Fonterra moves to protect cash and cut debt

Fonterra moves to protect cash and cut debt
Fonterra has announced it will stop its farmer owners who want to become contract suppliers from selling shares back to the dairy cooperative because it wants to preserve cash amid the global Credit Crunch.  Chairman van der Heyden said the changes to the terms of contract milk supply for next season were "necessary and recognise the absolute priority the Fonterra Board places on protecting the interests of our farmer-shareholders, who make up 96% of our supply base". Contract milk will be available only to "˜growth milk' from existing farmers or new milk from conversions. "Shareholders will not be able to surrender, or cash-up, shares to supply on contract," van der Heyden said, adding that the contract milk price would be set at 10 cents below the regular milk price in 2009/10. Bernard Hickey thinks the announcement effectively ends the experiment allowing Fonterra owners to cash out to become contract milk suppliers and puts up the shutters for farmers looking to cash out of Fonterra, which was one of the driving forces behind the move to contract supply. He also says Fonterra is being prudent by getting ahead of the curve and should the financial world melt down again , there is likely to be further payout retention in the current season. Given recent further sharp fall in dairy commodity prices (offset somewhat by the NZ dollar's fall), the payout could be cut to below NZ$6 if there is a further 20-30 cent cash retention by Fonterra.

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