Friday, 09 November 2018 16:06

Fonterra a poor investment says report

Written by 

An independent assessment of Fonterra’s performance, commissioned by shareholders, paints a worrying picture.

The report by Northington Partners shows that the co-op’s return on capital has averaged 6% per annum, lower than the assessed benchmark of 6.9 to 7.7% per annum.

It also shows that the value-add business returned 0.2% p.a. more than Ingredients, significantly below the 1.3% p.a. premium needed to justify the increased risk.

Northington Partners was engaged by the Fonterra Shareholders Council to assess Fonterra’s financial performance since its inception.

The report was emailed to shareholders on the eve of the co-op’s annual general meeting at Lichfield on Thursday.

Council chairman Duncan Coull says the work was in response to a heightened level of commentary within the supplier base, media and the broader financial community in relation to the perceived performance of the co-op since it was formed in 2001.

The council saw benefit in obtaining an independent and reliable view of actual performance over the last 17 years based on sound methodology and having access to relevant financial information, he adds.

“This report provides a high-level summary of the results that is clear and accessible to all of our co-op members. We believe it will be a useful input into the ongoing discussions about our co-op’s continued evolution.”

The review looked at just one part of the overall returns that Farmers earn – their return on capital invested in Fonterra. 

Coull notes that Fonterra’s role is far greater than this - as set out in the Fonterra constitution. “Fonterra exists to maximise returns to farmers through Milk Price and dividend, and the standalone performance of the co-op is therefore only one component of the overall returns achieved by Fonterra suppliers,” he says.

“In simple terms, Fonterra effectively operates two businesses. The Milk Price received by its farmers is a measure of global supply and demand for base milk ingredients and the efficiency of converting that milk into those ingredients, whereas the share value is a measure of the co-op’s success in delivering value over and above the Milk Price through time.

“The assessment clearly shows that Fonterra’s financial performance since inception has been unsatisfactory.”

Coull says when considered as a stand-alone investment, the average returns generated by Fonterra since inception are lower than relevant benchmarks.

“Council’s view is that the information provided in this report should inform a wider discussion between board, management and shareholders around the continued evolution of our co-op and in particular what can be done to ensure ongoing returns meet, as a minimum, the opportunity cost of farmers’ capital invested in the cooperative.”

More like this

Fake milk bites processors

If you think only Fonterra is in financial dire straits... the US milk industry is reeling from the decline in dairy sales.



Celebrating healthy food

Mark Ross, chief executive of Agcarm on the work that goes into providing safe and healthy food to New Zealanders. 

No more coal-fired boilers

Canterbury-based Synlait Milk has reaffirmed its policy of building no more coal-fired boilers, with the official opening of the country’s first large-scale electrode boiler at its Dunsandel headquarters.

A slice of farming paradise in Auckland City

Livestock grazing on a farm with a good view of Auckland’s Sky Tower is the story behind the latest Dairy Women’s Network visual story telling project Our People, Their Stories.

Synlait unveils tree-planting scheme

Synlait Milk is establishing an industrial-scale native plant nursery at its Dunsandel headquarters as the centrepiece of a wide-ranging environmental initiative.

» The RNG Weather Report

» Latest Print Issues Online

Milking It

Why steal Stihl?

If someone turns up on your farm, selling Stihl 461 chainsaws, please shout out. That’s the message from NZ Young…

Cow talk

Cows do talk, researchers say.

» Connect with Dairy News