Wednesday, 08 December 2021 11:55

Editorial: It's decision time!

Written by  Staff Reporters
Fonterra shareholders will this week decide the future of the co-op. Fonterra shareholders will this week decide the future of the co-op.

OPINION: Fonterra shareholders will this week decide the future shape of their co-operative.

The message for shareholders is clear: ignore the looming challenges facing the co-operative at your own peril.

Fonterra is at a crossroads. Milk supply in New Zealand is declining or will remain flat at best, thanks to environmental pressures, new regulations and alternative land uses.

At the same time, competition for New Zealand is showing no signs of slowing. Two more independent milk plants are going up in the Waikato, the heart of New Zealand dairy country.

Fonterra has signalled a change in strategy – moving out of overseas milk pools and focusing on adding value to NZ milk. But it needs to change the way it does business with farmer shareholders or face around 12-20% milk decline by 2030, based on its own modelling.

The capital structure isn’t the only thing that needs to change. The co-operative has to lift its performance and increase farmer returns, both through the milk price and dividends.

At the same time, the environmental credentials of both the co-operative and its farmers must continue to improve.

For the past few weeks Fonterra farmers have been mulling over the proposed flexible shareholding.

An important issue for shareholders is the future performance of Fonterra. Management have laid their strategy on the table for 2030: a 40-50% increase in operating profit from FY21 and, with the reduced interest from having less debt, this should translate into an approximately 75% increase in earnings, steadily increasing dividends to around 40-45c/share.

Management are also promising a group return on capital of 9-10%, up from 6.6% in 2021.

Through planned divestments and improved earnings, they expect a return of about $1 billion to shareholders by FY24, and around $2 billion of additional capital available for a mix of investment in further growth and return to shareholders.

Fonterra’s strategy and ability to achieve these targets depends on a sustainable supply of New Zealand milk and in turn a capital structure that enables this.

Fonterra must be an attractive option to farmers, who have a choice on where their milk goes.

That’s why the proposed capital structure gives all farmers a level of flexible shareholding, which is critical to supporting farmers to join or stay with the co-op.

Fonterra farmers need to give a strong mandate to its board and management by approving the new capital structure this week.

A strong vote will also make it easier for Fonterra’s board to get the Government onside and pass the necessary regulatory changes.

More like this

All for show?

OPINION: The Hound notes that Fonterra is cashing in on the curent government's largesse with taxpayer money.

JV paying off

Kotahi, founded by Fonterra and Silver Fern Farms, works with exporters and shipping containers to ensure an efficient supply chain.

National

Ruralco's got your back

Rural trader Ruralco has launched a new campaign, recognising and appreciating the farming sector.

Optimising returns

Last month, in response to some pretty scary price rises, I wrote about the need to control costs. 

Machinery & Products

Amazone's one-pass operation

Ag machinery maker Amazone has paired up its Precea precision air seeder and Combi-Disc 3000 compact disc harrow to deliver…

New grassland products

Grassland specialist Pöttinger has released a new portfolio of products and innovations for the new mowing season.

» The RNG Weather Report

» Latest Print Issues Online

Milking It

Oat juice, not milk

OPINION: New Zealand's best loved brand Whittakers has launched its first 'plant-based' chocolate but it hasn't left a sweet taste…

Heat wave

OPINION: The heat wave that hit Europe last week has forced a rethink among UK dairy farmers who normally graze…

» Connect with Dairy News

» eNewsletter

Subscribe to our weekly newsletter