Fonterra capital - doing nothing a greater risk

For years we have listened to farmer groups complaining about the high dollar and the way the Americans and Europeans distort dairy prices with subsidies. Nothing seems to change reports The NZ Herald. Yet it seems dairy farmers would rather live with extreme volatility year on year than contemplate floating a minority stake of their consumer foods business on the NZX. The irony is that dairy farmers fear losing control if Fonterra lists, yet the status quo leaves them powerless to control the price they get for their produce. The payment they get for the milk powder that Fonterra sells wholesale to the world rises and falls on the fortunes of the US dollar and the supply and demand dynamics of commodity markets. Meanwhile Fonterra has talked big about the future of its consumer foods business since its inception. That is a business - selling high-value, branded retail products - that could bring stability and steady growth to Fonterra's earnings. If it was successful, it could rival Nestle. It would unlock equity for farmers, it would provide dividends in excess of those it currently contributes to the payout. And it could create share value which could be unlocked by farmers on retirement. But now it is failing to deliver anything like the results hoped for. Last year, of a $7.90/kg milksolids payout, just 31c/kg came from the value added part of the business. Some farmers may blame their management. But the business is constrained by the structure of the co-operative. It needs capital and it needs to expand its scope.