Close to 90% of Fonterra shareholders agreed that the way to increase the Co-Operative's pie is to allow trading among farmers.
It took nine years after the formation of the dairy giant before a major change to the capital struture financing.
Fonterra Chairman, Sir Henry van der Heyden 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.
The enduring problem the Co-Operative has faced in its short life is how to find the funds to expand the operation in line with the expectations of shareholders and the Fonterra Board.
Sir Henry adds that 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.
This is a clear move forward and it will be interesting to see to what extent the predicted results of such changes will show up. I suspect shareholders agree with the Co-Operative in the rationale and motivation behind the changes to the constitution.
Fonterra Chief Executive Andrew Ferrier says 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.”
Fonterra currently supplies 30% of the world's dairy exports and a better capital financing structure was badly needed to ensure that number heads north.
Fonterra has done a great job in engaging with shareholders throughout the process and ultimately winning their confidence. It is important to New Zealand that we feed the goose that lays the golden eggs. Fonterra is by far the largest goose in our coop at present so it is encouraging some solid decisions have been made to keep them golden eggs coming.
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