European Parliament members. Fonterra's Chair has warned farmers could be locked out of major markets if it cannot demonstrate emissions reductions. (AP Photo/Jean-Francois Badias)
There is a misconception that Fonterra is active in the market to prop up its share price, chairman Peter McBride has told the annual shareholders meeting of New Zealand’s biggest business.
The farmer cooperative’s new capital structure, introduced in March this year, was working “broadly as expected”, he told farmersat a small gathering in Canterbury on Thursday.
“There is a misconception that Fonterra is active in the market to ‘prop up the share price’. Following the transition to the (new) flexible shareholding structure, we implemented market maker arrangements to support liquidity in the Fonterra Shareholders’ Market.
“We also have the ability to buy back shares as part of our ongoing capital management programme, where we see it as value accretive to the co-op,” McBride added.
“This was anticipated and well-signalled before shareholders voted to support the changes to our capital structure. There has also been a share price impact as a result of the recent capital return. Over time we expect that the price will reflect the co-op’s financial performance, and the value farmers see in that. Ultimately, farmers will determine the value of the shares, McBride said.
Only farmers can own shares in Fonterra but outside investors can buy NZX-listed dividend-carrying units in shares under the Fonterra Shareholders’ Fund. Units have no voting power.
The capital restructure made it easier for farmers to join or stay with the cooperative, which would help it maintain a sustainable milk supply in New Zealand, where milk volumes are declining, he said.
Following the announcement the company was committing to a 30 per intensity reduction in total on-farm emissions by 2030, McBride said he wanted to make it very clear that the need for an on-farm emissions reduction target did not change as a result of the general election.
“Intensity” reduction meant emissions would be measured by kilogram of milk solids. The 30 per cent target was collective, not per farm. It was based on a 2018 baseline so the good work farmers had already done to reduce emissions would count, McBride said.
“The strongest motivating forces are offshore and, from my perspective, are both geopolitical and commercial in nature. Being a leader in sustainability is a fundamental part of our strategy.”
Sustainability was a requirement of Fonterra’s key customers, he said.
“Sustainability and emissions are also the new trade barriers.
“We could essentially be locked out of some of our most valuable markets if we cannot demonstrate emissions reductions. You already see that in the EU.
“They are introducing a Carbon Border Adjustment Mechanism that applies carbon tax to certain products imported into the EU. The EU is also looking to impose carbon charges on transport of goods to market, levied on all large ships entering their ports.
“Our other main commercial driver is access to funding and capital – for both the co-op and our individual farming businesses.
“The main banks and financial institutions have set emissions reduction targets. Our on-farm emissions and the co-op’s operating emissions are a large part of their Scope 3 emissions, which they are seeking to reduce.”
McBride said some local competitors might use Fonterra’s target as a lure to get farmers to switch processing companies.
“But the commercial reality of doing business at scale internationally will capture all of us in time. They will be late to the table, and presented with an even bigger elephant to eat.”
Chief executive Miles Hurrell said the sudden departure of short-term chief financial officer Neil Beaumont was subject to confidential terms.
He deflected a shareholder question about Beaumont’s abrupt departure after less than a year in the job with the same response.
Andrea Fox joined the Herald as a senior business journalist in 2018 and specialises in writing about the dairy industry, agribusiness, exporting and the logistics sector and supply chains.