Fonterra Shareholders Vote In Favour Of Share Trading Among Farmers

Posted by Josette Dunn on 5th July 2010

Fonterra shareholders have voted overwhelmingly in favour of changes to the Co-operative’s constitution that will allow share trading among farmers.The resolution – Trading Among Farmers – received a 89.85% vote in support at Fonterra’s Special Meeting late last week.

Fonterra Chairman, Sir Henry van der Heyden said there had also been a big voter turnout.

“Our farmers have voted in record numbers and those who voted represented almost 80% of the Co-op’s milk solids. I am delighted with this because, for me participation in the Co-op is as important as the outcome and it is something that the Board has made a priority.

“It is great to see farmers taking part and having their say. Their participation is the strongest since Fonterra was formed. It signals a clear mandate and shows that the unity and spirit of our Co-op is alive and well,” he said.

Sir Henry said the move to Trading Among Farmers would be “a lasting solution that could remain at the core of our Co-op’s capital structure for many years to come.

“Effectively our vote today for Trading Among Farmers will, together with the Co-op’s new retention policy, take capital structure off the table for the foreseeable future.”

The support for the change showed a clear awareness and understanding among farmers of the need to evolve and further strengthen Fonterra’s capital structure.

“We knew when Fonterra was formed nine years ago that we would need to evolve our Co-op’s capital structure and develop a durable solution to address redemption risk.

“We had great participation from our farmers in shaping this proposal, and the first two steps that we passed in November. This vote is the result of a lot of robust, healthy discussion within the Co-op.

Sir Henry said Trading Among Farmers, where farmers buy and sell shares from each other through a market, rather than the Co-operative, would remove redemption risk – the need for Fonterra to pay cash out to those farmers leaving or reducing milk supply.

“This will stop money washing in and out of Fonterra’s balance sheet from season to season and provide permanent capital to grow returns.

“As farmers we’ll also know exactly what a Fonterra share is worth at any time. We’ll have the flexibility to buy and sell shares when it suits our cash flows. And we’ll have the choice to free-up some of our share capital through the Fonterra Shareholders’ Fund.

“Trading Among Farmers will ensure Fonterra remains farmer controlled and owned, and that our loyal shareholders have an incentive to hold Fonterra shares and put more equity into our Co-op,” Sir Henry said.

Fonterra Chief Executive, Andrew Ferrier, said with permanent capital Fonterra would be better-placed to take the long-term business and investment decisions to shape the Co-operative’s ongoing success.

Mr Ferrier said Fonterra was “in a great place” with its reputation globally as a leading dairy provider, a strong business footprint and brand presence in the world’s fastest-growing dairy markets.

“We have a great strategy to build on some exceptional opportunities to continue to strengthen our business and drive the best returns for our shareholders. Some are far-reaching, others are more modest.

“With a permanent and stable capital base, we can invest with confidence in long-term opportunities that build on our global competitive advantage and maximise the returns to our farmers for their milk – without the fear the money might be needed to fund redemptions,” Mr Ferrier said.

Sir Henry said work would now begin on developing the detail of Trading Among Farmers through to implementation, expected to be completed in 2011/12. He said the Shareholders’ Council would be closely involved as the mechanisms – such as the Fonterra Shareholders’ Market and the Shareholders’ Fund – are developed.

The Board and Management would be developing the detail under a clear framework and pre-conditions set up by the vote to ensure that it works in farmers’ interests. Shareholders would be kept fully informed during the transition, Sir Henry said.