by Steffan Browning
I had the opportunity yesterday to speak about an issue quite dear to my heart. The government, supported by the Fonterra board, is pushing through changes to Fonterra. The Government changes focus around transparency in the process of how the milk price that farmers receive is set. More importantly, they are also allowing for fundamental changes in Fonterra’s capital structure.
Fonterra is a co-operative which means it is owned by the farmers that supply Fonterra. Co-operatives are great. They deliver good results to their members. In Fonterra’s case this is because the vast majority of milk in NZ is exported. This means Fonterra can’t set the price they sell at. The incentive is then to drive down the price of their raw materials – milk – if they wanted to increase their profits. Fonterra is a co-operative though, increasing their profits means returning more to the farmers that supply Fonterra. A co-operative means that farmers that supply the milk reap the rewards.
The proposed changes are the first step in breaking Fonterra’s co-operative structure. There are some complex financial reasons why the Fonterra board supports the changes. A vote of farmer shareholder/suppliers supported an initial proposal to address these issues. Since 2010 the proposal has changed significantly to be more like a previous model that was soundly rejected.
If the Fonterra Board and the Government has their way, Fonterra will be opened up to investment by non-farmers. This would incentivise Fonterra to drive down the farm gate price of milk. Dairy farmers would be left in a similar position to horticulture growers with increasing costs and decreasing returns which will lead to the squeezing out of family farmers.
We support Fonterra continuing to be a strong co-operative that delivers good returns for dairy farmers. We all know that there are major issues around the environmental impact of dairy farms. I hope that some of Eugenie’s suggestions around introducing the ability for environmental factors to be considered when setting raw milk prices and/or accepting milk supply will be explored further in select committee.