Fonterra chairman urges English to continue push for trade deals

Fonterra chairman John Wilson has told investors in the cooperative's unit fund that it's critical the government continues driving regional and multi-lateral trade agreements.

At the annual meeting of the Fonterra Shareholders Fund, Mr Wilson says he had gone on a number of trade missions with former Prime Minister John Key, who he says was a strong supporter and advocate of the New Zealand dairy industry.

"With his departure, it is critical that we continue to work closely with government to ensure trade strategy adapts to the changing global environment that has certainly seen significant political change during 2016," he says.

While the controversial Trans Pacific Partnership (TPP) agreement has stalled following Donald Trump's election in the US, Mr Wilson is hopeful it can be rejuvenated in some form next year given the fundamentals that drove it haven't changed.

"Clearly right now it's not going anywhere but it will be interesting to see how the countries involved in TPP and other countries in the region look to come together over the next 12 months."

He's confident the new prime minister and key ministers will pick up Mr Key's trade mantle, with a particular focus on the World Trade Organisation and a new free-trade agreement with Europe given Britain's vote to leave the EU.

Fonterra confirmed its farmgate milk price forecast of $6 per kilogram of milk solids and Mr Wilson says it is still confident of delivering on the forecast 50-60c earnings per share, which will deliver a final total payout of $6.40/kgMS, despite rising milk prices compressing the co-operative's margins.

The rebalancing of supply which has seen Australian and European farmers cut back their growth rates is expected to continue over the next 12 months, he says.

"We're 95% exporters, the US is 15%, and Europe, depending on the year, is around 5% so what you find is there is a significant lead-in lag period and you've seen the same pain our farmers have gone through over the past two years now being experienced by many other farmers globally and we have seen a reduction in supply and the market come back in balance."

Two years to recovery
Mr Wilson predicts it will take two years for kiwi farmers to recover from the past two difficult seasons, given incomes will be affected by the 5.6% drop in milk production in the year to date.

Repaying working capital borrowed from the banks and spending on delayed repairs, maintenance and fertiliser are likely to be priorities as incomes increase again this season, he says.

Poor weather, particularly in the North Island, lower stocking rates, and farmers limiting the use of feeding supplements have all had an impact on production and Mr Wilson says he expects it will also take two years for New Zealand production to return to previous levels. He added farmers are being "very careful" because of the price volatility over the past five years that has impacted returns.

Fund chairman John Shewan says last year's dividend of 40c a unit represented a 7.3% yield to investors, well up on the previous year, while the size of the fund has increased 20% in the past year to 121 million units with a total market capitalisation of $719 million.

The fund now represents 7.6% of total Fonterra shares on issue compared with 6.2% last year. In terms of geographical spread, 67% of unitholders are from New Zealand, 21% from Australia and the rest are from the US, UK and Hong Kong.

The number of retail shareholders rose 4% to 59% during the year and the stock's liquidity level has been the highest since the fund's launch in 2012 with an average 420,000 units traded per day.

The share price is trading at $5.93 with the basic unit price up 7% in the past year, relative to 12% for the NZX50.

Scott St John has been appointed to the board of the Fonterra Shareholders Fund Management company, after being elected to the Fonterra board. He is replacing Ian Farrelly who has retired from both boards .

(BusinessDesk)