Trading among farmers plans on track

This week Fonterra is conducting a series of meetings to update farmers on progress towards share trading among farmers.

In June 2010, Fonterra shareholders voted overwhelmingly in favour of changes to the Co-operative’s constitution to allow steps to be taken to implement Trading Among Farmers at a future date. This would involve farmers buying and selling Fonterra shares from one another through a market, rather than via the Co-operative.

Since then Fonterra has been working with advisors on the design of Trading Among Farmers in line with concepts outlined prior to the farmer vote.

Trading Among Farmers would involve the creation of a Fonterra Shareholders’ Market for share trading. At the same time, farmers would be able to free up share capital by placing some of their shares with a new Fonterra Shareholders’ Fund. This Fund would pay farmers for shares that farmers place with the Fund, including the rights to dividends and the gain/loss from any change in the market value of those shares.

The design contemplates the Fund raising the money that would be paid to farmers for shares they place with the Fund by issuing units to outside investors. This would give investors an investment linked to Fonterra’s financial performance while ensuring Fonterra remains 100 per cent farmer controlled.

Fonterra Chairman Sir Henry van der Heyden said the process of developing a robust, secure and transparent system for Trading Among Farmers is complex, but care is being taken by management to ensure the Board and Shareholders’ Council are satisfied.

“We’ll take the time necessary to ensure the Board is satisfied that all the pre-conditions for a launch previously outlined to shareholders are met,” Sir Henry said.

“Beyond that shareholders need to know the processes will be easy to understand and continues to reflect our wholly farmer-owned Co-operative principles.

“Trading Among Farmers is a vital step to remove redemption risk and stop money washing in and out of Fonterra’s balance sheet every season.

“This is about strengthening the Co-operative and giving it the ability to grow as the world demands more and more of the milk we produce.”

Trading Among Farmers is dependent on the Government determining what changes are required to the Dairy Industry Restructuring Act (DIRA) to provide for it and at least 50 per cent support from the Shareholders’ Council. The Government is expected to release a Discussion Paper on potential DIRA changes later this month.

Fonterra is considering three possible launch dates for Trading Among Farmers aligned with Fonterra’s half and full year balance dates: October-December 2011, April-May 2012 and October-December 2012.

Approximately 50 farmer meetings are being held around the country this week to update shareholders on progress.