Quandary for directors after contradictory TAF vote
BUSINESSDESK: Fonterra directors face a quandary after two-thirds of farmer shareholders voted to support the controversial TAF scheme but failed to support constitutional changes which were intended to give them protections they said they wanted against possible influence from outside investors.
The first of two resolutions, requiring only a 50% majority to allow the TAF scheme to go ahead in principle, attracted 66.45% of the vote, which may be sufficient to allow it to go ahead.
Fonterra chairman Sir Henry van der Heyden had said earlier that a bare majority of farmer support for TAF would see the scheme stall.
To help it over the line, the Fonterra board also proposed six protections for farmer shareholders in the dairy cooperative, requiring 75% farmer support, but which only achieved 72.8% support.
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Comments and questions7
The horse may have bolted, but its time the farmers and for that matter the board and executive answer to why they didnt consider this as an option.
Lock up and/or reduce the likelihood of share redemptions by entering long term supply contracts. Oil companies amongst other global players have them, so why cant Fonterra?? We're talking 20-30 year plus terms. Reward loyalty of tenure, and this will strength your balance sheet. Structuring these supply contracts strategically will do this. This should preclude shares passing to the new owner of the farm, without redemption required.
I thought of this, so why have not others? Hidden agenda by the power players if you ask me.
If you lock up the "suppliers" into long term contracts, then Fonterra doesn't have to work to keep them. The formation of Fonterra was predicated on the idea that the easy entry and exit of farmers would provide discipline (in lieu of competition) to prevent it becoming a lazy monopolist. You may or may not agree with that theory, or with whether it has worked, but it is what it is.
Long term contracts work for oil companies because they can be tied to long life investments (eg oil fields or pipelines) which have the vast majority of their cost up front (and for the most part are a sunk investment). Can someone really predict what land/milk etc costs and prices are going to look like over the next 20 - 30 years? Seems difficult enough to predict season to season.
I do not agree with idea that it would become a lazy monopolist; because it already is. Farmers will buy into long term supply contracts, if they are attractive.
Its like Sky paying enormous amounts of present day money for broadcasting rights. This allows them to plan ahead, and lock down associated business rights earlier.
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If sky can do it, why cant Fonterra? The saudia oil fields have been operating for 40 plus years. The US have been in there that long. I think you miss the point. Long term agreements allow better forward planning, and more efficient use of balance sheet resources.
The real "quandary" is the Governments. That is, how do they get Fonterra out of Nanny States pram, on to its own two feet, and get it successfully operating on a level playing field alongside other successful NZ processing and exporting companies?
Any suggestions?
It is on its own two feet. There is competition in the marketplace - farmers can choose to supply to other entities as they wish. Fonterra has strategies in place for organic growth (overseas interests) and value added growth (infant milk etc), so what exactly is the problem here? The test surely is whether the farmers are getting the best possible dairy payout. I would say that Fonterra is at least as competitive as its counterparts. OCD was 30c less than Fonterra last time I looked (2 mins ago)
Well, if everything is as kosher, as you are implying, why then were the 2001 DIRA regulations considered "necessary"?
Surely all parliament needed to do was deregulate the Dairy Board and let the competent succeed and the incompetent sink? No? Why not?
Please note it wasn't 66% of farmers. It was 66% of milk solids voted. (only 85% voted) = 55% actually. Fonterra are not disclosing the numbers of farmers who voted. It COULD be a minority if the big corporates voted for it, which is my assumption.