent years.
“Withholding money means we are being asked to pay to fix up everything, but I want to see some evidence the changes needed are being made first.
“It puzzles me why we would be throwing more money at it. Fonterra seems to have done that too often in the past.”
Farmers won’t pay
Fonterra Shareholders’ Council chairman Duncan Coull is adamant farmers will not be bailing out their co-op despite a sliding share value, high debt and challenging asset sales.
And chief financial officer Marc Rivers is equally adamant the co-op will not be retaining money from the milk payout to repay debt, will not change the milk price mechanism and has no immediate plans to reform its capital structure.
In the wake of last week’s farmer vote to sell Westland Milk Products to Chinese dairy giant Yili there is a growing chorus of concern over the likelihood of Fonterra being forced down the same path if it cannot reduce its debts quickly.
Industry analyst Peter Fraser kicked off those concerns describing the Westland sale as a dress rehearsal for Fonterra’s.
He and others have called for Fonterra to pull back on its payout by as much as 50c a kilogram of milksolids for a rapid fix to its debt woes.
But Coull is confident the co-operative can turn around under its present structure without retaining a portion of payout from this year’s milk cheque.
“Part of the issue as I understand with Westland is they extended on a growth strategy that did not align with their capital strategy, having to fund and borrow for a strategy that was not well executed, which put them behind on the milk price.”
Coull said Fonterra’s issues relate to poor allocation of capital in some instances.
“I guess that is putting pressure on the balance sheet. But the difference between Westland and Fonterra is Fonterra is engaged around the world with many options and avenues to pursue for revenue and assets.”
Fonterra has targeted an $800 million reduction in its $7.2 billion debt this year by selling non-strategic assets.
Massey University senior management lecturer Dr James Lockhart said Fonterra is not a lost cause but must act quicker to cut debt.
His solution, like Fraser’s, is to hold back 50c a kilo of milksolids from this year’s cheque.
The $800m that would yield would deal to the debt concerns simply and quickly.
“If you go this way, yes, there will be some tears but I suspect considerably less if Fonterra is honest and shares with their shareholder farmers the enormity of what they face.”
But both Coull and Rivers are adamant there will be no retentions of milk cheque payments to help improve Fonterra’s position.
“Despite what Peter Fraser says, milk price is the most important number to us here in New Zealand,” Coull said.
“We have a milk price model in place for good reason and we should not be funding on-going operations and propping up the business through retentions.”
Rivers accepts the co-op is over extended but is confident its balance sheet strength can be restored with assets sales and within the co-operative ownership model.
But while Tip Top sold relatively easily for $380m, experts have voiced concerns on whether other sales will be as successful.
Lincoln University agri-food systems expert Professor Keith Woodford said the sale of assets in Venezuela recorded a book loss of $123m.
The co-operative’s China farms and Beingmate businesses are also up for review but have already suffered major write-downs in value.
Milford Asset Management director Brian Gaynor also questions the wisdom of selling assets purely to repay debt, rather than using the cash to refocus into value-added products.
“If it is being used to repay debt because the banks are telling them to then that is not great.”
Assets sales can be viewed by markets as a sign of defeat, with lasting repercussions as the Warehouse learned when it retreated from a disastrous Australian foray.
But given its co-operative structure Fonterra is limited in where else it can get capital, particularly with thin trading in its unit shares on the NZX.
“It is more of a confidence issue around Fonterra’s strategy but the underlying assets and balance sheet tell a different story for Fonterra. The share price is operating in a bit of a vacuum as the Fonterra board and management reset their strategy, which will be out in September.
“Once that is out there will be some confidence in the share price again,” Coull said.
