Fonterra hits back at Open Country Cheese
Fonterra has hit out at a statement made by rival Open Country Cheese claiming the dairy giant's capital structure plans would reduce competition.
Yesterday, Open Country Cheese chairman Laurie Margrain said Fonterra’s planned stage three of its capital restructuring process could lock farmers into the co-operative.
He said if Fonterra was no longer required to accept supply when request or to redeem the shares ot hsoe who wish to exit, then farmers would become economically locked in.
Currently, farmers can redeem their shares at the current fair value price set by an independent assessor.
Fonterra chairman Sir Henry van der Heyden said there would always be open entry and exit for farmers.
“It is inconceivable to think that anyone would suggest otherwise. It is simply out of the question. Our farmers will always be able to come and go as they please and be able to buy and sell their shares,” Sir Henry said.
“What Open Country Dairy is really worried about is Fonterra strengthening its financial position so that it can be more competitive in the global food market and improve returns for Fonterra farmers in future years.”
The tit-for-tat response was a reflection of a lack of information about Fonterra’s stage three plans.
While stage three would involve creating a market and platform for share trading among the co-op’s farmer shareholders, details have yet to be revealed.
After the first two stages if Fonterra’s capital structure proposal were agreed to, shareholding farmers can now buy shares up to 120% of their expected milk production – based on a one share for every kilogram of milksolids.
If farmers agree to the concept, they would be forced to buy and sell shares on the restrict market created by the company.
While the share price would be artificially maintained at $5.10 – the current fair value share price – until the restrict market share value came into line, the real value would be determined by the market.
If farmers bought at a high price and then demand for shares reduced those who wanted to sell would likely have to at a lower price.
Then, if environmental conditions changed and milk production fell, then farmers would have shares in excess of 120%.
However, NBR understands that one-off events, such as drought affecting production, would be accommodated in the stage three proposal and farmers would not be forced to sell in the short term.
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Comments and questions10
There should be a possessive apostrophe somewhere in the first paragraph?
Fonterra has found a significant ally with the new Minister of Ag. He is giving in to all of their demands.
Fonterra the monopsonist, with almost 95% of NZ's milk can lock supply up, use predatory pricing, manipulate milk price formulas and can behave in a questionable manner with independent milk companies customers and other suppliers. They are pure bully boys.
But do we care about competition when Fonterra is 100% NZ owed vs the Russia, Japanese, Singaporian & Croat competitors. Probably not but Fonterra is not performing. Vs Nestle, Warrnambool, Saputo, Olam, Kerry or pretty much any dairy/food company Fonterra pays the worst payout in the world and has the worst performance for generating returns/value for its shareholders.
And still OCC can only offer a half decent payout because of radically subsidised milk supply forced on it by the Govt via Fonterra tankers, within a minimal radius of their plant and Fonterra is forced to pick up milk from the top of the Coromandel penninsula. Who is the winner here, OCC know they are.
Firstly Liam, the share price is not $5.10, it is $4.52 - a pretty fundemental issue and secondly "goldenfox", to say that Fonterra is the worst payout in the world is way off the mark. I have two dairy properties in Aust and Fonterra have clearly been the leading payout in each of the last two seasons. I supply MGC so know this. Comment is good but lets make sure there is some foundation to the arguement.
Who said it was $4.52?
It seems to be taking a long time for the DIRA requirement that Fonterra supply cut rate milk to be withdrawn.
The Government Minister's in charge of creating DIRA, then proceeded to start up OCC and benefit from these legal requirements. Why this was allowed to happen is a mystery.
Why it is continuing is a bigger mystery.
Come on Liam...get out and do some proper investigative journalism!
If you convert the Aussie milk litres prices into NZ kgms on average WCB. Bega, DF and MGC would have beaten Fonterra NZ payments.
Further take into account the cash payment system in Aussie vs the staggered wait until October for last seasons dividend cheque system in NZ.
If your counting the value added component your also wrong as this is a dividend for the capital locked into the co-op. The others are simple and mostly take contract milk.
Oh, I have worked in the Dairy Industry for a number of years in NZ, Aust and USA.
Everyone knows the Aussies have a much larger internal milk market than NZ.
Therefore a larger percentage of the supplied milk goes into the fresh milk and products market, which is traditionally a good earner.
Aussie dairy companies can afford to pay more for the milk...and yet despite this there have been some huge upsets for farmers in Aussie....Warnambool saw it's share...and the Aussies usually milk all year round, which is considerably more expensive.
Mind you, they probably wouldn't be paid so well if Fonterra wasn't actively seeking greater supply. The Aussies should be very thankful that Fonterra is there, and as is usual, once Fonterra has the milk supply it wants, there will probably be an easing of prices.
Wrong, Fonterra and before that the Dairy Board has been losing money had over fist every year in Australia. As the market is competitive they pay the market rate, all companies MGC, WCB, Bega, DF have to fight for milk. A competitive environment is what drives the superior milk price in Australia. MGC, WCB and Bega are all export orientated, the domestic fresh milk market is a story your Fonterra rep has spun you.
We have a fat monopsonist, who pays the bear minimum to keep those who dont know any better slightly happy. All the while wasting millions of dollars to make themselves more important while using every tactic imaginable to crush and prevent the current status quo from being challenged. Just look at Sunlu, the computer system debarkle, that ever more inefficient sizes of commodity milk driers.
Imagine how difficult it is in this economic environment to challenge a monopolist, to raise capital, to look secure when talking to farmers, to be able to withstand predator pricing, price manipulation, shareholders whom can not exit as they are locked in and unfair tactics in the market. Competitors need a small head start which DIRA provided to become established and to truely challenge the bloated fat cat.
Can you tell me who sells fresh milk locally, from their own supply other than Fonterra? mmm let me see, oh thats right no one. OCC sell their product as expensive niche product via kaimai and off shore.
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