No law change for Fonterra before election

Agriculture Minister David Carter has shot down any hopes Fonterra had of sorting out law changes before the general election to launch trading between farmers in their cooperative shares.

Fonterra has talked of launching the internal share trading -- crucial to its efforts to reduce liability for buying back farmers' cooperative shares -- between October and December of this year.

But Mr Carter said that it was now "very unlikely" that legislation would be passed before the November 26 election, even though he had earlier given Fonterra chairman Sir Henry van der Heyden an assurance on trying to get the legislation through before the election.

"Given the work that is still required, and the massive list of bills Parliament has to consider in the next few months, I have to say it is now looking very unlikely that legislation will be passed before the election," he told an annual Fonterra network conference.

"We may get the legislation introduced to Parliament, in which case a re-elected National Government would give it priority after the election."

Sir Henry has warned that trading among farmers is "vital" to remove redemption risk -- the problem the cooperative faced in redeeming unwanted shares when a lot of farmers reduced production, such as during a drought, or diverted milk from the cooperative.

Its timing depended on what requirements the Government seeks for enabling legislation, the Dairy Industry Restructuring Act (DIRA), but Fonterra had given farmer shareholders three possible time frames for a launch: October-December 2011, April-May 2012 or October-December 2012.

Capital structure changes approved by the farmer-shareholders in 2009 allowed farmers to hold cooperative shares up to 120 percent of their milk production. Eventually they are expected to be able to hold shares up to 200 percent of their annual milk production.

Further changes endorsed in June 2010 set the scene for Fonterra to transfer the "redemption risk" -- so that farmers trade in unwanted shares at a market value set by trading among themselves.

More than 70 percent, or 7500, of Fonterra's 10,500 farmer-shareholders now hold dry shares beyond those required to be held to back their milk production.

They expect to eventually place some of their shares with a new shareholders' fund which will sell non-voting rights to outside investors, giving the public an investment vehicle linked to Fonterra's financial performance.

Mr Carter said that internal share trading had potential to bring benefits but the Government insisted on Fonterra providing efficient milk pricing and liquid markets for farmers' shares.

"The amendments to the DIRA to allow trading among farmers cannot proceed until the Government is confident that these conditions will be met," he said.

Fonterra had cooperated with officials "but issues have been raised which must be addressed," Mr Carter said.

A workable share-trading set-up remained a priority for Government, "but it is in all our interests ... that we all get this right".

Mr Carter also warned that if the Commerce Commission decided on a formal inquiry into milk pricing, the legislation could again be delayed, because the wholesale milk price was central to the share values.