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Farmers approve Fonterra shareholding plan

Wednesday 30th June 2010

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Fonterra's shareholders voted in favour of the dairy company's proposal to allow them to trade its stock among themselves, in a move that will end its multi-million dollar redemption risk.

The 10,500 farmer-suppliers approved the Trading Among Farmers scheme that will create a restricted market in Fonterra's shares and remove the need for it to set aside funds to pay out those either reducing their milk production or exiting the cooperative.

After milk production fell during the 2007/08 drought, Fonterra had to pay out $742 million of equity to farmers via redemptions.The share trading mechanism "will give Fonterra a stable platform while making sure the business remains owned and controlled by farmers," said Blue Read, chairman of Fonterra's Shareholders' Council.

Fonterra now has to develop the mechanisms for a Shareholders Fund that will ensure liquidity for share trading and create an effective market for the stock, Read said.

The cooperative says the trading system could be in place in little over a year. 

"Right now, we can't put all of your share capital to work to generate the best returns," chief executive Andrew Ferrier told farmers at a special meeting today.

"With permanent share capital, we can invest with confidence in long-term opportunities that build on our global competitive advantage and maximize the returns for your milk."

In urging a yes vote, Read had sought to reassure farmers over their perennial fears - continued farmer control and ownership of Fonterra and confidence in the best possible milk price.

"Milk price is, and will remain, at the core of this cooperative and farmer confidence in milk price is a priority for all," Read said.

Today's vote is a "work in progress" for Fonterra in its capital restructuring, he said.Fonterra faces increased challenges in the global dairy products market, chairman Henry van der Heyden said.

New Zealand's milk supply won't keep growing at the same pace forever, with physical limits on land available and increasing rivalry from other processors for pool of milk, he said.

Farmers would be able to hold a maximum of 200% of production in dry shares under proposed changes, though total dry shares would be capped at 25% with no one producer allowed to hold dry shares exceeding 5% of total wet and dry shares on issue.

Already, overseas rivals are lobbying against the share trading plan. US Dairy Export Council president Thomas Suber wrote in a letter to Agriculture Minister David Carter and subsequently released to the media, that the proposal could result in dairy products being excluded from the Trans Pacific Partnership free-trade deal.

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