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Politicians prepare to dissect issues in dairy restructuring bill

Wednesday 4th April 2012

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Politicians of all hues are signalling plans to unravel some of the thornier issues in legislation that would enable Fonterra Cooperative Group’s farmers can trade their shares now the bill has passed its first reading and gone to select committee.

Parliament sent the Dairy Industry Restructuring Amendment Bill to the primary production committee yesterday to report back to the House by June 1. The bill enables Fonterra to introduce a new capital structure, and will also increase oversight as to how the dairy exporter sets milk prices and how the shares are valued.

The legislation has drawn the ire of Fonterra’s shareholders’ council, which opposes the bill as it stands, and has also divided a previously bipartisan approach to regulating the dairy exporter, due to the prospect of potential overseas investment via a fund where investors can buy the dividend rights to Fonterra shares.

That creates a tension between the interests of farmer-shareholders looking for higher farm-gate payments and investors in the fund seeking fatter dividends from Fonterra and raises questions as to whether the dairy exporter can continue to claim it is controlled by its shareholders.

“The owners of the units will want the profit to be taken downstream where it can attach to their interests. The farmer shareholders will want the profit repatriated to the farm gate,” Labour Party MP David Cunliffe said in Parliament. “They are headed in different directions, they have different interests, and the bill and the commentary are not clear as to how that will be arbitrated.”

Fonterra won a mandate from its farmers in 2009 to rejig its capital structure to create a farmers-only market to trade shares in the cooperative, known as Trading Among Farmers (TAF). That allows farmers to hold so-called ‘wet’ shares equivalent to the volume of milk solids they produce each year, and ‘dry’ shares equalling up to 100 percent of their ‘wet’ shareholding, both of which will be available to trade.

As part of the restructure, farmers could also sell some of their shares into a fund, for cash and a voucher, and external investors would then be able to buy the rights to dividends from the shares. A second market would exist where the rights, or 'fund securities' could be traded.

They wouldn't carry voting rights in Fonterra. Nathan Guy, Associate Minister for Primary Industries, told Parliament that “if Fonterra wants to proceed with Trading Among Farmers—and it is our indication that it does—it would need the legislation passed by the end of June this year, 2012.”

The truncated select committee process annoyed Opposition MPs, who claimed it wouldn’t give Fonterra farmers, let alone offshore investment banks and fund managers, time to make properly informed submissions on the bill.

Labour Party MP Damien O’Connor said the reporting date of June 1 coincided with the start of the new dairy season and would prevent farmers from giving their views to the committee.

“Those with suspicious minds will say that this is being rushed through in the hope that very few farmers are able to make submissions,” he said.

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