Grassroots dairying debate moves into its third round

Dairy farmers will get another chance to debate the proposed changes to Fonterra's capital structure next week as a third round of consultation meetings begins.

The giant dairy co-operative has this week published more details of its proposed changes - originally unveiled in December.

Writing in the Fonterra shareholder magazine Farmlink, chairman Henry van der Heyden said new details had been formulated after feedback from farmers at earlier consultation meetings.

One big change is the plan to allow farmers to supply a portion of their milk on a contract basis - without the need to buy more shares in the co-op.

At present, some farmers are opting not to grow their production volumes because of the cost of buying more shares. It is proposed that Fonterra farmers should be allowed to sell up to 15 per cent of their supply to the co-op on a contract basis.

The contract supply system would be introduced gradually, with Fonterra aiming to buy about 3 per cent of its milk on contract in the 2006/07 season.

Another major change is the scrapping of the complicated peak notes system. It would be replaced by a capacity charge. Peak notes are a way of reflecting the relative cost of processing farmers' milk.

Farmers who supply more of their milk to Fonterra at the season's peak cost the company more because of the investment needed to handle and process that milk. To reflect those costs, farmers who supply more milk at the peak are required to hold more capital in the company.

The system means that farmers must keep complex accounts at the end of each season and are often faced with big one-off bills.

Fonterra says this can be avoided by adjusting the milk price up or down to reflect the time of the season it is produced. Farmers who produce a lot of their milk at the peak could receive as much as 3c/kg less for milksolids under the proposal.

A transition to the new system is proposed so Fonterra can avoid buying back peak notes in a lump sum - something that would cost the company about $1 billion.

Other proposed changes include scrapping "supply redemption rights" which assist farmers in adjusting for seasonal fluctuations in supply.

The farmer meetings will continue around the country until March 4. Once final details of the proposed changes are in place they will be put to a farmer vote in May.