Dairy co-operative Fonterra has executed a recovery with a record $1.6 billion profit. But milk product demand is declining in China and farmers are facing financial pressure.
With a disappearing CFO, farmers doing it tough, a call to shrink board size and pay rises in an economic squeeze all on the menu, Fonterra’s annual shareholder meeting this week would once have been a recipe for an encounter to make its leaders sweat a little.
But the daysof 500-plus farmers descending on a regional hall to grouch and grumble and eyeball the leaders of New Zealand’s biggest business are gone with a low number of shareholders expected to turn out in Methven, Canterbury on Thursday, according to one sector observer.
Online access to the meeting and twice-yearly post-financial results regional gatherings with directors and managers have taken the potential sting out of what was a once a red-letter date for Fonterra’s 8000 farmer-owners.
The company’s numbers bear this out. At the 2021 annual meeting and special meeting on capital restructure, 70 farmers attended in person while 150 were online. Last year’s annual meeting in Rotorua was an in-person only event - 90 farmers turned out.
Attendance this week in Canterbury may also not trouble the seating plan but there’s plenty for shareholders to chew over. Much anticipated is guidance from the company on what’s expected of farmers in reducing Scope 3 carbon emissions. These are emissions not produced by Fonterra but by those it is indirectly responsible for up and down its value chain.
When farmers are displeased with the dairy processing and exporting heavyweight - and the annual report of its farmer watchdog council suggests they are antsy - they tend to express it through director elections. But this year, the two board vacancies by rotation are uncontested. The appointments of Bruce Hassall and Holly Kramer, directors enlisted by the board, not farmers, seem likely to be ratified.
Where farmers could show some mettle is when they’re called on to support a board call for director numbers to be reduced from 11 to 9.
This proposal needs 75 per cent support. The current balance of six farmer-elected directors and three appointed directors would be maintained.
Fonterra chairman Peter McBride is keen to reduce board size closer to modern governance standard.
Fonterra has been notable for its large boards since its creation from an industry mega-merger in 2001 and it has taken it this long to get within cooee of the Institute of Directors-recommended board size of six to eight members for a medium- to large-sized company.
While the proposed reduction appears overdue, Fonterra is a farmer-owned cooperative.
Board size and composition is a touchy subject with farmers who police their governance representation closely.
Shareholder Richard Dampney feels strongly enough about the matter to have put four proposals for resolution to the annual meeting - all designed to uphold and preserve farmer representation on the board and reduce the influence of independent directors. He’d prefer a board of nine farmer directors, saying “farmers are feeling ignored, disenfranchised and have a serious disconnect from the board”.
The board and the farmer watchdog council have recommended shareholders vote against Dampney’s proposals.
But given the council in its annual report last week took Fonterra to task on several matters, including lack of information on a swag of new investments and throwing its weight around in on-farm matters, there could be room in the director reduction vote for farmers to cut up rough.
As for the disappearing chief financial officer, they’re unlikely to get a frank response from the top table on Thursday. Neil Beaumont departed suddenly last week after less than a year in the job.
Fonterra gave no explanation when it announced the abrupt departure of the former senior managing director and chief financial and risk officer at Canada Pension Plan Investment Board. Beaumont was responsible for leading the operations, finance and risk functions for the CAD$500 billion ($619.25b) investment fund. He had previously held senior roles at BHP Billiton in Chile and Australia and at KPMG.
Neil Beaumont joined Fonterra as CFO earlier this year.
The Herald understands Beaumont was good at his job but didn’t feel comfortable in the Fonterra HQ culture.
In a letter to shareholders about the annual meeting, chairman Peter McBride noted “the pressure our individual farming businesses are under as we face into a combination of on-farm inflation and a significantly lower forecast farmgate milk price range for the 2023-2024 season”.
Because of the pressures, McBride said he and chief executive Miles Hurrell would discuss how the cooperative planned to support its members and its cost-saving actions.
Pressures aside, shareholders will be asked to approve a pay rise of $14,000 for McBride, taking his annual remuneration to $484,000, and an increase of $5000 to $196,500 for elected directors.
The increases for these farmer-elected directors are recommended by the directors’ remuneration committee (DRC), which comprises six elected shareholders.
The leaders of the farmer watchdog Fonterra Cooperative Council have also been recommended for a pay rise by the DRC. The council itself is also seeking shareholder approval for an increase in FY24 budget to $3.2 million. In FY23 its total costs were $3.07m.
The FY24 budget comprises $2.37m for operating costs for FY23 and $925,000 for “other costs contributed to, or met by, the cooperative council....”
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.
