Stephen Ward: Fonterra fireworks or a fizzer?

Fonterra's AGM this week could see farmers fire a few skyrockets management's way - or be a bit of a fizzer.

The meeting will come against a backdrop of farmer anxiety about a flat $4.05/kg of milksolids payout forecast for this season.

The level of returns from value-added parts of the business, such as branded consumer products, is also causing concern.

And Dairy Farmers of New Zealand chairman Frank Brenmuhl is expecting some "robust discussion" at the meeting.

"Farmers will want to know what Fonterra's plans are ... if they're on track and where the risks are."

The recent Fonterra Shareholders Council annual report criticising the value-added performance articulated what many farmers had been thinking, said Brenmuhl.

But a regular series of pre-AGM Fonterra "accounts meetings" were held around the country in the past fortnight, when shareholders had a chance to address performance issues with directors. So any farmer "steam" might have been let off then.

Also, the fact the AGM is in Invercargill this year may be a disincentive for anyone thinking of going along to rark things up.

A strong critic of the current payout forecast, Waikato Federated Farmers president and Fonterra supplier Peter Buckley, is staying away, and says no one from the region is going down specifically to air concerns.

Buckley says directors would have heard his members' worries about payout at the local accounts meeting.

But he's calling on Fonterra directors to publicly recognise the tougher times farmers are facing and refuse a 7 per cent increase in fees that is due to be voted on at the meeting.

A remuneration committee has recommended chairman Henry van der Heyden's annual fees rise from $225,000 to just over $240,000, while directors' fees are set to move from $108,000 to more than $115,000.

However, shareholders' council chairman John Monaghan says he's comfortable with the way the remuneration committee works.

The committee's chairman, Stuart Gower, is adamant the increases are justified to retain good quality people on the board and attract new ones. He says the increases will bring fees more in line with similarly sized companies in Australasia.

New Australia-based directors Ralph Waters and John Ballard had both pointed out that fees across the Tasman were higher for a business of the same size, he said.

Even with the 7 per cent rise, Fonterra's fees would still trail its Australian equivalents.


High-tech helper

Gower said that, as farmers, committee members "tread a tightrope" between keeping costs down for shareholders and the need to set fees at a level that is in the co-op's best interests.

"We can't have directors' remuneration following the ups and downs of the payout."

As Fonterra executives prepare to face any dark words from farmers at the AGM, the co-op has announced a new beam of light will be cast over its milk powder testing.

Flow cytometry has been used to test fresh milk for years. It works by examining microscopic particles in a stream of fluid.

A light beam is directed on to the fluid and detectors are used to monitor refracted light.

Fonterra says extending this technology to milk powder will allow "close to real-time monitoring of milk powder production and tighter control over manufacturing".

A spokesman was not able to quantify in dollar terms the expected benefits of the new testing system.


Primary pondering

But quicker quality assurance tests must certainly reduce the chance of a dodgy batch of powder making it into an export container.

Milking extra Government funding for the primary sector's development is Jim Anderton's latest mission in life.

The Agriculture, Fisheries and Forestry Minister last week held the second of two major primary sector meetings aimed at finding common ground between industry participants about the way ahead.

The first last month involved CEOs while last week's gathering brought together industry organisations.

Ideas raised in the discussions will be used to develop an action plan.

A major congress of the private sector and industry groups is planned for next year to settle on a collective strategic direction.

On whether the Government will look to put significant extra funding into supporting a new strategy, Anderton said: "If the primary sector industry grouping is as important as I say it is ... then of course we have to."

He won't suggest the potential size of any new input - "I don't want to drive [Finance Minister] Michael Cullen round the bend straight up" - but he says both Cullen and the Prime Minister know clearly how important the primary sector is.

"MAF have already worked out a set of initiatives from the first meeting of the CEOs and put it to me," said Anderton.

"And it's now being put into Budget proposal format."

Anderton said problems such as skills shortages, infrastructure, trade access, R&D spending and marketing were all raised as challenges at the meetings.

"We're good at producing things in New Zealand but we're not so good at getting them in the right place, at the right time, for the right price."

New Zealand companies could "destroy" markets by competing too aggressively on price against each other, he said.

A bottom line in the strategy-setting process for business will be how much assistance - both technical and financial - the Government can provide to help meet the sector's aspirations.

Whether it's really prepared to put significant extra money and time where its mouth is will be a key test of both Anderton's and the Government's credibility with our primary industries.