Fonterra farmers force changes in proposed capital restructure with more transparency promised

Fonterra board considering changes after capital structure consultation. Photo / File

Fonterra is set to reveal more detail about its business strategy and targets in response to shareholder demand for information before they're happy to vote on a proposed capital restructure.

Chairman Peter McBride said further details would be provided next month and in September - including the measures against which Fonterra would track its progress.

The promise comes as the farmer-owned cooperative winds up the first stage of consultation with shareholders on a proposed capital restructure announced in May.

Several changes to the plan will be considered as a result of nationwide discussions.

Changes to the original plan include making the minimum shareholding requirement to supply milk to 33 per cent of milk supply or one share for every 3kg milksolids, instead of the 25 per cent, or one share per 4kg, originally proposed.

Sharemilkers and contract milkers could also be allowed to hold shares if the cooperative moves to a farmer-only share trading market and timeframes for entry and exit from the company could be extended under the review of the proposal.

The potential changes will be tested on shareholders in surveys and focus groups in the next two months with a detailed final proposal to be ready for consideration around the time of Fonterra's annual results in late September.

McBride said the board was still aiming for a farmer vote at the annual meeting in December.

Farmers have told the Herald they had pushed directors and management for more information about Fonterra's business strategy, targeted results and milestones before they were asked to vote.

The changes being considered are a result of farmer pushback against the previous share standard proposal as being too low, and concern about a move to cap or axe the Fonterra Shareholders' Fund, a listed entity in which farmers can divest their "dry" or non-milk supply shares, and outsiders can buy dividend-carrying, non-voting units in those shares.

Farmers, which also have a farmer-only share trading market, expressed concern during the nationwide consultation about the potential for a permanent move to a farmer-only market.

The board, however, is trying to accommodate shareholder will that Fonterra remain a farmer-owned and controlled entity and ensure the cooperative has a future sustainable milk supply in flatlining milk production, which is expected to decline due to processing competition for milk and environmental compliance pressures.

Easing the share standard from one share for every 1kg of milk solids supplied was considered a way to make supplying milk less financially onerous thereby encouraging supply, while the proposal about limiting or abolishing the fund was to protect the balance sheet and farmer control.

The board is concerned that pressure on the fund's $500 million constitutional limit could force acceptance of more outside investment or require Fonterra to do costly future buy backs to stay within the limit.

Fonterra suspended farmer trading in the fund during the consultation. The share prices of both the farmers-only trading market and the fund dipped sharply in response.