For so long we have heard we need TAF and its investor-owned fund to solve redemption risk and ‘stabilise’ Fonterra’s balance sheet. TAF replaces some capital that is currently contributed to the cooperative by farmers, with capital contributed instead by non-farmers. Some of these will be offshore institutional investors, some will be speculators, some we simply can’t predict who they will be.
Speculators and traders need volatility from which to profit – that’s their purpose. Dairy cooperatives need stability of supply to keep their stainless steel full, maximising their efficiency and hence maximising the milk price to their farmer owners – that’s their purpose.
Peaks and troughs in the Fonterra share value will be driven by the trading activity of the 25% of non-farmers who will own Fonterra securities under TAF.
This creates a much greater opportunity for farmers to end up with much more – or much less – than fair value on entry and exit of Fonterra. Our share price will be set by what outside investors are prepared to pay.
So how do we see the traders who need volatility, alongside the farmers who need stability, complementing each other in this great big ‘friendly’ equity partnership? How has Fonterra for so long got away with arguing that this scenario helps stabilise the cooperative?
At what cost the ‘belts and braces’ in place to prevent organised institutional investors using their cash and lawyers to exert some control over the milk price to enhance their investment returns? So far it’s been two years, $50 million dollars and Fonterra inviting Government regulation into our business for investor protection.
And if TAF’s investor fund gets a ‘yes’ vote, how long will the suspender belt stay in place after the wedding night?
The good news is this: since this long debate has occurred it has focused attention on Government regulation that has contributed to redemption risk. Farmers have been told that if they don’t vote for TAF they are stuck with legislation requiring Fonterra shares be valued as if they are traded in an open market – even though in a non-TAF environment they are not.
They are in fact traded in a restricted market between Fonterra and farmers, as has always been accepted by co-operative members. Farmers and Fonterra submitted to the select committee that this ruling for ‘artificial‘ valuation is illogical and not helpful. We have now been assured progress has been made toward reducing the impacts of government intervention in a non-TAF environment.
This means a vote against TAF will leave us in a better position than we were in prior to the current proposed restructure. Better able to value our share realistically and without the need for a fund for ‘price discovery’, as one director put it.
I simply don’t trust the suspender belts or braces and judging by his recent resignation neither does Simon Couper – who has had access to the blueprint and the world’s best independent advice. Simon stood for the promised 100% ownership and control by farmers for farmers. He stood down from his role as chair of the Shareholders Council on the basis this cannot be delivered.
Men of that calibre built this industry. Others would see it dismantled while paying lip service to ownership and control.
• Leonie Guiney is a South Canterbury dairy farmer, Fonterra shareholder and outspoken critic of TAF.