Farmer shareholders are being asked to vote on changes to Fonterra’s Constitution that enable a Flexible Shareholding structure.

At a high level this means that:

  • the Share Standard of 1 share per 1 kgMS supplied would remain, but the minimum shareholding requirement would be set at 33% of the Share Standard, or around 1 share per 3 kgMS supplied, and the maximum holding would increase to 4x the Share Standard, so all farmer shareholders would have more flexibility around increasing and decreasing their shareholding during their farming career;
  • the Fonterra Shareholders’ Market (FSM) would continue to operate as a farmer-only market, and the Fonterra Shareholders’ Fund (the Fund) would remain capped so that shares would not be able to be exchanged into units by shareholders selling them into the market on a day-to-day basis. The overall limit on the Fund size in the Constitution would reduce from 20% to 10% of total shares on issue.  

We encourage farmers to read the Notice of Meeting which describes the full proposal and the changes we have made since September.

The Board unanimously recommends these changes to put us in the best position to deliver the value outlined in our strategy and protect farmer ownership and control of our Co-op.

Given the Board’s unanimous recommendation and the support of 92% of the Co-operative Council, if the resolution is not passed the Co-op will need to engage with shareholders about next steps, and the temporary cap on the size of the Fund is expected to remain in effect until then, at least. As outlined in the May announcements, the Co-op will provide shareholders with at least 6 months’ notice of any new date for compliance obligations to be met.

We strongly encourage farmer shareholders to use their vote, which is a critical part of exercising ownership and control of our Co-op.

Our current capital structure

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How our current capital structure works, and why the Board believes change is needed 

What the board is proposing

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 A summary of the proposed capital structure changes farmers are being asked to vote on.

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Ensure you read the Notice of Meeting before making any decisions. 

Every vote counts to help shape the future of our Co-op


You can vote electronically via electionz.com and enter the PIN and password that are on both your Voting Paper and the email you will have received from electionz.com.

The Heart of our Discussion

KEY FEATURES OF FLEXIBLE SHAREHOLDING
  • Increased Flexibility

  • Capped Fund

  • Future Owners

  • Extended Exits

  • Easing Entry

Giving all supplying farmer owners more flexibility in the number of shares they hold.

Why we need to change

Farmers leave for different reasons, but one of the most influential ones is the level of compulsory investment that's required to be part of our Co-op....

Capping the Fonterra Shareholders' Fund (Fund) and moving to a farmer-only market.

Why we need to change

Providing more flexibility needs to be combined with making changes to the Fund in order to protect farmer ownership and control...

Creating a more inclusive pathway to becoming a Co-op member where sharemilkers, contract milkers and farm lessors could buy and sell shares as associated farmer owners.

Why we need to change

You've told us that providing pathways for future owners to become part of our Co-op is important to recognising the critical role they play in our industry...

Providing greater choice about how long farmer owners retain an investment in the Co-op after they cease supply.

Why we need to change

We're aiming to recognise the impact on our existing farmer owners in moving to a restricted market by giving them a longer timeframe to sell...

Easing entry provisions to allow new entrants (or existing supplying farmer owners who have a material increase in milk supply) six seasons to achieve their 33% Minimum Holding.

Why we need to change

This would provide new suppliers with a similar timeframe to share-up to the current Share-Up Over Time contracts...

Where to from here?

  • 6

    May 2021

    6

    May 2021

    Capital Structure consultation announced

  • 19

    Jul 2021

    19

    Jul 2021

    Initial findings released

  • 23

    Sep 2021

    23

    Sep 2021

    Revised Flexible Shareholding proposal announced

  • 23

    Sep 2021

    23

    Sep 2021

    Long-term Strategy announced

  • 9

    Nov 2021

    9

    Nov 2021

    Flexible Shareholding proposal to be put to shareholder vote

  • 17

    Nov 2021

    17

    Nov 2021

    Notice of Meeting released to NZX

  • 18

    Nov 2021

    18

    Nov 2021

    Online Voting Opens

  • 7

    Dec 2021

    7

    Dec 2021

    1.00PM CUT-OFF TIME FOR ALL ONLINE, POSTAL AND PROXY VOTES

  • 9

    Dec 2021

    9

    Dec 2021

    Special Meeting held

    The Special Meeting will be held after the Annual Meeting. Shareholders can attend in person at the ITL Stadium Southland in Invercargill or virtually online.

    The results of voting at the Special Meeting will be posted on NZX, Farm Source at www.nzfarmsource.co.nz and our My Co-op app as soon as vote counting is complete and the Chairman has declared the results.

Your Questions Answered

 

  • The Board is united in its belief that change to the Co-operative’s capital structure is needed. 
  • The New Zealand milk supply environment is changing significantly due to factors such as environmental pressures, new regulations and alternative land uses. 
  • Our current capital structure requires a high level of investment from farmers and is tilting the playing field against us when compared to other processors. 
  • If we don’t act, we could see our milk supply decline by up to 20% by FY30. This impacts value for farmers and for New Zealand:
    • We may see a decline in milk price of between 6 and 13 cents per kgMS
    • We may need to buy back shares or units to remain within Fund size thresholds, which would mean we would need to have more conservative debt and dividend policies 
  • The reasons for this are explained in Section 2 and Appendix 1 of the farmer booklet Our Choice: A capital structure for a better future, together
  • The Flexible Shareholding structure is a progression on the preferred option put forward at the start of the consultation process in May, but with key changes based on farmer feedback and further expert advice.
  • At a high-level, it includes the following features:
    • 33% share minimum – farmers would only need to hold one share for every ~3 kgMS supplied 
    • 4x share maximum – farmers could hold up to four times their milk supply in shares 
    • Farmer-only market for shares, with a capped Fund and an overall limit on the Fund size of 10% (down from the current 20%). Farmers would decide the prices at which they buy and sell shares, without the traded price being influenced by external investors 
    • 6 seasons to share up for new entrants 
    • Up to 15 seasons to share down for existing shareholders after ceasing. Any new entrants post these changes would have five seasons to exit  
    • A more inclusive pathway to becoming a Co-op member as sharemilkers, contract milkers and farm lessors could buy and sell shares  
    • Voting based on share-backed milk supply 
    • Fonterra would allocate up to $300 million to support liquidity as farmers transition
  • The table in Section 3 of the September farmer booklet provides an overview of the proposal in practical terms, comparing Flexible Shareholding with our Trading Among Farmers (TAF) structure.
  • Section 4 of the farmer booklet details how different elements of the structure would work.
  • The Board is unanimous in its view that the “Flexible Shareholding” structure we are recommending puts Fonterra in the best position to deliver the value outlined in our long-term strategy and protect farmer ownership and control of our Co-op. 
  • The Board’s decision to proceed with a vote has been informed by a significant volume of shareholder feedback that shows strong support for the changes. 
  • Appendix 1 of the September farmer booklet, Our Choice: A capital structure for a better future, together, provides further details on why staying with the current structure is not recommended, while Appendix 3 looks at the most common alternatives.

These are set out in our booklet Our Path to 2030

  • The Fonterra Shareholders’ Market would continue to operate as a farmer-only market, but shares would no longer be able to be exchanged into units.  We have been trading in this way since the temporary cap was placed on the Fund in May. 
  • As communicated in May, this means the share price may trade at a discount to the unit price. This impact is referred to as a restricted market discount.  
  • Aside from this initial adjustment, the farmer-only market should enable the Co-operative’s share price to better reflect the higher costs of capital many farmers have. 
  • In many cases, external investors have a lower required rate of return than a dairy farmer, because they have a more diversified investment portfolio and less of their wealth concentrated in one sector. Therefore, they may be prepared to pay more for a share than a dairy farmer would 
  • Going forward, our future share price would be a reflection of our financial performance and the value farmers see in that. 
  • Note that the share price since we implemented the temporary cap on the Fund in May is likely to also be reflecting the uncertainty caused by our capital structure review and share compliance obligations being on hold. 
  • We also believe that this farmer-only FSM should function well over the long term and serve the best interests of our farmer owners while supporting the financial sustainability of our Co-op. 
  • It is our view that a 33% minimum shareholding and a 4x cap provides enough buyers for those farmers selling their shares. 
  • In addition: 
    • A market maker would be active to support liquidity on an ongoing basis 
    • We would allocate up to $300 million to support liquidity, if needed, as farmers transition to the new structure. 
    • The FSM would continue to be a regulated market operated by the NZX, so the Co-op would continue to be required to comply with continuous disclosure requirements and reporting and have robust governance systems in place, including independent directors
    • Independent market research and broker coverage should continue to provide ongoing analysis and insight on Fonterra’s performance for farmers and unit holders. 
    • The Fund would provide a reference point for how external investors value the economic rights in a Co-operative share.
    • We recognise there may be lower levels of trading, so the share price could move more on small volumes. 
  • Section 4 and Appendix 2 of the farmer booklet include further details on how the market would operate. 
  • We have listened to farmer feedback that existing farmer owners should be given a longer timeframe to sell, recognising they would be impacted by the proposed change.
  • Existing shareholders would have up to 15 seasons to share down after ceasing, while any new entrants post these changes would have five seasons to exit after ceasing. 
  • Meanwhile entry provisions would be eased, with any new entrants having up to six seasons to achieve the 33% minimum shareholding requirement.
  • We would allocate up to $300 million to support liquidity in the market as farmers transition to the new structure, starting when the changes become effective. 
  • This is to recognise that some farmers may be in a position where they need to sell their shares when the Minimum Holding is reduced. Depending on the number of shares, selling by those farmers could result in downward pressure on the share price in the months after moving to the new capital structure.
  • The new exit and entry timeframes, as well as the transitional measures we would take to support farmers, are explained in Section 4 of the farmer booklet. 
  • We have also been engaging with the management company of the Fonterra Shareholders’ Fund, which has been communicating with unit holders directly. 
  • Finally, we are in regular contact with rural professionals, banks and research analysts, because we know how interested they are in understanding what any changes may mean for their clients.
  • Further details are provided in Section 6 of the September farmer booklet, Our Choice: A capital structure for a better future, together
  • This offer has previously been available during a two-week window after annual results.
  • It was not offered this year because of the capital structure review that is underway, and we do not envisage it being required going forward under the proposed Flexible Shareholding structure.
  • The capital structure review does not otherwise impact the Farm Source Dollars programme.  
  • Some shareholders have asked whether there would be any ability for the Co-op to purchase shares on their behalf by deducting an amount from their monthly milk payments.
  • This would be similar to the “Invest As You Earn” financial tool where the Co-op purchased units on behalf of farmers by deducting an amount from the farmer’s milk payments.
  • If shareholders vote in favour of the resolution, the Co-op would look to make this available as soon as possible after the changes become effective.
  • The temporary cap means that shares can no longer be exchanged into units. Farmers are free to buy and sell shares in the FSM and anyone holding units in the Fund, which may include farmers, are free to continue buying and selling units on the NZX or ASX. 
  • Thousands of farmers directly engaged through the Co-operative’s feedback channels during the consultation phase from May to October.  
  • We made a number of changes to the proposal we announced in May based on feedback from shareholders and other stakeholders and this was explained in the September farmer booklet. 
  • Since then, we have made several more changes in response to feedback from shareholders and further consultation with the Co-operative Council and the independent directors of the management company for the Fund. These are: 
    • To support the alignment of share ownership and milk supply, we have introduced thresholds to reflect our intention that the total number of shares on issue in the Co-op is within +/- 15% of milk supply, and that the proportion of shares held by ceased suppliers is less than 25% of the shares in the Co-op. 
    • We have simplified the way dry shares are allocated to associated shareholders (sharemilkers, contract milkers and farm lessors) to make it easier for them to apply to hold dry shares. 
    • We have reduced the overall limit on the size of the Fund from 20% to 10% of total shares on issue, rather than having a total ban on any further shares being exchanged into units.  This recognises that the Fund size, which is currently around 6.7% of total shares on issue could change from time to time subject to the overall limit.  Shares will still not be able to be exchanged into units on a day-to-day basis – and the Board retains its current rights to regulate this process.   
‘Ask me anything’ webinar with Chairman Peter McBride

Chairman Peter McBride answers farmers capital structure questions in an “Ask me anything” online webinar. 

Capital structure discussion with Peter McBride and James Barron

Fonterra Chairman Peter McBride and Co-operative Council James Barron talk about the Flexible Shareholding structure and the changes that have been made to the proposal based on your feedback since September, before they answer Q&A.

Farmer panel discussion

Fonterra Co-operative Council Chairman James Barron is joined by Fonterra farmers, Greg Gent, Charles Whiting, Adrian Ball and Richard Stalker, who share their views on a range of topics, including the importance of the Co-operative model and other aspects of the revised capital structure proposal.

The value of a strong co-op

Fonterra Co-operative Council Chairman James Barron and farmers Carlos Cuadrado, Colin Glass, Gaynor Tierney and Mark Cressey look at why it’s so important to have a strong farmer-owned Co-operative in our New Zealand dairy industry.

The panellists share personal experiences to help show the difference between New Zealand's dairy industry compared to Australia, Argentina, Ireland and the UK, as well as interesting insights into what benefits farmer-owned co-operatives bring to farmers.

Contact Us

 

Feel free to contact your Area Manager if you'd like to find out more, particularly around what the revised Flexible Shareholding proposal means for you. 

Alternatively, you can ask questions by emailing CSfeedback@fonterra.com

Directors and Fonterra Co-operative Councillors are also available to talk through the proposed changes.
Contact details can be found in the back of any Farm Source Magazine.

Stay up to date with the latest developments by re-visiting this webpage for updates.