KEY POINTS:
Alternatives to a sidelined plan to split Fonterra in two and list on the sharemarket are unlikely to give farmers a better deal, says chairman Henry van der Heyden.
In November, Fonterra unveiled its preferred structure to safeguard the company's future and help it grow.
Last month van
der Heyden said the preferred option was on hold and all options were back on the table.
Other options previously discarded by Fonterra include splitting off and listing its international and consumer businesses, making non-voting shares available to the public and raising money by issuing debt-like securities.
Speaking at the Large Herds Conference in New Plymouth yesterday van der Heyden said there had been sighs of relief when the board's preferred option was put on the backburner.
"But we need to understand that it is not likely that we will come up with any other solution that maximises value," he said. "Maybe most farmers don't see this as a priority."
The preferred restructure option would have created an asset holding company to be listed on the stock exchange.
However, a vote which had been expected in May to create the two-entity structure was cancelled in February with the board saying it was highly unlikely to get 75 per cent support.
Some farmers wanted to get on with restructure, others were nervous about the long-term implications but some people "won't have a bar of it", van der Heyden said.
"In fact it mirrors what went on around our board table. We thrashed out the choices time and again until we could agree on the best way forward."
The company had to single-mindedly focus on implementing the strategy to secure its future, he said.
"So we mustn't get paralysed by the capital structure debate. We need to find another way and move on.
"If we do nothing, we might as well write off the years of work which went into creating Fonterra and getting us where we are today."
Fonterra was the world's biggest dairy exporter but was not large in global terms, accounting for only about 2 per cent of milk production. The growth rate in global supply was the equivalent of adding one New Zealand-sized industry each year.
"Given our comparatively limited potential to expand dairying here, this means we're only going to get smaller in relative terms," van der Heyden said.
Consumption and supply were growing, with much of the increased milk production in developing regions like China and South America.
Nearly 150 million tonnes of new milk consumption was forecast for the next 10 years, van der Heyden said.
China's dairy industry had double-digit growth and was twice the size of New Zealand, while last year Brazil moved from being a net importer to exporter.
Countries including Uruguay, Argentina, Chile and Russia had natural profiles to be low-cost producers, he said. "So on the supply side the signposts are equally clear, it is all about growth and low-cost competitors."
Meanwhile, customers wanted help in developing countries to secure large amounts of quality milk.
International joint ventures including Soprole in Chile and SanLu in China had given Fonterra a foothold in key global industries.
In the future Fonterra expected to have fewer but larger customers, and face bigger competitors. "We will have to earn our place in the market and fight to maintain it," he said.
SPEECH NOTES
* Fonterra chairman Henry van der Heyden said:
* Preferred capital restructure option has been sidelined.
* Co-operative must not be paralysed by debate.
* 150 million tonnes of new milk consumption expected in the next decade.
* There is limited potential to expand dairying in New Zealand
* Fonterra must keep up with demand or be marginalised.
