Fonterra’s McBride says capital structure changes ‘will level the playing field’

Fonterra chairman Peter McBride says easing requirements for farmers to hold shares in the co-op would level the playing field with rival milk processors and increase competition.

The country’s largest dairy is looking to adopt a more flexible shareholder structure, allowing farmers to hold fewer shares and expanding the pool to include share milkers, contract milkers and landlords as associate shareholders.

Farm suppliers voted in favor of the proposal in December last yearand the company is now awaiting government approval under the Dairy Industry Restructuring Act that enabled the dairy giant’s founding in 2001.

Fonterra is reshaping its business as a period of rapid expansion in the country’s dairy herd comes to an end as dairy farming faces tougher regulations to reduce its environmental impact.

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“We are entering a period where milk supply in New Zealand will most likely decrease, or at best be equal, so it creates a very different dynamic,” McBride said. “We are no longer looking for capital to build stainless steel, so the past 20 years is not the future.

“When you have all those factories, it is imperative that you have a sustainable milk supply. This is a very long-term strategic reset for the cooperative.”

Fonterra’s rivals do not require farmers’ suppliers to buy shares, and the cooperative cites the high level of mandatory investment as one of the most influential reasons for farmers to leave the cooperative. The country’s share of the country’s milk supply has fallen to 79% from 96% since 2001.

McBride said Fonterra’s requirement for suppliers to buy shares was a “significant barrier”, and relaxing the rules would give farmers more choice and make it easier to join.

Fonterra has said it feared it would continue to lose market share without the changeswith a possible drop in milk supply by as much as 20% by 2030, making it less efficient and unable to pay farmers such a high price for their milk, or invest back into the business.

Without change, it would be “significantly more difficult” for Fonterra to compete for milk, McBride said.

“It is not a level playing field at the moment. This makes it more level,” he said. “A pure level playing field would be that Fonterra does not need capital from its farmers.”

While Fonterra says the changes will increase competition and give farmers more choice, some of its rivals say it will strengthen the company’s market dominance, and the government has proposed amendments to add safeguards to protect the interests of all stakeholders.

Fonterra has provided its feedback on the government proposals as part of a process carried out by the Ministry of Primary Industries.

While Fonterra supported the majority of the proposals, McBride said it opposed reducing the company’s discretion to set the base milk price by empowering the Commerce Commission to bind its assessment findings on Fonterra’s inputs, assumptions and processes. to make for the company.

The additional measure was unnecessary and would incur significant costs, he said.

Rivals have been critical of Fonterra’s way of setting milk price payments to farmers, though Fonterra strongly rejects any suggestion that it is manipulating milk price calculations.

McBride said Fonterra would like all processors to publish their milk prices on the farm.

“In my opinion, there should be one reporting standard that we should all report to,” he said. “We think transparency is powerful and actually increases competition.”