What shape would Fonterra be in if Craig Norgate had remained as chief executive?
There was yet another reminder this week of Norgate's disastrous stewardship at PGG Wrightson when the company's annual report revealed that Tim Miles, who was appointed managing director while Norgate was chairman, received $8.1 million for his 31 months at the helm.
This is an average of $261,568 a month even though PGG Wrightson had a negative share market return of 55.5 per cent during Miles' tenure as managing director.
This compares with a 4.7 per cent decline in the NZX50 Gross Index over the same period.
During Ferrier's stint, Fonterra's cash payout to dairy farmers rose by 117.6 per cent.
Ferrier started as Fonterra's chief executive on September 1, 2003 after 16 years in the sugar industry in Canada, the United States, the United Kingdom and Mexico.
Immediately before coming to Fonterra he headed GSW Inc in Toronto, Canada, a publicly traded Canadian company selling branded consumer building and water products and making 75 per cent of its revenue in the United States.
Ferrier's first major address was delivered at Fonterra's 2003 annual meeting where he outlined four major priorities as far as shareholder wealth generation was concerned. They were:
* Operational excellence.
* Moving up the value chain.
* Fonterra's relationship with its customers.
* Making the most of the assets Fonterra had in its people.
Fonterra is an extremely complex business, which is not subject to extensive external analysis, but Ferrier has been extremely successful as far as shareholder wealth creation is concerned.
Fonterra's total production has increased by 17.2 per cent, from 1148 million kgMS in 2003 to 1346 kgMS in the latest year.
This has been due to a combination of factors including a huge number of farm conversions from beef and lamb to dairy, a substantial increase in dairy herd numbers and favourable weather.
Dairy cattle numbers increased by 16.0 per cent, from 5.1 million to 5.9 million, between 2003 and last year.
In the same time, the number of beef cattle declined by 14.7 per cent, from 4.6 million to 3.9 million, and sheep numbers fell by 17.7 per cent, from 39.6 million to 32.6 million.
The switch from beef and mutton to dairy has been phenomenal.
In 1983, New Zealand had 70.3 million sheep, 4.9 million beef cattle and only 3.0 million dairy cattle.
The mass conversion from meat and sheep meat to dairy over the past 30 years shows the country has a highly flexible agriculture economy that can switch production in response to changing demand and prices.
This has been assisted by the structure of the dairy sector and Fonterra's strong performance.
Fonterra's total revenue increased by 59.3 per cent, from $12.5 billion to $19.9 billion, during Ferrier's tenure.
This was mainly driven by increases in US dollar commodity prices between 2003 and 2011:
* Average whole milk powder prices rose by 152 per cent.
* Skim milk powder prices were up 135 per cent.
* Butter prices jumped 304 per cent.
* Cheese prices rose 156 per cent.
These price increases have been spectacular but it is important to note that they are in US dollars and the value of the New Zealand dollar appreciated by 40 per cent against the greenback between mid-2003 and mid-this year.
Fonterra's balance sheet has also been strengthened under Ferrier's term.
Net interest-bearing debt fell from $4.4 billion to $3.8 billion and total equity increased from $4.7 billion to $6.5 billion.
As a result, the group's debt to debt plus equity ratio has declined from 48.5 per cent in 2003 to 41.8 per cent.
There is no doubt that the dairy industry has been the New Zealand economy's star performer over the past eight years.
The total value of dairy exports went from $4.7 billion to $11.3 billion over this period, and dairy products are now 25.6 per cent of the country's total exports compared with 16.6 per cent in the year to June 2003.
The dairy industry has come a long, long way as it accounted for only 13 per cent of New Zealand's total exports 25 years ago.
In comparison, meat and edible offal exports have fallen from 20 per cent to 12.2 per cent of exports over the same 25-year period.
Fonterra reported an after-tax profit of $771 million for the year to last July, a 13 per cent increase over the $685 million of the previous year.
The result was achieved after paying farmer shareholders $10.6 billion for their milk, against $8.4 billion in the previous year.
Ferrier was quoted as saying "Although the business was impacted by higher dairy ingredient prices and a fragile global economy, our underlying profitability showed solid growth over last year due to improvements within our ingredients businesses and the strength of our consumer brands".
However the outlook for dairy farmer income this year is not so positive.
Fonterra believes that the cash payout will be about $7.20 per kgMS, down from $7.90 for the 2010-2011 season.
The lower forecast reflects a softening of global commodity prices since early this year.
The one major unfinished project as far as Ferrier is concerned is the proposed "Trading Among Farmers" scheme.
Farmers now own shares in Fonterra based on their level of production. This means the co-operative doesn't have permanent capital because it has to issue and redeem shares as milk production rises and falls.
The company is proposing a scheme under which its shares will be permanently on issue and farmers wanting to adjust their shareholdings will be able to trade with other farmers.
The introduction of permanent share capital will remove "redemption risk" and prevent money washing in and out of the co-operative's balance sheet every season because of fluctuations in farmers' milk production.
An important part of this proposal is the proposed Fonterra Shareholders' Fund, which will be listed on the NZX.
This will involve the issue of units, which will be linked to Fonterra shares that farmers place in the fund, to retail and institutional investors.
However the "Trading Among Farmers" scheme seems to be going nowhere because farmers don't want to give away any of their rights associated with their shares, and perspective investors in the fund's units are reluctant to invest in these without the rights normally associated with equity securities.
Fonterra's new chief executive will have to resolve this impasse.
Brian Gaynor is an executive director of Milford Asset Management.
