New Zealand government to back Fonterra’s new capital structure

Ministers are running a consultation on changes to the law to accommodate the restructure, which was approved by the co-op's members in December

New Zealand’s government says it is working to amend the Dairy Industry Restructuring Act 2001 (DIRA) to support Fonterra’s move to a new capital structure.

“The Fonterra co-operative is a key part of New Zealand’s world-leading dairy industry and a major export earner for our economy, sending product to over 130 countries,” agriculture minister Damien O’Connor said on 27 April.

Milk exports accounts for 35% of New Zealand’s total merchandise exports and 3.15% of its GDP, and Mr O’Connor says its success, along with the broader primary industries, will underpin the country’s economic recovery from Covid-19.

“We’re proposing a set of amendments to DIRA that strike a balance between recognising the shareholders’ mandate for change and enabling the successful function of the wider dairy sector,” he added.

“The benefits of a high-performing and efficient Fonterra flow through its near 10,000 farmer-shareholders to our rural communities and across New Zealand’s economy.”

Last December, Fonterra’s shareholders voted in favour of a new capital structure at a special meeting in Invercargill. Designed to make it more competitive, the new structure would allow farmers to hold fewer shares and widen the pool of members to include sharemilkers, contract milkers and farm lessors as associated shareholders.

“Because of Fonterra’s size and influence in the New Zealand dairy sector, the government needed to take into account any potential risks to the long-term performance, innovation, sustainability, and value creation in the wider dairy industry,” said Mr O’Connor. 

“To that end we are also taking the opportunity to improve the transparency and independence of the raw milk price setting process, while also requiring a dividends and retention policy.

“It’s important that the amendments receive feedback and today a discussion paper has been released as part of consultation on the changes.”

The proposed capital restructure would enable Fonterra to operate a restricted farmers-only market for future share trading, with a lower (10 rather than 20%) cap on the size of the unit Fund. Under the DIRA amendment Fonterra’s unit fund would also be partially delinked and farmers will no longer be able to convert Fonterra shares into units.

They will instead be able to trade their Fonterra shares in a restricted famers-only market under the supervision of an outside financial institution – a market maker – to support liquidity and transparency.

The Ministry for Primary Industries (MPI) says it will consult interested and affected parties on these proposed amendments from April through May, and consider feedback.

“There will also be a further opportunity to provide comment and input during the select committee stages of the DIRA Amendment Bill,” said Mr O’Connor, “which I expect will progress through parliament this year. 

“The proposed DIRA amendments will enable Fonterra to move to its new capital structure, and help ensure the long-term success of our dairy sector, and the significant contribution it makes to our rural communities and New Zealand’s economy.”

The MPI has invited interested parties to comment on agreed amendments to DIRA by emailing [email protected]. Those wishing to express their views have until 3 June.

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