Fonterra is lifting its farm gate milk price by 25c on the back of a strong global dairy market.
But Fonterra farmers should not over react to the poorer performing parts of the business, they should just have a very strong expectation that Fonterra fixes them or exits them.
Townshend says shareholders will expect senior executives’ bonuses to be much more modest in 2017-18 and reflective of company profit (earnings achieved in excess of a good milk price).
He urges Fonterra to “get its nose out of farmers’ faces” in respect of palm kernel expeller (PKE) feeding limits, milk cooling and environmental issues, which should all be dealt with by Dairy Companies Association of NZ (DCANZ).
“Indisputably all these matters are important, in particular our commitment to sustainable environment. But the charge on these matters should be led by DCANZ… whether a farm is supplying Fonterra or Synlait or Miraka. If say an OCD is not prepared to support DCANZ licence-to-operate standards, they should be exposed for it”.
He also believes Fonterra has been too slow to change its capital structure.
“In the 10 years I was involved in NZ Dairy Group, NZ Dairy Board and Fonterra, capital structure was never off the table. We were dealing with a period of rampant growth. How did we balance equity for a Whangarei farmer who had been supplying his/her cooperative for 30 years with a sheep farmer in Gore who was converting his farm to dairy?
“We had to manage wealth transfer and capital structure was the tool.”
He notes the days of Fonterra’s rampant growth are over and the issue now is retaining supply and preventing stranded assets – Capital structure must be different if the objective is to retain milk rather than cater for rampant growth.
“When a Fonterra farmer is considering supplying a company other than Fonterra, the discussion points are all around the value of Fonterra shares or the cost to buy more shares.
“None of the discussion appears to be around Fonterra’s key objective of maximising milk price to farmers versus a non co-op paying just enough to attract supply.”
Mark Townshend says Fonterra cops its share of criticism -- some deserved and some over the top.
Referring to the recent attack on Fonterra leadership by NZ First Minister Shane Jones, Townshend says the “bizarre outburst will have been fuelled from somewhere”.
“And it will be worth watching who funds political parties (donations) and what they might like to see for their own self-interest as Government legislators do the DIRA review.”
Townshend says the Green Party and animal rights activists will always try to undermine the big machine of Fonterra.
“They will never be satisfied even as farmers make further and ongoing and necessary changes/improvements over all forms of compliance.”
Townshend says non-supplying Fonterra unit holders receiving disappointing returns on investments have “a genuine grievance”.
But he is disappointed at criticism from Fonterra shareholders and ex-Fonterra employees.
“Disaffected Fonterra farmers – some of whom are disappointed about not reaching the station they might have aspired to in Fonterra -- would have better spent their time in using the knowledge they gained by supporting their company to make improvements and changes required.
“And there are former employees of Fonterra who were happy to be well paid [there] but when, because of company restructure or for other reasons, they find themselves in other NZ milk processing companies, they vent their negative Fonterra views.”
Fonterra farmers need to be able to make their own assessments around how well Fonterra is doing in paying its farmers a globally competitive milk price rather than being overly influenced by outside parties with their own vested interests.