Fonterra sellout

by Steffan Browning

Yesterday afternoon was darkened by the passing of the Dairy Industry Restructuring Amendment (DIRA) Bill.

The Greens have a vision of a government that cares for family farmers. That sort of government would not have pushed the Dairy Industry Restructuring Amendment Bill through Parliament.

Below are some of my thoughts on why the Bill is so bad for New Zealand.

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DIRA is the thin end of the farming asset sales wedge; the setting up of the selling out of the Fonterra cooperative and its family farmer members.

It is the dairy farmers’ poor cousin of the Mixed Ownership Model Bill.

This Government is into selling out everything, not just our power companies.

Now we are selling out the actual fundamental dividend stream of one of New Zealand’s main export industries.

In this Dairy Industry Restructuring Amendment Bill, the so-called Trading Among Farmers   provision—“TAF”—allows outside investors to trade on the dividend stream of Fonterra farmer members and begins an inevitable demutualisation of Fonterra and increased foreign control of New Zealand’s primary production sector.

TAF is leading to towards foreign control of the sector that provides 70% of our export earnings, the backbone of our country. TAF is “trading against farmers,” nothing less.

TAF is a system whereby Fonterra farmers can put the revenue stream from their dry shares, that is their shares in the processing and marketing end of Fonterra, into a fund on the stock exchange for absolutely anyone; farmer, baker, broker, Fonterra competitor, foreign investor, ruthless investor, – anyone to trade in.

Anyone, friend or foe, will be able to trade in the shareholders capitalised dividend fund, and even in some situations demand that the fund be wound up, putting Fonterra into extreme financial risk.

TAF, Trading Among Farmers, may have been intended as some relatively benign system where farmers could capitalise fellow farmers, but this final version of TAF means nothing less than Trading Against Farmers.

It sets the scene for the selling out of New Zealand farmers’ best collective marketing protection.

Fonterra has said that it needs TAF to achieve the capital to allow offshore farm and infrastructure development.  Then it says: “No, no, no, that is not what we are saying.  It is to cover redemption risk.”

Redemption risk is the risk of a flight of Fonterra farmers wanting their shares cashed up thereby depleting Fonterra coffers to a damaging extent.

However, many submitters to the Primary Production Select Committee pointed out that buffering for redemption risk can be achieved by other means such as the retention policy, whereby Fonterra has retained a small portion of the dividend payout to farmers. That has already shown to be successful in acquiring significant capital.

Figures show that retentions taken from 2008 have managed any redemption risk, and, in fact, $438 million was taken in 2010, it was retained, and another $487 million last year.

Effectively half a billion a year can be retained, and yet Fonterra was saying that it needs to do this smart thing of letting outside investors in to cover for redemption risk. Something smells, and it is John Key’s earlier statement that there was nothing wrong with Fonterra being floated on the share market.

ENZA, effectively the sold out Apple & Pear Marketing Board, is the horrible reminder of why nothing should be allowed, that could initiate the breakdown of the cooperative might of Fonterra.

Single desk producer boards are the best approach to ensuring family farmers get a secure income, have control of their productive destiny, not competing each other down on the export stage, but operating collectively to ensure the best long term results. Operating in a way that allows their sons and daughters to have a farming future.

When ENZA was fragmented, the strength of the old Apple and Pear Marketing Board was lost, and that collective approach to crisis, or opportunity, was lost. That has led to a weak pip fruit industry that has lurched from crisis to crisis, and is a fraction of what it might have been. DIRA, driven by Fonterra’s big shots and John Key’s government, is the dark end of the cooperative busting wedge, to ultimately make peasant farmers for overseas food giants.