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Bernard Hickey live-blogs from Fonterra's Trading Among Farmer vote in Hamilton. Your view?

Rural News
Bernard Hickey live-blogs from Fonterra's Trading Among Farmer vote in Hamilton. Your view?

By Bernard Hickey

I am in Hamilton today for Fonterra's Trading Among Farmers (TAF) proposal to open up Fonterra's capital base to outside investors without handing over voting control to non-farmers.

The results came out just before 4pm. Fonterra said 66.45% of shares voted for the first resolution for the Trading Among Farmers proposal, which was above the required 50% threshold. But farmers only voted 72.8% in favour of rules to tighten ownership, which was supposed to go with the TAF plan. This resolution required 75% support. However, Fonterra's board said it had decided to go ahead with the plan anyway.

The board will put the resolution for tightened ownership rules back to shareholders to vote on at Fonterra's annual meeting in November. Meanwhile, it is proceeding with its TAF plan, with the aim of launching it in November "dependent on market conditions."

Fonterra Chairman Henry van der Heyden said at a news conference afterwards he had hoped to get over the 75% threshold for the constitutional changes, but the 66.45% was a clear mandate to go ahead with TAF. He was confident it would pass in November.

"It's not the first time I've had to take ths same resolution back to farmers," he said.

See the full Fonterra statement below.

See my preview of the debate and the vote from Friday, which includes interviews with Fonterra's Chairman Henry van der Heyden, who is arguing for TAF, and Lachlan McKenzie, who is arguing against TAF.

11.20 am - The meeting is underway at the Claudelands Events Centre. It's packed and the car parks are full. It's a full basketball court sized event centre dominated by three screens. About 300 farmer shareholders are here.

A Fonterra spokesman said 87% of Fonterra's shares had already been voted in postal and internet ballots. A full result is expected after 4 pm today.

Fonterra Chairman Henry van der Heyden spoke first in favour of TAF.

"We are here to deal with redemption risk, to protect  our Co-op and to strengthen our capital base," van der Heyden said. He spoke closely to his script. He was very deliberate.

Then Chief Executive Theo Speirings spoke via a video link up from Holland. He is there because his elderly in-laws are not well. He spoke off the cuff to a series of slides and emphasised his history with cooperatives in Holland and the need for Fonterra to better connect with its grass roots, including the rest of the community in New Zealand.

"The next 10 years is all about making this the greatest Co-op in the world," he said.

11.30 am - Then John Wilson, the Chairman of the Capital Structure Committee of Fonterra's board, spoke to the meeting in favour of TAF.

"On Friday when I was speaking at the New Zealand Cooperatives Conference, I observed that from the outside looking in, the Franz Joself Glacier apears to move ten times faster than Fonterra, when it comes to dealing with our cooperative challenges," he said.

He made the point that TAF was reversible if farmers don't like it after it has been launched.

11.40 am - Then John Waller, the chairman of the Trading Among Farmers Due Diligence Committee, spoke in favour of the proposal and explained how the Due Diligence report was produced.

There's a slight feeling of de ja vu about Waller's speech to this meeting. I remember Waller speaking in favour of Hanover Finance's proposal to be taken over by Allied Farmers to a similar sized meeting of Hanover Finance investors in Auckland a few years ago. That passed by a whisker. Investors may wish it hadn't passed.

"Due diligence will continue up until the successful launch of TAF," he concluded.

Here's a link to that Due Diligence report on Fonterra's website.

11.45 am - Henry van der Heyden then moved Resolution 1.

John Wilson summarised the resolution before discussion and a vote. He has now formally moved the motion,

Colin Armer has seconded the motion via a video conference from a meeting of Farmers in Rotorua.

11.50 am - Questions then started from the floor start.

A farmer who did not name himself then stood up to ask the first question in Hamilton. He had a big bushy beard.

He said he hadn't seen any good reasons to vote against TAF. He pointed out one million kgs of Fonterra supply has moved to Open Country Cheese that might not have moved with TAF. "Rabobank forced them to," he said.

He urged farmers to vote for TAF. "If you don't,  you risk selling us down the river," he said.

11.50 am - TAF opponent Lindsay Blake then asked a question.

She said TAF would demutualise Fonterra and argued that outside investors were likely to drive up the unit price, which would encourage farmers to sell out.

"What have you put in place Henry to protect us from unit holders driving up the share price and incentivising us to leave," Blake said.

Van der Heyden responded. He argued that outside investors were no different from farmers in that they would do the research and not over-pay.

Van der Heyden was applauded.

11.57 am - TAF opponent Lachlan McKenzie then spoke. He argued the proposal would shift risk from Fonterra down to Farmers and pitted the interests of shareholders who were not suppliers and those who were suppliers and shareholders. He said it was in the interest of shareholders to drive the milk price down.

John Wilson responded, saying the risk had always been with suppliers if shares were redeemed, given the cost of a weak capital base would ultimately be born by all suppliers in the form of a lower payout and dividends in future years. He also said the milk price was transparent now and would be in the future.

12.05 am - Another elderly farmer, Eric Reay made some comments about Fonterra I didn't understand, in which he accused quite a few people of lying. Fonterra's board did not respond.

Then Don Harvey in Hamilton said farmers were not the same as outside investors.

"You will never have unity when you have outside shareholders who want that share price as high as possible and farmers don't, given they want to increase production," he said.

John Wilson responded. "For every farmer who says the price is going to go through the roof, I have another farmer tells me it's going to go through the floor. That's great. We're going to have a market."

12.10 pm -  Greg in Palmerston North spoke in favour of TAF and said he wanted a clear mandate in favour of TAF.

Andy Russell said TAF was necessary to fix Fonterra's capital structure. He also thanked the opponents for strengthening the debate.

"It is a democracy in action within the Cooperative. It is still a cooperative. 100% farmer owned and controlled. I vote in favour of this resolution and I hope all other farmers do too."

Blake from Palmerston North asked if the name of the Market Maker had been revealed yet,.

John Waller said he did not know who that would be.

Blake: "We've heard a former director say on radio last week: You can't run a business with farmers treating Fonterra as a bank. What's your view Henry?" he said.

Henry van der Heyden acknowledged that some farmers would use TAF to ease their pressures from their banks or be forced to sell by their banks.

Blake responded that he was offended by the comments on radio: "In reality, it's probably the other way around. In reality Fonterra functions on the funds from its shareholders."

12.18 pm - TAF opponent Leonie Guiney asked: "My problem is TAF changes our focus from a cooperative share to one where the market needs to discover the price of that share," she said.

"What farmers must consider is that the risk comes not from investors but from farmers themselves. We are putting the focus on shares that investors will make more volatile. I fail to see how that scenario does not create a bigger redemption risk than the TAF scenariom," Guiney said.

Guerney said the current structure with increased retentions was sufficient to deal with current redemption risk.

12.25 pm - Irish-born farmer Thomas Clinton spoke from Invercargill - "I totally agree with Theo that Fonterra is the envy of every dairy farmer in the world that is not in Fonterra.  They want to make it like it Fonterra. Arla and Campina are based on the Fonterra model."

Clinton argued the current structure allowed the 10 largest shareholders to sell their shareholding and he spoke out in favour of TAF.

Danny Simms in Northland spoke against TAF, saying outside investors wanted to get their hands on Fonterra, which "they said was too valuable to leave in the hands of 10,000 farmers."

"In the absence of the fund, I would support TAF.  By establishing the fund you're asking someone else to take the redemption risk and you have give them something else for it."

12.30 pm - An elderly farmer in Nelson, Fergus, argued against the "financial jiggery pokery" that would open Fonterra's capital base up. He questioned why Fonterra needed to keep the government happy.

Henry van der Heyden responded: "A vote for TAF keeps us in control of our own destiny."

"As long we keep making the right decisions for us as a cooperative, then government is unlikely to interfere."

12.40 pm - Richard Myers spoke from Hamilton:

"I think we need to look at the glass as it's half full and we have to look forward and in the eyes of the customer. TAF is the way to move forward and look to the future. Theo has said he needs TAF to execute his strategy. There's support for the strategy isn't there? There was no dissenting voice in the discussion that folloowed. I think we need to support Theo by supporting TAF," Myers said.

"Hasn't Theo bought a new enthusiastic approach to the company? Is he a key person in Fonterra? Are we relying on him for the future. I think we need to give him our support," he said.

"External investors will not own shares in Fonterra if TAF goes ahead. But I see TAF as an opportunity for some investors to have an interest in our business. This helps facilitate what we want to achieve. On our farms in succession I think TAF helps in our succession planning. I've got a son on the farm and daughter in Fontera in Princes St. What better way to motivate them than with TAF? TAF has been given a thrashing. I think some of us have created unjustified fears. Unity is powerful if it can be achieved. Whatever happens today, part of us have to give way and say the majority rules."

He is applauded.

He then went on to compare the TAF vote and the need for unity with the unity of the All Blacks before the World Cup final. He also suggested Federated Farmers Chairman Willy Leferink should resign after his comments on TAF.

12.45 pm - Jim van der Poel in Palmerston North moves Resolution 2 which changes the constitution and needs 75% support.

Stewart Gow spoke in favour of Resolution 2.

There are no more questions and Henry van der Heyden has now called for farmers to vote in resolutions 1 and 2.

My reading of the comments and applause from the floor is that Fonterra's farmer shareholders here support TAF.

12.53 pm - Questions start again from the floor on other resolutions.

A farmer in Nelson, Murray Beach, has proposed that TAF be wiped.

Beach argued against letting in outside investors to 'clip the ticket' on the milk price. He also questioned the performance of Fonterra's assets bought overseas and the performance of the board on the issue of resolving redemption risk.

A Fonterra board member Ian Farrelly spoke in favour of TAF.

12.55 pm -  Lindsay Blake spoke in favour of Beach's resolution:

"Redemption risk is overstated. We could have done better with what we had. We have reversed decisions on peak notes and contract supply."

"It's all forgiveable Henry, but those outside investors aren't so forgiveable. They're short term thinkers. We're long term thinkers.

She is applauded

Beach finished his argument, saying redemption risk could be dealth with if there were B class share for all new milk supply at NZ$1.50/kg to cut out redemption risk.

"The reason they have redemption is because they kept pushing the share price higher and higher. "

1.00 pm  - Resolution 4 is put by Alistair Upson that the TAF vote received 75% support rather than the 50% it currently needs.

A Fonterra board member Malcolm Bailey spoke from Ashburton against the resolution.

Lachlan McKenzie supported the resolution, saying farmers had not seen the full due diligence report or seen the final version of legislation to change Fonterra's structure,.

"This is a significant change to our structure and I believe we should not make this change until we have all the information and full disclosure," McKenzie said.

A farmer from Nelson, Lachlan, spoke in favour of the resolution, asking what the board's sub-committee of the board's liability is to Fonterra on its due diligence report.

1.05 pm - Alistair Upson was then given the floor to make the final comments.

"50% is not unity. 75% is generally seen as unifying," he said.

1.10 pm - Henry van der Heyden then finished the discussion on Resolutions 3 and 4. Farmers were then asked to vote on those resolutions.

Henry van der Heyden says he had convened a meeting of the Fonterra board this afternoon to discuss the results and make a decision, which he said would be announced via email to farmer shareholders shortly before a news conference around 4 pm.

General business

He then opened up the meeting for general discussion. Initially, there are no questions from the floor.

"Everybody is TAFfed out by the sounds of things," van der Heyden joked.

Capital retention policy

John O'Brian in Nelson then asked about Fonterra's retention policy of keeping aside 25-35% of operating profit to boost capital, rather than boost the milk payout. He pointed out that this year's increase in production meant Fonterra's capital base would increase by around NZ$500 million, given farmers have to buy shares to match their production increase.

He suggested it was time Fonterra reduced that retention policy to increase payouts to farmers "With half a billion coming in this year in new share capital, when will we see less reliance on retentions," he said.

Henry van der Heyden responded: "This is all about redemption risk. I don't think we're going to have another dream year like we've had," he said. But he pointed out production had risen around 3% a year for the last 10 years and Fonterra had to keep investing in stainless steel and other assets to process that milk, which meant putting aside capital regularly.

He pointed out that Fonterra's management had been reluctant to invest heavily in downstream production and marketing overseas when the redemption risk issue hung over Fonterra.

Milk in schools

Farmer Malcolm Guy asked about Fonterra's trial in Northland of free milk in schools.

Theo Speirings spoke by video from Holland about Fonterra's need to make milk affordable and available for people in the world's biggest milk exporter.

"Our youngest were shifting to fizzy drinks and Coke," he said, adding that the trial in Northland was going well and was likely to be rolled out across the country to between 240,000 to 250,000 kids.

"That's bringing milk out to the younger generations," he said.

He said Fonterra had also moved over the last year to make milk more affordable, working to create new brands and working with supermarkets to lower prices.

Fonterra's local fresh milk sales had moved from falling 2% per year to growing 5% per year. "That ends up with more New Zealand dollars in income," Speirings said.

Fonterra's Takanini fresh milk processing plant was now producing an extra 35,000 litres a day because of the moves to make milk more affordable and to supply milk for the Northland school trials.

Federated Farmers' Dairy Section Head Willy Leferink than spoke from Ashburton. He thanked Fonterra for agreeing to Federated Farmers' request for a second vote on TAF.

He also suggested Richard Myers, who had called for his resignation, challenge him in the next Federated Farmers vote.

Farms in China

Farmer Peter Maire (sp?) then spoke from the Invercargill meeting.

He asked if Fonterra's two farms in China were profitable and about the strategy behind Fonterra's plans for more farms.

He said he had been to Hong Kong and seen the enthusiasm by Fonterra to get into the market, but was sceptical about the Chinese interest.

"I looked at the Chinese faces there and the looks on their faces said the opportunity was for them, not for me."

Speirings said 20% of Fonterra's milk was now being exported to China and Fonterra wanted to get access inside China to the full supply chain. Fonterra's existing farms were forecast to be cash flow positive two to three years after being built.

Currently the milk from the farms was being sold to Fonterra's competitors, but Fonterra's aim was to be linked into an integrated supply chain that would generate profits for Fonterra's shareholders.

Fonterra aimed to be selling 5 billion litres of milk to Chinese consumers by 2020, with 1 billion being supplied from within China.

That is it from the meeting. We expect the results of the vote around 4pm.

Here is the full Fonterra statement after the vote:

Fonterra shareholders have voted in favour of implementing Trading Among Farmers.

The resolution for Trading Among Farmers received a 66.45% vote in support at Fonterra’s Special Meeting today, with two out of every three votes in favour.

Fonterra Chairman Sir Henry van der Heyden said the final vote on the share trading scheme attracted a record voter turnout.

“Our farmers have voted in big numbers, representing 85% of the Co-op’s milksolids. It is great to see so many taking part and having their say.

“Now we can move forward with this important evolution in our capital structure,” he said.

“We’ve spent six years talking about capital structure and it has been a rigorous debate and process. Our farmer shareholders have made a great contribution and the final version of Trading Among Farmers is all the richer because of that input.”

Sir Henry said TAF ensures a stable, permanent capital base for the Co-op and secures its future.

“We broke new ground with the formation of Fonterra and now we have the support from our farmer shareholders to refine that model and to break new ground again.

“As in the past, our farmer shareholders will now get behind the Co-op as we move forward. That’s what we all want, a united Fonterra.

“Over recent months we have used some of the best legal minds and co-operative specialists to stress test the concept and proposed trading system as part of the Due Diligence process. This final vote shows the majority agree that TAF is a fundamental pillar for the Co-op and the Board is absolutely unanimous in the belief that this is a lasting solution.”

Sir Henry said the Board listened to farmer shareholders’ concerns on preserving 100% farmer control and ownership and the integrity of the Farmgate Milk Price.

“We asked our farmers to vote on constitutional changes which would tighten limits on the size of the Fonterra Shareholders’ Fund, which is fundamental to 100% farmer control and ownership, and preserve the integrity of the Farmgate Milk Price. This resolution required a 75% vote and received 72.8% support.”

The Board will take this resolution back to the next annual meeting in November and will seek Shareholders’ Council support for this. In the interim, further planning on Trading Among Farmers will proceed within the parameters outlined in Resolution 2. Sir Henry said the Board believed this was in the best interests of the Co-op.

Fonterra Chief Executive Theo Spierings said the vote for TAF means Fonterra can be in charge of its own destiny.

“TAF will stop money washing in and out and give the Co-op a stable, permanent capital base to deliver on its Strategy Refresh.

“There is no co-operative anywhere around the world that is the same as Fonterra. TAF is completely unique as is the solution to eliminating redemption risk.

“We will now be able to implement our strategy and remain a relevant player in the global dairy industry. With overall demand for dairy growing, TAF will ensure that we are well placed to grow volumes and protect our position as the world’s leading dairy exporter.”

Sir Henry said the Board is still working towards a November launch for TAF but this will be dependent on market conditions. The pre-conditions in the Constitution still need to be finally satisfied, including the support of the Shareholders’ Council. The Board is confident that the necessary changes to the Dairy Industry Restructuring Act and the waivers are on track for this to happen. The Board will determine an exact launch date closer to the time.

The result of the vote is as follows:

• Resolution 1: Trading Among Farmers 66.45%
• Resolution 2: Constitutional Changes for Trading Among Farmers 72.8%
• Resolution 3: M. Beach Proposal 20.2%
• Resolution 4: Upson Downs Limited Proposal 23.26%

Here is Prime Minister John Key's reaction:

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Thanks Bernard - good blogging.


Then Chief Executive Theo Speirings spoke via a video link up from Holland




According to Stuff, Theo Spierings has had a family emergency to attend back home.


 "I totally agree with Theo that Fonterra is the envy of every dairy farmer in the world that is not in Fonterra.  .................................then why muck around with it...?


Blake from Palmerston North asked if the name of the Market Maker had been revealed yet,.

John Waller said he did not know who that would be................that is not the case as it has been discussed here already, 

Bugger a stacked room with a video link up, gosh I hate modern technology....... but I wish it had smellovision so the rest of the Co-operative could smell the rat.


Bernard...I have no fingernails left....what's the hold up ...? I'm down to admiring your new improved profile pic.....very suaveeeeee'

funny ol day , bit quiet, .....wonder if I should drop a sock and see if the toenails need a lookie see. 


We'll get the result around 4 pm.

Updated with more details now.




“There is no co-operative anywhere around the world that is the same as Fonterra. TAF is completely unique as is the solution to eliminating redemption risk."


If that situation remains for any length of time then it may become cause for concern.


Result: Well there you go,Turkeys voting for Christmas



Well said, the result in a nutshell!!



How's about the result gets accepted despite it may not have been to one's liking (I think the straw poll would suggest about 8% support for TAF at best).

The system is reversible so enjoy having that as a fallback.


Or alternatively, you could supply NZDL. Oh wait...


Gees Mist42....I'd give you a ten if they would let me...a comment worthy of repeating again and again .

 That is not to say there are not those farmers who came here that were not more informed than the rank and file, but as a collective I think you have nailed it.

I would like to salute the efforts to educate of.....Omnologo.......Casual Observer...Henry Tull (nothing short of outstanding ) ...Colin Ridden..... Iconoclast...your good self Mist...and I 'm sure  a host  of others who sought to prove due dilligence prior to the vote.

 While the vote may not have gone the way of the conscientious objectors , particularly Omnologo , I think you can be satisfied that your level of dilligence to test the honesty of the proposals was nothing short of what was truly required.

 I for one will hold extreme reservations in respect to the dilution of the Co-operative as it stands going forward.........but democracy isn't always just  or correct in it's outcomes,  it is however the apparent will of the majority.

Thank you.....Tony Chaston....Bernard...Gareth Vaughn for providing the platform that has inspired the level and quality of comment on these threads.



Dilution of the co=operative? Prove due dilligence? Consientious objectors? Testing the the honesty of proposals?

And there was me thinking that you were not on drugs. All you have witnessed is polarised, myopic and ill-informed discussion. Nothing more. Yes, there has been good comment that has moved to both sides of the discussion (Henry Tull I salute you) but on the whole has frankly like listening to a Green's manifesto - sounds good when spoken the first time but once repeated makes one cringe a little and mentioned third time encourages oneself to give one an uppercut.


No dilution, More due dilligence than 98% of M&A activity in the world, Good to have detractors as steels the nerves and thinking and what, in the police vernacular, do you describe as the motive for such dishonesty?


Don't want to be the first to disappoint you ITYS and I'm sure I won't be the last , but no Green  party here bucko aside from keep your shit out of our rivers.

 Well done getting the result you wanted, no need to go on about it eh..?

 There may be some sour grapes to choke down, but as a gloater your just guessing, pretty much like you did when you voted.

Hope you don't find some cause in the future to choke on a bit of humble pie yourself, it's not too bad once you get your head around it. 

When it comes to selective cherrypicking your not bad yourself there, as I'm sure I pointed out   

". democracy has spoken "................cheers

The answer to your last paragraph is ........exposure.... here's hoping you don't get a bad case of it.


Thanks Christov, for your encouraging comments and input into the issue of TAF and other issues concerning Fonterra. I would also like to acknowledge others mentioned in your post, who may not be directly involved in dairy farming, but have made the time and effort to contribute (and enlighten my limited knowledge). Thanks to Bernard and the team for providing a platform to express views and develop opinions, and I'd like to say it was a pleasure meeting Bernard at the special meeting today.

I'd just like to add it's widely reported that 2 out of 3 farmers voted for TAF. That is not true. 67% voted for TAF based on milksolid production, which doesn't reflect actual membership support. From memory I think 400 suppliers out of 10,000 contribute 20% of production, so it provides an insight into how democratic voting tied directly to milk supply is skewed to large scale suppliers. How's that for some myopic greenwash ITYS?


And now the rhetoric around the large scale producers beating down on the small scale producers. Is there no Green party tactic that you will not stoop to. They seemed to pull this line when discussing general election results...


Your very rudimentary analysis fails to account for the fact that there were a number of large scale producers who voted against the proposal - as highlighted by the Ashburton group led by Leonie.


Anyway, it's not for discussing now as democracy has spoken - continued discussion is really going to sound like sour grapes all around.


I welcome this move for my cooperative.


Good on you ITYS. Leonie Guiney is a great leader, don't you think?


Time will tell Omnologo, time will tell. She started off her career as a consulting officer, cut her teeth consulting to the Irish and has come through the sharemilking ranks subsequently.


My question  is .....if I had a spare ten thousand dollars would it be worthwhile putting it into these shares when they are available.


yes ... but only if you wait till there is a drought, and production is down, and farmers are, en-masse, all seeking to sell down their holdings, putting pressure on prices. In this market there will be three conditions

  •  situation normal - dont buy
  •  excellent production conditions - farmers compulsorily buying - dont buy - time to sell
  •  bad production conditions - all farmers (simultaneously) selling - time to buy


This will be a market when farmers will either be buyers OR sellers. Never both.


Thanks iconoclast. Will tuck that nugget away for the future.


What I think TAF will now enable, is for the larger operations (and as mentioned by Omnologo above, the voting for TAF already favoured them) another avenue by which to soak up the smaller operators. That is, when low price pressure squeezes, then I don't think all farmers will be looking to exit. The big boys will then have an opportunity to buy up more of the small players that cannot hang in there. My observation comes from what I saw in the Paua diving industry. At some point, the small quota holders get squeezed and the larger quota holders just keep mopping them up. And the implications of this is that it will keep getting harder for the next generation to get into farming on an independant basis. Most likely, they will simply be wage slaves into some big operation. Over time. p.s. by suggesting this as one scenario, I'm pretty neutral as to whether this is a good or bad thing for this country...


  If the share price rose to $6 while the milk payment was still in the $6-7 range then there would be some reason for it.  Either very high dividend payments or very low interest rates justifying a higher value share for current returns.  In either case it is a signal to farmers that exra production is not needed by the company and if they want to increase profitability then they ought to be focusing on production costs rather than production levels. I do not think that is an unreasonable constraint.


What I am saying is if the the shareprice is higher than the milk payment and thus making it not worthwhile for farmers to increase production then so be it.  Fonterra has no business interfereing to try to bring down the shareprice.  Farmers have only ever supplied the co-op with milk that is worth their while harvesting, there is no point supplying milk that costs as much to produce as it is worth.  A high share price is no different to a fluctuating milk price as a signal to farmers as to what milk it is worth their while to send to the company to produce. 


Success of a different kind. For those who may recall my two sets of comments 12 months and 18 months ago about milk processors using permeate to water down retail milk and marketing as "full cream milk"


It is pleasing to announce that the two major supermarket chains have today capitulated together with the milk processors and will no longer sell watered down milk. Given two choices, to either (a) stop doing it or (b) "label it" on the containers, they chose the former.


Hope it will now be adopted in NZ


Good ol' mainstream media here in Aussie (Today Tonight Channel 7) doing a scare on the adding of permeate in such a way that it could be confused as being the same underhand way the Chinese did to their baby formula not so long ago to milk (for infants).

Having researched it (permeate in milk using cheese etc by products) I am still happy to buy the cheaper milk from either Woolworths or Coles ($1 a litre).

Let the buyer beware but lets do it properly with some correct factual education I say.


As a supporter of this scheme,it is worring that the nay sayers have forced checks and ballances not our executive. Also at the meeting it was concerning the chairman of the duediligence committee was ignorant of the forced sale of shares buy a bank and how this could create a perfect storm. To be fair to Leonie G I have never herd the Board answer her solutions in the now or future not in the past as Linsay Blake tried to articulate in her questions.

And is it giving up to much to get Govt to legislate resolution 2 as Labour is suggesting rather than relying on another vote at the AGM ??


Further to Mike's question above and my response.


Today I was writing a bulletin for clients summarising some articles about the end-of-year window dressing which is a characteristic of the Australian Stock Market every 30 June year-end. Having done so it seemed that this is relevant in a tangential way to Fonterra publicly traded Shares and the future of TAF. One of the attendees at the Fonterra meeting indicated that the open-market share price will become the defacto proxy price for the redeemable wet-shares. If that is so, then it is very relevant. Think it through. Enjoy.


Michael West at Fairfax has had a good spray at the end-of-year window dressers. He picks on the ones who are not litigious.
Mainly about LICs (Listed Investment Companies), but you'll get the idea of what goes on, on a wider scale, with Fund Managers.
Worth the read.

End of Year Window Dressing June 25
Spruce offering at Fiscal Year End June 26
End of Year Wrap-Up for LIC's June 26



Many thanks iconoclast. It appears we may have to change the mindset and further educate oneself to the machinations of investment habits engendered by the new hybrid structure.

I wonder if supplying shareholders will be safe to continue milking the cows, and let the shares look after themselves as is case at present?


Fonterra leaders and merchant bankers celebrated last night while the investment community yawned after farmers voted the tortuous share trading among farmers (TAF) scheme across the line by 66 per cent.

Outgoing chairman Sir Henry van der Heyden said it was a "big day out" for the farmer-owned co-operative with votes representing 85 per cent of milksolids supplied.

But the bogeymen of the institutional investor world whose spectre prompted 33.2 per cent of farmers to vote against TAF yesterday were unmoved.

Sharemarket analyst and commentator Brian Gaynor, executive director of Milford Asset Management, said the green light for TAF was "not greeted with any enthusiasm".…


Tower Investments chief executive Sam Stubbs said the vote for TAF was "an important first step, but the first step in a journey".

"Our view is that we have no objection in principle to what is being proposed but we will want to see it operating and delivering on promises before we will be putting money in it."

Stubbs said TAF was "very cleverly designed" given the constraints that Fonterra, a farmer-owned co-operative, worked under, "but we have to see it operating".


Ex Fran Wilde:

Fonterra's top brass emerged from their Monday board meeting claiming a clear mandate to proceed with the controversial trading among farmers (TAF) scheme.

It's going to take a lot of work to rebuild trust between the Fonterra board and management, and many of their farmer shareholders if TAF is to be bedded down without more public brawling.…


Fonterra won't disclose just how many farmers did vote in favour of the resolution - Election NZ should easily be able to find this information but does not make it publicly available - and how many opposed it.

This is one of the defects of the current voting structure as it leaves considerable power in the hands of incumbent directors who are in a better position to control the information flow.

But the failure of Fonterra leadership to get at least 75 per cent approval, which was an earlier bottom line position, indicates that the "vocal minority" that had so upset van der Heyden and Spierings when they started to get antsy and oppose the detail of TAF earlier this year, is probably much bigger than one-third of the 10,500-farmer base.


There has been an element of fear tactics from the leadership in recent weeks - with the chief executive even going so far as to claim Fonterra's very survival would be at risk if the farmers did not vote for this rather clumsy scheme.

Spierings made a big deal out of how Fonterra did not have a Plan B if the TAF vote failed.

But frankly, Fonterra doesn't even yet have a Plan A.

Trading among farmers is not the only mechanism that could have been used to remove redemption risk.


As I reported before in 2007, the clear and irrefutable problem is that Fonterra has not realised the pre-merger expectations contained in the report by McKinsey & Co, which was brought in to advise the New Zealand dairy industry in the late 1990s on a new structure to set it up for a prosperous future.

McKinsey isolated two options: a mega-co-op bringing together the two major dairy co-ops with the NZ Dairy Board (the industry's overseas marketing arm), and an alternative proposal for two co-ops competing on both the milk processing and commodity exporting fronts (one of the pair also having a value-add agenda).



Further doubt on the wisdom of votes directly tied to milk solid supply.

It would be nice to have a discussion on the wisdom of votes tied to milksolids vs. the more traditional one member one vote. In my rudimentary opinion votes tied to milksolids favors large scale suppliers and is a model more common to investor orientated corporates. One member one vote is democratic and more robust, as one thousand heads must be better than one? I wonder if it would be more robust given the diversity within supplying shareholder farm ownership models, for example traditional dairy farm vs. say a farm investor who may once have had direct links to farming, but now is at arms length, involved in multiple equity partnerships and spends more time rubbing shoulders with the Auckland investment community? Would the voting model make a difference given the diversity?


Mist42, what about a future where farmers cooperate globally within cooperative structures, and let Nestle et al. take care of branding, essentially aim to cut down on the competing?


FYI from a reader via email:

Hi Bernard


I am one of the farmers who voted against TAF.  Although the Fonterra board has said that there will be no issues of dry shares ahead of the roll TAF roll out to prevent any gaming by members.


Fortunately for the Fonterra Board have had the “Perfect Storm” where seasonal windfall production has increased total output by 11%.  The actual planned increase by members was about 2-3% as identified by the peak production in November.  This month Fonterra members will have to share up this extra production [although some may opt to do so in October] and inject over $500m of capital.  This capital will go directly to reduce debt or purchase new assets, like new China farms.


Members are now holding about 80m extra shares that were purchased to cover windfall production which is unlikely to be required if normal production occurs this season.  With TAF going ahead in November, Fonterra will not be redeeming them next July forcing members to sell them to each other or to the Fonterra Fund.  With most members flush with shares they will have to go to the fund to extract their capital.


By accident, members “wind fall” production has introduced a huge pool of surplus shares which may end up in the Fund.  It will be interesting to see how corporate NZ will approach the Fund, knowing that so many surplus shares are in circulation.


No longer is my farm balance sheet supported by my Fonterra share whose value has been set by independent valuation and backed by the co-operative.  Instead it will be determined by share market sentiment and the level of dividend generated and paid out.  I read the dialog in newsletters for the NZ Dairy Futures market and puzzle at how truthful, but generally irrelevant, messages are used to manage the market prices up and down.  This causes churn, where investors trade shares on advise derived from ill-informed chatter. 


It has been a bad day for Fonterra members.