Fonterra and farmers to benefit from restructure

Fonterra chairman Sir Henry van der Heyden

Fonterra fears its profits and market share will both take a hit if it doesn't forge ahead with planned changes to its business.

Chairman Henry van der Heyden told a media conference Fonterra could lose out on crucial cash flow as offshore investors paid over the odds prices for milk to gain a foothold in the New Zealand market.

Fonterra this afternoon announced the third stage of its proposed capital restructure in allowing farmers to trade shares among themselves.

The proposal means its 10,500 farmer shareholders could buy and sell shares among themselves, rather than relying on Fonterra to buy shares back.

Fonterra's hopes - and fears

Fonterra hopes the scheme will free up capital for the company because it will no longer have to buy shares off farmers and could spend that money on expansion.

The proposed changes would stop money washing in and out of the co-operative, Mr van der Heyden said.

"We see that as a real risk to Fonterra...if they (offshore investors) get a strong foothold and get a large amount of our milk supply here in New Zealand we do not believe it would be ultimately sustainable."

"That's the fundamental issue, if we lose milk, we lose capital."

Fonterra shareholders

Shareholders in Fonterra will be able to invest in shares up two times their annual production rate, almost double that of current rates.

These extra so-called "dry" shares could only ever be 20 per cent of the total shares on issue, unless extreme circumstances prevailed such as a drought when this could be extended by five per cent.

New farmers would be able to buy shares over three years, while exiting farmers would have up to three years to sell their shares.

Shareholders fund

Meanwhile the cooperative also plans to set up a shareholders fund to help farmers buy or retain shares they would otherwise have to sell.

This would be done by paying shareholders for the right to receive dividends.

The fund would raise the money it needed to pay farmer shareholders by selling investment units.

It would target investors such as sharemilkers, retired farmers and offshore suppliers. The public would also be able to hold units in the fund.

These units would not be able to be converted into Fonterra shares.